November's election may bring changes to local and state finances in Florida and North Carolina, analysts say.
Polling indicates Democrats have good chances of increasing their representation in the state legislatures and voters will have opportunities to mandate lower state tax rates and decide property tax referendums that would profoundly affect local government finances.
North Carolina voters will vote on a property tax levy limit referendum, which would require the North Carolina General Assembly to specify a limit to how much local governments can increase the levy amount each year.
A poll
Most local North Carolina local governments are responsible and the referendum wouldn't affect them but it would push some to get a grip on their finances, said Andy Jackson, Director of the Civitas Center for Public Integrity at the John Locke Foundation, a conservative think tank in the state. "Getting their spending under control could ultimately improve the creditworthiness of local governments, although bond rating agencies often frown upon limits on a government's ability to raise revenue."
Muni Credit News Publisher Joseph Krist said these sorts of property tax yield limits are an effective curb on local governments.
Cumberland Advisors Chief Investment Officer John Mousseau said it isn't appropriate for the state government to set a single limit for the disparate localities underneath them. Local governments are better judges of what is appropriate, he said.
North Carolina voters are also voting to reduce the constitutional cap on the individual tax rate to 3.5% from its current 7%. Currently, there is a flat 3.99% rate. Elon University found that 68% of voters favored the limit, compared to 18% who opposed it.
"The 3.5% tax rate cap amendment should not significantly impact North Carolina's ability to raise and spend revenue within the state's balanced budget requirement," Jackson said. "The state is already on schedule to reduce its tax rate to 3.49% in fiscal year 2027 and to further reduce it in steps to reach 2.49% in 2035. That would leave room to raise the rate by a percentage point to address potential revenue shortfalls."
North Carolina's 2027 and 2035 tax cuts are dependent on the state pulling in specified amounts of tax revenue. In recent years some state officials and outside observers have warned
If passed, Florida's Amendment 3
The amendment would increase the homestead property tax exemption for local governments, except for school districts, initially to $150,000 and then $250,000 of assessed value, from the current $50,000. It would also direct the state to take steps to further decrease property taxes.
The amendment makes it harder for localities to spend in areas outside what the sponsors deem as necessary. It also would limit the yield on annual increases on non-homestead properties to 5% from the current 10% cap, excepting school districts.
A Florida state government study found that Amendment 3 would lead to local governments to annually lose $12 billion in revenues.
Lobbying against the measure by first responders is having an effect, Krist said.
The amendment requires a 60% vote to pass, Mousseau said, and right now is polling around 45% in favor, 30% opposed and 25% undecided. He and Krist said they think it won't pass.
Florida TaxWatch President and CEO Jeff Kottkamp said property taxes should be reformed but Amendment 3 would be such a big hit to localities that they would be forced to both cut major services and increase alternative taxes and fees.
Florida TaxWatch recommends a no vote because Amendment 3 would lead to increased property taxes on rental and commercial properties, which potentially might be shifted to renters and consumers, he said.
In the last few months polls show potential voters are
Control of at least part of the North Carolina General Assembly may switch, said Mousseau, who is executive vice president at Cumberland.
"Democrats are slight favorites to take the House and Republicans slight favorites … to control the Senate" in North Carolina, he said.
Democrats taking the state House "will most likely result in gridlock — which is usually pretty good for bonds on a relative basis versus equities as the perception will be that spending should slow."
Jackson said he thinks Democrats had a one in three shot of capturing the North Carolina House of Representatives but are unlikely to take the Senate. Krist said both chambers are likely to retain their Republican majority.
In the Florida House of Representatives there are 82 Republicans, 34 Democrats and four vacant seats. In the state's Senate there are 26 Republicans, 12 Democrats, one independent and one vacant seat. Florida requires a two-thirds supermajority to override a governor's veto or to raise state taxes or fees and a 60% vote to place constitutional amendments on state ballots.
In the House, Republicans are 69% of the representatives and in the Senate they are 65% of the senators.
Mousseau said he thought Democrats would pick up some seats in November but they were unlikely to gain a majority in either chamber. Florida political analyst and retired University of South Florida Professor Susan MacManus was skeptical that Democrats could gain even four seats in either chamber.
While North Carolina Gov. Josh Stein, a Democrat, doesn't face reelection until 2028, observers say Florida's gubernatorial race has become surprisingly close. Both Mousseau and Krist said they thought
However,
"There's no question it will be a closer race than in 2022 but at this point, the hill for Jolly to climb is a bit steeper than for Donalds," MacManus said.
In mid-September the Florida Office of Economic and Demographic Research released its Florida: Long-Range Financial Outlook report in which it projected a deficit of about $1 billion in fiscal 2028-2029 unless spending or revenue changes are made. Analysts were asked about how a Democratic governor or a legislature without Republican supermajorities might affect fiscal policy in the next few years.
"Budgeting will be as contentious as ever," Krist said. "If Amendment 3 passes, there will be pressure on the state to fill some of the gap."
"A Democratic governor would probably have to work with a Republican legislature in Florida," Mousseau said. "This probably is less contentious than you would think if it came about."
If Democrats gained more power in Florida state government, they "would lean heavily toward raising taxes and fees on wealthier Floridians and corporations," MacManus said.
The North Carolina legislature in August shifted appointment power of North Carolina's Local Government Commission, which controls bonding for the local governments. Assuming a GOP-controlled legislature and a Democratic governor, this means party appointments will go from five by Democrats and four by Republicans to two by Democrats and seven by Republicans. Shifting the legislature to Democrats would shift this appointment power back into their hands. Analysts were asked about the significance of this shift.
Krist said the shift would be important, "as efforts to impose limits on local financing and spending from above are a key play in the conservative starve-the-beast playbook."
Mousseau said, "if Democrats control the legislature, presumably the commission would be restored to the way it was originally set up. And it probably streamlines the effort to issue bonds for infrastructure needs."
By contrast, Jackson said, "I do not expect that a change in the partisan majority would have a large impact."
In the aftermath of American Society of Civil Engineers'
"Infrastructure is one of those issues that tends to have bipartisan support," Jackson said. "Democratic-controlled states, such as California, Massachusetts and Oregon, are either C- or D-plus [from the ASCE], so we cannot assume that Democratic control would automatically lead to better infrastructure."
"Either party needs to be more attentive to infrastructure needs in North Carolina," Mousseau said. "Though Asheville has come back, many parts of western North Carolina are still underfunded for repairing infrastructure damage from Hurricane Helene two years ago."
