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Sunshine State Slowdown: Cut services? Hike taxes? Recession has GOP in a fix

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For decades, Floridians have essentially bought government on the cheap, satisfying a swelling appetite for expanded services with taxes paid in large measure by visitors and newcomers.

But the idea that the Sunshine State can keep buying happiness on the backs of an exploding population has all but vanished in Tallahassee.

Years of talking about building a high-tech leg to Florida's economy has sprouted shiny new buildings at the Burnham Institute in Orlando and Scripps research park in Palm Beach County — but so far, the economic spinoff from the state's investments hasn't provided enough cushion to soften the falloff in growth.

At the same time, the side effects of growth have increased demand for classroom space, prison beds, court services, jobless benefits, health care and other services for the poor — which is why state legislators are staring at a $2.6 billion budget shortfall when the 2010-11 fiscal year starts in July — the fourth consecutive year of budget holes created by a faltering economy.

And for the foreseeable future, economists predict tax receipts won't catch up with Florida's burgeoning demand for education, entitlement programs and public-safety services.

"There are some difficult decisions that need to be made," said John Hall, director of the left-leaning Florida Center for Fiscal and Economic Policy.

Florida's Republican leadership in Tallahassee has settled on three options: change the tax structure and tap new revenue sources; make more service cuts and program changes; and take a longer-term approach of beefing up economic-development measures — including higher education — while scaling back regulations on businesses.

All of the options have their critics, but no one has a better solution.

"Florida ultimately will begin to grow again. The question is, how do we grow and who controls growth?" said state Sen. Don Gaetz, R-Niceville, who chairs the Senate Select Committee on the Economy, which has been studying policies for a year.

"The days are long gone when our economic policy amounts to standing at the welcome center with a free glass of orange juice and a real-estate map."

Breaking the cycle

The problem is simple: Florida's economy doesn't generate enough money to meet its needs.

Government spending was set on an upward trajectory by a series of policy choices made during the past two decades. Among them: free-tuition "Bright Futures" scholarships for top high-school graduates; smaller K-12 class sizes; beefed-up prison sentences for violent criminals; and expanded social-service programs for the poor and elderly.

Most were politically popular moves at the time. But now that the boom days of population growth have vanished, the state's taxing power can't keep up.

"No one really has come up with a model for how Florida will stay a prosperous state with downward population growth," said Dominic Calabro, chairman and CEO of Florida TaxWatch, a business-backed think tank in Tallahassee. "Structurally, this is really a resounding question for us to answer."

The GOP-led Legislature and Governor's Office say the way to deal with the problem long term is to capitalize on Florida's destination status for retirees, while making it more attractive for companies and white-collar wage-earners to relocate here. Some cite California as a model — to a point.

"California was very successful at creating great quality of life, a pretty good infrastructure system and a good education system," said state Rep. Will Weatherford, a Wesley Chapel Republican slated to become House speaker in 2012. "What they did not do was keep their taxation system low, and their government spending got out of control. We want to do what California did, but keep your taxes low."

Taxes and revenue

Gov. Charlie Crist and lawmakers raised taxes and fees $2.2 billion last spring to balance Florida's $66.5 billion budget. Could we see a repeat next year, with another $2.6 billion shortfall? Not if they can help it.

2010 is an election year, and it's hard to imagine the Florida Legislature would stomach another round of tax or fee hikes. Long-debated topics such as taxing services and repealing sales-tax breaks for businesses will be nonstarters. Instead, lawmakers are more likely to focus on longer-term revenue boosts.

Offshore drilling: This is a pet project of House Speaker-designate Dean Cannon, R-Winter Park, and Sen. Mike Haridopolos, R-Merritt Island. But a projected $2.2 billion a year in royalty revenue — a figure sharply challenged by opponents — wouldn't materialize for years, if ever.

Revising the corporate-profits tax: Groups including Florida TaxWatch are pushing for Florida to join about two dozen states and change the way it taxes corporate income by adopting a formula based on sales rather than profits. The idea is to encourage companies to move to Florida. But it could cost money in the short term. California just made the change — and faces a projected 15 percent drop in corporate tax receipts during the next two years.

Internet sales taxes: Two dozen other states have vowed to petition Congress to help capture sales taxes on goods bought on the Internet, and Florida is being pushed to join them.

Bottom line: New revenue sources are likely to be in short supply.

Government services and programs

About$900 million of next year's budget gap is caused by an end to federal economic-stimulus dollars, beginning in December 2010 when Medicaid funding starts running out. There's hope that Congress could extend its supplemental funding, which could deliver another $1 billion to Florida. Indeed, demand for safety-net social services continues to soar.

Medicaid: The state's 11 percent unemployment rate is forcing more people into Medicaid and food-stamp rolls. Health-care reform could add hundreds of thousands more to the government-run health-care program.

Senior services: More than 30,000 seniors and 18,000 disabled residents are on waiting lists for home-based services designed to help them live independently.

Substance abuse: More than 17,000 people are on a wait list for substance-abuse services.

Bottom line: Absent another federal bailout — which is unlikely — it's easier in an election year to cut the budget than raise taxes.

Economic development and regulation

For decades, Florida's job-creation strategy focused on "clean" tourism-related businesses. But for the past decade, lawmakers have thrown hundreds of millions of dollars at high-tech and medical technology centers, such as Scripps and Burnham.

Now, GOP lawmakers want to revisit the 13 programs the state uses to dole out cash to new companies, while scaling back regulations they see as impeding the location and expansion of businesses. "We're still the No. 1 destination for people in their older years and their younger years," said Rep. Chris Dorworth, R-Lake Mary, who is vying for the House speakership in 2014. "What we're struggling to do is make sure we get them for the earning years."

Colleges and universities: Incoming House and Senate leaders see beefing up higher education as one key to economic development. They want to continue development of research "clusters" such as Scripps and Burnham and — like other states, including California and North Carolina — use the state's university system as a tool to recruit businesses. But this is likely to mean higher tuition charges — and cuts elsewhere in the budget to fund higher education.

Bottom line: Building a new Silicon Valley in the Sunshine State won't happen overnight — and might not for a decade or more.

The budget outlook

During the next three years, the state's total budget shortfall could reach $13.3 billion, economists predict. Here are some reasons:

■ Required education spending will grow 10 percent next year, while tax dollars for schools coming from local property taxes are projected to fall 1.9 percent during the next three years thanks to declining home values. That leaves the state with a $1.4 billion gap to keep funding per-student spending levels, Bright Futures scholarships, constitutionally mandated class-size requirements and burgeoning university and community-college enrollment.

■ Growth in the Medicaid state-federal health-insurance program for the poor and elderly will require $1.2 billion more next year to keep its wide array of programs for the 2.7 million (and growing) Floridians with incomes low enough to qualify. Costs for welfare benefits and KidCare health insurance are also expected to climb. All told, $2 billion in new money will be needed.

■ Prison-bed construction during the next three years will require $652 million in new money to house Florida's 100,000-and-growing incarcerated population, plus more money to operate them.

Aaron Deslatte can be reached at 850-222-5564 or adeslatte@orlandosentinel.com.

Copyright © 2014, The Baltimore Sun
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