Dale Martin
City Manager
Fernandina Beach
July 7, 2017 1:00 a.m.
The preparation of next year’s budget continues. Comptroller Patti Clifford and I will meet again with City Commissioners throughout next week to review the most up-to-date anticipated revenues and expenditures. On July 18, at the next City Commission meeting, I will present a proposed budget to the City Commissioners (and the community). The budget presented is not expected, nor intended, to be the final version. It is a starting point for the City Commission to consider as part of its policy development.
Since many are relatively unfamiliar with government finance principles and organization, please let me start with a simple review. Taxes are levied on the basis of “mills.” A “mill” is the equivalent of $1 for every $1,000, in this case, of property value. If your property is valued, or assessed, at $1,000, and the City levies a one mill tax, you will pay $1. An easy way to understand the value of a mill in relation to your property is to simply take the value of the home and move the decimal point three positions to the left: a $300,000 home would pay $300 for a one mill tax.
As is commonly expected, government makes things a little more confusing with two significant amendments to the State Constitution. First, if your property serves as your primary residence, or homestead, you get an automatic $50,000 reduction in the value of your home for the purpose of calculating your property tax. That means the $300,000 home is considered to be only $250,000 when applying the mills (millage). A proposed constitutional amendment to be presented to Florida citizens in November, 2018, will increase that $50,000 reduction to $75,000.
The other notable amendment that affects property values is the Save Our Homes amendment (effective January 1, 1995). Homes in Florida have several common values- the Market Value, the Assessed Value, and the Taxable Value. The Market Value is what is believed to be the fair market price of the property. That value fluctuates based upon market or economy forces. The Assessed Value represents the combination of (expected) increasing housing values and the rate of inflation.
As was often the case throughout the nation in the 1980s and 1990s, property values were soaring, and, as a result, property taxes tied to housing values were also increasing. A mechanism was introduced to control the rate of housing value as it related to property taxes. In Florida, the Save Our Homes amendment represented that mechanism. An increase in a home’s value, for taxing purposes, is now limited to three percent or the Consumer Price Index, whichever is less. That typically lower number (than that of the Market Value) is the Assessed Value.
Take the $300,000 home. According to preliminary figures, property values in our area will see an increase of nearly ten percent this year. That means the Market Value of the $300,000 house rises to $330,000. The Assessed Value of that same home, though, can only rise three percent, to $309,000. The Taxable Value likely differs from the Assessed Value as the result of the aforementioned homestead exemption: in this case, the Taxable Value would be $259,000.
One result of the Save Our Homes amendment is that homeowners that have remained in place for a lengthy period of time realize a much larger benefit than relatively new buyers. It is commonly believed that housing values have increased substantially in our area over the last twenty years. The Assessed Value, upon which the Taxable Value and municipal taxes are based, however, would be much, much lower, having risen annually only at the rate of inflation (I do not believe that Florida has experienced a greater than three percent Consumer Price Index); meanwhile, the Market Value of the house has risen much, much more. So the taxes levied on a Market Value $300,000 home may vary greatly within the same neighborhood, simply based upon how long a resident has lived in that neighborhood.
What gets really squirrelly is when, as what happened during the housing crash, the Market Value drops but the Assessed Values continue to rise since in many cases the Assessed Values have lagged so far behind. The resulting clamor from property owners is “Why are my taxes going up when my property value is decreasing?” Well, that is why, and in those cases, Assessed Values will continue to rise until the Market Value of the house falls to the level of the Assessed Value. Fortunately, falling Market Values are not an issue at this time.
Property owners want the Taxable Value of their homes pegged to the Market Value only when the market is falling; when the Market Values are increasing, property owners usually prefer to have more constraints upon the Taxable Value.
Hopefully you now have a better understanding of the different values that affect local municipal government financing. If I erred in my summary, I am sure that either Mr. Michael Hickox (Nassau County Tax Appraiser) or Mr. John Drew (Nassau County Tax Collector) will provide an appropriate correction.
Dale, you have done a really good job here explaining what is to many people a difficult taxing program to understand.
Excellent overview. Understandable and precise. Now, let’s hope folks will read and integrate it, before shouting out.
I am not sure I have ever seen the city reach a point where it was satisfied with the amount of money that taxpayers were sending over for the bills. The growing threat posed by the roaming coyote population seems to go unnoticed by our friends downtown. The impact of this problem has a big problem for segments of the community with no end in sight. Maybe some leadership or an explanation of how they plan to tackle the problem might be a good subject for the managers next article.