The information presented here should be a concern for all who live and work here in Brevard – this is especially true for small business owners who are dealing with an incredible slowdown in retail sales and government officials who are facing a significant reduction in property values.

Following shows the median sales price of existing homes in Brevard County. Note that we have lost 49% of home value since the price peaked in August 2005 and have returned to price levels of early 2003.

If government officials think this year’s budget process was tough, what till they see taxable values for January 2009. Kudos to Commissioner Infantini and Commissioner Anderson for voting to abolish the Fire Assessment. Though they were unable to get a third vote, we at least have two commissioners who understand that less government is what we need to provide relief to taxpayers and employees.

Foreclosure filings slowed in November as did the number of homes and condos sold. For the past fifteen consecutive months, the number of foreclosure filings have exceeded the number of homes and condos sold.

Permit applications have nearly stalled falling from 1,043 pulled in June 2005 to 67 for November 2008 (this represents future “added value” to real property).

Retail taxable sales in Brevard County has fallen to levels we have not seen since the late ‘90s.

In what is the most painful aspect of this recession, unemployment has now risen to 7.6% in Brevard County.

As you can see, the figures do not lie – Brevard County faces both difficult times and difficult decisions. Let us hope the new board of commissioners recognizes the county’s predicament and acts swiftly and decisively to do what it can to avert catastrophe.

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Years ago, as the real estate bubble was expanding, we were all introduced to the “subprime mortgage.” It was a mortgage issued to someone of less than prime credit rating and, like the prime mortgages, it allowed for an adjustable interest rate beginning with extremely low teaser rates, interest only loans, and other exotic financing arrangements. Consider the following chart regarding mortgage interest resets and notice the amount of subprime mortgage resets in 2008.

Once the housing bubble burst, we were told for months that the contagion from the subprime fallout (these subprime mortgages began to fail in mass) would be contained, that the trouble would not pour out into other credit classes nor have a large scale effect on housing prices or the companies that re-package, re-sold, tranche(ed), and sold again these mortgage backed securities.

Now the evidence is clear – this mess wasn’t contained at all and indeed the damage to the financial institutions is still ongoing…. world-wide in fact. What hasn’t been discussed is the collateral damage from the bursting of this bubble still to come. While it is now working its way through the financial sector, it will soon work its way into the government sector.

Unlike the Federal government (whose revenues are primarily in the form of income tax) or State governments (whose revenues are primarily from sales taxes), local governments primarily receive their revenue from property taxes – and one of the components of the property tax formula is property values. While the “Save Our Homes” amendment will ensure that some homesteaded properties continue to increase in taxable value, it will only be so for those homesteaders who owned their homes prior to, or in the early stages, of the bubble expansion. Those who purchased and homesteaded near or at the peak of the bubble should see their taxable values decrease. Consider the following hypothetical examples.

The easiest way to assess the impact of Save Our Homes in a declining market is to determine the number of properties where market value equals the assessed value (this will identify the properties whose taxable values will fall in lockstep with the market). For example, if the majority of a county’s tax base is comprised of residential homes with homestead prior to the bubble, then the county can reasonably expect an increase in overall taxable values – in that case, the number of properties where market value is the same as assessed values will be minimal due to the accumulated shield under save our homes (the difference between market and assessed values – aka homestead differential).

In Brevard County, more than 65% of the county’s tax base is comprised of properties where assessed value equals market value (as of 2006). In other words, 65% of the total taxable value in Brevard County will move directly with market changes – and this is a sizable amount of the tax base.

Ideally, we would have an index from the Property Appraiser that would assist in measuring the change in real estate prices – but since no such index exists, we must use the median sales price of existing homes as provided by the Florida Association of Realtors.

The following charts the median sales price of existing homes in Brevard County. For the past 25 consecutive months, prices have been falling (annual basis) and since August 2005 the median sales prices has dropped 33%.

More staggering is the rapid increase in foreclosure filings. For the past 10 consecutive months, the number of foreclosure filings in Brevard County has exceed the number of homes and condos sold. This is adding to an already oversaturated market and as supply continues to exceed demand, prices will continue to fall.

The following charts the median sales price of existing homes and the taxable value of property in Brevard County. Notice the near two year delay before the Property Appraiser began to reflect the decline in values – and even still, the majority of the decrease in 2008 is the doubling of the homestead (suddenly, up to an extra $25K per homestead just came off the tax rolls). Which means taxable value has much farther to fall, and it will be more protracted than most people assume.

As I’ve been saying on the campaign trail, this current year decrease in taxable property value WILL NOT be a one year phenomenon, but will challenge municipalities with an even greater decrease over the next few years. This is a market driven correction that no government can stop and the municipalities that failed to recognize the seven years of plenty as a windfall, thus failing to increase their storehouses, are now facing lean years ahead…where was the wisdom of Joseph?

To see an example of just how much money was received by the county during the period of inflating property values, take a look at the County’s General Fund. The following information demonstrates the windfall from rising property values and the reduction in revenue now that property values are falling.

Notice that even though the Board of County Commissioners is planning to increase the General Fund millage rate 2% from 2008 to 2009 (from 3.6440 to 3.7193), the property tax revenue will fall 6% (from $150.47 million to $141.64 million). Why? Because taxable property values have fallen 7%. (Note: the General Fund millage is ONE of MANY millages on your tax bill)

Considering once again that the median sale price of existing homes in Brevard County is down 33% from its high water mark, and you have a good indication that taxable property values have quite a ways to fall.

The following chart shows the amount of property tax revenue received in the General Fund.

To compare the growth in local government to other economic growth measures, the following chart shows the ten year growth rate of Brevard County property taxes (all funds).

This is a trend that is NOT economically sustainable. We simply cannot grow our local government at this rate and afford to live in this county. Our economy is slowing and has been slowing for the past two years and local government should not be immune from the economic reality we face.

Retail taxable sales in Brevard County have fallen to levels not seen since 2004. These retailers are our friends, neighbors, and employers – small business is the backbone of our nation’s economy. Though here in Brevard County we are primarily dependent of Federal dollars, we need to improve our business environment to encourage entrepreneurialism and diversify our labor markets away from the current dependency on NASA.

Unemployment in Brevard County has now increased to 5.7% – a level similar to 2003.

During this campaign, I have laid out a plan to foster a business friendly environment. In a recent survey conducted by Site Selection magazine, factors considered most important for business site selection were ranked 1-10. The top three factors were:

1. Availability of desired work-force skills (can I find the workers I need to run my business).
2. Ease of permitting and regulatory procedures (how much will it cost and how long will it take to get my business up-and-running).
3. State and local tax schemes (what tax burden will I and my employees bear).

While it is not, nor should be, the government’s role to interfere in labor markets, regulation and permitting does act as a barrier to industry and in many cases has been used to promote specialized labor markets (i.e. space related) and discourage others. Factors 2 and 3 can be addressed immediately by municipalities. A reduction in taxes and assessments, the abolishment of commercial impact fees, and the streamlining of permitting across all permitting agencies would go a long way to increasing jobs and increasing the diversity in our labor markets. Additionally, it would provide a tremendous relief to all property taxpayers.

I realize this email has turned into a short dissertation on local economics, but the simple fact is – our economy is struggling, and when we consider prospect of KSC layoffs in the next two years we are facing real economic problems. While some Keynesian big government types will argue that more government is the solution to these problems, I believe such thinking is socialistic and dangerous to free markets and individual liberty.

J. Roger Shealy
Candidate for Brevard County Commission, District 1
350 N. Washington Ave, Suite J
Titusville, FL 32796
Phone: 321-269-6611
Email: roger@Shealy2008.com
Web: http://www.Shealy2008.com

Editor’s Note: J. Roger Shealy is a candidate for Brevard County Commission District 1. While no monies were paid for placement of this article, some may construe it as an advertisement, so here is the disclaimer: Political advertising paid for and approved by J. Roger Shealy, Republican, Brevard County Commission District 1.