The following testimony by FPI's CEO Sadaf Knight was submitted to the Joint Legislative Budget Commission regarding review of Florida's Long-range Financial Outlook on September 10, 2020.
Dear Chair Cummings and Chair Bradley,
Florida Policy Institute (FPI) submits these comments regarding the Draft Long-Range Financial Outlook published by the Department of Economic and Demographic Research on September 3, 2020. FPI is an independent public policy research nonprofit dedicated to advancing policies and budgets that improve the economic mobility and quality of life for all Floridians. We are concerned about Florida’s impending budget shortfall and urge the Committee to proactively address deficiencies in the state’s tax system in order to raise revenue and preserve critical public services and priorities. As we grapple with the projected revenue shortfalls, we hope that state leaders agree that raising additional revenue is critical for Florida’s future.
The Long-Range Financial Outlook provides a detailed discussion on Florida’s revenue and appropriations projections, along with an assessment of the state economy. The COVID-19 public health and economic crisis has had a devastating impact on our communities. Measures to slow the spread of the virus— social distancing, limited travel, closing tourist attractions— have hit at the heart of Florida’s tourism- and sales tax-driven economy.
Florida’s response to this crisis will impact the state’s fiscal health for years to come. In response to the Great Recession the Legislature enacted severe budget cuts, which Florida had yet to rebound from when the COVID-19 pandemic began. As a result, Florida’s per-capita spending on public services ranks 46th among all states.[i]
The Long-Range Financial Outlook explains that the revenue forecasts for Fiscal Years (FY) 2020-21 and 2021-22 have been reduced significantly, in light of COVID-19, by $3.4 billion and $2 billion, respectively. In addition, the estimates for FY 2022-23 through FY 2024-25 have been decreased from the previous estimates. The Outlook also includes a projected $1.37 billion in unallocated general revenue for FY 2020-21.
Budget Projections Hinge on Lifting Restrictions on Coronavirus Relief Fund Dollars
The CARES Act, passed in March 2020, provided state aid in the form of the Coronavirus Relief Fund (CRF). These funds, totaling $5.86 billion, have been incorporated into the fiscal outlook for FY 2019-20 and FY 2020-21. However, as the Outlook notes, “the funds may not be used to fill shortfalls in state or local government revenue.” Current guidance issue by the US Department of Treasury explicitly restricts this usage of CRF dollars, yet the Outlook incorporates the $5.8 billion as a “balance forward” from FY 2019-20.
Unless these restrictions are lifted, the CRF dollars will not be available as general revenue. Florida’s deficit will be much greater than projected and the impact will be felt well into future years. The projected reserves for FY 2020-21 and beyond will be eliminated without this funding, as confirmed in the Outlook.
Additionally, the CRF must be spent by December 30, 2020— despite the fact that the economic and public health impacts will continue far beyond that date. States, including Florida, need long-term, flexible federal aid to avoid facing a fiscal cliff.
We urge the Committee and state leadership to press Congress and the Trump Administration to lift the restrictions on CRF funds, so that they can in fact be used to mitigate the state’s revenue shortfall, and to provide additional state aid to buoy state budgets until economic conditions improve.
Structural Changes to Florida’s Tax Code are Needed
Florida’s reliance on the sales tax and tourism economy had put the state on shaky footing even before the COVID-19 pandemic. The past six months of safer-at-home orders, social distancing, and business and attraction closers have shown just how vulnerable the state is with such a heavy dependence on consumer spending and travel. Given the depth and particularities of this recession, it will take longer than previous economic downturns to see a return to “normal” activity. As the Outlook states, “Previous economic studies of disease outbreaks have shown that it can take as much as twelve to fifteen months after the outbreak ends for tourism to return to pre-disease levels. The magnitude of this event is greater.”
Florida also has one of the most “upside-down” regressive tax systems in the country, with the wealthiest in our state paying the least in state and local taxes, while those with the lowest income pay the most, as a share of household income.
In the FY 2020-21 budget, the governor and Legislature made important investments in Florida’s future, such as teacher pay raises and funding conservation initiatives. These investments, along with all of the programs delivering critical services, must be preserved in order for Florida to rebound from this crisis. Relying solely on a strategy of budget cuts to address the revenue shortfall would cause undue and sustained harm to Florida’s families and communities long after the pandemic has ended.
Revenue-raising solutions will not only preserve public services in the near term, they will also help create a stronger, more resilient revenue base for the future. Measures such as examining Florida’s $20 billion in tax expenditures and eliminating revenue-losing business subsidies, closing corporate tax loopholes through policies like combined reporting, renegotiating the Seminole gaming contract, indefinitely delaying the M-CORES toll road project, and modernizing the state’s sales tax by enforcing it for online sales can raise the revenue needed to put Florida on stronger footing.
In conclusion, we urge the Committee to forcefully advocate for increased, flexible federal aid and to pursue revenue-raising policies to ensure Florida’s successful recovery from the COVID-19 health and economic crisis. Our families, communities, small businesses, and visitors require a healthy and safe state in which all people have the opportunity to thrive.
We thank you for this opportunity to provide comments. Please feel free to contact us if you need additional information or have questions.
Florida Policy Institute