Thompson: Impact of high taxes

Rod Thompson

GCBR Executive Editor

Impact of high taxes

Pasco County commissioners recently took a step far too unusual in our tax and tax-some-more environment. They actually asked for a study on the effect of a proposed tax increase. In this case they commissioned noted economics firm Fishkind & Associates to study the impact of a proposed impact-fee hike.

The results were enlightening. It turns out that what many of us know as plain common sense is economically measurable. When impact fees get raised higher, there is less construction in that area than there would have been. Higher taxes mean less work is done. That's why a decrease in tax rates often can bring in more money because it spurs activity.

Economist Hank Fishkind found this scenario to be true with impact fees in Pasco. He went about it in typical number-crunching fashion, taking 40 Florida counties that impose the fees. Then he put together a set of econometric tools and used one year, 2005, as the base for measuring the impact of changing impact fees.

He found that in all categories, the higher the impact fee, the lower the total construction. Makes sense. And for those who want to wield impact fees as a feint to slow or stop growth, that's good news. But Pasco County commissioners wanted to raise the most money they could for road building, and they wanted to attract businesses to diversify their residentially-driven bedroom-community economy.

And here the results showed that Pasco's planned increase would actually bring in less money in the categories that it was trying to promote - office and hotel - while having only a minimal impact on residential. So a 10% increase in impact fees in those areas resulted in a larger than 10% decrease in revenues. For offices, it was substantially higher.

Even residential and commercial showed a decrease in construction, but not much and certainly not enough to offset revenues so that the overall take still rose.

This also makes sense. In economic terms, office space would be most elastic - that is, responsive to tax hikes. A convenience store or grocery store needs to be near its customer base, and so will likely eat the impact fees and still build - passing on the extra costs to customers. Publix cannot move to Georgia to serve a community.

But many companies seeking office space can. A company can - and quite a few have - packed up and moved to less-taxing jurisdictions. Hence the higher impact fees on offices would severely curtail office construction and diversifying the economy while higher fees - to the level that Fishkind studied them - on residential and commercial would not.

Fishkind recommended that Pasco County reduce the impact fees on hotels and offices, and the commission actually did so.

This data is great for planning, but can also be put to a sort of centralized engineering mischief by allowing government planners to play with the levels of impact fees without regard to overall right and wrong or economic development to micromanage desired developments into the desired areas.

Fishkind presented his Pasco results to the Sarasota County Commission, and Commissioner Paul Mercier quickly jumped on the engineering aspect, asking if the county could legally adjust impact fees to make them lower in one area where the county wants more commercial development, for instance, and higher in another where it wants less residential. Watch for that overweening possibility in any Gulf Coast community.

Still, the overall results were instructive enough, and Commissioner Jon Thaxton asked the county staff to research the impacts of its current impact fee hikes, which are now nearly $20,000 on a house in the county.

Fishkind's data is a good tool. But it depends on who is wielding it.

+ 'Past the bottom'

Fishkind believes the data show Florida's housing market has bottomed out - new-house closings are now higher than new-house starts, eating into supply, and demand is picking back up.

"It's weak, it's painful, but it ain't going down," he told the Gulf Coast Builders Exchange in Lakewood Ranch last week.

But he does not see a strong bounce back until 2009, a good 36 months of flat or only slowly growing housing prices.

It will be slow, but Fishkind also notes that the Gulf Coast is a strong market in the long term. Even if a smaller percentage of retirees comes here in the future than did so in the past, the mere size of the retiring baby boomers in coming decades leads him to predict about 350,000 net new residents to Florida annually during the next 20 years. Many will come to the Gulf Coast. And many will come from the Midwest.

And that last item is a minor problem in the short term. The Gulf Coast derives much of its tourism and growth from Midwest states such as Michigan, Ohio, Indiana, Illinois, Wisconsin, Minnesota, Iowa and Missouri. Because of regional economies, these states get hit harder by high fuel costs. That explains why the Gulf Coast economy is not quite as strong as the East Coast economy, which gets much of its tourism and growth fuel from the Northeast.

And he expects fuel prices to go yet higher before leveling out. That is part of the reason he does not foresee a quick recovery on the Gulf Coast.

+ Misplaced priorities

Fishkind has also conducted a study of property tax reforms for the Florida Association of Counties, and found the typical good news/bad news situation. His data make for some confirming conclusions.

Florida counties across the board cannot get their priorities straight, tugged and pulled in numerous directions while neglecting some basic needs.

Among the fastest-growing categories for local government spending in his report were law enforcement, general government, corrections, parks and health and human services. Notice anything missing? Something all taxpayers drive on daily and which get increasingly clogged from neglect?

Maybe there just wasn't enough money for roads? Setting aside that roads are more important for every aspect of life, including quality of life, than parks, the Consumer Price Index increased 17% from 2000 to 2006. Local government spending for counties rose 58% in those years. Many Gulf Coast budgets grew much faster than that, far outstripping expenses even with population growth thrown in. But they still just couldn't quite find enough money for roads. So they raise taxes on growth - the great non-voter - in the form of impacts fees.

The problem with reforming property taxes in any meaningful way is that the biggest single slice of property tax money goes to the most sacred of cows: schools. Even a Legislature enamored with cutting property taxes, maybe drastically, took schools off the table from the start.

There is just no stomach to reign in education spending. Lawmakers would be charged with hating children, etc., etc., etc. Thou shalt do nothing but pour more money into schools, regardless of the outcome. Insanity defined.

"Schools are the killer in cutting property taxes," Fishkind says.

Indeed. Tallahassee lawmakers are little better than local government officials when it comes to setting priorities to meet basic government needs, instead of everyone's pet wants.

Meanwhile, enjoy paying enormous property taxes while you sit in traffic unnecessarily. Or fight back.