Florida Voters Approve Homestead Exemption Expansion, Threatening Billions in Local Property Taxes, Municipal Credit Quality

Relevant Document:
Election Results

Florida voters approved a constitutional amendment increasing the state’s current homestead property tax exemption for all nonschool taxes to $150,000 in 2027 and to $250,000 in 2028, with the exemption adjusted for inflation thereafter. The current exemption is $50,000, and the move will affect local governments and other municipal bond issuers in the state that rely on property tax revenue.

In the election yesterday, Nov. 3, voters approved the amendment by 61.98% to 38.02%, surpassing the 60% threshold required for passage. The increased exemption, which takes effect Jan. 1, 2027, applies immediately to individuals residing in Florida by Dec. 31, 2026; those moving to the state after that date will only receive the expanded exemption starting in their fifth year of qualifying.

The amendment also reduces the annual property tax assessment cap on commercial and nonhomestead properties to 5% from 10%. The amendment restricts the use of property tax proceeds by counties and municipalities to core functions like public safety and education, infrastructure projects, natural resources, bond debt service, employee pension benefits and operating and administrative expenses.

Property taxes accounted for 74% of local tax collections in Florida in FY 2023, according to an analysis by the Tax Foundation. The analysis found that local governments would likely aim to raise local sales rates, which are capped at 1.5%, and increase fees and impose new charges to compensate for the lost property tax revenue.

Florida Gov. Ron DeSantis has defended the measure, saying that property tax collections by local governments in Florida have grown to $60 billion today from $32 billion in 2019, when he took office, and are expected to increase to $83 billion over the next five years, as reported. The governor has also noted that just 30% of property tax collections are expected to be affected by the expanded homestead property tax exemption.

Bracing for Impact

The Florida Legislature’s Revenue Estimating Conference projects that the measure will reduce local government property tax revenues by about $4.9 billion in fiscal year 2028, with annual reductions reaching $11.8 billion by fiscal 2031-32. The expanded exemption is expected to reduce revenue to Florida’s 67 counties by $2.94 billion in FY 2028 and $5.05 billion in FY 2029, according to a Florida Association of Counties report.

Miami-Dade County Mayor Daniella Levine Cava has estimated that the approval of the property tax ballot measure would result in a revenue loss for the county of $385.8 million the first year it is in effect and nearly $700 million in the second year.

Orlando Mayor Buddy Dyer estimated that approval of the measure would reduce city revenue by $30 million in FY 2028 and $50 million in FY 2029 and create pressure for public safety, park maintenance and infrastructure budgets. Tampa Mayor Jane Castor has estimated the amendment’s approval would reduce property tax collection by up to $40 million in FY 2028 and $65 million in FY 2029 and said the “short-sighted proposal” would force municipalities to cut services and increase fees and other costs on residents and businesses, according to a Florida Politics report.

Nuveen, in a July report published ahead of the vote, warned that the reform would represent the “most significant structural change to Florida local government finance in decades,” with smaller municipalities and counties that rely heavily on residential property taxes facing the greatest pressure.

The asset manager estimated the changes could reduce local government operating revenues by $8.4 billion annually after full implementation, forcing some issuers to consider spending cuts, reserve draws or alternative revenue sources.

The impact would vary among issuers, according to Nuveen. Port St. Lucie, where property taxes account for about half of the city’s operating budget, could experience a 39% decline in taxable valuation and an estimated $37 million annual revenue loss, equivalent to 19% of its general fund operating budget.

Miami, by contrast, is better positioned because of its more diversified tax base and higher property values. Still, Nuveen projected a 6% decline in taxable valuation and a revenue loss equivalent to 3% of the city’s general fund budget.

Nuveen said the reform could also affect future bond issuance, with municipalities turning to non-ad valorem revenue pledges or sales tax-backed bonds to finance projects.

In a Sept. 30 report, S&P Global Ratings surveyed 90 local governments in the state and found that issuers would lose an average of 14% of their tax revenue during the second year of implementation. The ratings agency said that it expects issuers to make up the lost revenue through a combination of user fee increase and special assessment charges, expense reductions including personnel freezes and service cuts, and deferring capital works. S&P warned that approval could “trigger a mismatch between revenue and expenditure growth over time” and create “long-term deterioration and divergence in credit quality across the state.”

Fitch Ratings said in a June 12 report that approval of the amendment would result in “significant” revenue losses that would “increase fiscal uncertainty unless policymakers take offsetting action” and “create budget pressure for local governments.”