February 8, 2024

Funding Florida’s Future: Revenue Options for Bold Early Learning Investments

Introduction

Federal actions taken in response to the COVID-19 public health emergency boosted families across Florida. Among other positive outcomes, over 3 million families received $11 billion in Economic Impact Payments; roughly 2.5 million Florida families and 3.9 million children benefited from a temporary expansion of the Child Tax Credit; and nearly 7,600 child care programs received support to help keep their doors open (impacting up to 703,000 children). Consequently, in Florida, the percentage of children living in poverty and those living in households with a high housing-cost burden remained the same between 2019 and 2021, despite the pandemic. As the Annie E. Casey Foundation explains, “policies such as the child tax credit helped families and kept poverty in check during a time when people were struggling to find decent jobs.” 

Federal support has buoyed Florida’s child care sector over the past few years. However, since September 30, 2023, federal COVID-19 child care investment has come to an end, leaving behind a “child care cliff.” The Century Foundation projects that, without intervention, 212,712 children in Florida will lose their child care; 2,196 child care programs will close, making it harder for families to find safe, nurturing child care options; and 15,824 child care jobs will be lost.

The impending child care cliff also threatens to exacerbate Florida’s current child care gaps. The Florida Chamber Foundation, in partnership with the National Chamber Foundation, estimates that current child care gaps drive parents out of the workforce, reduce tax revenue for the state, and put an undue strain on Florida households and businesses. Their research suggests that insufficient child care availability is costing Florida employers $4.47 billion due to employee turnover and absences. Furthermore, the Florida Chamber Foundation estimates that as people miss work or leave employment, there is a fiscal cost to the state through decreased tax revenue in the amount of $911 million.

Federal support has buoyed Florida’s child care sector over the past few years. However, since September 30, 2023, federal COVID-19 child care investment has come to an end, leaving behind a “child care cliff.”

While Florida’s child care challenges are significant, state legislators have an opportunity to raise revenue and finance long-term programs, like broadening access to subsidized child care and extending voluntary pre-K to all-day. These policies would not only boost children’s well-being across the Sunshine State — they would also boost Florida’s economy. By expanding access to affordable high-quality child care, state legislators could improve children’s quality of life and early learning outcomes while giving parents the flexibility to pursue careers or enhance their education or vocational skills. Finally, legislators could use the additional tax revenue to reinvest in early learning programs and boost public services.

Revenue Options

To finance long-term programs that broaden access to subsidized child care and extend voluntarly pre-K to all-day, state legislators need revenue. Below are several strategies that lawmakers could take to fund bold early learning investments.

OPTION 1. Use $3.1 Billion in unallocated general revenue.

For Fiscal Year (FY) 2023-24, the state’s unallocated General Revenue reserve is estimated to be $8.8 billion. Between 1999 and 2021, policymakers swept or transferred out $2.3 billion ($3.1 billion, inflation adjusted) from programs for children, older adults, and biomedical research related to tobacco use. Policymakers could reallocate $3.1 billion from reserves and use the money to either establish a fund like the Lawton Chiles Endowment Fund or finance programs using the ratios established in HB 253 (2000). If policymakers create a fund and deposit $3.1 billion with the intention of using interest earnings for children’s services, they could expect access to $155 million annually. (See also The Promise and Potential of Florida's Lawton Chiles Endowment Fund.)

OPTION 2. Expand Medicaid and reallocate tobacco settlement funds to child care for $200 million.

In the late-1990s, Florida entered into a settlement agreement with the country’s largest tobacco companies. The settlement provided the state perpetuity payments of $440 million annually. Settlement payments and endowment earnings are deposited into the state’s Tobacco Settlement Trust Fund (TSTF) for use as appropriated by the Legislature. For FY 2023-24, policymakers appropriated about $360 million for Medicaid services. If the state were to expand Medicaid, Florida would receive an enhanced federal match, leading to an estimated $200 million in savings annually. In turn, this would allow policymakers to replace current state spending from the TSTF for Medicaid services with federal dollars and reallocate the savings into child wellbeing initiatives and programs.

  • In 2000, Kentucky policymakers earmarked 25 percent of its master settlement agreement with tobacco companies for early childhood development programs.

OPTION 3. Increase the state’s $1 per pack cigarette surcharge established in 2009 or adjust it for inflation to raise $250 million.

In 2009, Florida policymakers created a $1 per pack surcharge on sales of standard-sized cigarettes. Since then, the surcharge has remained constant without any inflation adjustments, effectively eroding its value (and intended purpose). To adjust the surcharge for inflation, policymakers would have to increase the surcharge by 40 cents, which would generate an additional $250 million annually. To date, 32 states and D.C. levy higher cigarette taxes. (See also Growing Florida's Revenue Sources: Best Practices on Levying Excise Taxes.)   

OPTION 4. Levy an excise tax for e-cigarette sales to raise $14 million to $31 million or earmark current sales tax revenue from e-cigarettes to raise $100 million.

Currently, Florida’s general sales tax applies to e-cigarettes and other vapor products without an additional excise tax or surcharge — the state’s general sales tax already generates about $100 million from e-cigarette sales. As of January 2023, 30 states and D.C. levy e-cigarette taxes. In terms of approach, 20 states and D.C. levy a percentage-of-price tax and 16 states levy a volumetric tax on e-cigarettes (the sum of these two is larger than the actual number of states with e-cigarette taxes because some use a combination of both). For example, Georgia collects a 5-cent per fluid milliliter tax on “closed system” vapor products (i.e., products prefilled with liquid for immediate use) and a 7 percent tax on the wholesale cost of “open” devices (i.e., the liquid is filled by the user). Georgia, with a population half the size of Florida, generates $7 million to $16 million annually through its e-cigarette tax. Assuming Florida generates double of Georgia’s revenue, the excise tax could potentially generate between $14 to $31 million annually. (See also Growing Florida's Revenue Sources: Best Practices on Levying Excise Taxes.)

OPTION 5. Earmark sales tax revenue from recreational marijuana to raise $196 million to $431 million annually.

If the Florida electorate votes to allow recreational marijuana, the state’s general sales tax would automatically apply to transactions. According to the Office of Economic and Demographic Research, recreational marijuana sales could generate an estimated $195.6 million to $431.3 million annually without an additional excise tax. Policymakers could earmark recreational marijuana revenue for children’s programs.

OPTION 6. Levy an excise tax for recreational marijuana sales to raise $33 million to $72 million.

If recreational marijuana is legalized in the Sunshine State, policymakers could consider an additional excise tax. As of May 2023, 21 states have enacted recreational marijuana or cannabis taxes. The most popular tax strategy is based on the retail price of recreational marijuana and imposed at the point of sale (i.e., a percentage-of-price tax). In short, the tax is calculated as a percentage of the retail price, is paid by consumers in addition to their purchase at checkout and then remitted to the government by the retailer. Across the country, recreational marijuana tax rates range from 6 percent in Missouri to 37 percent in Washington. Using general sales tax revenue estimates as a baseline and assuming that demand remains constant, a 1 percent excise tax collected at checkout could generate between $33 million and $72 million. (See also Growing Florida's Revenue Sources: Best Practices on Levying Excise Taxes.)

  • Most states that tax recreational marijuana dedicate a portion of the revenue to specific spending programs. For example: Arizona spends one-third of its revenue on community colleges; Colorado spends all of its excise tax revenue on public school construction; Michigan uses a majority of its revenue for K-12 public schools and road repair and maintenance; and Washington spends half of its revenue on health care programs.

OPTION 7. Earmark gaming compact to raise $400 million to $500 million annually.

Although the 2021 Gaming Compact between the State of Florida and the Seminole Tribe has (and continues) to undergo legal challenges, a recent decision by the U.S. Supreme Court could mean that the state is closer to receiving payments under the 2021 agreement. Per the compact, the state is set to receive guaranteed minimum payments of at least $400 million for any revenue sharing cycle during the first five years of the agreement. By the end of the fifth cycle, the state is guaranteed at least $2.5 billion. The Florida Commissioner of Agriculture and former Senate President, Wilton Simpson, previously estimated that in a decade, the compact would generate over $1 billion annually.

  • Relatedly, in 2021, Louisiana policymakers passed SB 247 and SB 142 to establish taxes for sports betting and earmark the revenue. As a result, Louisiana’s Early Childhood Education Fund receives 25 percent of sports betting excise tax revenue.

OPTION 8. Close out-of-state corporate tax loopholes by requiring combined reporting for corporate income taxes to raise $400 million to $800 million annually.

Currently, large multi-state corporations can avoid paying Florida’s Corporate Income Tax (CIT) by shifting profits off to other entities in tax havens such as Delaware, Ireland, or the Cayman Islands (e.g., via the trademark income-shifting loophole). Florida should follow the lead of 28 states and the District of Columbia and require these corporations to add together profits of all subsidiaries, regardless of their location, into one combined report. This strategy is known as “water’s edge” reporting and would generate between $400 million and $800 million annually. Policymakers ought to also consider “worldwide combined reporting,” which looks to close offshore tax loopholes and could generate an additional $680 million, according to the Institute on Taxation and Economic Policy. In turn, if the money is used to finance expanded child care programs, corporations would benefit from fewer employee absences and less turnover.

  •  Some states with tax structures like Florida’s (i.e., those without personal income taxes but with corporate income taxes) — Alaska, New Hampshire, and Texas — require combined reporting.

OPTION 8b. Broaden the corporate income tax base by requiring combined reporting and offer tax incentives for corporations that invest in child care.

Florida offers tax credits, refunds, and other incentives to promote specific activities. For example, under the Live Local Program, corporations may make tax contributions to the Florida Housing Finance Corporation and receive a dollar-for-dollar credit against their corporate income tax or insurance premium tax. The state also offers the New Worlds Reading Initiative, which allows corporations to make contributions to help students in kindergarten through fifth grade who are reading below grade level in exchange for a dollar-for-dollar credit against their corporate income tax and other taxes. If Florida policymakers passed combined reporting, they could also create a program to incentivize contributions to statewide child care and/or child services providers in exchange for a dollar-for-dollar credit against the state’s corporate income tax.

OPTION 9. Impose a minimum corporate income tax payment of $250 from all corporations in florida to raise $251 million annually.

The Sunshine State imposes a CIT on corporations doing business in Florida. However, the state exempts: (1) the first $50,000 of net income, (2) Limited Liability Companies (LLCs), and (3) S Corporations or pass-through businesses that have no more than 100 shareholders and whose profits flow through to shareholders’ income. Since Florida does not have a personal income tax, these profits are not taxed in the state. As a result, most businesses in Florida, including large corporations, do not pay CITs. Even among the businesses that are not exempt, only 1 out of 10 owes a CIT. Policymakers could impose a modest minimum payment of $250 on all corporations, which would generate about $250 million annually. In turn, if the money is used to finance early learning and child care programs, corporations would benefit from fewer employee absences and less turnover.

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