Property tax cuts, elimination would hit Florida’s rural communities hardest

A new study by the Florida League of Cities warns that eliminating or slashing property taxes would hit rural communities hardest, as many already operate with little fiscal margin while relying heavily on property taxes to fund essential services.

As lawmakers weigh proposals to eliminate or sharply expand Florida’s homestead exemption, the League’s analysis finds the fiscal fallout would be uneven, placing far greater strain on rural and inland municipalities with limited revenue diversity.

In smaller cities, most of them rural, predictable ad valorem revenue is the backbone of municipal budgets, supporting police and fire protection, infrastructure maintenance, and local economic development.

“Without compensatory measures, reforms risk eroding long-term service capacity and weakening rural revitalization strategies,” the report says.

The pressure is particularly acute in rural regions such as the Panhandle, where some small jurisdictions devote all of their property tax revenue — and more from other sources — to police, fire and emergency medical services.

With narrow tax bases and limited alternatives, those communities must tap other general fund sources simply to keep essential services operating.

Infrastructure costs compound the challenge. A microsimulation conducted for the League found that public works and transportation spending is especially vulnerable in rural and coastal communities with large land areas and infrastructure-intensive responsibilities.

In many of those jurisdictions, the scale and environmental complexity of roads, drainage systems and stormwater management drive costs that are fundamentally mismatched with local taxable value.

“As policymakers consider reforms to the homestead exemption or property tax system,” the report says, “these geographic disparities underscore the need to account for infrastructure-driven fiscal stress, which cannot be easily reduced through efficiency gains or service cuts.”

The study estimates that eliminating homestead property taxes outright would result in a 38% loss of ad valorem revenue and a 14% drop in overall general fund revenue statewide, forcing millage rates to nearly double to avoid service cuts.

Large fixed-dollar exemptions of $250,000 to $500,000 would still produce revenue losses of 25% to 32%, requiring millage increases of 20% to 70% on remaining taxable properties to break even.

Researchers at Wichita State University used a microsimulation model to estimate how various homestead property tax reform proposals would affect municipal revenues across Florida.

After establishing a baseline of each city’s fiscal structure from 2018-2024, they applied reforms — including complete elimination, tiered exemptions and a 32% discount — to parcel-level values under just, assessed and taxable valuation bases.

They then calculated the resulting revenue losses and the millage rate increases needed to keep budgets whole before then breaking the results down by region, population size, housing values and income to show which communities would be most impacted.

The study comes months after DeSantis vetoed a $1 million earmark in Florida’s budget that would have funded a study on the potential impacts of eliminating property taxes. A Florida Policy Institute study released in February found that Florida would need to double its sales tax to 12% to offset the local revenue losses that ending homestead taxes would cause.