Better Than Forecast: Florida Budget Shortfall ‘Only’ $2.5 Billion

September 8, 2010

Florida’s looming budget shortfall has been shrunk in half by state analysts who credit federal stimulus dollars, years of spending cuts, and Indian gambling money as helping forge a brighter picture – but one that could still leave the state in a $2.5 billion hole.

A year ago, state forecasters projected a $5.5 billion gap for 2011-12, as the remnants of the recession and a stone-cold housing market looked certain to dig deeply into state tax collections. But in a revamped forecast slated to be reviewed next Tuesday by the Legislative Budget Commission, analysts now say the tide of red ink may stop at the $2.5 billion mark.

“This is what we see at this moment,” said Amy Baker, coordinator of the Legislature’s Office of Economic and Demographic Research, among several panels making the latest forecast. “The revenue side is slightly better. And the spending has leveled off.”

Baker conceded, however, that the revised projection does not take into account the impact of the Gulf of Mexico oil spill on state coffers. The Panhandle tourist slump which coursed through the summer – coupled with increased spending from oil clean-up efforts – is still proving too difficult to gauge, she said.

“It’s a big caveat in the forecast,” Baker said. “We’ll know more in coming months.”

While the expected budget hole has diminished, the debate over how to fill it remains largely unchanged, lawmakers from both parties agree as the fall campaigns gather strength.

The Legislature’s ruling Republicans have already set the stage for another round of belt-tightening – and could draw strength from the economists’ crediting reduced state spending as helping yield the improved forecast.

“It’s more pleasant to hear that things are getting better,” said Sen. Don Gaetz, R-Nicevillle, who chairs the Senate’s Select Committee on Florida’s Economy. “But I think you have to credit the Republican majority for cutting recurring spending so we don’t find ourselves hurtling toward the precipice.”

But Gaetz said he was wary of the suddenly improved forecast – since the state’s troubled housing market has shown only feeble signs of life and Medicaid costs are on track to top $20 billion next year, demanding an additional $1.4 billion in taxpayer dollars, according to analysts.

Gaetz said the forecast, while based on extensive data, “is a highly sophisticated Ouija board.”

Democrats, who have pushed for closing some corporate-tax exemptions and enforcement of stricter Internet sales taxes, also said the revised shortfall eases pressure – but only slightly.

“We’re not facing as big a deficit, but it’s still a big one,” said Rep. Ron Saunders of Key West, designated as the incoming House Democratic leader. “And the federal stimulus money is going away. A lot also is going to depend on who is governor.”

The state’s current $70.2 billion budget is propped up by $2.5 billion in federal stimulus dollars — the last installment of $27 billion in cash that flowed to Florida from Washington over the past three years. The latest round was enhanced by an additional $700 million in federal Medicaid money that came to Florida last month.

But most agree that Florida’s budget-balancing options have narrowed. House Republicans led by Speaker-designate Dean Cannon, R-Winter Park, had once pushed for expanding offshore drilling in Florida as a potential money-maker – an idea they concede the Deepwater Horizon oil spill has taken off the table for the foreseeable future.

Similarly, GOP efforts to overhaul Medicaid also appear blunted. Medicaid programs – which now command one-quarter of the state budget and serve 2.7 million Floridians – must be maintained at current levels for the state to collect the additional money approved by Congress last month. The congressional health care overhaul backed by the Obama administration also limits state changes in coming years.

Rick Scott, the Republican nominee for governor, opposed the federal stimulus package – and also has made a key budget provision part of his campaign by calling for elimination of the state’s corporate income tax. The move, if embraced by the Legislature, would erase $1.8 billion from next year’s budget.

Scott has proposed rolling back state and local government spending levels to 2004 levels – before Florida’s housing boom spawned skyrocketing tax collections that have since evaporated. So far, though, Scott has offered few details on budget cuts.

“The debate remains the same,” said Jennifer Baker, a Scott spokeswoman. “Florida is facing huge budget deficits, record unemployment and a foreclosure crisis. Floridians have a clear choice when they choose their next governor.”

Baker said Scott’s background as a political outsider with a “proven track record of creating jobs, balancing budgets,” should sway voters.

Democrat Alex Sink has outlined a more sweeping “government reform and accountability plan” that she says can yield $700 million in first-year spending cuts. The anticipated spending, however, may prove lofty – since many of the changes she proposes are confined to such measures as reducing state office space, unneeded layers of management, and bolstering the state’s hand in contracting.

But Sink said that as the state’s chief financial officer with a background in banking, she’d bring an ability to ferret out wasteful spending while also growing the state’s economy.

“While it is important to understand the budget deficit we will face, Florida is still in an economic crisis, with too many families in our state struggling and over one million Floridians out of a job,” said Sink spokeswoman Kyra Jennings.

By John Kennedy
The News Service Florida

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Written by William Reynolds · Filed Under News