Amendment 4: Real estate tax reform, but at what cost?
Daily Business Review
October 16, 2012
October 16, 2012
Barry Sharpe, a commercial property owner as well as a tax appeal agent, would be impacted in multiple ways if Florida voters approved tax reform measure Amendment 4.
Sharpe could see his business of representing property owners disputing their tax bill take a hit. Many clients likely would see their taxes decline without his help.
He also worries the measure would counter reasons for property owners like him to upgrade their assets, despite a potential tax savings from a lower limit on assessment increases.
"The whole intent of the amendment is for people to have houses," Sharpe said. "I think [the Legislature] made a mistake doing this cap for commercial properties. ... Doing improvements triggers a new assessment and a new tax you have to pay."
If the amendment passes with the required 60 percent vote, the current 10 percent cap on tax assessments for non-homesteaded properties would be slashed to 5 percent starting on Jan. 1.
Also, first-time home buyers would be eligible for an additional homestead exemption that would expire after five years.
A third element, dubbed by some the "recapture" provision, would give the Florida Legislature the authority to pass a law preventing assessment increases for certain properties if the market value (also called just value) declines in a given year.
Early voting begins on Oct. 27.
Plenty of Attention
Of the 12 proposed constitutional amendments on the Nov. 6 ballot, Amendment 4 is getting the most attention for its potential impact on the state's real estate market and damage on municipal government revenues.
During a "webinar" presentation last week explaining its opposition to the amendment, the Florida League of Cities cited an estimate from the state's Office of Economic and Demographic Research that non-school taxing authorities would lose $1.7 billion in tax revenue over the next four years if Amendment 4 passes.
Proponents like real estate industry trade group Florida Realtors have raised millions of dollars in support of the amendment. They say the measure would provide several much-needed fixes to Florida's flawed property tax system.
The 1992 passage of the Save Our Homes Act put a 3 percent cap on assessment increases for homesteaded properties. Proponents of Amendment 4 say Save Our Homes was the precursor to problems homeowners had during the real estate boom. Property values were soaring, but many owners could not cash in because the Save Our Homes' tax savings could not be transferred to another property at the time.
"People were feeling like they were locked in their homes," according to Florida Realtors lobbyist Trey Price.
That issue was addressed four years ago with the passage of Amendment 1. That amendment included a "portability" component that allowed homeowners to transfer their tax benefit to new primary residences.
In addition to the portability component, Amendment 1 created the 10 percent cap for non-homesteaded properties.
"A huge amount of the taxable burden in Florida shifted to non-homesteaded property" during the boom, Price said.
"We believe this is significant reform or we wouldn't push it."
Amendment 4 opponents like the League of Cities agree the state needs extensive tax reform, but say Amendment 4 "exacerbates the inequities" within the existing system.
"Save Our Homes was a noble tax policy, as you don't want to tax people out of their homes," said League of Cities lobbyist Amber Hughes during last week's webinar. But Save Our Homes had "unintended consequences" and Amendment 4 would have its own adverse impact, she said.
Amendment 4 includes "a couple of things that are user-friendly," according to investor and tax appeal agent Sharpe.
The Legislature would be able to ease the burdensome spread between a property's assessed and true market value, he said.
"When values go down, the county can still increase assessments to play catch-up," Sharpe said. "This will fix that."
The additional homestead exemption for first-time buyers "will probably help Realtors and brokers" by spurring sales and potentially creating more jobs in the industry, Sharpe added.
The value of the additional exemption is equivalent to 50 percent of the property's market value at the beginning of the year the exemption is obtained. It can't exceed the median market value in the county where the property is located.
That provision is a critical change from Amendment 1, Price said.
Under Save Our Homes and Amendment 1, first-time buyers "get a raw deal," Price said. The additional homestead exemption in Amendment 4 would help correct that.
For a young couple starting a family, an additional exemption for an initial home purchase "makes a huge difference," according to longtime government affairs attorney Jorge Luis Lopez of Coral Gables.
"If we were debating this during a period where real estate was booming, we would knock our heads and ask why this is necessary," he said. "This could help stimulate additional transactions" during the current cycle, however.
The reduction of the 10 percent assessment cap on non-homesteaded properties to 5 percent presents the biggest potential pitfall, Sharpe said.
By including the cap reduction in the amendment, state lawmakers might have unwittingly given commercial property owners like Sharpe less incentive to make renovations and tenant improvements, he said.
Commercial property owners would not want to trigger more expensive assessments that would offset any savings incurred from the 5 percent cap.
Sharpe is currently spending $1 million to extensively renovate a shopping center he owns on Miller Road and Southwest 93rd Avenue in Miami-Dade. He said he would have not have undertaken the upgrades if Amendment 4 had been in effect before the renovations were under way.
Hughes agreed during the webinar the cap reduction is the "most problematic" component of Amendment 4. The 10 percent cap is scheduled to expire in 2018. If the proposed amendment passes, the 5 percent cap would run until 2023.
It would "hurt businesses," she said.
"The idea that you can have the baker who has been there for 10 years and a new baker comes in and automatically has higher taxes is not the message we want to send to business here," Hughes said. "It's not just new businesses; expanding businesses are impacted. If someone wants to add 33 employees and move to a new facility, it might not be financially feasible to move to a larger location."
Sharpe said an important downside that has been overlooked is that municipalities would likely significantly raise millage — or tax — rates to make up for revenue shortfalls incurred from Amendment 4.
Those governments "count on a certain amount of revenue," he said. "If they don't get it from people like me who own shopping centers, who will pay for it?"
With a 60 percent threshold, Amendment 4 "could go both ways," according to Lopez.
The amendment is part of a lengthy ballot that includes a presidential election, numerous local races and a bevy of other constitutional amendments. Voter "fatigue" could be a major issue, Lopez said. Amendment 4 is outlined on the ballot in five paragraphs. The paragraph on the additional homestead exemption for first-time buyers alone is more than 200 words long.
From a strategic standpoint, covering so much ground in one amendment makes sense, Lopez said. Proponents can build up support among both commercial and residential property owners.
But "the counter historically has been when amendments sort of become Christmas trees," Lopez said. "If too many things are on it, that weighs it down."
Sharpe believes Amendment 4 has a "90 percent" chance of passing.
"Most people don't own commercial property," he said. "Most people will vote as a residential property owner. If I were them, I wouldn't vote against it, either."
Other real estate related constitutional amendments on the Nov. 6 ballot:
• Amendment 2, which expands an additional homestead exemption for disabled veterans to include those who were not Florida residents when they began their service.
• Amendment 9, which gives an additional homestead exemption to the surviving spouse of a military veteran or first responder.
• Amendment 11, which grants an additional exemption to owners who are 65 or older if their primary property has a just value below $250,000 and they have resided on the property for at least 25 years.