Florida Bond Deals May Falter

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BRADENTON, Fla. — Some local governments in Florida predict bond sales could be delayed by as much as a year as lawmakers there pursue tax reform measures.

Soaring property values and insurance premiums over the past few years, in conjunction with rapid population growth, led to cries for property tax relief, fueling a variety of initiatives that voters may face this year.

During the Jan. 29 presidential preference primary election, voters in a statewide referendum will be asked to consider a complex measure known as Amendment 1. Sponsored by the Florida Legislature, it would reduce taxes by $9.3 billion over five years. If that doesn’t pass, lawmakers promise to work on other reforms during their session, which starts March 4 and runs through May 2.

Meanwhile, an organization called Fair Property Tax For All Inc. is trying to get enough signatures to put a statewide referendum on the ballot in November that would cap property taxes at 1.35% of the taxable value of all property, which would cut property taxes by $8 billion. And the Florida Taxation and Budget Reform Commission is considering its own tax reform measures, which could also appear on the November ballot.

After years of rising property tax revenue, tax reform could put the brakes on local government spending at a time when the real estate market has gone from boom to bust, further complicating the financial outlook.

“Clearly, the fiscal picture is bleak,” Palm Bay city manager Lee Feldman wrote in a message accompanying the city’s fiscal 2008, $166.2 million budget. “This year’s budget has been produced in the midst of the perfect financial storm that currently faces Florida municipalities.”

Tax reform, which is expected to result in lower revenues, combined with the housing slowdown and inflation “form a massive financial paradigm shift,” Feldman wrote, requiring budget goals to shift from service expansion to accommodate growth to that of preserving services, jobs, and financial reserves.

“It makes for interesting days,” Feldman said in a recent interview about how these forces may affect Palm Bay, a city of about 100 square miles in south Brevard County with a population of just over 100,000. Palm Bay’s assessed property value was $1.7 billion in fiscal 2006, an increase of 42% over the year before.

Feldman said the city is wrestling with ways to prepare for what lies ahead since most, if not all, of the tax-relief measures are aimed at cities, counties, schools, and special districts that rely on ad valorem taxes as the major source of funding for their budgets. Florida’s constitution reserves property taxes solely for local governments and districts, while the state depends largely on sales and use taxes since Florida does not have a state income tax.

“We have a lot of infrastructure needs,” Feldman said.

But because of tax reform measures being considered throughout 2008, Feldman said it will be at least a year before the city decides on selling any major bond issues or to ask local voters for approval to issue general obligation bonds.

“In terms of the budget, we’ve put a lot of things on hold so we can be prepared,” said Fred Winterkamp, manager of Orange County’s Fiscal and Business Services Division, referring to the county’s $3.5 billion budget. “A lot of capital expenditures have been put on hold.”

As the home of mega theme parks in central Florida, Orange County encompasses 1,000 square miles and has a population of more than a million, making it the fifth-largest county in Florida. Its population growth rate in 2006 was 3.5%, compared to 2.4% for the state.

New construction and higher property values pushed Orange County’s assessable property tax roll for fiscal 2007 to $91.64 billion — a nearly 78% increase over the $51.57 billion tax roll in fiscal 2001.

But with potential tax reform measures threatening to cut into property taxes supporting the budget, Winterkamp said the county also reduced administrative costs in all departments and cut vacant positions.

In addition, new projects will not be initiated and the “Children’s Legacy” — a more than $500 million, 25-year plan to fund a host of backlogged and new infrastructure projects largely prompted by growth — is “on hold until we see the outcome” of tax reform proposals, Winterkamp said.

Recently, the Florida Office of Economic and Demographic Research posted on its Web site an analysis of Amendment 1, including an impact study which concludes that over five years it would reduce city, county, school, and special district taxes by $9.3 billion. The reduction would come from four changes in the state’s constitution.

One would provide an additional $25,000 homestead exemption on assessed property values above $50,000, but it does not apply to school taxes. Another change would allow a portion of a 3% cap on homesteaded property assessments to be transferred to the purchase of a new home. It also would provide for a 10% cap on assessments of non-homestead properties, which does not apply to school taxes, and it would provide a $25,000 exemption on tangible personal property.

Rating agencies have expressed concern about how the tax cuts, if adopted, will affect Florida’s local governments, and have said they will monitor the impact as initiatives are implemented.

Moody’s Investors Service said in November that it believed Florida’s local issuers would face increased pressure from legislative tax reforms instituted last year and Amendment 1, if it passes, “constraining financial flexibility for municipalities, challenging them to maintain current reserve and staffing levels going forward.”

Gov. Charlie Crist has joined the Florida Association of Realtors, Florida Chamber of Commerce, and Associated Industries of Florida in support of a campaign aimed at convincing voters to support Amendment 1. They’ve launched a Web site at www.yeson1florida.com.

The proposed constitutional amendment fails to deal with the disparities and the inequities in the state’s property tax system and it further erodes an already unfair system, according to the Florida League of Cities, which opposes passage of the amendment. The League has posted information about the amendment at www.flcities.com/legislative/propertytax.asp.

The Florida Association of Counties, concerned about how the amendment will change Florida’s tax structure, has posted videos and related information on its Web site at www.fl-counties.com.

Information about the initiative proposing to cap property taxes at 1.35% of taxable value can be found at www.fairpropertytaxforall.org.

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