Florida government needs spending limits

The impressive margin of support for Amendment One should not have been a surprise. Florida is experiencing a property tax revolt, not unlike that which led to Prop 13 in California in the late 1970's. Floridians have found their property taxes rising at doubledigit rates due to the "stealth tax" of rising property values. Existing limits on taxes and spending have failed to constrain the increasing burden of property taxes in Florida.

Taxes in Florida are at an alltime high. In the last few years state and local taxes have captured about 10 percent of the state's income. At no other time in the state's history have state and local governments imposed such a heavy tax burden on citizens.

Since the recession hit in 2001, local property taxes have increased more rapidly than personal income. From 1991 to 2004 local property taxes more than doubled, from less than $10 billion to more than $20 billion. Florida's property tax rates are among the highest in the country.

Much of the increase in local property taxes can be attributed to the housing bubble. During the early years of this decade, property values in many parts of Florida increased at double digit rates. As property values increased, assessed values increased as well. In the last year increases in property values have moderated and in some communities property values have declined. At the same time, some local jurisdictions in Florida have been increasing property tax rates.

Now the state's economy is suffering the consequences. After all, if residents perceive that "tax price" is too high for the government services offered, they'll move to another jurisdiction. It's already occurring. Businesses also assess the taxes they pay relative to the government services they receive. If those services aren't worth the taxes they pay, they'll relocate. So the question is why cities would nonetheless increase their property taxes to such a high level that they drive out residents and business.

They do it because city governments may exert a kind of monopoly power akin to that exercised by monopolies in the private sector. The difference is that the government can impose a legal monopoly that may persist while monopoly power in the private sector tends to be eroded by competition in the marketplace, unless it's protected by legal restrictions on competition.

To the extent that a local government can exert monopoly power, it can rake in more property tax revenue than it needs for essential services. The resulting surplus is equal to the difference between the revenue generated by the tax and the true value of services provide to citizens by the government.

That surplus is often used to reward special interest groups and by politicians and bureaucrats in the form of bribes, kickbacks, and other forms of corruption involving contracts to purchase goods and services.

In addition, politicians and bureaucrats may be paid wage and non-wage benefits in excess of the value of the services they provide. This is especially likely to be true when public sector employees are unionized.

Indeed, public employees' pay and perks often exceed those received by comparable employees in the private sector. Moreover, the unfunded liability linked to pension and health benefits for public employees has emerged as a major problem.

At all levels of government in Florida, the taxes imposed -- and the revenue generated by those taxes -- have little relationship to the value of government services provided. The explanation for these taxes is redistributive politics.

Florida would benefit from a more effective tax and expenditure limit referred to as the Taxpayer Protection Amendment. The Taxpayer Protection Amendment proposed for Florida would: 1) limit the growth in state spending to the growth of population plus inflation, 2) ensure surplus revenue above this amount is invested in emergency and budget stabilization funds or returned to taxpayers, and 3) require voter approval for tax increases or any weakening of the amendments limits.

The proposed Taxpayer Protection Amendment would constrain the growth of revenue and spending and stabilize the budget over the business cycle. This amendment would also establish a hard budget constraint that would create incentives for tax reform. Florida could begin to provide much needed property tax relief and reduce property tax rates.

Economist Dr. Barry W. Poulson is a Research Fellow of The James Madison Institute, a nonpartisan policy center based in Tallahassee, as well as a Distinguished Scholar of Americans for Prosperity.