Fitch Ratings-New York-12 June 2026: Credit pressure for some Florida local governments could increase if residents approve a constitutional amendment this November that would reshape the property tax framework, Fitch Ratings says. The amendment would raise the homestead exemption for non-school levies from the current $50,000 to $150,000 in 2027 and to $250,000 in 2028 for existing Florida permanent residents. It would also reduce the annual property value assessment cap for certain non-homestead properties to 5% from 10%. School district levies would not be affected. If at least 60% of voters approve the amendment, it would take effect on Jan. 1, 2027, which would affect local governments’ fiscal 2028 budgets.
The amendment will lead to a reduction in taxable assessed values and property tax revenue, which will increase fiscal uncertainty unless policymakers take offsetting action. Revenue losses will vary based on changes in taxable assessed values but could be significant and create budget pressure for local governments with property tax rates closer to the statutory 10-mill operating cap and a predominantly residential homestead-heavy tax base. Any increase in the operating millage to offset the loss of property taxes would reduce future taxing capacity. Florida’s Revenue Estimating Conference will meet this week to evaluate the amendment’s potential effect on local government revenue.
Under Fitch’s U.S. Public Finance Local Government Rating Criteria, lower revenue-raising control due in part to reduced future taxing capacity not adequately offset by a rise in other available revenue, such as charges and fees, may require a local government to maintain higher unrestricted general fund reserves to achieve a given financial resilience assessment and rating level. Fitch expects issuers with wider taxing margins below the 10-mill cap to have more flexibility in adjusting to a reduction in property tax revenue.
Some local governments may offset lower recurring property tax revenues with expenditure cuts, service reductions, or reserve use. A sustained decline in available reserves could lead to downward adjustment of an issuer’s financial resilience assessment, depending on the magnitude. Increasing other revenue streams, including non-ad valorem revenue and fees and charges, could increase exposure to economically sensitive revenue or concentrate the tax burden among certain non-homestead taxpayers, including commercial property owners.
The amendment would require county and municipal ad valorem taxes to be used only for specified purposes. However, these purposes are broadly defined and include public safety, education, infrastructure and bonds issued for these services, including debt service payments, which are fundamental elements of most local government operating budgets. No direct fiscal relief or backfill funding for local governments appears in the final ballot measure.
Rating effects, if any, will depend on local governments’ ability to offset any resulting loss of property tax revenue without excessive reliance on one-time budget actions, including reserve use, while preserving sufficient taxing margin under the 10-mill statutory cap.