CFO Alex Sink
Sink Sees a Silver Lining in Florida's Slowdown
“Now we’re forced to look back on the base budget, and it’s been a good exercise. ” — Florida CFO Alex Sink
If there’s a “little pearl’’ in the state’s budget crunch, Alex Sink thinks it may be that government will be forced to look hard at the things it does and justify whether it should keep doing all of them. Now in her second year as the state’s chief financial officer, Sink says the state’s fiscal reality is crashing head-on into long-established assumptions by many in state government that programs, once funded, will continue indefinitely.
“I said, ‘Aren’t we going to go back to square one and justify our activities?’ And they said, ‘Oh no, we don’t do it that way. We’re only going to bother about the $2 billion of incremental money because everything else is in the so-called base budget.’ And I thought to myself, ‘There’s going to be a lot of stuff in this base budget that doesn’t need to be happening.’ ”
Plummeting state revenue estimates, Sink believes, aren’t altogether a bad thing. “Now we’re forced to look back on the base budget, and it’s been a good exercise,” she says.
If those comments sound Republican, Sink’s tenure so far indicates that the best measure of fiscal conservatism continues to be behavior rather than party label. Sink — math major, bank president and the only Democrat in the Cabinet — has become a steady advocate for bringing sound business principles to state government operations.
One of her first acts as CFO was pulling the plug on a mammoth project to overhaul the state’s antiquated accounting system. The 3-year-old Project Aspire was “directionless” and mired in delay after blowing through $85 million of its $100-million budget. Sink decided to cut the state’s losses. “There was no end in sight,” she says. “I couldn’t look people in the eye and say that we were spending your money wisely.”
She’s also moved forcefully elsewhere in the CFO’s domain. One example: A 2006 report by the Office of Program Policy Analysis and Government Accountability had found that the workers’ compensation injury rate for state employees was 12% higher than the national average and that average workers’ compensation claims costs for state employees also had grown in recent years. Sink saw that the state’s risk management division didn’t act until a workers’ comp case generated a lawsuit. It defended the state in court but never worked proactively to cut injuries and reduce claims. Looking to provide lessons from the private sector, Sink invited the risk manager from Publix to visit and “give us some suggestions about how we should change the approach.”
Nowhere has Sink’s private-sector thinking been more evident than in the state’s struggles with property insurance issues.
When the Legislature came up with a plan during a special session last year to try to bring down skyrocketing insurance premiums by expanding the pool of cheaper state-backed reinsurance from $16 billion to $28 billion, Sink questioned the wisdom of increasing the state’s exposure when it had nowhere near that amount of money in the bank. Lawmakers did it anyway.
Now, after two quiet storm seasons have helped soften the private market for reinsurance, Sink is trying to shepherd a plan through the Legislature to begin ratcheting back that exposure. Sink’s plan would reduce the state’s risk in the Florida Hurricane Catastrophe Fund by $3 billion — an amount she arrived at after consulting with actuaries who said that it would be a “manageable” reduction that might, at the most, trigger a 1% to 2% increase in insurance premiums. The bill has received backing from the Florida Chamber of Commerce, Associated Industries of Florida and the Florida Retail Federation. The House version (HB7021) unanimously passed the Florida House Jobs and Entrepreneurship Council in February. Companion legislation in the Senate, (SB2156), cleared the Senate Banking and Insurance Committee in March and the Governmental Operations Committee in April.
Sink says it’s a no-brainer and hopes it can be gradually reduced even further. The notion that the state could raise $25 billion in bonds to cover hurricane losses is a pipe dream in the current economic climate. “The bond markets, the credit markets are in just the worst shape they’ve ever been in the history of anybody who’s alive, and if we were to try to go out today and issue $25 billion in bonds, we probably couldn’t do it. So where does that leave Floridians who’ve had their homes destroyed or damaged by hurricanes?”
Meanwhile, as the CAT fund issue plays out, Sink serves on a task force that’s focusing on mortgage defaults in Florida, where one of every 95 homes last year was in foreclosure. She’s also dealing with the fallout of the $10-billion run on the Local Government Investment Pool. And she has appeared on CNBC to protest the current bond rating system that treats municipal bonds, which have minuscule default rates of less than one-half of 1%, as riskier investments than corporate bonds.
Two years into the CFO position, Sink says she’s still mastering all the functions of an office considered by most to be the second-most powerful in the state. The position was created in 2002 by combining the old comptroller and insurance commissioner positions. It encompasses everything from handling the state’s accounting, auditing and cash management to overseeing the offices that handle banking and insurance regulation, to serving as state fire marshal. “The CFO is there to help protect and safeguard the citizens’ money and assets in three ways,” says Sink. “No. 1 is to run the business of the state. No. 2 is to do education and advocacy work, and No. 3 is enforcement work.”
She believes government would work better if more public servants had private sector experience. “We need more people in Tallahassee who have business experience and business background because we’re operating a big business, and it’s not all about just politics, or positioning, or as I call it, playing the chess match.”