Declining property values and recently enacted property tax restrictions combined to push more local governments into potential financial distress, a state audit released earlier this month reveals. Among Florida cities, counties and special districts, 113 experienced at lease one criterion that could result in them being declared in a state of financial emergency, according to an annual report by the Florida Auditor General that takes into account nearly 1,700 audit reports for local government entities.
The number of local governments in potential financial straits during the 2010-11 fiscal year rose slightly from 111 posted that year, a further deterioration of local financial stability linked largely to lower property values and the taxes they generate. “Although taxable property values and taxes levied have increased in total since 2002, there has been a significant decrease over the past five years,” the audit concludes. “Since 2006, taxable property values have decreased by approximately $349 million, or 21 percent and $179 million, or 21 percent for counties and municipalities respectively.”
The drop in property value has led to a subsequent drop in revenue. Since 2006, taxes collected dropped 26 percent or $2.2 billion for counties and 20 percent, or $783 million, for cities. Property taxes are the primary source of income for both levels of government. Outside auditors said local governments are likely to feel the effects of tight local budgets for the foreseeable future because of market conditions and a series of legislative moves that came on the heels of the Florida real estate boom in the mid-2000s. Angered over a meteoric rise in local tax collections in the early part of the decade, state lawmakers in 2007 and 2008 enacted a series of laws aimed at reducing tax burdens, including expanding exemptions.
Florida voters this November will face a flurry of proposed amendments to reduce property taxes for groups ranging from first-time homebuyers to disabled veterans, while preventing increases on those whose homes lose value. Approved by the Legislature in 2011, several constitutional measures, led by Amendment 4, lump together a series of tax breaks that expand homestead exemptions for targeted groups. They also provide additional Save our Home-like protections for commercial and non-residential property owners. Economists say the four property tax amendments on the Nov. 6 ballot would reduce local taxes by nearly $2 billion over the next four years. That reduction is manageable, according to Fitch rating agency, but will not come without pain. “When taxable values are falling as experienced by most Florida localities during the past four years, any further declines as a result of Amendment Four, however minor, add to the pressure on local governments to maintain services and balance operations,” Fitch Ratings concluded. “Local officials may be able to offset Amendment Four constraints by raising property tax rates but may be restricted from doing so due to political pressures or inadequate taxing margin under the 10-mill property tax limit.”