A proposed Constitutional Amendment on the November 2012 ballot would create Florida jobs, grow Florida’s Gross Domestic Product, and increase the personal income of Floridians, if passed, according to an independent economic and fiscal analysis of the amendment by Florida TaxWatch, the nonpartisan, nonprofit public policy research institute and government watchdog. Amendment 4, a legislatively proposed amendment to the Florida Constitution that would make changes to the property tax system, was analyzed by a new Florida TaxWatch report, Fiscal and Economic Impact of Amendment 4.
Dominic M. Calabro, President and CEO of Florida TaxWatch, explained: “As an integral part of our mission to educate taxpayers and citizens, Florida TaxWatch has been conducting analyses of the likely impacts of proposed Constitutional Amendments for more than three decades, and I know that this independent analysis will help Floridians judge the potential benefits of this Amendment.”
Amendment 4 would take effect on January 1, 2013, and proposes:
• an additional homestead exemption for first-time Florida homebuyers, equal to 50 percent of the Just Value of a property up to the median Just Value of a homestead property in that county, which phases out over 5 years by reducing by 20 percent each year;
• a reduction in the nonhomestead maximum annual Assessed Value increase cap from the current 10 percent (on non-school levies) to a new level of 5 percent and an extension of nonhomestead Assessed Value caps through the 2022 tax year (which also does not apply toschool levies) and;
• providing legislative authority to eliminate the Save Our Homes “Recapture Rule.”
Using the best available data and an advanced econometric analysis, Florida TaxWatch estimates that the passage of Amendment 4 would result in the creation of 19,483 private, non-farm jobs over the 10-year period of the analysis (2013-2022), that Florida GDP would increase by approximately $1.1 billion, and personal income would increase by more than $5.3 billion.
Jerry D. Parrish, Ph.D., Florida TaxWatch Chief Economist, Executive Director of the Center for Competitive Florida, and author of the study, explained that, “The increased economic activity estimated by the dynamic econometric model used in this analysis is the result of the savings from Amendment 4 being distributed throughout theeconomy. From an economist’s standpoint, these findings are not surprising because the proposed Amendment 4 would reduce uncertainty for both personal and business investment, and when individuals and businesses can better estimate their future costs, including property taxes, they are more likely to invest. Basically, reducing the uncertainty of potentially large property tax increases will increase investment in both nonhomestead residential and commercial property in Florida, and the econometric model bears that out.”
The Florida TaxWatch analysis also estimates that between 319,861 and 383,810 additional home sales wouldoccur due to the effects of Amendment 4 during the 10-year period following its passage and implementation.
According to the report, “the additional home sales attributable to Amendment 4, over and above those estimated to have occurred in the absence of Amendment 4, are due to the effect of the additional homestead exemption, the additional income for Floridians, and the population growth predicted by this analysis. Additionally, there are effects from both the nonhomestead exemption on additional residential sales and the number of homes that are purchased by persons who have sold their homes and moved up in size or downsized.”
One important effect of Amendment 4 that does not directly affect the estimates in the economic analysis but is worth noting is the effect of the nonhomestead property tax cap reduction (from 10 percent to 5 percent) in reducing uncertainty. Property tax caps have two main economic effects. First, they reduce uncertainty for personal and business investment, and when businesses can better estimate their costs, including property taxes, they are more likely to invest, so reducing the uncertainty of potentially large property tax increases will increase investment in both nonhomestead residential and commercial property in Florida. However, property tax caps can also reward early investors and give them an advantage over later investors, which could affect investment timing decisions, by potentially moving them to earlier periods, at the expense offuture investments.
The full report can be found on the new Florida TaxWatch website, here.