The flip side of Save Our Homes: Longtime homeowners face big tax hike
There's a flip side to Save Our Homes. With property values falling instead of rising, many longtime homeowners may suddenly get hit with big tax increases.
BY MONICA HATCHER
When they tear open their tax notices this fall, longtime South Florida homeowners are in for a jolt.
Those who bought before the housing bubble inflated (roughly from 2003 to 2007) will almost certainly see their tax bills jump, even as their home values plummet. The Broward County budget office, for instance, warns that a longtime homeowner with an average-size house is looking at a 13 percent increase in the county tax this year, based on preliminary assumptions.
There could be more bad news from your city and your school board, although none have set their tax rates yet.
If you like, blame the tax assessor, who says your home is increasing in value for tax purposes even though clearly it isn't, from a standpoint of market value. But the real culprit is a law called Save Our Homes, which ties the assessor's hands.
Here's what's going on: In simplest terms, the tax you pay on your home is determined by two factors: the assessed (taxable) value of the home and the tax (or millage) rate set by local governments.
The assessed value is set at the time you buy your house, pegged roughly to the amount you paid. Then it is readjusted annually by the assessor. But, since 1992, Save Our Homes has capped increases in the assessed value at the inflation rate (or 3 percent, whichever is lower) even as market value soared, sometimes by double digits.
The idea was to keep people from being taxed out of their rapidly appreciating homes by ensuring that they were taxed at less than market value.
But it gave longtime owners a huge financial advantage over bubble-era buyers, who paid much more for their homes and had much higher assessments as a result.
Now, it's payback time.
Market values have fallen more than 40 percent since the housing bubble burst. In light of that, you might expect the county to lower the assessment on your home.
That's exactly what figures to happen -- if you bought during the bubble. The assessed (taxable) value is almost certainly higher than the current deflated market value. When they lower your assessment, it will reduce your tax bill.
Not so if you bought before the run-up of prices starting around 2003. Your assessed value is probably still considerably below the market value, thanks to the cumulative impact of Save our Homes. What's more, a little-noticed provision in Save Our Homes mandates that your assessment rise this year and every year until assessed value equals market value -- regardless of current market trends.
Translation: Though your home bought more than six years ago is losing value, the assessor will say it's gaining value for tax purposes.
(Few noticed this provision before because, up till now, home values generally went one direction -- up.)
''I know it's hard to swallow, but that's the flip side of having Save Our Homes.'' said Kurt Wenner, director of research for Florida Tax Watch.
Now for the other side of the equation: millage rates. They are set by the city, the school board, whatever government body provides your services. They are called millage rates (mil as in thousand) because the millage rate is multiplied by each $1,000 of assessed home value to determine the tax you pay.
So, if the city's millage rate is $5.25 and your home is assessed for tax purposes at $250,000 -- and you qualify for the $50,000 homestead exemption, as most people do -- that makes your city tax bill $1,050.
Anyway, government bodies will have to significantly raise the millage rate this year if they hope to generate anywhere near the revenue they did last year.
That's because the South Florida tax roll -- the sum total of taxable property -- has fallen 9.2 percent in Miami-Dade and 10.7 percent in Broward. It's a reflection of lower home-sale prices, which depress assessments on homes that change hands, and a precipitous drop in commercial property values, which are untethered by Save Our Homes.
A lower tax roll means proportionally less revenue for a city, a county or a school board -- unless they jack up the millage rate.
So brace yourself.
The Broward School Board is already talking about raising its millage rate to compensate for a $38 million budget hole. So is Broward County, where the anticipated shortfall is $108 million.
Several municipalities have said rate hikes are on the table.
Miami-Dade Mayor Carlos Alvarez told National Public Radio an increase is all but ''inevitable'' to plug a budget gap of between $350 million to $400 million.
Of course, recent buyers will hardly notice, since their property assessments -- the other side of the mathematical equation -- are likely going to be slashed.
However, longtime homeowners will take the hit because their millage rates will likely rise, perhaps by a lot, at the same time their assessments rise, if only by a little because of the cap in Save Our Homes.