The TaxWatch Research Blog

The TaxWatch Research Blog is a forum where our research staff can address topics and issues in a short format. Keep an eye on this space during Legislative Session for frequent posts making sense of the activity at the Capitol. 

Bringing Florida's Budget Back From COVID-19

A Roadmap for a Responsible Recovery

As the nation recovers from one of the worst economic recessions in history, Florida continues to battle unprecedented fiscal challenges and budget shortfalls that have made business-as-usual in state government unsustainable.

On March 1, 2020, Florida reported its first coronavirus (COVID-19) case. Since then, the number of COVID-19 cases reported statewide has increased dramatically. In an attempt to combat and slow the spread, Governor DeSantis declared a state of emergency and the Centers for Disease Control & Prevention and the Florida Department of Health issued public safety guidelines. Despite these efforts, as of June 16, there have been more than 80,000 confirmed cases, affecting every county in Florida. More than 2,990 Floridians have lost their lives and these numbers are increasing daily.

The economic impacts of COVID-19 began to manifest themselves immediately. Conferences and meetings were cancelled. Universal Orlando Resort and Disney World closed their theme parks. The Governor ordered all bars and nightclubs to be shut down statewide. Restaurants were ordered to suspend indoor dining and switch to take-out and delivery only. State parks were closed. Local governments closed beaches and imposed curfews. “Stay at home” orders and social distancing mandates were issued for parts of the state, and then statewide. All “non-essential” businesses were ordered closed. A Florida Politics analysis of U.S. Bureau of Labor Statistics data finds that almost 1.19 million Florida workers could be in jobs directly impacted by the COVID-19 pandemic, including many workers in low-wage, low-skilled positions in Florida’s tourism and hospitality industries.

In response to this crisis, this report presents immediately actionable ideas in the event that a significant budget deficit occurs in FY2020-21.

The FY2020-21 budget was built on revenue estimates made before the coronavirus began impacting the economy. It still cannot be determined with any degree of certainty what the impact of the COVID-19 pandemic on the budgets for the current and prospective fiscal years will be, but it is likely the decline in revenue will be unprecedented. The state has only tallied actual general revenue (GR) collections through April 2020 and that month’s revenue largely reflects March 2020 sales tax activity. Even though we were not fully into the economic shutdown, these collections were $878.1 million below estimate.2 Coming into April, collections were running $202.4 million above estimates, so with two months left in the current fiscal year, GR is running $676.7 million below estimate year-to-date. May collections (April sales tax activity) will likely be the worst thus far, but those numbers will not be available until late June. By the end of the FY2019-20 fiscal year on June 30, it is likely GR collections will have fallen short of estimates by well in excess of $2 billion.

Fortunately, Florida has significant reserves available. Prior to the pandemic, it was estimated that Florida would have approximately $2.0 billion in unspent GR cash reserves at the end of this fiscal year; however, this will likely not cover the shortfall. The Budget Stabilization Fund (BSF) also has $1.574 billion (another $100.0 million is scheduled to be added in 2020-21). The BSF can only be used to close a budget deficit and fund an emergency and it should be tapped only as a last resort in this fiscal year as that money must be restored, putting further pressure on future budgets. There may also be some unobligated trust fund balances available to be “swept” (transferred) into GR, but many trust funds will also be impacted by COVID-19-related revenue losses. In addition, some trust funds—such as the State Transportation Trust Fund—will likely be facing deficits of their own.

Federal aid provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act will help. An analysis by Florida TaxWatch3 concluded that Florida stands to receive more than $8 billion in federal aid to be used to respond to and recover from the devastating economic impacts of the COVID-19 pandemic, including $3.7 billion for Florida’s local governments. Florida’s state government has received $4.6 billion in aid and more federal funds could be coming as Congress continues to debate further stimulus packages.

While it is still unclear to what extent the federal aid can be used to offset state revenue losses, Florida should be able to avoid a budget deficit this year. Next year—as well as future years—is a different story. The economy is slowly waking from its COVID-19-induced slumber but it will take an extended period of time to fully recover, especially with more than 1.2 million Floridians currently unemployed. Depleted reserves, increased Medicaid and health care spending, and additional revenue losses paint a bleak budget picture for next year. Even if all the federal aid can be used, that money will eventually dry up. Unless spending reductions and other budgetary measures are enacted for the new fiscal year, revenue collections may not cover appropriations.

As the Legislature is likely to be forced to address a budget deficit in FY2020-21, this report offers recommendations for consideration to meet those fiscal challenges. It contains two sections: the first section offers for consideration measures that can be taken to address a potential shortfall; and the second section contains what former governor Jeb Bush would have referred to as “Big Hairy Audacious Goals,” considerations designed to promote the state’s financial sustainability over the long term, because even if the federal aid allows the Legislature to avoid a special session, lawmakers will likely have to make some tough budget decisions during the next regular session in March 2021.

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