FLORIDA – Changes to Florida’s homestead property tax rules would produce “clear winners and losers,” sharply reduce municipal revenue and widen gaps between wealthier coastal communities and smaller inland and rural towns, a Wichita State University analysis for the Florida League of Cities found.
Recommended Videos
The study modeled several proposals, including complete elimination of the homestead exemption, large fixed-dollar exemptions and percentage-based discounts. It found that removing the exemption entirely would cut ad valorem revenue by about 38 percent and reduce general fund revenue by about 14 percent. To maintain current service levels, municipalities would need to nearly double millage rates, the study said.
Winners and losers
Fixed-dollar exemptions tend to favor owners of higher-value homes, while percentage-based discounts distribute relief more evenly across homeowners, the researchers found. Renters and recent homebuyers generally receive no direct benefit, which the study said could intensify affordability disparities.
Commercial and rental properties could face higher effective tax burdens if cities raise millage rates to recoup lost revenue. The study cautioned that shifting the tax burden could have knock-on effects for businesses, renters and local economies.
Scope of the fiscal hit
Under scenarios that would enact high fixed-dollar exemptions in the range of $250,000 to $500,000, local governments could lose between 25 percent and 32 percent of ad valorem revenue, the analysis found. In contrast, so-called “clean-slate” just-value reforms — such as a 32 percent discount or a $100,000 just-value exemption — were projected to yield net revenue gains, unlike expansions of existing exemptions.
Property taxes account for about 43 percent of municipal general fund revenue in Florida, the report noted, making cuts to the homestead tax base a threat to the stable local funding that supports police, fire, public works, parks and other essential services. Officials told researchers they expected declines in services without compensating revenue, and warned of potential impacts to bond ratings, capital projects and borrowing capacity.
Rural communities at risk
Rural and smaller inland municipalities would likely feel the effects most acutely, because they have fewer alternative revenue sources and less administrative capacity, the study said. Those communities depend on predictable ad valorem revenue to fund infrastructure, emergency services and economic development initiatives such as the state’s Rural Renaissance efforts.
The study highlighted policy tools that could soften the impact on local governments while targeting homeowner relief. Options include state revenue replacement or cost-sharing to offset major municipal losses; targeted exemptions based on income or age to improve fairness; expanded local-option revenues to increase fiscal flexibility; and transparent, standardized fiscal-impact disclosures to help voters and officials understand tradeoffs.
The report emphasized that design matters: some reform approaches could strengthen municipal finances and community development, while others risk eroding the local fiscal foundation that supports services and growth.
Click here to read the full study.