State finance problems loom as next governor comes into office

Spending
FL government spending from all funding sources, 2018-19; Florida Policy Institute

Florida’s next governor and Legislature will face looming state finance challenges as well as concerns about threats to the tourism industry that yields billions of tax dollars for the state, a new financial picture shows.

One of those threats to tourism has already occurred, the report notes: This summer’s toxic algae outbreaks, which washed tons of dead sea life onto South Florida’s shores and chased away visitors.

Because Florida relies so heavily on tourist dollars, “tourism-related revenue losses pose the greatest potential risk to the economic outlook” for Florida, according to the analysis.

The document – which describes the last 15 years as an “economic roller coaster” – is a multi-year forecast of Florida’s budget that is still in draft form and focuses on the giant pot of money, general revenue, that is a cornerstone of Florida’s state budget.

Tourism is only one aspect reviewed in the analysis.

The forecast also lays out a fundamental problem that may not be easily resolved, according to the state’s professional analysts:

Unlike an everyday family on a strict budget, Florida will spend more than it takes in for schools, human services, criminal justice, transportation and other public programs. That creates a budget shortfall – the gap between expenditures and revenues — and a hole that must be filled to balance the budget.

In the past, lawmakers have filled that hole by raiding taxpayer trust funds that are supposed to pay for specific programs, such as buying conservation lands and ensuring a supply of affordable housing. The analysis projects that hundreds of millions of dollars now reserved in state trust funds will be redirected from their intended purpose and instead used to balance the budget for the next three fiscal years.

That’s not considered good budget policy, according to Kurt Wenner, vice president of research at the Florida TaxWatch organization.

“If you look at it, we do have a long-term structural imbalance. We are spending more money than we’re taking in,” said Wenner. “The Legislature has been doing this for a few years, making do for (one) year to make sure they have a balanced budget.”

The analysis itself calls the situation a “looming problem” in need of “corrective actions,” as well as policy decisions. Those policies could include reducing programs, increasing revenues of some kind, or even reducing the amounts set aside for reserves — though none of those options are simple and some may not even work.

Joseph Pennisi is executive director of the nonpartisan Florida Policy Institute. He said the multi-year forecast is not a formal budget that lawmakers will vote on.

But it’s a “guide for budget deliberations moving forward,” Pennisi said. “This is meant to inform the budget process as to what the Legislature is facing in advance of the (upcoming) fiscal year.”

The analysis “does point out risk, just as you would do in the private sector,” Pennisi said.

In addition to the risks associated with reliance on tourism, the report noted that “trade tensions are ratcheting up” and various tariffs could become a problem because “tariffs act like a tax increase, weakening the purchasing power of households and creating greater business uncertainty.”

The report also includes a series of money issues that could alter budget forecasts.
Those include weather-related issues like the final financial impact of Hurricane Irma, which hit Florida last year. There are also numerous lawsuits that could involve millions of dollars, including legal action about public school funding, environmental cases, and payments connected to a tobacco settlement years ago.

In addition, Florida Constitutional Amendments on the ballot this election season could have impact on both state and local revenues and costs if they pass.

Despite those issues, the report points to highlights, such as the 120.5 million people who visited Florida in fiscal year 2017-18 — 5.5 percent more than visited in 2016-17.

Florida had been on an “economic rollercoaster of extreme peaks and valleys,” from 2002-03 to 2011-12, the report says. That period included the housing boom and collapse and the recession between 2008 and 2010.

That was followed by a recovery period and “return to normalcy” in 2016-17, when “most measures of the Florida economy had returned to or surpassed their prior peaks by the close of the 2016-17 fiscal year.”

Still, the report says, construction activity continues to be subpar, and overall, the housing market continues to move slowly forward, with the homeownership rate still below normal.

“The recovery period from the collapse of the housing boom and the end of the Great Recession did not begin in earnest until Fiscal Year 2012-13,” the report states, “and—even now—some of the drags on Florida’s economy are still ongoing.”

The forecast will be discussed Friday at the Capitol.

Diane Rado
Diane Rado has covered state and local government and public schools in six states over some 30 years, focusing on policy and investigative stories as well as legislative and political reporting. She spent most of her career at the St. Petersburg (Tampa Bay) Times and the Chicago Tribune. She has a master’s degree in journalism from Northwestern University and did a fellowship in education reform at the University of Michigan in 1999-2000. She is married to a journalist and has three adult children.

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