Florida revenues and tourism squeezed by coronavirus pandemic
Florida officials don't plan to call a legislative session this year to make budget cuts, even though billions in state general revenues are likely to be lost in the pandemic-induced economic downturn.
Members of the state's Revenue Estimating Conference, in their first meeting since the COVID-19 outbreak began, said they made "substantial adjustments" to the forecast adopted in January.
The economists revised anticipated state general fund revenues downward by $3.4 billion in fiscal 2021 and $2 billion in 2022, for a two-year combined decrease of $5.4 billion. The change is a 9.9% loss in 2021 and a 5.6% loss in 2022 from January's pre-pandemic estimates.
The largest adjustment in the new forecast is to the state sales tax, the REC said Friday, adding that the anticipated loss to general revenue is $2.84 billion in fiscal 2021 and $1.25 billion in fiscal 2022, "with about one-half of the loss each year attributed to severely dampened sales in the tourism and recreation sector."
"Even though a significant part of the loss arises from a reduction in the number of out-of-state tourists, this category also includes sales to Florida residents at restaurants, local attractions and other leisure-based activities, which have also been negatively affected by the pandemic," economists wrote, noting that a "record-breaking increase" in consumer savings since the outbreak began comes at the expense of consumption and sales tax collections.
After hearing about the REC’s new estimates, Gov. Ron DeSantis, a Republican who took office in January 2019 with the backing of President Trump, said the state can end the year without calling a special legislative session to make budget adjustments.
While calling the revenue decline "very significant," Senator President Bill Galvano, R-Bradenton, said the amount is not as dire as earlier predictions indicated.
"Florida’s economy, just like the people who call our state home, has proven to be resilient as businesses continue to work incredibly hard to safely reopen," he said. "Like Florida’s families and businesses, state government has faced substantial impacts and with less revenue coming in, will have to make adjustments to the way we serve Floridians."
Galvano, who did not address whether lawmakers should convene to address the budget, said Florida is prepared to weather the fiscal storm with $4 billion in reserves for fiscal 2021 and access to $5.85 billion in federal funds from the Coronavirus Aid, Relief, and Economic Security Act.
State economists warned in Friday's general revenue outlook report that CARES Act funds can only be used to respond to COVID-19 expenses between March 1 and Dec. 30, and that there is a "very high degree of uncertainty" surrounding future allowable uses of the funds that could negatively impact general revenues further.
"To the extent that the funds cannot be used to fill revenue shortfalls or offset current appropriations when they are used for pandemic-related purposes, or if additional COVID-19 expenditures are required, the fiscal year 2020-21 ending balance shown in this outlook will be lower, potentially becoming negative," the report said.
Tourism drives Florida's economy and sales tax collections drive the state budget because there is no state income tax. The industry, however, still appears to be in freefall as people take fewer vacations and fly less.
Even the state's marketing agency, Visit Florida, appears to question the depth of the pandemic's crisis on tourism especially in the second quarter of 2020.
On its website, the agency says, "Due to the unprecedented nature of the COVID-19 pandemic and the impact it has had on data" the numbers of tourists released quarterly are likely to face larger-than-normal revisions.
In the second quarter, when state lockdowns occurred and people remained at home even after economies reopened, Visit Florida estimated that 12.8 million people traveled to Florida — 1.33 million by air and 11.46 million by car or bus — for an overall decrease of 60.5% compared to the same period in 2019.
With borders closed, visitor numbers from overseas and Canada also plunged. Passengers arriving from overseas ranged from 20,000 to 235,000, a drop of 91.1% or more, the agency said, adding that it expects these numbers to be revised in the future by data reporting services.
About 8,000 visitors arrived from Canada during the second quarter, nosediving 99.1% compared to the 930,000 Canadians who visited during the same period in 2019.
Hotels, which also collect state sales taxes, saw a second quarter decline of 63.8% in occupancy compared to 2019, Visit Florida said.
In Orlando, home to megatheme parks such as Disney World and Universal, the 1,000-room Loews Sapphire Falls Resort and Universal's 600-room Aventura Hotel will close Friday due to the downturn in tourism, according to the Orlando Sentinel.
Florida's positive momentum for much of last year has all but stalled as recessionary headwinds intensify along with risks associated from hurricane season, S&P Global Ratings said in a June 1 report. S&P rates the state's general obligation bonds AAA with a stable outlook.
Hurricane season runs June 1 through Nov. 30, with the peak of the season from mid-August to late October when the Atlantic Ocean's warmer waters tend to breed more major hurricanes with sustained winds of 111 mph or higher.
"While the short-term economic outlook remains murky, S&P Global Ratings believes the state is well positioned to address the mounting challenges over the near term supported by its strong structural budgetary management and reserves," said S&P analyst Oscar Padilla.
Florida's GO bonds are also rated triple-A by Fitch Ratings and Moody's Investors Service. Both have stable outlooks.
The nonprofit Florida Policy Institute said in a release Friday that it believes the state's Republican-led Legislature should meet in a special session to deal with what it sees as a potential deficit.
“We hope that state leaders, after seeing this updated projection on Florida’s revenue shortfall, agree that raising revenue is no longer just the right policy choice for Florida, but the only policy choice," said FPI chief executive officer Sadaf Knight. "The alternative, making cuts to vital programs and services in this year’s budget, would cause sustained hardship for millions of Florida families long after the pandemic has ended."
Knight said another round of flexible, federal aid coupled with revenue-raising measures by the state will help remove barriers that Floridians are facing amid the economic downturn. She also said lawmakers should focus on updating the state's outdated tax laws.
“State leaders should lobby Florida’s congressional delegation to push for new, flexible federal aid for states," Knight said.
Though major attractions like Walt Disney World have opened, COVID-19 itself hasn't gone away — the death toll for Florida residents and non-residents surpassed 10,000, according to state government statistics.
Tourism could be slow to rebound if vacationers wait for a safe vaccine or they believe that herd immunity makes it safer to travel. Herd immunity occurs when a large portion of a community becomes immune to a disease, making its spread from person to person less likely, according to the Mayo Clinic. That can come through vaccines or widespread community infection.
Girard Miller, a finance columnist for Governing.com with 30 years' experience in the institutional investment industry, said in a column Tuesday the taxes that tourist centers depend on could snap back in the second half of 2021, "but only if immunity is established and consumer-traveler confidence is regained."
"So far, however, it looks like those jurisdictions will be on their own to weather their fiscal drought unless the composition of the Senate changes next year," he wrote.
Miller said sales taxes are likely to remain below prior revenue peaks for some time.
"In the optimistic case, if coronavirus herd immunity is achieved by mid-2021, sales-tax receipts in the second half of that year could creep upward to near-normal levels," he wrote. "Receding but lingering unemployment will continue to be the drag on income and sales taxes all year long, at least until the late-2021 holiday shopping season."
Some economists believe there will be a V-shaped recovery from the pandemic-induced downturn, where there will be a quick and sustained recovery in economic performance after a sharp decline.
Miller said public officials working on fiscal 2021 budget adjustments and layoffs should not expect a V-shaped recovery to pre-COVID revenue levels until late 2021, at the earliest.
"We can hope it will happen faster, but hope is not a strategy," Miller wrote. "In all probability, it will be up to the next Congress to decide how much ongoing pain the public sector must endure before economic recovery can put budgets sustainably into the black in 2022."
On Wednesday, the Florida’s Department of Health said the state had seen 584,047 confirmed cases of COVID-19 and that 35,200 were hospitalized with the virus.