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HomeMy WebLinkAboutSubmittal LetterEIS CITY OF Mv1IAMI, FLORIDA INTER -OFFICE MEMORANDUM FROM: Honorable Mayor and City Commission Pedro !' rnandez CityMana; r Background/ History DATE: SUBJECT. REFERENCES February 8, 2007 Property Tax Reform Discussion UMITTED INTO THL ENCLOSUP,ES: ' U B L 1 C RECORD FOR TEMD)sON Q-8-07 Over the past four to five years the City of Miami has been experiencing an unprecedented appreciation in real property values. The impact of this growth has had competing consequences to the City and the tax paying stakeholders. From the perspective of the City we have been able to enhance services, build financial reserves, and provide funding for reinvestment into the City's overall infrastructure. The tax payers have been able to realize extraordinary gains from the equity in their properties however the affordability of the associated property tax has become an alarming issue. In response the Mayor and the Commission have driven policy decisions that have produced the lowest millage rate in recent history, and lower fees for the non ad -valorem items being assessed to the tax payer. Public response has shown that although the City has been very responsive it still is not making a large enough impact. During the last Commission meeting, the Commission gave a directive to analyze the possible financial impact of supporting a state constitutional change that would call for portability of homestead tax exemption and inheritability of the homestead tax exemption. Shortly following that directive, Governor Charlie Crist, announced that his office would be moving for a constitutional amendment that would call for doubling of the homestead exemption, 3% cap on the annual allowable assessed value increase on business and rental properties, and finally statewide portability of the homestead exemption status. In light of these recent events we thought it would be beneficial to include the impact of the state level considerations in our analysis. Portability and Inheritability The Administration has being working diligently to provide the analysis requested. In short term we have found that it has been difficult to determine an appropriate means of quantifying the impact of the portability and heritability given the multitude of variables that would need to be considered. However our research has provided some insight on possible portability scenarios: Scenario 1 — Portability with $400,000 cap In this scenario the homestead exempt property owner would be able to carry the difference between the current assessed value and the just (market) value up to $400,000 dollars. Eva;nple 1: Existing home assessed value of $250,000 and just value of $750,000, resulting in a cap differential of $500,000. New home just value of $950,000. The property owner would Submitted Into the public rec€ r . cO -: :::_h j' a..rLl �Y � J+ ..3 1 a al item `�i - S cn-2 -/—b Page 2 Priscilla A. Thompson City Clerk carry the $400,000 maximum savings to the new home resulting in a new assessed value of $550,000. Property Tax Reform Example 2: Existing home assessed value of $250,000 and just value of $750,000, resulting in a cap differential of $500,000. New home just value of $450,000. The property owner would carry a savings of $225,000 (or 50% of the new just value). Scenario 2 — Portability of with no cap In this scenario the homestead exempt property owner would able to carry the difference between the current assessed value and the just (market) value no maximum. Example 1: Using the same assumptions in Example 1 above the property owner would carry a $500,000 savings resulting in a new assessed value of $450,000. E.xarnple 2: Using the same assumptions in Example 2 above the property owner would carry a savings of $200,000 or maintain the same assessed value of the existing home. In either scenario we see that the home owner would be greatly benefit, however more data regarding the portability area and average housing sales data would be needed in order to quantify the impact to the City. Doubling Homestead Exemption This initiative calls for an increase of the homestead exemption from $25,000 to $50,000. Currently the City has approximately $1.1 billion in homestead exemptions. Doubling of this savings feature would have an immediate financial impact of $9.3 million reduction in property tax revenue based on the City current millage rate of 8.3745. 3% Cap on Assessed Value Growth This initiative calls for the implementation of a 3% annual growth cap on the assessed value increases for business and rental properties similar to the "Save our Homes" tax amendment. In order to determine the fiscal impact of this initiative we assumed that the amendment would not become effective until the 2009 fiscal year and that the cap would not be applicable to the first tax roll year of new construction properties. Compared to the current 5 year plan (as presented in the 2007 Budget Book) we determined a cumulative loss in property tax revenue as follows: Fiscal Year 2009 2010 2011 2012 5 Year Plan Revenue $332,534,165 $365,787,581 $395,050,587 $426,654,634 Estimated New Revenue $282,224,130 $287,755,156 $298,126,476 $308,871,601 Difference ($50,310,035) ($78,032,425) ($96,924,111) ($117,783,033) In total this would account for over $343 million in loss of property tax revenue over the last four years of the five year plan. This loss of revenue would have a devastating impact to the City's reserves over the same period. Based on our model we would experience a complete liquidation of city reserves by 2010 and have a cumulative $190 million operating deficit by 2012. We will continue to update our analysis and brief the Commission as more information becomes available.