Pols: Budget bind won’t revive services tax
TALLAHASSEE — Long before Hurricane Irma attacked Florida, the state faced a troubled fiscal future that the storm would only make worse.
“A looming problem,” in the words of Amy Baker, the Legislature’s top economist, whose preIrma numbers exposed “a structural imbalance.”
Simply put, Florida won’t collect enough tax revenue over the next three years to pay its mounting bills, especially for Medicaid, which now consumes nearly one-third of the state’s budget. Baker said Irma will make it “much worse.”
In the weeks and months ahead, many Floridians will buy new cars, clothing and furniture to recover from Irma. That will generate a short-term uptick in sales tax revenue, but it’s mostly a mirage. As Baker noted in a long-range state economic outlook, a series of storms in 2004 and 2005 shows that the longterm cost will be higher, a reflection of the boom-and-bust nature of Florida’s economy that has been built on consumer buying ever since the arrival of the 3 percent sales tax in 1949.
The future could mean cuts to schools, hospitals and treatment programs, fewer state workers, and higher fees for services. What it won’t mean is higher taxes, or even substantive change to the state tax system to produce more money to run the nation’s third-largest state.
They tried that once in Tallahassee 30 years ago, and they won’t do it again. It ended so badly that, to this day, it is still blamed for derailing political careers, so it is a subject to be avoided at all costs.
“It’s toxic,” said Glenn Robertson, who was state budget director in 1987. “The politics of the issue makes it impossible to talk about it.”
Florida, one of seven states without a personal income tax, stood at a crossroads in 1987.
Highways, schools and prisons were all at or close to a breaking point. The state had imposed a hiring freeze, and there was talk of letting inmates go free to create space for more.
Republican Bob Martinez had just been elected governor, partly on a pledge to “sweat” $800 million in waste out of state government. Instead, he championed the largest tax increase in Florida history.
“I am prepared to take an unpleasant dose of tax medicine this year,” he said in his 1987 State of the State address. “But I do not intend to do it year after year because we did not have the courage to do it right the first time.”
The state faced a choice. It could keep depending on its sales tax, a large chunk paid by out-ofstate visitors, to run schools, social programs, prisons and other services, or it could shift the tax burden from goods to professional services such as accounting and pet grooming, a fastgrowing economic sector paid largely by people of higher incomes.
“We tax hard goods like refrigerators,” said Bob Nabors, a Tallahassee lawyer and tax expert. “And when there’s a recession, people don’t buy those things and Florida really feels it. A services tax would have been a much more stable source of revenue.”
Desperate for a long-term solution, Martinez and a Democratic-led Legislature enthusiastically embraced the 5 percent services tax. It lasted all of six months.
Under sustained attack by advertisers, lawyers, media companies and real estate agents, Martinez and lawmakers quickly retreated, wiped it off the books and replaced it with a higher sales tax of 6 percent. That remains the staple of state revenue to this day.
“It was one of the worst decisions in recent Florida history,” said Sam Bell, a former Democratic House appropriations chairman. “There’s no question, things would be a lot easier right now, trying to anticipate the next budget.”
In a town where politicians are often eager to placate powerful interests, Martinez and the Legislature flatly refused to carve out protections for two groups — Realtors and TV advertisers — who mobilized fierce opposition.
“If you view the defense of the services tax as a campaign, then by failing to exempt those two activities we sealed our own fate,” said Martinez’s chief of staff, Mac Stipanovich, who was forced to resign over the fiasco.