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Legislative Preview 2008: Once Again, a Budget Crunch

empty pockets
[Photo: Getty]

Florida’s housing boom gave state lawmakers years of gravy. Windfall tax revenue enabled them to ladle out big expenditures like the $400 million in 2003 to lure the Scripps Research Institute and $310 million to preserve 74,000 acres of the Babcock Ranch in southwest Florida in 2006.

But the collapse of Florida’s housing market and a slowing economy have crimped the flow of revenue into state accounts, stopping those grand, one-time investments. And now, some basics are getting shortchanged, too — social and healthcare services, for example, and the public universities. At Florida State University, the running joke is that cutbacks have so many professors looking to leave that the last one won’t have to turn out the lights — they’ll already be out because the university’s scrimping on power.

Before they even start considering the $70-billion budget Gov. Charlie Crist proposed this January for the 2008-09 fiscal year, state lawmakers will have to debate another round of cuts to the 2007-08 budget that they already trimmed by more than $1 billion last fall. “The budget situation is deteriorating,” House Speaker Marco Rubio told colleagues in a memo about the cuts.

Coming Up Short
Revenue estimates will be less than expected for the next four years:
Fiscal Year
Shortfall*
2007-08
$1.0 billion
2008-09
1.4 billion
2009-10
1.5 billion
2010-11
1.2 billion

*Projected amount of revenue below budget estimates
Source: Florida Legislature’s Office of Economic and Demographic Research

Amy Baker, director of the state’s Office of Economic and Demographic Research, says lawmakers must cut between $400 million and $600 million in recurring spending immediately to help make up shortfalls of more than $1 billion a year over the next four years.

House Budget Committee Chairman Rep. Ray Sansom of Fort Walton Beach recommends cutting $2 billion in recurring expenses from the general fund “if we are going to provide modest levels of funding increases to pay for growth in education, healthcare, public safety and the environment.”

The primary culprit in the budget crunch, of course, is the decline in Florida’s housing market. Fewer home sales have shriveled once-robust collections from documentary stamp taxes and real-estate related intangibles taxes. Doc stamp collections, for example, have dropped from $4 billion in 2005-06 to $2.3 billion this year.

If the economy weakens further, Baker says, decreased consumer spending could affect growth in sales tax receipts, which has been flat. Sales taxes account for about 75% of the state’s recurring annual revenue.

Meanwhile, state budget estimators note a trend toward slower rates of population growth, the economy’s primary engine. Population growth slowed to 1.8% in 2007 after hovering between 2% and 2.6% since the mid-1990s. Since 2005, Florida has slipped from second nationwide in state Gross Domestic Product to 12th. Unemployment, still below the national average, has risen to 4.7%.

Lawmakers will base this session’s trimming on new tax-receipt estimates due later this month. But prospects are bleak enough overall that the state estimates revenue will come in lower than it expected through 2011, says Baker.

Maybe this time?

As in past downturns, the crunch has left essential programs scrambling for operating funds. Florida Forever, the state’s land conservation program, has only $45 million left to spend; its approved acquisition list exceeds $11 billion. Environmental groups are proposing an amendment to create permanent funding.

Meanwhile, the Board of Governors that oversees Florida’s 11 public universities has responded to cutbacks by voting to raise undergraduate, in-state tuition and fees by 8% next year, about $186 more per year for full-time students. Florida’s university tuition is the cheapest in the nation. University presidents have long pushed politically unpopular tuition hikes as a way to fix the state’s student-faculty ratio of 31:1, among the highest in the nation. The national average is 25:1. The increase is far from certain, however, since the Legislature disputes the board’s authority to set tuition.

Like previous shortfalls, this year’s trouble also has refocused attention on tax reform efforts. The work of the state’s Taxation and Budget Reform Commission, constitutionally created to advise state officials and place amendments on the ballot, has taken on new urgency. Commission member John McKay, the former state Senate president who’s long worked to close sales tax loopholes, is pushing a plan to repeal $15 billion in exemptions on services and goods, from professional sports sky boxes to cattle growth enhancers.

All told, McKay says, the state is losing billions in sales tax each year. His plan would eliminate property tax funds for K-12 education except those that have been pledged for bonded capital projects.

Betting on a rebound

As for the immediate task of trimming a billion dollars or more, Crist’s proposed budget cuts $230 million worth of services and counts on big increases in gambling revenue. His proposals also assume increases in school property tax collections. Betting that the economy will rebound in a year, Crist also wants to raid dedicated trust funds, such as the state’s tobacco trust fund that pays for children’s healthcare, the workers’ comp trust fund and the insurance regulatory trust fund.

Legislative budget leaders aren’t keen on the idea. “It would be unwise for us to spend one-time monies on recurring expenditures in hopes that this revenue downturn will be short-lived,” Sansom says.

For their part, legislators appear likely to shift expenditures to areas they believe will stimulate the economy. Possible losers: State agencies; private universities, which get $3,000 tuition grants for Florida students; and private HMO providers that receive Medicaid reimbursements. Likely winners: Road builders, community colleges and job-training programs, all seen as crucial to stimulating the economy.

Dominic Calabro, president and CEO of Florida TaxWatch, which is working with the state’s business community on economic stimulus proposals, says he hopes lawmakers will concentrate on “tried-and-true” methods such as streamlined permitting to speed economic growth rather than new programs. “What can we do to encourage more capital formation in Florida?” Calabro asks. “The only thing certain is that throwing money at the economy won’t stimulate it.”