September 19, 2014

Editor's Page

Getting By

Mark R. Howard | 11/1/2005
Much in a new report from the LeRoy Collins Institute called "Tough Choices: Facing Florida's Revenue Shortfall" seems right on the money. The report, funded by the Jessie Ball duPont Fund, attempts a "politically neutral" look at whether the state's tax structure will provide enough money to support state government given the way Florida is changing demographically and the priorities of the state's citizens.

The gist of the report is that from 1980 to 2000, Florida's economic growth plus tax increases at the state and local levels produced enough revenue that state government more or less kept pace with population growth. Florida didn't fund state services as well as some states, the report says, but it didn't fall any further behind for want of revenue. For the past five years, according to the report, the real estate boom has propped up the state's finances: During the 2000-02 recession, real estate activity in all its forms generated enough tax revenue to relieve the pinch on state government services. Since then, boom-related increases in doc stamp receipts, sales tax revenue and the like have provided comfortable, even expansive, levels of revenue. Net general revenue grew by $2 billion in 2003-04 and by nearly $3 billion in 2004-05.

The boom is bound to cool, however, and state estimators say revenue growth will slow just as Florida gets slammed with: 1. a "bottomless pit" of expense as it complies with the class-size amendment, and 2. the "800-pound gorilla" of escalating Medicaid costs. Even if you hold the rest of state spending constant, the cost of the class-size amendment will eat up more than all the revenue growth the state expects. Medicaid, meanwhile, has grown to consume more than 20% of Florida's budget, roughly what the state spends for preK-12 education, and has been growing each year at more than 10%.

A third major expense looms as well: A huge backlog of maintenance and improvements in roads, water, sewer and other basic infrastructure. The Collins report cites a 2003 Department of Transportation study indicating the state should be spending at least $2 billion a year more on roads just to stay even and at least another $2 billion each year on top of that if it wants to improve.

The bottom line, according to the report? The state will face big shortfalls and "tough choices." Fiscal pressures will get "intense" within "a year or two." Even if real estate booms a year or so longer than the report predicts, the state isn't immune from business cycles, so those pressures will show up later if not sooner. The traditional choice of simply cutting the budget to fit revenue may not be the best choice if the state is going to ever become more than a low-wage economy, the report suggests.

One reason to pay attention to the report is that it represents the consensus of a group that includes some very traditional, pro-government Democratic minds and some very Republican, free-market minds. Another reason is that it doesn't stop at saying the state faces "tough choices." It advocates steps like adding newly constructed houses to the property tax rolls immediately rather than waiting on the once-a-year assessment; extending the sales tax to internet sales; creating impact fees dedicated to school construction; continuing to look for savings and efficiencies; and not creating tax breaks to entice retirees to Florida.

The boldest suggestion is to modify the class-size amendment -- part of Gov. Jeb Bush's agenda -- and provide smaller classes only in the critical primary grades. The report carefully balances that suggestion with a recommendation that the state also increase overall educational funding to support "the demand for high standards and improved basic skills performance" -- a bone to those who believe that if the educational system were "adequately" funded, things would get better.

If there's a criticism of the report, it's that the effort to be "politically neutral" made it a little tepid both in mentioning options and in its own recommendations. The best it can do, for example, with the "800-pound gorilla" of Medicaid is to suggest the state do a "comprehensive study." A better recommendation would have been a moratorium on comprehensive studies.

And for all its careful political neutrality, there's a certain amount of in-the-box thinking inherent in framing the problem as a "revenue shortfall." Look at things this way: The state grew from 10 million people in 1980 to 16 million in 2000 (a 60% increase). Total state revenue in that same period grew from $9 billion to $51.6 billion (473%). Yet with state revenue growth having exceeded population growth by a factor of nearly eight (yes, I understand inflation plays a role), Florida still ranked in the bottom tier of states in measures of civic health such as educational performance, child health and safety, etc. There's an argument in there somewhere that with those results, state government and the way it's organized might not be getting us the results we want and that there might be a different way of defining the problem.

Implicit in the report, of course, is that whoever is sitting in the governor's chair and in the Legislature in 2007 better start thinking about what they're going to do. A concluding section presents survey data showing more than two-thirds of Florida taxpayers want to maintain tax and spending levels as far as highways, the environment and universities are concerned. Only in the areas of healthcare for the poor/near poor and K-12 education did barely more than a quarter of taxpayers support more taxes and higher spending. The report concludes, "If the coming years bring intense pressure on preK-12 and healthcare spending as revenue growth slows, it is not a given that voters would opt" to simply trim the state's budget to fit its revenue.

I disagree with that conclusion. I think if there's a lesson in the last 25 years of politics in America, it's that trim-to-fit is the default position of the American electorate. If meeting the people's goals in the next several years means higher taxes, Florida's leadership is going to have to make enough substantive changes in the way government operates that voters are convinced they're not paying more for more of the same.Mark Howard can be reached by e-mail at mhoward@floridatrend.com.

Tags: Politics & Law, Editor's column, Around Florida, Government/Politics & Law

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