January 2009

2009 is already proving to be another challenging year for Florida government. The state has been greatly affected by the economic downturn plaguing the nation and as a result, retail sales have slowed and unemployment continues to climb as many Florida businesses are downsizing and laying off workers. The collapse of the housing market was particularly disastrous for Florida. In fact, a report released earlier this month showed Florida having the second highest foreclosure rate in the nation in 2008. By the end of last year, revenue estimates were reporting a $2.4 billion shortfall in the state budget for Fiscal Year 2008-09. This drastic change in the state’s economic situation led Governor Crist to call a special legislative session to address these issues.

Special Session Wrap-up

The legislature convened in Tallahassee for a special session beginning January 5 and lasting through January 16. The comprehensive plan passed by lawmakers at the conclusion of the session includes $1.2 billion in spending cuts and about $1.8 billion pulled from trust funds earmarked for various special purposes. Members also set aside roughly $400 million for any shortfalls between now and June 30, 2009, which marks the end of the current fiscal year.

The final legislation was not without controversy as critics complained about cuts to programs like education and health care, as well as the depletion of state savings accounts. Lawmakers were also criticized for refusing to consider options for increasing state revenue, including a cigarette tax increase and Governor Crist’s proposed gambling agreement with the Seminole Tribe. Legislators approved the Governor’s “Economic Gardening” proposal, which allocates $10 million for a loan program for small businesses. The loans are intended to allow businesses to expand and bring economic growth to the state.

Spending Cuts

Education was hit hardest with a total reduction of about $650 million. This included a $480 million cut to K-12 funding, which will result in approximately $140 less in per-student funding for the state’s public schools. Legislators based the cuts on the decline in the number of students enrolled in Florida schools. Governor Crist has indicated that he may veto a number of the education cuts.

The plan also includes a $200 million cut to health care funds. This number was significantly less than many feared as legislators backed off plans to cut deeper into hospital and nursing home spending. There were reductions made to Medicaid nursing home reimbursements, but the loss will be offset by the utilization of a federal match program which will bring over $30 million in new revenue to the state.

Other spending cuts include $150 million from the Governor’s office budget and $100,000 from state airplane funds. Members also agreed on a one-year suspension of Florida Forever, the state’s land preservation program, as well as the elimination of nearly 1,500 vacant state employee positions and an increase in fines for traffic offenders, which should bring about $63 million in revenue to the state.

Trust Funds

Most of the money used to fill the budget shortfall was pulled from state trust funds – a move seen as irresponsible by some, but necessary by others. The funds pulled include $190 million from the State Affordable Housing Trust Fund and $400 million from the Budget Stabilization Fund, the state’s “rainy day” fund. The major – and most controversial – funding shift was the transfer of $700 million from the Lawton Chiles Endowment Fund, which supports programs for needy children and seniors, into other programs. The family of the late former Governor Chiles has threatened to sue to block the transfer. The Chiles endowment is funded from the $13 billion tobacco settlement he initiated when he was Governor.

Federal Stimulus Package

Many states currently experiencing the effects of the global economic downturn are looking to the federal government for assistance. President Barack Obama has committed to passing an economic stimulus package and creating a vast new public works program early in his administration. He has urged Congress to pass an $800 billion stimulus package with the goal of creating 2.5 million jobs over the next two years.

In December, Governor Crist submitted a request to President-elect Obama for nearly $8 billion to stimulate Florida’s economy and assist with state Medicaid benefits. The request included $7 billion to fund transportation projects deemed “shovel-ready” by the Florida Department of Transportation (meaning the projects could break ground in 90 to 120 days). The Governor’s office estimates this would generate $39 billion in economic benefits and create 195,000 new jobs in Florida. Governor Crist also requested an additional $991 million in federal Medicaid funds for Florida due to the skyrocketing number of program recipients.

Last week, Congressional Democrats unveiled an $825 billion stimulus plan that would help many states by offsetting dramatic cuts made in order to balance individual state budgets. Exactly how much each state will receive is still unclear, but predictions indicate that Florida will get several billion dollars. There will be a significant increase in federal Medicaid assistance, with the U.S. House of Representatives looking to increase the federal match by nearly 5%. This would be a tremendous help for Florida. Recent estimates show a rapid increase in state Medicaid costs and many fear next year could be much worse.

There will also be significant benefits to education. Congress plans to set aside billions to assist public school districts and state colleges and universities to offset recent cuts. Some money will be aimed at helping schools with low-income and disabled students, and other funds will be allocated for construction and technology improvements.

Transportation and infrastructure funding will be a vital part of the stimulus package. FDOT officials have compiled a list of projects for funding, as have many local governments. It is unclear whether the funds will flow through the counties or the state. The House bill outlined funds for highway construction as well as improvements to airports and public transit. Lawmakers are hoping to pass a final stimulus package by mid-February.

A Look Ahead

The major issue confronting legislators in the 2009 session will be the same one that bedeviled them in last year’s regular session and the recent special session – balancing the budget at a time when the state has lost billions of dollars in revenue due to the recession and the collapse of the housing market. Lawmakers have warned that the cuts made during special session were only the beginning.

Current estimates show a potential budget deficit of $4 billion for Fiscal Year 2009-10, though that number may increase. By the time the 2009 session ends, scheduled to be on May 1, lawmakers will have cut a budget that peaked at $72 billion two years ago by as much as $12 billion. There will be two basic options – continue to drastically cut spending, possibly eliminating entire departments and programs, or raise revenues to plug at least part of the gap. It is clear that state Republicans and Democrats will be split on how to address the shortfall. Democratic members are urging the Governor and Republican legislators to consider sources for new revenue. These include increasing the state cigarette tax by $1 per pack (although that number may change), as well as closing some corporate tax loopholes and ending certain sales tax exemptions. While it was made clear that these options were off the table during special session, Republican leaders have indicated that they will be more open to possibilities during the regular session.

Though budget issues have dominated Florida’s political landscape, there are many other issues that will be addressed during session this year. The major focus in the area of education will be the Governor’s tuition proposal, which calls for significant changes to higher education. The proposal includes giving the board of trustees at each state university the power to increase tuition by up to 15% a year. On a national scale, Florida’s tuition rate is among the lowest in the country. Higher education advocates have hailed the Governor’s proposal as a bold move to raise additional funds for the state universities that will improve quality, increase student access and provide more financial aid for needy students. Last week, legislation was filed in both chambers to institute the tuition increase option; with Representative Will Weatherford (R-Zephyrhills) sponsoring the House legislation and Senator Ken Pruitt (R-Port St. Lucie) sponsoring in the Senate.

A major issue this year in the area of environment and energy is the adoption of strict California auto emissions standards, which is a priority for Governor Crist and the Florida Department of Environmental Protection (FDEP). The proposed rule, adopted by the Environmental Regulation Commission, would require a 23% reduction in auto and light truck emissions by 2013. However, the comprehensive energy bill passed by the legislature in 2008 includes a requirement for legislative approval of the adoption of auto emissions standards. This should prove to be a very contentious issue, as businesses, car companies and auto dealers strongly oppose the adoption of California standards.

Another issue that could trigger a legislative brawl is the deal Governor Crist reached with U.S. Sugar to spend $1.34 billion in state funds to buy nearly 300 square miles of the company’s sugar farms for Everglades restoration. Some legislators have been highly critical of the deal.

We can expect the upcoming legislative session, which begins March 3, to be a difficult one, particularly on the budget side of the equation.