In Fishkind Commentaries

As Florida’s annual legislative session gets underway, economic analyst Hank Fishkind predicts that a fight over the budget is likely to dominate the proceedings. 90.7’s Nicole Darden Creston asked him about what we can expect and what it may mean for our state economy.

Hank Fishkind: The governor has proposed a $91.3 billion budget. And that would increase state spending by about $418 million, or one half of one percent. Now this comes at a time, as we’ve discussed, that Florida’s economy has slowed. And this will continue slowing over the next few years. As a result, the growth in state revenue will also slow down. Now, my view is consistent with the view held by Amy Baker, the state economist, and she testified to this at the legislative session. However, even with the slowdown in the state’s economy, and therefore a slowdown in projected revenue, there’s still plenty of revenue for the state to fully fund this year’s budget and the projections for next year’s budget.

Nicole Darden Creston: Well, if the state’s own economists are projecting sufficient revenues to fund the governor’s proposed budget, then why the fight?

Hank Fishkind: Yeah, good question. Well, you know, the budget is always a big issue. But the future proposed slowdown in revenue growth strengthens the position of our very conservative legislators. That includes the current speaker of the House. He reacted to the governor’s proposed budget by saying that he was pleased to see the fiscal restraint. Now to put this into perspective, consider that despite calling for a $900 million increase in teacher salaries and another 525 positions, and an increase in environmental spending, all of this adds up to only four tenths of one percent increase in total state spending. Now, our population is growing. So as a result, the actual reality is that spending per capita under the governor’s budget will decline from $4,236 last year to $4,203 this year, and that doesn’t even account for inflation. And all of that assumes the legislature approves $91.4 billion in spending, Nicole.

Nicole Darden Creston: From an economic perspective, what is wrong with tight controls over state spending and pushing spending per person down, if other state priorities are being met?

HF: Well, nothing would be wrong if other state priorities were being met, Nicole, but that’s just simply not the case. The state spending is not very high, there doesn’t have to be a big reduction to bring it back into order. For Florida, what’s happened is, for more than a decade, Florida has steadily limited state spending and continually driven down spending per person and reducing the number of state employees. Now while controlling state spending is laudable, like any other policy or practice, Nicole, it can go too far. And it becomes counterproductive. And in fact, that’s where we’re at in Florida my view.

NDC: Let’s look at that for a second. I’ve heard some conservative economists point out that states like Texas and Florida have enjoyed strong economic growth, because – and they specifically point to – sharply limiting state taxes and regulations. And they say that gives Florida and Texas competitive advantage.

HF: Yeah, there’s a reputable body of research and reputable economists that support this view. And it’s true that Florida has a well-deserved reputation for being very business friendly. And for its combination of low taxes and relatively low regulations, low costs, and of course good weather, and a wonderfully attractive environment that combine to make our state attractive to businesses and people and of course, tourists. But as I’ve said, you know, we’ve had a chronic underspending and underfunding of state needs, and that’s now manifesting itself and all types of problems. It simply has become counterproductive and these problems are becoming ever more obvious and ever more expensive.

NDC: Can you give me some examples of these problems?

HF: Sure. I mean, the recent blooms of toxic algae, the fish die-offs in the Indian River Lagoon, the repeated and increasing blooms of red tide off the west coast. All of these have galvanized public opinion and public support. And to his credit, the governor has responded, promoting major increases in environmental spending. And this is critical to maintaining the very qualities that support our economy and our environment. But if state spending and state regulation had kept pace with our economy over the last decade, we wouldn’t have problems of these magnitudes. And so what we need to do is really consider what policies we want to have now. And we want to avoid the problems that are building with our jails and our criminal justice system and affordable housing, health care and education. All these things have built up over more than a decade from a chronic lack of funding. So as I said, sometimes it just gets too far and it becomes counterproductive.

NDC: Help me understand here. You mentioned education [is underfunded], but the governor says he has prioritized education spending in his proposed budget. So, is there a disconnect there?

HF: Yeah, I mean, you know, certainly it’s commendable that the governor proposes significant increases in legislative funding. But even if the legislature fully funds its plans, it would result in only a modest $50 increase in the base student allocation, down from a $75 increase last year. Florida ranks 45th in the United States on spending per student. This is important because to boost our economy in the long run, we need a well-educated and productive workforce. And we are not going to be able to do that with these very low spending levels. And the shame of it is that Florida has the ability to fund these things in a much more appropriate way. We’ve just chosen not to do it.

NDC: I know there are a lot of long-term ideas for addressing these issues. But realistically, what could the legislature do this year to make a difference for Florida’s economy right now?

HF: Sure, there are a number of things that could be done this year that would make a big difference, Nicole. First, Florida needs to impose a state sales tax on internet and e-commerce sales. It would generate $750 million in this upcoming year. It makes good economic sense. It’s only fair to local retailers who pay the sales tax. Over 20 states have already changed their laws to tax internet and e-commerce sales. Even some conservative legislators have rationalized collecting the sales tax, because it’s already owed, it just hasn’t been collected. Additionally, Florida could allow counties to increase their tourist development taxes and use some of those increased funds for infrastructure and housing and health care services. Florida now allows a maximum of 6.5%, except for 7.5% in Key West, and it has to be used to support tourism marketing and other tourist-related projects like convention centers and cultural facilities. Las Vegas has a 13% tax. It’s used for the same purposes as Florida, but also for infrastructure, health care and other services for the workers in the industry and for the communities that are affected. The tax rate in Hawaii is 10.25%. It’s 11 and a half percent in Portland, Oregon, and I could go on and on. So there are many jurisdictions that have raised their tax rate so that they can still support tourism promotion, while at the same time mitigating other consequences. And finally, Visit Florida. We really need to fund Visit Florida. Tourism is one of the keystones to our economy. You know, mass advertising – it’s been demonstrated that it works. Most businesses, if they had a major project like tourism, they would be promoting it. The state of Florida needs to do that, too, and it needs to do it this year, Nicole.

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