Short term budget: The crunch is in the here and now, this time

By Steve Bousquet, Times Tallahassee Bureau Chief
Published February 24, 2008

Florida runs on growth, and when growth grinds to a halt, the state can't balance its checkbook.

That's the crux of the spending squeeze that will force legislators to cut $2-billion from the budget when they meet in March for their annual session. With population growth slowing and housing starts abruptly dropping, consumers are afraid to buy cars and other items that generate sales tax revenue, the largest source of money to run the state.

How bad is it? For the first time in modern history, the tax revenue to run the state next year is now projected to be less than the previous year for two years in a row. That's economic stagnation of major proportions and will force the Legislature to cut nearly 3 percent of a $70-billion budget.

Universities already are planning to cap student enrollment and lay off faculty. Vacant state trooper positions will remain empty, and prosecutors are contemplatingemployee furloughs to save money. State health care providers may not get the higher reimbursement rates they've been expecting, and state employees at best can expect a paltry pay increase.

Those two back-to-back years of lower sales tax collections followed a remarkable five-year run-up in revenue.

During that period, the Republican-led Legislature significantly cut taxes butalso spent money faster than the state collected it. Thanks to a housing boom and a federal economic stimulus package to combat a 2001 recession, general revenue spending over a five-year period rose 8.8 percent; meantime,tax collections rose by 6.6 percent.

"We've gotten fat and happy on revenue increases and we were still able to cut taxes," said Kurt Wenner, director of tax research for Florida TaxWatch, a group that monitors state budgetary policy. "That has changed."

The coming round of spending cuts is in addition to $1.1-billion in cuts made last fall by the Legislature. Gov. Charlie Crist has directed state agencies to hold back 1 percent of their quarterly spending, and the passage of Amendment 1 will mean less tax money for cities and counties.

Since December alone, the amount of tax revenue collected is more than $230-million below the most recent estimate, likely creating a mandate for deeper cuts than anticipated.

As the numbers worsen, Crist and legislators find themselves boxed into a tight fiscal corner.

Even in an economic trough, Crist voices certitude that the economy will roar back to life any moment - a level of optimism not shared by most legislators.

"Real estate development is going to kick back up, because the people, God bless them, passed that amendment," Crist said in a speech to the Florida Chamber of Commerce. "We're off to the races in this state."

Crist proposes spending $1-billion more next year on education, the spending area with the most public and political support.

The problem, as some legislators see it, is that Crist has put forth a pie-in-the-sky budget that's unrealistic. It's propped up with about $400-million more from gambling, $1.1-billion in diversions from single-purpose budget accounts known as trust funds and $338-million more in property taxes to help pay for schools by taking advantage of increases in property values.

"It's through natural growth. It's not an intentional raising of anyone's taxes," Scott Kittel, Crist's education policy adviser, told lawmakers.

To have a governor who is a champion of lower property taxes relying on more property tax money to boost education funding strikes some as inconsistent.

"The governor's budget has created skeptics of us all," said Rep. Jack Seiler, a Fort Lauderdale Democrat and a frequent ally of Crist on other issues. Crist's budget, Seiler said, is "a fallacy."

The dilemma for legislators is this: If they reject Crist's call for more gambling, higher school property taxes and trust-fund diversions, they will have to cut spending much deeper next year.

The current budget squeeze will test the relationship between Crist and the Legislature.

Crist's budget experts got an icy reception when they outlined the governor's spending plan at a meeting of the House Budget and Policy Council. One complaint was that Crist based his budget on the revenue estimates of November 2007, when in fact the state's tax collections were $200-million less in the three months that followed.

"The budget you're seeing does not reflect the real picture," said Rep. Ray Sansom, R-Destin, the House's No. 1 budget-writer.

Budgeting in Florida is a little like forecasting the weather.

State revenue experts have proven adept over the years at analyzing consumer and business trends and accurately forecasting how much tax money will flow into the treasury. Lawmakers rely on those conservative estimates to craft the next year's budget, but if the forecasters miss the mark and overestimate revenues, cuts must be made.

In an election year when all House members and half of the Senate face re-election, legislators are especially self-conscious about the perception of cutting programs. As a result, some simply redefine the task at hand.

"It isn't cuts. It's money that we didn't have coming in, so it's money that we won't spend," Sansom said. "It isn't like we're cutting anybody. We're just spending less money statewide."

Republicans generally oppose tax increases or broadening the sales tax base by taxing services or ending sales tax exemptions. House Speaker Marco Rubio, R-West Miami, sees the current pinch as an opening to rein in the size of government.

"No one makes the tough decisions when times are good," Rubio told a radio interviewer. "Rather than feel sorry for ourselves, let's capitalize on the opportunity that this downturn presents us."

That kind of talk worries people such as Hillsborough County State Attorney Mark Ober, who warns that deeper cuts could force temporary unpaid layoffs of prosecutors. Ober said prosecutors in Florida already have among the lowest salaries and highest caseloads in the country, which contribute to chronic turnover and longer delays before cases go to trial. "It's so unfair to victims of crimes," Ober said. "It needs to stop and it can only stop if we're given the funds we need to do our jobs."

More borrowing is not a realistic option. Fiscal conservatives in the Legislature oppose it, and the state's current debt is 6.1 percent of the annual general revenue available, slightly above the target of debt ratio of 6 percent.

In the past decade, Florida's debt has swelled from $13-billion to $24-billion, according to Ben Watkins, the state director of bond finance. Revenues must grow in order for the state to be able to borrow more money.

"If it (the economy) doesn't grow, we're all in deep trouble, right?" Attorney General Bill McCollum asked Watkins at a Cabinet meeting.

"That's correct," Watkins replied.

"Pray for growth," Crist interjected.

Steve Bousquet can be reached at bousquet@sptimes.com or (850) 224-7263.