The Socialist Republic of Florida, Chapter One
Matthew Falconer
September 19, 2008
Chapter One Save Our Homes-The beginning of the end.
In 1992, Ken Wilkinson, a County Property Appraiser from Lee County, Florida, was successful in promoting and getting into law a bill known as "Save Our Homes." The law limited the increase in property taxes on "homestead property" to CPI (the Consumer Price Index) or 3% annually. A homestead property is a permanent residence, not a second home, rental apartment, or commercial building. Wilkinson said, "Government should not be in the business of taxing people off their primary residence." This sounds nice, but as is often the case with government regulations, there were unintended consequences.
Save Our Homes was sold to the people of Florida as a tax limit. This couldn´t be farther from the truth. In essence, Save Our Homes is flawed because it is not a tax limit, but a tax shift. The "savings" of homestead property owners was/is made up by additional taxation of non-homestead property owners. This tax shift is estimated at $7 billion a year and counting (2). The biggest effect of this law was that most Florida taxpayers were shielded from sharp increases in property taxes. Most residents did not have to share in the increasing costs and economic burden of a growth in government spending, and thus government was "politically sheltered" to spend revenues more freely.
From 1996 to 2006, property taxes in Florida rose over 108%, from $12 billion to a $25.7 billion, while inflation was less than 3% a year (27% over the entire period) and population growth was only 2% a year (25% over the entire period) (3). In addition to those increases, in 2006-2007, property taxes increased by an average of 22% for a total real estate tax burden of a staggering $30 billion. This large increase in real estate taxes made it extremely difficult, if not impossible, for many Florida homeowners and small business owners, who were previously just making ends meet, to meet their obligations. The primary reason that real estate taxes were allowed to climb so high is that most of the voters did not feel the burden of extra taxes, which were shifted to non-homestead property owners. If Save Our Homes was never enacted, the growth in government spending would have been less, because more political pressure would have been placed on government to control spending. The tax burden on out-of-state second homeowners, renters, and small business skyrocketed to make up for the loss of tax revenue from Save Our Homes. No one cared that a person from Chicago saw their taxes increase 200% on their second home, or if a nail salon owner saw his/her real estate taxes double. Most voters were "fine" with this arrangement; so (figured the politicians), the government was free to tax the non-homestead properties as much as they could justify.
After a few years, local government leaders realized they could increase taxes almost at will without any political opposition. This situation went on for a decade, from 1996 until 2006, until the screams from out-of-state property owners, small business, and others were heard all across the state. Save Our Homes converted our ad valorem tax policy (i.e., taxation according to value) to a progressively socialist tax system, which has had a devastating effect on the Florida economy.
Let´s examine each victim of the Save Our Homes law and how that has brought down the once mighty Florida economy.
Second Homeowners (non-homestead properties)
Florida is well known as a "winter playground" for hundreds of thousands of out-of-state residents who own a second home in Florida. In fact, an estimated 670,000 people own second homes in Florida (4). Save Our Homes did not include owners of second homes in its tax limit – and as a result, taxes on these properties increased dramatically over 10 years. I have a friend from New York who has owned a 2-bedroom condo in Sarasota for nearly two decades. Ten years ago, his taxes on the condo were $2,000. Today, they are $12,000. He visits the condo for a few weeks a year; so even though he can afford to pay the taxes, he, like most non-homestead property owners, is trying to sell the condo. His story is not unique. For Sidney Margles of Montreal, who winters in a Deerfield Beach condominium, it comes down to fairness. Margles, co-founder of Broward Activists for Tax Equity -- one of the dozens of anti-tax activist groups that have sprung up around the state in recent years -- pays $2,800 in property taxes. His neighbor, in a nearly identical condo in Century Village East, pays $500. An out-of-state homeowner is paying more than five times the taxes of his neighbor. Margles also belongs to the 70,000 member Canadian Snowbird Association, and his story has been covered by the Association. Almost all second homeowners are aware of the unfairness in Florida´s tax policy, as are most potential second homeowners.
Tens of thousands of second homeowners are being forced to sell their homes strictly because of higher taxes. Some second homeowners are suing the State of Florida because they are paying three to four times what homestead property owners pay for a similar property (5). In Lanning v. Pilcher, the plaintiffs are suing on behalf of all non-Florida owners of Florida residential property. They are seeking to invalidate the 3% cap for Florida owners of Florida homestead residential property on the basis that the cap discourages non-Florida residents from buying Florida residential property since the cap adversely discriminates against non-Florida owners. If you polled non-homestead property owners, most will say they will sell if they can find a buyer, because the cost of owning a second home in Florida is too high. From a pay-for-services standpoint, the increased tax burden on second home owners is intrinsically unfair. First, these part-time residents spend more money in the state per capita than full-time residents when they visit. Secondly, they typically do not require the services of schools, police and fire to the extent of people paying less than them in taxes.
As the tax burden on second homeowners climbed, they started selling their homes in mass and stopped buying homes in Florida in the years following Save Our Homes. The selling started to accelerate in the 2003-2006 period when government spending and real estate taxes climbed sharply. This event started the housing downturn in Florida and will keep the residential market weak for years to come (unless something is done to reverse this situation). The rejection of Florida as a second home market is detrimental to the Florida economy for two reasons. First, there are tens of thousands of second homes placed on the market to sell at the same time, creating a glut. More importantly, there are fewer people looking to buy a second home in Florida because the real estate taxes are so high. On the one hand, the Save Our Homes law created a glut of homes for sale, and on the other, it reduces demand for new homes. Can you imagine if all 670,000 second homeowners placed their homes on the market at the same time, and no second homeowners came to Florida in the future? This is an extreme example, but most real estate professionals will tell you that there are far more second homeowners looking to sell their home than there are people looking to buy a second home in Florida. Florida´s home building industry at this point is virtually stopped in many parts of Florida where volume is down 80% (5). Overall Florida homebuilding is down 67% from 2005 and is worse now than any year since 1981 (5). With no second home buyers looking to enter the market, and tens of thousands of second homes for sale, there is really no end in sight to the housing market downturn and the impact it is continuing to have on the Florida economy.
Apartment Renters
Florida has just over 1,000,000 apartment rental units (5). Because of the tax shift caused by Save Our Homes and the dramatic increase in government spending, real estate taxes on most apartment communities roughly doubled between 2000 and 2007 (5). These costs were—and are continuing to be—passed on to the people who can afford increases the least, people who cannot afford a home and who typically live paycheck to paycheck. Apartment real estate taxes add $100 to $200 per month per apartment in central Florida (6). The sharp increase in real estate taxes fueled by Save Our Homes raised apartment rents by 10% (6). This tax shift is not a liability for our political leaders, as most renters are not registered to vote. Renters are typically new residents in Florida or have moved from another part of the state.
Due to the increased cost of government, affordable housing is almost impossible to provide in Florida today in most major markets. I predict the government will step in and provide subsidized affordable housing and pass those new costs onto taxpayers (and most of this cost will fall on non-homestead property owners, like apartment renters). This "cure" will actually make the lack of affordable housing worse, by further increasing the cost of housing!
Small Businesses and their employees
The people most adversely affected the most by Save Our Homes are small business owners and their employees. Small business owners already face a wide variery of taxes (real estate, sales tax, payroll tax, unemployment tax, etc.). The doubling of real estate taxes has forced thousands of small businesses out of business. Orlando has seen a 96% increase in bankruptcy in 2007 (6) and in south Florida bankruptcies increased 73% (6). Some businesses closed and laid off all of their employees, and some just laid off employees; but every employee of every small business in the state of Florida was adversely affected by Save Our Homes.
State leaders think that they can tax small business, and that small business owners, in turn, will raise prices to the consumer. However, in today´s global, internet economy, this is a complete myth! Because of the global market and the internet, most local merchants cannot afford to charge any more than merchants in other parts of the United States (or anywhere else in the world) for products, even if those "competitors" have much lower expenses. Products that cannot be sold over the internet, like food, are very price-sensitive. If you raise the price, you will sell less. In order for small business to succeed, the expenses of that business cannot go up by more than the amount of inflation. If expenses increase by more than inflation, the business must either cut staff or go out of business. I hear countless stories of small business owners who are only "breaking even" and start to lose money when taxes go up.
While it seemed like a great solution to a problem at the time, Save Our /Homes is today regarded by many in the state of Florida, including, Dominic Calabro, the CEO of Florida Tax Watch, as a disaster. It has had a profoundly negative effect on virtually every person in the state. It has blunted the positive effects of our seasonal economy – destroying jobs and lowering wages. It has caused a glut of homes on the real estate market and it has lowered the motivation for new buyers to enter the market. Save Our Homes has led to a virtual halt of new construction – an entire segment of our state´s economy. Tens of thousands of workers, from home builders to real estate agents, are sitting on the sidelines right now, "waiting it out." Save Our Homes has decreased the selling price of homes and lowered homeowner equity because of a reduction in sales price required to offset the tax burden new owners will incur.
Save Our Homes is an extreme and very graphic example of how governmental policies that were made out of political expediency can end up being harmful to the citizenry as a whole. Everyone who lives in Florida has felt the impact of this policy failure in Save Our Homes. Some of the other ideas discussed in this book will not be as familiar to the average person, but they nevertheless have an effect on our society and on the downward trend in quality of life in our state.
Save our Homes is a "so-called" progressive (socialist) tax policy meant to shift the tax burden from homestead property owners (voters) to non-homestead property owners (non-voters). The result of this shift was an added burden to out-of-state residents, small business, and apartment renters. The non-homestead groups vote with their feet, and thousands have already left and many more are now leaving Florida. Our economy is suffering as a result. For Florida to return to prosperity, Save our Homes needs to be replaced with a balanced tax system. We cannot simply eliminate Save Our Homes, because that will take all limitations off of government spending. What I propose is a tax system that treats all parties fairly, which, clearly, we do not have now.
In 1992, Ken Wilkinson, a County Property Appraiser from Lee County, Florida, was successful in promoting and getting into law a bill known as "Save Our Homes." The law limited the increase in property taxes on "homestead property" to CPI (the Consumer Price Index) or 3% annually. A homestead property is a permanent residence, not a second home, rental apartment, or commercial building. Wilkinson said, "Government should not be in the business of taxing people off their primary residence." This sounds nice, but as is often the case with government regulations, there were unintended consequences.
Save Our Homes was sold to the people of Florida as a tax limit. This couldn´t be farther from the truth. In essence, Save Our Homes is flawed because it is not a tax limit, but a tax shift. The "savings" of homestead property owners was/is made up by additional taxation of non-homestead property owners. This tax shift is estimated at $7 billion a year and counting (2). The biggest effect of this law was that most Florida taxpayers were shielded from sharp increases in property taxes. Most residents did not have to share in the increasing costs and economic burden of a growth in government spending, and thus government was "politically sheltered" to spend revenues more freely.
From 1996 to 2006, property taxes in Florida rose over 108%, from $12 billion to a $25.7 billion, while inflation was less than 3% a year (27% over the entire period) and population growth was only 2% a year (25% over the entire period) (3). In addition to those increases, in 2006-2007, property taxes increased by an average of 22% for a total real estate tax burden of a staggering $30 billion. This large increase in real estate taxes made it extremely difficult, if not impossible, for many Florida homeowners and small business owners, who were previously just making ends meet, to meet their obligations. The primary reason that real estate taxes were allowed to climb so high is that most of the voters did not feel the burden of extra taxes, which were shifted to non-homestead property owners. If Save Our Homes was never enacted, the growth in government spending would have been less, because more political pressure would have been placed on government to control spending. The tax burden on out-of-state second homeowners, renters, and small business skyrocketed to make up for the loss of tax revenue from Save Our Homes. No one cared that a person from Chicago saw their taxes increase 200% on their second home, or if a nail salon owner saw his/her real estate taxes double. Most voters were "fine" with this arrangement; so (figured the politicians), the government was free to tax the non-homestead properties as much as they could justify.
After a few years, local government leaders realized they could increase taxes almost at will without any political opposition. This situation went on for a decade, from 1996 until 2006, until the screams from out-of-state property owners, small business, and others were heard all across the state. Save Our Homes converted our ad valorem tax policy (i.e., taxation according to value) to a progressively socialist tax system, which has had a devastating effect on the Florida economy.
Let´s examine each victim of the Save Our Homes law and how that has brought down the once mighty Florida economy.
Second Homeowners (non-homestead properties)
Florida is well known as a "winter playground" for hundreds of thousands of out-of-state residents who own a second home in Florida. In fact, an estimated 670,000 people own second homes in Florida (4). Save Our Homes did not include owners of second homes in its tax limit – and as a result, taxes on these properties increased dramatically over 10 years. I have a friend from New York who has owned a 2-bedroom condo in Sarasota for nearly two decades. Ten years ago, his taxes on the condo were $2,000. Today, they are $12,000. He visits the condo for a few weeks a year; so even though he can afford to pay the taxes, he, like most non-homestead property owners, is trying to sell the condo. His story is not unique. For Sidney Margles of Montreal, who winters in a Deerfield Beach condominium, it comes down to fairness. Margles, co-founder of Broward Activists for Tax Equity -- one of the dozens of anti-tax activist groups that have sprung up around the state in recent years -- pays $2,800 in property taxes. His neighbor, in a nearly identical condo in Century Village East, pays $500. An out-of-state homeowner is paying more than five times the taxes of his neighbor. Margles also belongs to the 70,000 member Canadian Snowbird Association, and his story has been covered by the Association. Almost all second homeowners are aware of the unfairness in Florida´s tax policy, as are most potential second homeowners.
Tens of thousands of second homeowners are being forced to sell their homes strictly because of higher taxes. Some second homeowners are suing the State of Florida because they are paying three to four times what homestead property owners pay for a similar property (5). In Lanning v. Pilcher, the plaintiffs are suing on behalf of all non-Florida owners of Florida residential property. They are seeking to invalidate the 3% cap for Florida owners of Florida homestead residential property on the basis that the cap discourages non-Florida residents from buying Florida residential property since the cap adversely discriminates against non-Florida owners. If you polled non-homestead property owners, most will say they will sell if they can find a buyer, because the cost of owning a second home in Florida is too high. From a pay-for-services standpoint, the increased tax burden on second home owners is intrinsically unfair. First, these part-time residents spend more money in the state per capita than full-time residents when they visit. Secondly, they typically do not require the services of schools, police and fire to the extent of people paying less than them in taxes.
As the tax burden on second homeowners climbed, they started selling their homes in mass and stopped buying homes in Florida in the years following Save Our Homes. The selling started to accelerate in the 2003-2006 period when government spending and real estate taxes climbed sharply. This event started the housing downturn in Florida and will keep the residential market weak for years to come (unless something is done to reverse this situation). The rejection of Florida as a second home market is detrimental to the Florida economy for two reasons. First, there are tens of thousands of second homes placed on the market to sell at the same time, creating a glut. More importantly, there are fewer people looking to buy a second home in Florida because the real estate taxes are so high. On the one hand, the Save Our Homes law created a glut of homes for sale, and on the other, it reduces demand for new homes. Can you imagine if all 670,000 second homeowners placed their homes on the market at the same time, and no second homeowners came to Florida in the future? This is an extreme example, but most real estate professionals will tell you that there are far more second homeowners looking to sell their home than there are people looking to buy a second home in Florida. Florida´s home building industry at this point is virtually stopped in many parts of Florida where volume is down 80% (5). Overall Florida homebuilding is down 67% from 2005 and is worse now than any year since 1981 (5). With no second home buyers looking to enter the market, and tens of thousands of second homes for sale, there is really no end in sight to the housing market downturn and the impact it is continuing to have on the Florida economy.
Apartment Renters
Florida has just over 1,000,000 apartment rental units (5). Because of the tax shift caused by Save Our Homes and the dramatic increase in government spending, real estate taxes on most apartment communities roughly doubled between 2000 and 2007 (5). These costs were—and are continuing to be—passed on to the people who can afford increases the least, people who cannot afford a home and who typically live paycheck to paycheck. Apartment real estate taxes add $100 to $200 per month per apartment in central Florida (6). The sharp increase in real estate taxes fueled by Save Our Homes raised apartment rents by 10% (6). This tax shift is not a liability for our political leaders, as most renters are not registered to vote. Renters are typically new residents in Florida or have moved from another part of the state.
Due to the increased cost of government, affordable housing is almost impossible to provide in Florida today in most major markets. I predict the government will step in and provide subsidized affordable housing and pass those new costs onto taxpayers (and most of this cost will fall on non-homestead property owners, like apartment renters). This "cure" will actually make the lack of affordable housing worse, by further increasing the cost of housing!
Small Businesses and their employees
The people most adversely affected the most by Save Our Homes are small business owners and their employees. Small business owners already face a wide variery of taxes (real estate, sales tax, payroll tax, unemployment tax, etc.). The doubling of real estate taxes has forced thousands of small businesses out of business. Orlando has seen a 96% increase in bankruptcy in 2007 (6) and in south Florida bankruptcies increased 73% (6). Some businesses closed and laid off all of their employees, and some just laid off employees; but every employee of every small business in the state of Florida was adversely affected by Save Our Homes.
State leaders think that they can tax small business, and that small business owners, in turn, will raise prices to the consumer. However, in today´s global, internet economy, this is a complete myth! Because of the global market and the internet, most local merchants cannot afford to charge any more than merchants in other parts of the United States (or anywhere else in the world) for products, even if those "competitors" have much lower expenses. Products that cannot be sold over the internet, like food, are very price-sensitive. If you raise the price, you will sell less. In order for small business to succeed, the expenses of that business cannot go up by more than the amount of inflation. If expenses increase by more than inflation, the business must either cut staff or go out of business. I hear countless stories of small business owners who are only "breaking even" and start to lose money when taxes go up.
While it seemed like a great solution to a problem at the time, Save Our /Homes is today regarded by many in the state of Florida, including, Dominic Calabro, the CEO of Florida Tax Watch, as a disaster. It has had a profoundly negative effect on virtually every person in the state. It has blunted the positive effects of our seasonal economy – destroying jobs and lowering wages. It has caused a glut of homes on the real estate market and it has lowered the motivation for new buyers to enter the market. Save Our Homes has led to a virtual halt of new construction – an entire segment of our state´s economy. Tens of thousands of workers, from home builders to real estate agents, are sitting on the sidelines right now, "waiting it out." Save Our Homes has decreased the selling price of homes and lowered homeowner equity because of a reduction in sales price required to offset the tax burden new owners will incur.
Save Our Homes is an extreme and very graphic example of how governmental policies that were made out of political expediency can end up being harmful to the citizenry as a whole. Everyone who lives in Florida has felt the impact of this policy failure in Save Our Homes. Some of the other ideas discussed in this book will not be as familiar to the average person, but they nevertheless have an effect on our society and on the downward trend in quality of life in our state.
Save our Homes is a "so-called" progressive (socialist) tax policy meant to shift the tax burden from homestead property owners (voters) to non-homestead property owners (non-voters). The result of this shift was an added burden to out-of-state residents, small business, and apartment renters. The non-homestead groups vote with their feet, and thousands have already left and many more are now leaving Florida. Our economy is suffering as a result. For Florida to return to prosperity, Save our Homes needs to be replaced with a balanced tax system. We cannot simply eliminate Save Our Homes, because that will take all limitations off of government spending. What I propose is a tax system that treats all parties fairly, which, clearly, we do not have now.
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