FLORIDA – Changes to Florida’s homestead property tax rules would produce “clear winners and losers,” sharply reduce municipal revenue and widen gaps between wealthier coastal communities and smaller inland and rural towns, a Wichita State University analysis for the Florida League of Cities found.
The study modeled several proposals, including complete elimination of the homestead exemption, large fixed-dollar exemptions and percentage-based discounts. It found that removing the exemption entirely would cut ad valorem revenue by about 38 percent and reduce general fund revenue by about 14 percent. To maintain current service levels, municipalities would need to nearly double millage rates, the study said.
Winners and losers
Fixed-dollar exemptions tend to favor owners of higher-value homes, while percentage-based discounts distribute relief more evenly across homeowners, the researchers found. Renters and recent homebuyers generally receive no direct benefit, which the study said could intensify affordability disparities.
Commercial and rental properties could face higher effective tax burdens if cities raise millage rates to recoup lost revenue. The study cautioned that shifting the tax burden could have knock-on effects for businesses, renters and local economies.
Scope of the fiscal hit
Under scenarios that would enact high fixed-dollar exemptions in the range of $250,000 to $500,000, local governments could lose between 25 percent and 32 percent of ad valorem revenue, the analysis found. In contrast, so-called “clean-slate” just-value reforms — such as a 32 percent discount or a $100,000 just-value exemption — were projected to yield net revenue gains, unlike expansions of existing exemptions.
In Macclenny, the heart of Baker County, the city’s General Fund budget is about $8.9 million with just over $1.5 million coming from property taxes.
Mike Griffis, Macclenny’s city manager, said, “we don’t know what we’re gonna do,” if property taxes are cut and that they’ve seen guidance from the state that rural counties may get financial help, but the individual cities haven’t been given guidance yet.
In that scenario, smaller cities like Macclenny and not counties would still be in question. A resident who didn’t want to be named said that they’re worried that it will be replaced with another property tax
Joe Taylor, the Orange Park Town Manager, said property taxes provide about 35 percent of the General Fund budget and would need to replace $5,174,447.00 in lost ad valorem revenue.
“At this time, there is no definitive answer for revenue replacement/service cuts that would need to be enacted,” Taylor said. “Much of that discussion would hinge on state statutes that govern how local governments are permitted to raise revenue and at what amounts those sources can provide.”
Property taxes account for about 43 percent of municipal general fund revenue in Florida, the report noted, making cuts to the homestead tax base a threat to the stable local funding that supports police, fire, public works, parks and other essential services. Officials told researchers they expected declines in services without compensating revenue, and warned of potential impacts to bond ratings, capital projects and borrowing capacity.
News4Jax also heard from the City Manager in Green Cove Springs who sent these responses to our questions on the subject:
1. How important to the City budget is property tax revenue? (percentage)
Property tax revenue is vital to the General Fund budget. For the current fiscal year, it accounts for over 25% of our $15.7 Million General Fund budget (not total budget). As is the case for many cities across Florida, property taxes help fund essential services such as public safety, infrastructure maintenance, and parks. Property tax is the largest unrestricted revenue source available to fund these services, whereas many revenue sources are restricted to areas such as transportation and capital infrastructure projects.
2. Without property tax revenue (or less), what would other options be for the City?
Any reduction in property tax revenue would require careful evaluation by City leadership and elected officials. In general, options could include adjusting other revenue sources, reducing services, or reprioritizing expenditures. Decisions of that nature would occur through the public budget process and would ultimately be policy decisions made by City Council.
3. Does the City’s growth play into this (or is much of the growth outside city boundaries)?
Much of the growth that is in the news as “Green Cove Springs” is outside city boundaries in unincorporated Clay County. Much of the anticipated growth within the city boundaries is residential. Residential growth typically increases demand for services such as public safety, parks, and infrastructure. If property taxes are reduced or eliminated, the city would be burdened with increased demand for services and infrastructure without the traditional property tax revenue stream to fund that demand. Growth patterns and service responsibilities vary, and revenue impacts are evaluated as part of the City’s regular planning and budgeting processes.
Rural communities at risk
Rural and smaller inland municipalities would likely feel the effects most acutely, because they have fewer alternative revenue sources and less administrative capacity, the study said. Those communities depend on predictable ad valorem revenue to fund infrastructure, emergency services and economic development initiatives such as the state’s Rural Renaissance efforts.
The study highlighted policy tools that could soften the impact on local governments while targeting homeowner relief. Options include state revenue replacement or cost-sharing to offset major municipal losses; targeted exemptions based on income or age to improve fairness; expanded local-option revenues to increase fiscal flexibility; and transparent, standardized fiscal-impact disclosures to help voters and officials understand tradeoffs.
The report emphasized that design matters: some reform approaches could strengthen municipal finances and community development, while others risk eroding the local fiscal foundation that supports services and growth.
Click here to read the full study.