State lawmakers are expected to finalize the budget Monday, but for many officials in Palm Beach County, the most important votes already have been taken.
Those were the votes that passed a joint resolution allowing residents to determine if they want to expand the homestead exemption from $50,000 to $75,000 for homes worth $100,000 or more.
The state House and Senate passed the resolution, HJR 7105, by the required three-fifths majority, sending it to voters next year. If 60 percent of voters approve, the expanded homestead exemption becomes law on Jan. 1, 2019.
Local elected officials still hope the budget will offer help on a wide variety of issues — money to combat opioid abuse, for road and water projects in the Glades and for beach renourishment.
But the expanded homestead exemption could rip a $62.7 million hole in the collective budgets of the county, its cities and other taxing entities. Homeowners whose primary home is in Palm Beach County can claim the exemption, which is subtracted from the total value of their home before property taxes are assessed.
Voters stung by the rapid rise in home values during the housing boom last voted to increase the exemption by $25,000 in 2008. After the housing market crashed, radically cutting home values, county commissioners approved sharp increases in the tax rates for two years before they leveled off at $4.78 per $1,000 of assessed value in 2012.
Cities at risk
Last week, commissioners reacted with anger and dismay to the Legislature’s passage of the homestead resolution.
“I don’t know what they were doing up there,” County Mayor Paulette Burdick said.
While the loss of property tax revenue is difficult for the county, it’s a much more frightening prospect for some of its cities, which are at or close to their state-mandated property tax cap of $10 per $1,000 of assessed value.
That means they won’t be able to raise property tax rates much, if at all, to make up for the loss of revenue caused by an expanded homestead exemption. Officials in those cities could be looking at reductions in services like code enforcement, law enforcement and fire rescue.
Mangonia Park, for instance, uses 98 percent of its taxing authority.
Town Manager Ken Metcalf hasn’t done a detailed analysis of what less property tax revenue will mean for the town’s finances.
“Quite frankly, I’ve been afraid to look,” Metcalf said. “We can’t afford to lose any revenue. Whatever it turns out to be, we can’t afford it. This is not a good thing for a small town.”
Lake Worth is bigger, but Mayor Pam Triolo said the bigger homestead exemption won’t be a good thing for her city, either.
Lake Worth uses just under 90 percent of its taxing authority, meaning it, too, could be forced to consider service reductions if an expanded homestead exemption takes a big chunk of property tax revenue.
“It’s going to be hard for us,” Triolo said. “We’ve been trying to rebuild the city for the last six years. We’ve been able to make improvements, vast improvements.”
The loss of property tax revenue could stall that momentum, the mayor said. The city’s small size — seven square miles — means it doesn’t have the large and varied tax base of cities like West Palm Beach.
“It feels like we have to do our jobs with our hands tied behind our backs,” she said.
Triolo said she does have some hope that recent investments in the city’s commercial sector could cushion whatever blow falls on it because of the expanded homestead exemption.
“We’re going to have to really put pen to paper to see what this means for us,” she said.
Riviera Beach City Manager Jonathan Evans said about 65 percent of the housing stock in his city is investor-owned, meaning those houses don’t qualify for a homestead exemption. That will help avoid budget shock.
“The fiscal impact won’t be so great for us,” Evans said.
Riviera Beach uses just under 85 percent of its taxing authority, so even losing some property tax revenue would be unwelcome, said Evans, who started in the job in March.
Look to sales tax
County officials have said they would stand to lose about $30 million if voters approve the expanded homestead exemption.
Burdick said she and her colleagues have a responsibility to continue providing essential services that protect the health and safety of residents.
At the direction of Commissioner Melissa McKinlay, county staff is exploring the idea of raising the sales tax by a half-cent with the proceeds being used for emergency services. Property taxes that pay for emergency services would be reduced by an amount equal to the money brought in by the sales tax hike.
McKinlay, stressing that she has only asked county officials to study the idea and that she hasn’t committed to asking her colleagues or voters to back a sales tax hike, said she’s concerned about what a loss of property tax revenue could mean for the fight against opioid abuse.
The county uses about half of its taxing authority, and Fred Scheibl of the Palm Beach County Tax Action Board said he has no doubt what will happen if voters expand the homestead exemption.
“It won’t hurt the county,” Scheibl said. “They’ll just adjust the (property tax rate) to get the money back. I can’t imagine this County Commission reducing its property tax take and just doing nothing.”
Typically a fan of tax reduction, Scheibl said an expanded homestead exemption is “not necessarily a good idea.”
Residents paying little or no property taxes could impact civic engagement, he said.
“Everybody paying property tax means they have skin in the game,” Scheibl said. “If you don’t pay property tax, what would you care if they raised taxes or reduced them?”