Florida can expect a budget surplus as it develops its next spending plan but the loss of funds from two major sources and the slowing economy will help foster shortfalls in the following two years, according to the state’s top economist.
Lawmakers are projected to have an unobligated fund balance of $289 million in fiscal 2021, an amount that equates to “just” 0.8% of the $35.9 billion of general revenues estimated to be available for appropriation, according to the Legislative Office of Economic and Demographic Research.
Amy Baker, who leads the office, told the Joint Legislative Budget Commission that the new forecast calculated in August is projected to reduce income for the following two years by a combined $867.7 million, meaning the state will see a budget gap for anticipated needs.
“Even though we do not anticipate a recession, the caveat is that turning points in the economy are very, very difficult to predict,” Baker said Thursday in an annual report on Florida's long-range financial outlook.
The outlook report said while the projected shortfalls could be fixed in the short term “by a simple reduction in the level of total reserves, this is not the best course of action given the size of the projected deficits, the slowing economy, and hurricane experience over the past several years.”
The greatest losses in state revenue, the report said, were the annual loss of about $350 million in Indian gambling revenue due to the fact that the state allowed its compact with the Seminoles to expire and legislation that requires the refund of some corporate income tax collections because of the federal Tax Cuts and Jobs Act of 2017.
Senate Appropriations Chairman Rob Bradley and House Appropriations Chairman Rep. Travis Cummings, both Republicans from Clay County, said lawmakers will need to pare back funding requests for projects in their districts.
Because Florida has been hit by two major hurricanes, Irma and Michael, the outlook report also suggested it may be time to consider a different approach to disaster funding.
“Over the past two years, $1 billion of expenditures for Hurricanes Irma and Michael have been authorized through budget amendments from the general revenue fund,” the report said. “A segregated fund for the deposit of all future reimbursements from Federal Emergency Management Agency that would be used first in the event of another disaster would help buttress the current general revenue projections that this outlook relies upon.”
In the coming years, the drags on Florida’s economy, particularly housing construction, are more persistent than in past events, the report said, adding that “the strength in tourism is largely compensating for this.”
Florida’s tourism industry saw a record 128.5 million visitors in fiscal 2019, an increase of 5.8% over the previous year. The outlook report projects that the number of tourists will grow by an average of 2.1% per year between 2020 and 2023.
“Since Florida’s economic outlook relies heavily on strong tourism growth to compensate for the remaining weakness in the residential construction market, tourism-related revenue losses pose the greatest potential risk to the economic outlook,” the report said.
Threats to tourism, the report warned, can come from natural or man-made disasters, disease outbreaks, federal policy or administrative changes that make it harder or less attractive to travel, and heightened terrorist activity.
