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Governments Must Brace For Tough Times

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The Tampa Tribune

Published: December 14, 2008

Local governments, already trimming expenses a little at the margins because of state-mandated tax cuts, should begin planning for major pruning of low-priority programs.

Slower retail sales have led to sharply reduced sales-tax collections for the state. Legislative leaders have broken tradition by refusing to even listen to requests for funding from advocates for community projects and nonprofit programs. There's no extra money at all this year.

The implications of that message are equally serious for local jurisdictions that provide police protection, street repair and other essential services.

Until last year, local governments have had more money than they needed for their core missions. The situation has changed faster than many local leaders seem to realize.

The Hillsborough County Commission recently called for a state law to allow it to return some local tax collections to taxpayers in the form of a tax holiday or local stimulus check. If there is any surplus to refund any time soon it will be miracle.

Lagging sales mean lower profits for businesses, and at some point the economic trouble will affect the underlying value of commercial property. That, along with falling home values, will mean less property-tax revenue for local governments and schools.

Last year in Hillsborough County, appraisers found that almost all commercial and industrial properties went up in value or held steady.

Values of commercial real estate have done much better than private residential, but Hillsborough's chief deputy property appraiser, Warren Weathers, tells us that if a store closes and the owner can't find another business to pick up the lease, the taxable value will eventually fall.

"We have not seen this kind of market before," he tells us. "My sense is, everybody better tighten up."

Even after the shock of the Sept. 11 attack, the total tax value of all local properties continued to increase. Not so today. Countywide, taxable values fell just over 4 percent last tax year.

Home foreclosures and a slowdown in growth will have a continuing impact on this year's tax roll, which is finalized Jan. 1, but a bigger drop is likely to come next year if unemployment continues to rise and sales continue below normal.

A cushion for local government revenues has been, surprisingly, the Save Our Homes amendment designed to shelter homeowners from rising taxes. The amendment caps increases in taxable value of homesteads at 3 percent a year no matter how fast the home's actual market value is increasing.

But the law also keeps the taxable value of the property ratcheting up by the inflation rate as long as a home's capped value is below its market value.

But now that values are falling, many homeowners are infuriated to discover that their home's tax bill can go up even in a year the home's true value goes down.

The Legislature is considering changing that so-called recapture rule, but if it does, the result could be another surprise for taxpayers. With tax revenues down from both sales and property and with the value of pension funds and other government assets also falling, local governments may be forced to raise millage rates.

Lawmakers should consider that possibility before rushing to scrap the recapture rule. Tax reforms accomplished to date still have not provided sufficient cuts to those who purchased homes at or near the peak of the housing bubble.

One encouraging side of the tax-revenue issue is that local tax revenues had increased so rapidly in the past five years that local governments should be able to find plenty of places to cut.

Governments at every level need to also scale back the generous pensions promised during better times when pension investments were rising. City councils and county commissions are going to find out this summer that when pension investments lose value, taxpayers must cover the losses.

A recovery could come sooner than most experts predict. Hillsborough County has seen a number of strong sales of commercial property, Weathers says, and some stores that seem quiet are actually busy filling Internet orders.

But the safe approach is to assume President-elect Barack Obama is right: "Things are going to get worse before they get better."

That means governments should look for frills to cut this winter to minimize cuts to the basics next summer.

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