Property tax limits thwart funding in public services that boost opportunity while exacerbating racial and economic inequities. Those are the findings of a new report by the Washington, D.C.-based, nonpartisan Center on Budget and Policy Priorities.
Florida is one of only seven states that have limits on property tax rates, total property tax collection and increases on a home’s assessed value.
On Nov. 6, Florida voters will decide the fate of Amendment 1, which would provide a homestead exemption on the portion of home values between $100,000 and $125,000, and Amendment 2, which would make permanent the state’s 10 percent cap on non-homestead parcel assessment increases.
Another ballot measure – Amendment 5 – would require a two-thirds vote of the Legislature to raise state taxes or fees. The Florida Policy Institute recently published a report on the dangers of making it harder to invest in communities by limiting revenues, noting that funding for disaster preparedness, infrastructure and affordable health care options would be at risk.
Florida communities must be able to raise revenue, particularly in the wake of economic downturns. But property tax limits, along with other revenue-restricting measures, prevent investment in those things that attract families and businesses, like well-paved roads, beautiful parks and beaches and high-quality schools.
Property tax collections have fallen from 50 percent to 39 percent of local governments’ total tax collections between 1977 and 2015. At the same time, state and federal funding was also declining as a share of local revenue. The state share fell from 8.4 percent to 3.8 percent, and the federal share fell from 30.7 percent to 28.4 percent during that period. This puts pressure on funding for local services, like water and sewage, while making the tax system more reliant on sales taxes and fees, which disproportionately affect low-income residents and communities of color.
And that’s an ongoing issue in Florida. The fairness of our state and local tax system is ranked 49th in the nation, according to the Institute on Taxation and Economic Policy. According to ITEP’s analysis, non-elderly families whose incomes are under $17,000 pay almost 13 percent of their income on state and local taxes. Those with incomes in the top 1 percent, at roughly $500,000 or more, only pay about 2 percent of their income to taxes.
Meanwhile, as the CBPP report points out, higher-income and white individuals are more likely to benefit from the limits. The owners of high-value homes, who are more often white, receive the greatest property tax discount. Whites are estimated to have received about 89 percent of national savings from property tax limits in 2011, according to a 2017 academic study.
Michael Leachman, senior director of State Fiscal Research at CBPP and one of the authors of the national report, noted that: “State property tax caps constrain funding for critical local services like schools and roads. That alone should be reason enough for states to repeal or relax these limits. But it’s even worse, because property tax caps also exacerbate racial and economic inequalities. The good news is there are other, more sensible ways for states to reduce or control property taxes – without leading to dramatic disinvestment in services or increasing inequality.”
State policymakers who want to relieve property taxes should focus on creating or strengthening “circuit breakers,” which refund households whose property tax payments are deemed unaffordable. At the same time, actions to limit property taxes should be coupled with state actions to equitably raise the revenue required to maintain and expand investments in schools and other critical services.
Joseph Pennisi is executive director of the Florida Policy Institute, an independent, nonpartisan and nonprofit organization dedicated to promoting widespread prosperity through timely, thoughtful and objective analysis of state policy issues affecting economic opportunity.