palmbeachpost.com
Rising values create two classes of homeowner
By Jeff Ostrowski
Palm Beach Post Staff Writer
Sunday, April 09, 2006
Save Our Homes, the tax relief package aimed at keeping Floridians of moderate means from being taxed out of their houses, increasingly divides Florida property owners into two classes — winners and losers.
The winners? Longtime property owners with homestead exemptions.
A splitting market
How rising costs have divided the market between those who benefit from Save Our Homes and those who don't.
The big winners
See 3,600+ properties with more than $500,000 in savings under the "Save Our Homes" law
The losers? Everyone else, from recent buyers of homes to apartment tenants, from snowbirds to owners of malls and office buildings, even longtime residents like Matthew Krische who simply move a few miles away.
Consider the property taxes paid by Krische and his neighbor, Mike Ryan. Both live in spacious houses on an unpaved road west of Jupiter. Both men are business owners with homestead exemptions on their houses.
But all similarities end when the tax bill arrives.
Ryan, an electrical contractor, paid $3,665 in property taxes last year on his home in Palm Beach Country Estates. Krische, owner of two dry-cleaning stores, paid $7,516 — more than twice as much, even
though the county property appraiser assigns similar values to both homes.
The gap in their tax bills is but one example of the mounting inequities created by Save Our Homes, the tax break approved by Florida voters in 1992.
Throughout Palm Beach County and the Treasure Coast, neighbors in nearly identical homes pay vastly different tax bills depending on when they bought their homes and whether they have a homestead exemption.
Examples abound. Two townhouses in the same building in Delray Beach's Delray Oaks West: One owner pays $1,364, the other pays $3,601. Similar homes on Sweet Wood Way in Wellington: One owner pays $1,751, the other pays $3,854. Condos on the same floor of the same building on Celestial Way in Juno Beach: One owner pays $2,032, the other $5,581. Similar lots on Nettles Island in St. Lucie County: One owner pays $817, the neighbor pays $3,094.
Even Save Our Homes' supporters acknowledge that such gaps aren't fair, and a growing chorus of critics complains that the tax break disproportionately rewards owners of high-priced homes.
But the measure's staunchest critics say Save Our Homes won't go away. Instead, there's a push to expand the break by letting homeowners take it with them when they move.
That doesn't sit well with Nettles Island snowbird Ed McIntosh, who doesn't have a homestead exemption on his 900-square-foot home along the Intracoastal Waterway and has seen his property tax bill double in recent years to $5,828.
"The whole county is running on the backs of nonresidents' checkbooks," said McIntosh, a Ford Motor Co. retiree who spends most of the year in Michigan. "It's discrimination."
Big tax bills further slow market
The wide discrepancies in tax bills aren't the only unintended consequence of Save Our Homes. Faced with big increases, many homeowners stay put rather than moving up or downsizing, creating a drag on an already-slowing housing market. The phenomenon even inspired a new nickname for the tax break, which some now refer to as "Slaves to Our Homes."
Save Our Homes also has evolved into a regressive tax where the biggest benefits accrue to the wealthy. Golfer Greg Norman, Tampa Bay Buccaneers owner Malcolm Glazer, singer Jimmy Buffett, broadcaster Rush Limbaugh, even former Tyco International head Dennis Kozlowski, among other longtime owners of oceanfront manses, see millions in property value sheltered from taxes. All saved more than $100,000 in property taxes last year thanks to Save Our Homes.
Yet there's no such break for cash-strapped first-time buyers who struggle to find homes they can afford. They pay taxes on the full value of their homes, posing one more obstacle to affordable housing.
Ryan, one of the beneficiaries of the measure, voted for Save Our Homes, and he's glad the measure passed. Krische, despite his frustration, doesn't blame his neighbor for taking advantage of the break.
"I don't begrudge him," Krische said.
But Krische was shocked to see his tax bill soar after he and his wife, Linda, moved to the Palm Beach Country Estates home in 2004 from a bigger house in Jupiter.
"There's no logic," Krische said of his rising tax bill.
In fact, there is a logic, one imposed 14 years ago by Florida voters, 54 percent of whom voted "yes" to Save Our Homes. The amendment to Florida's constitution says the taxable value of a homesteaded property can rise by no more than 3 percent a year or the rate of inflation, whichever is less.
Throughout the '90s, Save Our Homes didn't matter much. After all, houses were appreciating by only a few percent a year.
But as home prices have skyrocketed in the past five years, so has the gap between the taxable value and the true value of many homes. In 2005, Save Our Homes sheltered $29 billion in property value from Palm Beach County taxing agencies, up from only $2 billion in 1999, according to the Palm Beach County property appraiser.
When one homeowner pays two or three or four times as much as a neighbor in a similar home, questions of fairness follow.
Deborah Beriro last year bought a house in Lake Worth's College Park. Her 2005 tax bill was $7,328 and likely will go up even more this year when her purchase is taken into account by the county property appraiser. Two blocks south of her, the owner of a similarly valued house pays only $1,570 in property taxes.
"When I bought my house, I knew my real estate taxes were going to go up. It's not taking me by surprise," said Beriro, a real estate broker. "But it's not fair that my neighbor is paying half as much as I am and probably using the same services."
During a recent speech to Realtors in Palm Beach Gardens, Palm Beach County Property Appraiser Gary Nikolits called those sort of discrepancies "grossly unfair."
"One man's loophole is another man's noose," Nikolits said.
Law doesn't rein in local spending
The question of fairness is one of the few things that Save Our Homes' supporters and detractors can agree on. Everyone — even the self-described "proud father" of Save Our Homes — acknowledges that it's not fair.
"Nobody ever said it was fair," said Ken Wilkinson, the Lee County property appraiser and Palm Beach County native who pushed for its passage. "The inequity it fixed was far greater than the one it created."
That inequity, Wilkinson said, was caused by rising property taxes for longtime homeowners who were being taxed on the increasing values of their homes, even though they saw no benefit from those rising values until they sold.
Wilkinson said he wanted to force growth to pay for itself by making newcomers pay their share of the new roads and schools they required. And he doesn't have much sympathy for snowbirds like McIntosh.
"If you can afford a vacation home in Florida, you should be able to pay the taxes," Wilkinson said.
Save Our Homes has become a hotly contested issue in Tallahassee this year, and those on both sides of the debate acknowledge that the law did nothing to rein in spending by local governments. They're still collecting more property taxes every year.
There is one other thing everyone agrees on: Fair or not, Save Our Homes isn't going away. Owners of homesteaded properties are the beneficiaries of the tax break, and they possess enough votes to keep the benefit — and perhaps even expand it, if a push to make Save Our Homes "portable" succeeds.
"We don't think it's fair," Kurt Wenner, senior research analyst at Florida TaxWatch, a Tallahassee-based research institute, said of Save Our Homes. "It's fundamentally flawed if you're looking at a fair taxation system. But try convincing someone who's saving $4,000 a year because of it."
In truth, only a relatively few homeowners save $4,000 a year because of Save Our Homes. The average difference between market value and taxable value for Palm Beach County homesteaders is $84,218 — translating to a savings of $1,743.
One recent legislative study finds that most Florida homeowners save only a few hundred dollars a year as a result of Save Our Homes.
For the wealthiest Floridians, however, the savings can be striking. Greg Norman's Jupiter Island home is worth $21 million, yet its taxable value is only $8 million, according to the Martin County property appraiser. He saved more than $220,000 as a result of Save Our Homes last year.
Attorney Bob Montgomery likewise enjoys a hefty tax break from Save Our Homes. His $175,000 tax bill would have ballooned to $380,000 last year without the cap, according to the Palm Beach County property appraiser.
"As an owner of a home in Palm Beach, I'm delighted with the law," Montgomery said.
Considering that his tax bill totals nearly $15,000 a month, Montgomery said he scarcely feels like a winner in the Save Our Homes game.
"The solution, if there is such a thing, is to cut the taxes for everybody," Montgomery said. The biggest property tax break in Palm Beach County last year went to Joyce Fisher, widow of Robert C. Fisher, inventor of the seat belt. Her home at 700 N. Lake Trail in Palm Beach was worth $33 million in 2005, according to the county property appraiser, yet only $11 million of that amount was taxable.
The break saved her $427,130 in 2005, according to the property appraiser's Web site. Fisher sold the 5-acre estate in January for $50 million.
There's nothing illegal or even secretive about A-list celebrities taking advantage of the tax break, but it's not exactly what voters had in mind when they approved a measure intended to keep little old ladies from being priced out of their piece of paradise.
While the wealthy save big bucks, lower-income residents who are struggling to buy a first home must pay full freight.
Property taxes are just one more hurdle for first-time buyers, said Anita Jenkins, senior program director at South Florida Local Initiatives Support Corp., a group that helps low-income workers buy homes.
"People may qualify for the mortgage and interest, but the taxes and insurance turn into an obstacle," Jenkins said. "There perhaps needs to be some rethinking about how Save Our Homes is applied to the low-income buyer."
Indeed, Save Our Homes disproportionately benefits the wealthy, say economists such as Tim Allen, a real estate professor at Florida Atlantic University who has studied the effects of Save Our Homes.
"Lower-valued properties appreciate less quickly," Allen said. "Higher-valued properties appreciate more quickly. Someone with a $100,000 home benefits, but someone with a $1 million home benefits more."
Buddy MacKay, who was Florida's lieutenant governor when Save Our Homes passed, agrees. Floridians who can't afford to buy homes are hurt by Save Our Homes, even though they don't pay property taxes directly. That's because apartment buildings and rental properties aren't protected by Save Our Homes, and landlords simply pass on higher taxes to tenants in the form of higher rents.
"It's not helping poor or middle-class people as much as it's helping rich people," MacKay said.
Break could travel with homeowners
Even as the debate rages about the fairness of Save Our Homes, voters soon could have a chance to expand the break.
State lawmakers have been debating a measure that would allow homesteaders to take the break with them when they move. Republican gubernatorial candidates Tom Gallagher and Charlie Crist support such a move, as do Nikolits, Martin County Property Appraiser Laurel Kelly and St. Lucie County Property Appraiser Jeff Furst.
State Rep. Carl Domino, R-Jupiter, has championed such a break for several years, but he said this is the first year lawmakers are taking the proposal seriously.
Domino offers this example of how portability would work: Say you paid $200,000 for your home and it's now worth $600,000. You could move into a $1 million home and take your $400,000 break with you, a tax savings of about $8,000 a year.
That proposal sounds perfect to Mike Ryan, the electrician who has been a longtime beneficiary of Save Our Homes. He's building a bigger house for himself, his wife and their two children in Palm Beach Country Estates, but he realizes that moving will triple or quadruple his tax bill.
Ryan, 48, is thinking ahead toward retirement, and he said a $10,000-a-year property tax bill could push him out of Palm Beach County.
"If I retire, how is Social Security going to cover a $1,000-a-month property tax payment?" he asked. "Our tax bill is going to be as high as our mortgage payment. I'd like to stay in Palm Beach County, but I don't know if I can afford it."
It's unclear whether lawmakers will pass any form of portability this year. Nikolits favors capping the break at $250,000, which would equate to a tax savings of about $5,000 a year, and there's debate over whether the expanded break would apply to a move only within a county or anywhere in the state.
State Rep. Fred Brummer, R-Apopka, is an ardent tax cutter but has been an outspoken opponent of expanding Save Our Homes. Not only does the break shift the tax burden from the wealthy to everyone else, it also puts less affluent inland counties at the mercy of wealthy coastal counties such as Palm Beach, Brummer said.
When he introduced a property-tax reform plan in Tallahassee last month, Brummer specifically pointed to Norman's outsized tax break.
"Because the appreciation is so much greater in the coastal counties, the coastal counties have a far greater percentage of their property protected under Save Our Homes," Brummer said. "The wealthy homeowners are not paying their full share."
What's more, Save Our Homes encourages homesteaders to stop paying attention to spending by their municipalities, he said. Local governments have taken in more money thanks to the property boom, yet homesteaders don't bear any of the burden of the additional spending.
"No one goes to budget hearings any more," Brummer said. "Budget hearings should look like the torch scene in the movie Frankenstein." Nettles Island snowbird Ed McIntosh wasn't carrying a torch last month when he led a group of snowbirds to St. Lucie County's commission chambers. Instead, they wore black armbands — "to mourn the loss of our checkbooks." McIntosh urged county commissioners to lower the property tax rate, but he received no indication that such a move is likely.
During a recent tour of Nettles Island in his yellow golf cart, McIntosh pointed to for sale signs and said high property tax bills have made lots difficult to sell.
"When people are told what the tax bill will be," he said, "they burn rubber getting out of here." |
