BRADENTON, Fla. — Florida voters face 11 constitutional amendments on next month’s general election ballot, and two of them could significantly alter the ability of officials to raise revenues for state and local government budgets.
Six of the amendments, including two that affect state and local budgets, put tax limits, exemptions and loopholes in the constitution, according to Florida League of Women Voters president Deirdre Macnab.
The league gives a “thumbs down” to all the amendments, calling them “the most complex, confusing, and in some cases misleading, constitutional amendments proposed in recent memory.” All were referred by the Legislature.
“Our Florida Constitution was crafted as a document that is intended to be difficult to change, and kept sacred for the purpose of identifying the structure of our government,” Macnab said.
“With the Constitution intentionally hard to change, a better place for such tax provisions is regular statutory law where changing conditions make modification easier,” she said. “Our tax policy needs a level playing field. It’s already riddled with loopholes, and these amendments cut state revenues drastically.”
The potential lack of flexibility to quickly address mid-year budget issues and fund programs in response to the state’s population growth could impact the Sunshine State’s gilt-edged ratings, depending on how the state reacts to budget needs, analysts said.
Florida’s general obligation bonds are rated AAA by Fitch Ratings and Standard & Poor’s, and Aa1 by Moody’s Investors Service.
Amendment 3 would revise the method by which the state revenue limitation is calculated each year. It is one of the more complex amendments on the ballot, according to an analysis by the University of Florida.
When the amendment was proposed and passed by the Republican-led Legislature in early 2011, the measure was dubbed the “Smart Cap.” It is often compared to Colorado’s controversial and troublesome Taxpayer Bill of Rights because it includes spending limits tied to inflation and population growth.
Florida’s version differs from Colorado’s TABOR because the cap includes revenue used to pay debt service on bonds issued after July 1, 2012.
The proposed amendment will not affect the state’s ability to pay debt service, according to disclosures in official statements for state bond issues. If passed, the amendment would phase in during fiscal 2015, and “analysis indicates that over time, the proposed state revenue limitation potentially constrains growth in state revenues more than the current limitation” in the state’s constitution.
The limitation, or cap, on state revenue can be adjusted with super-majority votes of both legislative chambers. Lawmakers could also ask voters to amend the constitution, though it would require 60% of voters to approve it.
“This constitutional amendment would severely limit the amount of state revenue that the state can spend on services, using a formula that led to drastic cuts in public services in Colorado — the only state to have tried it,” according to an analysis by Erica Williams and Nicholas Johnson, policy analysts with the Center for Budget Policy Priorities.
The amendment could “place the state’s bond rating at risk of a downgrade, which would raise the state’s cost of borrowing for these important infrastructure projects” because funds to make payments on bonds issued after July 2012 would be subject to the revenue limits competing with other state funding obligations, the analysts said.
“From the perspective of potential investors and credit rating agencies, this creates the specter that the state could default on its debt,” their report said. “The cost to the state of this perceived risk could be large.”
The CBPP analysis says that research has shown that limits on state revenues, particularly those that are highly restrictive, have a negative impact on credit ratings and raise the cost of financing infrastructure investments.
While Fitch is not reviewing the state’s GO rating in light of the proposed amendment, analyst Karen Krop said Amendment 3 would place a more restrictive cap on state revenues than exists now.
If the amendment passes, “we would view the revenue limitations and put that into the context of what flexibility management has in designing, maintaining and implementing a budget,” Krop said. “We would do ongoing assessments on the extent to which it would limit future flexibility, whether the state is meeting growing programmatic demands and making mid-year [budget] course corrections.”
Fitch’s criteria for tax-backed credits says voter-imposed limits are viewed as a “below-average credit factor” with potentially negative implications, though that does not necessarily lead to changes in ratings, she said.
Fitch maintains a negative outlook on Florida’s credit to reflect the state’s “reduced financial flexibility as it emerges very slowly from the recession.”
More than a year ago, Standard & Poor’s revised its outlook to stable from negative, citing the “progress the state has made in addressing its structural imbalance through significant cost-cutting measures adopted in fiscal 2012 and maintenance of strong reserves.”
While it is difficult to tell what impact Amendment 3 would have on the state’s finances now, S&P analyst John Sugden said managing the limitations on revenues and maintaining balanced budgets will be key if the measure passes.
“We will continue to look at the state of Florida based on how they manage overall finances, taking into account whatever limitation they have on the revenue side, taking into account all the strengths they have, and their ability to reduce spending when necessary to balance budgets,” he said. “It’s really how they manage within their current operating environment.”
Bank of America Merrill Lynch said in a commentary last month that it believes the amendment will have a “neutral effect on existing ratings.”
“One of the state’s real strengths continues to be its ability to cut the budget when realities require same,” the bank said. “This critical action supports bond ratings in the near term, but in the longer term there has to be care to provide critical services, including the all-important provision for education.”
In addition to the state revenue cap, the Legislature also placed on the ballot Amendment 4, which would chip away at the property tax base that local governments rely on. Property taxes typically are the largest source of funding for local governments and schools.
Amendment 4 would give first-time home buyers who are permanent residents an additional homestead exemption, and reduce the maximum amount that the annual assessed value on non-homestead property could go up to 5% from the current 10%.
If passed, Amendment 4 “would have impacts that would be felt at the local level of government -—county, city, school board and special districts — and at the individual taxpayer level, the University of Florida said.
The state estimates that at current millage rates assessed by local governments, schools and special districts, the statewide affects of Amendment 4 would decrease tax revenue by $156.2 million in fiscal 2014 and $565.8 million by fiscal 2016, the UF report said.
Rating agency analysts said in their reviews of ratings that if Amendment 4 passes, it will be similar to those conducted under Amendment 3 and reflect the ability of local governments to absorb property-tax losses resulting from the loss of assessable value.
Amendment 4 has the potential to create 19,483 jobs over 10 years and foster up to 383,810 additional home sales, said Florida TaxWatch, which calls itself a nonpartisan, nonprofit research institute and supports passage of the amendment. Florida Realtors and various business organizations also believe it will promote economic growth.
The Florida Association of Counties and the League of Cities, however, believe it would lead to higher taxes for year-round residents and potentially decreased public services.
Local governments and schools could be facing a double-whammy if amendments 3 and 4 are approved by voters on Nov. 6, according to the Center for Budget Policy Priorities analyst Phil Oliff.
“Amendment 3 would place a severe limit on state revenue growth, and in so doing would very likely squeeze state aid to local governments,” Oliff said. “Since local governments get a substantial share of funding from the state, such cuts could punch a large hole in local budgets, precipitating significant local service cuts and tax increases. Paired with the revenue loss from Amendment 4, the impact [to local governments] would be even more dramatic.”