State tax revenues predicted to tumble
Coronavirus could cause $3.4 billion drop
TALLAHASSEE — Florida’s general revenue fund this year will be $3.4 billion shy of what was originally expected, economists determined Friday, as the state struggles with the damage wrought by the coronavirus pandemic.
The new estimates from the Revenue Estimating Conference, a panel of economists from the Legislature and Gov. Ron DeSantis’ office, show that $5.8 billion in federal CARES Act funds are keeping the state from running a deficit that would force lawmakers either to cut services, raise taxes or both to balance the budget. It also predicted a $2 billion shortfall for 2021-22.
But they also noted there’s much uncertainty surrounding how that money can be spent. The U.S. Treasury restricts the use of CARES Act funds, saying they are
only to be used to pay for pandemic-related expenses, not to backfill lost revenues.
If Congress doesn’t approve new funds or if the CARES Act money can’t ultimately be used to fill budget holes, it could trigger a special session to address the deficit.
“To the extent that funds cannot be used to fill revenue shortfalls or offset current appropriations when they are used for pandemic related purposes, or if additional covid-19 related expenditures are required, the ending balance shown in this outlook will be lower, potentially becoming negative,” the outlook approved by the economists states.
State law calls for the governor to enact a plan if the estimating conference projects a deficit. If the deficit is larger than 1.5%, the Legislature is supposed to convene a special session to adjust the budget to account for the shortfall.
But DeSantis has said that because of the $1 billion he vetoed from the budget, along with the $4 billion in reserves and the CARES Act funding, Florida should be able to weather the storm without a special session. DeSantis, though, said this week that Florida’s CARES Act money has already been obligated, although it hasn’t been spent.
“I think we’re going to be able to get through this budget year without doing a special session,” DeSantis told reporters in Sarasota on Friday. “Certainly we’ll be able to get to the end of the calendar year without having to do any type of special session. But some of this will be dependent on the overall health of the national economy.”
The economy, however, could take a while to rebound. The recovery will be more prolonged if Congress doesn’t approve a fourth round of federal relief, something DeSantis acknowledged.
Federal unemployment benefits of $600 per week as part of the CARES Act expired July 31 and Congress hasn’t approved an extension. Congress adjourned until next month without a deal in sight between Democrats in control of the House and Republicans in control of the Senate.
“We’re looking at this phase four that they may be doing in Washington, and I don’t know, obviously, anytime you’re dealing with Washington, it’s always a messy thing,” said DeSantis, a former member of Congress.
Democrats in the Legislature have pushed Republican leaders to convene a special session to address an array of issues related to the pandemic, including adjusting the budget and increasing the $275 maximum weekly unemployment benefit paid by the state.
Rep. Carlos Guillermo Smith, D-Orlando, said in June he believes Republicans are avoiding a special session to deny Democrats a platform to slam DeSantis’ handling of the unemployment system and to push for accountability measures for police before the Nov. 3 general election.
“They’re afraid of what will happen when the mics are turned on,” Smith said.
GOP leaders, though, have preferred to wait and see how much federal help the state would receive and how much the economy rebounds before gathering in the Capitol again.
“While this updated estimate is very significant, the revised number is not as dire as earlier predictions had indicated that it would be,” Senate President Bill Galvano, R-Bradenton, wrote in a memo to senators after the new estimates were released. “Florida’s economy, just like the people who call our state home, has proven to be resilient as businesses continue to work incredibly hard to safely reopen.”
Florida’s tourism-heavy economy has been particularly hard-hit during the pandemic. Even if a vaccine is developed for COVID-19, the economists don’t project tourists to flock to the state in pre-pandemic numbers any time soon.
“If you were to summarize my forecast in a few simple words – the tourists are gone,” said Azhar Khan, senior economist for Gov. Ron DeSantis’ office, discussing his initial forecast for sales taxes.
The drain on tourism will affect nearly every
other part of the economy, in large part because unemployment has spiked. Even though the unemployment rate has fallen somewhat in the past two months as Florida has started to reopen, it remained at 10.4% as of June, with more than 1 million out of work, far higher than the 2.8% in February before the pandemic hit.
The increased number of unemployed means more people will be uninsured. That means more Medicaid costs and fewer health insurance premiums, placing greater pressure on the budget.
There will also be fewer cars on the road, fewer vehicles purchased, less gas tax revenue, fewer red light camera violations and fees, and fewer auto insurance premium taxes received by the state.
And because rental car companies won’t see as many customers because of declines in tourism, they’ll put fewer miles on their cars and won’t have to replace their fleets as rapidly.
The general downturn in the business climate also worried the economists. They anticipate fewer corporate income taxes coming in as profits decline and the specter of bankruptcy, especially in the retail sector, also means taxes could dwindle, at least until they come out of Chapter 11.
Throughout the discussion, the economists cautioned the unprecedented nature of the pandemic and the economic crisis it has spawned made their jobs tougher.
“We’re dealing with an economic environment that’s got a tremendous amount of uncertainty in it right now,” said Don Langston, staff director of the Florida House Finance and Tax Committee.