Transcript CP0002 Replace School Property Tax with Expanded Sales Tax

Economic Impact on Florida of
Amendment #5 “Eliminating State Required School Property
Tax and Replacing with Equivalent State
Revenues to Fund Education”
August 2, 2008
Hank Fishkind, Ph.D.
Brian Martin, Associate
Fishkind & Associates, Inc.
12051 Corporate Boulevard
Orlando, Florida 32817
407-382-3256 or Fishkind.com
Basic Program
Swap School Property Tax for Sales Tax

Eliminate property tax set as the required local effort
(“RLE”) for all school districts
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Cuts property taxes by about $8 Billion
Gets rid of “State” Property Tax
Local discretionary & capital millages not affected
Replace the $8 Billion in revenue with higher sales tax
revenues from:
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Increase the sales tax rate by 1 cent
Repeal some sales tax exemptions:
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Maintain exemptions for food, prescription drugs, health services,
residential rent, electricity, and heating fuel
Repeal exemptions “not in public interest”
Tax some items that are currently excluded
Look at other revenue sources
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27% = Average Statewide
Property Tax Savings
Analysis of Effective Millage Rates 2007
Required Local Effort Effective Millage (DOR)
Total Effective Millage Rate (DOR)
Reduction Tax Rate from Elimination of RLE
Tax Swap Amounts
4.56
16.88
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27.02%
Values
RLE Eliminated
Value of 1 Cent Sales Tax
Amount Needed from New Sources @ 6 cents
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Millage Rates
Fishkind & Associates, Inc.
$7,900,000,000
$3,930,300,000
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$3,969,700,000
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Economic Impact of Shifting
$8 Billion in Property Taxes to Sales
Taxes
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Lower property taxes result in:
 Increased disposal income for owner occupied dwelling units
 Increased net operating income for all rental and income producing
property
 Increased value of all property in Florida increasing wealth
 Higher investment in Florida real estate – boost to housing and non
residential
 Property Tax is 2nd largest expense for businesses
 Increases in spending based on higher wealth levels
 Increased migration to Florida
Higher sales taxes result in:
 Higher prices for existing and for newly taxed items
 Possible lower demand for existing and for newly taxed items
depending on elasticity of the item.
Net Economic Impact depends upon the balance of the positive and
negative effects.
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Summary of Economic Impacts from
Swap
(Dollars in $B 2007)
Category
Year 1
Year 2
Year 3
Year 4
Year 5
567
11,348
28,369
42,554
56,739
-841
13,081
34,653
53,149
72,465
Disposabale Income $B
$0.23
$0.57
$1.11
$1.56
$2.04
Construction Spending $B
$0.03
$0.68
$1.69
$2.54
$3.38
Gross Regional Output $B
-$0.90
$1.12
$4.22
$6.92
$9.79
Population
Employment
$10.0 Billion of Economic Output over 5-Years
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Residential Construction
Impacts - Year 5
Residential Construction Estimates
Population growth projected
New housing units
New second homes
Total new dwelling units
Average value per new unit
Value of new residential construction
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Values
56,739
21,014
2,101
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23,116
$300,000
$6.9 Billion
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Amendment #5 Creates Wealth
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How does Amendment #5 create wealth?
All income producing properties are valued using net operating
income and a cap rate that depends upon land use type & risk
Example of valuing a grocery anchored shopping center
 NOI
= $2,000,000
 Cap Rate
= 10%
 Value of the Center = $20,000,000 (NOI/Cap Rate)
What happens to the shopping center if the swap is enacted?
 Property taxes fall by 4.5 mills ($4.5/$1,000) or $45,000
 At a 10% Cap Rate the shopping center’s value increased
$450,000
 Portion is passed to tenants making them more profitable
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Instant Wealth Created by
Amendment #5
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All Florida property becomes more valuable at a lower
property tax rate
Eliminating $8 Billion in property taxes creates
approximately $80 Billion in increased values and higher
wealth for property owners
Benefits of wealth creation & lower property taxes:
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Stimulates construction of commercial property since it is now
more valuable to own
Creates jobs and incomes
Stimulates spending in Florida
Lower property taxes result in higher levels of population growth
Lower property taxes stimulate residential housing starts
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Amendment #5 Property Tax
Savings By County
Alachua
Baker
Bay
Bradford
Brevard
Broward
Calhoun
Charlotte
Citrus
Clay
Collier
Columbia
Miami-Dade
DeSoto
Dixie
Duval
Escambia
Flagler
Franklin
Gadsden
Gilchrist
Glades
Gulf
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23%
27%
42%
27%
30%
24%
27%
27%
30%
32%
25%
25%
25%
31%
24%
29%
30%
35%
17%
29%
30%
25%
37%
Hamilton
Hardee
Hendry
Hernando
Highlands
Hillsborough
Holmes
Indian River
Jackson
Jefferson
Lafayette
Lake
Lee
Leon
Levy
Liberty
Madison
Manatee
Marion
Martin
Monroe
Nassau
Okaloosa
27%
29%
25%
30%
30%
23%
31%
31%
37%
28%
27%
30%
27%
27%
29%
29%
31%
31%
35%
26%
20%
32%
38%
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Okeechobee
Orange
Osceola
Palm Beach
Pasco
Pinellas
Polk
Putnam
St. Johns
St. Lucie
Santa Rosa
Sarasota
Seminole
Sumter
Suwannee
Taylor
Union
Volusia
Wakulla
Walton
Washington
33%
30%
34%
26%
32%
25%
28%
26%
33%
23%
36%
29%
29%
36%
29%
28%
26%
25%
31%
22%
31%
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Residential Household Effect
Taxable Value of House
Property Tax Bill
Property Tax Savings
Taxable Spending Required to
Equal Tax Savings
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$200,000
$3,209
$867
$300,000
$4,814
$1,301
$86,717
$130,075
If the taxable value of a person’s house is
$200,000, they could spend up to $86,717 on
taxable items before losing money on a 1-Cent
tax increase.
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Amendment #5 Conclusions
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Swapping $8 Billion in Real Estate Taxes
for $8 Billion in Sales Taxes will be
beneficial for Florida’s Economy and
Citizens
Program increases wealth
 Program increases economic growth
 Program stimulates investment in Florida
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