February 26, 2015

Introduction

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In an era of rampant government irresponsibility and excess, the state of Florida stands out for having a government that has been fiscally responsible even while exhibiting substantial growth. Florida’s population, 2.8 million in 1950, grew to 9.7 million by 1980 and to 19.3 million by 2013. Florida rapidly evolved from a largely rural state with tourism in coastal areas to the fourth-most-populous state in the nation, in no small part because of the spread of air conditioning.[1] The state that had been a desirable winter tourist destination became more attractive year-round, for both tourists and retirees. Warm weather is not its only attraction, however. Florida has been a fiscally conservative state with neither a personal income tax nor an estate tax. Furthermore, it has had, overall, low state taxes and low state government spending. Florida provides a good model for state government fiscal responsibility.

Florida is one of the very lowest states in state government expenditures per capita[2] and in the number of state government employees per capita.[3] In addition, budget figures demonstrate that over the last two decades Florida’s state government has become increasingly lean. While some Floridians view the state’s small government as an advantage, others view it as a liability. The appropriate size and role of state government has been an issue for decades. And while measuring state government by taxes and expenditures paints a picture of lean government in Florida, in other areas, the government has a bigger footprint. One of those areas is regulation, and in particular land use regulation. Another is property insurance. Florida’s state-operated insurance company is the state’s largest issuer of homeowners insurance policies. These issues are discussed in more detail below.

Table 1 shows Florida’s substantial population growth over the decades. The state’s population approximately doubled from 1960 to 1980, and nearly doubled again from 1980 to 2010. Meanwhile, Florida’s per capita income growth pushed it from below the median—Florida ranked 30th in 1950—to around the median. Florida ranked 17th in per capita income in 1990, but has since fallen; it was 24th in 2010. Florida is at a slight disadvantage in per capita income rankings because the state has attracted a large number of retirees who tend to have above average wealth but below average incomes because they are no longer working. Also, the state’s economy is heavily dependent on tourism, which tends to support lower-wage service industry employment. The space industry, which has more high-skilled and high-wage jobs, has continually scaled back since the moon landing in 1969, and the termination of the space shuttle program put a further dent in that sector.

Florida is also home to a number of military bases, which have a significant economic impact, especially in the panhandle. The military and space programs subject the Florida economy to potential vulnerabilities and uncertainties as a result of the federal budgeting process. Looking into the future, uncertainties about the Social Security and Medicare programs might also have an impact on the state’s economy. Florida’s political leadership has an interest in expanding employment in higher-tech and higher-wage industries, including medical technology and the motion picture industry,[4] and while the state has attracted a few firms, the far-right column in table 1 shows that the state has not moved up in the state per capita income rankings. High-tech and high-wage jobs typically require an educated workforce, so the quality of educational institutions can affect Florida’s ability to attract high-tech employers. Silicon Valley, Austin, and Boston are often cited as areas that have attracted high-tech employment because of high-quality universities. If there is a link between having high-quality universities and attracting high-tech jobs, Florida’s government has not nurtured it. In fact, Florida has substantially reduced its funding for higher education in recent years.

In reality, state government policies cannot do much to attract high-wage jobs,[5] but government policies can have the effect of limiting employment opportunities. In this regard, Florida’s economic policies have done most things right. Florida has no personal income tax, it is a low-tax state in general, it is a right-to-work state, and at the state level, Florida has been very fiscally conservative. One area in which Florida has not been so jobs friendly has been occupational licensure; its occupational licensure laws are among the most burdensome in the nation. Another area is land use policy. In Florida, finding a site and then building on it has been an uncertain proposition, so businesses looking to move or expand have sometimes considered Florida but then located elsewhere because they can start construction right away in other states. As a state, Florida has often projected an antigrowth attitude. Whereas other states seek out and welcome new businesses, Florida has sent more of a mixed message.

Whether states should even engage in policies meant to target new businesses and jobs is controversial.[6] Tax incentives and other concessions (which Florida does often offer) mean that services to support the new employment will have to be paid for by others. A better policy is to provide a favorable business climate for everyone through low taxes and low regulatory barriers and through the competent provision of government services and infrastructure. This levels the playing field and gives businesses already in the state the same incentives to expand as it gives to newcomers to move in.

Although specific policy recommendations appear toward the end of this study, the main purpose here is to review Florida’s fiscal history to see what lessons it might have to offer. Florida’s state government has been fiscally conservative and fiscally responsible, and this fiscal responsibility at the state level sets Florida apart from many other states. This study analyzes Florida’s fiscal policy in some detail, partly to gain an understanding about what sets Florida apart, and partly to see how Florida has been able to maintain fiscal responsibility in an era when many states have not.


[1] Population data in this study is from the United States Census Bureau. Florida trails California, Texas, and New York in population, but it is close enough to New York that the two are almost tied.

[2] For fiscal year 2011, Florida was the second-lowest state in state expenditures per capita—with only Nevada below it—and spent only 65 percent of the national average. See “Total State Expenditures per Capita,” Kaiser Family Foundation website, accessed August 26, 2014, http://kff.org/other/state-indicator/per-capita-state-spending/.

[3] Florida ranks lowest among the states in state government employees per capita. Amy Sherman, “Alex Sink Says Florida Is Last on Two State Employee Measures,” PolitiFact, Tampa Bay Times, September 14, 2010, http://www.politifact.com/florida/statements/2010/sep/14/alex-sink/alex-sink-says-florida-last-two-state-employee-mea/.

[4] The state pursues high-tech jobs through Enterprise Florida, a public-private partnership. For policy initiatives in this regard, see the Enterprise Florida website at www.enterpriseflorida.com/industries/information-technology.

[5] There is a substantial literature that looks at the effects of government incentives on economic performance, with much of it showing little or no impact. Two examples are Daniele Bondonio and Robert T. Greenbaum, “Do Local Tax Incentives Affect Economic Growth? What Mean Impacts Miss in the Analysis of Enterprise Zones,” Regional Science and Urban Economics 37, no. 1 (January 2007): 121–36; and Alan H. Peters and Peter S. Fisher, State Enterprise Zones: Have They Worked? (Kalamazoo, MI: Upjohn Institute, 2002).

[6] A substantial literature weighs against the practice. For a comprehensive study, see Alan Peters and Peter Fisher, “The Failures of Economic Development Incentives,” Journal of the American Planning Association 70, no. 1 (2004): 27–37. See also Dagney Faulk, “Do State Economic Development Incentives Create Jobs? An Analysis of State Employment Tax Credits,” National Tax Journal 60, no. 2 (June 2002): 263–80, and the literature cited in that article.