Budget Watch Volume 8, Issue 1      May 2002

The use of non-recurring revenue to fund recurring programs is a bad budget policy that Florida TaxWatch has urged the Legislature to avoid whenever possible.¹ When you use revenue from a source that is not going to be there next year to pay for a program that will be there, it will make it all the more difficult to balance the budget the next time.

This has become an all too common occurrence in recent years. The revenue slowdowns of the last few years and the resultant scramble to "find" money have made such actions perhaps even more attractive to budget makers.

Even before any budgeting maneuvers by the 2002 Legislature, the state had a significant amount of non-recurring revenue to use in the FY 2002-03 budget. A total of $1.755 billion of the $20.746 billion in General Revenue available for the upcoming budget year (8.5%) is non-recurring

$764.9 million of this is unspent funds from the current (2001-02) budget. Additionally, $871.5 million in General Revenue expected to be collected during FY 2002-03 is non-recurring. The two largest components of this are the estate tax and intangibles tax. The state is expected to collect $612.8 million in estate taxes, however, the federal government is phasing out its estate tax, and Florida's tax goes with it. Another large chunk of non-recurring revenue comes from the intangibles tax ($153.2 million) as the state phase-out of that tax is scheduled to continue July 1, 2003. A good portion of this money will likely be spent on recurring programs.

In addition to the non-recurring revenue available as legislators were going into the budget process, some of their actions during the current Special Session may act to exacerbate the problem. For the fifth year-in-a-row, the Legislature has reduced the employer contribution rates for the public employee's Florida Retirement System (FRS). The FRS which has been carrying a surplus--covers state and local government employees including schools and community colleges. The legislation passed in 2002 sets rates at the normal cost as determined by the FRS's actuary, beginning in FY 2004. However, for FY 2003 the rates are reduced below normal costs. This will give employers (state and local agencies and schools) a significant savings in personnel costs of more than $1 billion. State agencies will save $258 million and schools will save $164 million during FY 2003.

This money can be spent on other things. However, if it is used for recurring expenses, additional money will have to be found when the contribution rates go back up. For schools, although the reduction is not directly put in the budget, it is included by the Legislature in its level of school funding.

The Legislature has also been known to take money from trust funds or other dedicated sources and put it in the General Revenue Fund. This can help balance the budget and meet short-term needs, but using money from these one-time "raids" only postpones the problem..

One big example this year is the plan by both the House and Senate to take $100 million from funds earmarked for environmental land acquisition and use it in other areas, ostensibly education and social services. The debate over whether this harms the environmental program aside, the money to continue the other, recurring programs the Legislature funds will have to be found next year. The 2001 Legislature took $199 million from non-recurring tobacco settlement monies to help fund the medicaid program.

Only time will tell how much non-recurring money will be used for recurring programs in the final state budget for FY 2002-03. The House Fiscal Responsibility Council Chair said on the floor that the current House budget contained just over $1 billion of such spending. With total state general revenue expected to increase by less than $1 billion in FY 2003-04, a major funding problem could be on the horizon.

If there is not enough money for growth or new initiatives, the Legislature's alternatives will be budget cuts, tax increases or even more "creative budgeting."

Combined General Revenue and Working Capital Funds
Financial Outlook Statement
(millions of dollars)

Source: Florida Legislature, Office of Economic and Demographic Research.