Florida: No Hurry on Property Tax Reform?

A December 29 editorial in the St. Petersburg Times makes the case for doing nothing (at least, nothing major) to fix Florida's property tax system in the near future. The Times argues (correctly) that the politically popular tax cuts recently proposed by candidates and elected officials are quick fixes rather than long-term reform:

The political temptations are great. The incoming governor, Charlie Crist, is among those who campaigned in the fall for doubling the current $25,000 homestead exemption. He and others also called for allowing homeowners to take their lucrative Save Our Homes reductions with them when they move. Neither approach really lessens the growing inequities in taxation and likely would, as TaxWatch suggests, only make things worse.

There's more to say here, of course. The only way to eliminate the "growing inequities" the Times alludes to would be to repeal the "Save Our Homes" tax cap entirely. And the real reason why inaction is arguably better than the reforms proposed in the past six months is that in the long run, Florida needs to diversify its revenue portfolio so it'll have a way to pay for property tax cuts. And in Florida, diversification means enacting a personal income tax. Until elected officials work up the courage to discuss how property tax cuts will be paid for, it will be hard to take their current proposals seriously. But the Times is absolutely right to condemn current leaders' emphasis on just making the existing property tax breaks even bigger.

The Times makes an equally interesting argument that while the big tax cuts proposed so far are non-starters, there are some smaller, "procedural" reforms that should be looked at immediately:

The law directs appraisers to value property at its "highest and best use," which has had the unintended consequence of generating enormous tax bills for some small businesses in hot real estate zones. Those taxes, in turn, pressure the businesses to sell out for high-rise offices or condos. That's bad growth policy, which is reason enough to review the standard.

This seems wrong for a couple of reasons. First, market value is generally what tax assessors ought to be shooting for in setting property values. As long as current market values don't reflect an unrealistic and unsustainable bubble, properties should be valued according to what someone would pay for it right now. Most of the inequities in the property tax world are due to departures from the "market value" standard.

Second, the pressure on business properties is directly traceable to the "Save our Homes" tax break that's currently in place. If lawmakers had the guts to confront this by repealing Save Our Homes in favor of a better-targeted approach to homeowner property taxes, and then recalibrated the state tax system to balance things more evenly between property, sales and income taxes, the current business property tax pinch would not be an issue. Period.

That's a big "if," of course. And until these needed changes are made, the short-run concern for businesses is a very real one. But it's important to remember that "market value" is not the culprit here.