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Business Observer Friday, Jan. 18, 2008 14 years ago

WALSH: Why voters should say 'no' Jan. 29

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Amendment 1 stinks. It's shameful, lousy, embarrassing policy that is bad for Florida and bad for Floridians.

REVIEW AND COMMENT

Why voters should say 'no' Jan. 29

By Matt Walsh, Editor and Publisher

In most instances, deciding how to vote on state constitutional amendments has not been that difficult. The formula is straightforward:

If the proposed amendment is designed to restrict or take away individual freedom, we always have advocated a "no" vote. Or, if the proposed amendment increases the powers or "reach" of government, we always have advocated a "no" vote.

Now comes Amendment 1, the proposed constitutional amendment on the Jan. 29 presidential primary ballot. It's the measure legislators designed to reform Florida's property tax system and give property owners tax relief.

It has the right characteristics for approval - features that will lower the amount of taxes Florida property owners will pay. And in our book, any time taxes are cut, individuals have more freedom.

By this standard, Amendment 1 should qualify for a "yes" vote.

But we're recommending voters reject Amendment 1.

It pains us to do so, in part because this puts us on the same side as our philosophical nemesis - governments and public-employee and teachers' unions. They too are recommending the amendment be rejected.

Their motivation for opposition is much different than ours. They oppose any measures that take away or even threaten to limit the amount of taxes they receive.

We oppose Amendment 1 not at all for that, but because it's shameful, lousy, embarrassing legislation. It's horrendously flawed. It's virtually worthless to the property owners who need and deserve property-tax relief the most. And, here's the clincher, it's bad for Florida and bad for Floridians.

And yet it's amazing that Gov. Charlie Crist - who knows this - is promoting passage of this amendment as if it's going to make a meaningful difference for Florida's struggling economy and create a fairer property-tax system. Surely he is not that dense. Please tell us he is just being politically disengenuous to put a happy face on an issue from which his leadership was absent.

We could respect Crist if he would dump the Mr. Pollyanna Populist bit and tell Floridians what he should be telling them: Amendment 1 is not the solution to property-tax relief; and that he will stake his governorship on making sure lawmakers produce real tax reform in the next legislative session.

Furthermore, Crist should be saying what two respected Florida economists - Hank Fishkind of Fishkind & Associates and David Denslow of the University of Florida - are saying. Fishkind disses the amendment as another unnecessary subsidy for homesteaded property owners. Denslow told lawmakers last spring Amendment 1 "is a cure worse than the disease."

Parse the specifics of the amendment, and it should be obivious.

• Doubling of exemption? It increase the homestead exemption from $25,000 to $50,000 on all property taxes except the taxes for schools, which happen to be the biggest part of everyone's tax bill. Crist is fudging when he says homeowners exemptions will double.

This is one of two provisions that gives those who have benefited most from Save Our Homes another subsidy. Sure, homesteaded property owners will pay less city and county taxes - a good thing, but this is putting a Band-Aid on the right arm when the cut is on the left arm. Retarded. Homesteaded owners are not the victims.

What's more, leaving out school taxes tells you just how cowardly lawmakers were toward real property-tax reform.

• Portability shifts taxes again. To legislators' credit, providing "portability" for Save Our Homes savings addresses a big impediment to a fluid residential housing market. Many longtime homeowners who have benefited the past 15 years from Save Our Homes (no more than 3% annual increases in their assessments) are reluctant to sell and move because their property taxes would double or triple by moving.

Amendment 1 would take care of that, allowing homesteaded homeowners to subtract up to $500,000 in accrued SOH savings from the assessed value of their new homes.

This is another great deal for homesteaded property owners. Neither non-homesteaded nor commercial property owners would get the same treatment. This is a big, bad flaw.

Lawmakers again are rewarding property owners (i.e. voters) who have been rewarded for the past decade. Lawmakers have done nothing in Amendment 1 for 57.2% of Florida's property owners who don't qualify for homestead exemptions or Save Our Homes and who have borne the brunt of huge tax increases the past half-decade.

This is idiocy. With portability, Amendment 1 will shift an even bigger tax burden onto businesses, seasonal homeowners, new residents and renters. And economics always translates additional tax burdens logically. As economists Arthur Laffer and Stephen Moore have shown irrefutably in their recent book, "Rich States, Poor States," rising tax burdens cause businesses to move out or contract, and rising tax burdens on residents cause incomes to grow at lower rates than in states with falling tax burdens. From 1990 to 2005, personal income in Florida and Texas - two low-tax, growth states - grew 72% and 81%, respectively, compared to 32% and 49% in the high-tax states of New York and California, respectively.

The message: While portability would be a great benefit for homesteaded property owners, it would have retarding, negative effects on Florida's economy - fewer business formations and fewer second-home buyers.

• Sop to businesses. Lawmakers did provide at least one carrot for commercial property owners. Amendment 1 would allow them a $25,000 exemption on the assessed value of their tangible property and business equipment. This was legislative politicking at work to get the support of business owners for the amendment. In truth, if there are to be exemptions, everyone should have the same ones.

• 10% cap is virtually worthless. Amendment 1 will limit increases in assessments for non-homesteaded property owners (businesses, second-home owners, landlords) to a maximum of 10% each year. While this may look and sound good, it's meaningless. For one, like the so-called doubling of the homestead exemption, it does not apply to school taxes. What's more, the average annual growth in the value of non-homesteaded properties in the next five years is expected to be about 5%. This feature, which was a gift to Democrats defending public-employee unions, will benefit almost no one.

Here's another flaw in this provision. Say a commercial property's value increases 15% in a year. The owner would see his assessment rise a maximum of 10% on the non-school portion of his taxes and 15% on his school taxes. Then say the property value the next year rises 5%. The property owner could see his assessment rise the full 10% on the non-school portion, wiping out any savings from the previous year. Nice trick; doesn't work.

Take the sum of the above parts, and you have a totally flawed amendment.

Argument for passage

But wait. Many intelligent people who know the amendment is flawed are urging its passage anyway. They make the half-loaf argument.

They are telling voters Amendment 1 is just the start of several more pieces of reform, noting, for instance, that voters likely will vote on the 1.35% amendment in November. That measure would limit the assessment on all properties - homesteaded and non-homesteaded - to no more than 1.35% of assessed value (13.5 mills). Certainly, this is a better alternative than Amendment 1.

But proponents of Amendment 1 say don't count on 1.35. There's no guarantee it will make it on the ballot, nor any guarantee voters would approve it. Thus, say Amendment 1 proponents, it is better to have some tax relief, even if it's lousy tax relief for the wrong people.

We disagree.

Don't compromise. The contents of Amendment 1 stink. They pile more bad tax policy on top of existing bad tax policy. And the more voters entrench Florida's property-tax system with special subsidies and exemptions for homesteaded property owners the more difficult it will be to persuade Floridians to give up their special (and stupid) subsidies for a system that taxes everyone similarly.

Better alternatives

To be sure, there are better alternatives. Every legislator knows it. He just doesn't have the courage to enact them. The elements are simple:

• 3% to 5% annual assessment caps on all properties;

• Elimination of the local school property tax;

• Broadening and lowering of the state sales tax;

• Caps on local and state spending tied to the combined annual rates of inflation and population growth.

These steps would be fairer for all and boost Florida's economy short term and long-term.

We urge Florida voters to look at the bigger picture when they consider Amendment 1. If homesteaded property owners continue to amass tax breaks, those subsidies will have to be made up somewhere. It's an irrefutable fact of lawmaking: When you give to one, you must take away from another. When you give tax breaks to full-time residents, you must take them away and increase the tax burdens on others.

The "others" in this case are those who often are referred to as the geese who lay Florida's golden eggs - snowbirds, second-home owners and businesses. The first two always have provided a net gain for Florida - they pay full taxes but they use less services. Businesses provide jobs that keep our economy going.

But as tax burdens rise on these groups, there will be fewer of them. There will be less commerce and fewer jobs than there would be otherwise. Property values will be lower than they otherwise would be. Taxes will rise on full-time residents. Floridians' standards of living will be lower than they otherwise would be.

After Florida State University economics and business Professors David Macpherson and Dean Gatzlaff analyzed Amendment 1, they told state lawmakers: "The proposed amendment will make a bad situation worse. We cannot find a sound economic argument to support the amendment."

Vote no on Amendment 1.

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