February 26, 2015

Florida Fiscal Policy: Responsible Budgeting in a Growing State

In a comprehensive assessment of Florida’s fiscal policy, Dr. Randall Holcombe of Florida State University examines the state’s education and health care spending, pension system, taxes and budget, land use regulation, homeowners insurance, and many other key policies.

To read the entire paper, please download the PDF. To view individual sections by issue, see below.

  • Florida’s state government has been fiscally responsible over the last several decades, setting it apart from many other states. An important question for policymakers is why this state has been different, and specifically, how it has remained fiscally responsible despite its population growth.

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  • Florida’s unique government institutions may be a driving force behind its fiscal responsibility. Individual politicians and voter preferences appear to be less of a factor.

    • Florida’s term-limited legislature, easily amendable constitution, and division of political power each play a key role in its fiscal policy.

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  • Florida’s budget appropriations have been volatile, with some years seeing significant increases and other years seeing significant decreases in spending.

    • Many state governments raise taxes when revenues fall, but Florida has not done so.
    • Florida has often spent higher-than-anticipated revenue rather than saving it.
    • Real per capita expenditures leveled off after 1992, the year in which term limits were enacted.

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  • Florida employs a smaller percentage of its workforce than the national average. It has shown a consistent downward trend since the mid-1990s, around the time term limits were instituted.

    • In 2012, 1.38 percent of the nation’s population was employed by state governments, compared to 0.95 percent in Florida.

    • Local government employment in Florida has remained more constant.

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  • More than half of all spending in Florida’s 2012/13 budget went toward education and Medicaid. Medicaid’s share of the state budget has grown by 20 percent since 1990, while education’s share has fallen by 8 percent.

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  • Florida has focused on accountability and quality of education at the K-12 level, and on expanding opportunities for higher education. An examination of spending presents a mixed picture.
    • Education spending as a percentage of the state’s total budget has fallen, from 34 percent in 1989/90 to 25.9 percent today.
    • K-12 funding per student has risen during this time, but higher education spending per student has fallen substantially.
    • Florida has refrained from significantly increasing tuition at state universities and colleges during this time.

    February 26, 2015
  • Florida is spending an increasing share of its budget on Medicaid, as is true in all states.
    • Medicaid consumed less than 10 percent of the state budget in 1990, and more than 30 percent in 2013.
    • The state has opted not to expand its Medicaid program under the Affordable Care Act. If enacted, this expansion could add between 17 and 26 percent to the state’s Medicaid expenditures.
    • Florida is a pioneer in managed care, and other states will look at its Medicaid reforms to see whether they work.

    February 26, 2015
  • Florida’s constitution prohibits lawmakers from implementing a personal income tax. The state’s primary source of revenue is through the sales tax. Other sources of revenue include the documentary stamp tax on real estate purchases, real estate taxes, and motor fuel taxes.

    • Overall, Florida has kept taxes low and has refrained from creating new ones even as other states have done so.

    • The last tax increase was in 1988, when the legislature increased the sales tax by 1 percent.

    • One key debate involves whether to tax goods purchased in other states. While local businesses lobby to have buyers pay the tax, it is sellers that should pay it—in the state where the good is sold.

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  • Many states are facing serious problems with their retirement programs. Florida’s is in relatively good condition, but still merits reform.
    • New accounting standards show that Florida’s funding level is 10 percent less than the state reported.
    • The state should shift to a defined contribution system before unfunded liabilities become a larger problem.
    • The plan should shift entirely to private firms after the last defined benefit pensioner receives his or her last check.

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  • Though it was originally conceived as a state-based insurance agency of last resort, Citizens Property Insurance Corporation held 23 percent of Florida homeowners’ policies in 2012—approximately 1.4 million policies.
    • As of April 2014, Citizens has reduced its policies to 940,000, showing significant progress in scaling back its liability.
    • However, Citizens still has too much liability, and a major hurricane could bankrupt it.

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  • The largest amount of infrastructure spending goes to roads. Other spending areas include high-speed rail, seaports, and other water resources.
    • In 2012/13, 11 percent of state government expenditures were devoted to transportation.
    • Florida has favored tolls as a way of funding new roads, but there is political resistance to implementing them on existing roads.
    • Powerful special interest groups and the lure of federal funding have kept hopes for a high-speed rail system alive, despite the 2010 cancellation of a major project.

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  • Florida’s Growth Management Act of 1985 created some of the most stringent land use regulation in the country. Though the state ended its oversight of land use planning in 2010, this legacy remains.
    • Many local governments still enforce plans, despite no state requirement to do so.
    • Regional Planning Councils have taken on many features of the defunct Department of Community Affairs.
    • Businesses often run into significant delays and challenges with new building sites, and may choose to operate in other states as a result.

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  • Florida does not shift its spending burden to local governments in order to save money at the state level (as many states do).
    • Florida’s state government spending share of state plus local spending was 38.6 percent in 2012, compared to the national average of 47.4 percent.
    • Local government expenditures remain lower than the national average too, indicating that state spending in Florida is not low because local governments are shouldering more of a burden than in other states.

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  • Holcombe concludes with policy recommendations on taxing internet sales, pensions, property insurance, land use planning, and occupational licensing regulation.

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  • While Florida has not avoided problems with government programs, it has dealt with them better than other states.

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  • All of the relevant data tables from Florida Fiscal Policy: Responsible Budgeting in a Growing State.

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