Senator Don Gaetz: It’s time to repeal the recapture rule

Sep 9, 2008

Guest Column

    For the past two years, taxpayers have grumbled, for good reason, that the market value of real estate has been going down but real estate taxes keep going up. Officials have responded that property appraisers look at values through a rear-view mirror: We pay taxes in November of this year based on what our property was worth at the end of last year.

    So now, well into a multiyear real estate slump, surely the undeniable and continuing decline in values will be hard-wired to a decline in assessments and lower property tax bills.

    Well, sort of. But not always.

    The good news is that Florida voters amended the state constitution in January to increase the homestead exemption, place a firstever 10 percent limit on the amount that non-homestead property taxes can annually increase, virtually eliminate tangible personal property taxes for small businesses and make Save Our Homes portable. In addition, the Legislature required local governments to roll back some of the 100 percent property tax increases that rode on the backs of a fiveyear speculative real estate market.

    Granted, the Legislature could have done more. For example, I co-sponsored a 3 percent cap on annual non-homestead tax increases to establish equity with the cap on homestead taxes. But we could get enough votes only for a 10 percent non-homestead limit.

    Granted, some local governments exhibit remarkable creativity in sidestepping legislative intent by raising fees and creating other taxes.

    But still, why did some property tax bills go up, even including some homesteads? The answer is in an obscure regulation: Department of Revenue Rule 12D–8.0062, adopted in 1995 and largely irrelevant until now.

    This rule implemented the Save Our Homes amendment to the constitution. That’s the provision which limits tax increases on homestead property to no more than 3 percent each year. This cussed and discussed portion of our constitution has kept taxable assessments on homesteads far below what property appraisers would have calculated based on their analysis of just value.

    As long as property values kept going up and the gap between the taxes paid by homesteaders and just value kept widening, neither taxpayers nor tax takers paid much attention to the Revenue Department rule. That’s because tax increases for these properties were being held down.

    Now comes the underside. In what’s called the “recapture rule,” the Revenue Department interprets Save Our Homes to mean that the 3 percent limit on tax increases is also a 3 percent guarantee of tax increases. In other words, the ceiling and the floor are the same. The rule says that if the market goes up 3 percent or 30 percent or 300 percent, homesteaders will pay a 3 percent increase. If the market goes down 3 percent or 30 percent or 300 percent, homesteaders will pay a 3 percent increase.

    Put indelicately, the recapture rule means the house, which is to say the government, always wins.

    The issue has been tested legally. In 1995, an administrative law judge ruled that the Department of Revenue could properly infer the recapture rule from the wording of the Save Our Homes portion of the constitution. To upend the rule, the constitution itself would have to be amended.

    I’ve already been warned that the chances of getting such a constitutional amendment even considered are “very, very remote” and that the costs to government would be “disastrous.”

    I don’t believe in introducing bills just for tubthumping or to burn time in the legislative process. However, in researching the history of Save Our Homes, I find no evidence that its framers intended to guarantee government more property taxes when property values are in a deep and protracted decline. The measure wasn’t called “Save Our Taxes.” There never was a debate, let alone agreement to government’s constitutional authority to “recapture” a bigger slice of someone’s reduced property value.

    It’s time for state and local politicians to say that property taxes should freefloat upward regardless of property values, if that’s what they truly believe. By contrast, I believe that if property taxes are based on property values, then if values go down, taxes should go down.

    If that reveals property taxes as an unreliable, inappropriate primary method of financing schools and local government in bad times, perhaps that epiphany will have value in and of itself.

    That’s why I will introduce legislation next year to amend the Florida Constitution to eliminate the recapture rule. Let’s have the debate.

Don Gaetz represents Escambia, Santa Rosa, Okaloosa, Walton and Bay counties in the Florida Senate. He is chairman of the Senate Education Committee. He lives in Niceville.