State revenue estimate down by nearly $1.5 billion
Published: Wednesday, August 1, 2007 at 5:07 p.m.
Last Modified: Wednesday, August 1, 2007 at 5:07 p.m.
TALLAHASSEE -- Florida's slumping economy is expected to cost the state government nearly $1.5 billion in lost taxes during this budget year and the one that ended June 30, state economists said Wednesday.
They blamed the revenue shortfall on an unexpectedly long housing market decline. The revised estimate includes about $380.5 million less than expected during the last part of the 2006-07 budget year and $1.1 billion this year.
Legislative leaders had anticipated the latest bad news from the Revenue Estimating Conference and last month scheduled a special session for Sept. 18 to adjust the $71 billion budget that lawmakers passed in May.
Gov. Charlie Crist said nearly $500 million in spending that he vetoed from that budget will help offset the revenue shortfall but now lawmakers should make additional cuts.
"Florida's families make tough decisions every day, prioritizing how they spend their hard-earned money," Crist said in a written statement. "This new revenue estimate is an opportunity to continue to tighten our belt and spend the people's money more wisely."
The economists said Florida has all the elements of a recession but technically that term only can be applied to a broader economic decline, not a slump affecting just one state
"Though the revenue revisions will pose major state budget changes, we must stay focused on the longer view," House Policy and Budget Council Chairman Ray Sansom, R-Destin, said in a statement. "This slow growth period will eventually end and normal growth will resume."
The housing market now is expected to return to normal in early 2009, but that is later than had been anticipated when the last revenue estimate was made in March, said Amy Baker, coordinator of the Legislature's Office of Economic and Demographic Research.
That most directly has affected documentary stamp taxes on real estate transactions. The estimate for the current year declined by $132.6 million and $7 million in 2006-07.
It also affects sales tax collections, off by $746.1 million this year and $182 million in 2006-07, for housing-related items such as carpets and appliances but also purchases unrelated to housing.
It's what's called the "wealth effect," Baker said.
"When people believe the housing market's in a funk, that they're not bringing in as much money every year, their house isn't going to be appreciating as much every year, they don't feel as wealthy," she said.
So they don't spend money on cars, boats, clothes, restaurant meals and other purchases that have nothing to do with housing.
Corporate income taxes collections also have fallen significantly below estimate _ $236.2 million this year and $191.7 million in 2006-07. That's due to rising labor costs and a decline from the exceptionally high profits companies earned in prior years when the state's real estate market was overheated.
The $380.5 million 2006-07 shortfall will be absorbed by the current budget's $1.8 billion reserve fund.
That fund is expected to grow by about $360 million due to carry-over of unspent dollars from last year's budget from several programs including pre-kindergarten and Medicaid and a $150 million reimbursement for past hurricane expenses from the Federal Emergency Management Agency.
The Legislature could do nothing and the state still would have about $690 million on hand at the end of the budget year. That's an unlikely solution because the lost taxes have been appropriated for expenses that will continue from year to year.
Also, the conference reduced its revenue estimates for the next three budget years _ down $1.4 billion in 2008-09, $1.4 billion in $2009-10 and $1.6 billion in 2010-11.
"Tough times are ahead, but if we don't act now, we will face far greater consequences in the future," Senate Fiscal Policy and Calendar Committee Chairwoman Lisa Carlton, R-Sarasota, said in a statement.
Leaders of the Republican-controlled Legislature and Crist have made it clear they intend to make up for the remaining tax deficits through spending cuts.
Democrats say all options should be open, including tapping the reserve fund and increasing taxes. They have argued that recent tax cuts that have mostly benefited the wealthy and out-of-state corporations should be rescinded.
Florida's real estate market historically has gone through boom and bust cycles but this one has been unusual, Baker said.
The last boom caused prices to climb higher than ever, was longer than usual -- about five years -- and affected virtually the entire state instead of being confined to certain hot spots, she said. As a result, the downturn, which began in 2005, has lasted longer than expected.
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