Florida leaders squabble over what taxes to cut amid projected deficits

Bloomberg News

Florida's Republican leaders are battling with each other over what taxes to cut amid official projections that budget deficits are little more than a year away.

The Legislative Budget Commission made the official projections in September and since then several factors have developed that may worsen revenue and spending projections: President Trump's imposition of tariffs, slowing national economic growth and federal cuts to aid to states.

State lawmakers originally hoped to approve a budget in early May. Instead, in the last few weeks House Speaker Daniel Perez, Senate President Ben Albritton and Gov. Ron DeSantis, all Republicans, have been criticizing each other.

The state legislative session, originally set to end May 2, has been extended by the Senate to June 6. The House has extended it to June 30. Extending it to then "sends a clear message," Perez said according to the Tallahassee Democrat news site. "If the Senate's plan is to wait us out, they will find us unmoved. We will not be intimidated and we will not be bullied."

The Sunshine state's next fiscal year begins July 1.

Perez and House Republicans want the state to cut its sales tax rate by a quarter percentage point.

The state sales tax, 6% for most categories, is a revenue pillar for Florida, which doesn't have an individual income tax.

Earlier this month DeSantis declared the proposal "dead on arrival." If it came before him, he said he would veto it. A sales tax cut would "kneecap" the state's ability to cut property taxes, the governor said.

DeSantis is urging the state give rebates to property owners on their property taxes, which they pay to school boards, counties, cities, and special taxing districts.

Albritton reportedly walked away from tax cut negotiations with Perez in early May. According to a May 9 public memorandum, he said his Senate caucus is concerned that a sales tax cut wouldn't help Floridians much, "would unduly benefit tourists and foreigners," and is imprudent in the face of future deficit projections.

The House budget proposal for the coming fiscal year is for $113 billion of spending and the Senate budget proposal is for $117.4 billion, both of which have been steady since early May. The numbers include all government activities and federal aid. This year's general revenue fund budget is $48.5 billion.

Republicans dominate Florida's politics, having more than twice as many legislators as Democrats in both the House and Senate.

"Given the outlook, they really should not be cutting taxes right now," said Joseph Krist, publisher of Muni Credit News.

"I don't have confidence that they will do anything serious until after the 2026 gubernatorial election," scheduled for November 2026, Krist said. Florida isn't the only state "to see policy sacrificed for an upcoming election but the situation is colored by who is running."

DeSantis is reported to be positioning his wife Casey DeSantis to run for governor in 2026, when term limits block him from running again.

"DeSantis clearly wants his wife to get the job but Trump has already endorsed [State Representative] Byron Donalds in the race a year away," Krist said.

"Florida's fiscal year 2025-26 budget negotiations come at a critical time, as the chaos caused by the Trump administration makes it extremely difficult to make proper preparations for the future," said Florida House Minority Leader Fentrice Driskell, a Democrat representing Tampa.

Florida is in good financial standing today, but long-range projections signal challenges ahead, she said.

"Any sustainable fiscal plan must balance immediate needs with long-term structural reforms, particularly in the areas like infrastructure, health care and education," Driskell said. "We should be very cautious about making any permanent tax cuts at a time when we're facing so much economic uncertainty at the national and global levels."

Dominic Calabro, president and CEO of the conservative nonprofit Florida TaxWatch, had a more positive outlook on Florida's fiscal situation. He said the government should be expected to address the long-term deficit because the state's constitution requires it, the government has a history of successfully addressing deficits and because with the passage of time, the politicians will temper their passions and find a way to work together.

Florida is rated triple-A across the board by Moody's Ratings, S&P Global Ratings and Fitch Ratings.

Part of what is driving DeSantis' positioning is that the state's "property values have gone through the roof," Calabro said. This has driven property taxes up faster than inflation.

According to a Florida TaxWatch report from earlier this month it shared with The Bond Buyer, statewide property tax collections increased 104% 2014 to 2024 or 79% after adjusting for inflation. In the same period population increased 19%.

Additionally, property owners are being squeezed by rapidly increasing home insurance, Calabro said.

Property owners who rent their property are pushing the expenses onto renters in the form of higher rents, making renters also suffer, Calabro said.

The state has faced a series of severe hurricanes.

Even though the state government doesn't collect property taxes, it is natural for politicians to try to improve their popularity by trying to address the property tax crunch, Calabro said. DeSantis is advocating the state give property taxpayers rebates up to $1,000.

Esteban Leonardo Santis, writing in early May for the Florida Policy Institute, a nonpartisan research organization with a liberal perspective, said any effort to reform the state's tax code must take into account that Florida law requires policymakers to pass a balanced budget annually, the federal government currently finances roughly 32% of Florida's budget, a projected state deficit of $3 billion to $7 billion by fiscal year 2027-28, and that "nearly eight out of 10 flexible spending dollars come from consumption taxes, which are sensitive to economic disruptions."

Florida lawmakers have made clear their intention to cut taxes rather than raise them, Leonardo Santis told The Bond Buyer Tuesday. Any tax cuts adopted would have to be paid through budget cuts. The state faces projected deficits in two to three fiscal years and Congress is considering deep cuts to health care and food assistance.

"Yet, the reality of potential federal cuts has been largely absent from Florida's budget negotiations," he said.

Washington, D.C.-based Institute on Taxation and Economic Policy says Florida has the "most regressive tax code in the nation, as the 20 percent of Florida taxpayers with the lowest income bear an effective state and local tax rate that is nearly five times that of the top 1% of households," Leonardo Santis said in his essay. "This is a result of a state government that relies on consumption taxes for over 75% of its general income."

Leonardo Santis said the state should institute "combined reporting" whereby all entities of a corporation report in a single tax filing, which would lead to $2.4 billion more in state tax revenue annually, he said.

Tammy Gamerman, Fitch's director of U.S. state ratings, said, "Florida is currently in a strong fiscal position after several years of using surplus revenue to bolster reserves and reduce debt. Although tax revenue growth has slowed, the state continues to produce surpluses due to conservative revenue forecasting. As discussions about significant, ongoing tax cuts unfold, Fitch expects that Florida will remain focused on long-term structural balance and will take necessary action to align revenues with expenditures."

The three leaders have postponed further budget negotiations until at least Tuesday. Meanwhile, a group of state lawmakers have been considering various approaches to lower property taxes.

The Joint Legislative Budget Commission approved in September a Florida Office of Economic and Demographic Research report's projections of deficits in coming year budgets. The projections were based primarily on looking at office staff deemed critical and high priority needs spending and how this spending is likely to play out over the next few years.

The budget drivers are growing because of the legislature's "decisions to make significant recurring and nonrecurring investments in several policy areas," the office staff said in a report. The projections assumed the state will continue existing spending commitments and revenue practices.

"The Senate has been and remains committed to tax cuts that offer broad-based and meaningful tax relief for families, seniors and small businesses," Albritton said on May 9.

DeSantis and Albritton have talked about holding referendums on property taxes in November 2026.

The offices of Perez, Albritton and DeSantis didn't respond to requests for comment.