The Corcoran Report: August 2008

By Michael Corcoran

Two issues continue to remain of high concern to Florida business owners. These issues - Amendment Five and the effects of its potential passage, and the continuing decline in Florida's economic environment - are causing great concern to business and elected leaders throughout Florida.

Amendment Five

On the November 4th general election ballot, Amendment Five promises lower property taxes by eliminating the "required local effort" for school support, thereby reducing a portion of the property tax bill that goes exclusively to schools. The amendment is proposed by John McKay, former Senate president who served on the Taxation and Budget Reform Commission, who is joined in his support of the measure by Governor Charlie Crist.

The total cut is expected to be about 25 percent and estimates of the revenue shift at the state level to compensate the counties have ranged from $9 billion to $11 billion by 2011. The amendment, which would affect every property owner in Florida, would have to be approved by 60 percent of Florida voters.

This issue has spurred much debate. Chief proponents argue that the amendment is necessary to stimulate the sagging real-estate economy and economists project that the property tax reduction would save the average household $53 each year. However, lawmakers who are actively opposed to the amendment are concerned with how these funds are going to be replaced.

The Legislature, which is required to replace the funds lost by school districts, is authorized to do so in several ways: through economic growth attributable to lower property taxes, reduction in state spending, an increase in the sales tax rate of up to one percent, and through revenues gained from the repeal of sales tax exemptions. Opponents maintain that the Legislature would have to come up with major state spending cuts and unprecedented tax increases in order to reimburse counties for lost school taxes.

The possible outcome for business may be costly. Of particular concern is that the Legislature would make up for the lost revenues by passing a service tax. Lawmakers opposed to the proposed amendment point out that for Florida service industries currently exempt from the state's six percent sales tax, this would lead to higher costs of doing business.

The likelihood of Amendment Five's success is questionable. A coalition ("Protect Florida's Future") led by Senator Mike Haridopolos and consisting of major business trade groups, agricultural interests, school unions and the AARP, has strongly opposed the amendment. In a suit aimed at removing Amendment Five from the November ballot, the Coalition characterizes the amendment as a "tax swap" and a bait and switch, rather than as a tax break. It contends that the amendment will force the largest tax increase in history upon this state and will create great uncertainty in the small business community because it is unclear how much the sales tax rate will increase or what services will be taxed.

The State Budget

As a result of declining revenue, the state has cut spending by about $5 billion during the past year. Despite Florida's property tax breaks and Federal economic stimulus checks, Florida's sluggish economy continues and according to recent reports by the State's top analysts, will remain for another full year.

Earlier this year, analysts forecasted that Florida's economic growth would not reach standard levels until 2009-2010. However, it is now expected that normal economic growth will not return before 2010. Among economists' findings are that consumers will spend less this year as per capital income declines by 2.7 per cent, and that employment is expected to further decline by 0.1 percent this year before rising 1.5 percent in 2009-2010. They observe that high fuel and food costs, compounded with distressed housing and credit markets, have all put an additional strain on Florida households and businesses.

Though growth has always been a major economic driving force for the state, the national real estate slump and credit crisis have prevented people from moving to Florida or doing business in this state. A revised outlook by economists is expected this fall when they develop a state revenue estimate that will be used to prepare Florida's next budget.

We will continue to monitor legislation which may affect service tax rates and other issues which are of particular concern to the Community Papers of Florida. Thank you for the opportunity to continue serving you, the members, in Tallahassee and throughout our state. As always, should you have any questions regarding specific issues please do not hesitate to contact us. We are always available to assist you.

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