Florida’s Budget History

Appropriations

Florida’s fiscal conservatism over the past two decades shows clearly in its history of appropriations. Table 2 shows the state budget from the 1983/84 budget year through 2014/15. In a little over two decades, the budget grew from about $12 billion to $77 billion, while Florida’s population almost doubled, growing from 10.7 million to 19.5 million. The first column in table 2 gives total appropriations without adjustment for inflation. The second column gives appropriations adjusted for inflation and still shows Florida’s budget nearly tripling. Dividing these adjusted numbers by the Florida population of the same budget year gives the real per capita appropriations in the third column. The results show state government spending per person growing from $2,638 in the 1983/84 budget to $3,951 in the 2014/15 budget.

Looking at the final column in table 2, the percentage change from the previous budget year, one thing that jumps out is that the amount of spending from year to year is very volatile. In these two decades, there are two years in which the budget increased by more than 10 percent and several more where it increased by more than 7 percent; there are also several years where the budget declined by more than 8 percent. This volatility is driven by three factors.

First, the Florida Constitution requires a balanced state budget, and the state government has been very diligent about meeting this requirement. Before budget passage, state economists meet in a Revenue Estimating Conference that projects the next year’s state government revenues. The process has been nonpolitical and tends to produce unbiased estimates.^[1] With revenue estimates in hand, the legislature produces a budget that is close to those revenue estimates. If, during the budget year, revenues fall short of their estimates, Florida’s governor and the state cabinet prorate the budget—typically shrinking agency budgets across the board—to conform to the new estimates. Thus, when revenue shortfalls have appeared, Florida’s governors have cut budgets midyear to maintain a balanced budget.^[2]

A second reason for volatility in the budget is that, for the past two decades, Florida’s state government has been very reluctant to increase tax rates or create new taxes. The last major tax increase in Florida came in 1988, when the state sales tax rate was increased from 5 percent to 6 percent amid a great deal of controversy. Before the rate increase, the legislature extended the sales tax to services in 1987, which it subsequently repealed the same year, then replaced the services tax with the 1 percent increase in the overall rate.^[3] Since then, largely because of a consistently fiscally conservative legislature, the state has had no major tax increases. Lawton Chiles, who served as governor from 1993 to 1998, was Florida’s last elected Democratic governor,^[4] and the three Republican governors since then—Jeb Bush, Charlie Crist, and Rick Scott—have all been fiscally conservative and had a fiscally conservative Republican legislature to work with.^[5] Elected officials consistently balanced the budget and opposed tax increases.

The third factor that produced pronounced variability in the balanced budgets was that the legislature always found a way to spend whatever revenues were forecast to come in, so in years with big revenue increases, expenditures rose. There have been some significant tax cuts during the past two decades, which are discussed below, but for the most part, when additional revenues materialized, they were spent.

Figure 1 provides a striking illustration of the fiscal conservatism Florida’s government has exhibited beginning in the early 1990s. Adjusted for inflation, the budget is actually smaller per person in 2014 than it was 20 years earlier. Few governments can claim such a record.

The details in table 2 illustrate the effect on appropriations of the three factors noted earlier. From 2000/01 to 2006/07, the budget increased by 9.9 percent, to $4,821 per person, its highest level ever. This was during the housing boom, and as described in detail below, a substantial amount of Florida’s revenues come from sales taxes and documentary stamp taxes that are collected when the title to real estate is transferred. Sales tax revenues were affected by the housing boom because in Florida, construction materials are sales taxable. Revenues went up, and expenditures went up along with increased revenues. Then the budget decreased by 18 percent from its peak in 2006/07 to 2014/15 because of the decline in revenues after the housing bubble burst. Governments often raise tax rates when revenues fall, but with some minor exceptions, that did not happen in Florida.^[6]

Florida’s state government budget is obviously revenue driven.^[7] The last year of the housing boom, the 2006/07 budget increased by nearly 12 percent in a single year. After the collapse of the housing market, the budget followed that increase with two consecutive years of decreases that exceeded 8 percent. The budget shows clear cyclical variability. During upturns in the economy the budget increases substantially due to the infusion of revenues; during downturns the budget shows major cuts. This raises clear questions about ways to address that cyclical variability. The two most commonly suggested ways have been to expand Florida’s tax base to add a personal income tax—Florida does not currently have one—and to establish a rainy day fund to smooth expenditures over the revenue cycle. Both policy options will be considered further below, after looking in more detail at Florida’s tax structure.

Table 3 shows appropriations as a percentage of gross state product (GSP). There is a substantial increase from the early 1980s up through the early 1990s, when appropriations as a percentage of GSP rose from below 9 percent to well over 11 percent. After peaking at 11.86 percent of GSP in 1994/95, appropriations began a downward trend, falling to as low as 8.79 percent in 2008/09 before moving back to above 9 percent. Table 3 clearly shows a two-decade downward trend in appropriations as a share of GSP, but it also shows that appropriations as a share of GSP remain above where they were in the early 1980s. State government expenditures as a share of income showed a consistent growth from the early 1980s through the early 1990s before the recent two-decade period of fiscal conservatism and contraction. Those trends are clearly evident in figure 2, which graphs the right-most column of table 3. In an era in which the term “spending cut” is sometimes used to describe a reduction in the rate of increase in government spending, it is worth emphasizing the substantial reduction in the actual spending of Florida’s state government, after adjusting for inflation and population growth.

Term Limits: A Coincidence?

The constitutional amendment mandating term limits for Florida’s legislators passed in 1992. As discussed above, it prohibited incumbents who have held the same office for the preceding eight years from appearing on the ballot for reelection to that office. The amendment was supported by 76.8 percent of the voters. The passage of the amendment meant that, from that time forward, legislators knew they could have, at most, eight more years in their current office. Looking back at figure 1, it is at about that time that inflation-adjusted state expenditures per person leveled off—a trend that has continued into the present. This development offers evidence that term limits are indeed a contributing factor to the fiscal conservatism Florida’s state government.

Throughout this section, credit has been given to Florida’s state government for its fiscal conservatism, and it appears appropriate to credit the government in general rather than specific individuals because of the frequent changes in elected officials. During the period in which the growth in appropriations slowed, Florida has had four governors, and as always, the President of the Senate and Speaker of the House have changed every two years. Political leaders have changed frequently, but the political leadership has remained fiscally conservative. Governments do not make decisions—people do—but they do so within an institutional framework that has an effect on the decisions they make. This suggests that Florida’s government institutions, which have remained relatively constant, rather than the individuals in power, who have not remained constant, are the driving force behind Florida’s fiscal conservatism. Florida’s voters must play a role also, but despite its solidly Republican legislature, Florida is typically seen as a swing state with more middle-of-the-road preferences, and in presidential elections Florida tends to have close results.^[8] The leveling off of real per capita expenditures after the passage of term limits suggests that the institutional change did have an effect.

^[1] While the estimates tend to be unbiased, they also tend to lag behind actual changes, so they can be overly optimistic during downturns and overly pessimistic during upturns. This is common to other economic forecasters as well, so it is difficult to find fault with the Revenue Estimating Conference for not being able to more accurately foresee the future.

^[2] Note that the appropriations in table 1 are for the budget passed for the upcoming budget year, and that sometimes spending has been less than appropriated because of midyear cuts.

^[3] For more background information, see Walter Hellerstein, “Florida’s Sales Tax on Services,” National Tax Journal 41, no. 1 (March 1988): 1–18.

^[4] This is not quite true because Chiles died December 12, 1998, after Jeb Bush had been elected to succeed him but before the end of his term of office. Lieutenant Governor Buddy McKay assumed the governor’s office until Bush was sworn in on January 5, 1999.

^[5] Readers who follow Florida politics will know that Crist, who presided over the 2007/08 to 2010/11 budgets, left the office after one term to pursue an unsuccessful run for the US Senate, changing his party affiliation from Republican to Independent and—after the election—to Democrat. Crist ran again for governor in 2014 as a Democrat against incumbent Republican governor Rick Scott. Scott was reelected. Note from table 1 that the state’s budget fell substantially during Crist’s tenure and he did not oppose the spending declines.

^[6] An example of a minor exception was an increase in registration fees for motor vehicles in 2009.

^[7] Andrea Louise Campbell and Michael W. Sances note that many states raised taxes during the economic downturn beginning in 2008 in “State Fiscal Reform during the Great Recession,” The Annals of the American Academy of Political and Social Science 650, no. 1 (November 2013): 252–73.

^[8] Florida was one of nine swing states in 2012. “2012 Swing States,” Politico, last modified July 2, 2013, http://www.politico.com/2012-election/swing-state/. Though the site reports Florida as leaning toward Romney in the 2012 election, President Obama actually won the state, receiving 50.01 percent of the votes to Romney’s 49.13 percent. Florida has one Democrat and one Republican US Senator, and has 17 Republicans and 10 Democrats in the US House of Representatives.