Property Tax Pressure

REVIEW SUMMARY
What. Property values still dropping, but at slower rate.
Issue. Pressure builds to increase property tax rates to offset value declines.
Impact. Higher property tax rates could hinder economic growth.
By the Numbers. Click here for recent trends in Gulf Coast property taxes.

The bad news for Gulf Coast governments is that property values dove for at least the third year in a row in most cases — cumulatively down by about one-third from the peak of 2007 —meaning millions fewer dollars available to run government.

The good news, such as it is, is that the values aren't dropping quite as fast as they were. But the rest of the bad news — yes, the head can spin — is that property values may not have reached bottom yet and politicians are finding it much harder to keep only cutting costs.

All of this is putting tremendous pressure on counties and cities along the Gulf Coast to raise taxes, also politically dangerous.

Next year's budgets starting Oct. 1 will be based on values as of Jan. 1, 2011. So, fiscal year 2012 budgets will likely be worse than 2011.

Pinellas County Commissioner Ken Welch, an accountant with a masters degree in business administration, has seen his county's general fund revenues drop by $99 million, 17%, in the last three years.

He says the county now has “a $35-40 million [budget] gap again next year depending on property values, and we haven't hit rock bottom on property values.” Welch, a Democrat, joined the commission in November 2000, so he's seen the peaks and valleys.

Sean Snaith, an economist with University of Central Florida Institute for Economic Competitiveness, agrees with Welch on the outlook, saying, “It's going to take a couple years at the local level to show much improvement.”

Asked if the county might consider raising the general fund property tax rate this year to offset the drop in values, Welch says, “There's no sentiment to raise it.”

That's understandable, for as Snaith points out, “Increasing taxes doesn't increase economic activity.”

However, next year may be a different story.

Trend no friend

Welch says its more probable that the rate will go up next year.

In the meantime, local officials will be haggling over property tax rates more than ever this summer. The conundrum will be for politicians and budget pros trying to balance constituents' demands for lower taxes in tough times with constituents' demands for services, including such basics as public safety.

Tax rates crept up the last two years for Gulf Coast counties as a whole. But Lee, Manatee and Pinellas kept their rates unchanged.

Manatee residents go to the polls in November to vote on increasing school property taxes by a quarter mill, something 43 other school districts approved last year, but Manatee passed on.

That tax is estimated to yield $6.7 million to counter $8.87 million in cuts that district staff recommended this month. School closings are on the table.

Hillsborough's millage went down a hair each of the last two years. And Sarasota's has dropped 4.4% since 2007 thanks to spending from reserves accumulated in the boom years.

Lee County also took roughly $60 million out of reserves this year, and is expected to draw down savings again to help balance next year's budget.

Both Lee and Sarasota counties have indicated that well is running dry, meaning more big cuts, increases in tax rates, or as Snaith predicts, some of both. Snaith says, “We're probably at that point where it's going to be a little bit of each.”

In fact, Lee County already voted 2-2 July 6 effectively increasing the millage 20% to $4.28 per $1,000 of taxable value. The millage rate equals $1 of tax per $1,000 of taxable property value. Lee's tie vote automatically increases the rate to raise the same tax revenue as this year to offset the loss in property value.

John Manning, the newly appointed commissioner, and a Republican, could influence a change in the rate when he takes office in late July. Manning replaces Bob Janes, who died in March.

Added together, the total general fund millage rate for the eight Gulf Coast counties has risen 6.4% from 2007 to 2009. Final millage rates won't be set until September when budgets get approved.

Lee County has been the hardest hit of all accounting for more than a quarter of the drop in taxable value throughout the region: $41.3 billion gone since the peak.

To make ends meet, county staff proposes $48.4 million in budget cuts for next fiscal year. Employees may get unpaid furlough days — 12 for managers and eight for non-managers — plus see increases in health insurance premiums and medical co-pays.

Hillsborough County went to furlough days this past year, a practice expected to continue. According to a recent staff presentation, the county is looking at another $65 million in property tax losses for fiscal year 2011. That's due to an estimated $7.7 billion decline in taxable value for the last calendar year. Hillsborough is now down $22.5 billion in taxable value since the 2007 peak.

Similarly, Collier County — though with a much smaller population — taxable value has plunged $20.7 billion since cresting.

Collier differs from other Gulf Coast counties in that its taxable values went down more this past year than the year before. It's also as big as it is diverse with toney beachfront Naples and Marco Island to inland and relatively lower income Immokalee and Golden Gate Estates.

The other seven counties each declined by a smaller percentage in 2009 than in 2008, but Collier's dipped 11.6% in 2009 compared to 11.0% the prior year.

Property Appraiser Abe Skinner explains, “We're having an awful lot of repos, bank sales and short sales.”

But Skinner also notes the values in Golden Gate Estates, an antiquated and massive pre-platted subdivision in eastern Collier, is the major culprit.

Skinner says, “The coastal areas didn't quite go down that much. Golden Gate Estates got hit very, very hard and that may have skewed the percentage of decrease.” Parts of Golden Gate Estates, which the long-time property appraiser describes as “thousands of square miles,” declined another 50% in value after first dropping from the 2007, according to Skinner.

On the bright side for Collier, though it's taxable value is down 25% from the peak, it compares favorably to its neighbors to the north. Lee and Charlotte down 44% and 43%, respectively. The Gulf Coast counties combined are off 31.3% from when each peaked.

'Change is coming'

Local government tax revenues are being affected by more than just falling property values.

For example, in Pinellas' fiscal year 2008, the Legislature required the county to roll back revenues by 7%, and implemented a property tax cap limiting future increases in property taxes. Other counties got a similar hit.

The following year, Amendment One was approved by voters increasing the homestead exemption, and the portability of the Save Our Homes exemption kicked in. In fiscal year 2010, taxable values dropped 11.7%. This year, it's estimated to drop 9.5% more, adding up to a 27.1% slide in three years.

Other revenues such as sales taxes and gas taxes, are also dropping. The county's budget shrunk $341.8 million, 17.1%, from fiscal year 2009.

For fiscal 2011, one early estimate of taxable value showed a 12% drop attributed to the continuing impact of foreclosures and record high unemployment. Commissioner Welch and his Pinellas colleagues felt some sense of relief seeing the more recent property appraiser's estimate of a 9.5% decline. That figure ties Sarasota County with the lowest percentage reduction in the region.

Welch says this will be the fourth year in a row the county has cut the budget and is looking to cut roughly $47 million this year to have less to cut for fiscal 2012.

Union contracts with firefighters and paramedics make it especially difficult to make bigger cuts now, but Welch predicts, “Change is coming.”

He says the county, which provides emergency services for all the cities in the county, has been locked into those agreements with the municipalities for 20 years or so. Under that arrangement, county taxpayers faced with laying off sheriff's deputies that haven't had pay raises in three years, are paying for police with city contracts. “That's ironic, to say the least,” says Welch.

“It's inevitable. We just can't fund it the way we've been funding it. We can't afford to fund it the way it is,” Welch says, adding, “The economy and the fiscal realties demand we do that now.”

A study of a fire district south of Pinellas Park is coming back to the commission this fall. “I relayed to them that change is coming the way we fund firefighter paramedics,” says Welch.

One change Welch hopes his coastal county won't have to deal with is oil washing ashore, where he says the latest predictions show a 1-20% probability. That's right where higher property values contribute much to keeping the county afloat, as it has in Collier and other Gulf Coast counties.

Should those values suffer this year, the coastal counties' taxable property values will come under further downward pressure. And that can only put more pressure on county officials to raise tax rates next year, and perhaps the year after.

“I think we're going to see that happen with a higher frequency around the state,” says Snaith without accounting for the effects of oil on coastal values.

Local officials have used reserves the last couple of years to lessen the need for cuts. But those are now low. “There's no way to balance the budget and come up with something that's a net positive for the economy,” says Snaith.

“It's just going to be a long battle, not a short one,” Welch forecasts. “We'll be dealing with this battle for two or three more years before we stabilize.”