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Red ink blues

THE BUDGET: The governor and legislature, who promised not to raise taxes, are depending on the sales tax revenue to pay for the huge bills coming next year.

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By STEVE BOUSQUET, Times Staff Writer

© St. Petersburg Times
published February 16, 2003

TALLAHASSEE -- Gov. Jeb Bush's budget director flipped on her laptop and began a power-point display, not with fuzzy graphs or charts but with a firm declaration.

Florida is in good shape, flashed the message on overhead TV screens.

Budget director Donna Arduin ticked off factors supporting her claim: Stable bond ratings, lots of new jobs, more tax money and the "fiscal discipline" to avoid tax increases. States with higher taxes are in worse shape, she said.

The members of the Senate Appropriations Committee were not impressed.

Their chairman, Republican Sen. Ken Pruitt, R-Port St. Lucie, called the scene at the hearing on Feb. 6 "surreal," as if Arduin and lawmakers were in different states.

To Pruitt and many other senators, Florida is in bad shape and getting worse. They are again studying how to change the tax code to raise more money, citing Bush's budget as proof that the tax base can't pay for such basics as teachers at community colleges.

The crux of the debate is whether Florida's sales tax meets the needs of the nation's fourth-largest state.

The basic source of taxation is the sales tax, first imposed in 1949 as a 3 percent levy. It is now 6 percent statewide and as high as 7.5 percent in counties where voters have approved higher taxes for schools, roads or health care. Critics say sales taxes, based on consumption, are regressive because poor people pay a larger share of their income on taxable items than wealthy people do. But the sales tax is Florida's fiscal workhorse.

The value of what is exempt or excluded from sales tax exceeds the state's annual take from the tax itself. Basic necessities of life, such as groceries, household rent and medicines are exempt, but so are professional services, charter boat rentals and generators at chicken farms. The most notorious tax exemption of them all is for ostrich feed.

Sales tax revenue grows each year, fueled mostly by population growth and sales of new cars. But the increase isn't keeping up with demands for services and the rising costs of health insurance premiums and prescription drugs.

The struggle over taxes and spending unfolding in the state capital is really about next year and the year after. Lawmakers can't escape the perennial challenge of building a budget without raising taxes while battling a weak economy, soaring health care premiums and rising public school enrollments.

Next year's budget is already a fiscal time bomb with huge bills coming due for smaller classes, pre-kindergarten, bullet train, and state-run court systems. All were demanded by voters -- the same voters who elected a governor and legislators who promised not to raise taxes.

Bush proposed a bare-bones budget that would cut health care to the poor and slash aid to state universities, eliminate 2,900 jobs, and endanger a cultural jewel, the State Library.

He blames the expensive Democrat-sponsored ballot initiative requiring smaller classes. He warns that he might have to raise taxes next year, and that's not all: The prospect of a war in Iraq also threatens to further undermine Florida's tourist-dependent economy.

A question being asked with increasing urgency is whether Bush is setting up this set of conditions on purpose, much like his off-the-cuff mention of "devious plans" in last year's election campaign, so voters will also blame the class-size law and want to repeal it in 2004.

In some ways, the 2003 session is shaping up as a replay of last year's battle between the House and Senate over tax reform, with Bush again aligned with the House. But after enduring a bruising tax fight last year, senators are probably unwilling to embrace new taxes unless Bush and the House show a willingness to deal.

Like Bush, the House, led by Speaker Johnnie Byrd, R-Plant City, opposes any new taxes and is scornful of Senate motives. Byrd angered senators with a charge that they had an $11-billion "tax plan." It was a list of revenue ideas handed out at a workshop.

Bush has said that, as governor, he must "look over the horizon." But senators see Bush's budget as a short-term fix that ignores long-term obstacles like the seven-year implementation of the class-size law.

"Here we are again," Sen. Tom Lee, R-Brandon, told Arduin. "Building a budget that focuses on getting us out of two years, declaring victory and shifting the liability down the road to the next group of people, without the tools to resolve the problems we know are going to be there."

The 2003 Legislature won't start till March 4. But people on the receiving end of services already are outraged over Bush's budget. Many of them reject Bush's assertion that harsh cuts are the price that must be paid for smaller class sizes.

Parents of autistic children visited the Capitol last Tuesday, worried that more cuts will mean longer waiting lists for services.

Community college presidents say state spending has fallen far behind growth in student enrollment, forcing them to shut their doors to some students and depend more on part-time teachers while jacking up student fees. University presidents described Bush's budget as a continuing trend of "disinvestment" in higher education.

Supporters of the State Library have launched an e-mail petition drive, urging that it be saved from possible extinction. Bush's budget shifts the library to Florida State University, but without money for employees to run it.

Senators hope to channel such criticism into public support for tax changes that will raise more money.

"You cannot just plan for the now. You must also plan for the future," said Senate President Jim King, R-Jacksonville.

The House has a different view. When Rep. Randy Johnson, chairman of the House Finance & Tax Committee, wanted to hear from "resident experts" on taxes, he invited a conservative economist and a business lobbyist whose clients support tax exemptions.

The panel heard FSU economist Randy Holcombe praise Florida's tax system, noting that the absence of a state income tax helps the state endure recessions. A services tax would drive business out of state, he warned.

"There's no catastrophe looming up ahead," Holcombe told lawmakers. "Florida is faring pretty well because we have a pretty good tax structure."

Bush agrees. He has no plan to eliminate sales tax exemptions.

"I don't think we need to do that," Bush said recently. "If it's a question of fairness or equity, I think we should be constantly evaluating our tax code. But that is a different subject than eliminating an exemption for lawyers, or architects, or whatever your favorite profession is . . . and then using it as a tax increase. I don't think that's necessary this year, or appropriate."

It's no coincidence that the two senators in line to follow King in the president's suite -- Lee and Pruitt -- are among the strongest critics of the Bush budget. Both men endured four budget-cutting sessions in 2001 followed by a bruising and unsuccessful fight over eliminating tax exemptions last year.

Governing magazine, in a 50-state survey of tax systems, gave Florida its lowest mark for fairness and adequacy of revenue. The state received the highest rating for managing its tax system, but ranked second only to Washington state in its reliance on the sales tax.

A new version of the services tax, proposed last year by then-Senate President John McKay, turned into a political brawl, paralyzing the Legislature for much of its 60-day session.

McKay, now a private citizen in Bradenton, hasn't given up. He wants to ask voters to finish what he started, with a 2004 ballot initiative, and he has little hope that anything with occur in the Legislature this year.

"I'm not sure people have had enough pain yet," McKay said.

-- Steve Bousquet is deputy capital bureau chief of the Times.

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