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Florida Financial Outlook – Currently Sunny with Slight Chance of Recession

Published: January 10th, 2019

By: H. French Brown, IV Michael B. Dobson

Balancing Florida’s Budget

Florida’s Constitution mandates the Legislature pass a single bill each year – a balanced state budget. The biggest constraint our legislators face when crafting a budget each spring is the amount of revenue forecasted to be available at the end of the current fiscal year and through the next fiscal year. In order to facilitate the budget process, Florida economists meet regularly to determine how much revenue the Legislature can expect to have at its disposal when passing a balanced budget.

Revenue

However, not all revenue is created equal – some revenues like driver’s license fees and gas taxes are designated for specific purposes as provided in the statute. Other revenue, like that collected from sales tax and corporate income tax, is known as “General Revenue.” General Revenue is highly coveted because legislators can use it for any purpose they choose. However, General Revenue collections are largely dependent on tourism, sales tax, and various other inputs that tend to vary with economic conditions. One of the key jobs of the economists is to forecast the General Revenue available.

Financial OutlookFinancial Forecast

On January 8, 2019, state economist Amy Baker presented an update of Florida’s Long-Range Financial Outlook to the members of the Appropriations Committee in the Florida House of Representatives. Ms. Baker recognized the strong current growth of Florida, but she cautioned legislators that the potential risk of a recession and growing state costs could negatively impact the state budget in the near future. Ms. Baker reported that a downside risk from another recession continues to increase as we enter year 10 of the post-recession economic expansion. She recognized that residential housing starts in Florida have slowed since they peaked to an all-time high in 2016-2017. In an ominous sign, Ms. Baker warned that the state’s General Revenue collections exceeded forecasts by the highest margin since April of 2006, the height of the housing boom.

Current Revenue

However, all was not doom and gloom. Ms. Baker briefly recognized the current state of revenues is far exceeding the economists’ previous predictions driven by significant revenue collections in sales tax and corporate income tax. These heightened collections plus FEMA reimbursements after Hurricane Michael leave the state with a $1.7 billion General Revenue surplus at the end of the 2018-2019 fiscal year that may be carried into the upcoming state budget year. Additionally, the December General Revenue forecast predicted an additional $380 million revenue in 2019-2020 over prior estimates. These added revenues should result in a significant surplus when the budget writers sit down from March to May.

Beyond 2019

Ms. Baker expects that increasing costs beyond 2019 may consume much of new revenue projected, leaving a significantly smaller surplus in future years. Ms. Baker advised committee members the state will need $9.49 billion in new revenue over the next three years if it’s going to order to continue providing services at current levels. For purposes of comparison, the state budget totaled $88.7 billion last year.

Stay Tuned to the Forecast

Stakeholders in Florida’s appropriations process would do well to monitor the revenue forecasts.


For questions about Florida financial outlook news and other state and local tax matters, please contact a member of our State and Local Tax Team.


About the Authors:

H. French Brown, IV focuses on state and local taxation, governmental relations and lobbying, and administrative law. Prior to joining Dean Mead, Mr. Brown was in private practice at another Tallahassee law firm. He began his legal career at the Florida Department of Revenue, where he quickly rose to the position of Deputy Director of Technical Assistance and Dispute Resolution. Mr. Brown also assists businesses with Florida tax planning and controversies. He may be reached at fbrown@deanmead.com.

Michael Dobson is an attorney in Dean Mead’s Tallahassee office. His practice focuses on governmental relations, real property, public records and administrative law. Prior to joining the firm, Michael worked as a staff attorney for the Florida House of Representatives, Ways and Means Committee. He may be reached at mdobson@deanmead.com.