Orange County Florida Audit Forum Dealing with Property Tax Reform - - PowerPoint PPT Presentation

Presentation by:

Randy Singh, Manager, Orange County OMB August 8, 2008

Orange County

Dealing with Property Tax Reform and Economic Challenges in Florida

Florida Audit Forum

OUTLI NE

• Background
• Property Tax Reform
• Econom ic Pressures
• Budget Challenges
• Sum m ary

OUTLI NE

• Background
• Property Tax Reform
• Econom ic Pressures
• Budget Challenges
• Sum m ary

ORANGE COUNTY STATS

• 5 th Largest County in Florida
• 4 .4 3 4 7 Countyw ide Millage Rate
• 6 0 0 + Funds
• Population = 1 ,0 7 9 ,5 2 4
• First in tourist

developm ent tax collections

• Second in sales tax

collections

• Largest Restaurant

BACKGROUND ( Sum m ary) Orange County has an annual budget of $ 3 .4 billion. I n dollar term s, about the sam e size as Berm uda, The Baham as, Fiji, or Greenland

BACKGROUND

Our biggest taxpayer accounts for about 6 % of total taxable value...

Countyw ide: ~ $ 1 0 8 B

BACKGROUND

about the sam e as the next 1 0 put together.

OUTLI NE

• Background
• Property Tax Reform
• Econom ic Pressures
• Budget Challenges
• Sum m ary

Property Tax Reform

Back in the “Good Old Days”

• Counties, Cities, and

School Boards set their

• w n m illage rates, up to

a 1 0 m ill cap.

• The State required that

tax increases be properly advertised and adopted.

• Debt issued against property tax had to be

approved by a referendum .

• “Taxable value” w as generally the assessed value.

Property Tax Reform

• 1 9 3 4 - Hom estead Exem ption
• 1 9 9 2 – Save Our Hom es
• 2 0 0 7 – Millage Lim itations
• Jan. 2 0 0 8 – Am endm ent 1
• Nov. 2 0 0 8 – Am endm ent 5

• Market Value/ Sale Price – The value of your property on

the open market

• Just Value – The market value less cost of sales (~ 15% )
• Assessed Value – The value of your property before

exemptions are deducted (JV-CD)

• Capped Difference ( SOH savings not taxed) - Just Value

less Assessed Value

• Exem ptions – Includes the homestead exemption,

Widow/ Widower, and disability

• Taxable Value – The Assessed Value minus any applicable

exemptions

Frequently Used Term s

Property Tax Reform

Property Tax Reform

• 1 9 3 4 - Hom estead Exem ption
• 1 9 9 2 – Save Our Hom es
• 2 0 0 7 – Legislative Action
• Jan. 2 0 0 8 – Am endm ent 1
• Nov. 2 0 0 8 – Am endm ent 5

• Created in 1 9 3 4 @ $ 5 K during Great Depression
• 1 9 8 2 increased to $ 2 5 K
• 1 9 9 8 additional $ 2 5 K to low incom e seniors 6 5 + years
• 2 0 0 8 Am endm ent 1 increased by $ 2 5 K for hom e value

greater than $ 5 0 K

Hom estead Exem ption

Property Tax Reform

• 1 9 3 4 - Hom estead Exem ption
• 1 9 9 2 – Save Our Hom es
• 2 0 0 7 – Millage Lim itations
• Jan. 2 0 0 8 – Am endm ent 1
• Nov. 2 0 0 8 – Am endm ent 5

• I n the 1 9 9 0 ’s, Floridians w ere w orried that rapidly

increasing real estate values w ould cause taxes to increase too quickly for fixed incom e residents.

• 1 9 9 2 – “SOH” Constitutional Am endm ent passed.

–Lim its the increase in assessm ent to 3 % or CPI , w hichever is less. –W ent into effect in 1 9 9 5 . –Created a w hole new set of problem s.

Save Our Hom es

Taxpayers Also Voiced Com plaints.

1 . A new hom e buyer m ight be paying tw ice the total taxes as the long-tim e hom eow ner next door in a bigger house. 2 . I f you had ow ned your hom e for m any years, selling your house and m oving to a sm aller hom e m ight cause a big increase in your taxes.

90,000 100,000 110,000 120,000 130,000 140,000 150,000 Year 1 Year 2 Year 3 Year 4

Market Value Assessed Value 3 . SOH favors higher priced hom es. 4 . Even w hen the m arket value goes dow n, your assessed value can continue to clim b.

Save Our Hom es

Save Our Hom es

• Statew ide Value Rem oved From Tax Rolls:
• $ 2 5 K Hom estead Exem ption and SOH Differential

$513 Billion

5 0 1 0 0 1 5 0 2 0 0 2 5 0 3 0 0 3 5 0 4 0 0 4 5 0 5 0 0 5 5 0 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 Fiscal Year Ending $ Billions

Homestead Exemption Save Our Homes Differential

Property Tax Reform

• 1 9 9 2 – Save Our Hom es
• 2 0 0 7 – Millage Lim itations
• Jan. 2 0 0 8 – Am endm ent 1
• Nov. 2 0 0 8 – Am endm ent 5

Pressure for even m ore tax reform .

– Local governm ent w as called “w asteful and inefficient.” – Citizens felt their taxes w ere too high, and their local governm ents w ere unresponsive.

• The 2 0 0 7 Florida Legislature

heard those com plaints…

• And sw ung into action to

answ er the call.

2 0 0 7 Millage Lim itations

FY 0 8 I m pact

“Maxim um Millage” - F.S. 2 0 0 .1 8 5

• Capped tax rates for counties,

cities and special districts.

• Rolled back fiscal year 2 0 0 7 -0 8

taxes to FY 2 0 0 6 -0 7 level, – Minus an additional percentage cut ( 3 % , 5 % , 7 % or 9 % ) based

• n prior tax perform ance

– Plus an adjustm ent for new construction.

• Cut taxes by roughly $ 1 .5

billion statew ide.

2 0 0 7 Millage Lim itations

FY 0 8 I m pact

2 0 0 7 Millage Lim itations

FY 0 8 I m pact

“Rolled Back Rate” – F.S. 2 0 0 .0 6 5

– The m illage rate levy that w ould generate the sam e am ount of tax proceeds as the prior year after excluding new construction and neutralizing the im pact of CRA paym ents – This rate is used to determ ine advertising requirem ents

2 0 0 7 Millage Lim itations

FY 0 8 I m pact Orange County

$ 1 2 0 m illion less in property taxes

“Method of Fixing Millage” - F.S. 2 0 0 .0 6 5

• Fiscal Year 2 0 0 8 -0 9 and

thereafter – Maxim um m illage rate equal to the “rolled-back rate” plus personal incom e grow th

2 0 0 7 Millage Lim itations

FY 0 9 I m pact

• Form DR 4 8 7 V
• Form w as added to

record nam es and votes

• f each m em ber ( of the

Board or Council)

• For FY 2 0 0 9 , vote record

w ill have to be com pleted for all jurisdictions.

2 0 0 7 Millage Lim itations

FY 0 9 I m pact

Steps to be taken if DOR indicates Non- Com pliance

• Repeat the advertisem ent

and public hearing process.

• “The previous notice…

determ ined to be in violation of the law …”

• Any excess taxes collected

m ust be held in trust by Tax Collector.

• Excess m ay be used only to reduce taxes

next year.

2 0 0 7 Millage Lim itations

• Penalty if still in non-Com pliance
• Governm ents that don’t

com ply w ith statutory requirem ents, and fail to rem edy the non- com pliance, lose their ½ cent sales tax revenue sharing from the state for a 1 2 m onth period.

2 0 0 7 Millage Lim itations

2 0 0 7 Millage Lim itations

The “Rolled Back Rate” made simple.

(Orange, Countywide only.)

2 0 0 7 Millage Lim itations

Maximum Millage Made Simple

(Orange, Countywide, Majority vote only.)

Millage Lim itations (cont.)

• Majority Vote – Rolled Back rate, adjusted

for Am endm ent One, plus 4 .1 5 % ( the per capita personal incom e change)

• 2 / 3 vote = 1 1 0 % of RBR, plus 4 .1 5 % ,

adjustm ent for Am endm ent One

• Unanim ous

( 3 / 4 if 9 or m ore)

• r referendum =

up to 1 0 m il cap

Maxim um Millage for FY 2 0 0 9

Property Tax Reform

• 1 9 9 2 – Save Our Hom es
• 2 0 0 7 – Legislative Action
• Jan. 2 0 0 8 – Am endm ent 1
• Nov. 2 0 0 8 – Am endm ent 5

Am endm ent 1

• Additional $ 2 5 ,0 0 0 hom estead

exem ption for value above $ 5 0 ,0 0 0 ( Except School Tax)

• 1 0 % cap on non-hom estead

( Except School Tax)

• $ 2 5 ,0 0 0 tangible personal

property tax exem ption

• Save Our Hom es Portability

Passed January 2 9 , 2 0 0 8

Am endm ent 1

Tax Cut ( $ in Millions)

$706.0 $66.4 $569.1 $70.5 Statewide $40.0 $4.2 $32.3 $3.6 Orange County Total Tangible Exempt. Added Exempt. Portability

Am endm ent 1

• Difference betw een the Just Value and the

Assessed Value – the Capped Difference

• Am ount that is not taxed
• Am ount that can be transferred to a new hom e

90,000 100,000 110,000 120,000 130,000 140,000 150,000 Year 1 Year 2 Year 3 Year 4

Market Value Assessed Value

Portability

Am endm ent 1

• Statew ide
• Up to $ 5 0 0 ,0 0 0 can be transferred.
• I f new hom e has a

low er value, can transfer proportional benefit.

• Must apply for

portability.

Portability Details

Am endm ent 1

PORTABI LI TY EXAMPLE Purchased Price in 2 0 0 4 $ 2 3 5 ,0 0 0 Just Market Value in 2 0 0 4 2 0 0 ,0 0 0

(based on price less 15% )

Assessed Value = JMV 2 0 0 ,0 0 0 Hom estead Exem ption

• 2 5 ,0 0 0

I nitial Taxable Value $ 1 7 5 ,0 0 0 2 0 0 7 Just Market Value $ 3 5 0 ,0 0 0 2 0 0 7 Assessed Value

• 2 1 2 ,0 0 0

( 6 0 .5 7 % JMV) (assuming 3% cap applied)

Save Our Homes Benefit

$ 1 3 8 ,0 0 0

$ 138,000 is the Portable amount, worth about $2,484 in tax dollars saved

(assuming about 18 mills total tax rate)

Am endm ent 1

Assum e you take your Portability to a: “Bigger” hom e “Sm aller” hom e Purchase Price $ 4 5 0 ,0 0 0 $ 1 8 5 ,0 0 0 Just Value ( 8 5 % ) 3 8 2 ,5 0 0 1 5 7 ,2 5 0 Portability

• 1 3 8 ,0 0 0
• 9 5 ,2 4 6 *

= Assessed Value 2 7 2 ,0 0 0 6 2 ,0 0 4 Hom estead

• 5 0 ,0 0 0
• 3 7 ,0 0 4 * *

= New Taxable Value $ 2 2 2 ,0 0 0 $ 2 5 ,0 0 0

* Old Assessed Value / Old Just Value x New Just Value = Portability for sm aller value property * * First $ 2 5 K plus am ount over $ 5 0 K Assessed value

Am endm ent 1

• Portability is retroactive to 2 0 0 7 .
• W ill decrease

the rate of grow th

• Very difficult to project
• Did you hear the

“sonic boom ?”

Econom ic Effect

Property Tax Reform

• 1 9 9 2 – Save Our Hom es
• 2 0 0 7 – Legislative Action
• Jan. 2 0 0 8 – Am endm ent 1
• Nov. 2 0 0 8 – Am endm ent 5

• Established by constitution in 1 9 8 8 ;
• Meets every 2 0 years;
• First m eeting in 1 9 9 0 , second in 2 0 0 8 ;
• 2 5 voting m em bers: 1 1 appointed by

Governor, seven by the Senate President, seven by the Speaker

• f the House.
• Four non-voting

m em bers.

Florida Taxation and Budget Reform Com m ission ( TBRC)

1 . State Budgetary Process; 2 . Revenue needs of the state; 3 . Expenditure process of the state; 4 . Appropriateness of the tax structure

• f the state;

5 . Governm ental productivity and efficiency .

TBRC tasked to exam ine:

Florida Taxation and Budget Reform Com m ission ( TBRC)

TBRC

2 .

Replaces School Tax w ith Sales Tax ( Am endm ent # 5 )

4 .

Prohibits Tax assessm ent of Hurricane- resistance im provem ents.

6 .

Assessm ent of W orking W aterfronts

1 5 .

Exem ption of Conservation Lands.

2 0 .

Allow s the State to support religious institutions.

2 1 .

Requires a percent of school funds to be spent in the classroom .

3 5 .

Authorizes local option taxes for com m unity colleges

2 0 0 8 Adopted Proposals:

TBRC - Am endm ent # 5

1 .

Lim its non-hom estead valuation to 5 % ( instead of the current 1 0 % )

2 .

Lim its the total of all school m illage to 5 m ills ( instead of the current 1 0 m ills)

3 .

Elim inates the Required Local Effort property tax for schools, starting in FY 2 0 1 0

4 .

Replaces lost RLE revenue w ith up to a 1 % sales tax…

5 .

Plus “Other Revenue Sources” such as the elim ination of sales tax loopholes

On the ballot Novem ber 4 , 2 0 0 8 :

TBRC - Am endm ent # 5

1 .

Required Local Effort last year w as roughly $ 8 billion

2 .

A 1 % increase in Sales Tax w ould generate roughly $ 4 billion

3 .

Trying to elim inate sales tax exem ptions has been tried, w ith very little success

4 .

The bill also relies on “…revenue increases resulting from econom ic grow th attributable to low er property taxes.” ( Because of the regressive nature of sales tax, revenues m ay decrease, not increase)

Potential Problem s:

TBRC - Am endm ent # 5

Unfunded shortfall: about $ 4 billion. Potential Problem s:

Overall Tax Loss

Orange County : FY 0 8 & FY 0 9 Legislative Action $ 2 4 0 Million Am endm ent One $ 4 0 Million

Total $ 2 8 0 Million Statew ide $ 3 ,8 1 9 Billion

OUTLI NE

• Background
• Property Tax Reform
• Econom ic Pressures
• Budget Challenges
• Sum m ary

Source: Bureau of Labor Statistics Source: Bureau of Labor Statistics

I nflation Pressures

• CPI Annual I nflation

5 .0 %

– Energy 2 4 .7 % – Transportation 1 2 % – Food 5 .3 % – Medical Care 4 %

I nflation Pressures

June inflation projections w ere in excess of 5 % for the rem ainder of the calendar year. The first m onth w as about 9 9 % accurate.

I nflation Pressures

July projections are m uch m ore troublesom e. Assum es m oney supply increases continue.

Potential for m ore inflation

$ 2 .3 $ 3 .0 $ 6 .0

FNMA FHLMC All Other

U.S. Hom e Mortgages Outstanding ( in trillions)

Potential for m ore inflation

Total Debt as a percent of GDP. 3 5 0 % The Great Depression

Other factors leading to inflation

Other factors leading to inflation

Federal Debt

2002 2003 2004 2005 2006 2007

10 20 30 40 50 60 ( $ Trillion) Reported GAAP

Deficit Spending

2000 2001 2002 2003 2004 2005 2006 2007 2008

1000 2000 3000 4000 5000 6000 7000 8000 9000 Percent

Inflation Rate (Zimbabwe $)

Unem ploym ent

0 .0 % 1 .0 % 2 .0 % 3 .0 % 4 .0 % 5 .0 % 6 .0 % 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 Unem ploym ent Rate Florida’s unem ploym ent rate highest in

5 years at 5 .5 % , w hich is the sam e as national rate

Econom ic Environm ent

2 ,0 0 0 4 ,0 0 0 6 ,0 0 0 8 ,0 0 0 1 0 ,0 0 0 1 2 ,0 0 0 1 4 ,0 0 0 1 6 ,0 0 0 Housing Starts 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 Single- Fam ily Multi- Fam ily

Housing Slum p

• Orange County’s housing starts decreased

6 0 % since 2 0 0 5

Econom ic Environm ent

2 ,0 0 0 ,0 0 0 4 ,0 0 0 ,0 0 0 6 ,0 0 0 ,0 0 0 8 ,0 0 0 ,0 0 0 1 0 ,0 0 0 ,0 0 0

• Sq. Ft.

2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 Com m ercial Construction

Com m ercial Construction

• Orange County’s com m ercial construction

leveling off

I nflation Pressures

$ 0 .0 0 $ 0 .5 0 $ 1 .0 0 $ 1 .5 0 $ 2 .0 0 $ 2 .5 0 $ 3 .0 0 $ 3 .5 0 $ 4 .0 0 $ 4 .5 0 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8

Price per Gallon

Gasoline Prices

Gas Prices

Florida gas prices at $ 4 .0 6 gallon is a

1 1 8 % increase since 2 0 0 4

OUTLI NE

• Background
• Property Tax Reform
• Econom ic Pressures
• Budget Challenges

– Revenue Outlook

• Sum m ary

Revenue Outlook

• Flat or Decreasing

Revenues

• Unfunded Needs

Countyw ide Property Taxes Countyw ide Property Taxes

Revenue Outlook Revenue Outlook

$ 4 7 4 .1 $ 4 7 5 .8 $ 4 7 8 .8

100 200 300 400 500 600 700 800 900 1000 $ Millions 2007 2008 2009 Fiscal Year

Half Cent Sales Tax Half Cent Sales Tax

$ 1 2 7 .7 $ 1 2 6 .5 $ 1 2 1 .2

50 100 150 200 $ Millions 2007 2008 2009 Fiscal Year Budget Budget

Revenue Outlook Revenue Outlook

State Revenue Sharing State Revenue Sharing

$ 3 0 .5 $ 2 9 .4 $ 2 8 .2

10 20 30 40 50 $ Millions 2007 2008 2009 Fiscal Year

Budget Budget

Revenue Outlook Revenue Outlook

Public Service Taxes Public Service Taxes

$ 8 8 .6 $ 8 6 .7 $ 8 8 .4

20 40 60 80 100 120 140 $ Millions 2007 2008 2009 Fiscal Year

Budget Budget

Revenue Outlook Revenue Outlook

Fuel Taxes Fuel Taxes

$ 4 2 .2 $ 4 2 .2 $ 4 1 .5

10 20 30 40 50 60 70 80 90 100 $ Millions 2007 2008 2009 Fiscal Year Budget Budget

Revenue Outlook Revenue Outlook

Recording Fees Recording Fees

Revenue Outlook Revenue Outlook

1 5 .3 1 0 .6 9 .6

2 4 6 8 1 0 1 2 1 4 1 6 ($ Millions) 2 0 0 7 2 0 0 8 2 0 0 9 Fiscal Year

Tourist Developm ent Tax Tourist Developm ent Tax

$ 1 6 2 .7 $ 1 7 0 .0 $ 1 7 8 .5

30 60 90 120 150 180 210 240 $ Millions 2007 2008 2009 Fiscal Year

Budget Budget

Revenue Outlook Revenue Outlook

OUTLI NE OUTLI NE

• Background

Background

• Property Tax Reform

Property Tax Reform

• Econom ic Pressures

Econom ic Pressures

• Budget Challenges

Budget Challenges

− − County Budget County Budget

• Sum m ary

Sum m ary

Budget I nputs Budget I nputs

• Property taxes are dow n

Property taxes are dow n

• Other m ajor revenues are dow n

Other m ajor revenues are dow n

• Grow th

Grow th – – our econom ic driver continues to decline

• ur econom ic driver continues to decline
• Tourism is expected to decline

Tourism is expected to decline

• Utilities are increasing

Utilities are increasing

• I nfrastructure m aintenance are increasing

I nfrastructure m aintenance are increasing

• Healthcare costs are increasing

Healthcare costs are increasing

• More cost shift from the State

More cost shift from the State

• Safe Reserve levels are critical

Safe Reserve levels are critical

Budget I nputs

Public Safety

• Crim e rates are increasing
• More serious crim es are being com m itted by

juveniles and w om en

• Rising Jail population
• Sicker I nm ate population
• I ncreased Mental Health population
• I ncreasing Foreclosures ( Code Enf.)
• Rising hom elessness
• Court services are being cut

Public Safety

Added 1 4 2 Sheriff’s Personnel for FY 0 8 & FY 0 9 $ 2 0 m illion for Jail Expansion

Budget Challenges

Possible solutions:

• Operate like the private corporations
• Be m ore efficient
• Prioritize
• More user fees
• Raise taxes

COUNTY BUDGET

• Budget Cuts:

– 1 0 % cut to operating budgets – 1 0 % cut to various agencies – No new Parks or Park program s – Delay new fire stations – Delay new roads – Delay all other capital projects and program s – Cut 5 % of the w orkforce

( except public safety)

COUNTY BUDGET

• FY 0 8

$ 3 .7 Billion

• FY 0 9

$ 3 .4 Billion Reduction $ 0 .4 Billion

Other Counties

• Budget Cuts:

– Tallahassee planning up to 5 0 layoffs – St. Petersburg to cut 5 1 jobs – Osceola cut 8 6 w ith ~ 6 0 layoffs – Brevard County approved a buyout program – St. Lucie to cut 2 4 7 positions. – Sem inole Schools to cut 3 4 3 jobs – Hillsborough to elim inate 4 0 8 positions – Miam i-Dade to cut 1 ,6 0 0 jobs

Education Funding

OCPS cut $ 7 0 m illion from FY 2 0 0 9 :

• 6 0 0 teachers put on notice back in April.
• Elim inated program s such as United Arts.
• Consolidated sum m er school, after-school.
• Cut five days from

the school year.

• Reduced travel and

supplies budget.

• Changed bus

schedules.

• Etc…

Education Funding

“Tax Sw ap” w ould m ost likely m ean m uch larger cuts More school closings Additional teacher layoffs Overcrow ded classroom s Questionable quality of education

Budget Challenges Budget Challenges

State Budget Shortfalls State Budget Shortfalls

• $ 6 billion below prior year budget

$ 6 billion below prior year budget

• Revenue continues to erode and special

Revenue continues to erode and special session m ay be necessary session m ay be necessary

• Budget I m pacts

Budget I m pacts

− − Com m unity Affairs Com m unity Affairs − − Disability Services Disability Services − − Medicaid Services Medicaid Services − − Prison System Prison System − − Hundreds of State Hundreds of State w orkers m ay be w orkers m ay be let go let go

OUTLI NE OUTLI NE

• Background

Background

• Property Tax Reform

Property Tax Reform

• Econom ic Pressures

Econom ic Pressures

• Budget Challenges

Budget Challenges

− − Audit I m plications Audit I m plications

• Sum m ary

Sum m ary

Audit I m plications

Ensure accurate revenue collections and reporting ( TDT, PST, Etc.,) W orkforce reductions m ay result in w eaker internal controls I ncreased pressure to use enterprise and other restricted funds to m eet general needs

OUTLI NE

• Background
• Property Tax Reform
• Econom ic Pressures
• Budget Challenges
• Sum m ary

Tough Road Ahead

• Econom ic outlook is terrifying
• National debt is beyond belief
• More Corporations w ill fail
• Sim ilar trend w orldw ide
• Consum er confidence is low
• Political pressure not to raise taxes or new

fees

• I nfrastructure integrity at risk

Roads, facilities, schools, etc.,

• Quality of Life at stake

Education, environm ent, public health, social services; etc.,

Thank you ??s

Presentation by:

Randy Singh, Manager, Orange County OMB August 8, 2008

Orange County

Dealing with Property Tax Reform and Economic Challenges in Florida

Florida Audit Forum