What the hell is going on in Tallahassee?

Well, right now, nothing official. The special session is still on, but lawmakers are at home doing their day job until Thursday. Meanwhile, in "back rooms," Senate and House leaders are negotiating some kind of compromise. Good luck! If you look at a break down of the various elements of each plan, you can see that there a number of things that the Senate and House agree on - working waterfront protections, tangible personal property exemption, affordable housing breaks, and, the big one, portability. The disagreements are pretty major though: fundamentally different homestead exemption expansions, assessment caps, and local control of taxes. I wonder if negotiators will play mix and match, or try to scale down the more ambitious House plan.

Let's take a step back. How did we get here?

The special session started much like the last few - the leadership had worked out a plan, and was prepared to ram it through within a few days. This session was different in two ways, however. First, the subject, tax cuts, is Rubio's pet project (check out this analysis of Rubio's motivations for pushing an ambitious plan), and second, Democrats actually have power over the process due to the 3/4ths majority requirement for a constitutional amendment. Now, the Senate went along with the original plan, which everyone called "Crist's plan" back then, because Pruitt didn't want to rock the boat, and Geller, the Democratic Minority Leader, had been wooed by Crist to support the plan. Remember that Crist ironed out the plan with Geller's help back during the budget cutting process. So the Senate debated the plan and amendments last week, and amendments that would have modified Crist's plan to look more like what the House has come up with were voted down, narrowly in some cases. I think Geller's support of Crist's original plan was the crucial element in keeping the Senate "on track." This happened last Wednesday - after the final vote, the Senate packed up and went home, with Senate leaders making huffy statements about what was going on in the House.

On the same day, House bigwigs retreated into the "back rooms" and negotiated a compromise plan between Republicans and Democrats. Thats how the "House plan" emerged. This was prompted by sudden and unexpected developments the day before - when a Democrat, Rep. Saunders, unexpectedly and without consulting Democratic leadership offered an amendment to put a 7% cap on all nonhomesteaded property. He had pushed for something similiar in the past. This was apparently a ploy by Republicans, who baited Saunders to offer the amendment, and then immediately jumped on it, counter-proposing a 3% cap instead. All of this was done without warning or analysis. You can sense the bewilderment in the blog postings about the vote.

The negotiations Wednesday between House leaders produced the current House plan, which borrows heavily from the Democratic tax plan from the last regular session. The 3% cap was adjusted to 5% on nonhomesteaded residential and commericial property as soon as Republicans realized how big a cut 3% would be. The assessment cap is an interesting idea, and, I think, worth more analysis. I'll get to that later.

The Senate leadership was not happy with this new plan from the House, which was approved Monday 108-2. Pruitt and Webster complained that the House "broke the deal." Crist is being completely two-faced (the newspapers are saying "diplomatic") on the issue, both supporting the Senate plan, and not not supporting the House plan.

Okay, so that's background. Let's get into the issues.

I agree completely with Troxler about the Senate complaint that the House "broke the deal." Who cares what the deal was? The deal was an arbitrary compromise worked out in secret. It ought to change as lawmakers offer suggestions and alternatives. Which, surprisingly, is exactly what happened in the House. Now, I think it's a perfectly legitimate argument to say that the House plan hasn't been studied thoroughly, and probably has loopholes and unintended consequences. But bashing it for not following a script reveals the kind of politics Pruitt and Webster want to play.

Personally, I've really enjoyed watching the special session unfold - it's been pretty entertaining. I'm more fond of the House plan than I ought to be, because, by accepting Democratic input, the House leadership is taking a step in the right direction of playing bipartisan politics. But, as I said before, the plan need to be studied and analyzed seriously before trying to put it in the state constitution.

If you read this blog regularly (as regularly as one can with such irregular updates, I mean), you know that I think that the property tax problem in Florida isn't caused by tax rates, but by the way property is assessed. Save Our Homes has thrown things out of whack, and the highest and best use assessment requirement exaggerates that problem for commercial properties. The House plan takes a step in the right direction on that. First, the working waterfront tax break removes the highest and best use assessment requirement for properties on the water's edge. Thats not the same thing as removing highest and best use on all property, but its getting there. The Senate plan also has a working waterfront break, but it's narrower and probably won't help motels, tiki huts, bait shops, and the like.

The assessment cap of 5% is what I really have my eye on. Democrats originally proposed a 7% cap, which Republicans countered with a 3% one, and now its at 5%. Its amazing what a big difference there is between 3, 5, and 7 percent. At 3%, the plan would have choked local governments and completely screwed up Florida's tax system in just a few years. Complete disaster, I think. A 7% cap, on the other hand, is above the average growth of values, and so, at first glance, is worthless. However, the 7% cap would have prevented sudden massive rises in assessed value, and would give businesses the ability to predict taxes several years down the road - which is what they've been calling for for years now. The 7% cap is cautious but also fair and useful, and would not significantly affect local governments. The 5% cap mixes the pros and cons of the other two - it's a significant cut for local governments, will lead to problems down the road, but also helps out businesses and nonhomesteaded residents quite a bit.

5% is a good enough compromise from 3%, but I think nonhomsteaded residential property ought to be given a bit more of benefit (snowbirds and renters really deserve some relief) and business a bit less of a benefit. My plan would be 3% for homesteads, 4.5% for nonhomesteaded residential, and 6% for businesses. That, coupled with local autonomy over tax rates, would be a pretty sensible system.

Well, if you can't tell, I'm rooting for the House plan. But - only if there has to be a tax cut. The best scenario would be for the whole thing to fall apart, which seems pretty likely at this point, and for the tax debate to continue over the winter and into the regular session. The newspapers have been urging the legislature to wait for the tax commission to offer suggestions. I'm not quite as confident as the newspapers that the commission will have good ideas. The people on the commission were chosen by Crist, Pruitt, and Rubio, the same folks who have screwed up tax cuts the past three tries. Plus, some of them are real conservative ideologues. Still, I don't think there's any need to rush these tax cuts.

After all, I think Florida needs tax reform, not cuts.

Portability is not the answer

In the next couple of days, we should have a better understanding of what Crist's tax plan will be. I say "Crist's" because it looks like the Republicans leaders are going to let him run the show. Rubio can't afford to screw up AGAIN on taxes (as this Sun Sentinel opinion piece points out, he's already on strike two), so it looks like he's giving the torch to Crist. Regardless of whether the plan succeeds, Rubio will claim it didn't go far enough next regular session and push for his sales swap again. Plus, Crist needs the credit - he's got campaign promises to fulfill if wants to keep his astronomical ratings. It doesn't matter to him whether or not the plan suceeds either; he just needs to show he tried. On the other hand, it's good to see that he's willing to talk to Democrats about it, unlike his Republican friends.

So what is Crist's plan? There are several reports. SV Date (freshly transfered to the legislative beat and already causing trouble for the Republicans) has a write up that focuses on portability and doubling the homestead exemption; The Miami Herald has a somewhat different report, The Buzz has something else, and the Political Pulse also chimes in. You can see the common threads, but the details are different.

The important thing is that portability is the primary element of all of these plans. As explained by Date, portability would allow accrued savings from Save Our Homes to be transfered, but they would slowly phase out as the assessment of the property would grow by 8% instead of 3%, until it reaches what the assessed value of the property would have been if it was allowed to grow at 3% from the sale value of the property, at which point it would only grow 3% a year from there on out. Did I explain that right? Did you understand it? Somehow they've managed to come up with something even more convoluted than the super exemption/Save Our Homes choice. That is, if Date's report is right.

Lets assume it's correct. That would mean that long-term residents get a bonus exemption, which could be enormous - millions of dollars, potentially - that would slowly phase out until they're just left with their regular old Save Our Homes cap. Fine, that solves the "problem" of people being "locked" into their homes (realistically, people locked into their homes from assessment caps should make such a profit from the sale that it should mitigate the increased taxes of a new place). But - well, think about it. What if you move multiple times over the course of a few years? What if you move from a really expensive home to a much more modest one? In other words, what if you move from a home valued at $2 million but assessed thanks to SoH at $500,000 to a house worth $500,000? You'd have $1.5 million accrued savings, which means you'd pay taxes on negative $1 million dollars assessed value... right? How does that work? What I'm trying to say is, the loopholes here seem enormous.

But that's not the main problem I have with portability. It exacerbates the problem of tax inequities. Basically, it means that the longer you lived in Florida, the less taxes you'll have to pay, even if you move homes. Lets face it, people wouldn't get "locked in" if there wasn't a homestead based cap. Other people (including renters and businesses) have to pay more taxes because homesteaders pay less. Portability solves the problem only between actual Florida residents. New-comers, landlords, and businesses still have to pay more so these people can pay less.

Of course, since people who qualify for homesteading vote the most, they're the ones who get pandered to. But, wiping out homesteading benefits along with another kind of tax reform (to compensate for the fact that you'd essentially be raising their taxes) is much more fair and won't cause the long term problems that an unequal system, like SoH, is responsible for. But who cares about the long term?

What kind of reform could compensate for loosing the SoH assessment cap? How about this very interesting idea from property appraisers: roll back assessments. I firmly believe that property taxes aren't the problem, it's the rapidly raising assesments that are the problem. They're behind both the increase in taxes paid by individuals, and the growth of local governments and the resulting pain from forced cuts (I mean, growing fast and then cutting back is more painful than just growing less fast). I don't know about the specifics of their plan, reducing assesments by 5% for 5 years, but that seems like a move in the right direction. Apparently, removing the "highest and best use" assesment requirement is on the table for Crist's tax reform, which is also a good thing.

Bottom line: individualized assessment caps are the problem, and portability is only going to perpetuate that. A better solution is needed.