Budget Watch - Projected Surplus Not As Large As It Seems

It is estimated that the 2016 Florida Legislature will have a budget surplus for FY2016-17, meaning major budget cuts should not be needed and there should be some money left over for new initiatives. After funding a continuation budget, including expected cost increases in current programs and other historically funded items, it is anticipated that there will be $635.4 million (including an allowance for $1 billion in cash reserves) in General Revenue (GR) left over. While this is surely better than the string of multi-billion dollar deficits from FY2008-09 to FY2011-12, the Legislature can only spend a portion of that surplus without creating a deficit in two years.

Highlights:

• Legislators will have an estimated GR budget surplus of $635.4 million when they develop the state budget for FY2016-17. This is the amount remaining after funding what could be considered a continuation budget. There is a surplus in each of the three years covered by the Long Range Financial Outlook.
• However, if more than $74.0 million of the FY2016-17 surplus is spent on recurring appropriations, an estimated deficit would occur in the third year (FY2018-19).
• For the first time, the Outlook assumes there will be tax cuts ($262.6 million) and trust fund sweeps ($237.3 million) in each of the three years. These two items largely offset each other in the first year, but the compound effect of the tax cuts results in a $494.3 million reduction in year three.
• “Critical needs” will require an additional $664.8 million over the recurring GR base budget in FY2016-17 and “high priority needs” will require and additional $934.2 million. In total, an additional $1.6 billion is needed to fund a continuation budget.
• Medicaid is the largest budget driver, making up 37.1 percent of all critical and high priority needs.
• It is assumed the Required Local Effort school property tax millage rate will stay the same. This would produce $428 million from rising property values. This tax increase on local taxpayers would provide 81 percent of the amount need to fund the almost 26,000 new public school students.
• The Outlook further assumes a 2.4 percent increase in per student funding.
• The Outlook assumes a GR reserve of only $1 billion. The Legislature has left a larger reserve than that in each of the last five years, ranging from $1.2 billion to $1.6 billion. Any reserve larger than $1 billion would reduce the surplus.