A Tax-Cut Miracle

A Tax-Cut Miracle

GOVERNMENT WATCH by Jean Gruss | Editor/Lee-Collier

Charlotte County commissioners recently did the unimaginable: They cut taxes on new construction. It took builders 10 years of political action and a construction meltdown to finally be heard.

How did they do it?

Builders along Florida's Gulf Coast have been buzzing about Charlotte County commissioners' bold move to dramatically cut back taxes on new construction that they hiked just last year.

It's a sign that some local governments are realizing that high taxes are aggravating an already anemic real-estate economy.

But builders in neighboring high-tax counties such as Collier, Lee and Sarasota probably shouldn't get too excited. It took Charlotte builders more than a decade of political action and a steep drop in new construction to get anyone to listen to their tax-cutting pleas.

Taxes on new construction - euphemistically called "impact fees" - have been rising steadily over the years as county commissions burden the building industry and new-home buyers with paying for roads, schools and parks. In Collier County, for example, this one-time tax amounts to $48,000 for a 2,500-square-foot house, the highest in the state.

There are lessons to be learned from Charlotte County builders. Chief among them: back candidates who have prior business experience to run for election to the board of county commissioners. "That doesn't happen overnight," warns Jim Sanders, president of Five Star Realty and Sandstar in Punta Gorda. Sanders is also incoming president of the Charlotte/DeSoto Building Industry Association.

But it's the key to later success because builders say they will never get a fair hearing without a board of commissioners who understand what it takes to run a business. "You've got to work that real hard," Sanders says.

Once elected, builders and other businesses should hound business-friendly commissioners and pack their meetings in overwhelming numbers. "You can't let your guard down; you've got to continually fight it," Sanders says.

Builders can't do it alone, however. It helps to forge alliances with other industry organizations such as Realtors and chambers of commerce. In Charlotte County, the builders, Realtors and the chamber formed a group called The Triad to push for tax cuts.

"We're a lot stronger in numbers," says Suzanne Graham, a past president of the Charlotte DeSoto Building Industry Association who spearheads the group's government-affairs committee.

In the end, a broad economic downturn was the spark that got everyone to agree something needed to be done. Indeed, state taxable sales figures show Punta Gorda-area car sales are down 25% in September over the same month last year and consumer durables such as refrigerators and washing machines have fallen 19%. Building investment has collapsed 68%.

A decade of political action

About 10 years ago, Charlotte builders realized that their county commission was packed with people who had never signed a payroll check. Votes were starting to go against them.

"We all realized one day that we've got to change this," Sanders recalls. With a political-action committee, builders began interviewing and backing candidates who would side with business on most issues.

Success didn't come overnight. "It was probably a couple years and we went through a couple of election cycles," Sanders says. But election of business-minded commissioners established the groundwork that would later help the builders.

Despite a business-friendly board, builders didn't immediately get the tax relief they were seeking. In fact, the Charlotte County board of commissioners raised taxes on new construction substantially last year.

They raised taxes on a new home from a flat amount of $2,510 to $3.89 per square foot, or $7,780 for a 2,000-square-foot house. For commercial space, the increases varied by property type. The tax on a new bank with three drive-through lanes, for example, rose from $22,458 to $61,650, a 175% increase.

Builders have always been easy targets for elected officials. They've successfully pinned growth pains such as traffic congestion and crowded schools on the industry. Meanwhile, other industries were never compelled to fight on behalf of the builders for fear that they too might see their taxes rise. Even Realtors, the builders' traditional allies, feared that commissioners would raise taxes on property transfers to pay for roads, schools and sewers.

But because Charlotte County is so dependent on builders for its economic wellbeing, the decline in construction spread to other businesses such as car dealers and restaurants. "It doesn't just affect builders," says Graham.

Now, the Punta Gorda-Port Charlotte-North Port Association of Realtors and the Charlotte County Chamber of Commerce have joined the builders' association to fight for lower taxes on new construction. "Misery loves company," Graham chuckles.

'Nothing from nothing'

With a broad coalition, builders, Realtors and chamber members began meeting regularly one-on-one with commissioners to lobby for a tax rollback. "We met with the commissioners at least three or four times before the (rollback) vote," Graham says.

Builders plotted strategy with state representatives Paige Kreegel and Michael Grant. The builders say the two legislators gave them advice on how to lobby commissioners.

More than 40 business owners and managers lined up to speak at the first county commission meeting on the subject, a potent show of force. They also persuaded school board members to abandon their quest to raise impact-fee taxes to pay for schools, reasoning that an economic downturn was not the time to be asking for more money.

The builders' argument was persuasive. After all, construction was grinding to a standstill and as a result impact-fee revenue wasn't coming into the county's coffers. Why not lower the tax to stimulate growth? "My motto was: Nothing from nothing is still nothing," says Graham.

Charlotte County Commissioner Thomas D'Aprile Sr. was the first to suggest a builder-tax rollback. "Then [Commissioner] Tom Moore jumped on the bandwagon and stole D'Aprile's idea," Graham laughs. The commission eventually voted to roll back the residential-building tax to its prior $2,510 flat fee per new home. Commissioners Adam Cummings and Richard Loftus voted against the tax cut on Oct. 23. D'Aprile, Moore and Commissioner Tricia Duffy voted in favor. "It was the most awesome day," Graham recalls.

Then the chamber of commerce lobbied to have taxes on new commercial buildings rolled back too. Because the builders had been vocal about taxes for so long, Graham says it was beneficial to have the chamber's relatively new voice on the matter.

The vote to roll back taxes on new commercial buildings was 4-to-1 in favor, with Cummings the only commissioner to vote against the cut. "That blew us away," Graham says. "It was huge."

But there is a caveat. The tax cuts are temporary and will revert back to their higher rates in one year. "We bought ourselves 12 months and now we'll see what we can do," says Graham.

The Triad group will meet to make recommendations of how to make up the revenue shortfall from impact-fee taxes. Graham says all options are on the table, including raising the documentary stamp tax, real-estate transfer fees and boosting sales taxes. "There's an array of possibilities out there," she says.

Using Charlotte as an example

Builders in Charlotte's neighboring counties hope the tax-cut fever spreads to their areas. "I wish everyone would do that," says Brenda Talbert, executive officer of the Collier Building Industry Association.

Talbert says the construction downturn is starting to galvanize the members of her organization, but she concedes there's a long way to go because until recently most have not been politically active. Meanwhile, the Collier County commission is widely considered one of the most antagonistic to business interests.

In Lee County, builders are more hopeful because commissioners there are generally more pro-business. Lee County commissioners recently suspended efforts to raise taxes on new construction by 45% to pay for parks. "This is a significant move," says Michael Reitmann, executive vice president of the Lee Building Industry Association.

But builders are getting ready to battle a potentially larger tax increase to pay for schools. What's more, there's talk of taxing new commercial construction to pay for affordable housing. It's based on the questionable theory that job creation leads to housing constraints. Fact is, there are now 2,500 homes for sale in Lee County that cost $150,000 or less.

Reitmann hopes that Lee County commissioners will roll back the recent tax increases they passed on new construction. For example, the taxes on a new medical office building rose from $8,000 to nearly $25,000 per 1,000 square feet in the spring. That's a 213% increase. Patients will pay the bill, just as homeowners eventually do on the residential impact fees.

Reitmann has newfound friends in other industries. The Horizon Council, an economic development group in Lee County, plans to help in the fight, Reitmann says. "I'm kind of pleased about that," he says.

If Charlotte County's experience is any guide, a coalition of business groups in Lee County will have better luck turning back the taxes. "I'm going to be optimistic that they will seriously consider it," Reitmann says.

REVIEW SUMMARY

Issue: Charlotte County cuts taxes

Trend: Businesses in neighboring counties lobby for tax cuts.

Key: Back business-friendly candidates and lobby them after they're elected.