Budgets on the Brink: Plotting a Course in Turbulent Times -Florida - National Conference of State Legislatures July 25, 2008 New Orleans, Louisiana

Budgets on the Brink: Plotting a Course in Turbulent Times -Florida - National Conference of State Legislatures July 25, 2008 New Orleans, Louisiana

2 An Overview of Florida's Budget

Appropriations by Funding Source FY 2008-09 $66,250.5 Million Federal Funds $19,251.4 29% State General Revenue $25,672.7 39% State Trust Funds $21,326.4 32% 3

Estimated General Revenue Tax Collections FY 2008-09 $25,137.6 Million Insurance Premium Tax, $789.3, 3% Documentary Stamp Tax, $421.6, 2% Corporate Income Tax, $2,288.5, 9% Intangibles Tax, $402.2, 2% Interest Earnings, $278.9, 1% Other GR, $1,272.8, 5% Sales and Use Tax, $19,091.1, 76% Beverage Licenses & Taxes, $593.2, 2% 4

Florida s History of Reserves $10,000 9,890 $9,000 8,367 $8,000 $7,000 7,273 4,990 3,434 Dollars in Millions $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 603 282 411 150 194 261 409 1,328 1,042 541 356 5,594 3,571 5,039 570 2,457 4,249 1,352 1,807 916 596 3,212 3,318 300 2,847 2,944 840 432 489 984 682 819 50 304 2,333 2,200 100 2,000 1,181 1,257 1,293 1,521 1,739 1,874 2,025 686 787 847 894 941 959 966 988 1,069 1,249 1,354 1,354 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 FY Ending Working Cap Fund/Unencumbered GR Trust Funds Tobacco Settlement Reserves Budget Stabilization Fund 5

6 Florida Constitution: Budget Restrictions Limits the amount of non-recurring funds that can be used for recurring purposes to 3% of the total General Revenue Funds available Requires a long range (3 year) financial outlook Requires the budget to be balanced to available revenues Gives the Legislature exclusive power to appropriate state funds Gives the Governor line item veto authority Florida Statutes: Limits the amount of tax supported debt payments to less than 6% of revenue available to pay the debt If the authorization of additional debt will cause the 6% ratio to be exceeded, the Legislature must make a determination that the additional debt is in the best interest of the state. If the additional debt will cause the debt ratio to exceed 7%, the Legislature must determine that the additional debt is necessary to address a critical state emergency.

What are the top fiscal concerns in Florida? Strained near-term revenue collections Housing boom collapse created two consecutive years of declining general revenues Negative employment growth Growing financial burdens Health care and prison construction growing faster than revenue collections Constitutional amendments imposing new financial requirements Energy and food prices rising from national and global issues Return to normal revenue growth rates expected over the next year as immediate housing-related issues resolve 7

Future Fiscal Concerns in Florida 8 Aging baby boom generation will create a unique confluence of events within the next few years: Aging State more intense in Florida than elsewhere because senior population share is already greater (projected 26.1% in 2030) The ratio of taxpaying workers to retirees will fall causing a labor contraction. There will be a greater demand for senior services. Growing State all of the same problems as we ve had in the past, only more so...including: Greater need for all government services Fair allocation of increasingly scarce natural resources (especially water) Provision of needed infrastructure (new and replacement) Uncertainties in the future prices of energy have unique effects in Florida: Tourism fewer visitors to the state Discretionary Spending - reductions in discretionary spending have negative effects on sales tax collections

What sectors of the economy are posing the greatest challenges? Construction sector poses the greatest regional near-term challenge Residential housing problems have recently spread more broadly to include commercial construction. Construction sector weakness directly affects Florida s growth in gross domestic product, personal income, population, employment and tax collections. Closely related sectors like financial services and housing-related retail are also impacted. The national economic contraction is beginning to threaten other sectors, particularly tourism, retail, trade, transportation and utilities. 9

How are state revenues performing? Annual Revenue Collections FY 1978-79 through FY 2006-07 40,000 35,000 $36,496 30,000 25,000 20,000 $26,404 15,000 10,000 5,000 0 Net General Revenue Trust Funds 10

11 What is the outlook for revenue performance? General Revenue Collections 32000 28000 24000 20000 16000 12000 8000 4000 0-4000 -8000-12000 -16000 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% GR % chg $ Millions FY 1989-90 FY 1991-92 FY 1993-94 FY 1995-96 FY 1997-98 FY 1999-00 FY 2001-02 FY 2003-04 FY 2005-06 FY 2007-08 FY 2009-10 FY 2011-12

What actions did Florida take to prepare for the economic downturn? Prior to FY 2007-08: The 2006 Legislature enacted legislation to sunset state agencies and created a committee to conduct the review. The Legislature has not spent non-recurring funds for recurring purposes since FY 2005-06. In 2006 and 2007, the Legislature held in reserve a General Revenue Fund balance of approximately $1.9 billion each year when the budget was adopted. Since 2000, Florida has maintained billions of dollars in reserves in other funds that may be accessed during budget short falls or emergencies. 12

What actions did Florida take to prepare for the economic downturn? (continued) During FY 2007-08: State agencies were instructed in June, 2007 to prepare a list of reductions totaling 10% of their budgets. In the Summer of 2007, the quarterly budget release plans to state agencies were reduced by one percent per quarter resulting in a four percent holdback of their General Revenue budget. Florida had a special legislative session in October, 2007 to reduce the FY 2007-08 budget. In the first week of the regular 2008 legislative session, the Legislature again reduced the 2007-08 budget. 13

What was the magnitude of the state s budget gap? Florida worked proactively to prevent a budget gap throughout the 2007-08 fiscal year. October, 2007 Special Legislative Session: reduced General Revenue budget by $732 million redirected $38.4 million in tax revenues from state trust funds to the General Revenue Fund After the March 2008 Revenue Estimating Conference, there was a gap of $145 million for FY 2007-08. During the first week of the regular 2008 legislative session, the General Revenue budget for FY 2007-08 was reduced by $454 million. 14

What principal actions were taken to close the gap for FY 2008-09? After the March, 2008 Revenue Estimating Conference, there was a budget gap of $1.8 billion for FY 2008-09. What Florida Did NOT Do: Did not raise taxes Did not borrow for operating expenses Did not spend non-recurring General Revenue funds on recurring purposes Did not expand gambling What Florida Did: Reviewed all funding in the recurring budget, both General Revenue and Trust Funds for reduction options Reduced the recurring General Revenue budget Partially reversed decisions from previous years that had directed General Revenue funds to various trust funds 15

FY 2007-08 and FY 2008-09 Budget Reductions FY 2007-08 Budget: General Revenue Trust Funds All Funds 1 Total Regular Session Appropriations 29,207 42,661 71,868 2 October, 2007 Special Session (732) (305) (1,037) 3 Adjusted Appropriations 28,475 42,356 70,831 4 Regular Session (March, 2008) (413) (59) (471) 5 Final FY 2007-08 Budget 28,062 42,297 70,360 6 FY 2008-09 Budget: 7 Reduction in Spending (2,439) (1,720) (4,159) 8 2008-09 General Appropriations Act 25,623 40,577 66,201 9 Total FY 2007-08 & 2008-09 Reductions (3,584) (2,084) (5,667) 16

What budget areas have been protected or hard hit? How have essential state services been affected? The reductions listed in the previous slide were taken without: Reducing access to health care Eliminating eligibility groups for health & human services Releasing inmates from prison 17

Have budget problems resulted in any efficiencies or restructuring to state government operations? Agency Sunset Review In 2006 the Legislature passed The Florida Government Accountability Act which provides for a multi-year approach to the systematic evaluation and sunsetting of state agencies, advisory boards and commissions. Base Budget Review Florida budgets incrementally, adding funding issues to or subtracting funding from a base budget. During the course of this summer and fall, a thorough and uniform base budget review will be conducted. This review is intended to yield identification of areas of spending and programs for potential elimination in FY 2009-10. 18

What is the budget outlook for Fiscal Year 2009-10? Beyond? The current official revenue estimate for the General Revenue Fund exceeds the amount needed to continue the current budget into FY 2009-10 by over $1 billion. Florida develops three year budget plans each September. Last year s three year plan is in the process of being updated and is no longer valid due to the extent of the revenue and expenditure reductions. 19