Presentation by The Honorable Bill Donegan, CFA Orange County Property Appraiser January 30, 2007 Notes on: Property Tax Reform

Before we start.

Notes on: Property Tax Reform This Morning’s Topics  Property Tax Overview  Property Tax Reform Efforts  The 4 Property Values & Factors Considered  Save Our Homes Benefit Calculation  Save Our Homes Portability  Proposed Legislation and Analysis

Property Tax Overview

 The Office of the Property Appraiser is created and established by the Constitution of the State of Florida [Article VIII, Section 1(d)].  Elected Constitutional Officer.  Responsible directly to the people.  Promotes accountability and transparency to the ad valorem tax roll process.

Property Appraiser Responsibilities  Place a fair and equitable Just Market Value on all Real and Tangible Personal Property for ad valorem taxation.  Administer all exemptions authorized by Florida Law.  Prepare and submit to the State Department of Revenue an annual assessment roll which complies with Constitution and State mandate standards.  Administer the TRIM notices.  Maintain the County Base Map.

2006 Final Tax Roll Statistics  407,954 Real Property Parcels  270,339 Residential  62,089 Condominium & Timeshare  12,918 Commercial and Industrial  47,937 Vacant  1,988 Agricultural  63,344 Tangible Personal Property Accounts  Total Just Value: $127.8 Billion  Total Taxable Value: $92.3 Billion  Just Market Value Increased $26 Billion, or 25.6% over 2005 Just Market Value  Taxable Value Increased $17 Billion, or 22.6% over 2005  New construction added over $3.5 Billion in taxable value

Property Tax Reform Efforts

 The Property Tax Reform Committee  Formed June 2006 by Executive Order  Purpose:  Statewide Meetings:  Committee Reports:  Initial: December 15, 2006  Mid-term: March 1, 2007  Final: December 1, 2007

Property Tax Reform Committee  Preliminary Recommendation: Areas of Continued Review  Assess Business Property Based on Current Use Only, instead of “Highest and Best Use”

Highest and Best Use  The most Reasonable and Probable use to which the property can be expected to be put in the immediate future.  Must be legally permissible  Proper Land Use and Zoning  Physically possible  Financially feasible  Maximum productivity

Property Tax Reform Committee  Preliminary Recommendation: Areas of Continued Review (cont.)  Cap Tax Revenue Growth for Individual Local Governments  Cap Tax Growth for Individual Properties  Full or Partial Replacement of the Property Tax with Other Forms of Taxation  Assess Properties Using a “Moving Average”  Simplify the “Truth In Millage” Notice  Increase the Homestead Exemption  Save Our Homes Portability  Phase-out of Save Our Homes tax preference

Property Tax Reform Committee  Preliminary Recommendation: Areas of Continued Review (cont.)  Partial year Assessment of Improvements to Real Property  Agricultural Use Classification Improvements  Recapture  Set a minimum period of time for property to be in AG use.  Protecting SOH Benefit When Property is Taken Through Eminent Domain  Protecting SOH Benefit During Frequent Relocations due to Military Service

The 4 Property Values and Factors Considered

The 4 Property Values  Sale Price  Just Market Value  Assessed Value  Taxable Value

The 4 Property Values  Sale Price  The price a property sold for as recorded in the public records.  Often includes items other than the real property.

The 4 Property Values  Just Market Value  The Fair Market Value of the property  The most probable price in an open market  Typically, 85% of Sale Price  Reduced for items such as closing cost / recording fees  Determined annually by the Property Appraiser

The 4 Property Values  Assessed Value  For properties with no limitations: Assessed Value equals Just Market Value Otherwise  Assessed Value = Just Market Value (Less) any Limitations and Special Use Classification such as “Save Our Homes” or Agricultural Classification.

The 4 Property Values  Taxable Value  Equals Assessed Value Less Exemptions  Homestead $25,000  Limited Income Seniors – up to $25,000  Widows / Widowers $500  Service Connected Disability $5,000  Total and Permanent Disability – Full Exemption

8 Factors Considered in Deriving Just Valuation  Present Cash Value of the Property  The Highest and Best Use of the Property  Location of the Property  Quantity or Size of the Property  Cost of the property and the present replacement cost of any improvements thereon  Condition of the Property  Income from the Property  Net proceeds of the sale of the property, as received by the seller, after deduction of usual and reasonable fees and cost

Here’s how the 4 Property Values come together  Sale Price (2004)$ 225,000  Just Market Value (2006)$ 325,000  Assessed Value$ 202,895 (lower due to SOH cap 3%) (85% of sale price plus 3% per year)  Homestead Exemption$ -25,000  Taxable Value $ 177,895

Save Our Homes Benefit Calculation

The “Save Our Homes” Benefit Calculation  Sale Price (2004)$ 225,000  Just Market Value (2006)$ 325,000  Assessed Value$ 202,895  Homestead Exemption $ -25,000  Taxable Value $ 177,895 Just Market Value $ 325,000 (minus) Assessed Value - $ 202,895 equals Save Our Homes Benefit $ 122,105  The homeowner does not pay taxes on the Save Our Homes Benefit.

Save Our Homes Portability

 Portability The ability to transfer the benefit of the homestead property assessment limitation (defined in FS ) described as the dollar value difference between market value and assessed value, or a percentage thereof, from an existing homestead to a newly homesteaded property

So, what exactly is someone “porting” to a new house?  They’re porting:  The “Save Our Homes Benefit”  Also called: “Assessment Limitation” or “Capped Difference” ______________________________  Sale Price (2004) $ 225,000  Just Market Value (2006) $ 325,000  Assessed Value $ 202,895  Homestead Exemption - $ 25,000  Taxable Value $ 177,895 Just Market Value $ 325,000 (minus) Assessed Value - $ 202,895 equals Save Our Homes Benefit $ 122,105 The $ 122,105 is also the Portable Amount

“Save Our Homes Benefit” Example

Who might be impacted Positively by Portability of SOH?  Purchaser moving to higher priced property  Purchaser downsizing  Existing owners relocating within the state  Realtors/Builders/Mortgage & Insurance Brokers  State Economy - Portability could allow many persons the ability to move within the state thus increasing sales and benefiting businesses such as to foster growth in the state economy.

Others impacted by Portability of SOH?  Property Appraiser – Administratively  Taxing Authorities – Decreased tax revenues ??? Revenue Neutral?  Out of state buyers – Receive no benefit  First time buyers – Receive no benefit

Important Numbers to Remember  The following chart illustrates that 82.23% of all homesteaded properties in Orange County have a Just Market Value between $1,000 & $299,999.  Orange County’s 2006 Median Just Market Value $192,146

$1,000-$299, , % $175,068 $58, % $300,000-$699,999 32, % $404,636 $120, % $700,000-$999,999 2, % $816,531 $213, % $1,000, , % $1,584,116 $397,951 25% Totals 206, % Homesteaded Residential Property Just Market Value & Capped Difference Analysis For All Homestead Properties Just Mkt. Range Count % of Total Avg. Mkt. Avg. Cap Diff. Avg. Savings * Figures based on 2006 Preliminary Tax Roll data

The “% of Savings” is determined by Avg. Capped Diff / Avg. Market Value Thus, homeowners whose “Just Market Value” is from $1,000 to $299,999 not only represent 82.23% of all homestead properties but derive the greatest savings from SOH at 33.64% … dispelling the myth that only the most wealthy benefit from Save Our Homes Analysis Conclusion

A Recommended Homestead Portability Formula “The County Median Just Market Value Formula”

County Median Just Market Value Formula When establishing a new homestead in the State of Florida, Owner can transfer: “Their Save Our Homes Benefit” Up to The amount of the Prior Year “Median Just Market Value” for the county of relocation  The Assessed Value of the newly established homestead MUST equal or exceed the Assessed Value of the newly established homestead’s prior year assessment.

Important Number to Remember Orange County’s 2006 Median Just Market Value $192,146

County Median Just Market Value Formula EXAMPLE  Purchase Price$ 600,000  Just Market Value of New Homestead (-15% for cost of sale) $ 510,000  Less: “Save Our Homes Benefit” (up to prior year Median Just Market value of $192,146) $ 122,105  Assessed Value $ 387,895  Less: Homestead Exemption $ -25,000  Taxable Value $ 362,895  Est. Tax Dollar Amount $ 7,258 (as opposed to $ 9,700) Tax Savings for Owner $ 2,442 This formula provides a benefit to the property owner with less impact to taxing authorities than all other proposed formulas.

Portability in the Metro Area Orange County: $192,146  Osceola County: Median Just Market Value $157,000 +/-  Seminole County: Median Just Market Value $204,000 +/-  Lake County: Median Just Market Value $138,000 +/-  Polk County: Median Just Market Value $117,000 +/-  Brevard County: Median Just Market Value $187,000 +/-  Volusia County: Median Just Market Value $173,000 +/-

Benefits of County Median Just Market Value Formula  Simple Formula – easy to understand.  Provides a fair “Portability” benefit. Tied to the market of each county.  Allows 98% of homeowners in Orange County to transfer ALL of their current Save Our Homes Benefit.  Doesn’t allow for “super wealthy” with an extremely large Portable Value in one county to import that value into another, perhaps smaller, county.  Revenue neutral

The following examples present issues and scenarios which could impact the implementation of portability Issues Which Could Impact Portability Implementation

purchase or new  Will portability apply only to the purchase of another home? (most language related to portability thus far has referred to purchase or new)  What if someone already owns a second home and they want to make it their new homestead?  Will portability be a “use it or lose it” within a specified time period or will the timeframe be indefinite?  If someone is building a new home and construction delays occur taking them beyond a time limitation, will they lose the benefit of portability? Issues Which Could Impact Portability Implementation

 If a husband and wife were granted homestead exemption on their home, they get divorced and both want to use portability for their subsequent homes, how would this be handled?  Is it a 50/50 split?  Would it be negotiated and agreed amounts stipulated in the divorce papers?  What if one stays in the existing home and the other buys a new one, how is the capped difference allocated?  How could any of these scenarios be monitored or administered? Issues Which Could Impact Portability Implementation

 What if two single people own separate homes…they sell their respective homes and buy a home together, whether they get married or not?  Do they each bring a portable amount to the new home?  Should there be limitations on the amount?  Do they get the greater of the two amounts or lesser of the two amounts?  If there are multiple owners on a homestead property, they sell and move to their respective new homes – who gets the portable amount?  Many counties have no idea who filed for the exemption originally – the original application may no longer exist Issues Which Could Impact Portability Implementation

 What if a property owner uses portability and it is later determined they were not eligible for the homestead exemption received in the prior county and a lien is filed.  How will the property owner or property appraiser (in the new county) be notified and the portability revoked? Issues Which Could Impact Portability Implementation

If portability were already in effect, what would be the impact on Orange County over the past 3 years? PORTABILITY IMPACT

TAX YEAR 2006 (based on 2005 home sales) Total Homestead Apps taken in Orange County 27,534 Total Apps with HX from another FL County 2,739 Total Apps with a prior Orange County HX 12,782 Total # of applicants that may have benefited from portability 15,521 (56%) PORTABILITY IMPACT TAX YEAR 2005 (based on 2004 home sales) Total Homestead Apps taken in Orange County 27,738 Total Apps with HX from another FL County 2,583 Total Apps with a prior Orange County HX 11,597 Total # of applicants that may have benefited from portability 14,180 (51%) TAX YEAR 2004 (based on 2003 home sales) Total Homestead Apps taken in Orange County 26,524 Total Apps with HX from another FL County 2,440 Total Apps with a prior Orange County HX 12,138 Total # of applicants that may have benefited from portability 14,578 (55%)

PORTABILITY IMPACT Maximum Tax Dollar Impact Should Everyone Eligible “Port” the Maximum $ 192,146 $ 56.7 Million Average # of applicants that may have benefited from portability during prior three years: 14,759 x (192,146 x 20 mills) x $3,843 = $56,718,837

Proposed Legislation and Analysis

 HJR 23  HJR 75  SB 220  SJR 452 & SB 454  SB 532 & SJR 534

HJR 23 Summary  SPONSOR: Carl J. Domino, Republican, District 83, Palm Beach  Provides for Portability of the Full Save Our Homes Benefit with the purchase of a home in 12 months.  Points to Note:  Applies only to new purchase  12 month limitation  Difference in new homestead’s just value and assessed value can not exceed the difference of prior homesteads just and assessed values.  New assessed value MUST equal or exceed that of prior homestead.  Does not allow for a scenario where owner could apply portability and end up paying less in taxes than on previous homestead.

HJR 75 Summary  SPONSOR: Bob Allen, Republican, District 32, parts of Orange & Brevard  Caps Assessed Value of ALL Real Property at 3% maximum.  Points of Note:  Provides the same protection to all vacant, commercial, and non-homestead property owners that Homesteads currently enjoy.  Over time, will create taxable value inequities between similar properties such as:  Vacant Land  Rental Property  Commercial / Professional Property  Impact to County / City / Taxing Authorities  Total lost tax dollars of $296.5 Million had this been in effect for

SB 220 Summary  SPONSOR: Senator Evelyn J. Lynn, Republican, District 7, Parts of Clay, Marion, Putnam, Volusia  Provides that a local government may not participate in receiving revenues from the local government half-cent sales tax in a given year if the government levies a millage rate in excess of a rate specified as:  The rolled-back rate, adjusted by the percentage change in the CPI, plus 3 percentage points.  Points of Note:  Limits revenue to county and cities but does not protect non-homesteaded, vacant and commercial properties from increasing Assessed and Taxable Values.  Impact to County Millage:  Total lost tax dollars to Orange County of $39.8 Million had this been in effect for

SJR 452 & SB 454 Summary  SPONSOR: (452) Senator Mandy M. Dawson, Democrat, Dist. 29, Parts of Broward and Palm Beach (454) Senator Evelyn J. Lynn, Republican, Dist. 7, Parts of Clay, Marion, Putnam, Volusia  Both provide for increasing the Homestead Exemption to $ 50,000  Points of Note:  Impact: See Next Slide

SB 532 Summary  SPONSOR: Senator Michael S. Bennett, Republican, District 21, Parts of Charlotte, DeSoto, Lee, Manatee, Sarasota  Provides that the governing body of a county or municipality may levy a surtax on documents taxed under s at a rate not exceeding 25 cents on each $100 of the consideration for the execution, assignment, transfer, or conveyance of real property or interest therein. (Does not apply to a deed pursuant to an action for dissolution of marriage)  Points of Note:  Restricts how proceeds are to be pledged.  Restricts impact fees if such surtax is imposed.  Requires Grantor (Seller) of the property to pay the surtax. Thus, makes the cost associated with selling a property more expensive for the seller – will decrease incentive to sell.

SJR 534 Summary  SPONSOR: Senator Michael S. Bennett, Republican, District 21, Parts of Charlotte, DeSoto, Lee, Manatee, Sarasota  Provides, as a local option, Portability of the Full Save Our Homes Benefit to another property within the same county and within 12 months.  Provides, as a local option, a cap on all non-homesteaded real property not to exceed the lesser of: 5 percent or, the percent change in CPI.  Provides for an increase of the Homestead Exemption to $50,000 – provided that the first $25,000 of assessed value is taxable and the next $50,000 is exempt.  Points of Note:  Will require the poorest 1,173 of Orange County’s homeowners, who currently pay no ad valorem tax due to an assessed value below 25K, to begin paying approximately $500 annually.

Thank You Gracias Honorable Bill Donegan, CFA Orange County Property Appraiser