GALT MILE LAWMAKERS REPRESENTATIVE ELLYN BOGDANOFF AND SENATOR JEFFREY ATWATER

March 17, 2007 - On Thursday, March 1^st, Senator Jeffrey Atwater, Representative Ellyn Bogdanoff and Commissioner Christine Teel hosted a meeting at the Beach Community Center. Inviting civic and Association leaders from the member co-ops and condos of the Galt Mile Community Association, they solicited “grass roots” input about issues threatening to undermine Florida’s economic viability and its popularity as a place to live. Laying the groundwork for the initial topic, Senator Atwater pointed out that for the first time, Florida emigration exceeded immigration - more people were leaving than moving to the State! Both of our State Legislators agreed that the underlying reasons for this untenable situation are skyrocketing property insurance costs and an unsustainable property tax formula.

SPEAKER MARCO RUBIO, GOV CHARLIE CRIST, SEN BILL POSEY, LT. GV JEFF KOTTKAMP, SEN PRES KEN PRUITT AND SEN JEFF ATWATER

Senator Atwater explained the obstacles he had to overcome during the recent Special Legislative Session on Property Insurance prior to being afforded the opportunity to alter the traditional Citizens formula and refocus its mission. Having received the “go ahead” from Governor Charlie Crist and Senate President Ken Pruitt, Atwater spearheaded a reconfiguration of Citizen’s business model, transforming it from a repository for the commercially uninsurable into a full service competitive company featuring a viable profit center. The “windstorm only” limitation in high risk areas (such as everything east of I-95 in Broward County) was rescinded, allowing Citizens to market the more profitable multi-peril policies to windstorm customers. They zapped the 21% increase imposed in early January and eliminated another 56% increase scheduled for March 1^st. Customers satisfied with rates lowered by these and many other changes, are no longer subject to being dumped upon having been accepted by a commercial carrier. They can remain with Citizens or accept an alternative offer. Legislators also loosened the purse strings of the Florida Hurricane Catastrophe Fund, making available more low-cost reinsurance dollars to carriers that must pass the savings to rate-payers.

The Senator described how the State’s various constituencies reacted to these changes being implemented. Citizens has historically been funded by assessments to all insured property owners. Lawmakers from central and northern counties, in which single family homes primarily covered by private carriers must to pick up their share of any shortfall following a costly storm, fought to keep their constituents exposure to a minimum. During the past two special sessions, this impregnable voting bloc thwarted any attempt to put Citizens on the table. Clarifying that continued adherence to this formula meant sacrificing South Florida, Atwater was able to marshal the necessary state-wide political will to alter Citizens’ mandate.

Representative Bogdanoff confirmed the importance of opening the CAT fund coffers. Carriers have identified a dearth of reinsurance dollars as the 600 pound gorilla of premium increases. She also described the importance to Condominiums and Cooperatives of simplifying requirements for the establishment of private self insurance risk pools. Given the existence of 18,000 Condominium Associations statewide, a huge percentage of the current burden on Citizens will be relieved by the prospect of much lower rates and faster benefit response times in self-directed funds. The legislation was passed to give Associations in communities like the Galt Mile neighborhood a viable alternative to the sky-high premiums currently commanded by Citizens.

SENATOR JEFFREY ATWATER

The lawmakers acknowledged the need for these alternatives given the squeeze on Associations by the huge rate hike passed by Citizens last May. The new legislation passed during the special session froze those high rates for a full year. While they won’t be increased, Associations renewing policies through May 1^st will suffer these unprecedented premium costs. Simply freezing the 250% - 300% rate jumps relieves none of that fiscal burden, although the special session’s legislative output should help unit owners with their individual policies issued from commercial carriers – if they can find one.

At this juncture, several representatives from cooperatives, including Dr. Robert Drews from Caribé, Dennis Anderson from Coral Ridge Towers and Ralph Hamaker from Coral Ridge Towers South, loosed a uniform complaint. “Why does so much association legislation in Tallahassee neglect cooperatives?” asked Anderson. As Edgewater Arms’ Sam Montross and Carol Blanchard nodded in agreement, Anderson protested elephant size loopholes in their constitutional guarantees of equal protection under the law. They were assured by Representative Bogdanoff that cooperatives were specifically included in the new legislation, allowing their participation in such a vehicle.

TAX LEVIES VS. POPULATION AND INCOME GROWTH RATES

Senator Atwater then nominated property taxes as being the primary cause for flight from Florida. Driving home the severity of the problem, he said, “In August of 2005, some 7000 single family homes were on the market. This past August, that number more than quadrupled to 31,000.” Having distributed fact sheets, Representative Bogdanoff and Senator Atwater reviewed some disquieting inequities in our tax system.

During the ten years from 1996 to 2006, the Florida population increased by 25%, personal income increased by 86% and Florida property taxes increased by 148%. During the same period, County taxes increased by 155%, school taxes by 122% and municipal taxes by a whopping 193%. Ellyn Bogdanoff noted that there is no rational relationship between the cost of operating government and the property values upon which tax assessments are based. The new majority Statehouse whip, she has been instrumental in compiling some alternative mechanisms that might be considered more equitable.

The two state officials first ran through a list of possible adjustments to the existing system, considering their positive and negative consequences.

NEW GOVERNOR CHARLIE CRIST SUPPORTS DOUBLING HOMESTEAD

Governor Charlie Crist has openly supported a doubling of the Homestead Exemption from $25,000 to $50,000, restoring its savings impact to approximately 1980 level. On the down side, statewide property tax rolls would shrink by 6.6% and small counties with many lower-valued properties would get clobbered.

By allowing homeowners to carry forward their “Save our Homes” benefit, a veritable flood of transactions will ensue. Homeowners threatened with overwhelming tax consequences triggered by the loss of their cumulative “Save our Homes” protection will no longer be trapped in their present circumstances. By making “Save our Homes” either fully or partially portable, people can adjust their residence options to their current needs. However, it would exacerbate the already huge assessment inequities between longtime residents and both newly and non-homesteaded properties. Insofar as this further insulates Homesteaded property owners from local government budget decisions, it will commensurately increase tax liability for non-homesteaded property owners.

Protection similar to that afforded Homesteaded property owners by the “Save our Homes” constitutional amendment could be provided to non-homesteaded properties. Capping their increases at perhaps 10% would serve to insulate non-homesteaded properties from surges in property values as were recently experienced. Since these value spikes are unusual, this would have little long term impact on overall property assessments. Of course, new businesses still taxed at “just value” would face a competitive disadvantage during periods of accelerated appreciation.

“Save our Homes” benefits could also be extended to all Real Property, completely eliminating the greatest distinction between the protections available to property owners. While helping to level the field for Homesteaded and non-Homesteaded property owners, newly obtained property would still be subject to “just value” assessments. Since overall assessment needs remain the same, leveling the field would shift a relatively larger burden to Homesteaded properties.

Capping all property tax growth by statute is regularly considered. It would deflate the effect of property value swings. However, two adverse consequences lower its value as a potential resolution. It would thwart local governments from responding to local needs and emergencies. It could also encourage a greater reliance on fees and targeted assessments.

SEN. JEFF ATWATER ADDRESSES ASSOCIATION LEADERS

Senator Atwater clarified “the heart of the problem.” Half of Fort Lauderdale’s residents enjoy homestead protection. Since assessments are a zero-sum mechanism, whatever tax burden is relieved on the other half will be borne by the homesteaded properties. What will induce half the population to support a divestiture of some or all of their protection?

When the “Save our Homes” amendment was enacted in 1992, the notion of rewarding Florida resident-homeowners with special protection by shifting some of the tax burden to those whose primary allegiance lies elsewhere and commercial enterprises received overwhelming support. Little consideration was accorded to the ever-widening gap between the two ownership classifications. This year, those differences have reached a critical mass, threatening the fiscal health of the entire state. The increase projected in Fort Lauderdale’s proposed municipal budget will be fully assessed to non-homesteaded properties while homesteaded properties will actually realize a small decrease. Half the population is footing the bill for everyone. Businesses and other non-homesteaded property owners are no longer urgently pleading for relief, they are leaving. This is not an anecdotal red flag - but a statistical reality. This threat, in and of itself, will not be adequate to elicit enough support to make a sweeping change to the tax formula. Knowing that they would have to pay for the relief needed by their non-homesteaded neighbors, what would it take to win the support of homesteaded property owners? As put by Senator Atwater, “We must find the right sweetener.”

FORMER ACTING FT LAUDERDALE CITY MANAGER ALAN SILVA

Former Acting Fort Lauderdale City Manager Alan Silva interjected, citing a fatal disconnect in the budget process. Having performed municipal CPR when called upon to prevent a threatened fiscal collapse during the Fort Lauderdale Budget Crisis, Silva has first-hand experience with a systemic dogma. He said, “The people providing input about which services are needed are never the ones that have to foot the bill.” Commissioners are often pressured to campaign for expensive services by groups and/or residents with little or no liability for their costs. He suggested that the taxpayers be given greater direct input into the budget process.

REP. ELLYN BOGDANOFF ADDRESSES PARTICIPANTS

Representative Bogdanoff repeated another disconnect that she alluded to earlier, one questioning the rationale for the entire system. The taxes needed to finance the cost of government have no relation to the property values upon which they are currently based. Residents asked our Legislators if taxes could be based on some formula other than fluctuating property values. Ellyn Bogdanoff explained, “The Florida Constitution authorizes local property taxes and limits the legislature’s authority to make changes.” She listed some of the obstacles to replacing the current system with a sales tax. If increased to replace property tax revenues, a State sales tax would more than double, making it the nation’s highest - by far. Of course, businesses would have to pay even more than they do under the existing property tax system. Since the current hotel tax is already almost twice the existing sales tax, more than doubling the sales tax would devastate tourism. Local governments would lose any fiscal input or control in a system wholly dependant on a State tax. Without thousands of variances or adjustments for anomalies such as retailers in border areas, they would be disproportionately impacted. A straight-up swap-out doesn’t seem viable.

Representative Bogdanoff said that several proposals for property tax relief were being considered in the Statehouse. She described an attempt to provide statutory relief, “It requires local governments to immediately and meaningfully reduce property tax rates and caps future growth in property tax revenues.” A proposal for Constitutional reform “replaces homestead property taxes with sales tax and establishes revenue caps for both state and local government.” The problems normally attributable to these alternatives are addressed in some legislative options by utilizing surgical rollbacks to achieve equity.

SENATOR JEFFREY ATWATER & REPRESENTATIVE ELLYN BOGDANOFF

The statutory option requires an immediate reduction in millage rates for all local taxing authorities except school districts and voter-approved millage rates. Property tax rates would be rolled back to the 2000-2001 Fiscal Year and then rolled forward to a revised FY 2007-2008 rate, factoring in population increases and inflation. Future local revenue growth is linked to increases in population and inflation - not property values. Requiring a supermajority vote of the governing authority to exceed the revenue cap should discourage potential abuse. This option could provide immediate tax relief averaging 19% savings ($433 for homestead property and $3,353 for commercial property) on all property owners’ next tax bill.

The Constitutional option - implementation of a state sales tax - eliminates all property taxes on homestead property (average savings of $2,283), replacing the lost revenues with a dedicated 2.5% new sales tax. It requires all local entities (including school districts) to limit future growth to population increases and inflation. Exceeding the cap would require a unanimous vote of the governing authority. After embedding the new statutory provisions for rate roll-back in the State Constitution, we could roll back state revenues to the 2000-2001 Fiscal Year and then roll them forward to a new FY 2007-2008 rate, factoring in population increases and inflation. Future state revenue growth is linked to increases in population and inflation. A 2/3 vote of each house would permit a one-year lift of the state revenue cap to address emergencies.

FT LAUD COMMISSIONER CHRISTINE TEEL

Rolling back revenue levels and bringing them forward again affected only by population growth and inflation will eliminate the huge windfall valuation anomalies responsible for our present sky-high rates. Senator Atwater volunteered “I support the direction taken in the House proposals. We could possibly pass some version of the statutory resolution. For the Constitutional solution to be realized, you would have to agree! Only you can enact a constitutional amendment.”

As time ran out, Senator Atwater, Representative Bogdanoff and Commissioner Teel thanked participants for allowing them to remain on point. Allotting a segment for each problem and focusing undivided attention towards its resolution allowed for a significantly deeper exploration of the issues. Our Legislators requested the opportunity to repeat this format again in the future – to follow through on these painful dilemmas and consider other challenges facing the thousands of Association members living in the Galt Mile neighborhood. The participants universally agreed as the legislators excused themselves, exclaiming that it was time for them “to get to work.”

March 28, 2007 - Senator Gary Siplin filed Senate Bill 714 (SB 714) on January 23, 2007. In its third legislative incarnation in three years, the bill purports to protect people from losing their homes over insignificant debts. That doesn’t accurately describe the effects of the bill. It is a license to steal. It allows homeowners to legally take up to $2,499 out of their neighbor’s pockets - indefinitely. A similar bill was defeated in California a few years back. Governor Schwarzenegger explained his reason for vetoing the legislation, “This bill makes sweeping changes to the laws that govern Common Interest Developments (CID) and the foreclosure process for failure to pay delinquent homeowners assessments. While the intent of this legislation is laudable and intended to protect homeowners from being foreclosed upon for small sums of delinquent assessments, this bill is overly broad and could negatively impact all homeowners living in CIDs. This bill could unfairly result in increased assessments for other homeowners who pay their assessments in a timely manner and may delay the transfer of real property in CIDs due to the lien procedures set forth in the bill.” That’s putting it mildly.

SENATOR GARY SIPLIN

Foreclosure should always be a means of last resort to collect a debt. Since people’s homes are often their most significant asset, the prospect of losing one’s home over a trivial debt is tragic. Foreclosures and liens are tools to enforce the payment of a debt. In the case of Common Interest Developments such as Condominium Associations, they are the only legal tools available. If you fail to make your car payments, it gets repossessed. Miss a few FP&L bills and the refrigerator becomes a storage chest. If you stiff Bellsouth, your telephone becomes “static art”. Ordinarily, if you don’t pay for services, the services stop... except in Condominiums. To level the risk of depending on many “roommates”, Associations are afforded the right to lien or foreclose on “roommates” that don’t kick in their fair share of the common expenses. When condo owners don’t pay their fair share, the burden falls to all the other owners.

The vast majority of condo owners pay their assessments on time. Of the few who pay late, most pay after the first notice. The extreme minority that remains delinquent falls into two categories - those homeowners undergoing some financial crisis and those that simply refuse to pay. In either case, the resulting shortfall is shifted to the delinquent’s neighbors. Although some can afford the unexpected expense, many on fixed incomes cannot. Condo finance is a zero sum game, if some pay less, others must pay more. The effective result of unpaid assessments is the appropriation of other people’s money without asking their permission - commonly characterized as stealing. The Association must pay its bills and employees whether or not the individual owners pay theirs. To minimize this unfortunate aspect of common interest ownership, owners protect one another by agreeing to place liens and/or foreclose when assessments aren’t paid. This is their only legal remedy.

SB 714’s language is self-explanatory, “A lien foreclosure action or an action to recover a money judgment brought as a result of unpaid condominium association assessments may be brought only in those instances in which the amount in question equals or exceeds $2,500. The association is not entitled to recover attorney’s fees incurred in either a lien foreclosure action or an action to recover a money judgment for unpaid assessments. No foreclosure judgment may be entered until at least 180 days after the association gives written notice to the unit owner of its intention to foreclose its lien to collect the unpaid assessments.”

Since any collection action would be precluded by statute, unpaid assessments amounting to less than $2,500 could be “appropriated” with impunity. The monthly maintenance assessments for thousands of Florida Associations run from $30 to $100. The delinquent’s neighbors will have to “carry” the deadbeat for years before they are permitted to enact a recovery.

For instance, if an Association’s monthly assessment is $30, the other owners would have to pay the scofflaw’s bills for almost seven years without any prospect of relief. After the seven years, they must continue to pay for another six months after notice is given. Once the seven and a half years pass, they must pay an attorney to foreclose on the lien. They are not permitted to recover the attorney’s fees. If the association members can’t afford to finance the legal expense of foreclosing on the lien the delinquent is permitted to continue living off his neighbors - forever.

Legal fees for lien foreclosures often surpass the value of the delinquencies - sometimes exceeding the value of the unit. The right to foreclose offers no remedy if the non-recoverable cost of foreclosure exceeds the value of the unit. If the other owners decide to spring for the legal fees anyway, a manipulative deadbeat need only limit his debt to $2,499.99 to stave off foreclosure. He can continually owe that amount without risk of being subjected to enforcement actions. Associations will have to pay tens of thousands of dollars to stop each deadbeat from deliberately stealing from the other residents. Even when the delinquent wearies of this abuse and hits the road, the 180-day notification requirement will place the Association squarely at the end of the lien line. The mortgage holder and every debtor listed in a bankruptcy proceeding will take precedence over the Association’s standing.

The bottom line: If this bill passes, no Association could ever be made “whole”. It deliberately and irrationally punishes every other homeowner living in the Condo Association, who must either absorb the delinquent’s debt or pay irretrievable legal expenses to enforce collection. The bill doesn’t protect the unfortunate victims of irresponsible foreclosures by applying reasonable guidelines. It prevents an Association from collecting assessments... any assessments. As such, it victimizes every owner except the delinquent. All scofflaws must do to escape their debt is to NOT PAY IT! In effect, the first $2,500 assessed by an Association would be a plea to make a voluntary contribution, payable at the member’s discretion. Incomprehensibly, the bill further punishes the residents who pay their assessments on time by forcing them to pay the cost of collecting from those who don’t! It is impossible to cite another example of a lienholder that cannot collect attorney’s fees when enforcing its lien.

Siplin is also playing a constitutional shell game. Current law states, “The association may bring an action in its name to foreclose a lien for assessments in the manner a mortgage of real property is foreclosed and may also bring an action to recover a money judgment for the unpaid assessments without waiving any claim of lien.” By eliminating an Association’s right to foreclose and their right to act to collect money damages in amounts less than $2,500, Senator Siplin is removing every remedy available to an Association to collect a debt. The Constitution demands that every right have a viable remedy. By definition, a right without a remedy is, in fact, not a right. By removing the Association’s only collection remedy, the Senator is depriving the Association of its right to collect a debt. Since Senator Siplin is an attorney, it is reasonable to assume that this consequence is not unintended.

A well-known banker illustrated a more insidious ramification of the legislation. The mortgage application process includes an inquiry to the condo association about its outstanding receivables. If an Association’s balance sheet demonstrates substantial uncollected and/or uncollectible funds, lenders will classify the collateral as insufficient to secure their investment. The mortgage will be declined. The banker predicts that the bill would portend the end of Florida’s condo mortgage market. Only purchasers flush with cash could participate. Given the likelihood for abuse by this bill, the impending fiscal “train wreck” would exclude condominiums from mainstream financing.

SB 714 is patently absurd. While protecting homeowners from whimsical foreclosures is laudable, force feeding their debts to their neighbors is hardly a viable solution. An attorney formerly of the Miami Public Defender’s Office remarked, “Siplin must know that you can’t stop foreclosures by declaring a permanent legislative debt holiday.” Siplin has repeatedly stated, “There are a lot of condos not only in South Florida but throughout the state. This will bring relief to the whole state.” While mischaracterizing his bill as legislative altruism, he neglects to explain that his bill doesn’t expunge the debt; it functionally transfers it to the other owners! The “relief” that the Senator provides to the delinquent becomes everyone else’s burden. In a meeting with condo owners last year, Senator Jeffrey Atwater stated, “A bill designed to protect deadbeats to the detriment of everyone else is clearly unworkable.” The voice of reason!

At the end of the day, there is still no viable legislative solution to the issue. While no responsible association should opt to institute foreclosure proceedings to collect a trivial debt, simply making all assessments uncollectible sweeps the problem under the rug. Some associations have appointed special appellate committees charged with verifying the need to foreclose any unit. The committee is empowered to evaluate the circumstances surrounding the debt and, when appropriate, recommend alternatives to foreclosure. The committee can approve payment plans that enable the homeowner to address arrears or postpone action upon confirmation of impending alternative financing. The Association is made whole, the homeowner avoids incremental legal fees and foreclosures on liens against trivial debts never see the light of day. Unless a homeowner’s financial problems are so severe that no accommodation could address the debt, everybody wins.

REPRESENTATIVE ELLYN BOGDANOFF

April 4, 2007 - Ellyn Setnor Bogdanoff, the Galt Mile Community’s District 91 Statehouse Representative, updated constituents in late March about the status of legislation moving through the House and Senate. Wearing two hats, she must balance her duties as Majority Whip with her responsibility as our voice in Tallahassee. Tackling windstorm insurance and runaway property taxes affords her the opportunity to simultaneously fulfill both obligations. Since edifying Civic and Association leaders about nascent legislation earmarked to ameliorate these dilemmas at a grass roots “research” meeting with Senator Jeffrey Atwater earlier in March, statutory property tax legislation has been advancing through the House. Subsequent committee modifications to the property tax bill HB 7001, referenced in her “Whip’s Highlights”, extends special protection to fiscally constrained counties, hospital districts, and Children’s Services Councils (School Districts are already exempted in the original bill). These new exemptions reduce the overall tax reduction by about $326 million from the original $5.8 billion tax reduction for a new total reduction of $5.5 billion.

In addition to property tax reform, Representative Bogdanoff touches on bills affecting Cable industry customers and Public Records Exemption legislation designed to thwart Identity Theft. Read on:

Week Two

“We have been off to a very hectic start and have tackled some major issues. The year began with insurance during Special Session and we are now on to property taxes. I have attached the Whip’s Highlights so you can see the changes made to the property tax bill that passed out of committee this week. However, we are committed to broader reform and hope that we can do even more.

Until next time,”