BRADENTON, Fla. — Florida voters on Tuesday cast 2,629,400 votes, representing 64.1% of those voting, to pass a controversial tax relief measure called Amendment 1 that could impact the credit quality of local governments, one rating agency warned yesterday.
Only 35.9% of voters cast ballots against the constitutional amendment, which appeared on the state’s presidential preference primary ballot. Amendment 1 needed 60% of the votes to pass.
It was the second part of a legislatively mandated tax relief package aimed at cutting city, county, special district and school taxes. Further tax-cutting proposals may come forward this year in response to skyrocketing property taxes and insurance premiums related largely to the Sunshine state’s explosive population growth over the past few years.
State officials sold the amendment to voters saying that it would slash local taxes by $9.3 billion over five years while local government officials warned voters that it could result in layoffs and cutbacks in essential services.
“From a credit standpoint,” Standard & Poor’s said yesterday, “the amendment could significantly reduce local governments’ financial flexibility and limit assessed value growth. In addition, it could inject volatility into the largest and most stable revenue stream — property taxes — at a time when most local governments are facing additional challenges associated with a weakening economy.”
The amendment makes four changes in the state’s constitution, two of which affect primary or homesteaded property owners.
It provides an additional $25,000 homestead exemption on assessed property values above $50,000, but the second exemption does not apply to school taxes. It also allows a portion of a 3% cap on homesteaded property assessments to be transferred to the purchase of a new home.
The new law places a 10% cap on annual assessments of non-homestead properties, which does not apply to school taxes, and it provides a $25,000 exemption on tangible personal property.
There are a number of complex factors in Amendment 1, including a retroactive provision, that could affect fiscal 2009 budgets of local governments and diminish the revenue flexibility of school districts, Standard & Poor’s said.
“A local government’s overall financial flexibility — including the diversity of the revenue base and ability to manage the budget within its caps and ultimately meet all debt obligations — is a key credit consideration,” said the rating agency. “The extent to which the amendment reduces an individual government’s financial flexibility could negatively affect ratings, unless the government devises alternative balancing mechanisms.”
Amendment 1 largely targets property assessments on which local governments and districts assess property taxes. As ad valorem taxes are cut, many local governments expect to depend more on other revenues to fund basic services, which could leave fewer revenues available to support bonds for capital improvements.
Some local governments already are considering ways to bolster finances, including hiking fees and instituting new ones.