By
FPI Staff
|
February 14, 2017

Florida Beware: The Dangers of Over-Reliance on Tax Breaks for Big Business

The Florida Policy Institute (FPI) today shared the release of Extracting Lessons for State Finances: What Other States Should Learn from Energy-Producing States’ Revenue Woes, a new report from the Center on Budget and Policy Priorities (CBPP). According to CBPP, the financial crisis faced by energy producing states since oil prices dropped in 2014 is testament to how poor budget practices and tax cuts, combined with relying too heavily on one revenue source, can set up a state for financial problems.

Although Florida is not one of the eight states examined by the CBPP, the report’s findings demonstrate the sub-par return on investment that often comes on the heels of large tax incentives for business.

“The fiscal actions that energy-producing states took – and things they didn’t do − show how better budget practices would help lawmakers in every state preserve the public investment communities need to thrive, like schools, health care, roads and much more in bad times and good.” said Elizabeth McNichol, a senior fellow at CBPP and co-author of this report.

The report concludes that states like Florida would be wise to:

Avoid ineffective tax cuts and incentives that deplete revenues. Large tax cuts for those who need it the least — wealthy people and profitable corporations — or tax breaks to incentivize business decisions often fail to break even, and they reduce the amount that states can invest in thriving communities.

Build up budget reserves to protect public investment and strengthen the economy. All state tax revenues have economic ups and downs, but energy sector-reliant revenues are particularly volatile. Energy states have found that adequate and accessible reserves are critical to dealing with the boom and bust nature of the industry.

Diversify revenue sources to improve the stability of tax collections. A good variety of revenue sources helps to protect public investment in schools, roads and other critical services by mediating the ups and downs of tax collections. All states can benefit from a diverse revenue mix that includes sales and excise taxes and income taxes.

Unfortunately, Florida Governor Rick Scott’s 2017-18 budget proposal includes $618 million in business tax cuts, which will make it harder for Florida to invest in infrastructure and critical public services and weather any future revenue downturns.

Further, in a recent blog post, FPI notes that in Florida seven out of eight programs that provide tax relief or subsidies to businesses failed to break even.

Six of the most energy dependent states — Alaska, Louisiana, North Dakota, Oklahoma, West Virginia, and Wyoming — grappled with large budget shortfalls during the 2016 legislative season when prices for oil, coal, natural gas and other sources hit dramatic lows. While energy prices are no doubt having an impact on revenues in these six states, short-sighted fiscal policy decisions have exacerbated and sometimes directly fueled their woes. The remaining two energy states — New Mexico and Texas — also have seen oil, gas and other energy-related tax revenues underperform, but with less severe results.

The experiences of energy-producing states demonstrate how better fiscal policy decisions would help Florida lawmakers preserve and invest in the services that improve residents’ quality of life.

“The findings in this report should serve as a warning to Florida policymakers that incentives for big business — particularly in volatile industries — are not the key to growing our state’s economy,” said Joe Pennisi, executive director of FPI. “Investing in education, roads and bridges and health services is what we need to be focusing on.”

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