Tax and Expenditure Limitations: Issues for Florida

1
Tax and Expenditure Limitations Issues for
Florida

• Randall G. Holcombe
• DeVoe Moore Professor of Economics, Florida State
  University
• Senior Fellow, The James Madison Institute

2
One Possible Design Principle Limit Expenditure
Growth to No More than the Sum of Inflation and
Population Growth

• Allow the cap to be overridden by a citizen
  referendum.
• This implements the principle of No Taxation
  Without Representation.
• Why should per person government expenditures
  grow faster than inflation?

3
The State Budget and a Population Growth Plus
Inflation Cap

• Fiscal Year Appropriations Pct. Inc.
  Cap
• 2002-03 50.3 Billion 3.8 50.8 Billion
• 2003-04 53.5 Billion 6.3 53.0 Billion
• 2004-05 57.3 Billion 7.1 56.0 Billion
• 2005-06 63.1 Billion 10.1 59.3 Billion
• 2006-07 73.9 Billion 17.2 62.1 Billion
• 2007-08 71.5 Billion -3.2 64.9 Billion
• The state budget has increased by 42 in the past
  five years. It would have increased 28 with an
  inflation population growth cap.

4
Property Tax Growth 1996-2006Actual, and With
Cap

• Total Property Tax Collections
• Year Actual Property Taxes Inf. Pop. Gr.
  Cap
• 1996 12.3 billion
• 2001 16.7 billion 15.6 Billion
• 2006 30.4 billion 20.8 Billion
• Property tax revenue has grown much faster than
  population growth plus inflation in the last
  half-decade.

5
Property Tax Growth 1996-2006

• Percentage Growth in Inflation-Adjusted Property
  Taxes Per Person
• Time Period Property Tax Growth Inf.
  Pop. Gr.
• 1996-2001 35.8 26.5
• 2001-2006 82.0 27.6
• Property tax revenue growth has skyrocketed over
  the past half-decade.
• This suggests that an expenditure cap will not
  completely address the property tax issues that
  have come up in the past few years.

6
Alternative Caps

• Inflation plus population growth. Expenditures
  per person cannot grow faster than the rise of
  prices in general.
• Personal income. Expenditures cannot take an
  increasingly-larger share of income.
• Existing expenditures. Expenditures cannot go up
  at all, without voter approval.
• Zero. All taxes, and therefore expenditures
  (with a balanced budget) require periodic
  reapproval by the voters.

7
Personal Income Growth vs. Inflation and
Population Growth

• Year Inc. Growth Pop Inflation
• 1995-96 6.2 4.8
• 1996-97 6.2 5.0
• 1997-98 7.1 3.8
• 1998-99 6.9 3.9
• 1999-00 6.4 5.5
• 2000-01 6.7 5.8
• 2001-02 3.6 3.9
• 2002-03 3.4 4.6
• 2003-04 7.2 4.8
• 2004-05 8.7 5.5
• 2005-06 7.5 6.2
• 2006-07 7.4 4.7
• Cumulative 98.8 77.0

8
The State Budget and a Personal Income Growth Cap

• Fiscal Year Appropriations Pct. Inc.
  Cap
• 2002-03 50.3 Billion 3.8 50.2 Billion
• 2003-04 53.5 Billion 6.3 53.8 Billion
• 2004-05 57.3 Billion 7.1 58.5 Billion
• 2005-06 63.1 Billion 10.1 62.9 Billion
• 2006-07 73.9 Billion 17.2 67.6 Billion
• 2007-08 71.5 Billion -3.2 70.5 Billion
• The state budget has increased by 42 in the past
  five years. It would have increased 40 with a
  personal income growth cap.

9
Property Tax Growth 1996-2006Actual, and With
Personal Income Cap

• Total Property Tax Collections
• Year Actual Property Taxes Pers. Inc. Gr.
  Cap
• 1996 12.3 billion
• 2001 16.7 billion 15.7 Billion
• 2006 30.4 billion 21.1 Billion
• Property tax revenue has grown much faster than
  personal income in the last half-decade.

10
A Cap on Total Government Spending May Not Offer
Sufficient Protection to Property Taxpayers

• Property owners are vulnerable if their assessed
  values rise.
• All property owners should be protected against
  major property tax increases.
• Save Our Homes provides this protection for
  homestead property only.
• Property owners could be protected from being
  taxed out of their property by placing the cap on
  individual assessed values of all property (not
  just homestead) for tax purposes.
• A TABOR will not take the place of a limitation
  on increases in assessed values for tax purposes.

11
What Should Be the Override Mechanism if a Cap is
Imposed?

• Currently, local governments can override the cap
  imposed by the 2007 legislature by a
  supermajority vote of the governing body.
• Obtaining a supermajority vote of the governing
  body may be little harder than obtaining the
  simple majority vote that would have been
  required prior to the 2007 legislation.
• A requirement of a citizen referendum would keep
  expenditures from rising unless voters agreed,
  implementing the principle of No Taxation
  Without Representation.

12
In the News This Week Eight of Palm Beach
Countys 37 Municipalities Said They Would Exceed
Their Cap

• Highland Beach, North Palm Beach, Riviera Beach,
  South Palm Beach, Lake Clarke Shores Manalapan,
  Ocean Ridge, and Lake Park all said they would
  approve property tax rates above their legislated
  caps.
• All it takes is a supermajority vote of the city
  commissions to override the cap.
• We already see that allowing elected officials to
  override a cap creates an ineffective cap.
• The requirement of voter approval in a referendum
  would more effectively constrain expenditures.

13
In the News Florida Supreme Court Rules that an
Escambia County Special Tax District Needs Voter
Approval to Issue Bonds to be Paid Off With
Property Taxes

• The ruling was unanimous.
• Does this ruling apply to other jurisdictions,
  such as school districts? Some jurisdictions
  have asked the Court for a clarification of its
  ruling.
• Should this ruling apply to other jurisdictions?
• Should taxes be levied on Floridians by their
  governments, even if citizens disapprove?

14
Voter Approval of Taxes in Florida

• 60 of Floridas 67 counties have local option
  sales taxes.
• In 38 of those counties the local option taxes
  have an expiration date.
• Prior to the adoption of the 1968 Constitution,
  voters in every school district approved (in a
  referendum) the school districts millage rate
  every two years.
• Floridas voters will vote in favor of taxes when
  they believe the revenues will be spent to
  further the public interest.

15
Rather than Looking at Caps, Another Way to
Control Taxes Is To Require Voter Approval of
Taxes

• Voter approval embodies the principle of no
  taxation without representation.
• Existing taxes can be subject to approval (in
  addition to any new taxes).
• Floridas history with millage referenda and
  local option sales taxes shows that Florida
  voters will approve taxes when they believe the
  money is well-spent.
• Consider, for example, holding a referendum every
  four years on the sales tax rate, using Floridas
  old system for school millage referenda.

16
Some Thoughts on Voter Approval of Taxes

• When considering voter approval for overriding a
  cap, lets turn that thinking around. Rather
  than thinking that there is a cap, and with voter
  approval it can be exceeded, think about it as a
  requirement for voter approval of taxes, with the
  cap representing what can be taxed even if voters
  dont agree.
• Look at the lessons from Floridas school millage
  referenda that ended with the new Constitution in
  1968, and the lessons from current local option
  sales taxes.
• A cap can be a level of taxation below the
  current level, as in both of these cases
• Voters will approve taxes when they believe the
  money will be well-spent.
• Final thought on voter approval Do we really
  want to override the will of the voters, even if
  we think we know better?

17
Conclusions

• Florida has had substantial growth in government
  expenditures, both at the state and local levels.
• The TBRC should look seriously at designing an
  effective cap on state and local government
  revenues and expenditures. A number of citizen
  groups are working on citizen initiative
  amendments, and the TBRC has the opportunity to
  preempt those efforts by producing a
  well-designed limitation. (Many people do not
  like the effects of Save Our Homes. If you are
  one of them, you can act now to preempt a similar
  amendment.)
• The TBRC should give serious consideration to the
  role of voter approval in any tax or expenditure
  limitation. It embodies the principle of no
  taxation without representation, and makes
  governments more responsive to the desires of
  their citizens.
• Florida history shows that Floridians will vote
  to tax themselves, when their governments
  convince them that the money will be well-spent.