In the last few days there appeared to be a couple of bits of good news for the taxpayers of Martin County. The school board is evaluating a recommendation to increase the impact fees charged on new homes and businesses, as a way to let growth fund needed new schools. Also, the county commission issued instructions to their staff to be frugal with their 2007 budgets and publicly recommended that our constitutional officers (Sheriff, Clerk of Court, Tax Collector, etc.) do the same.

On the down side, the County Administration is beginning their budget process with the assumption that ad valorum tax (millage) rates may have to be raised to cover a projected shortfall of some $3 million in their initial cut at a 2007 budget. The reasons stated for the possible increase in millage are the cooling of the local real estate market and the cumulative effects of the last two hurricane seasons. Sorry but we have been warning about this correction for the last several years and have very little sympathy with the Administration’s problem.

The county is already spending over $1 million a day and the budget has been increasing at least 3 times faster than population growth for well over ten years. In the last three years alone spending has increased over 40%. There has been precious little honest debate on cutting spending and managing the public’s money more efficiently by any part of our government.

Martin County’s increasing property values and real estate sales volume have allowed our local governments to become accustomed to rapidly rising income without the politically risky requirement to raise tax rates and to establish programs covered under the umbrella “essential services”. We now appear to be entering an era where these newly defined “essential services”, and inflated government staffs may be difficult or impossible to sustain.

Initiatives are also being pushed at both state and local levels that could increase the Homestead Exemption, allowing portability of these exemptions and applying similar exemptions to businesses and part- time residents. All of these scenarios would further reduce the county’s ability to raise revenues without tax increases. The increase in impact fees projected for both school facilities and administration will help, but it will certainly not solve the problem, or make up for previous excesses.

So what is the answer? There is only one – a county government that is willing to control spending. Voters must demand county officials committed to efficiency and a sustainable level of expenditures.

Last week the Florida Senate released its first set of recommendations for a comprehensive overhaul of Citizens Property Insurance Corporation. Citizens is the state controlled insurer of last resort for homes and businesses unable to secure private insurance due to their location and/or the condition of the property. It is currently being subsidized by all Florida homeowners through “taxes” hidden in private insurance surcharges - currently averaging hundreds of dollars per Martin County homeowner - to cover Citizens’ almost $2 billion in losses over the last two years.

If you wonder why the Martin County Taxpayers’ Association continues to follow the state’s actions so closely, please note the following from the Florida Senate’s press release. The Senate Banking and Insurance Committee Chairman is quoted as saying the reforms are necessary to stave off what might be "the greatest financial crisis that Florida has ever faced." One committee member quantified the potential problem: “ homeowners statewide could be assessed $36 billion if a category 5 hurricane hit a high-population area in which Citizens provides most policies. This statistic should be startling for all taxpayers because it surpasses the total debt of the state of Florida. And that amount could be assessed against every policyholders in this state."

The Florida Senate’s recommendations include:

• A $1 million cap on the value of homes insured by Citizens
• Charging non-homesteaded properties 25% more for a Citizens policy
• Reducing the geographical area for “high wind risk” which could reduce Citizens residential policies by over 12%
• Forbid Citizens from insuring any property that is offered comparable coverage by any other insurer
• Imposing an additional 25% surcharge on non-homesteaded properties (on top of the above 25% premium increase)

At this point these are only recommendations, but they could become law very quickly. We have not taken a position regarding them because they have yet to be fully defined. However, we are certainly against our homeowners being “taxed” to support insurance on properties that are otherwise uninsurable, and will continue to report on the progress of these reforms. Martin County’s residents, full or part-time, homeowner or not, should pay close attention. These actions will affect us all. Many of the writers and callers that contact us have a common theme, “Homestead Exemption”, or more accurately, the lack of homestead exemption. When it was originally conceived homestead exemptions were to encourage the settlement of Florida by providing a small protection from local property taxes for full time residents. As property values in Florida began to rise rapidly in the 70’s many old time residents found themselves being taxed out of their homes by ad valorum assessments. This was particularly true for older residents living on waterfront properties.

This situation led to new laws being passed that attempted to force local government to lower millage rates to compensate for rising assessments. Laws like the Truth In Millage, or “TRIM” bill, were passed. These laws forced government to advertise what the difference between taxes collected under new assessments were compared to what taxes would have been with no assessment increase. This proved to be difficult to implement and did little to slow the hunger of government for its people’s money.

With little tax relief in sight, the people of Florida reacted by proposing and adopting a State Constitutional Amendment to slow their assessments. This measure was commonly known as the “Save our Homes” Amendment. This new law did the trick. It froze assessments on “Homesteaded “ homes and limited the rise to a maximum of 3.5% per year. This protection remains with the property until it is sold, at which time the assessment is updated to the home’s current value and the cycle begins again.

As with most new laws, there were unintended consequences. One consequence has been the creation of wide differences in taxes being paid by similar, sometimes identical, properties. The other more serious consequence is that it has left businesses and investment properties unprotected from the lust of tax dollars by government. Politicians quickly realized that most non-“Homesteaders” were not voters and business owners were able to pass along higher taxes to their customers. Also, rental property owners passed along these increases, further reducing the number of affordable housing units available.

We believe there are other serious consequences of the “Save our Homes” Act. The most apparent is voter apathy toward large increases in budgets funded by ad valorum taxes. Years ago voting residents anxious about their future taxes usually packed local budget hearings. Recent hearings have played to empty rooms. Essentially, homesteaded property assessments have allowed huge budget increases to be passed with little comment from the voting public.

Another is the affect on the real estate market as the difference between the taxes paid by “Homesteaders” and non-protected properties widens. Many residents now find themselves locked into their homes by the fear of huge tax increases. Some residents wishing to downsize their homes have found that they would be paying much higher taxes on much smaller homes should they step out from behind the “Homestead” shield on their present property. This phenomenon has affected the normal evolution of housing and contributed to the drastic rises in home costs. A normal progression was for residents to raise their families in a larger home and then move on to a smaller one. This allowed the larger homes to be available for the next generation. Now, many older citizens are financially trapped in homes too big for them.

Again the public is looking for protection from its government. This time proposals are being floated that allow residents to carry their “Homestead” shields to new homes. Part time residents are seeking the same protections as their full time neighbors. Business owners are seeking the protections afforded homeowners. Those demanding affordable housing are looking for exemptions on rental properties.

Although reforms are needed, we see another wave of unintended consequences following the adoption of additional protections. We see budgets still out of control of the voting citizens and being driven by special interest groups. Mainly, we see the need for fiscal constraint. Once again we urge local leaders to see the consequences and adopt roll back ad valorum rates. Only by reducing the cost and improving the efficiency of local government can a rational and fair ad valorum tax system be achieved.