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Issue 5: March 24, 2008
Topic 1: A New Tax Swap Amendment, Does it Add Up?
By a 21 to 4 vote of the full board, the Taxation and Budget Reform Commission (TBRC) last week approved a constitutional amendment aimed at lowering property taxes by removing local school taxes paid by property owners in favor of an increased sales tax and fewer sales tax exemptions for certain non-essential items.
The proposal would cut approximately 9.6 billion in property taxes dedicated to school funding, about 25 percent of the average property tax bill. Moreover, the cut applies to all properties, not just homesteads, and also reduces the amount local governments can increase assessments on commercial, rental, and second homes from the current 10 percent cap to 5 percent.
To offset that lost revenue, the measure authorizes an increase in sales tax of up to one cent and the repeal of sales tax exemptions determined not to advance or serve a public purpose. Current exemptions for food, prescription drugs, health services, charitable and religious institutions, and residential rent, electricity and heating fuel would be maintained.
A one cent increase in the sales tax is anticipated to generate at most $4 billion a year. That leaves an additional 5.6 billion, or more, that the legislature will have to offset by closing sales tax exemptions, cutting the budget, or revenue growth – the latter of which is unlikely in these difficult economic times. There are some 250 exemptions to the sales tax, including skyboxes, tickets to the ballet, the sales of satellites and space vehicles, bottled water and crab bait. In total, the exemptions are estimated to be worth $12.3 billion in revenue.
Under Florida’s State Constitution, any new tax needs 66 percent, or two-thirds, approval – more than the 60 percent usually required for constitutional amendments. Whether this proposal calls for a new tax, or just broadens existing taxes may determine whether the higher threshold of 66 percent is needed, which could make all the difference in November.
Bottom Line: If this measure were to pass, would the Republican lead Legislature close tax exemptions? Would there be a will to continue to cut state spending following the more than 4 billion in cumulative cuts made by the time this session ends? Will Floridians vote to pass this measure by 60 percent or 66 percent in the absence of a multi-million dollar campaign featuring the Governor campaigning in support of the measure? The current proposal leaves more questions than answers. Taxation and Budget Reform members will be given another opportunity to consider the measure before a final vote in April.
Topic 2: New Nuclear Power
The Florida Public Service Commission (PSC), charged with regulating utilities in Florida to ensure safe and reliable services at fair prices, last week approved Florida Power and Light's bid to build two nuclear power plants at its Turkey Point power station, south of Miami.
The project is the first of its kind in over twenty years and one of the largest and most expensive projects ever undertaken by an electric utility. Governor Crist applauded the measure as a means toward securing Florida’s energy future.
In May, the Commission will also consider a proposal by Progress Energy to build two nuclear facilities in Levy County.
Bottom Line: With fuel prices continuing to rise, nuclear power provides a less expensive and cleaner avenue to meet Florida’s growing energy needs. However, federal regulation and construction time means these proposed facilities are unlikely to come on line before 2016.
Topic 3: Growing Clean Cities
Forbes.com last week released a list of America's cleanest cities. Florida led the way with three of the top four, and nearly half of the top ten metro areas. Miami came in first place, while Jacksonville, Orlando and Tampa – St. Petersburg also made the grade. Nine of the top ten achieved this honor while still experiencing large population growth, including Miami and Jacksonville with an 11.5 percent and 8 percent increase respectively, over the last decade. The rankings were based on air and water quality as well as solid waste management.
Forbes noted state efforts to invest in and incentivize clean technology and singled out the Florida Department of Environmental Protection (DEP) as a major player in the movement for a focus on water management to minimize bacteria as well as the Department’s programs to reduce carbon emissions from the source to minimize harmful smog, preserving air quality.
Bottom Line: Some of the same cities ranked as “America’s Cleanest Cities” also run the risk of future non-compliance with new Environmental Protection Agency smog standards, referenced in the LeMieux Report last week. Nonetheless, all signs indicate the state has put in place measures to keep Florida’s cities clean. Florida’s reliance on tourism along with its increased commitment to renewable energy should ensure that Florida's distinction of having “America's Cleanest Cities” can remain a reality.
Topic 4: Transportation Projects Moving Forward
The Florida Department of Transportation (DOT) is aggressively pursuing a proposal to lease parts of Alligator Alley, the portion of Interstate 75 that connects Southwest and Southeast Florida. The proposal was initially floated last year with the passage of transportation legislation allowing the state to enter into public private partnerships to lease portions of existing toll roads. The pathway through Florida’s Everglades would serve as a test for similar projects and could generate hundreds of millions, if not a billion dollars, money which would be utilized to further the development and construction of future transportation projects.
Last week, a second transportation measure gained momentum with the House Infrastructure Committee passing legislation on the Central Florida commuter rail. The rail project would divert freight traffic toward Lakeland in favor of a commuter rail in the Orlando metro area. The bill considered by the House committee grants CSX “no fault” coverage for injuries related to the rail, meaning the state would be liable for damages or injuries on the commuter rail even if Jacksonville-based CSX’s trains cause the harm.
Bottom Line: Tight budget years and reduced funding from the U.S. Department of Transportation require innovative strategies to address transportation challenges inherent to a growing Florida. Despite likely toll increases with privatization, DOT’s emphasis on public private partnerships is the only way the state can generate sufficient dollars to fund the transportation projects needed to keep Florida moving forward.
Topic 5: Business Lobby Defeats Corporate Tax Measure
Florida’s business community, including Associated Industries of Florida, the Florida Chamber of Commerce, Florida Tax Watch, and the Florida Retail Federation expressed opposition to a 365 million dollar tax hike on Florida businesses proposed by House Democrats.
The Government Efficiency and Accountability Council voted 10-6 along party lines against the measure that would increase taxes on multi-state corporations by mandating combined reporting for corporate income taxes. Under the proposal, the company and all of its affiliates would be required to file a single tax return and report all U.S. earned income to be apportioned to Florida.
Proponents argue that the legislation would close a loop hole that allows companies to essentially hide profits in states without corporate income taxes. Detractors, like Florida Tax Watch, argued that combined reporting would negatively impact investment by discouraging companies from operating in Florida and employing Floridians. The Chamber also noted that the tax proposal constituted a “unitary tax”, would be difficult and time consuming for the state to regulate, and violates the federal commerce clause, which prohibits states from taxing outside their borders.
Bottom Line: Taxing business in a tough economy is the wrong path for increasing state revenues. Less taxation and regulation are needed to stimulate economic growth, and therefore increase state revenues.
Question of the Week
Given the recent uptick in personal bankruptcies, have there been any challenges to the Bankruptcy Code which attempt to limit the availability of the Florida homestead exemption?
Things to Watch
Walgreens is moving from pharmacy to heath care provider by developing 500 health centers and retail clinics in its stores. Walgreens merger with I-trax and Whole Health Management will provide workplace health services for hundreds of companies.
Governor Crist and Secretary Sole, of the Florida Department of Environmental Protection, unveiled a new Permitting Application Subscription Service (PASS) that allows interested parties to access information about environmental permit applications online.
The Daily Business Review reported last week that reverse mortgages could be the next financial crisis as the Financial Industry Regulatory Authority issued an investor alert cautioning homeowners about these loans.
The Department of Homeland Security recently conducted the largest ever cyber security exercise. Federal, state, local and private sectors teamed up to test the nation’s level of preparation and response time in the event of an attack on the nation’s cyber infrastructure. Over 75 percent of the nation’s infrastructure is privately owned; therefore, preparation is essential to prevent serious economic damage in the event of an attack against computer and Internet capabilities.
The Wall Street Journal reported last week that nearly 10,000 new condo units are coming on line in Miami and Ft. Lauderdale, and the same is true for cities across the nation. Most projects take three years to complete, so units ready for sale today were originally planned when the market was hot. Loan financing for condo projects encourages construction even in a down market. Under most loan agreements, developers are required to spend their own money, or money gained from deposits, first before bank financing kicks in. The incentive created is for developers to keep going on partially constructed projects since doing so only puts the bank at risk while giving the developer a better chance to recoup its investment.
