On January 28, 2021, Governor Ron DeSantis released his $96.6 billion recommended budget for fiscal year (FY) 2021-22, a 4.7 percent increase over the $92.2 billion current year budget.* Alongside federal dollars, which drive the budget increase, the governor’s budget also expects $26.8 billion in sales tax revenue – about 80 percent of all general revenue. Since July 2020, economic activity and sales tax revenue in Florida have increased as consumers redirected their spending from the hard-hit service sector to the purchase of goods. Consumers also spent down the savings they had built up during the pandemic. Despite promising revenue reports, however, there are four crucial factors that should be considered for their potential to impede sales tax revenue growth.
1. Floridians’ savings are dwindling.
As the Bureau of Economic Analysis reports, nationally, while the personal savings rate went from 7.9 percent in 2018-2019 to 33.7 percent in April, it was about 13.7 percent in November 2020. Moreover, the Office of Economic and Demographic Research (EDR) estimates that reduced savings have been responsible for at least $177.6 million in sales tax collections for FY 2020-21. Without a significant boost (e.g., additional stimulus checks), Floridians' ability to draw down their savings will come to a halt.
2. Tourism has taken a substantial hit.
Nearly 15 percent of sales tax revenue comes from tourists. Unfortunately, Florida’s tourism-sensitive economy is exceptionally vulnerable to the effects of the pandemic. In a presentation to the state’s House of Representatives Tourism, Infrastructure, and Energy Subcommittee, EDR reported a 31.5 percent loss in sales tax revenue related to tourism. This is due to a decline in out-of-state tourists (particularly air travelers) and residents visiting restaurants, local attractions, and other leisure-based activities. Moreover, the Florida Economic Estimating Conference does not expect visitor levels and employment levels in the leisure and hospitality sector to return to pre-pandemic levels until 2024.
3. Sales tax holidays are costing the state millions.
According to a recent poll from the State Innovation Exchange, only 1 in 5 Florida voters take advantage of these holidays.In conjunction with his budget recommendation, the governor released an Implementing Bill that calls for sales tax holidays. While lawmakers in several states have enacted similar sales tax holidays (16 states held them in 2019), the Institute on Taxation and Economic Policy explains that these holidays: do nothing to reduce taxes for low- and moderate-income taxpayers during the rest of the year, often result in sizeable hits to state and local revenue, create administrative difficulties for small businesses and tax agencies, and can be exploited by increasing prices or watering down sale promotions or deals. On those days, some businesses seem to increase prices or cut promotions to fully take advantage of increased traffic because more people are coming in to take advantage of the holiday. Together, the governor’s sales tax holidays will cost $50.3 million in lost revenue.
4. Florida’s economic recovery hinges largely on the swift and equitable distribution of COVID-19 vaccines.
The successful distribution of COVID-19 vaccines in FY 2021-22 underlies expectations of sufficient sales tax revenue and the recovery of the tourism industry. Nationally, the state falls in the middle when it comes to how quickly it is distributing vaccines. According to the Centers for Disease Control and Prevention, as of February 23, 2021, 2.7 million people have received the COVID-19 vaccine in Florida. Specifically, about 1.3 million people — 6 percent of Floridians — have received their first dose, and 1.4 million people — 7 percent of Floridians — have received the recommended doses needed to be considered fully vaccinated. At the moment, Florida is still carrying out the first phase of vaccine distribution, and it is unclear when and how the second phase will start.
*Florida Policy Institute defines "current year budget" as FY 2020-21 appropriations, plus vetoes.