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 Front Cover
 Table of Contents
 Preface
 Executive summary
 Budget & spending reform
 Balancing revenue & spending in...
 Florida's tax structure: How does...
 Findings and recommendations






Group Title: Florida's fiscal future : balancing needs & taxes
Title: Florida's fiscal future
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Permanent Link: http://ufdc.ufl.edu/AM00000220/00001
 Material Information
Title: Florida's fiscal future balancing needs & taxes
Physical Description: vi, 90 p. : ill. ; 28 cm.
Language: English
Creator: Florida -- Taxation & Budget Reform Commission
Publisher: The Commission
Place of Publication: Tallahassee Fla
Publication Date: [1991]
 Subjects
Subject: Taxation -- Florida   ( lcsh )
Budget -- Florida   ( lcsh )
Finance, Public -- Florida   ( lcsh )
Appropriations and expenditures -- Florida   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
statistics   ( marcgt )
non-fiction   ( marcgt )
 Notes
Statement of Responsibility: Florida Tax & Budget Reform Commission.
General Note: Cover title.
 Record Information
Bibliographic ID: AM00000220
Volume ID: VID00001
Source Institution: Florida Agricultural and Mechanical University
Holding Location: Florida A&M University (FAMU)
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 25209505
lccn - 93620114

Table of Contents
    Front Cover
        Front Cover
    Table of Contents
        Page i
        Page ii
    Preface
        Page iii
        Page iv
        Page v
        Page vi
    Executive summary
        Page 1
        Revenue needs and spending patterns
            Page 1
        Florida's tax system
            Page 2
        Commission recommendations
            Page 3
            Page 4
    Budget & spending reform
        Page 5
        State comprehensive plan and agency functional plan process
            Page 6
        Implement the office of policy analysis and agency review
            Page 7
        Executive branch budget authority
            Page 7
        Appropriations review process
            Page 8
        Annual budgeting
            Page 8
        General appropriations bill format
            Page 8
        General appropriations bill 72 hour "cooling off" period
            Page 8
        Abolition of selected trust funds
            Page 9
        Working captial fund
            Page 9
        Quality management and accountability
            Page 9
        Uniform program evaluation criteria
            Page 9
        Performace audit follow-up
            Page 10
        Other proposals
            Page 10
    Balancing revenue & spending in the 1990's
        Page 11
        Page 12
        Page 13
        Page 14
        State expenditure forecasts to the year 2000
            Page 15
        Spending and revenue forecasts
            Page 16
            Page 17
        Local government spending growth: the historical perspective
            Page 18
            Page 19
        Local government expenditure projections to the year 2000
            Page 20
        Conclusion
            Page 21
            Page 22
    Florida's tax structure: How does it measure up?
        Page 23
        Florida's tax system
            Page 24
            Page 25
        Reliability and stability
            Page 26
            Page 27
            Page 28
        Tax equity
            Page 29
            Page 30
        Level playing field
            Page 31
        Exportability
            Page 32
        Efficient and effective tax administration
            Page 33
        Taxpayer acceptance and compliance
            Page 33
        Fiscal condition of local government
            Page 34
        Local school districts/education funding
            Page 35
            Page 36
        Special districts
            Page 37
        Governmental services/procedure & structure
            Page 37
        Finance & tax/planning & budgetary processes
            Page 37
        Commission recommendations for reform
            Page 38
        Repeal of state tax exemptions
            Page 38
        Comprehensive taxation of business
            Page 39
        Personal income tax
            Page 40
            Page 41
            Page 42
        State revenue cap
            Page 43
        State government accountability
            Page 43
        Executive budget authority
            Page 43
        Taxpayer compliance and taxpayers' bill of rights
            Page 44
        Local government tax authority
            Page 44
        Local government financial reporting
            Page 45
        State mandates
            Page 45
        Education reform
            Page 45
        Homestead exemption
            Page 46
        Special districts
            Page 47
            Page 48
    Findings and recommendations
        Page 49
        Repeal of state tax exemptions
            Page 50
            Page 51
            Page 52
        Comprehensive taxation of business
            Page 53
            Page 54
            Page 55
        Limited state income tax
            Page 56
            Page 57
            Page 58
            Page 59
        State revenue cap
            Page 60
            Page 61
            Page 62
        Improving taxpayer compliance
            Page 63
        Taxpayers' bill of rights
            Page 64
            Page 65
        State revenue and expenditure projections
            Page 66
            Page 67
            Page 68
        Lottery funds (with choice)
            Page 69
            Page 70
        State government accountability
            Page 71
            Page 72
            Page 73
            Page 74
        Executive budget authority
            Page 75
        General purpose local government financial condition
            Page 76
            Page 77
            Page 78
        School district required local effort/discretionary millage
            Page 79
        Non-voted capital improvement millage
            Page 80
        Truth in local government expenditure reporting
            Page 81
            Page 82
            Page 83
        Homestead exemption revision
            Page 84
            Page 85
        State mandates
            Page 86
            Page 87
        Special district review
            Page 88
            Page 89
        Florida taxation and budget reform commission staff
            Page 90
Full Text











ti1
A. l
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FLORIDA
Taxation & Budget Reform Commission


U


Balancing


Needs & Taxes 1


v r Ifor, Ow gq- *-


YS





REFERENCE DEPT.




Table of Contents



Chapter 1: Executive Summary .............................................. ......................... 1
Revenue Needs and Spending Patterns ........................ ............. ........................... 1
Florida's Tax System ............................................................................................................. 2
Commission Recommendations .............................................................. ................. ...... 3
Chapter 2: Budget & Spending Reform .......................................................... 5
State Comprehensive Plan and Agency Functional Plan Process ........................................... 6
Implement the Office of Policy Analysis and Agency Review ............................................... 7
Executive Branch Budget Authority................................................................... ....
Appropriations Review Process ........................................................................ ............... ..
A annual Budgeting............................. .................... ................... ......... ................ 8
G general Appropriations Bill Form at ....................................................... ........................8
General Appropriations Bill 72 Hour "Cooling Off" Period ............................................... 8
Abolition of Selected Trust Funds ........................................................................................ 9
W working C capital Fund ..................................... ................................................................ 9
Quality Management and Accountability ................................. ........................... 9
Uniform Program Evaluation Criteria ...............................................................................
Performance Audit Follow-Up ................................... ..................................... 10
O their P ro posals ...................................................................................................................... 10
Chapter 3: Balancing Revenue & Spending in the 1990's .................................. 11
State Expenditure Forecasts to the Year 2000..................................................................... 15
Spending and Revenue Forecasts ....................................................................................... 16
Local Government Spending Growth: The Historical Perspective...................................... 18
Local Government Expenditure Projections to the Year 2000 ........................................ 20
C o n clu sio n ................................................................................................................................. 2 1
Chapter 4: Florida's Tax Structure: How Does It Measure Up?......................23
Florida's T ax System ........................................................................................................... 24
R liability and Stability ..................................................................................................... 26
T ax E q u ity .................................................................................................................................. 29
Level Playing Field ............................................................................................................... 3 1
Exportability .............................................................................................................. ............... 32
Efficient and Effective Tax Administration ................................................................... 33
Taxpayer Acceptance and Compliance .......................................................................................... 33
Fiscal Condition of Local Government ........................ .............................. 34
Local School Districts/Education Funding ........................................................................ 35
Special D districts ................................................................................................................... 37
Governmental Services/Procedure & Structure....................................................................37
Finance & Tax/Planning & Budgetary Processes................................................................ 37
Commission Recommendations For Reform .............................................. ...................... 38
Repeal of State Tax Exem options ................................ ............................................... 38
Comprehensive Taxation of Business ...................................... .................................... 39


I Ioru, t I I-stl I utwtr =










Table of Contents Continued

Chapter 4: Florida's Tax Structure (continued)
Personal Incom e T ax........................................................................................................... 40
State R revenue C ap ............................................................................................................... 43
State Government Accountability ......................................................................................43
Executive Budget Authority................................................................................................ 43
Taxpayer Compliance and Taxpayers' Bill of Rights.......................................... ............. 44
Local Government Tax Authority ......................................................................................44
Local Government Financial Reporting....................................... .................................... 45
State M andates.............................................................................................................. ........... 45
Education R reform ...............................................................................................................45
H om estead Exem option ....................................................................................................... 46
Special D districts ................................................................................................................. 47
Chapter 5: Findings & Recommendations ............................................... ....49


List of Tables

Commission Formal Responsibilities ....................................................................................iv
1990 Taxation and Budget Reform Commission Members..................................................v-vi
Four Steps to Reform............................................................................................................... 5
Major Economic Growth Indicators: U.S. vs. Florida .......................................... ............. 12
Examples of Spending Growth .............................................................................................. 14
Joint Committee Membership ..............................................................................................37
Sales Tax Burden: Existing Law vs. Services ................................... ............................... 38
Value of State Tax Exemptions Recommended for Repeal ................................... ............ 39


List of Graphs

Percent of General Revenue Due to Tax Law Changes Since 1980 ......................................... 14
Spending Scenarios vs. Total Revenues .............................................................................. 16
County & City Police & Fire Expenditures ...................................................................... 18
Judiciary and Article V Related Expenditures................................... ................................ 19
Projected City and County Surplus/Deficit ............................................................................21
State General Revenue Taxes by Type ................................................................................24
State and Local Taxes as Percent of Income ................................... .......................................25
General Revenue as a Percent of Personal Income .............................................. .............. 26
Growth in Taxable Sales FY 1971 to FY 1991 ..........................................................................28
Effective Tax Rates by Income Class ..................................................................................... 30
Florida Corporations by Organization Type ..........................................................................32
Distribution of Business Taxes by Industry ...........................................................................40
Income Tax With Sales Tax Rollback ........................................ .........................................42


= Florida's Fiscal Future











Preface


EHE concept of creating
a commission of citizens
to evaluate and
recommend reforms in Florida's
tax and budgeting systems was
born in a year of economic
prosperity, 1987. The
motivation was that the robust
state economy was apparently
growing faster than
government's ability to meet the
demands for infrastructure and
services. In 1987, the State
Comprehensive Plan
Committee report estimated
that in order to implement the
state comprehensive plan by
1997, the state would need an
additional $35 billion and local
government would need $17.9
billion. Efforts to provide
funding for infrastructure
through the short-lived services
tax left the state wracked by
political turmoil and
uncertainty about funding
future growth even though the
Legislature substituted an
additional one penny of sales
tax as a replacement for the
services tax.
Within that economic and
political climate, 57% of the
voters in the November 1988,
election agreed that a tax and
budget reform commission
must be created. Following the
passage of an implementing bill,
the Governor, President of the
Senate, and Speaker of the
House appointed the 25 voting
members who held their
inaugural meeting in April
1990, in the Old Capitol.
Subsequently, these 25 were
joined by four non-voting
legislative members, two from
the House and two from the


Senate, and together they began
to fulfill the mandate given to
them by the people of Florida.
Less than a year later the
economic environment shifted
as Florida followed the national
economy into a recession that
still persists. By April 1991,
Florida was one of 30 states
facing deficits projected by the
National Conference of State
Legislatures to range from 0.9%
to 12.8%. Although modest
compared to other high-growth
states, California-$12.6 billion
and Texas-$4.6 billion, the
$1.029 billion shortfall in
Florida required painful budget
cuts in the 1990-91 fiscal year by
the Governor and Cabinet. Tax
and budget reform assumed a
new sense of urgency as it
became evident that Florida's
1990-91 recession, unlike the
1981-82 recession, was deeper
than the national recession and
could last longer.
The Taxation and Budget
Reform Commission
established its plan of action
before the onslaught of the
recession. In the minds of
Commissioners, reform of the
state budgeting and spending
practices became the top
priority. This decision was
supported by evidence from
public hearings, opinion polls,
and the media showing that
most voters thought
government was wasteful and
inefficient. Tax increases each
year in the decade of the 1980's
probably fueled the pessimism.
For example, the Florida Poll
conducted by Florida
International University in 1989
revealed that 93.1% of the


people believed government
wasted "some" or "a lot" of
money. In the midst of the
1991 recession, that percentage
increased to 95.3%. Public
confidence in government
budgeting and spending was so
abysmal that in spite of the
much publicized budget
slashing by the Governor and
Cabinet and a $1 billion
reduction by the 1991
Legislature, 50% of the voters
questioned in a May 1991, New
York Times poll believed there
was no shortage of money in
Tallahassee. Actually in the
midst of the ravages of the
recession and the revenue
shortfalls, per capital state
spending in 1991-92 will be
slightly higher than the previous
year.
The Commission's report
released in February 1991, A
Program for Reform of Florida
Government, presented 14 major
proposals, most of which
addressed the problems and
deficiencies of Florida's
budgeting and spending
practices. Aside from the
inefficiencies, absence of a
system to prioritize the use of
funds, and lack of account-
ability, which the Commission
wishes to correct, the proposals
are also designed to make
government transparent and
understandable. The public
cannot trust what it does not see
and understand. These goals
require the implementation of a
budgeting process that subjects
all government programs to
routine re-evaluation,
establishes the priorities for
funding, and measures the


-'lndall scale I futuree =








































outcomes or results. The
Commission is convinced that
the public is unwilling to
address tax reform or the
possible need for additional
revenue until convinced that the
state is using current revenue
more efficiently. The desire to
have budget reforms precede tax
increases was supported by the
respondents in an April 1991,
poll by TaxWatch, Inc. with
only 24% opposing.
There was hope that the
Legislature would see the
wisdom of carrying out budget
reform while the Commission
moved beyond budget reform
to its analysis of the tax system.
Unfortunately, some legislators
criticized the Commission's
attempts to improve the way the
Legislature budgets and spends
money, and few of the


Commission's recommenda-
tions were enacted into statute.
The budget reforms, if ignored
again by the Legislature in 1992,
could and should be placed on
the 1992 ballot for adoption by
the voters.
The constitution requires
the Commission to make the
following determinations about
the tax system: 1) the
appropriateness of the tax
structure; 2) the ability of state
and local government to tax and
adequately fund governmental
operations and capital needs
until the year 2000; 3) the extent
of the need for revenue until the
year 2000; 4) the ways to
effectively gather additional
revenue from existing tax
sources; 5) the constitutional
restrictions on taxes; and 6) the
methods favored by citizens to


fund the needs of the state,
including alternate methods of
raising revenue.
Tax reform, as interpreted
by the Commission, does not
necessarily mean new taxes.
The Commission conducted its
analysis of the tax system within
the context of revenue
neutrality. In other words, the
primary goal is to make the tax
structure more stable and
equitable, keeping in mind that
there must be a balance between
needs, taxes, and the ability and
willingness of the people to
support government
expenditures. The Commission
believes these changes in the tax
system must be made with a
keen awareness that economic
growth for Florida and the
nation will be slower in the


= Florida's Fiscal Future


Florida Taxation and Budget Reform Commission
Formal Responsibilities


Under Article XI, Section 6, the Commission shall:
1. Be established in 1990 and each tenth year thereafter.
2. Be composed of 25 voting non-legislative members and 4 non-voting legislative
members. (Composition specified in Constitution.)
3. Elect a non-legislative member at its first meeting to serve as Chairman
4. Adopt rules of procedure at its first meeting.
5. Hold public hearings as its deems necessary.
6. Issue a report of the results of the review it carries out.
7. Propose to the Legislature recommended statutory changes related to the
taxation or budgetary laws of the state.
8. File with the Secretary of State its proposal, if any, for a revision to the
Constitution dealing with taxation or the state budgetary process, not later
than 180 days prior to the general election in the second year following the
year in which the Commission is established. (May 7, 1992)
9. Vote on proposed constitutional revisions by an affirmative vote of two-thirds of
the full Commission (or 17 members) and with the concurrence of a majority
of the members appointed by the Governor (6 members), the President of the
Senate (4 members) and the Speaker of the House of Representatives (4
members). (Members are exempt from the prohibition on dual office holding
established in Section 5(a), Article II of the Constitution.)










1990's than it was in the
previous decade.
Analysis of the existing tax
system has been an ongoing
process by the Commission and
its staff since April 1990.
Information and testimony
came from government and
private sector economists,
legislators and other state
officials, private citizens, and


consultants employed by the
Commission. Issues examined
included the heavy reliance on
the sales tax (70% of General
Revenue), the growing myriad
of sales tax exemptions,
corporate income tax
exemptions, the regressive
impact of the tax system across
income groups, and the lack of
stability and predictability. This


report represents the findings of
the Commission and the
recommendations being
forwarded to the Governor and
the Legislature. As indicated in
the report, some of these
recommendations will be
subjected to additional analysis
and debate prior to any final
decision to propose them as
constitutional amendments.


1990 Taxation and Budget Reform Commission Members
(appointing authorities indicated)


Mr. Hugh A. Anderson (Senate) of Ft.
Lauderdale is president of Hugh
Anderson Realty, Inc. in Ft. Lauderdale.
Mr. Hoyt R. "Barney" Barnett (Governor)
of Lakeland is the executive vice
president of Publix Supermarkets.
Ms. Martha W. Barnett (Governor) of
Tallahassee is a partner with the
Holland and Knight law firm.
Dr. James A. Bax (Senate) of Long Boat
Key is president of ACSI, Inc., a
national professional testing company.
Mr. Jacob C. Belin (Governor) of Port St.
joe is president of The Nemours
Foundation.
Mr. F. Philip Blank (House) of Tallahassee
is president of F. Philip Blank, P.A., a
law firm based in Tallahassee.
Mr. R. Mark Bostick (Senate) of Winter
Haven is president of Comcar
Industries, Inc., of Auburndale.
Mr. Bill L. Bryant, jr. (Governor) of
Tallahassee is a partner in the law firm
of Foley & Lardner.
Ms. Linda W. Chapin (House) of Orlando
is chairman of Orange County.
(Resigned replaced by Dr. Adam
Herbert)
Mr. Miles C. Collier (Governor) of Naples
is the managing partner of Collier
Enterprises, a financial asset
management, land development and
agricultural firm.


Mr. E. William Crotty (House) of Daytona
Beach is a senior partner in the law firm
of Black, Crotty, Sims, Hubka, Burnett
& Samuels.
Mr. Andrew L. Duda (Governor) of
Oviedo is the executive vice president
of A. Duda and Sons, an agricultural
and land development firm.
Mr. David W. Dunbar (Governor) of
Dunedin is the owner of Dunbar
Corporation, a financial consulting and
development firm in Palm Harbor.
Dr. Adam W. Herbert (House) of
Jacksonville is the president of the
University of North Florida.
Mr. Homer Hooks (Senate) of Lakeland is
Chairman of The Hooks Group, Inc., a
communications consulting firm.
The Honorable Ken jenne (D) of Ft.
Lauderdale is currently serving his 11th
year with the Florida Senate. He is
chairman of the Senate Finance and
Tax Committee.
The Honorable Bob Johnson (R) of
Sarasota is currently serving his second
term in the Florida Senate and had
been a member of the House of
Representatives for four terms.
(Resigned replaced by The Honorable
Curtis Kiser)
Mr. Seth P. Joseph (Senate) of Ft.
Lauderdale is a partner in the Miami
law firm of Baker McKenzie.


PFortdds haia Future =


I










1990 Taxation and Budget Reform Commission Members
(appointing authorities indicated)


Mr. Allan J. Katz (House) of Tallahassee is
the managing partner of Katz, Kutter,
Haigler, Alderman, Davis, Marks &
Rutledge law firm.
The Honorable Curtis Kiser (R) of Dunedin
(Pinellas County) is in his second term
in the Florida Senate. He served in the
House of Representatives for 10 years,
4 as minority leader.
Mr. Charles E. LeCroy (Governor) of
Winter Park is senior vice president of
Lehman Brothers, a national
investment banking firm.
The Honorable Joseph R. "Randy" Mackey
(D) of Lake City was first elected to the
Florida House of Representatives in
1986. (Resigned replaced by The
Honorable Ron Saunders)
The Honorable Carrie Meek (D) of Miami
is currently serving her second term in
the Florida Senate and had previously
been a member of the House of
Representatives for two terms.
(Resigned replaced by The Honorable
Ken jenne)
Mr. Peter W. Mettler (Governor) of Palm
Beach is a partner in the law firm of
Mettler and Gilson.
Mr. H. Lee Moffitt (House) of Tampa is
former speaker of the Florida House of
Representatives and currently Chairman
of the Board of Moffitt, Hart & Herron
law firm. (Resigned replaced by E.
William Crotty)
Ms. Marta Prado (House) of Plantation is
vice president of marketing and
business development for EMSA
Limited Partnership.


Mr. Thompson L. Rankin (Senate) of
Tampa is the chairman of the board,
president and chief executive officer of
Lykes Brothers, Inc. and Shore
Management, Inc.; chairman and CEO
of 7L Corporation and Lykes Energy,
Inc.; director and vice-chairman of First
Florida Banks, Inc. Mr. Rankin is the
Commission Chairman.
The Honorable Debby P. Sanderson (R) of
Fort Lauderdale has served as a
member of the Florida House of
Representatives since 1982.
The Honorable Ron Saunders (D) of Key
West was first elected to the Florida
House of Representatives in 1986. He
is chairman of the House Appropria-
tions Committee.
Mr. Tom H. Slade (Governor) of Orange
Park is president of Dozier and Gay
Paint Company in Jacksonville.
Mr. Arthur E. Teele, Jr. (Governor) of
Miami is a member of the Dade
County Commission.
Mr. Parker Davidson Thomson (House) of
Miami is the senior partner of the law
firm Thomson, Muraro, Bohrer &
Razook, P.A.
Mr. Pat Tornillo (Senate) of Miami is the
president of the Florida Education
Association United, executive vice
president of the United Teachers of Dade
and vice president of the American
Federation of Teachers.
Mr. Steven J. Uhlfelder (House) of
Tallahassee is a partner in the law firm
of Steel, Hector and Davis.


- IFlorida Fiscal Future







CHAPTER ONE


Executive Summary


NHE Taxation and
Budget Reform
Commission has a dual
responsibility which is clearly
indicated by its name. Both tax
reform and budget reform are
needed, but budget reform
came first on the Commission's
agenda because it seemed
reasonable to begin with an
analysis of how current tax
dollars are budgeted and spent.
This decision was reaffirmed by
the strong, recurring message
from the public that too much
tax money wa~, being wasted or
spent unwisel\. Any proposed
tax reform would be doomed to
a negative public reception
unless preceded by a responsible
effort to improve a state
budgeting and spending system
which the public perceived as
wasteful.
As the Commission
completed its analysis of the
budgeting and spending system
and submitted Findings and
Recommendations to the
Legislature in February 1991, in
an effort to improve the system,
its next challenge was to define
tax reform. To some people in
government tax reform means
finding ways to raise more
money in order to meet the
immediate demands. To take
such a simplistic approach
would be an injustice to the
citizens of Florida who created
this Commission. Any attempt
to meet the immediate needs of
the present would only
temporarily obscure serious
flaws in the fiscal system and
merely delay the onset of more


acute revenue problems within
a few years. For the
Commission's work, tax reform
means that the requests for
more money now have to be set
aside in order to concentrate on
the fundamental structure and
underlying principles of the


The analysis reveals that
Florida has a tax
structure problem.
But the state also has
a spending problem.

existing tax system. Tax reform
means that several basic
questions about the existing
system have to be addressed,
such as:
* Is the existing tax system
basically fair?
Does the system extract a
reasonable or unreasonable
amount of taxes from
Floridians?
Does the growth of the tax
system closely track the
growth of the Florida
economy without frequent
and confusing tax changes?
Does the system encourage or
discourage job creation in
Florida?
Does the system create
competitive disadvantages for
Florida business?
Does the system export a
sufficient amount of the tax
burden to tourists and out-of-
state businesses who benefit
from services provided in
Florida?


Since February 1991, the
Commission and its staff have
been engaged in two separate,
but complimentary projects
related to taxes: 1) projecting
the revenue needs and
expenditures of the state and 2)
examining the tax system in
order to determine its
appropriateness and adequacy.
The analysis reveals that Florida
has a tax structure problem.
But the state also has a spending
problem.
In this report the Commis-
sion has attempted to define the
issues and problems and to offer
recommendations for
addressing both.

Revenue Needs and Spending
Patterns
The Commission found it
impossible to estimate spending
growth based upon revenue
needs because the definition of
the term "needs" is subjective.
Trying to define needs requires
value judgements not only
about what government does,
but also about how much
money it spends in the effort.
The meaning of the term can be
influenced by economic and
political philosophy. Those
who benefit from a program
may have a different perspective
than those who pay for it. As a
result, the Commission
determined that the most
reasonable approach in
projecting or estimating the
revenue needs of Florida was to
analyze the spending patterns of
the decade of the 1980's. The
major findings were:


Floridacs Fiscal Future







CHAPTER ONE


Executive Summary


NHE Taxation and
Budget Reform
Commission has a dual
responsibility which is clearly
indicated by its name. Both tax
reform and budget reform are
needed, but budget reform
came first on the Commission's
agenda because it seemed
reasonable to begin with an
analysis of how current tax
dollars are budgeted and spent.
This decision was reaffirmed by
the strong, recurring message
from the public that too much
tax money wa~, being wasted or
spent unwisel\. Any proposed
tax reform would be doomed to
a negative public reception
unless preceded by a responsible
effort to improve a state
budgeting and spending system
which the public perceived as
wasteful.
As the Commission
completed its analysis of the
budgeting and spending system
and submitted Findings and
Recommendations to the
Legislature in February 1991, in
an effort to improve the system,
its next challenge was to define
tax reform. To some people in
government tax reform means
finding ways to raise more
money in order to meet the
immediate demands. To take
such a simplistic approach
would be an injustice to the
citizens of Florida who created
this Commission. Any attempt
to meet the immediate needs of
the present would only
temporarily obscure serious
flaws in the fiscal system and
merely delay the onset of more


acute revenue problems within
a few years. For the
Commission's work, tax reform
means that the requests for
more money now have to be set
aside in order to concentrate on
the fundamental structure and
underlying principles of the


The analysis reveals that
Florida has a tax
structure problem.
But the state also has
a spending problem.

existing tax system. Tax reform
means that several basic
questions about the existing
system have to be addressed,
such as:
* Is the existing tax system
basically fair?
Does the system extract a
reasonable or unreasonable
amount of taxes from
Floridians?
Does the growth of the tax
system closely track the
growth of the Florida
economy without frequent
and confusing tax changes?
Does the system encourage or
discourage job creation in
Florida?
Does the system create
competitive disadvantages for
Florida business?
Does the system export a
sufficient amount of the tax
burden to tourists and out-of-
state businesses who benefit
from services provided in
Florida?


Since February 1991, the
Commission and its staff have
been engaged in two separate,
but complimentary projects
related to taxes: 1) projecting
the revenue needs and
expenditures of the state and 2)
examining the tax system in
order to determine its
appropriateness and adequacy.
The analysis reveals that Florida
has a tax structure problem.
But the state also has a spending
problem.
In this report the Commis-
sion has attempted to define the
issues and problems and to offer
recommendations for
addressing both.

Revenue Needs and Spending
Patterns
The Commission found it
impossible to estimate spending
growth based upon revenue
needs because the definition of
the term "needs" is subjective.
Trying to define needs requires
value judgements not only
about what government does,
but also about how much
money it spends in the effort.
The meaning of the term can be
influenced by economic and
political philosophy. Those
who benefit from a program
may have a different perspective
than those who pay for it. As a
result, the Commission
determined that the most
reasonable approach in
projecting or estimating the
revenue needs of Florida was to
analyze the spending patterns of
the decade of the 1980's. The
major findings were:


Floridacs Fiscal Future






CHAPTER ONE


* State spending increased by
196% from 1980 to 1990.
After adjustments for
inflation and population
growth, it grew 35%.
In years when the sales tax
revenue increased by as much
as 23.75% over the previous
year, rather than placing some
of the growth revenue in the
Rainy Day or Working
Capital Fund for use in years
when revenue was down, all
the growth revenue was spent
and the Legislature also raised
taxes.
Taxes were increased every
year during the 1980's, over
40 changes, by an average of
3% per year in addition to the
average 9.3% growth of the
existing revenues.
State agencies typically
prepare budgets by adding
growth dollars to last year's
annualized budget. They are
not required to prioritize their
budget, prepare cost-benefit
analyses, or have an
evaluation of the efficiency
and effectiveness of their
programs.
New programs were
introduced, in some cases
over-lapping existing
programs, without addressing
the issue of how to resolve the
duplication and without
projecting the long-term fiscal
impact.
The Legislature expanded the
eligibility of programs like
AFDC and Medicaid without
projecting the long-term
consequences.
* Based upon Commission
projections, if, in a non-
recessionary economy,
current state policies were
maintained without change


and General Fund spending
increased only as fast as the
increase in population and
inflation, a one-half cent
increase in the sales tax would
be adequate to fund the
General Fund cumulative
deficit predicted by the year
2000.
Based upon Commission
projections, if, in a non-
recessionary economy,
current state policies were
maintained without change
and General Revenue
spending increased at the
same rate as in the decade of
the 1980's, a 4.85 cent sales
tax increase would be
necessary to fund the General
Fund cumulative shortfall
predicted by the year 2000. If
General Fund and Trust Fund
spending increased at the
growth rate of the 1980's, a 10
cent increase in the sales tax
could be required.
* In the decade of the 1980's,
expenditures for counties
grew at an average annual
compound rate of 12.6%, and
for cities by 9.1%.
* If current spending patterns
for counties and cities
continue as projected,
counties and cities, in the
aggregate, will experience
collective deficits by the mid-
1990's.
* Florida's economy, like that of
the nation, is predicted to
grow at a much slower pace in
the 1990's than in the
previous decade.
Florida's Tax System
The Commission con-
ducted a comprehensive
analysis of Florida's state and
local tax structures, making use
of data from outside consultants


to supplement the vast amount
of information gathered by the
Commission since April 1990.
In its evaluation the Commis-
sion used its High Quality
Revenue System Criteria which
included such issues as equity,
stability, balance, and predict-
ability.
* Florida is a low tax state,
ranking below 44 other states
in the amount of state and
local taxes per capital as a
percent of personal income.
* State taxes as a percent of
personal income remained at
4.1% during the decade of the
1980's despite many tax
increases.
* The existing tax system
produced more revenue in
1991-92 than the previous
year in spite of the recession
and budget cuts.
* The tax system is not
balanced. According to tax
experts, there are three tax
bases to tax but Florida taxes
only two, consumption and
wealth, since this is one of
only 6 states without a
personal income tax.
* Florida's tax system is not
stable because of its heavy
reliance on the sales tax.
While the average state gets
about one-third of its General
Revenue from the sales tax,
Florida gets about 70%, the
highest percentage in the
nation.
* Taxable sales fluctuate much
more dramatically than the
rise and fall of the economy.
Between 1980 and 1991 the
variation in sales tax revenue
ranged from 16.8% in 1983-
84 to 0.1% in 1990-91.
* Florida's heavy taxation of
consumption causes the tax


= Florida's Fiscal Future










system to be regressive, i. e.
lower income groups spend a
higher percentage of their
income on taxes than upper
income groups, ranging from
an effective tax rate of 5.9%
on low income families to
1.7% on families with
incomes above S100,000.
SFlorida's tax structure
discriminates against
businesses based upon type of
organization. For example,
the principle business tax, the
corporate income tax, does
not treat all businesses fairly.
Less than 2500 of Florida
businesses are C corporations,
and 90% of the taxes are paid
by less than 2.5% of them.
Subchapter S corporations,
partnerships, and
proprietorships are exempt
from the tax, although they
benefit from government
services as ( corporations do.
SFlorida is not collecting
approximately $750 million in
sales tax and $200 million in
intangible taxes owed by
businesses and individuals.
Commission Recommendations
Having conducted its
examination of the tax systems
of state and local governments,
the Commission adopted
several recommendations for
legislative action. The
Commission also placed several


proposals on its Constitutional
Calendar for further examina-
tion and discussion prior to a
final decision to propose them
as constitutional amendments.
Proposals on the Constitutional
Calendar are subject to revision
or rejection based upon further
Commission action following
input from the public, the
Legislature, and the Governor.

The recession has
demonstrated
dramatically how
erratic and unpredict-
able consumption tax
revenue can be.
At the same time,
the recession has
demonstrated that the
design of a tax system,
in terms of balance,
equity, and predictabil-
ity, cannot by itself offer
an ultimate solution.

Florida is one of at least 30
states which are currently
experiencing fiscal crisis and
actually has less serious
problems than the three most
populous states-California,
New York, and Texas-and
some of the smaller states like


EXECUTIVE SUMMARY


Connecticut or even Maine
where the Governor is laying-off
20% of the state workers and
abolishing 30 departments. It is
a fortuitous coincidence that the
Commission has been analyzing
Florida's tax system during a
recession because the recession
has demonstrated dramatically
how erratic and unpredictable
consumption tax revenue can
be. At the same time, the
recession has demonstrated that
the design of a tax system, in
terms of balance, equity, and
predictability, cannot by itself
offer an ultimate solution.
California has a balanced tax
system which has been
considered fair and stable, but
California also had a shortfall of
almost $14 billion.
Despite a strong economy
through most of the decade of
the 1980's, each year the growth
in state spending exceeded
increases in state revenue,
resulting in annual tax
increases. The United States
and the state of Florida are
predicted to experience a slower
rate of growth in the 1990's, and
probably beyond. If Florida's
state government continues to
increase spending growth at the
same rate that it did in the
1980's, it will outspend the
revenue of any tax system, no
matter how stable, predictable,
or equitable.


Flori hscal FIuture







CHAPTER TWO


Budget & Spending Reform


EHE initial challenge for
any constitutional
revision commission is
to determine which issues
should be addressed. For the
Taxation and Budget Reform
Commission, the issues
emerged from the extensive
reading and testimony in the 26
meetings of the Commission
and its committees between
April and October 1990.
Desiring to provide an increased
opportunity for the public to
add its views to that of the
experts, the Commission also
held public hearings in Tampa
and Miami. Commissioners
received not only an intensive
education on issues related to
Florida's tax system and the
state's budgeting and spending
practices, but they also found a
clear, strong sentiment
expressed by the public in those
hearings and in opinion polls:
"the state wastes too much
money through inefficiency and
misplaced priorities, and we are
not willing to pay more taxes
until we are convinced that
current dollars are being used
more efficiently and wisely."
The constitution requires
the Commission to examine the
budgeting and spending
practices of the state and to
examine government efficiency
and productivity, but the voice
of the public helped make these
issues the Commission's first
priority. Furthermore, the
Commissioners themselves had
become convinced that the
planning, budgeting, and
spending system that had
evolved in Florida over the past


century had many deficiencies,
such as:
* The State Comprehensive
Plan does not provide
guidance to state planning,
policy, or spending, and is
not regularly updated;
Agency Functional Plans do
not provide policy makers
with information to assess
the priorities or
performance of agencies or
the need for new programs,
and are ignored in the
budgeting process;
The Governor lacks
adequate authority over
and responsibility for
budgets of agencies under
his control;
The Legislative branch is
exempt from the
requirements of the
budgeting law;
The state does not have a
unified accounting and
management information
system;
The General
Appropriations Bill format


does not provide an easily
understood break-down of
state expenditures and not
all appropriations are in it;
Approximately 60% of the
state appropriations are in
trust funds which reduces
public scrutiny, discourages
the routine re-evaluation of
spending priorities, and
protects programs from
budget cuts during revenue
shortfalls;
Legislators and the public
are frequently given too
little time to review the
Conference Committee
Report before the vote;
There are no performance
measures with which to
evaluate productivity and
efficiency; and
The Working Capital or
"Rainy Day" Fund is too
small to provide much
assistance during
recessions.
The Commission and its
four committees devised plans
to improve the way Florida


Florida' I iscal I uture


Four Steps to Reform

The Commission identified four steps to reforming state
government:
1. Review the existing situation.
How do we spend taxpayer dollars?
What do we spend it on?
Where do the dollars come from?
2. Fix what is broken before spending more money.
3. Make the existing revenue system more equitable.
4. Examine the need for the means of raising
additional revenue.







CHAPTER TWO


budgets and spends the
taxpayers' money and, in the
process, to restore public
confidence. In the 35 meetings
held from November 7, 1990, to
February 6, 1991, the Commis-
sion and its committees
developed 14 major proposals,
each with several recommenda-
tions. Accountability, an
essential element in a well-
functioning representative
government, became a major
theme. First, the proposals
require effective planning to
identify clearly the goals,
methods, costs, and results of
government spending. Second,
they outline ways to make the
budgetary and spending process
more transparent and
understandable to the people.
Third, they recommend that the
budget system be modernized in
terms of the role of the
Executive and in the accounting
and management information
systems. Fourth, there are
recommendations to introduce
operational flexibility for
agencies. Finally, the proposals
link plans, budgets, and
appropriations to performance
measures.
The Commission presented
its recommendations to the
Governor, President of the
Senate, and Speaker of the
House on February 25, 1991, in
the form of a published report,
A Program for Reform of Florida
Government. The recommenda-
tions were submitted in bill
form; however, the bill filing
deadline had passed. Subse-
quently, the Speaker did permit
a hearing for some of the
proposals in the Appropriations
Committee, and the House and
Senate informally used a few of
the recommendations during


the session. Most of the
Commission's proposals,
however, were not debated, and
none of the substantive reforms
passed into law. The Legislature
enacted annual budgeting,
"truth in budgeting," and some


Florida voters want

budget reform before
they will accept tax
increases.

changes in the performance
audit process. The Commission
is more optimistic about the
1992 session since the Governor
has called for budget reform,
and the chairs of the House and
Senate Appropriations
committees have introduced the
Commission's budget reform
bill and are conducting
hearings.
The Commission believes
Florida voters want budget
reform before they will accept
tax increases. That view was
substantiated by an April 1991,
Mason-Dixon poll of 1,109
voters in the state which
indicated people favored budget
reform before tax increases by a
margin of 59% to 24%. A
Program for Reform of Florida
Government provides a detailed
analysis of the problems of the
existing budgeting and spending
system and the proposed
improvements, but summaries
of the Commission's proposals
to improve that system are
provided below.

State Comprehensive Plan and
Agency Functional Plan Process
The State Comprehensive
Plan (SCP) was intended to


direct the state's long-term
planning, but it is ignored and
not updated. The Executive
Office of the Governor (EOG)
shall recommend revisions to
the SCP by October 1 of every
odd numbered year. These
revisions shall be developed
with a task force comprised of
staff members from the state,
regional, and local planning
communities and interested
private citizens, plus representa-
tives appointed by each Cabinet
officer, the President of the
Senate, and the Speaker of the
House. The revisions shall
address the existing 26 goals and
policies and include new
program areas, such as
government productivity and
information resources
management.
The revised SCP shall be
presented to the Administration
Commission by November 1 of
odd numbered years and to the
Legislature by December 15.
The revised SCP shall go into
effect on July 1 of the subse-
quent even numbered year,
subject to legislative amend-
ments, unless the Legislature re-
adopts the existing SCP.
The Governor shall report
annually on the state's progress
in furthering the goals of the
SCP. The report shall be made
as a part of the Governor's State
of the State Address and in a
detailed written report which
shall include the "Florida
Benchmark Measures" and a
section on capital facilities
planning and budgeting. In
addition, the Governor shall
publish by February 1, of each
odd numbered year a "Trends
and Conditions Report" which
shall project the long-term


S. Florida's Fiscal Future







B BUDGET & SPENDING REFORM


trends and conditions affecting
the state and the SCP.
Each state agency shall be
required to submit annually to
the EOG by August 1, an
Agency Functional Plan (AFP)
consistent with the SCP which
contains a mission statement, a
trends and conditions
statement, agency priority
issues, agency\ objectives with
strategies for achieving them,
and a "Florida Benchmark
Measures" section. AFP's shall
provide the framework for
agency budget requests and
shall contain program
measures. Each AFP shall have
a s year outlook and shall
include input from local and
regional governments.

Implement the Office of Policy
Analysis and Agency Review
The Legislature should
implement the Office of Policy
Analysis and Agency Review in
order to subject state agencies to
an agency evaluation and
justification review every 7 to 15
years. This review shall include
programs, performance, and the
policies upon which agency
activities are based. The Agency
Functional Plans, as revised
under the Commission's
recommendation above, would
be included in the criteria for
evaluation of performance.
Government needs this process
to determine it programs are
achieving the ,oals for which
they were created, to determine
which programs should still be
priorities, and to determine if
the goals could be achieved
more efficiently and effectively
in another way.


Executive Branch Budget
Authority
The Executive shall be
authorized to reduce state
spending in the event of
revenue shortfalls in order to
maintain a balanced budget as
required by the constitution in
article VII, section 1 (d). This
is essential for orderly and
efficient fiscal management,
and the constitution should be
amended to specifically
authorize the action because of
the recent Supreme Court
decision. Furthermore, the
Governor as Chief Budget
Officer of the state shall be
authorized to review and
recommend revisions to the
budget request of the
Legislative Branch in the
Governor's Recommended
Budget according to the same
process used for the Executive
and Judicial Branches.
The Governor shall require
agencies to develop annually by
September 15, "target budgets"
within the existing revenues
projected for the upcoming
fiscal vear and with budget
issues prioritized. The
Governor shall be authorized to
add, delete, or modify budget
issues in the Legislati e Budget
Request (IBR) for the agencies
under the Governor's direct
supervision. Planning and
Budgeting Instructions shall be
developed jointly by the FOG
and the House and Senate
Appropriations Committees
and shall require cost benefit
and/or cost effectiveness
analyses and audit criticisms
and/or recommendations to be
addressed in the LBR. All
budget documents shall include


a "truth in budgeting"
statement which provides a
summary of currently estimated
fees, taxes, and revenues or
other income and a summary of
any additional fees, taxes,
revenues, or other income
necessary to fund the proposed
budget.
In order to improve
operational flexibility, the
Administration Commission
shall be authorized to create or
consolidate divisions of state
agencies without legislative
approval and shall be allowed to
delegate authority to the EOG
regarding the oversight of state
budgets. State agencies shall be
authorized to transfer up to
10% of their approved budget
(appropriations, positions, and
salary rate) within each major
fund type without the approval
of the Governor, Administration
Commission, or Legislature.
The state shall implement
generally accepted accounting
principles (GAAP) into the
budgeting process within 3
years. Until GAAP is used by all
agencies, a reconciliation
methodology shall be developed
by the Governor's Office of
Planning and Budgeting (OPB),
the Comptrollers office, and the
Auditor General's office for the
budgeting and appropriations
process. The state shall fully
implement all components of
the Florida Fiscal Accounting
Management Information
System Act (FFAMIS) within 5
years in order to have a unified
financial management system
which can be a key component
in a decision support system.
The state shall also develop a
system to track and monitor the
receipt and expenditure of all


I I I







B BUDGET & SPENDING REFORM


trends and conditions affecting
the state and the SCP.
Each state agency shall be
required to submit annually to
the EOG by August 1, an
Agency Functional Plan (AFP)
consistent with the SCP which
contains a mission statement, a
trends and conditions
statement, agency priority
issues, agency\ objectives with
strategies for achieving them,
and a "Florida Benchmark
Measures" section. AFP's shall
provide the framework for
agency budget requests and
shall contain program
measures. Each AFP shall have
a s year outlook and shall
include input from local and
regional governments.

Implement the Office of Policy
Analysis and Agency Review
The Legislature should
implement the Office of Policy
Analysis and Agency Review in
order to subject state agencies to
an agency evaluation and
justification review every 7 to 15
years. This review shall include
programs, performance, and the
policies upon which agency
activities are based. The Agency
Functional Plans, as revised
under the Commission's
recommendation above, would
be included in the criteria for
evaluation of performance.
Government needs this process
to determine it programs are
achieving the ,oals for which
they were created, to determine
which programs should still be
priorities, and to determine if
the goals could be achieved
more efficiently and effectively
in another way.


Executive Branch Budget
Authority
The Executive shall be
authorized to reduce state
spending in the event of
revenue shortfalls in order to
maintain a balanced budget as
required by the constitution in
article VII, section 1 (d). This
is essential for orderly and
efficient fiscal management,
and the constitution should be
amended to specifically
authorize the action because of
the recent Supreme Court
decision. Furthermore, the
Governor as Chief Budget
Officer of the state shall be
authorized to review and
recommend revisions to the
budget request of the
Legislative Branch in the
Governor's Recommended
Budget according to the same
process used for the Executive
and Judicial Branches.
The Governor shall require
agencies to develop annually by
September 15, "target budgets"
within the existing revenues
projected for the upcoming
fiscal vear and with budget
issues prioritized. The
Governor shall be authorized to
add, delete, or modify budget
issues in the Legislati e Budget
Request (IBR) for the agencies
under the Governor's direct
supervision. Planning and
Budgeting Instructions shall be
developed jointly by the FOG
and the House and Senate
Appropriations Committees
and shall require cost benefit
and/or cost effectiveness
analyses and audit criticisms
and/or recommendations to be
addressed in the LBR. All
budget documents shall include


a "truth in budgeting"
statement which provides a
summary of currently estimated
fees, taxes, and revenues or
other income and a summary of
any additional fees, taxes,
revenues, or other income
necessary to fund the proposed
budget.
In order to improve
operational flexibility, the
Administration Commission
shall be authorized to create or
consolidate divisions of state
agencies without legislative
approval and shall be allowed to
delegate authority to the EOG
regarding the oversight of state
budgets. State agencies shall be
authorized to transfer up to
10% of their approved budget
(appropriations, positions, and
salary rate) within each major
fund type without the approval
of the Governor, Administration
Commission, or Legislature.
The state shall implement
generally accepted accounting
principles (GAAP) into the
budgeting process within 3
years. Until GAAP is used by all
agencies, a reconciliation
methodology shall be developed
by the Governor's Office of
Planning and Budgeting (OPB),
the Comptrollers office, and the
Auditor General's office for the
budgeting and appropriations
process. The state shall fully
implement all components of
the Florida Fiscal Accounting
Management Information
System Act (FFAMIS) within 5
years in order to have a unified
financial management system
which can be a key component
in a decision support system.
The state shall also develop a
system to track and monitor the
receipt and expenditure of all


I I I







CHAPTER TWO


federal funds. All "double-
counting" shall be eliminated in
order to present an accurate
budget.

Appropriations Review Process
The Legislature shall require
that each agency's LBR be
reviewed by the appropriate
subcommittee of the Appro-
priations Committee of each
house and that the review
compare the major issues
included in each LBR to the
major issues in the Governor's
Recommended Budget. The
review process shall include a
review of the AFP of each
agency by appropriate legislative
committees. Each appropria-
tion in the General Appropria-
tions Act shall have line item
display in order to be available
for gubernatorial review and
possible veto.
Appropriations requests by
local governments, private
organizations, and non-profit
organizations shall be reviewed
by the appropriate subcommit-
tee of the Appropriations
Committee of both houses and
shall not appear in the
Conference Committee Report
unless it previously appeared in
either the House or Senate
Appropriations Bill. Requests
shall include a fiscal note which
reflects the projected costs of
operations and capital outlay
for the next 5 years and the
percentage of those funds to be
provided by the state. State
funds shall be conveyed as loans
to private organizations and
non-profit organizations, unless
the Legislature approves a grant,
and shall require local matching
funds appropriate for the size
and scope of the project and the
applicant's ability to pay. A


written contract shall specify
terms for release of the funds,
conditions related to interest
income, repayment schedule,
and interest rate, if any. The
organization shall provide with
the contract a copy of their
current budget, list of board of
directors, and project budget.

Annual Budgeting
The 1991 Legislature
adopted the Commission's
recommendation that the state
adopt an annual budgeting
process. The Commission
further recommends the LBR,
the Governor's Recommended
Budget, and the General
Appropriations Bill shall be
accompanied by data in the
Legislative Appropriations
System/Planning and Budgeting
System (LAS/PBS) showing
annualized cost.

General Appropriations Bill
Format
The state shall use a single
appropriations bill and a
separate section shall be
required for each of the
following program areas:
a. Education/Lottery
b. Education/all other funds
c. Human Services
d. Criminal Justice and
Corrections
e. Natural Resources,
Environment, Growth
Management, and
Transportation
f. General Government
g. Judicial Branch
Within each of the above
sections there shall be a separate
breakout for each of the
following types of expenditures:
a. State Operations
b. State Capital Outlay
c. Aid to Local Governments


and Non-Profit Organiza-
tions: Operations
d. Aid to Local Governments
and Non-Profit Organiza-
tions: Capital Outlay
e. Federal Funds and
Associated State Matching
Funds
f. Spending Authorizations:
Operations
g. Spending Authorizations:
Capital Outlay
All appropriations shall
appear in the General Appro-
priations Bill and shall be shown
in the totals of the General
Appropriations Bill.
General Appropriations Bill 72
Hour "Cooling Off' Period
Copies of the Conference
Report on the General
Appropriations Bill shall be
made available to members of
the Legislature and the general
public at least 72 hours before
it can be voted on by either
house of the Legislature. The
Conference Report on the
General Appropriations Bill
shall include all major issues
from the Summary Statement
of Intent and all documents or
working papers that will be
used to determine legislative
intent. It shall be forwarded to
the Governor no more than 72
hours after passage.
The EOG shall provide
annually a "final" budget after
vetoes which contains net
appropriations for each budget
item, estimated expenditures for
the current fiscal year, actual
expenditures for the 2 prior
fiscal years, actual and estimated
revenues and cash balances for
the two prior and the current
fiscal years, and a report on each
state agency program contain-
ing expenditure data, program


Florid Fr i scal Future







CHAPTER TWO


federal funds. All "double-
counting" shall be eliminated in
order to present an accurate
budget.

Appropriations Review Process
The Legislature shall require
that each agency's LBR be
reviewed by the appropriate
subcommittee of the Appro-
priations Committee of each
house and that the review
compare the major issues
included in each LBR to the
major issues in the Governor's
Recommended Budget. The
review process shall include a
review of the AFP of each
agency by appropriate legislative
committees. Each appropria-
tion in the General Appropria-
tions Act shall have line item
display in order to be available
for gubernatorial review and
possible veto.
Appropriations requests by
local governments, private
organizations, and non-profit
organizations shall be reviewed
by the appropriate subcommit-
tee of the Appropriations
Committee of both houses and
shall not appear in the
Conference Committee Report
unless it previously appeared in
either the House or Senate
Appropriations Bill. Requests
shall include a fiscal note which
reflects the projected costs of
operations and capital outlay
for the next 5 years and the
percentage of those funds to be
provided by the state. State
funds shall be conveyed as loans
to private organizations and
non-profit organizations, unless
the Legislature approves a grant,
and shall require local matching
funds appropriate for the size
and scope of the project and the
applicant's ability to pay. A


written contract shall specify
terms for release of the funds,
conditions related to interest
income, repayment schedule,
and interest rate, if any. The
organization shall provide with
the contract a copy of their
current budget, list of board of
directors, and project budget.

Annual Budgeting
The 1991 Legislature
adopted the Commission's
recommendation that the state
adopt an annual budgeting
process. The Commission
further recommends the LBR,
the Governor's Recommended
Budget, and the General
Appropriations Bill shall be
accompanied by data in the
Legislative Appropriations
System/Planning and Budgeting
System (LAS/PBS) showing
annualized cost.

General Appropriations Bill
Format
The state shall use a single
appropriations bill and a
separate section shall be
required for each of the
following program areas:
a. Education/Lottery
b. Education/all other funds
c. Human Services
d. Criminal Justice and
Corrections
e. Natural Resources,
Environment, Growth
Management, and
Transportation
f. General Government
g. Judicial Branch
Within each of the above
sections there shall be a separate
breakout for each of the
following types of expenditures:
a. State Operations
b. State Capital Outlay
c. Aid to Local Governments


and Non-Profit Organiza-
tions: Operations
d. Aid to Local Governments
and Non-Profit Organiza-
tions: Capital Outlay
e. Federal Funds and
Associated State Matching
Funds
f. Spending Authorizations:
Operations
g. Spending Authorizations:
Capital Outlay
All appropriations shall
appear in the General Appro-
priations Bill and shall be shown
in the totals of the General
Appropriations Bill.
General Appropriations Bill 72
Hour "Cooling Off' Period
Copies of the Conference
Report on the General
Appropriations Bill shall be
made available to members of
the Legislature and the general
public at least 72 hours before
it can be voted on by either
house of the Legislature. The
Conference Report on the
General Appropriations Bill
shall include all major issues
from the Summary Statement
of Intent and all documents or
working papers that will be
used to determine legislative
intent. It shall be forwarded to
the Governor no more than 72
hours after passage.
The EOG shall provide
annually a "final" budget after
vetoes which contains net
appropriations for each budget
item, estimated expenditures for
the current fiscal year, actual
expenditures for the 2 prior
fiscal years, actual and estimated
revenues and cash balances for
the two prior and the current
fiscal years, and a report on each
state agency program contain-
ing expenditure data, program


Florid Fr i scal Future







CHAPTER TWO


federal funds. All "double-
counting" shall be eliminated in
order to present an accurate
budget.

Appropriations Review Process
The Legislature shall require
that each agency's LBR be
reviewed by the appropriate
subcommittee of the Appro-
priations Committee of each
house and that the review
compare the major issues
included in each LBR to the
major issues in the Governor's
Recommended Budget. The
review process shall include a
review of the AFP of each
agency by appropriate legislative
committees. Each appropria-
tion in the General Appropria-
tions Act shall have line item
display in order to be available
for gubernatorial review and
possible veto.
Appropriations requests by
local governments, private
organizations, and non-profit
organizations shall be reviewed
by the appropriate subcommit-
tee of the Appropriations
Committee of both houses and
shall not appear in the
Conference Committee Report
unless it previously appeared in
either the House or Senate
Appropriations Bill. Requests
shall include a fiscal note which
reflects the projected costs of
operations and capital outlay
for the next 5 years and the
percentage of those funds to be
provided by the state. State
funds shall be conveyed as loans
to private organizations and
non-profit organizations, unless
the Legislature approves a grant,
and shall require local matching
funds appropriate for the size
and scope of the project and the
applicant's ability to pay. A


written contract shall specify
terms for release of the funds,
conditions related to interest
income, repayment schedule,
and interest rate, if any. The
organization shall provide with
the contract a copy of their
current budget, list of board of
directors, and project budget.

Annual Budgeting
The 1991 Legislature
adopted the Commission's
recommendation that the state
adopt an annual budgeting
process. The Commission
further recommends the LBR,
the Governor's Recommended
Budget, and the General
Appropriations Bill shall be
accompanied by data in the
Legislative Appropriations
System/Planning and Budgeting
System (LAS/PBS) showing
annualized cost.

General Appropriations Bill
Format
The state shall use a single
appropriations bill and a
separate section shall be
required for each of the
following program areas:
a. Education/Lottery
b. Education/all other funds
c. Human Services
d. Criminal Justice and
Corrections
e. Natural Resources,
Environment, Growth
Management, and
Transportation
f. General Government
g. Judicial Branch
Within each of the above
sections there shall be a separate
breakout for each of the
following types of expenditures:
a. State Operations
b. State Capital Outlay
c. Aid to Local Governments


and Non-Profit Organiza-
tions: Operations
d. Aid to Local Governments
and Non-Profit Organiza-
tions: Capital Outlay
e. Federal Funds and
Associated State Matching
Funds
f. Spending Authorizations:
Operations
g. Spending Authorizations:
Capital Outlay
All appropriations shall
appear in the General Appro-
priations Bill and shall be shown
in the totals of the General
Appropriations Bill.
General Appropriations Bill 72
Hour "Cooling Off' Period
Copies of the Conference
Report on the General
Appropriations Bill shall be
made available to members of
the Legislature and the general
public at least 72 hours before
it can be voted on by either
house of the Legislature. The
Conference Report on the
General Appropriations Bill
shall include all major issues
from the Summary Statement
of Intent and all documents or
working papers that will be
used to determine legislative
intent. It shall be forwarded to
the Governor no more than 72
hours after passage.
The EOG shall provide
annually a "final" budget after
vetoes which contains net
appropriations for each budget
item, estimated expenditures for
the current fiscal year, actual
expenditures for the 2 prior
fiscal years, actual and estimated
revenues and cash balances for
the two prior and the current
fiscal years, and a report on each
state agency program contain-
ing expenditure data, program


Florid Fr i scal Future







CHAPTER TWO


federal funds. All "double-
counting" shall be eliminated in
order to present an accurate
budget.

Appropriations Review Process
The Legislature shall require
that each agency's LBR be
reviewed by the appropriate
subcommittee of the Appro-
priations Committee of each
house and that the review
compare the major issues
included in each LBR to the
major issues in the Governor's
Recommended Budget. The
review process shall include a
review of the AFP of each
agency by appropriate legislative
committees. Each appropria-
tion in the General Appropria-
tions Act shall have line item
display in order to be available
for gubernatorial review and
possible veto.
Appropriations requests by
local governments, private
organizations, and non-profit
organizations shall be reviewed
by the appropriate subcommit-
tee of the Appropriations
Committee of both houses and
shall not appear in the
Conference Committee Report
unless it previously appeared in
either the House or Senate
Appropriations Bill. Requests
shall include a fiscal note which
reflects the projected costs of
operations and capital outlay
for the next 5 years and the
percentage of those funds to be
provided by the state. State
funds shall be conveyed as loans
to private organizations and
non-profit organizations, unless
the Legislature approves a grant,
and shall require local matching
funds appropriate for the size
and scope of the project and the
applicant's ability to pay. A


written contract shall specify
terms for release of the funds,
conditions related to interest
income, repayment schedule,
and interest rate, if any. The
organization shall provide with
the contract a copy of their
current budget, list of board of
directors, and project budget.

Annual Budgeting
The 1991 Legislature
adopted the Commission's
recommendation that the state
adopt an annual budgeting
process. The Commission
further recommends the LBR,
the Governor's Recommended
Budget, and the General
Appropriations Bill shall be
accompanied by data in the
Legislative Appropriations
System/Planning and Budgeting
System (LAS/PBS) showing
annualized cost.

General Appropriations Bill
Format
The state shall use a single
appropriations bill and a
separate section shall be
required for each of the
following program areas:
a. Education/Lottery
b. Education/all other funds
c. Human Services
d. Criminal Justice and
Corrections
e. Natural Resources,
Environment, Growth
Management, and
Transportation
f. General Government
g. Judicial Branch
Within each of the above
sections there shall be a separate
breakout for each of the
following types of expenditures:
a. State Operations
b. State Capital Outlay
c. Aid to Local Governments


and Non-Profit Organiza-
tions: Operations
d. Aid to Local Governments
and Non-Profit Organiza-
tions: Capital Outlay
e. Federal Funds and
Associated State Matching
Funds
f. Spending Authorizations:
Operations
g. Spending Authorizations:
Capital Outlay
All appropriations shall
appear in the General Appro-
priations Bill and shall be shown
in the totals of the General
Appropriations Bill.
General Appropriations Bill 72
Hour "Cooling Off' Period
Copies of the Conference
Report on the General
Appropriations Bill shall be
made available to members of
the Legislature and the general
public at least 72 hours before
it can be voted on by either
house of the Legislature. The
Conference Report on the
General Appropriations Bill
shall include all major issues
from the Summary Statement
of Intent and all documents or
working papers that will be
used to determine legislative
intent. It shall be forwarded to
the Governor no more than 72
hours after passage.
The EOG shall provide
annually a "final" budget after
vetoes which contains net
appropriations for each budget
item, estimated expenditures for
the current fiscal year, actual
expenditures for the 2 prior
fiscal years, actual and estimated
revenues and cash balances for
the two prior and the current
fiscal years, and a report on each
state agency program contain-
ing expenditure data, program


Florid Fr i scal Future







BUDGET & SPENDING REFORM


objectives, and program
measures.

Abolition of Selected Trust
Funds
The state is authorized to
maintain trust funds created by
the constitution and as required
for federal programs or
mandates; established for bond
covenants, indentures, or
resolutions; legally pledged by
the state or public body to meet
debt service or other financial
requirements of any debt
obligations of the state or any
public body; used as clearing
accounts or funds for the
Comptroller, the Department of
Revenue, or other state agencies;
and held by the state in a trustee
capacity as an agent or fiduciary
for individuals, private
organizations, or other
governmental units. The
Educational Inhancement Trust
Fund, Florida Retirement Trust
Funds, and State Transportation
Trust Fund shall be specifically
retained.
The Legislature shall review
and abolish other trust funds
and transfer the funds of each
into segregated accounts within
the General Fund. These
segregated accounts shall be
eligible to receive revenues to be
used for earmarked purposes.
The Governor shall be
authorized to change the
amounts appropriated from
segregated accounts in excess of
those in the approved budget
pursuant to the receipt of
federal funds or when grants
and donations are received after
the General Appropriations Bill
has been passed by the
Legislature or when deemed to
be in the best interest of the
state due to an emergency
situation. Any new trust fund


created after October 1, 1991,
shall be extinguished no later
than October 1, of the fourth
fiscal year of the trust fund's
existence and shall not be re-
enacted by the Legislature.

Working Capital Fund
Beginning with the 1993-
1994 fiscal year, at least 50% of
an amount equal to the net
General Revenue collected in
the previous year must be
retained in a Surplus Revenue
Fund (Working Capital Fund).
The amount shall not exceed
10Wo of an amount equal to the
previous fiscal year's net
General Revenue collections.


Each agency must

adopt and implement

an annual productivity

plan...

The Surplus Revenue or
Working Capital Fund may be
used only to help mitigate
revenue shortfalls and provide
funding for emergencies. Funds
may be used to cover no more
than 50% of an estimated
revenue shortfall for the General
Revenue Fund only when the
shortfall exceeds 1% of the
estimated revenues upon which
the General Appropriations Act
was based. If the shortfall is less
than 10%, the Administration
Commission may authorize use
of the Working Capital Fund.

Quality Management and
Accountability
The Administration
Commission must adopt
performance measures as part
of the original approved budget
of each agency, and the measure


shall include as a minimum the
performance measures from
each AFP. Each agency must
adopt and implement an annual
productivity plan jointly
developed by managers and
employees with standards and
measures which shall assess the
quality and cost effectiveness of
the agency's operations. Each
agency productivity plan shall
be reviewed by the agency's
internal auditor who shall make
recommendations to the
Administration Commission.
Performance measures,
training, rewards, and sanctions
shall be used to create
accountability.
The Governor shall provide
to the Legislature and the
public, as part of his budget
recommendations, a productiv-
ity report evaluating each state
agency's performance during
the preceding fiscal year,
comparing it to legislatively
adopted standards and
measures relating to the State
Comprehensive Plan, Agency
Functional Plans, and the major
goals, responsibilities and
functions of each agency.
The Commission recom-
mends the creation of three
voluntary programs to increase
productivity: a Productivity
Enhancement Program to
reduce cost and the number of
employees, a Productivity
Bonus Program to encourage
innovation, and a Reversion
Recovery Reward Program to
encourage budget savings.

Uniform Program Evaluation
Criteria
A standard set of criteria
shall be developed and used in
program evaluations and
planning processes. These
criteria should include such


i I t I =







BUDGET & SPENDING REFORM


objectives, and program
measures.

Abolition of Selected Trust
Funds
The state is authorized to
maintain trust funds created by
the constitution and as required
for federal programs or
mandates; established for bond
covenants, indentures, or
resolutions; legally pledged by
the state or public body to meet
debt service or other financial
requirements of any debt
obligations of the state or any
public body; used as clearing
accounts or funds for the
Comptroller, the Department of
Revenue, or other state agencies;
and held by the state in a trustee
capacity as an agent or fiduciary
for individuals, private
organizations, or other
governmental units. The
Educational Inhancement Trust
Fund, Florida Retirement Trust
Funds, and State Transportation
Trust Fund shall be specifically
retained.
The Legislature shall review
and abolish other trust funds
and transfer the funds of each
into segregated accounts within
the General Fund. These
segregated accounts shall be
eligible to receive revenues to be
used for earmarked purposes.
The Governor shall be
authorized to change the
amounts appropriated from
segregated accounts in excess of
those in the approved budget
pursuant to the receipt of
federal funds or when grants
and donations are received after
the General Appropriations Bill
has been passed by the
Legislature or when deemed to
be in the best interest of the
state due to an emergency
situation. Any new trust fund


created after October 1, 1991,
shall be extinguished no later
than October 1, of the fourth
fiscal year of the trust fund's
existence and shall not be re-
enacted by the Legislature.

Working Capital Fund
Beginning with the 1993-
1994 fiscal year, at least 50% of
an amount equal to the net
General Revenue collected in
the previous year must be
retained in a Surplus Revenue
Fund (Working Capital Fund).
The amount shall not exceed
10Wo of an amount equal to the
previous fiscal year's net
General Revenue collections.


Each agency must

adopt and implement

an annual productivity

plan...

The Surplus Revenue or
Working Capital Fund may be
used only to help mitigate
revenue shortfalls and provide
funding for emergencies. Funds
may be used to cover no more
than 50% of an estimated
revenue shortfall for the General
Revenue Fund only when the
shortfall exceeds 1% of the
estimated revenues upon which
the General Appropriations Act
was based. If the shortfall is less
than 10%, the Administration
Commission may authorize use
of the Working Capital Fund.

Quality Management and
Accountability
The Administration
Commission must adopt
performance measures as part
of the original approved budget
of each agency, and the measure


shall include as a minimum the
performance measures from
each AFP. Each agency must
adopt and implement an annual
productivity plan jointly
developed by managers and
employees with standards and
measures which shall assess the
quality and cost effectiveness of
the agency's operations. Each
agency productivity plan shall
be reviewed by the agency's
internal auditor who shall make
recommendations to the
Administration Commission.
Performance measures,
training, rewards, and sanctions
shall be used to create
accountability.
The Governor shall provide
to the Legislature and the
public, as part of his budget
recommendations, a productiv-
ity report evaluating each state
agency's performance during
the preceding fiscal year,
comparing it to legislatively
adopted standards and
measures relating to the State
Comprehensive Plan, Agency
Functional Plans, and the major
goals, responsibilities and
functions of each agency.
The Commission recom-
mends the creation of three
voluntary programs to increase
productivity: a Productivity
Enhancement Program to
reduce cost and the number of
employees, a Productivity
Bonus Program to encourage
innovation, and a Reversion
Recovery Reward Program to
encourage budget savings.

Uniform Program Evaluation
Criteria
A standard set of criteria
shall be developed and used in
program evaluations and
planning processes. These
criteria should include such


i I t I =







BUDGET & SPENDING REFORM


objectives, and program
measures.

Abolition of Selected Trust
Funds
The state is authorized to
maintain trust funds created by
the constitution and as required
for federal programs or
mandates; established for bond
covenants, indentures, or
resolutions; legally pledged by
the state or public body to meet
debt service or other financial
requirements of any debt
obligations of the state or any
public body; used as clearing
accounts or funds for the
Comptroller, the Department of
Revenue, or other state agencies;
and held by the state in a trustee
capacity as an agent or fiduciary
for individuals, private
organizations, or other
governmental units. The
Educational Inhancement Trust
Fund, Florida Retirement Trust
Funds, and State Transportation
Trust Fund shall be specifically
retained.
The Legislature shall review
and abolish other trust funds
and transfer the funds of each
into segregated accounts within
the General Fund. These
segregated accounts shall be
eligible to receive revenues to be
used for earmarked purposes.
The Governor shall be
authorized to change the
amounts appropriated from
segregated accounts in excess of
those in the approved budget
pursuant to the receipt of
federal funds or when grants
and donations are received after
the General Appropriations Bill
has been passed by the
Legislature or when deemed to
be in the best interest of the
state due to an emergency
situation. Any new trust fund


created after October 1, 1991,
shall be extinguished no later
than October 1, of the fourth
fiscal year of the trust fund's
existence and shall not be re-
enacted by the Legislature.

Working Capital Fund
Beginning with the 1993-
1994 fiscal year, at least 50% of
an amount equal to the net
General Revenue collected in
the previous year must be
retained in a Surplus Revenue
Fund (Working Capital Fund).
The amount shall not exceed
10Wo of an amount equal to the
previous fiscal year's net
General Revenue collections.


Each agency must

adopt and implement

an annual productivity

plan...

The Surplus Revenue or
Working Capital Fund may be
used only to help mitigate
revenue shortfalls and provide
funding for emergencies. Funds
may be used to cover no more
than 50% of an estimated
revenue shortfall for the General
Revenue Fund only when the
shortfall exceeds 1% of the
estimated revenues upon which
the General Appropriations Act
was based. If the shortfall is less
than 10%, the Administration
Commission may authorize use
of the Working Capital Fund.

Quality Management and
Accountability
The Administration
Commission must adopt
performance measures as part
of the original approved budget
of each agency, and the measure


shall include as a minimum the
performance measures from
each AFP. Each agency must
adopt and implement an annual
productivity plan jointly
developed by managers and
employees with standards and
measures which shall assess the
quality and cost effectiveness of
the agency's operations. Each
agency productivity plan shall
be reviewed by the agency's
internal auditor who shall make
recommendations to the
Administration Commission.
Performance measures,
training, rewards, and sanctions
shall be used to create
accountability.
The Governor shall provide
to the Legislature and the
public, as part of his budget
recommendations, a productiv-
ity report evaluating each state
agency's performance during
the preceding fiscal year,
comparing it to legislatively
adopted standards and
measures relating to the State
Comprehensive Plan, Agency
Functional Plans, and the major
goals, responsibilities and
functions of each agency.
The Commission recom-
mends the creation of three
voluntary programs to increase
productivity: a Productivity
Enhancement Program to
reduce cost and the number of
employees, a Productivity
Bonus Program to encourage
innovation, and a Reversion
Recovery Reward Program to
encourage budget savings.

Uniform Program Evaluation
Criteria
A standard set of criteria
shall be developed and used in
program evaluations and
planning processes. These
criteria should include such


i I t I =







BUDGET & SPENDING REFORM


objectives, and program
measures.

Abolition of Selected Trust
Funds
The state is authorized to
maintain trust funds created by
the constitution and as required
for federal programs or
mandates; established for bond
covenants, indentures, or
resolutions; legally pledged by
the state or public body to meet
debt service or other financial
requirements of any debt
obligations of the state or any
public body; used as clearing
accounts or funds for the
Comptroller, the Department of
Revenue, or other state agencies;
and held by the state in a trustee
capacity as an agent or fiduciary
for individuals, private
organizations, or other
governmental units. The
Educational Inhancement Trust
Fund, Florida Retirement Trust
Funds, and State Transportation
Trust Fund shall be specifically
retained.
The Legislature shall review
and abolish other trust funds
and transfer the funds of each
into segregated accounts within
the General Fund. These
segregated accounts shall be
eligible to receive revenues to be
used for earmarked purposes.
The Governor shall be
authorized to change the
amounts appropriated from
segregated accounts in excess of
those in the approved budget
pursuant to the receipt of
federal funds or when grants
and donations are received after
the General Appropriations Bill
has been passed by the
Legislature or when deemed to
be in the best interest of the
state due to an emergency
situation. Any new trust fund


created after October 1, 1991,
shall be extinguished no later
than October 1, of the fourth
fiscal year of the trust fund's
existence and shall not be re-
enacted by the Legislature.

Working Capital Fund
Beginning with the 1993-
1994 fiscal year, at least 50% of
an amount equal to the net
General Revenue collected in
the previous year must be
retained in a Surplus Revenue
Fund (Working Capital Fund).
The amount shall not exceed
10Wo of an amount equal to the
previous fiscal year's net
General Revenue collections.


Each agency must

adopt and implement

an annual productivity

plan...

The Surplus Revenue or
Working Capital Fund may be
used only to help mitigate
revenue shortfalls and provide
funding for emergencies. Funds
may be used to cover no more
than 50% of an estimated
revenue shortfall for the General
Revenue Fund only when the
shortfall exceeds 1% of the
estimated revenues upon which
the General Appropriations Act
was based. If the shortfall is less
than 10%, the Administration
Commission may authorize use
of the Working Capital Fund.

Quality Management and
Accountability
The Administration
Commission must adopt
performance measures as part
of the original approved budget
of each agency, and the measure


shall include as a minimum the
performance measures from
each AFP. Each agency must
adopt and implement an annual
productivity plan jointly
developed by managers and
employees with standards and
measures which shall assess the
quality and cost effectiveness of
the agency's operations. Each
agency productivity plan shall
be reviewed by the agency's
internal auditor who shall make
recommendations to the
Administration Commission.
Performance measures,
training, rewards, and sanctions
shall be used to create
accountability.
The Governor shall provide
to the Legislature and the
public, as part of his budget
recommendations, a productiv-
ity report evaluating each state
agency's performance during
the preceding fiscal year,
comparing it to legislatively
adopted standards and
measures relating to the State
Comprehensive Plan, Agency
Functional Plans, and the major
goals, responsibilities and
functions of each agency.
The Commission recom-
mends the creation of three
voluntary programs to increase
productivity: a Productivity
Enhancement Program to
reduce cost and the number of
employees, a Productivity
Bonus Program to encourage
innovation, and a Reversion
Recovery Reward Program to
encourage budget savings.

Uniform Program Evaluation
Criteria
A standard set of criteria
shall be developed and used in
program evaluations and
planning processes. These
criteria should include such


i I t I =







CHAPTER TWO


elements as accountability, fiscal
structure, efficiency and
effectiveness, societal impor-
tance, origin and authority, and
private sector alternatives.

Performance Audit Follow- Up
After the Auditor General
issues comments as a result of a
performance audit of an agency
based upon the measures in its
Agency Functional Plan, the
agency's internal auditor shall
be responsible for monitoring
the implementation of the
agency's response to the
Auditor General's comments.


Other Proposals
In addition to these
budgeting and spending
reforms, the Commission had
two recommendations not
directly related to budget
reform. The first related to local
government finances. In order
to enable counties and cities to
pay for the costs of growth, the
Commission recommends that
the local governments be able to
enact the Local Government
Infrastructure Surtax (one cent
sales tax) with an extraordinary
vote of the county commission


and the restrictions on the use
of the funds be eliminated.
The second proposal
involved taxpayer compliance.
Based upon evidence that poor
training of Department of
Revenue employees and lack of
modern technology was
contributing to the under-
collection of current taxes by
more than $1 billion annually,
the Commission recommended
and the Legislature approved
funds and programs to
modernize the department and
improve training.


M Florida's Fiscal Future


The Taxation and Budget Reform Commission believes these changes will improve
fiscal accountability and make certain that limited tax dollars are spent efficiently and
effectively for the priorities of the state. Government must operate in more open and
understandable ways which increase the ability of voters to hold it accountable. Governor
Lawton Chiles has supported the recommendations of the Commission and endorsed its
position that these proposals represent a first step which is necessary if state government
is to gain the confidence of the people.







CHAPTER TWO


elements as accountability, fiscal
structure, efficiency and
effectiveness, societal impor-
tance, origin and authority, and
private sector alternatives.

Performance Audit Follow- Up
After the Auditor General
issues comments as a result of a
performance audit of an agency
based upon the measures in its
Agency Functional Plan, the
agency's internal auditor shall
be responsible for monitoring
the implementation of the
agency's response to the
Auditor General's comments.


Other Proposals
In addition to these
budgeting and spending
reforms, the Commission had
two recommendations not
directly related to budget
reform. The first related to local
government finances. In order
to enable counties and cities to
pay for the costs of growth, the
Commission recommends that
the local governments be able to
enact the Local Government
Infrastructure Surtax (one cent
sales tax) with an extraordinary
vote of the county commission


and the restrictions on the use
of the funds be eliminated.
The second proposal
involved taxpayer compliance.
Based upon evidence that poor
training of Department of
Revenue employees and lack of
modern technology was
contributing to the under-
collection of current taxes by
more than $1 billion annually,
the Commission recommended
and the Legislature approved
funds and programs to
modernize the department and
improve training.


M Florida's Fiscal Future


The Taxation and Budget Reform Commission believes these changes will improve
fiscal accountability and make certain that limited tax dollars are spent efficiently and
effectively for the priorities of the state. Government must operate in more open and
understandable ways which increase the ability of voters to hold it accountable. Governor
Lawton Chiles has supported the recommendations of the Commission and endorsed its
position that these proposals represent a first step which is necessary if state government
is to gain the confidence of the people.







CHAPTER THREE


Balancing Revenue & Spending in the 1990's


UHE constitution
requires the Taxation
and Budget Reform
Commission to examine the
revenue needs of the state;
however, projecting state
"needs" is a difficult task. One
could define revenue needs as
the funds necessary to provide
levels of service required to
achieve goals in specific
government programs which,
in turn, reflect the demands
and expectations of certain
segments of society. The
difficulty is that the goals and
service levels prescribed by an
expert in the field might differ
significantly from the goals
and levels of service desired by
a potential recipient of the
benefits of the program or from
the taxpayer who has to pay for
the services and program.
Another problem is that there
are no clear definitions to
indicate how and when success
is achieved in relation to the
goals.
Closely related to the above
task is the Commission's
obligation to review policy as it
relates to the ability of state and
local government to tax and
adequately fund governmental
operations and capital facilities
required to meet state needs to
the year 2000. Furthermore, the
Commission is required to
determine the methods favored
by the citizens to fund the needs
of the state. In other words, the
Commission must examine the
question of need from all
perspectives. As it assesses the
demand side of the equation, it


must consider also the supply
side of the equation, i. e. how
much are Floridians willing and
able to pay.

The Changing Economic
Enviromnent
The task of assessing
revenue needs has become more
complicated than most might
have anticipated in 1988 when
the decision was made to create


The Commission is required
to determine the methods
favored by the citizens to
fund the needs of the state.

the Taxation and Budget
Reform Commission. For
example, the political environ-
ment was shaped by positive
expectations about Florida's
economic future. Between 1985
and 1988 the state gained over
365,000 new residents annually,
averaged over 210,000 new
nonagricultural jobs per year,
saw its unemployment rate drop
at least 0.3 percentage points
annually from the 1985 rate of
6%, and averaged 5.4% annual
growth in real personal income,
or 50% higher than the national
average. The national economy
also seemed relatively strong as
growth in real Gross National
Product averaged above 3o%.
As one of the nation's
fastest growing states, Florida's
major problem appeared to be
one of finding adequate revenue
to pay for the infrastructure
needed to accommodate the


rapid growth and maintain
prosperity. The State Compre-
hensive Plan Committee,
commonly known as the Zwick
Committee, had estimated in
February 1987 that in order to
implement the State Compre-
hensive Plan over the next
decade and to maintain the
quality of life which citizens
desired, the state would need
S35 billion in new revenue and
local governments would
need S17.9 billion. Since
d Florida ranked 33rd in
state taxes per capital in
1988, it may have
appeared that taxpayers
had the ability to pay
higher taxes if an
acceptable source were found.
It is possible that many citizens
voted to create the Taxation and
Budget Reform Commission in
order to provide some outside
guidance on these issues. The
Legislature and Governor had
already repealed the controver-
sial services tax which had been
created to fund infrastructure.
It is true that the Legislature
replaced the services tax by
adding one cent to the state
sales tax; however, by that time
most legislators did not expect it
to be adequate to meet the
infrastructure and other growth
needs in the 1990's.
The reason the Taxation
and Budget Reform Commis-
sion has a more formidable
challenge today is that the
economic environment has
been altered dramatically. A
few months after the Commis-
sion began its work, the United







CHAPTER THREE


States entered a recession.
Unfortunately, early predictions
for a brief economic downturn
have been proven wrong. Not
only has the national recession
been more severe and lasted
longer than expected, its impact
on Florida has been more
devastating than expected.
During the 1981-82 recession,
which was more severe than the
present one nationally, Florida
felt the impact later than the
rest of the nation, had an
unemployment rate one
percentage point below the
national rate, and recovered
faster than the nation as a
whole. In sharp contrast,
Florida's unemployment rate in
September 1991, was 8%
compared to the national rate of
6.7%, and there are no signs of
an early or rapid recovery.
Earlier concerns about
paying for growth have been
dwarfed by the worries of
budget shortfalls. Following
budget cuts of $1.029 billion by
the Governor and Cabinet in
1990-91, the Legislature
trimmed approximately $1
billion from the new 1991-92
budget to accommodate the
lower revenue projections. By
October the


slower rate, to the state and
require services and when the
rising unemployment causes
more residents to seek social
services such as Medicaid.
Given the slow pace of recovery
now anticipated by most
economists, the Governor and
Legislature face the prospect of
either deep cuts in the 1992-93
budget or significant tax
increases.
Florida's financial crisis, far
from unique, was typical of the
economic woes of states across
the nation as 30 of them faced
projected deficits which could
total as much as $40 billion.
These deficits appeared in spite
of an aggregate of $16.2 billion
in new taxes levied in the Spring
1991 legislative sessions in 31
states. This was the largest
annual percentage tax increase
since 1971. Florida's problems
seemed mild compared to
Connecticut which faced the
loss of 37% of its General Fund
and to California where the
combined 1991 and 1992
budget deficit of approximately
$13 billion was larger than the
total general revenue fund of all
but four states. Lay-offs, pay
cuts, and furloughs on a large


scale have become common.
The problems of Maine
illustrate that this fiscal crisis is
not merely the result of
extravagant spending by high
growth states. On November 6,
1991, Maine's governor
announced plans to lay-off 20%
of state workers, abolish 35 state
agencies, cut aid to local
government by $50 million, and
eliminate the general assistance
welfare program.
A major cause of the fiscal
crisis for states and local
governments is the national
recession. States are predicted
to use a combination of budget
cuts and tax increases in order
to cope with their current
problems, but only a national
economic recovery will truly
end the crisis. In the last two
budget cycles, states have had a
combination of spending cuts
and tax hikes totaling $32
billion, in total state budgets of
$264 billion. There are other
factors contributing to state
problems in addition to
recession-induced revenue
reductions. Almost all states,
regardless of their tax structure,
have failed to exercise budget
and spending discipline over the


revenue
forecasts were
adjusted
downward
again to reflect
an anticipated
$621.7 million
shortfall. The
irony of the
recession is
that the need
to reduce
spending
comes as more
people move,
albeit at a


Major Economic Growth Indicators: U.S. vs. Florida


United States
Real Gross National Product
Real Personal Income
Total Employment


Florida
Population
Real Personal Income
Total Non-farm Employment


1980 to 1990
Average Growth Rates

2.6%
2.7%
1.7%


3.1%
4.9%
4.4%


1990 to 2000
Average Growth Rates

2.2%
1.8%
1.1%


2.0%
3.2%
2.8%


=], Florid 's Fiscal Future







BALANCING REVENUE & SPENDING


past decade when the economy
was healthy. The states also
place much of the blame on the
federal government.
The new federalism of the
1980's resulted in a sharp drop
in federal funding, from 21% to
15% of state and local budgets
from 1981 to 1991. Simulta-
neously, federal mandates have
increased. Seven bills pending
in Washington, covering areas
such as child welfare,
Medicaid expansion,
and waste disposal, Stal
would increase state bud
costs by $1.7 billion, of the
which Florida's share
would be S88 million re-e
in the first year. The and
federal government, in
sharp contrast to
states, this year will add more to
the national debt than all 50
states will spend in their
budgets. The added danger is
that Congress w ill continue to
require the states to implement
and fund expensive programs
without federal funds to pay for
them. This will add not only to
present budget problems, but
create even greater ones in the
future.
Economists differ on their
forecasts on the pace of
economic recovery, but are in
general agreement that the
national economy will be
weaker and more sluggish in
the 1990's than it was in the
previous decade. The causes
are diverse but include the
still-soaring costs of the federal
bail-out of savings and loans
and banks, annual federal
deficits in excess of $300
billion, the continuing decline
in manufacturing jobs, a
massive trade deficit, and the
use of 29% of the budget to


pay the interest on the national
debt. Growth in the GNP
averaged 2.6% in the 1980's,
but is expected to grow at an
average rate of only 2.2% in
the 1990's. Personal income
growth will average only 1.8%
in the 1990's compared to
2.7% in the previous decade.
Employment growth is expected
to average 1.1% compared to
1.7% in the 1980's.


te agencies typically construct
'gets by adding "growth" dolla
previous year's budget without
valuating the policy assumpti
program objectives...


Florida with its services
economy and heavy reliance on
tourism cannot isolate itself
from the effects of a shrinking
standard of living at the
national level. Florida's
Economic Estimating Confer-
ence, in its latest report, has
already predicted slower
economic growth. Comparing
the forecasts for the 1990's to
the historic data of the 1980's,
annual population growth will
decline from 3.1%0 to 2%;
annual real personal income
growth from 4.990 to 3.2%; and
annual non-farm employment
growth from 4.4% to 2.8%. It
has been argued that Florida's
infrastructure deficit proves that
growth does not pay for itself.
Yet, no one can deny that much
of the state's prosperity and job
creation has been closely tied to
the rapid influx of new
residents. As that wave of
migration ebbs, it will weaken
the growth-related sectors of the
economy, especially construc-


tion which is expected to
decline 0. 10 per year through
this decade. Any decisions or
forecasts about revenue and
spending must factor in these
economic realities.

State Spending Growth: The
Historical Perspective
The Revenue Estimating
Conference does ten-year
economic and state revenue
forecasts; however, it is
necessary to analyze the
spending patterns of the
rs to decade of the 1980's in
t order to predict spending
growth in the 1990's.
ons Since state agencies
typically construct
budgets by adding
"growth" dollars to the
previous year's budget without
re-evaluating the policy
assumptions and program
objectives, a practice which the
Commission wishes to change,
the past may indeed be prologue
in predicting future expenditures.
An extensive examination
of the growth of the state budget
was included in the
Commission's first report;
however, a brief review of the
findings is essential. State
appropriations of $7.82 billion
in 1979-80 had increased to
$23.15 in 1989-90, representing
a 196% increase in actual
dollars. While appropriations
were annually averaging 12.3%
above the previous year's
expenditures, revenues were
increasing at an average of 9.300
annually. Thus legislatures were
increasing taxes and fees
annually at the average rate of
390 to fund appropriations. The
practice of the Florida
Legislature is to decide how
much money it wishes to spend


NoiaI, -a tr







CHAPTER THREE




Percent of' General Revenue Due to
Tax Law Cihant es Sincer 1980
25' T







7_

CL








011
1982 1983 1c84 1985 1986 1987 1988 1989 1990
Fiscal Year Ending


before it determines how to
balance the budget. Taxes and
fees were increased every
legislative session during the
decade of the 1980's. By 1990,
24.4% of the General Revenue
Fund came from tax law
changes enacted since 1980.
Certainly a more accurate
measure of expenditure growth
would require an adjustment
for inflation and population
growth. Inflation reduced the
real value of the dollar at the
same time 3.4 million new
residents increased the state
population by almost 35%.
Adjustments for population
growth and inflation still
produce a significant
growth in the expenditure
of real dollars-35%.
C
Some of that spending
growth can be traced to E
programs to protect the -


environment from pressures of
urbanization and for new
services demanded by urban
residents. Expenses for the
judicial system, government
facilities (Fixed Capital
Outlays), and pension benefits
also contributed to growth in
spending.
Most of the spending
growth, however, reflects the
impact of demographic change,
federal mandates, and crime. A
prime example is the area of
Health and Rehabilitative
Services which increased from


$1.401 billion to $5.546 billion
or 295.9%, due mostly to
increases in constituents or
clients in federal mandated
programs such as AFDC and
Medicaid. The state itself
expanded the eligibility for these
programs, which contributed to
the increased costs. As Florida's
crime rate soared, Corrections
contributed also, growing from
$164 million to $741 million or
350%. Education spending did
not grow as rapidly as
appropriations in the aggregate,
but expenditures per student


i F Florida's Fiscal Future


Examples of Spending Growth
($ in millions)
1979-80 1989-90 Increase
correctionss $164 $741 351.8%
IRS $1,401 $5,546 295.9%
-ducation $3,022 $7,994 164.5%
otal Appropriation $7,800 $23,150 196.8%







BALANCING REVENUE & SPENDING


more than doubled as spending
increased from $3.022 billion to
$7.994 billion, or 164.5%.
The funding trends
exhibited during the 1980's
continued with the 1991-92
Appropriations Act which
totaled $29.48 billion or 6.2%
above the previous year, before.
any adjustments for the revenue
shortfall. The relative
position of some areas of
spending in the Appropria-
tions Act, however, shifted :
from 10 years earlier, I
reflecting the influence of
the factors mentioned c
above. Education has b
declined from 38.8% to b
27.5% of the total, HRS
increased from 21.7% to
28.6%, Corrections increased
from 2.50% to 3.2%, and Fixed
Capital Outlay increased from
3.8% to 16.1%0. The significant
change for HRS can be
explained largely by Medicaid
which cost $0.73 billion in
1982-83, but mushroomed to
$4.33 billion by 1991-92.
Evidence of the impact of the
recession and retrenchment,
however, can be seen in the
0.8% reduction in funded
employee positions, reversing a
four year trend of expanding
state government employment
by an average of 5.2% annually.

State Expenditure Forecasts to
the Year 2000
In conjunction with its
responsibilities to review the tax
structure of the state, the
Taxation and Budget Reform
Commission prepared and
reviewed projections of state
spending and anticipated state
revenues. Unfortunately, state
agencies do not engage in 10-
year fiscal planning. Because


the definition of needs is to
some extent subjective and
because the Commission did
not wish to preempt the role of
state officials who are elected to
make policy, the Commission
did not develop a projection of
state "needs" per se. Another
difficulty encountered in
defining revenue needs is that


The significant change for
IRS can be explained
irgely by Medicaid which
ost $0.73 billion in 1982-83,
'ut mushroomed to $4.33
million by 1991-92.


the current budgeting process
does not require agencies to
prepare budgets which are
linked to measurable, priori-
tized goals in the Agency
Functional Plans or related to
anticipated revenues, a problem
the Commission wishes to
correct. For example, state
budget requests for 1991-92
totaled $34.11 billion and as
such represented a list of state
needs. Of the amount
requested, $29.48 billion was
appropriated. The total of all
1992-93 budget requests
currently under review is S37.94
billion. Given these limitations,
the Commission elected to
prepare a range of spending
alternatives which were
compared to anticipated
revenues generated by existing
sources and by various revenue
options.
The Appropriations Act
passed by the Legislature (i. e.
the state budget) represents
authority to spend state dollars.
The state budget contemplates


several sources for the "dollars"
it spends. Although they are the
largest component, actual
revenues such as the sales tax,
gas tax, corporate income tax,
documentary stamps, and
various excise taxes are not the
only funding source for the
state's appropriations. Federal
aid represents a significant
portion of funding and is a
component of state official
"revenue" forecasts. There are
also non-revenue sources
utilized to fund Florida's
budget. Proceeds from the sale
of bonds are included in the
appropriations and are a source
of actual dollars. Trust fund
balances unspent in prior years
may be appropriated, but are
not considered revenues in that
fiscal year.
A final category of
appropriation does not
represent "real" dollars; this is
interfund transfers, also
described as "double-
budgeting". For example, the
1991-92 appropriation of 529.48
billion, contemplated $11.65
billion from General Revenue
and the balance of S17.83
billion from Trust Funds.
However, the Trust Fund
Revenues forecast for 1991-92
total $13.09 billion. The
difference is primarily explained
by bond proceeds and "double-
budgeting" or interfund
transfers rather than real
revenue. Until the state
implements the budget reform
recommendations of the
Commission, there will be no
document which clearly
identifies all sources of funds
included in the appropriations
bill, perpetuating the difficulties
of analyzing and forecasting the
state's true financial condition.







CHAPTER THREE


Spending and Revenue
Forecasts
Revenue and expenditure
forecasts were prepared to
evaluate the state's projected
financial condition. The
forecasts for the General
Revenue Fund and Trust Funds
are prepared by the Consensus
Estimating Conference.
Because of the disparity between
current trust fund receipts and
appropriations alluded to
above, the Commission had to
forecast expected Trust Fund
balances for future appropria-
tions by applying the trust fund
growth rate projected by the
Consensus Estimating
Conference to Trust Fund
Appropriations in the base year,
the 1991-92 budget. In each of
the scenarios below, the
projected General Revenue,
without any tax increases, is the
same--$117.14 billion
cumulative.


Several state expenditure
forecasts were generated based
upon different spending pattern
assumptions for the period
from 1992-93 through the 1999-
2000 fiscal year. The expendi-
ture projections were based
upon original 1991-92
appropriations amounts which
have not been adjusted for the
shortfall. All of these forecast
scenarios result in varying
deficit amounts. For illustrative
purposes only, four revenue
"options" have been detailed to
demonstrate the magnitude of
new taxes required to balance
the budgets projected by the
various forecast scenarios.
These "options" are:
1) increases in the current sales
tax (one cent equals $1.39
billion in 1993),
2) the current sales tax plus the
1987 services tax (produces
$1.8 billion in 1993),


3) the current sales tax plus the
1987 services tax plus the
corporate income tax to
include business
organizations currently
exempted (raises $193.5
million in 1993), and
4) all of the previous items
plus a 2.5% income tax on
federal adjusted gross
income, with the following
deductions: $15,000 for
individuals, $25,000 for
single head of households,
and $30,000 for married
couples filing jointly (raises
$2.8 billion in 1993).
The 1987 services tax was
used because of the availability
of data to calculate its impact
and because it is the best available
indicator of what the Legislature
would tax if it decides to tax
services in the future.
Four of the expenditure
scenarios are for General
Revenue expenditures only.


Spending Scenarios vs. total RcvcRnues
30,000 -

D 1980's Growth
25,000 Current Law
25,000
] Personal Income
O CPI and Population
Total Revenues
20,000


15,000 il li il


10,000


5,000


0
1992-93 93-94 9 -95 95-96 96-97 97 98 98-99


99-00






BALANCING REVENUE & SPENDING


The first and most conservative
expenditure estimate projects
growth in the General Revenue
Fund based upon population
growth and increases in the
Consumer Price Index as
provided by the Consensus
Estimating Conference. Over
the entire forecast period,
estimated General Revenue
expenditures would total
$121.55 billion while revenues
would total $117.14 billion,
yielding a cumulative deficit of
$4.41 billion.
A second forecast
estimated the General Revenue
expenditures necessary to fund
current programs operating
under current law and current
administration. This forecast
incorporated population data,
inflation forecasts, and the
estimates of social service
constituency growth from the
relevant estimating conference.
Significant increases are forecast
for Medicaid and Aid to
Families with Dependent
Children (AFDC). The General
Revenue Medicaid payments are
expected to increase from $1.37
billion during 1991-92 to $3.99
billion in 1999-2000. The
General Revenue portion of
AFDC is expected to increase
from $260.7 million to $539.3
million during this same period.
The constituency growth is
significant: from 193,306 in
1991-92 to 305,463 in AFDC and
from 1,075,851 to 1,622,086 in
Medicaid by 1999-2000 according
to the estimating conference.
The forecast also included
student population projections
and related costs prepared by
the Department of Education.
For purposes of this forecast,
the General Revenue portion of
education funding was


maintained at 54.30/ (which is
the same as the 1991-92
Appropriations Bill). The
Department of Corrections
provided cost information to
continue current operations
including operations of new
prisons now under construc-
tion. No additional prison


facilities were contemplated.
Finally, Fixed Capital Outlay
was assumed to be S100 million
annually. No new or improved
programs were included. These
forecast assumptions suggest
total General Revenue
expenditures during the forecast
period would be S141.93 billion,
resulting in a cumulative deficit
of $24.78 billion after subtract-
ing revenues of $117.14 billion.
A third forecast scenario
simply projected expenditures
to increase at the same rate as
the expected increase in
nominal personal income. It
should be pointed out that in
the decade of the 1980's General
Fund revenue as a percentage of
personal income was relatively
constant due to periodic tax
increases. Total General
Revenue expenditures for the
forecast period would be
$131.47 billion with total
General Revenue funding
lagging behind at $117.14
billion. The cumulative deficit
would be $14.33 billion.
The fourth General
Revenue Fund scenario projects


expenditures based upon the
assumption that the state would
continue the expenditure
pattern of the 1980's. This
procedure, for example,
calculated the 1982-83 increase
over 1981-82. That percentage
was then applied to the 1991-92
appropriation to yield the 1992-
93 amount.
The


In this
scenario General Revenue
expenditures are projected to
total $158.1 billion through the
year 1999-2000, exceeding the
revenue projections by $40.9
billion.
A final calculation was done
in an attempt to forecast trust
fund revenues and expenditures
in addition to the General
Revenue projections. Of all the
estimates, it is the most
imprecise for a variety of
reasons, including the fact that
federal funds going into trust
funds may not grow and could
decrease. Furthermore, changes
in the rates of dedicated
revenues flowing into trust
funds cannot be predicted. This
scenario used the same
expenditure growth pattern of
the 1980's as the method above.
It was applied to General
Revenue and to trust funds by
agency except in cases where
there were new program
initiatives or shifts in funding
which produced distorted
projections. In those cases and
for the Fixed Capital Outlay
estimates, the forecasts were


I lornda > fscal I future


For illustrative purposes only, four calculation
revenue "options" have been detailed to was
repeated for
demonstrate the magnitude of new taxes the
required to balance the budgets projected appropriate
by the various forecast scenarios. ears up to
1999-2000.







CHAPTER THREE




Counl ty & City Police & Fire
Operating Expendi ures/Capital Outlay
*Includes law enforcement, fire control and detention/correction operating/capital expenditures.
9000

8000


7000


6000

z 5000
O
-4
4000


3000


2000

1000 Citics


0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000


calculated on the basis of annual
increases in inflation and
population. These expenditures
were compared with the
General Revenue estimates and
a Trust Fund estimate based on
applying the Revenue Estimat-
ing Conference trust fund
revenue growth rates to 1992-93
Trust Fund Appropriations.
Cumulative expenditures using
this method are $403.19 billion
and revenues are $318.81 billion
resulting in a cumulative deficit
of $84.37 billion.
Again, these scenarios are
not predictions, but rather
illustrations of differing fiscal
situations if various spending
levels occurred compared with


current revenue sources. The
actual spending and funding
levels will be determined by the
Governor and the Legislature.
In each of the methodologies
used here, however, it is
apparent that current revenue
sources will not fund these
expenditure levels. It
underscores the point made by
the Commission when it issued
its budget recommendations:
the state cannot afford to
continue operating as usual.

Local Government Spending
Growth: The Historical
Perspective
While the 3.4 million new
residents gained from 1980 to


1990 added to the state
government's responsibilities,
most of the basic services of
water, sewer, public safety,
recreation, fire protection, waste
disposal, and cultural services
for these residents had to be
supplied by Florida's general
purpose local governments: 67
counties and 394 cities. In some
cases one or more of these
services may have been
provided by the 931 special
districts (usually single-function
governments) scattered across
the state. Demand for services
and infrastructure has increased
dramatically during the past
decade due to population
growth and to the urbanization


M] Florida's Fiscal Future







BALANCING REVENUE & SPENDING


of Florida because urban
residents expect more services
than rural residents.
As a result of the new
federalism of the 1980's,
increasing responsibility for
service delivery has shifted from
the state and federal govern-
ment to local governments,
often without funding or the
fiscal flexibility to fund those
services. For purposes of this
discussion, the term local
government will refer to general
purpose local governments
(cities and counties) only,
except where noted. School
district funding of education
will be discussed elsewhere in
this report. Florida local
governments' own locally-levied
revenues are 110% of the
national average, reflecting a
heavy reliance on user fees as
well as taxes. By contrast,


federal and state intergovern-
mental revenues sent to Florida
cities and counties are 74% and
89.6%, respectively, of the
nationwide index effort (U.S. =
100). Local governments
annually spend more money
than the state appropriates in
the general revenue fund to
provide services to Florida's
population.
Despite a recession in the
early 1980's, Florida city and
county government expendi-
tures grew in the decade to meet
accelerated demands, particu-
larly in the areas of public
safety, judicial and court
activities, health, and operating
and capital outlay for utilities.
This is in spite of the fact that
federal aid to cities and counties
was declining. The increased
spending was driven both by
population growth and by the


increasing federal and state
mandates which required
counties and cities to provide
services and benefits but
provided no funding. Mandates
usually have laudable goals,
such as water quality, environ-
mental protection, or human
services, but present serious
problems when limited funding
is available.
Expenditures for counties
grew from $3.44 billion in
1980 to $11.26 billion in 1990,
or 12.6% annually, while
revenues grew at an annual
compound rate of 12.4%.
Expenditures for cities grew
from $3.10 billion in 1980 to
$7.31 billion in 1990, an
annual increase of 9.1%, while
revenues grew at 8.8%.
County spending on police
and fire increased annually by
more than 16% for operations


Hod Fa I -tr


1400


1900


1000


']800 ,.. .' -.V ,
z
o
- .- r -
1 600


400 '(


200


1980 198 19 1986 1988 1990 199 1994 1996 1998
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000






CHAPTER THREE


and 15% for capital outlay
during the 1980's. Addition-
ally, expenditures for police
and fire operations and capital
outlay represented over 21% of
statewide counties' budgets
compared to less than 13% in
1980. Judiciary related costs
for counties increased by more
than 18% annually.
As the cost of providing
services has increased,
restrictions on local government
revenue sources have caused
growing concern that local
government will not be able to
continue funding these
demands. All taxing sources,
except the property tax, are
reserved to the state. Unless
the state specifically authorizes
cities and/or counties to use a
tax source. Other forms of
taxation currently allowed by
the state are restricted either
by rate, by use, or both. Even
the property tax is constitution-
ally limited to a cap of 10 mills
for each local government.
There are also political limits on
the level of property tax which a
community will tolerate. Rising
property values during the high
growth of the 1980's combined
with millage increases have
inflated tax bills and provoked
strong protest. The Truth in
Millage (TRIM) notice
requirements have emphasized
the impact of increases. The
average millage rate levied by
counties and cities is 7.79 and
5.24 and represents 30.9% and
15.4% respectively of all tax, fee,
and grant revenues.
The financial dilemma of
local government is also
impacted by declining
intergovernmental shared
revenues. Federal revenue
sharing, which was $5 billion in


1980, had disappeared by 1986.
Other federal and state shared
revenues are declining as well.
State revenues shared with local
governments for 1990-91 were
estimated at $2.050 billion, but
actual receipts totaled only
$1.886 billion. This was a
decrease of $25 million from the
previous year's shared revenues
of$1.911 billion.

Local Government Expenditure
Projections to the Year 2000
Projections to the year 2000
for cities and counties paint a
bleak picture. A report entitled


If current spending patterns
as projected, cities and count
the aggregate, will experien
collective deficits in the mid


Florida Local Government
Revenue and Expenditure
Forecasts 1991-2000, prepared
for the Taxation and Budget
Reform Commission by Kurt
Spitzer and Associates/CFF
Associates, concluded that the
fiscal conditions of counties and
cities will deteriorate over the
next ten years at an accelerated
rate if they exhibit the same
tendencies towards revenues
and expenditures as in the last
decade. Ad valorem millage is
projected to increase to an
average above the constitutional
cap of 10 mills for counties
(includes municipal service
taxing units MSTU's) and to
an average of 7.37 mills for
cities by the year 2000 because
of the lack of flexibility for other
revenue sources.
If current spending patterns
continue as projected, cities and


counties, in the aggregate, will
experience collective deficits in
the mid-1990's. Since local
governments must have
balanced budgets, predicted
shortfalls must be addressed by
one or more of the following
options: new sources of
revenue, service reductions, or
the use of alternative service
providers. Increased funding
for police and fire needs have
been accomplished in spite of
budget cuts in the past, but at
the expense of other services
such as recreation, libraries and
health. The fiscal estimates do
not include any
special fiscal
s continue efforts by local
Cities, in governments to
deal with
ce deficiencies in
-1990's. local infrastruc-


ture, which has
an impact on
concurrency requirements, or
with future unfunded mandates
which may be imposed by the
federal or state government.
Florida's slower population
growth will be reflected in the
growth pattern for cities and
counties. In 1980 there were 34
counties with less than 50,000
people. By the year 2000 it is
projected there will still be 28
counties in this population
range, indicating that most of
Florida's growth will continue
to occur in the existing urban
and suburban areas of the state.
Counties will be called on to
provide increasing municipal
services such as police and fire
protection to the population
residing in the unincorporated
areas, in addition to the
traditional services they provide
on a county-wide basis such as
tax assessment and collection,


=I I Florida's Fiscal Future







BALANCING REVENUE & SPENDING

'I


judicial administration, and
health and welfare program
administration. The 64 cities
with populations of over 25,000
people accounted for 56% of
total aggregate municipal
expenditures in FY 1990; but, by
the year 2000, the forecast
shows there will be 68 cities of
this size whose expenditures will
amount to 55%/ of the statewide
municipal total. This reflects
slightly higher growth in cities
below 25,000.

Conclusion
In its efforts to comply with
the constitutional obligation to
determine the revenue needs of
state and local government, the
Taxation and Budget Reform
Commission recognizes the
difficult nature of the task. Any
estimate of future revenue and
spending will be, by its very
nature, imprecise and subject to


challenge; yet, the constitutional
mandate is valid. In approving
this constitutional language in
1988, the Florida Legislature
recognized the inherent value of
these long-term projections
even though it has not required
state agencies to do them in a
systematic and meaningful way.
Most importantly, these
projections represent a carefully
calculated estimate of the long-
term consequences of the state's
current policies and present
budgeting and spending
practices. If the state pursued a
very conservative policy of
increasing spending only at the
projected rate of inflation and
population growth, the General
Fund might require only a half
cent sales tax increase. But if
the state continues "business as
usual" and increases spending at
the same rate as the 1980's, a 16
cent sales tax could be required


by the year 2000. This sobering
realization should motivate a
reassessment of what the state
does, how it pays for it, and how
it is done.
In the case of local
governments, it is clear that they
must engage in the same
exercise. Budgets cannot
continually be built on last
year's base without an
evaluation of priorities and a
measurement of the results of
prior spending. The state
should re-examine the past
policies of unfunded mandates
and also the limited revenue
sources permitted to local
government.
Neil R. Pierce, a syndicated
columnist and contributing
editor for The National Journal,
has suggested that the fiscal
crisis of the states cannot be
solved either by fiscal gimmicks
like lotteries or casinos or by


loraii' ~hIcal I uture M-


1000






00


500


1000


1500


2000


'991 '992 1993 '994 1995 1996 1997 1998 1999 2000







CHAPTER THREE


simply laying-off government
employees. In fact, he questions
if perhaps the national recession
is not an indication of a
declining standard of living
which should force government
to be more efficient and
effective as it spends money to
address public problems. His
comments reflect the conclu-
sions of the Commission that
additional revenue alone will
not enable Florida to meet the
challenges of today and the
future. It must be accompanied
by reforms in the way the state
budgets and spends public
dollars.


The relatively strong
economy of the 1980's could
not produce sufficient funds to
keep up with the pace of
spending without significant tax
increases. How much higher
will taxes have to go if that rate
of spending is continued during
a period of much slower
economic growth in the 1990's?
Agencies must begin to
prioritize their programs and
measure the results. When the
Governor and legislators seek to
create new programs, they must
first determine if they duplicate
existing programs and project
the 3 to 5 year fiscal impact.


The Legislature should
implement the Agency of Policy
Analysis and Agency Review in
order to routinely determine if
existing programs are accom-
plishing their purpose, duplicate
other programs, need to be
continued, and are funded at
the proper level. If these and
other reforms are not imple-
mented soon, the decade of the
1990's may be a period of
recurring fiscal crisis and voter
unrest.







CHAPTER FOUR



Florida's Tax Structure: How Does It

Measure Up?


BHE Taxation and
Budget Reform
Commission turned its
full attention to tax reform in
March 1991, reorganizing its
committee structure for the task
ahead. It was immediately
apparent that the first step in
tax reform was to define the
term. If tax reform merely
means revenue enhancement, a
trendy term which, in plain
English, means "tell the
Legislature how to extract more
taxes now," then there was no
need for a special constitutional
commission. The Legislature
has consistently demonstrated
its ability to find ways to raise
more revenue. The constitu-
tional mandate given by the
voters in November 1988,
empowered the Commission to
determine the appropriateness
and the adequacy of the tax
system. Based upon its
interpretation of the constitu-
tional duties, the Commission
determined that tax reform
implies an examination of the
fundamental characteristics and
principles of the existing tax
system in terms of its fairness
and its ability to encourage and
support the economic and social
environment which would help
enable present and future
Floridians to prosper.
Having defined tax reform,
the Commission's next step was
to conduct the evaluation of the
existing tax structure. Absent
that analysis, reform of a tax
system has no rational basis.
Since no comprehensive


evaluation was available, the
Commission made use of
existent economic literature,
reviewed studies done by
government and private sector
economists, weighed testimony
by government officials and
private citizens, and employed
consultants to compile and
analyze additional data
necessary for a comprehensive
evaluation. The work included
the preliminary findings
included in the Commission's
first report, A Program for
Reform of Florida Government.
Tax systems are founded
more upon cultural and
political tradition than upon
objective criteria or tax theory.
The accuracy of this premise is
validated by the diversity which
exists in state tax systems
nationally. Generally speaking,
tax systems are created piece-
meal in a political environ-
ment of competing interests by
legislators who are forced by
the political pressures,
constitutional constraints, and
time limitation to concentrate
on addressing the most
immediate and severe
problems. Objective analysis
and reform are difficult, if not
impossible, within that
context; therefore, study
commissions are periodically
created to address such issues
as equity, balance, and
predictability in the tax system.
This practice has been used in
Florida where major shifts in
the tax system, such as the
introduction of the sales tax,


have been preceded by a study
commission.
There are three major tax
bases to be tapped for revenue:
consumption, income, and
wealth. Many economists and
the U. S. Advisory Council on
Intergovernmental Relations
(ACIR) have for decades
proposed guidelines for
"balanced" or "high quality"
revenue systems which suggest
appropriate ranges of depen-
dence on these tax bases by
utilizing various taxes, such as
taxes on sales, personal income,
and estates; yet, few states
consistently and deliberately
emulate these models.
Achieving a balance among
revenues derived from various
tax bases is analogous to the
concept of reducing risk
through diversification in
financial management. Having
a diversified tax system may
help buffer state finances from
the sudden "downturns" of the
national or world economy.
Yet, primarily for the reasons
mentioned above, states have
difficulty achieving this balance,
and Florida is no exception. A
review of the tax sources used to
fund the General Revenue Fund
reveals that only 5.77% comes
from taxes on wealth, 5.75%
results from tax on income
(corporations), and 82.19%
comes from the sales tax or
other transaction taxes.
Based upon the findings
which resulted from its efforts
over several months in 1990, the
Commission's Finance and Tax








CHAPTER FOUR


Committee recommended the
adoption of criteria to be used
to evaluate Florida's tax system.
The criteria were gleaned from
the work of economists, fiscal
experts, and other tax study
commissions and were very
comprehensive. The main
principles embodied in this
High Quality Revenue System
Criteria are: the stability and
reliability of the tax structure,
the equity or fairness of the tax
burden imposed by that tax
structure, the impact of that tax
structure on the economy in
terms of efficiency and
competitiveness, and the ease of
tax administration and taxpayer
compliance. In February 1991,


the Commission approved the
High Quality Revenue System
Criteria for internal use in its
evaluation of Florida's tax
system and in its efforts to
reform the existing system to
better comply with the criteria.

Florida's Tax System
The state tax system is
composed of a varied, if not
balanced, assortment of taxes.
For purposes of its analysis, the
Commission has concentrated
on the major sources of revenue
and not on the array of minor
taxes and fees that contribute
relatively small amounts of
revenue. These major taxes are:
sales and general use tax,


corporate income tax, motor
fuels tax, alcoholic beverage tax,
documentary stamp tax, estate
tax, intangible tax, insurance
premium tax, gross receipts
utilities tax, and cigarette and
tobacco tax. All of these are
commonly used by other states;
however, all but six use one
revenue source which Florida
does not utilize-the personal
income tax.
In comparative terms, the
state has used its taxing powers
with moderation in spite of the
rapid growth and increasing
service demands. The most
recent data available from the
Bureau of the Census reveals
that in 1989-90 Florida ranked


M I oda Fiscal Future


State General Revenue Taxes

by Type: 1990-91


6.28%
5.77%9


5.75%


82.19%


El Transaction Taxes D Wealth Taxes
M Income Taxes D Other Taxes & Fees







FLORIDA'S TAX STR UCTURE


45th in state and local taxes
levied per capital as a percentage
of personal income. Floridians
paid an average of 9.64% of
personal income in state and
local taxes, compared to
a national average of
11.09%. Alaska led the
nation with 19.32% It,
followed by New York a
with 15.02/0% of personal p
income. Only Arkansas,
Alabama, Tennessee, p
Missouri, and New in
Hampshire ranked below to
Florida. Taxes as a
percentage of personal
income is the best measure of
ability to pay; however, Florida
can also be compared to other
states in terms of average
actual dollars paid per capital.
In 1989-90 the national
average for state per capital tax
was $1,211. Floridians paid an
average of $1.027 per capital in
state taxes, which placed the
state 37th in the nation. To


put the issue of tax burden in a
more global perspective,
federal, state, and local taxes in
the U. S. equaled 32.6% of the
Gross National Product in
1990. By way of comparison,


local taxes than Floridians. The
ACIR has developed a
representative tax system to
measure variations in tax
capacity. This system
measures how


S1989-90 Florida ranked 45th in state
nd local taxes levied per capital as a
percentage of personal income. Floridians
2id an average of 9.64% of personal
come in state and local taxes, compared
a national average of 11.09%.


the Japanese pay a slightly higher
percentage and most Europeans
pay significantly more.
Florida is, by any com-
monly used comparative
measure of taxation, a low tax
state. This is evidenced by the
fact that taxpayers in 44 other
states are paying a higher
percentage of their per capital
personal income in state and


much revenue
could be
raised in each
state if each
used the same
system to tax
sales, income,
and wealth.
With 100


representing
the national
average, Florida has a tax
capacity of 104 and ranks 16th
among the states. The ACIR
then measures tax effort which
is the extent to which each
state utilizes its tax capacity.
Florida, with a tax effort index
of 82, ranks 48th compared to
other states. Florida has a
higher tax capacity and lower
tax effort than any of the


I lornia r: ,cal iuture


State and Iocal -Taxs as Percent of Incolm
Fl-orida
-W U.S. Average

















FISCAL YEAR







CHAPTER FOUR


southeastern states considered
to be regional competitors. In
theory, this means that taxes
could possibly be increased to
some degree without impairing
Florida's economic competitive-
ness; however, the potential
impact of any tax change on the
competitiveness of in-state
businesses with out-of-state and
international competitors must
be considered.

Reliability and Stability
According to the High
Quality Revenue System
Criteria a tax system should
produce revenue reliably over
fluctuating economic cycles.
Certainly no tax will remain
absolutely stable in a recession,


but the goal is to have tax
collections vary only slightly
rather than dramatically. These
principles also imply that
variations in the base and rate
should require only slight and
infrequent changes. This adds
predictability to the process of
taxation, which is helpful to
businesses in their planning,
pricing, and marketing
strategies. In order to have this
stability and predictability in the
rate and base, the tax should be
designed to produce revenues
consistent with growth in the
economy. The degree to which
a tax system keeps pace with the
rise or fall of personal income
and the growth of the economy
without rate changes is a


measure of its elasticity. The
Commission does not intend its
advocacy for a more reliable and
stable tax structure to be an
endorsement of guaranteed
increases in government
spending. Government should
not be immune from the
constraints of economic
slowdowns or recessions.
Previous analyses have
concluded that Florida's tax
system does not meet these
criteria of reliability and
stability and has not kept pace
with growth in the economy
without frequent tax increases.
While it is true that tax receipts
in the General Revenue Fund
in 1990-91 were the same
percentage of personal income


Mi 1 Florida's Fiscal Future


General Revenue as a Percent of Personal Income


S GR as % of income w/o tax increases
N GR as % of income
4AM

3 5o

















398 982 183 i81 13 187 i 88 19 ) 2 991 1992
Fiscal Year Ending
S- 255
"Z

a.

1.5%







1981 ;9s2 f83 !95 ?6 198 l'8o 8 87 i ^88 193 'dO 1991 1992
Fiscal Year Ending







FLORIDA'S TAX STR UCTURE


as in 1980-81--4.1%-that
apparent indication of stability
is misleading. The only reason
that the revenue appears to
have been constant as a
percent of personal income is
that the Legislature enacted
more than forty significant
changes in the tax system
during the 1980's.
These changes in
tax rates included: The C
increases in the
sales tax from 4 for a t
cents to 6 cents, be an
increases in over\
cigarette taxes from not be
21 cents to 33.9
cents, an increase econo
in the gross receipts
utility tax from
1.5% to 2.5% on a broader base,
four increases in the documen-
tary stamp tax on deeds, and
replacement of the 4 cent per
gallon gas tax with a 60% sales
tax on gas. Note that all these
rate increases were in consump-
tion or transaction taxes which
combined to produce over 82%0
of the General Revenue Fund in
1990-91. Had these and other
changes not been made,
general revenue taxes as a
percent of personal income
would have declined from
4.1% to 2.9% in 1990-91.
For the most part, the
inability of Florida's tax
structure to generate revenues
commensurate with economic
growth can be attributed to its
lack of diversity and over-
reliance on the sales tax as the
main source of revenue.
Through prohibitions and
limitations in it, constitution,
Florida has created barriers to
the taxation on income and
wealth. In sharp contrast to
diversity and balance, Florida in


1989-90 received 71% of its
General Revenue Fund
collections from the sales tax
plus approximately 11% from
other transaction taxes. In
1988-89, the last year for which
there is data, Florida was more
dependent on the sales tax (as a
percentage of the General Fund)



commissionn does not intend its
nore reliable and stable tax str
endorsement of guaranteed in
nment spending. Government
Immune from the constraints
mic slowdowns or recessions.


than any other state. Another
6% came from cigarette and
alcoholic beverage taxes which
are also consumption taxes.
Compared to other states,
Florida has the 7th highest sales
tax, the 13th highest cigarette
tax and the 2nd highest
alcoholic beverage tax.
Sales tax revenues are highly
volatile and sensitive to
fluctuations in the economy.
During recessions consumer
confidence wanes and spending
on durable consumer goods
declines dramatically. There is a
more moderate drop in the
purchase of nondurables.
Because Florida's sales tax law
exempts the purchase of food
and other necessities, which
consumers continue to
purchase during bad times, the
corresponding drop in sales tax
revenues is even more
pronounced. Therefore, in a
recession, sales tax revenue is
lowered not only because of
lower total income, but also
because of reduced spending on


taxable sales. Demand for
public services, on the other
hand, often increases during a
recession because of higher
unemployment.
A look at growth in taxable
sales over the last twenty years
further illustrates the volatility
of sales taxes. Since 1970,
taxable sales
(which
advocacy measures the
growth in the
ructure to ase
tax base
ccreases in excluding the
t should effects of tax
O f rate increases)
have increased
at an annual
average rate of
10.04%.
Fluctuations in yearly increases
are dramatic, however, ranging
from a low of only 0.3% in
1974-75 during the
recessionary trough to a high
of 18.4% in 1978-79 when the
nation recovered from the
1975 recession, a difference of
18 percentage points. When
the next recession hit in 1981-
82 it dropped to 6.3% and
later, in 1982-83, to 4.5%. The
following year the growth was
16.8%. The volatility
continued as it gradually
slowed to approximately 5.3%
in 1989-90. The onset of the
recession in 1990 cause taxable
sales growth to plummet to
0.1%. Such dramatic
fluctuations in the state's
major source of revenue
greatly complicate the
budgeting process. The
Commission included in its
Budget Recommendations a
proposal that the state
maintain an amount equal to
5% to 10% of the General
Revenue Fund in the state


FI-lordnl, I! rl/ I uturc M







CHAPTER FOUR


Growth in T.axnblh Sales
Fiscal Tear 1971 to Fiscal Tear 1991


7 7 77 78 79 80 81 82 83
FISCAL YEAR


85 86 87 88 89 90 91


Working Capital ("Rainy
Day") Fund. If, during the
years of high sales tax growth,
surplus funds had been placed
in the Working Capital Fund
rather than being spent on
"turkeys" or new programs,
the state could have used the
Fund to help meet state needs
during revenue shortfalls.
While the Commission
endorses annual budgeting as
long as the state engages in
annual appropriations,
government must maintain a 3
to 5 year perspective when
budgeting and spending public
funds.
Another reason that the
sales tax does not grow at the
same rate as the economy is that
personal income has been
growing faster than taxable sales
since 1970. As family income
increases, more money is placed
in savings or investments;
consequently, a smaller


percentage of the income is
spent on taxable sales. The
average percent of personal
income spent on taxable items
has fallen by almost one-third
from over 75% to 55% since
fiscal year 1970. Without sales
tax rate increases since 1979-
80, sales taxes as a percent of
income would have fallen from
2.5% in 1979-80 to 2.1% in
1990-91. A contributing factor
to this growth disparity is that
the Legislature has enacted a
multitude of sales tax
exemptions, ranging from
tickets to the Super Bowl and
the World Cup Soccer Games,
to commercial movie and
sound recording equipment, to
rental of concession space at
sports stadiums and pari-
mutuel facilities. In 1970
Florida taxed 52.4% of gross
sales, but this declined to
46.2% in 1988-89 according to
the Crossroads report.


Other taxes which contribute
revenue to the General Fund are
also not reliable. A 1991 study
of the Florida tax system by Peat
Marwick measured elasticity
(the degree to which taxes
tracked personal income growth
without rate increases) of
several taxes. It found that if
personal income increased by
10%, cigarette tax revenue
would increase only 3.4% and
alcoholic beverage tax revenues
by 4.1%. The major reason for
this is that these items are taxed
on a per-unit basis and people
do not consume larger
quantities just because their
income increases. This revenue,
therefore, does not keep pace
with population growth and
inflation without periodic tax
increases. Per capital consump-
tion of wine has been relatively
stable over the past decade while
liquor and cigarette consump-
tion has fallen.


= Florida's Fiscal Future







FLORIDA'S TAX STR UCTURE


The corporate income tax
has also proven not to be a
stable and reliable source of
income. To some degree this is
due to economic cycles which
produce dramatic variations in
its growth, similar to the sales
tax. Before the present
recession hit Florida corpora-


suspicion that
exemptions mav
have contributed to the pre-
recession downturn.
Subchapter S corporations are
exempt from Florida's
corporate income tax, and it has
been suggested that some
corporations are converting to
subchapter S status in order to
pay the lower federal tax rate
available since 1986 and to
avoid payment of Florida's
corporate income tax.
Unfortunately, the Department
of Revenue lacks sufficient data
to determine the extent of the
problem.

Tax Equity
Equity or fairness is the
goal that is most often sought
and least often agreed upon in
the formulation of tax policy.
The High Quality Revenue
System Criteria suggest that
everyone should pay a fair
share of taxes since all benefit
under the system. Unfortu-
nately, there is no universally-
accepted definition of what is
fair. Equity is usually
characterized according to two
divergent principles: the
ability-to-pay principle and the


benefits-received principle.
The former calls for a
distribution of the tax burden
on the basis of ability-to-pay
(generally measured by income
in the broadest sense) and the
latter specifying that taxes paid
should be borne in proportion
to benefits received. To apply


the ability-to-pay principle one
must look at tax equity in two
dimensions: horizontal and
vertical.
Horizontal equity refers to
similar treatment of similarly
situated individuals. It asks the
question: do persons making
the same income bear the same
tax burden? For example,
persons earning the same
income but with different
consumption patterns would
pay different taxes depending
on the relative importance of
taxable items versus nontaxable
items in the family budget.
Horizontal equity would
minimize these differences by
having broad-based taxes.
Vertical equity relates to the
distribution of the tax burden
across income classes, or the
unequal treatment of income
groups with unequal incomes.
If taxes as a percent of income
increase as income increases,
the distribution of the tax
burden is considered to be
progressive. Likewise, if taxes
as a percent of income are
higher for low income groups
than for high income groups, a


tions, collections
for 1989-90 were
down by 10%. In 1970 Florida taxed 52.4% of
The previous gross sales, but this declined to
year it had
increased by 46.2% in 1988-89 according to the
12.50'. There is Crossroads report.


tax is considered to be
regressive.
In basic terms, to be
equitable or fair, a tax
structure should shield
genuine subsistence income
from taxation (ability-to-pay),
should not be regressive
(vertical equity), and should
require all households with
comparable incomes to pay
approximately the same
amount of taxes (horizontal
equity). Also relevant to the
broad fairness issue is the
distribution of the public
expenditures funded by those
tax dollars; however, analysis
of the distribution of
government expenditures is
even more difficult and rarely
done. As a result, tax studies
may overlook the fact that a
tax system which is regressive
in rate structure may be
balanced somewhat by the
distribution of a dispropor-
tionate share of government
expenditures to the lower
income group.
Measured by the principles
of ability-to-pay, vertical equity,
and horizontal equity, Florida's
tax structure is found to be
deficient because it relies on
consumption and transaction
taxes for more than 82% of its
General Fund. Sales taxes tend
to be regressive because lower
income individuals spend a
greater portion of their income
than do high income individu-
als who devote a portion of their
income to investments and
savings. Florida has attempted
to mitigate this regressivity
somewhat by exempting
necessities such as food and
prescription drugs from the
sales tax; however, all income
groups benefit from the







CHAPTER FOUR


exemptions. The Commission
found evidence that regressivity
is not unique to Florida since 45
states use the sales tax. In 1988
Ian Allen and John Peterson did
a study of the tax burdens in the
largest city in each of the 50
states plus Washington, D.C.
and found that the tax liability
(federal, state, and local) of a
two income, two dependent
family in Jacksonville, Florida
was 49th. Nevertheless, all
studies of the incidence of taxes
in Florida have consistently
shown a higher effective tax rate
for low income groups than
high income groups, although
the degree of regressivity varies
considerably.
Regressivity of the sales tax
can be illustrated by analyzing
the distribution across income
groups to demonstrate who
bears the burden. The Florida
Multitax Simulation Model
produced for the Commission
by Price Waterhouse estimated
the sales tax burden for


families with incomes less than
$10,000 to be 5.9% of their
income. Families in the
$40,000-$50,000 income range
had an effective rate of 2.2%.
The comparable figure for
families with incomes between
$100,000 and $200,000 was
1.7%. If the sales taxes paid by
business and passed along to
the consumer were included,
the tax rates would be 9.34%,
3.51%, and 2.81%, respec-
tively. In both scenarios, taxes
as a percent of income for the
lowest income group are 3.5
times that of the highest
income group. Tax incidence
or tax burden studies like this
should be used for comparison
purposes only because there is
no definitive or universally-
accepted study of tax incidence
in Florida. The results of the
Florida Multitax Simulation
Model compare favorably to the
results of other studies;
however, some studies have
estimated a higher effective tax
rate for the low income group.


The use of annual family
income may somewhat
overstate regressivity because it
makes no adjustment for
variation in spending patterns
or for benefits received from
government programs. For
example, younger families,
especially those with children
and many young single adults
generally spend higher levels of
current income than does the
35-50 age group. This is also
true of many lower and middle
income retirees, but some in
this group also receive benefits
from public health and social
programs.
Other consumption based
taxes are also regressive
although the rates appear low
when spread across the entire
population. The 1991
microsimulation model of the
Florida tax structure devised by
KPMG Peat Marwick's Policy
Economics Group analyzed the
effective tax rates paid on
alcoholic beverages and
cigarettes. The effective


7- -


Lffcctivc Tax Rates by Income Class


N Sales Taxes


[ Excise Taxes


U~


-- Income Tax












0C 75 000 100 000 '2000/0 0
CO : 0,00, 903,000


INCOME CLASS


= Florida's Fiscal Future


5 -


^J
va

?; i


IL







FLORIDA'S TAX STR UCTURE


beverage tax rates are: 3.67%
for families earning $10,000 or
less, 0.22% for families in the
$30,000-S50,000 range, and
0.07% for families earning over
S100,000. In the case of the
cigarette tax, the rates for the
respective income groups are:
1.56%, 0.070 and 0.01%.
Florida does have two taxes,
the estate tax and the intangible
tax, which are based upon the
ability-to-pay principle;
however both of these
are minor sources of
revenue when compared Th
to the $8.22 billion in
raised by the sales tax in
1989-90. In the same
year the intangible tax on CO
businesses and ou
individuals (principally
on stocks and bonds)
produced S0.418 billion,
and the estate tax totaled SO.257
billion. Individuals receive a
$20,000 exemption on the first
mill of the tax and a $100,000
exemption on the other half
mill. The Florida constitution
permits the estate tax to be
levied only up to the amount
allowed as a credit on the
federal estate tax; thus, it does
not add to the tax liability of
those paying it. The maximum
federal credit is S192,800. If the
federal government ever
eliminated the federal credit on
its estate tax, Florida would lose
all income from this source.
The Commission reviewed this
issue and determined that
Congress was unlikely to
eliminate this tax credit since all
states levy the same type of
"pick-up" tax as Florida.
The Commission also
reviewed two other revenue
sources within the context of
equity: the lottery and the


constitutional provision which
caps the millage rate of the
Northwest Florida Water
Management District at 0.05
mill while granting all other
districts 1 mill. Some
Commissioners were concerned
that the lottery functions as a
regressive tax since lower
income people spend a greater
percentage of their income on
lottery tickets, a contention
supported by a recent book on


a fair environment or level
playing field for businesses in
the state. Florida's complex web
of business taxes, tax exemp-
tions, allowances, and credits
has no rational basis and results
in many violations of the
principle of maintaining a "level
playing field." Insurance
companies are subject to
insurance premium taxes,
corporate income taxes, and
intangible taxes; however, they
can deduct
their


re Commission believes it is in the best
terest of the state to create a tax structure
zich, to the extent possible, improves the
mpetitiveness of Florida businesses with
t-of-state competitors and encourages


b creation within the state.


the lottery, The Economic
Consequences of State Lotteries.
In fact, the hook asserts that
Florida loses up to 23 cents in
sales or excise taxes for every
dollar spent on the lottery. The
Commission decided not to
pursue this issue since the
lottery was, after all, voted into
existence by the voters of
Florida. Similarly, the
Commission did not take action
on the water management tax
issue because the tax inequity
was approved by the voters, it is
public knowledge that the
Legislature subsidizes the
Northwest Florida district with
state dollars. Most importantly,
the Legislature has the power to
place this matter on the ballot
for a vote should public opinion
change.

Level Playing Field
Closely related to the equity
principle is the issue of creating


intangible tax
and corporate
tax liability
(up to a
combined
cap) from
their


insurance
premium tax
liability. Corporations subject
to the corporate income tax,
other than insurance companies
and financial institutions,
receive no offset for their tax
liability for either the corporate
income tax or the intangible tax.
Florida's tax structure also
discriminates among businesses
by type of organization.
Subchapter S corporations,
master limited partnerships,
partnerships, and sole
proprietorships are exempt
from the corporate income tax.
If the state had a personal
income tax, the business income
would be taxed on the
individual returns. Since there
is no personal income tax, these
businesses escape taxation. The
corporate income tax is the
state's main tax on businesses;
however, only C corporations
are required to file corporate
income tax returns. Businesses
organized as subchapter S


IHonda, hscil I -turc M






CHAPTER FOUR


5.16%


C C Corporations
D Partnerships


corporations (65,000+),
partnerships (103,600), and sole
proprietorships (849,000) are
exempt from the tax. These
businesses account for over one
million businesses operating in
Florida, over four times the
225,000 C corporations filing
corporate income tax returns.
Of those corporations filing
corporate income tax returns,
only 2.5% of them pay over
90% of corporate taxes. Since
1986, the top marginal federal
tax rate for individual incomes
is less than the top marginal rate
for corporations, providing an
additional incentive for Florida
businesses to reorganize in


19.31%
Only group
paying corporate
Taxes under
current law
















O Subchapter S Corps
N Sole Proprietorships


order to avoid corporate
income taxes at both the federal
and state levels. According to
some estimates, over 40,000
corporations in Florida have
converted to subchapter S
corporations. A positive feature
of Florida's corporate tax is a
relatively low rate, 5.5%,
making Florida 36th among
states and well below the
national average of 7.33%. This
low rate in part reflects the fact
that the Florida Constitution
requires a three-fifths vote of
the Legislature to increase the
tax rate.
Florida businesses also
desire to have a level playing


Florida Corporations

by Organization Type


= Florida's Fiscal Future


field when it comes to
competing on the national and
international market. The state
is geographically disadvantaged
very often when it competes
with other states for major
manufacturing plants or
national distribution centers;
yet, there is a great need for
jobs. The Commission believes
it is in the best interest of the
state to create a tax structure
which, to the extent possible,
improves the competitiveness of
Florida businesses with out-of-
state competitors and
encourages job creation within
the state. One negative and
unintended result of having the
7th highest sales tax rate, higher
than adjacent states, is that it
provides some incentive for
individuals and businesses to
purchase major items outside
the state. The Price Waterhouse
Florida Multitax Simulation
Model estimated that 42.6% of
sales tax collections derive from
business purchases and,
therefore, indirectly affect the
price of Florida goods and
services. There should be some
concern that the tax rate does
not get too far out of line with
other states competing in the
same regional market area. On
a positive note, out-of-state
sales by Florida businesses are
exempt from the sales tax. As a
result, there is no damaging
effect on the competitive
position of Florida businesses
relative to non-Florida
competitors.

Exportability
Exportability is measured
by the extent to which the tax
burden is shifted ("exported")
onto residents of another
political jurisdiction, i.e., out-







FLORIDA'S TAX STR UCTURE


of- state residents and onto the
federal revenue system. Taxing
tourists while they are in Florida
and using state taxes that are
deductible from the federal
income tax liability are
alternative ways of exporting
the tax burden. The Tax
Reform Act of 1986 repealed the
deductibility of state sales taxes
on federal income tax returns
for individuals but left state
income taxes deductible.
One perceived advantage of
Florida's heavy reliance on
sales taxes as the dominant
revenue source is that the 40
million tourists who visit
Florida each year contribute to
the funding of state govern-
ment. Tourists and business
travelers pay sales taxes on a
significant proportion of their
purchases: lodging, restaurant
meals, cigarettes, alcoholic
beverages, clothing, and
admissions to events and
tourist attractions. Many
previous estimates of the
percentage of sales tax paid by
tourists have varied from 20%
to 35%. In order to obtain a
more current estimate, the
Commission asked its
consultant to review the
subject. The Price Waterhouse
Florida Multitax Simulation
Model estimated that
nonresidents pay 20.9% of
Florida sales taxes through
direct and indirect purchases.
The KPMG Peat Marwick
microsimulation model
estimated that nonresidents
pay 20.4% of the sales tax,
3.6% of the cigarette tax, and
21.2% of the alcoholic
beverage tax.

Efficient and Effective Tax
Administration


Because taxes do result in
foregone consumption and
investment, the tax system
should strive to minimize the
revenues necessary to adminis-
ter the tax. Generally, broad-
based taxes with few exemp-
tions, deductions, and
allowances can be more
efficiently and effectively
administered. They require less
personnel for rule-making and
technical assistance and are
more easily understood by tax
practitioners and taxpayers
alike, thereby increasing
compliance and lowering the
costs of enforcement.
Florida's tax system is
administered at a relatively low
cost per dollar collected. Only
66 cents per $100 of sales taxes
goes to administer and collect
the tax. Each month the
Department of Revenue
processes 425,000 sales tax
returns and 14,000 motor fuel
tax returns for an annual total
of 5.2 million returns, as well as
another 347,000 corporate
returns and 697,000 intangible
tax returns annually.

Taxpayer Acceptance and
Compliance
In Florida and most states,
revenue systems depend upon
the voluntary compliance of
taxpayers. The level of
voluntary compliance is a
function of the ability of the
taxpayer to understand and
comply with the tax laws, which
in turn depends on the
perception of taxpayers that the
tax laws are equitable and fairly
administered. The most
important sources, the retail
sales tax, the alcoholic beverage
and cigarette excise taxes, and


the motor fuel tax are generally
perceived by the public to be
fair. Monitoring compliance is
relatively simple. The consumer
pays the tax liability at the time
of the purchase transaction and
the tax is remitted by the dealer.
The individual taxpayer is
caused little inconvenience,
other than paying the tax, and is
not required to maintain
records or file tax returns.
When compliance problems
occur, it usually involves the
dealer responsible for collecting
and forwarding the tax to the
Department of Revenue.
Consumption-based taxes
may be criticized as being more
regressive, more unstable, and
less equitable than some other
forms of taxation, but they
usually receive a high degree of
acceptance, even from lower
income groups. The two major
reasons are: 1) there are no
records or filing deadlines and
2) sales and other consumption
taxes are paid in small
increments which appear to be
insignificant sums of money.
Rarely does the typical
consumer make a purchase
which results in a large sales tax
amount on the invoice. Few
individuals think about the
aggregate amount of sales tax.
By comparison, the property tax
on the annual tax bill may
appear intimidating even if it is
less than the total sales tax paid
in the same year.
The department estimates
that over $1 billion dollars of
state taxes are uncollected.
About $200 million of this
amount is uncollected
intangible taxes (business and
individual) and the remainder is
uncollected sales taxes. The


Ilonia s ical lFuturc







FLORIDA'S TAX STR UCTURE


of- state residents and onto the
federal revenue system. Taxing
tourists while they are in Florida
and using state taxes that are
deductible from the federal
income tax liability are
alternative ways of exporting
the tax burden. The Tax
Reform Act of 1986 repealed the
deductibility of state sales taxes
on federal income tax returns
for individuals but left state
income taxes deductible.
One perceived advantage of
Florida's heavy reliance on
sales taxes as the dominant
revenue source is that the 40
million tourists who visit
Florida each year contribute to
the funding of state govern-
ment. Tourists and business
travelers pay sales taxes on a
significant proportion of their
purchases: lodging, restaurant
meals, cigarettes, alcoholic
beverages, clothing, and
admissions to events and
tourist attractions. Many
previous estimates of the
percentage of sales tax paid by
tourists have varied from 20%
to 35%. In order to obtain a
more current estimate, the
Commission asked its
consultant to review the
subject. The Price Waterhouse
Florida Multitax Simulation
Model estimated that
nonresidents pay 20.9% of
Florida sales taxes through
direct and indirect purchases.
The KPMG Peat Marwick
microsimulation model
estimated that nonresidents
pay 20.4% of the sales tax,
3.6% of the cigarette tax, and
21.2% of the alcoholic
beverage tax.

Efficient and Effective Tax
Administration


Because taxes do result in
foregone consumption and
investment, the tax system
should strive to minimize the
revenues necessary to adminis-
ter the tax. Generally, broad-
based taxes with few exemp-
tions, deductions, and
allowances can be more
efficiently and effectively
administered. They require less
personnel for rule-making and
technical assistance and are
more easily understood by tax
practitioners and taxpayers
alike, thereby increasing
compliance and lowering the
costs of enforcement.
Florida's tax system is
administered at a relatively low
cost per dollar collected. Only
66 cents per $100 of sales taxes
goes to administer and collect
the tax. Each month the
Department of Revenue
processes 425,000 sales tax
returns and 14,000 motor fuel
tax returns for an annual total
of 5.2 million returns, as well as
another 347,000 corporate
returns and 697,000 intangible
tax returns annually.

Taxpayer Acceptance and
Compliance
In Florida and most states,
revenue systems depend upon
the voluntary compliance of
taxpayers. The level of
voluntary compliance is a
function of the ability of the
taxpayer to understand and
comply with the tax laws, which
in turn depends on the
perception of taxpayers that the
tax laws are equitable and fairly
administered. The most
important sources, the retail
sales tax, the alcoholic beverage
and cigarette excise taxes, and


the motor fuel tax are generally
perceived by the public to be
fair. Monitoring compliance is
relatively simple. The consumer
pays the tax liability at the time
of the purchase transaction and
the tax is remitted by the dealer.
The individual taxpayer is
caused little inconvenience,
other than paying the tax, and is
not required to maintain
records or file tax returns.
When compliance problems
occur, it usually involves the
dealer responsible for collecting
and forwarding the tax to the
Department of Revenue.
Consumption-based taxes
may be criticized as being more
regressive, more unstable, and
less equitable than some other
forms of taxation, but they
usually receive a high degree of
acceptance, even from lower
income groups. The two major
reasons are: 1) there are no
records or filing deadlines and
2) sales and other consumption
taxes are paid in small
increments which appear to be
insignificant sums of money.
Rarely does the typical
consumer make a purchase
which results in a large sales tax
amount on the invoice. Few
individuals think about the
aggregate amount of sales tax.
By comparison, the property tax
on the annual tax bill may
appear intimidating even if it is
less than the total sales tax paid
in the same year.
The department estimates
that over $1 billion dollars of
state taxes are uncollected.
About $200 million of this
amount is uncollected
intangible taxes (business and
individual) and the remainder is
uncollected sales taxes. The


Ilonia s ical lFuturc







CHAPTER FOUR


Department of Revenue does
not have current estimates of
non-compliance on all taxes,
but it does estimate an 8.5% (or
$750 million) non-compliance
on the sales tax and 28.4% non-
compliance on the intangible
tax on business.
Another area of non-
compliance involves individual
taxpayers who do not pay the
intangible tax which is levied on
stocks, bonds, mortgages, and
other obligations secured by
liens. A study by the Depart-
ment of Revenue estimated that
$103.6 million owed by
individuals for intangible taxes
goes uncollected. This high rate
of non-compliance may be
because citizens consider it
unfair or because the Depart-
ment of Revenue does not have
a good system for informing
citizens of their liability or
enforcing compliance.

Fiscal Condition ofLocal
Government
While the Commission's
Joint Committee on Finance
and Tax/Planning and
Budgetary Processes conducted
its analysis of the state tax
system, the Joint Committee on
Governmental Services/
Procedures and Structure
conducted an examination to
determine the adequacy and
appropriateness of the revenues
available to Florida's local
governments. The committee
concentrated on counties and
cities because they are the only
general purpose local govern-
ments and have broad
responsibilities. Education is a
unique combination of state
and local responsibility, with the
state exercising funding and
policy control. Because school


boards are local governments,
albeit single purpose, the
committee and the Commission
has reviewed their fiscal
problems. The other category
of single purpose local



The property tax is
the sole source of
taxation reserved to
local governments
under the
Constitution...

governments, special districts,
was also examined.
Revenue sources available
to local governments are
limited. The property tax is the
sole source of taxation reserved
to local governments under the
Constitution, subject to a cap of
10 mills for each city, county, or
county school district. This
restriction increases pressure on
local governments to utilize the
property tax to fund the array of
services. Property taxes, as a
percentage of city and county
budgets, are increasing
compared to other revenue
sources. There is widespread
intolerance of increases in this
tax, however. The May 1991,
Florida Poll by Florida
International University with a
sample of 1,204 people found
that 76.2% of those polled
"mostly", or "strongly",
opposed increasing property
taxes as a way to increase tax
revenues.
While the state ranks only
23rd nationally in levying
property taxes as a percent of
income, there is a public
perception in many areas of


the state that it is too high and
inequitable. It is true that, in
general, higher income groups
own more property and larger
homes, but there are many
exceptions. Some individuals
have inherited family property
which a generation ago had
relatively low value and a small
tax liability. Florida's high
growth has escalated those
property values significantly.
In high growth urban areas,
increasing demand may have
inflated property values
beyond the financial ability of
a resident to pay taxes. This
happens most often to the
older, less mobile
homeowners. Aside from
these factors which are
influencing the Florida
situation, it must be recog-
nized that experts in the field
of taxation consider the
property tax to be regressive.
Donald Phares, a nationally
recognized scholar in tax
incidence or tax burden
studies, has called the property
tax the most regressive element
of taxation at the state and
local level.
The increase of the $5,000
homestead exemption to
$25,000 in 1980 has helped to
moderate the regressivity of the
property tax and the impact of
rising property values for many
homeowners; however, it has, to
some extent, undermined the
viability of the property tax as
the major revenue source for
local government, especially in
areas experiencing slow
economic growth. The $25,000
homestead exemption has taken
a large percentage of the homes
off the tax roll, imposing a
heavier burden on the non-
exempt property. In 1990,


=IE Florida's Fiscal Future







FLORIDA'S TAX STR UCTURE


15.9% of all property was
exempt from taxation because
of the homestead tax statewide,
but 16 counties had over 30%
exempt, with Holmes County
having the greatest percent-
age-54.3%. If viewed as a
percentage of total residential
value, the homestead exemption
accounts for 52.18% to 74.81%
in 12 of the 13 counties that levy
10 mills. The potential of the
property tax is also jeopardized
by organized groups of
taxpayers who strongly oppose
it as an unfair tax. In 1990
Duval County voters imposed a
cap on property taxes which
limits annual increases to 3%.
A statewide group called Save
Our Homes, Inc. has collected
more than 150,000 signatures
for an initiative to place a
similar restriction in the Florida
Constitution.
Revenue sources other than
the property tax must be
specifically authorized by the
Legislature, and several have
been allowed with restrictions.
For example, Florida Statutes
restrict the use of the
Constitutional Gas Tax to meet
debt service requirements or
the acquisition or construction
of roads, but prohibit its use
for maintenance. The Local
Government Infrastructure
Surtax (one cent sales tax) has
a requirement that the county
commission hold a referen-
dum. If a city wanted to use
these local option taxes to pay
for growth, but the county
refused to call a referendum,
there would be no election
unless the city or cities
represented a majority of the
county population. If the
Infrastructure Surtax were


levied, it could be used to pay
for police and fire stations but
not for people to serve in
them. Municipalities can levy
a public service (utility) tax on
electricity, water, gas, and
telecommunications, but not
on cable television or
wastewater services. No
county other than a charter
county may levy the utility tax
at all. There are several local
option taxes which can be
levied only by counties. The
Municipal Resort Tax may be
levied by only three cities in
the state.
The state policy of trying to
manage the fiscal affairs of cities
and counties has created a host
of revenue options, but has left
local governments with a
confusing and still inadequate
tax base. Traditionally, states
have compensated for tax
restrictions on local govern-
ments by sharing state-
generated revenue with them.
Florida does share revenues
from several tax sources with
cities and a still greater number
with the counties. In 1982-83
the state shared 12.7% of its
own-source revenue with cities
and counties. By 1989-90 the
percentage had declined to
8.8%). Counties now get more
of their revenue from User Fees,
27.60% in 1989-90 compared to
16.2% in 1979-80. Cities make
an even greater use of User Fees
which constitute 30% of total
revenue, much higher than the
national average which rose
from 18.8% in 1980 to 23.2% in
1989. Because city residents
must pay both county and city
property taxes, there is greater
public pressure to hold down


city property taxes and rely
more on user fees.
Local governments have
long sought more fiscal
flexibility in the funding of the
services they have been asked
to provide by both the state
and the public. Local
government officials claim that
the government closest to the
people should design locally
acceptable revenue solutions
for the problems confronting
their communities and that the
State has not been a "good
trading partner" when
mandating responsibilities, yet
limiting access to revenue
sources. Three hundred and
sixty-two mandates requiring a
local government to perform
an activity, provide a service
or facility, or restricting local
government's revenues or
revenue generating capacity
were enacted in the decade of
the 1980's. The total cost of
these mandates is difficult to
calculate, but a single 1988
mandate on pensions for
police and fire personnel will
cost local governments over
$559 million dollars through
the 1992 fiscal year and will
have a recurring cost of over
$200 million annually.
Another bill that passed during
the 1990 session, increasing
county and city contribution
rates to insure that the pension
fund remains actuarially
sound, was estimated to be $16
million for fiscal year 1990-91.

Local School Districts/
Education Funding
The third major level of
local government is the county
school district. These 67
districts are created for the







CHAPTER FOUR


single, but vitally important,
function of operating the public
school system. Elected county
school boards are charged with
the responsibility of providing
funding and policy direction.
The state constitution grants
school boards the authority to
levy up to 10 mills for school
purposes. In the 1980 fiscal
year, schools levied $895.3
million in property taxes. By
1990 the amount was $3.599
billion, an increase of 402%.
Local officials had very little
control over those increases,
however, because the state has
gradually assumed control of
funding and policy decisions.
The state also establishes limits
on how much millage can be
levied for capital projects.
The constitution provides
that "adequate provision shall
be made by law for a uniform
system of free public schools
and for the establishment,
maintenance and operation of
institutions of higher learning
and other public education
programs that the needs of the
people may require." In 1973,
the Florida Legislature passed
the Florida Education Finance
Program (FEFP) as the funding
formula for the state's
distribution of dollars to school
districts in order to provide
equal educational opportunity.
The formula recognizes: 1)
varying local property tax bases,
2) varying program cost factors,
3) district cost differentials, and
4) differences in per student
cost for equivalent educational
programs due to dispersion of
student population.
School districts are
required to levy a specific
millage in order to participate
in the FEFP allocation. The FY


1991 average required local
effort is 6.373 mills. School
districts are authorized to levy
a maximum of only .510 mills
above the required local effort
for discretionary use in the
local district. If local property
owners were willing to be
taxed at the unused 3 mills in


lottery would provide additional
funding to enhance education.
In response, the Legislature
adopted legislation stating "that
the net proceeds of the lottery
games conducted pursuant to
this act be used to support
improvements in public
education and that such
proceeds not be
used as a


...since implementation of the
lottery, the percentage of the General
Revenue Fund appropriated for
education has decreased from


61.19% to 52.78%.


order to enhance the local
educational system, the state
would not permit it.
The FEFP is intended to
"equalize" the amounts which
can be generated by disparate
property values. The landmark
case, Serrano v. Priest.487 P.2d
1241 (1971), held that a public
school financing system which
relies heavily on local property
taxes and causes substantial
disparities among individual
school districts in amount of
revenue available per pupil for
the districts' educational
grants, invidiously discrimi-
nates against the poor and
violates the equal protection
clause of the Fourteenth
Amendment. The question
remained, if the state will not
appropriate more for
education and will not permit
school districts the option to
levy more, how can additional
funding be generated?
In 1986, 63.57% of the
voters approved a constitutional
amendment creating a state
lottery. Proponents of the
amendment promised the


substitute for
existing
resources for
public
education." For


every dollar
spent on the
lottery, 38% is
deposited into the Educational
Enhancement Trust Fund,
winners get 50%, and ticket
sellers and administration
account for the remaining 12%.
Lottery proceeds to
education in 1991 are estimated
at $846.8 million, but many
claim that the funds have been
used to supplant state funding
of education. While actual
dollars appropriated for
education have increased each
year since implementation of
the lottery, the percentage of the
General Revenue Fund
appropriated for education has
decreased from 61.19% to
52.78%. Funds from the FY
1991 lottery accounted for
about 8.1% of the combined
total operating budgets of the
Public School System,
Community College System and
the State University System.
Predictions are that Florida's
lottery, like those in other
states, will eventually begin to
lose some of its appeal, and
revenues will decline. Since it
cannot be expected to grow to
any significant extent and since


M Florida's Fiscal Future







FLORIDA'S TAX STR UCTURE


local school millage is
approaching the 10 mill cap,
most additional future revenue
will have to come from a state
source.

Special Districts
Special districts are single-
purpose local governments
which supplement city and
county government services
such as: fire protection,
drainage, public lighting,
medical care, roads, juvenile
welfare services, and aviation
facilities. Special districts are
funded predominantly by
charges for services; however,
some special districts levy ad
valorem taxes. In fact, special
district ad valorem revenues,
$543.8 million, constituted
12.2% of the combined ad
valorem revenues for munici-
palities, counties, and special
districts in 1988-89.
In the 1970's, there was
widespread concern about the
proliferation of and lack of
accountability of special
districts because the exact
number and scope of activities
of special districts were
unknown. The Special Districts
Disclosure Act was enacted in
1979 to establish minimum
requirements for creation,
elections, accounting, bond
issuance and other aspects of
special district operations, but
problems persisted. In early
1986, the Advisory Council on
Intergovernmental Relations
commissioned an investigation
of statutory requirements that
could further enhance the
special districts' accountability
to the state, local governments,
and the public. Many of the
concerns were addressed when
the Uniform Special District


Accountability Act of 1989 was
adopted.
Two areas of concern still
remain. First, between one-
third and one-half of all special
districts were created by Special
Act of the Legislature, but these
special acts are not codified.
Extensive research is necessary
(and sometimes errors are
made) when legislation
regarding a special district is
amended. Over the past five


years, 317 special district bills
were filed in the House during
regular session. Second, there is
no required review of special
districts by the state or local
governments that created them.
Concern about abuses of special
district powers has brought
about changes in reporting, but
the activities of 30 of the 931
districts are still unknown.
Problems of lack of fiscal and
political accountability to


II a.-M


Joint Committee Membership

Governmental Services/Procedure & Structure
Tom Slade (Chair)
Miles Collier (Vice-Chair)
Hugh Anderson
Martha Barnett
Jacob Belin
Bill Crotty
Seth Joseph
Senator Curt Kiser (non-voting)
Charles LeCroy
Marta Prado
Tom Rankin (ex officio)
Representative Ron Saunders (non-voting)
Arthur Teele
Pat Tornillo
Steven Uhlfelder
Finance & Tax/Planning & Budgetary Processes
Barney Barnett (Chair)
R. Mark Bostick (Vice-Chair)
James Bax
F. Philip Blank
Bill Bryant, Jr.
Andrew Duda
David Dunbar
Adam Herbert
Homer Hooks
Senator Ken Jenne (non-voting)
Allan Katz
Peter Mettler
Tom Rankin (ex officio)
Representative Debby Sanderson (non-voting)
Parker Thomson







FLORIDA'S TAX STR UCTURE


local school millage is
approaching the 10 mill cap,
most additional future revenue
will have to come from a state
source.

Special Districts
Special districts are single-
purpose local governments
which supplement city and
county government services
such as: fire protection,
drainage, public lighting,
medical care, roads, juvenile
welfare services, and aviation
facilities. Special districts are
funded predominantly by
charges for services; however,
some special districts levy ad
valorem taxes. In fact, special
district ad valorem revenues,
$543.8 million, constituted
12.2% of the combined ad
valorem revenues for munici-
palities, counties, and special
districts in 1988-89.
In the 1970's, there was
widespread concern about the
proliferation of and lack of
accountability of special
districts because the exact
number and scope of activities
of special districts were
unknown. The Special Districts
Disclosure Act was enacted in
1979 to establish minimum
requirements for creation,
elections, accounting, bond
issuance and other aspects of
special district operations, but
problems persisted. In early
1986, the Advisory Council on
Intergovernmental Relations
commissioned an investigation
of statutory requirements that
could further enhance the
special districts' accountability
to the state, local governments,
and the public. Many of the
concerns were addressed when
the Uniform Special District


Accountability Act of 1989 was
adopted.
Two areas of concern still
remain. First, between one-
third and one-half of all special
districts were created by Special
Act of the Legislature, but these
special acts are not codified.
Extensive research is necessary
(and sometimes errors are
made) when legislation
regarding a special district is
amended. Over the past five


years, 317 special district bills
were filed in the House during
regular session. Second, there is
no required review of special
districts by the state or local
governments that created them.
Concern about abuses of special
district powers has brought
about changes in reporting, but
the activities of 30 of the 931
districts are still unknown.
Problems of lack of fiscal and
political accountability to


II a.-M


Joint Committee Membership

Governmental Services/Procedure & Structure
Tom Slade (Chair)
Miles Collier (Vice-Chair)
Hugh Anderson
Martha Barnett
Jacob Belin
Bill Crotty
Seth Joseph
Senator Curt Kiser (non-voting)
Charles LeCroy
Marta Prado
Tom Rankin (ex officio)
Representative Ron Saunders (non-voting)
Arthur Teele
Pat Tornillo
Steven Uhlfelder
Finance & Tax/Planning & Budgetary Processes
Barney Barnett (Chair)
R. Mark Bostick (Vice-Chair)
James Bax
F. Philip Blank
Bill Bryant, Jr.
Andrew Duda
David Dunbar
Adam Herbert
Homer Hooks
Senator Ken Jenne (non-voting)
Allan Katz
Peter Mettler
Tom Rankin (ex officio)
Representative Debby Sanderson (non-voting)
Parker Thomson







FLORIDA'S TAX STR UCTURE


local school millage is
approaching the 10 mill cap,
most additional future revenue
will have to come from a state
source.

Special Districts
Special districts are single-
purpose local governments
which supplement city and
county government services
such as: fire protection,
drainage, public lighting,
medical care, roads, juvenile
welfare services, and aviation
facilities. Special districts are
funded predominantly by
charges for services; however,
some special districts levy ad
valorem taxes. In fact, special
district ad valorem revenues,
$543.8 million, constituted
12.2% of the combined ad
valorem revenues for munici-
palities, counties, and special
districts in 1988-89.
In the 1970's, there was
widespread concern about the
proliferation of and lack of
accountability of special
districts because the exact
number and scope of activities
of special districts were
unknown. The Special Districts
Disclosure Act was enacted in
1979 to establish minimum
requirements for creation,
elections, accounting, bond
issuance and other aspects of
special district operations, but
problems persisted. In early
1986, the Advisory Council on
Intergovernmental Relations
commissioned an investigation
of statutory requirements that
could further enhance the
special districts' accountability
to the state, local governments,
and the public. Many of the
concerns were addressed when
the Uniform Special District


Accountability Act of 1989 was
adopted.
Two areas of concern still
remain. First, between one-
third and one-half of all special
districts were created by Special
Act of the Legislature, but these
special acts are not codified.
Extensive research is necessary
(and sometimes errors are
made) when legislation
regarding a special district is
amended. Over the past five


years, 317 special district bills
were filed in the House during
regular session. Second, there is
no required review of special
districts by the state or local
governments that created them.
Concern about abuses of special
district powers has brought
about changes in reporting, but
the activities of 30 of the 931
districts are still unknown.
Problems of lack of fiscal and
political accountability to


II a.-M


Joint Committee Membership

Governmental Services/Procedure & Structure
Tom Slade (Chair)
Miles Collier (Vice-Chair)
Hugh Anderson
Martha Barnett
Jacob Belin
Bill Crotty
Seth Joseph
Senator Curt Kiser (non-voting)
Charles LeCroy
Marta Prado
Tom Rankin (ex officio)
Representative Ron Saunders (non-voting)
Arthur Teele
Pat Tornillo
Steven Uhlfelder
Finance & Tax/Planning & Budgetary Processes
Barney Barnett (Chair)
R. Mark Bostick (Vice-Chair)
James Bax
F. Philip Blank
Bill Bryant, Jr.
Andrew Duda
David Dunbar
Adam Herbert
Homer Hooks
Senator Ken Jenne (non-voting)
Allan Katz
Peter Mettler
Tom Rankin (ex officio)
Representative Debby Sanderson (non-voting)
Parker Thomson







CHAPTER FOUR


district residents are com-
pounded by this lack of periodic
review by the creating authority
to determine if a special district
is still the most efficient and
desirable way to provide the
service.

Commission Recommenda-
tions For Reform
The Florida Constitution
requires the Taxation and
Budget Reform Commission to
"determine methods favored by
the citizens of the state to fund
the needs of the state, including
alternative methods for raising
sufficient revenue for the needs
of the state; determine measures
that could be instituted to
effectively gather funds from
existing tax sources; [and]
examine constitutional
limitations on taxation and
expenditures at the state and
local level." Having conducted
its examination of the tax
systems of state and local
government, the Commission
adopted several proposals
which incorporate options for
tax reform and changes related


to government finance. Some
are proposed as legislative
recommendations and some
have been placed on the
Commission's Constitutional
Calendar for further discussion
and consideration as proposed
constitutional amendments.
Findings and Recommenda-
tions are printed in full in
Chapter Five. No precise
constitutional language is
presented for the constitu-
tional recommendations
because proposals on the
Constitutional Calendar are
subject to modification or
rejection after public hearings
in January and February 1992,
and after further discussion by
the Commission.
The Commission's primary
objective is to improve the
equity and stability of the tax
structure to enable it to better
meet the future needs of the
state. In order to focus on that
aim, these recommendations
assume changes would initially
be revenue neutral. In other
words, the expansion of the
existing tax base or the use of a


new tax assumes an initial
corresponding reduction in the
rate of an existing tax.

Repeal of State Tax Exemptions
Repealing most of the sales
tax exemptions on services and
goods, other than food,
medicine, and housing, should
help reduce the volatility of sales
tax collections. Though
technically not exemptions, the
Commission has included
business, professional and
personal services in the
exemption category. Not only
would this legislative action
significantly expand the base of
taxable sales, but also,
employment data show that the
service sector of the economy
has experienced positive rates of
growth throughout the business
cycle over the last forty years.
This proposed base expansion
would, over time, further
increase the state's reliance on
the sales tax; however, the
revenue stream may become
more stable. Creating a true
budget stabilization fund by
requiring an amount equaling


Sales Tax Burden: Existing Law vs. Services


Effective Rate
Existing Sales Tax With Services


9.34%
4.38%
3.52%
3.49%
3.51%
2.99%
2.55%
2.81%
0.94%


9.47%
4.38%
3.45%
3.42%
3.45%
2.94%
2.53%
2.90%
1.00%


Average Liability
Existing Sales Tax With Services


$372
$662
$919
$1,255
$1,557
$1,881
$2,241
$4,051
$5,901


$377
$662
$901
$1,229
$1,531
$1,848
$2,220
$4,182
$6,297


M Florida 's Fisal Future


Income Class
$0- 10,000
$10,000- 20,000
$20,000- 30,000
$30,000- 40,000
$40,000- 50,000
$50,000- 75,000
$75,000-100,000
$100,000-200,000
$200,000 and Up







CHAPTER FOUR


district residents are com-
pounded by this lack of periodic
review by the creating authority
to determine if a special district
is still the most efficient and
desirable way to provide the
service.

Commission Recommenda-
tions For Reform
The Florida Constitution
requires the Taxation and
Budget Reform Commission to
"determine methods favored by
the citizens of the state to fund
the needs of the state, including
alternative methods for raising
sufficient revenue for the needs
of the state; determine measures
that could be instituted to
effectively gather funds from
existing tax sources; [and]
examine constitutional
limitations on taxation and
expenditures at the state and
local level." Having conducted
its examination of the tax
systems of state and local
government, the Commission
adopted several proposals
which incorporate options for
tax reform and changes related


to government finance. Some
are proposed as legislative
recommendations and some
have been placed on the
Commission's Constitutional
Calendar for further discussion
and consideration as proposed
constitutional amendments.
Findings and Recommenda-
tions are printed in full in
Chapter Five. No precise
constitutional language is
presented for the constitu-
tional recommendations
because proposals on the
Constitutional Calendar are
subject to modification or
rejection after public hearings
in January and February 1992,
and after further discussion by
the Commission.
The Commission's primary
objective is to improve the
equity and stability of the tax
structure to enable it to better
meet the future needs of the
state. In order to focus on that
aim, these recommendations
assume changes would initially
be revenue neutral. In other
words, the expansion of the
existing tax base or the use of a


new tax assumes an initial
corresponding reduction in the
rate of an existing tax.

Repeal of State Tax Exemptions
Repealing most of the sales
tax exemptions on services and
goods, other than food,
medicine, and housing, should
help reduce the volatility of sales
tax collections. Though
technically not exemptions, the
Commission has included
business, professional and
personal services in the
exemption category. Not only
would this legislative action
significantly expand the base of
taxable sales, but also,
employment data show that the
service sector of the economy
has experienced positive rates of
growth throughout the business
cycle over the last forty years.
This proposed base expansion
would, over time, further
increase the state's reliance on
the sales tax; however, the
revenue stream may become
more stable. Creating a true
budget stabilization fund by
requiring an amount equaling


Sales Tax Burden: Existing Law vs. Services


Effective Rate
Existing Sales Tax With Services


9.34%
4.38%
3.52%
3.49%
3.51%
2.99%
2.55%
2.81%
0.94%


9.47%
4.38%
3.45%
3.42%
3.45%
2.94%
2.53%
2.90%
1.00%


Average Liability
Existing Sales Tax With Services


$372
$662
$919
$1,255
$1,557
$1,881
$2,241
$4,051
$5,901


$377
$662
$901
$1,229
$1,531
$1,848
$2,220
$4,182
$6,297


M Florida 's Fisal Future


Income Class
$0- 10,000
$10,000- 20,000
$20,000- 30,000
$30,000- 40,000
$40,000- 50,000
$50,000- 75,000
$75,000-100,000
$100,000-200,000
$200,000 and Up







FLORIDA'S TAX STR UCTURE


5% to 10% of state
revenues to be deposited
in the Working Capital
Fund, as the Commission
has recommended, would
help to level out the
availability of revenue to
fund the budget.
Many of the current
sales tax exemptions are
more reflective of the
influence of certain
interest groups than they
are of tax equity. The
use of the Commission's
criteria, which are
included in the Findings and
Recommendations, would help
the Legislature grant only those
exemptions that are truly in
the public interest. Having a
constitutional sunset of
exemptions every 10 years,
unless re-enacted in separate
bills, would force the
Legislature to periodically
examine the legitimacy of each
exemption. Exempting
expensive items like tickets to
the Super Bowl does not
indicate any consideration of
the ability-to-pay principle.
Subjecting to the sales tax those
services which are used more
extensively by upper income
groups, such as accounting,
legal, and architectural services,
may slightly improve the
fairness of a system which taxes
consumption.
Repealing all tax
exemptions except those that
address a defined public
purpose would also generate
revenues sufficient to decrease
the sales tax rate from 6 cents
on the dollar to 4 cents
according to the Price
Waterhouse Florida Multitax
Simulation Model. Eliminat-
ing the corporate income tax


exemptions for subchapter S
corporations and partnerships
would also reduce the
discrimination in tax
treatment by form of business
organization.
Implementing a sales tax on
services would require that the
Department of Revenue register
an additional 250,000 businesses
which currently provide only
services and, therefore, are not
required to be registered sales
tax dealers under current law,
which may call for phasing in
the sales tax on services. In
terms of acceptability, the
Florida State University Policy
Science Program's annual
survey in 1989 indicated that if
more revenue had to be raised,
the option most preferred by
37% of the respondents was
increasing the sales tax, followed
closely by 32% preferring an
expansion of the sales tax to
include services. These results
are comparable with other
recent polls.

Comprehensive Taxation of
Business
Enacting a comprehensive
business tax based upon value-
added could help to stabilize


revenues. Michigan is the only
state which levies a value-
added tax; therefore, the
Legislature should explore the
advantages and disadvantages
before making a final decision.
Business capital investments,
which are highly cyclical, are
excluded from the tax base
resulting in more stable
revenue growth for the state as
well as an incentive for
business. From a taxpayer's
point of view, tax planning
would be more predictable,
giving business an increased
ability to incorporate taxes
into their price structure and
into marketing plans. The
value-added tax base includes
the services sector of the
economy, which is expected to
grow faster than the manufac-
turing sector. By the year
2000, revenue from the current
corporate tax can be expected
to grow by 24%; whereas,
value-added tax revenues are
projected to grow 40%
according to Price Water-
house. This is based upon a
2.4% value-added tax which
would replace the 5.5%
corporate income tax, the sales


Value of State Tax Exemptions
Recommended for Repeal
($ in millions)

Tax Exemptions 1992-93
Sales Tax on Goods $778.7
Sales Tax on Services $6,531.2
Corporate Income Tax $230.2
Beverage & Cigarette Tax $33.0
Other Consumption Taxes $64.6
Total Repealed Exemptions at Current Tax Rates $7,637.7







CHAPTER FOUR


Distribution of Business Taxes by Industry


25 -I




15'.
i
f


* CurrentLaw
D Value Added Tax


Agriculture MininS Constrctic n Manufacturng Transp, Comm,
Pub Utiitles
INDUSTRY


Finance Wholesale
insurance Retail Trade
Real Estate


tax on business purchases, and
the intangible tax on business.
This type of tax could add a
degree of equity since all types
of corporations, partnerships,
and proprietorships, other than
those exempted by a small
business income threshold,
would be subject to the tax,
there would be no discrimina-
tion in tax policy based upon
organizational structure. It
would also tax business
according to the services-
received principle. Government
services are consumed by
business, and the VAT treats
government services as a factor
in production just as labor,
capital, and land, whether a
profit is made or not. An
important feature, is that only
the value added by the business
is taxed. It permits a business to
deduct from its liability the
taxes paid at an earlier stage of
the production and distribution
process, thereby reducing
pyramiding.


Implementation of a value-
added tax would have similar
requirements as would an
expansion of the corporate
income tax base to include
subchapter S corporations and
partnerships, except that some
proprietorships would also have
to file returns. Since the
implementation of value-added
tax could include the elimina-
tion of the intangible tax on
business and the sales tax on
equipment purchases, savings in
administrative costs for those
taxes may balance out the new
costs associated with the value-
added tax for both government
and business. The possibility of
simplification of the tax system
and the low rates applied to
larger groups of businesses have
caused many Florida business
leaders to encourage the state to
explore its possibilities.

Personal Income Tax
There is a constitutional
prohibition against a personal
income tax which dates from


1923 when the leaders of a
sparsely populated and poor
Florida recommended it as a
way to persuade northern
capitalists to relocate in Florida
and bring their fortunes with
them. Forty-four states levy a
broad-based personal income
tax, but public opinion polls in
Florida over the past several
years have shown that 70% to
80% opposed an income tax;
however, an August 1991, poll
of 601 Floridians by Frederick/
Schneiders revealed that 64%
of the respondents would vote
for a tax on income if it were
levied only on incomes over
$75,000.
The Commission has not
yet determined if it will place
an income tax on the 1992
ballot, but has decided to keep
it as one of the options on the
Constitutional Calendar until
after public hearings in
January and February 1992. If
added to the Florida tax
structure, it could accomplish
several improvements from a


SFlorida's Fiscal Future


Services


Other







FLORIDA'S TAX STR UCTURE


policy perspective. Since
Florida already taxes
consumption very heavily with
sales and excise taxes and taxes
wealth more moderately
through the intangible tax,
estate tax, and property tax,
the only tax base left untapped
is income. Should tax reform
include a personal income tax
with low rates?
In terms of revenue
stability, personal income
would provide a more stable
and reliable tax base than
taxable sales. Its annual average
rate of growth is not only higher
than growth in taxable sales, but
it is less responsive to changes in
the business cycle. Its rate of
growth drops less than taxable
sales during a recession and its
rate of growth during the
recovery is slightly less. Both of
these characteristics could help
Florida's financial situation by
providing more money to fund
public services during recessions
and slightly less money than the
current tax structure during
recovery periods, lessening the
tendency to fund new programs
which cannot be sustained
during the next slowdown in the
economy.
Since 1970, personal
income has grown at an
average annual rate of 11.6%
compared to the 10.4% growth
rate for taxable sales during the
same time period. While
experiencing a higher rate of
growth, personal income
growth was also much more
stable over the last twenty
years, ranging from a low of
7.2% in 1990 to a high of
17.4% in 1973, a difference of
only 10.2 percentage points.
In 1974-75, when growth in
taxable sales was virtually nil


(0.3%), the growth in personal
income was 8.2 %.
Assuming the ability-to-pay
principle, an income tax would
improve the overall equity of
Florida's tax structure in that,
holding total tax revenues
constant, the tax burden of low
income persons should
decrease relative to the tax
burden of higher income
persons. The degree to which
this occurs, however, depends
on how the income tax is
structured.
A low income tax rate with
a broad definition of income
would satisfy horizontal equity.
Substantial itemized deductions
can lead to different tax burdens
for families with similar
incomes but different earning or
spending patterns. A flat tax
rate with a standard deduction
would have the advantage of
making the tax structure more
progressive (the effect of the
standard deduction is to lower
the effective tax rate at the low
end of the income scale), but
not so much so that the income
tax would become a disincentive
to persons with relatively high
incomes. Another aspect of an
income tax is the ability to
target tax relief by income
groups. In contrast, reducing
the regressivity of the sales tax
can only be done by exempting
necessities for all consumers
regardless of income.
The Florida Multitax
Simulation Model compared
average tax liabilities for
families by income group
under two scenarios: 1) with
the current 6% sales tax and 2)
with a combination of a 4%
sales tax and a 2.6% income
tax. The model demonstrated
that families with incomes less


than $75,000 per year would
pay less taxes with a 2.6%
income tax on federal adjusted
gross income and a sales tax
rolled back to 4%, than they
currently pay under the
existing 6% sales tax. Families
with incomes less than $20,000
would experience a 32%
reduction in taxes paid
dropping from $662 to $452
annually. Families with
incomes between $100,000 and
$200,000 would experience a
6% increase in taxes. The
average family's taxes would
decrease from $1,314 to $1,268
per year, a 3.5% decrease. This
calculation assumes a 2.6% tax
on federal adjusted gross
income minus a standard
deduction of $15,000 for a
single person, $25,000 for a
single head of household, and
$30,000 for married persons
filing jointly.
Buying out a portion of
sales taxes with the income tax
would improve the overall
exportability of the tax structure
because income taxes are
allowed as itemized deductions
on individual federal income
tax returns whereas sales taxes
are not. One-third of Florida
residents filing federal income
tax returns itemize deductions,
with the percentage of itemizers
increasing as income increases.
Tourists, however, would not
pay Florida income taxes.
The enactment of an
income tax would give
policymakers the ability to
reduce tax rates in other areas.
The State of Connecticut used
this option when it recently
enacted a broad-based personal
income tax. They decreased
their sales tax rate from 8% to
6%. In Florida, it is estimated


I- l,(rtdi t iscal I-titur" =







CHAPTER FOUR


that a 2% tax on federal taxable
income would generate
revenues sufficient to roll-back
the sales tax rate from 6% to 4%
(Price Waterhouse, 1991). A
4% sales tax rate would be
comparable with the tax rates of
Florida's neighboring states of
Georgia and Alabama.
Levying a tax on personal
income would lessen the impact
of the current discrimination
among business types by taxing
most of the income of the
owners of subchapter S
corporations, partnerships, and
sole proprietorships on their
personal income tax returns.
These businesses are exempt
from payment of the Florida
corporate income tax.
Implementation of an
income tax in Florida would
require a substantial increase in
personnel in the Department of
Revenue. The department
might handle as many as 7
million individual tax returns,
depending upon the definition
of income and standard
deduction amount. A system
for withholding taxes would


also have to be developed.
There is insufficient data
available to determine how
these administrative costs, as a
percentage of revenue, would
compare with the sales tax
dealer collection allowance
($89.3 million for the state in
1990-91) plus the personnel and
audit costs for the existing taxes.
The state has the ability to
monitor non-compliance by
matching state returns with
federal income tax returns.
Would Floridians accept
and comply with a personal
income tax? Taxpayer distaste
for the filing of annual federal
income tax returns and dealing
with the Internal Revenue
Service is legendary, but the
unpopularity was moderated to
some degree by the Tax Reform
Act of 1986. Opinion polls
consistently indicate that the
concept of a state income tax is
unpopular with Floridians, but
citizens in other states find state
income taxes less objectionable
than other types of taxes. A
national poll conducted in
September 1991, by the U. S.


Advisory Council on
Intergovernmental Relations
asked people to choose the
worst tax from four options.
The results were: local
property tax-30%, federal
income tax-26%, state sales
tax-19%, state income tax-
12%, and Don't Know-14%.
This question has been asked
18 out of the past 20 years with
the same result, i. e. the state
income tax was considered
more acceptable than the sales
tax, property tax, and federal
income tax.
The Taxation and Budget
Reform Commission is
attempting to improve the
overall reliability and equity of
the Florida tax structure while
maintaining revenue neutrality.
No survey has asked Floridians
if they would favor enacting an
income tax with a correspond-
ing reduction in some other tax,
especially a more burdensome
one such as the property tax.
One variation being discussed
by the Commission would use
revenue from the income tax to
"buy-out" the property tax on


-=, Florida's Fiscal Future


Income Tax 1Wirh Sales Tax Rollback'
4 000 1
U 6% Sales Tax
12,000 1
D 4% Sales Tax and 2.6% Income Tax
10000

S8,000
x
l< 6,000

4,000

2,000


0-10,000 10,000- 20,000- 30,000- 40,000- 50,000 75,000-
FAMILY INCOME 20,000 30,00) 40 000 50,000 75,000 100 000







FLORIDA'S TAX STR UCTURE


homesteads. As it explores the
options of the income tax and
other tax charges, the
Commission recognizes that, in
the final anal\ is, the best tax
system tor Flo-ida is the one
which the people support.

State Revenue Cap
As the Co'nmi.ssion
examined and debated the
weaknesses ot the state tax
structure, there was a recurring
concern that unless the state
enacts the budget and spending
reforms recommended bh the
commissionn and learns to
exercise fiscal restraint, the state
can outspend any tax system, no
matter how reliable and
equitable. In the decade of the
1980's when sales tax revenue
grew by 7.1%. the Legislature
raised taxes, when growth was
11.6%, the Legislature raised
taxes, and even when it grew
by 23.75% (1987-88) the
Legislature still raised taxes.
Without well-defined goals
and objectives and without
measurable standards of
performance to measure the
progress, the state could spend
unlimited amounts of money
and perhaps never reach the
laudable goals, whether that be
quality education or adequate
health care for children.
Other states have similar
spending tendencies, and the
citizens in more than 20 states
have pressured their legislatures
to adopt spending or revenue
caps. None have worked very
well because it is an extremely
complex task to design a system
which will enforce fiscal
restraint, but at the same time
enable the government to meet
any number of unexpected
challenges, such as: federal
mandates, influx of immigrants,


natural disaster, depression, or
changing citizen demands. Is a
spending or revenue cap for
Florida necessary or desirable?
In view of the reluctance of the
Legislature to enact comprehen-
sive budget reform, the


...unless the state enacts t,
and spending reforms reco
by the Commission and let
exercise fiscal restraint, tht
outspend any tax system, 1
how reliable and equitable


Commission has voted onto its
Constitutional (CaIlcfnhlr a
proposal to place a cap on state
revenue. A state revenue limit
by its very nature would force
the state to limit expenditures.
By proposing that the cap be
tied to the growth in personal
income, the Commission seeks
to impose a realistic and
workable cap. It would force
the state to acknowledge that
the growth of tax revenue
cannot exceed the ability of the
citizens to pay those taxes.

State Government
Accountability
The desire to make
government more understand-
able and accountable to the
citizens has been a guiding
principle of the Commission
throughout its deliberations.
Numerous budget reform
recommendations have been
offered in an attempt to
institutionalize fiscal account-
ability: yet, the act of passing a
statute may not be sufficient to
inculcate the practices which
will make government more
efficient and accountable. Even
if it were possible, the


performance standards by
which government is to be
measured must be routinely re-
evaluated and revised to make
them workable or to adjust
them to fit the changing roles of
government. The most effective
wav to achieve
S the goals of the
he budget Commission is
amended to haxe the
Iegislaturc
irns to
aaithorize the
e state can creation of an
o1 matter appointed
commission to
monitor and to
evaluate
government performance and
to review alternative methods of
service delivery, such as
privatization.

Executive Budget Authority
The October 1991, case in
which the Florida Supreme
Court declared unconstitu-
tional section 216.221, Florida
Statutes, has terminated the
established practice whereby
the Governor and Cabinet
maintained a balanced budget
by making budget cuts when
there are revenue shortfalls. In
preventing the Governor and
Cabinet from taking this
prudent fiscal step, the Court
has ruled that only the
Legislature can make budget
cuts. This means that budget
reductions cannot be made as
quickly; For example, The
Governor and Cabinet would
have made budget reductions
on October 23, 1991, but the
Legislature will not meet to
make cuts until December 10,
1991. The delay of approxi-
mately 60 days reduces the
budget from which the same
$621.7 million will have to be
cut by some 16%n.







FLORIDA'S TAX STR UCTURE


homesteads. As it explores the
options of the income tax and
other tax charges, the
Commission recognizes that, in
the final anal\ is, the best tax
system tor Flo-ida is the one
which the people support.

State Revenue Cap
As the Co'nmi.ssion
examined and debated the
weaknesses ot the state tax
structure, there was a recurring
concern that unless the state
enacts the budget and spending
reforms recommended bh the
commissionn and learns to
exercise fiscal restraint, the state
can outspend any tax system, no
matter how reliable and
equitable. In the decade of the
1980's when sales tax revenue
grew by 7.1%. the Legislature
raised taxes, when growth was
11.6%, the Legislature raised
taxes, and even when it grew
by 23.75% (1987-88) the
Legislature still raised taxes.
Without well-defined goals
and objectives and without
measurable standards of
performance to measure the
progress, the state could spend
unlimited amounts of money
and perhaps never reach the
laudable goals, whether that be
quality education or adequate
health care for children.
Other states have similar
spending tendencies, and the
citizens in more than 20 states
have pressured their legislatures
to adopt spending or revenue
caps. None have worked very
well because it is an extremely
complex task to design a system
which will enforce fiscal
restraint, but at the same time
enable the government to meet
any number of unexpected
challenges, such as: federal
mandates, influx of immigrants,


natural disaster, depression, or
changing citizen demands. Is a
spending or revenue cap for
Florida necessary or desirable?
In view of the reluctance of the
Legislature to enact comprehen-
sive budget reform, the


...unless the state enacts t,
and spending reforms reco
by the Commission and let
exercise fiscal restraint, tht
outspend any tax system, 1
how reliable and equitable


Commission has voted onto its
Constitutional (CaIlcfnhlr a
proposal to place a cap on state
revenue. A state revenue limit
by its very nature would force
the state to limit expenditures.
By proposing that the cap be
tied to the growth in personal
income, the Commission seeks
to impose a realistic and
workable cap. It would force
the state to acknowledge that
the growth of tax revenue
cannot exceed the ability of the
citizens to pay those taxes.

State Government
Accountability
The desire to make
government more understand-
able and accountable to the
citizens has been a guiding
principle of the Commission
throughout its deliberations.
Numerous budget reform
recommendations have been
offered in an attempt to
institutionalize fiscal account-
ability: yet, the act of passing a
statute may not be sufficient to
inculcate the practices which
will make government more
efficient and accountable. Even
if it were possible, the


performance standards by
which government is to be
measured must be routinely re-
evaluated and revised to make
them workable or to adjust
them to fit the changing roles of
government. The most effective
wav to achieve
S the goals of the
he budget Commission is
amended to haxe the
Iegislaturc
irns to
aaithorize the
e state can creation of an
o1 matter appointed
commission to
monitor and to
evaluate
government performance and
to review alternative methods of
service delivery, such as
privatization.

Executive Budget Authority
The October 1991, case in
which the Florida Supreme
Court declared unconstitu-
tional section 216.221, Florida
Statutes, has terminated the
established practice whereby
the Governor and Cabinet
maintained a balanced budget
by making budget cuts when
there are revenue shortfalls. In
preventing the Governor and
Cabinet from taking this
prudent fiscal step, the Court
has ruled that only the
Legislature can make budget
cuts. This means that budget
reductions cannot be made as
quickly; For example, The
Governor and Cabinet would
have made budget reductions
on October 23, 1991, but the
Legislature will not meet to
make cuts until December 10,
1991. The delay of approxi-
mately 60 days reduces the
budget from which the same
$621.7 million will have to be
cut by some 16%n.







FLORIDA'S TAX STR UCTURE


homesteads. As it explores the
options of the income tax and
other tax charges, the
Commission recognizes that, in
the final anal\ is, the best tax
system tor Flo-ida is the one
which the people support.

State Revenue Cap
As the Co'nmi.ssion
examined and debated the
weaknesses ot the state tax
structure, there was a recurring
concern that unless the state
enacts the budget and spending
reforms recommended bh the
commissionn and learns to
exercise fiscal restraint, the state
can outspend any tax system, no
matter how reliable and
equitable. In the decade of the
1980's when sales tax revenue
grew by 7.1%. the Legislature
raised taxes, when growth was
11.6%, the Legislature raised
taxes, and even when it grew
by 23.75% (1987-88) the
Legislature still raised taxes.
Without well-defined goals
and objectives and without
measurable standards of
performance to measure the
progress, the state could spend
unlimited amounts of money
and perhaps never reach the
laudable goals, whether that be
quality education or adequate
health care for children.
Other states have similar
spending tendencies, and the
citizens in more than 20 states
have pressured their legislatures
to adopt spending or revenue
caps. None have worked very
well because it is an extremely
complex task to design a system
which will enforce fiscal
restraint, but at the same time
enable the government to meet
any number of unexpected
challenges, such as: federal
mandates, influx of immigrants,


natural disaster, depression, or
changing citizen demands. Is a
spending or revenue cap for
Florida necessary or desirable?
In view of the reluctance of the
Legislature to enact comprehen-
sive budget reform, the


...unless the state enacts t,
and spending reforms reco
by the Commission and let
exercise fiscal restraint, tht
outspend any tax system, 1
how reliable and equitable


Commission has voted onto its
Constitutional (CaIlcfnhlr a
proposal to place a cap on state
revenue. A state revenue limit
by its very nature would force
the state to limit expenditures.
By proposing that the cap be
tied to the growth in personal
income, the Commission seeks
to impose a realistic and
workable cap. It would force
the state to acknowledge that
the growth of tax revenue
cannot exceed the ability of the
citizens to pay those taxes.

State Government
Accountability
The desire to make
government more understand-
able and accountable to the
citizens has been a guiding
principle of the Commission
throughout its deliberations.
Numerous budget reform
recommendations have been
offered in an attempt to
institutionalize fiscal account-
ability: yet, the act of passing a
statute may not be sufficient to
inculcate the practices which
will make government more
efficient and accountable. Even
if it were possible, the


performance standards by
which government is to be
measured must be routinely re-
evaluated and revised to make
them workable or to adjust
them to fit the changing roles of
government. The most effective
wav to achieve
S the goals of the
he budget Commission is
amended to haxe the
Iegislaturc
irns to
aaithorize the
e state can creation of an
o1 matter appointed
commission to
monitor and to
evaluate
government performance and
to review alternative methods of
service delivery, such as
privatization.

Executive Budget Authority
The October 1991, case in
which the Florida Supreme
Court declared unconstitu-
tional section 216.221, Florida
Statutes, has terminated the
established practice whereby
the Governor and Cabinet
maintained a balanced budget
by making budget cuts when
there are revenue shortfalls. In
preventing the Governor and
Cabinet from taking this
prudent fiscal step, the Court
has ruled that only the
Legislature can make budget
cuts. This means that budget
reductions cannot be made as
quickly; For example, The
Governor and Cabinet would
have made budget reductions
on October 23, 1991, but the
Legislature will not meet to
make cuts until December 10,
1991. The delay of approxi-
mately 60 days reduces the
budget from which the same
$621.7 million will have to be
cut by some 16%n.







CHAPTER FOUR


To further complicate
matters, some legislators feel
that the barriers created
between the executive and
legislative branches by the
Court will not permit the
Legislature to enact some of
the Commission's recommen-
dations regarding executive
budget authority. The
Commission's recommenda-
tions are well within the
reasonable authority of the
Governor as chief budget
officer and are consistent with
prudent fiscal management;
nevertheless, it appears that a
constitutional amendment may
be necessary to establish those
budget reforms and to restore
the authority of the Governor
and Cabinet to reduce the
budget during revenue
shortfalls.

Taxpayer Compliance and
Taxpayers' Bill ofRights
The earlier recommenda-
tions on taxpayer compliance
were designed to aid the
Department of Revenue collect
the estimated $1 billion in taxes
which were not being collected
by instituting training programs
for employees and educational
programs for taxpayers and by
modernizing the department's
operations. In following up on
the implementation of these
reforms, the Commission
concluded that the department
needs additional personnel to
improve audit coverage. It also
appears that the electronic data
processing equipment and the
management information
systems need to be updated.
These plus other recommenda-
tions forwarded to the
Legislature could assist in
collecting as much as $196
million in intangible tax alone.


Improved audit coverage
and enforcement by the
Department of Revenue needs
to be balanced by procedures
to protect the rights of
taxpayers. The Commission
commends the department for
adopting and following many
of the principles of a taxpayers'
bill of rights. The power
wielded by government can
often leave the individual
taxpayer at an extreme
disadvantage. The
Commission recommends that
in the area of taxation, there
needs to be constitutional
protection for the citizens
rights. The constitutional


The existing tax system n
failed-attempt by the Leg
micro-manage localfinal
entrust to local citizens at
representatives the autho
the taxes best suited for tl


provision will address the broad
principle, but the Commission
has recommended to the
Legislature a set of subsidiary
principles which should be
included in a taxpayer's bill of
rights.

Local Government Tax
Authority
While the Constitution
and Legislature may have given
cities and counties home rule
in theory, the fiscal home rule
necessary to address the
challenges facing local
governments until the next
century has not been provided.
The Commission is concerned
that the spending of cities and
counties has grown at a
comparable rate to that of the


state, indicating a need to
reform budgeting practices and
to institute productivity plans
with measurable performance
standards. At the same time, it
is clear that the financing tools
available to cities and counties
are nothing more than a
patchwork which is increas-
ingly inadequate.
The existing tax system
represents a failed-attempt by
the Legislature to micro-manage
local finances rather than
entrust to local citizens and
their elected representatives the
authority to choose the taxes
best suited for the area. The
current system is not uniform,
but all
too often
'presents a the


islature to
ices rather than
nd their elected


Legisla-
ture has
attempted
to


rity to choose mandate
he area. the
uniform
use of a
revenue source which may meet
the needs of one local govern-
ment, but not another. If
citizens of a county or city wish
to finance garbage collection in
part or entirely with a broad-
based tax rather than user fees
which may place a burden on
the lower income group, they
should have that option. A
preferable system would be to
preempt certain tax sources to
the state and grant flexibility to
counties and cities to impose
the others, with minimal
limitations when necessary.
This approach, which the
Commission recommends for
constitutional enactment, would
allow the state and local
governments the fiscal flexibility
to work in harmony in meeting


Mf, Florida s Fiscal Future







CHAPTER FOUR


To further complicate
matters, some legislators feel
that the barriers created
between the executive and
legislative branches by the
Court will not permit the
Legislature to enact some of
the Commission's recommen-
dations regarding executive
budget authority. The
Commission's recommenda-
tions are well within the
reasonable authority of the
Governor as chief budget
officer and are consistent with
prudent fiscal management;
nevertheless, it appears that a
constitutional amendment may
be necessary to establish those
budget reforms and to restore
the authority of the Governor
and Cabinet to reduce the
budget during revenue
shortfalls.

Taxpayer Compliance and
Taxpayers' Bill ofRights
The earlier recommenda-
tions on taxpayer compliance
were designed to aid the
Department of Revenue collect
the estimated $1 billion in taxes
which were not being collected
by instituting training programs
for employees and educational
programs for taxpayers and by
modernizing the department's
operations. In following up on
the implementation of these
reforms, the Commission
concluded that the department
needs additional personnel to
improve audit coverage. It also
appears that the electronic data
processing equipment and the
management information
systems need to be updated.
These plus other recommenda-
tions forwarded to the
Legislature could assist in
collecting as much as $196
million in intangible tax alone.


Improved audit coverage
and enforcement by the
Department of Revenue needs
to be balanced by procedures
to protect the rights of
taxpayers. The Commission
commends the department for
adopting and following many
of the principles of a taxpayers'
bill of rights. The power
wielded by government can
often leave the individual
taxpayer at an extreme
disadvantage. The
Commission recommends that
in the area of taxation, there
needs to be constitutional
protection for the citizens
rights. The constitutional


The existing tax system n
failed-attempt by the Leg
micro-manage localfinal
entrust to local citizens at
representatives the autho
the taxes best suited for tl


provision will address the broad
principle, but the Commission
has recommended to the
Legislature a set of subsidiary
principles which should be
included in a taxpayer's bill of
rights.

Local Government Tax
Authority
While the Constitution
and Legislature may have given
cities and counties home rule
in theory, the fiscal home rule
necessary to address the
challenges facing local
governments until the next
century has not been provided.
The Commission is concerned
that the spending of cities and
counties has grown at a
comparable rate to that of the


state, indicating a need to
reform budgeting practices and
to institute productivity plans
with measurable performance
standards. At the same time, it
is clear that the financing tools
available to cities and counties
are nothing more than a
patchwork which is increas-
ingly inadequate.
The existing tax system
represents a failed-attempt by
the Legislature to micro-manage
local finances rather than
entrust to local citizens and
their elected representatives the
authority to choose the taxes
best suited for the area. The
current system is not uniform,
but all
too often
'presents a the


islature to
ices rather than
nd their elected


Legisla-
ture has
attempted
to


rity to choose mandate
he area. the
uniform
use of a
revenue source which may meet
the needs of one local govern-
ment, but not another. If
citizens of a county or city wish
to finance garbage collection in
part or entirely with a broad-
based tax rather than user fees
which may place a burden on
the lower income group, they
should have that option. A
preferable system would be to
preempt certain tax sources to
the state and grant flexibility to
counties and cities to impose
the others, with minimal
limitations when necessary.
This approach, which the
Commission recommends for
constitutional enactment, would
allow the state and local
governments the fiscal flexibility
to work in harmony in meeting


Mf, Florida s Fiscal Future







FLORIDA'S TAX STR UCTURE


the demands of growth in the
1990's.

Local Government Financial
Reporting
While granting more fiscal
home rule, it is in the best
interest of the state to be aware
of the fiscal and other policy
practices and issues confront-
ing counties and cities. The
partnership between state and
local government works best
when there is communication
and trust. It was in recogni-
tion of that fact that the
Legislature created the state
Advisory Council on
Intergovernmental Relations
(ACIR). Unfortunately, when
the state enacted a requirement
that local governments submit
financial reports, it required
that the data be collected by
the Department of Banking
and Finance rather than the
ACIR. Moreover, the
information is not policy
oriented or consistent. Local
governments get little feedback
and generally believe that the
reports serve no useful purpose
As a result, it is not useful to
the state in understanding the
fiscal condition of local
government or in formulating
state policy.
Past experience indicates
that effective utilization of the
information and improvements
to the current local government
financial reporting process is
not a priority at the state level;
vet, the Commission feels this
exchange of information could
enhance efficient and effective
service delivery. The first step
toward improvement of the
process is to have the Legislature
transfer the data collection
responsibilities to the ACIR,
with appropriate funding, since


it is charged with the responsi-
bility to use the information in
developing policy recommenda-
tions for the Legislature. Since
the ACIR has representation
from local government, the
Legislature, and gubernatorial
appointees, it is in the best
position to determine what type
of information is needed and in
what form. Not only would an
improved reporting system
result, but the Commission feels
the ACIR should be able to
develop a relatively simple,
uniform reporting system to be
used by local government to
report to citizens about the
costs of services provided.

State Mandates
In the spirit of this new
improved partnership between
the state, counties, and cities,
the state needs to refrain from
future mandates, i. e. laws
directing counties and cities to
perform a service resulting in a
cost, or reducing state shared
revenues without providing
funding. In 1990, voters
approved Amendment Three
which became article VII,
section 18 of the Florida
Constitution. It seeks to
prohibit mandates but has
several loopholes, such as the
ability of the Legislature to
impose unfunded mandates by
a 2/3's vote. Furthermore, the
Legislature passed implement-
ing legislation for section 18
which was vetoed by the
Governor because it "places
extraordinary burdens on those
local governments." Sorely
needed state and local tax
revenues would have been
diverted to fund lawsuits if a
local government felt that a
state law constituted an
unfunded mandate. Addition-


ally, the Legislature sought to
exempt legislation which had
"insignificant fiscal impact." By
their proposed definition,
"insignificant fiscal impact"
would have been approximately
$1.4 million in FY 1990-91. The
Commission urges the
Legislature to adopt imple-
menting legislation that does
not impose undue legal and
financial burdens on local
government and defines
"insignificant fiscal burden" as
"an amount not to exceed
$50,000," a definition which
the Legislature has used in the
past and is referenced in
Florida's Fiscal Analysis in
Brief 1990, a legislative
publication.

Education Reform
The funding of Florida's
educational system is of great
concern to Taxation and Budget
Reform Commission members.
Clearly local property taxes can
never provide a majority of the
revenue necessary for a quality
state educational system;
statewide revenue must be used.
Members are concerned that
lottery dollars were used to
replace General Revenue
dollars and that the public has
lost confidence in the
Legislature to live up to the
intent of the lottery amend-
ment and subsequent
legislation. Distributing lottery
funds directly to schools on a
per student basis for educa-
tional enhancement is the best
way to fulfill the original
commitment. The Commission
recommends that the constitu-
tion be amended to require this
and to distribute 70% of the
proceeds to public schools, and
15% each to community
colleges and universities.


Hod IIa Ftr







FLORIDA'S TAX STR UCTURE


the demands of growth in the
1990's.

Local Government Financial
Reporting
While granting more fiscal
home rule, it is in the best
interest of the state to be aware
of the fiscal and other policy
practices and issues confront-
ing counties and cities. The
partnership between state and
local government works best
when there is communication
and trust. It was in recogni-
tion of that fact that the
Legislature created the state
Advisory Council on
Intergovernmental Relations
(ACIR). Unfortunately, when
the state enacted a requirement
that local governments submit
financial reports, it required
that the data be collected by
the Department of Banking
and Finance rather than the
ACIR. Moreover, the
information is not policy
oriented or consistent. Local
governments get little feedback
and generally believe that the
reports serve no useful purpose
As a result, it is not useful to
the state in understanding the
fiscal condition of local
government or in formulating
state policy.
Past experience indicates
that effective utilization of the
information and improvements
to the current local government
financial reporting process is
not a priority at the state level;
vet, the Commission feels this
exchange of information could
enhance efficient and effective
service delivery. The first step
toward improvement of the
process is to have the Legislature
transfer the data collection
responsibilities to the ACIR,
with appropriate funding, since


it is charged with the responsi-
bility to use the information in
developing policy recommenda-
tions for the Legislature. Since
the ACIR has representation
from local government, the
Legislature, and gubernatorial
appointees, it is in the best
position to determine what type
of information is needed and in
what form. Not only would an
improved reporting system
result, but the Commission feels
the ACIR should be able to
develop a relatively simple,
uniform reporting system to be
used by local government to
report to citizens about the
costs of services provided.

State Mandates
In the spirit of this new
improved partnership between
the state, counties, and cities,
the state needs to refrain from
future mandates, i. e. laws
directing counties and cities to
perform a service resulting in a
cost, or reducing state shared
revenues without providing
funding. In 1990, voters
approved Amendment Three
which became article VII,
section 18 of the Florida
Constitution. It seeks to
prohibit mandates but has
several loopholes, such as the
ability of the Legislature to
impose unfunded mandates by
a 2/3's vote. Furthermore, the
Legislature passed implement-
ing legislation for section 18
which was vetoed by the
Governor because it "places
extraordinary burdens on those
local governments." Sorely
needed state and local tax
revenues would have been
diverted to fund lawsuits if a
local government felt that a
state law constituted an
unfunded mandate. Addition-


ally, the Legislature sought to
exempt legislation which had
"insignificant fiscal impact." By
their proposed definition,
"insignificant fiscal impact"
would have been approximately
$1.4 million in FY 1990-91. The
Commission urges the
Legislature to adopt imple-
menting legislation that does
not impose undue legal and
financial burdens on local
government and defines
"insignificant fiscal burden" as
"an amount not to exceed
$50,000," a definition which
the Legislature has used in the
past and is referenced in
Florida's Fiscal Analysis in
Brief 1990, a legislative
publication.

Education Reform
The funding of Florida's
educational system is of great
concern to Taxation and Budget
Reform Commission members.
Clearly local property taxes can
never provide a majority of the
revenue necessary for a quality
state educational system;
statewide revenue must be used.
Members are concerned that
lottery dollars were used to
replace General Revenue
dollars and that the public has
lost confidence in the
Legislature to live up to the
intent of the lottery amend-
ment and subsequent
legislation. Distributing lottery
funds directly to schools on a
per student basis for educa-
tional enhancement is the best
way to fulfill the original
commitment. The Commission
recommends that the constitu-
tion be amended to require this
and to distribute 70% of the
proceeds to public schools, and
15% each to community
colleges and universities.


Hod IIa Ftr







FLORIDA'S TAX STR UCTURE


the demands of growth in the
1990's.

Local Government Financial
Reporting
While granting more fiscal
home rule, it is in the best
interest of the state to be aware
of the fiscal and other policy
practices and issues confront-
ing counties and cities. The
partnership between state and
local government works best
when there is communication
and trust. It was in recogni-
tion of that fact that the
Legislature created the state
Advisory Council on
Intergovernmental Relations
(ACIR). Unfortunately, when
the state enacted a requirement
that local governments submit
financial reports, it required
that the data be collected by
the Department of Banking
and Finance rather than the
ACIR. Moreover, the
information is not policy
oriented or consistent. Local
governments get little feedback
and generally believe that the
reports serve no useful purpose
As a result, it is not useful to
the state in understanding the
fiscal condition of local
government or in formulating
state policy.
Past experience indicates
that effective utilization of the
information and improvements
to the current local government
financial reporting process is
not a priority at the state level;
vet, the Commission feels this
exchange of information could
enhance efficient and effective
service delivery. The first step
toward improvement of the
process is to have the Legislature
transfer the data collection
responsibilities to the ACIR,
with appropriate funding, since


it is charged with the responsi-
bility to use the information in
developing policy recommenda-
tions for the Legislature. Since
the ACIR has representation
from local government, the
Legislature, and gubernatorial
appointees, it is in the best
position to determine what type
of information is needed and in
what form. Not only would an
improved reporting system
result, but the Commission feels
the ACIR should be able to
develop a relatively simple,
uniform reporting system to be
used by local government to
report to citizens about the
costs of services provided.

State Mandates
In the spirit of this new
improved partnership between
the state, counties, and cities,
the state needs to refrain from
future mandates, i. e. laws
directing counties and cities to
perform a service resulting in a
cost, or reducing state shared
revenues without providing
funding. In 1990, voters
approved Amendment Three
which became article VII,
section 18 of the Florida
Constitution. It seeks to
prohibit mandates but has
several loopholes, such as the
ability of the Legislature to
impose unfunded mandates by
a 2/3's vote. Furthermore, the
Legislature passed implement-
ing legislation for section 18
which was vetoed by the
Governor because it "places
extraordinary burdens on those
local governments." Sorely
needed state and local tax
revenues would have been
diverted to fund lawsuits if a
local government felt that a
state law constituted an
unfunded mandate. Addition-


ally, the Legislature sought to
exempt legislation which had
"insignificant fiscal impact." By
their proposed definition,
"insignificant fiscal impact"
would have been approximately
$1.4 million in FY 1990-91. The
Commission urges the
Legislature to adopt imple-
menting legislation that does
not impose undue legal and
financial burdens on local
government and defines
"insignificant fiscal burden" as
"an amount not to exceed
$50,000," a definition which
the Legislature has used in the
past and is referenced in
Florida's Fiscal Analysis in
Brief 1990, a legislative
publication.

Education Reform
The funding of Florida's
educational system is of great
concern to Taxation and Budget
Reform Commission members.
Clearly local property taxes can
never provide a majority of the
revenue necessary for a quality
state educational system;
statewide revenue must be used.
Members are concerned that
lottery dollars were used to
replace General Revenue
dollars and that the public has
lost confidence in the
Legislature to live up to the
intent of the lottery amend-
ment and subsequent
legislation. Distributing lottery
funds directly to schools on a
per student basis for educa-
tional enhancement is the best
way to fulfill the original
commitment. The Commission
recommends that the constitu-
tion be amended to require this
and to distribute 70% of the
proceeds to public schools, and
15% each to community
colleges and universities.


Hod IIa Ftr







CHAPTER FOUR


The Commission is
convinced that additional
funding alone is not the answer
to quality education. Part of the
answer may be returning more
control back to the local area.
Involving teachers and parents,
in conjunction with the school
principal, to make decisions
regarding the education of their
students and to be accountable
for those decisions is an
important step in creating
educational improvement. This
local accountability has the
support of the Governor and
many legislators. There is also
increasing support for school
"choice" in Florida. Hailed as
the "cornerstone of education
reform" by President George
Bush, choice empowers parents
to select the school that best
suits their child. Proponents
argue that when schools
compete for students, the
quality of instruction improves
and the diversity of programs
offered expands. In August
1991, a Gallup-Phi Delta Kappa
Poll of Public Attitudes Toward
the Public Schools found that
62% of those polled favored
allowing students and parents to
choose the public schools in
their community which the
students will attend.
Though there is still much
debate on the problems and
successes of school choice, it is
envisioned that the impact of
parental school choice and
competition between public
schools, along with school
based management, will
indeed move Florida closer to
having schools of excellence.
The Commission recommends
that the Legislature adopt the
principles of school based
management and explore the
feasibility and merits of choice.


While neither of these may be
a panacea, they do offer viable
alternatives. If these programs
are combined with a policy of
permitting counties to use for
educational enhancement any
millage not included in the
FEFP, up to the 10 mill cap,
counties will have the fiscal
flexibility to engage in creative
efforts at improving educa-
tional quality. Not only should
the constitution be amended to
permit county school districts
to use this discretionary
millage, they should be granted
the right to levy up to 2.5 mills
above the 10 mill cap for
capital projects.
The results of all of these
debates may hinge not only on
the decisions of parents and
legislators, but also with the
courts. How equal must schools
and school funding be? Can
counties use discretionary funds
without disequalizing educa-
tion? In 1991 the School Board
of Sarasota County filed for
declaratory relief and asked the
court to determine the validity
of section 236.25(1), Florida
Statutes, which limits the
discretionary millage that can be
levied. The Circuit Court ruled
the state law unconstitutional;
however, the case is currently
under appeal. Proponents
argue that allowing districts to
utilize the difference in millage
between the required local effort
and 10 mills would allow
property-rich counties to
prosper while property-poor
counties would realize little or
no enhancement. The value of
a mill per full time equivalent
student in Monroe County, for
example, is $699.40, compared
to $38.66 in Union County.
Recent case law, St. Johns
County v. Northeast Florida


Builders Association, 599 So. 2d
363 (Fla. 5th DCA 1990),
however, challenges the
prevailing view on equal
funding for each student in
Florida. The Courts allowed
St. Johns County the authority
to impose a school facilities
impact fee on new residential
construction, saying: "The
Florida Constitution only
requires that a system be
provided that gives every
student an equal chance to
achieve basic educational goals
prescribed by the Legislature.
The constitutional mandate is
not that every school district in
the state must receive equal
funding nor that each
educational program must be
equivalent. Inherent
inequities, such as varying
revenues because of higher or
lower property values or
differences in millage
assessments, will always favor
or disfavor some districts." In
view of this decision, the
judicial constraints on future
design of school finance is yet
to be determined.

Homestead Exemption
As previously noted the
$25,000 homestead exemption
causes many local governments
to receive no tax revenue from a
significant percentage of
homesteads which receive
public services. In 1990, 43 of
67 counties had 30% or more of
the total residential value off the
tax rolls and 21 counties had
50% or more off the tax rolls. A
heavier tax burden is thus
shifted to the non-exempt
property. Certainly the
homestead exemption needs to
be retained to moderate the
regressivity of the property tax;
however, the Commission


1 Hloriida's Fiscal I 'uture







FLORIDA'S TAX STR UCTURE


believes that equity dictates that,
since all homes receive services,
all should make some
contribution, ,vith some
legislatively-created safety net
for low income persons.
The Commission has placed
on the Consitittional (Calcmtar
for further discussion a
proposal to exempt 50"0 of the
first S50,000 of the assessed
value of homesteads. In other
words, a home assessed at
S26,000 would be taxed on
S13,000 of its taxable value,


while a home assessed at
S50,000 would be pay taxes on
$25,000 of the value. The
proposal would call upon the
Legislature to define the
parameters of "safety net" for
low income persons. The
exemption would decrease for
homes valued above S200,000
and totally phase out above
s250,000.

Special Districts
In an effort to provide more
accountability, a periodic review


of special districts is necessary
to determine if services being
provided are in the best interest
of the public. The Legislature
should provide the legislation
necessary to require the review
and enact the evaluation criteria
necessary to ensure a complete
and uniform review. In
addition, the special acts which
create and amend such districts
must be codified to clearly
identify under which laws the
special district entities are
allowed to operate.







CHAPTER FIVE


Findings & Recommendations


Repeal of State Tax Exem options .......................................... ........................ 50

Comprehensive Taxation of Business ........................................... ............. 53

Lim ited State Incom e Tax ................................................................... ... 56

State Revenue Cap .................................................... .......... ............. 60

Improving Taxpayer Compliance..................................................... .......... 63

Taxpayers' Bill of Rights .............................. ...... ......................... .... 64

State Revenue and Expenditure Projections ........................................... 66

Lottery Funds (w ith choice) ...................... .................................................. 69

State Government Accountability ................................................................... 71

Executive Budget Authority ......................................... .......................... 75

General Purpose Local Government Financial Condition ............................76

School District Required Local Effort/Discretionary Millage ..........................79

Non-Voted Capital Improvement Millage ...............................................80

Truth in Local Government Expenditure Reporting ......................................81

Hom estead Exem ption Revision ..................................................................84

State Mandates .......................... ........................................... ....... 86

Special District Review ................................. ....... ............................. ..... 88


The fill text of the budget reform proposals sunlmerized in Chapter 2 can be found in the Commission's first
report entitled A Program for Reform of Florida Government.


Floria 's Fiscal I uturc =







CHAPTER FIVE


Repeal of State Tax Exemptions


Findings
The Florida Taxation and Budget Reform Commission finds:


SAfter its inception in 1949, the sales tax
quickly became Florida's dominant and
most acceptable funding source for the
state's major public services.

In the 1990-91 fiscal year, total sales tax was
$8.436 billion or 34.7% ofstate revenues. Of
this amount, $7.176 billion was deposited in the
General Revenue Fund, the major funding
source for education, health and social services,
and public safety. Sales taxes accounted for
67.8% of general revenues.

2 Although the sales tax generates sub-
stantial funding for state government,
annual growth in collections is subject to
dramatic fluctuations and often does not
keep pace with growth in Florida's economy.

During the 1975 recession, sales tax collec-
tions grew only 0.3%, but experienced two years
of 18% increases after the recovery from the
recession. For the first time since 1949, sales tax
collections actually dropped in 1990-91 from the
prior year by 1.8%. Forfiscal year 1991-92,
collections are projected to increase by only
2.6% over the prior year.

3Florida has experienced structural
changes in the economy and in con-
sumer spending patterns and a serious ero-
sion of its sales tax base resulting from in-
creased exemptions.

Taxable sales as a percent of gross sales (as
reported on sales tax returns) has declined from
52.4% in 1970 to 46.2% in 1988-89.

Spending on taxable items as a percent of
total consumer spending (measured by dispos-
able personal income less savings) has declined
from 88.6% in 1970 to 70.3% in 1990.


The vast majority of sales taxes stems from
the sale of goods because current law does not
tax the sale ofprofessional, insurance, and
personal services. The Florida economy,
however, has been shifting from a "goods-
based" to a "services-based" economy. Growth
in the service sector, as measured by employ-
ment in the service industries, averaged 21% in
the 1960s. It is expected to average 48% in the
1990s.

4 The sales tax is an efficient tax source to
administer.

Total administration, collection, and
enforcement costs were only 66 cents per $100 of
sales tax collected in fiscal year 1990-91.

5Florida has one of the highest sales tax
rates in the nation which limits its ability
to raise future revenues by sales tax rate
increases.

Florida's sales tax rate of 6.0 percent (an
additional 1.0% is levied by 23 counties) is
exceeded by only four states (Nevada and
Washington at 6.5%, and Illinois and Texas at
6.25%).

6 The value of sales tax exemptions sur-
passes collections.

The estimated value of goods and service
exemptions from the sales tax exceeds $9.484
billion, an amount 12% higher than the $8.436
billion of total sales taxes collected in the 1990-
91 fiscal year.

7Florida's business tax base is very nar-
row and discriminates among businesses
based on type of organization.


M IFoArida's Fiscal Futur








FINDINGS & RECOMMENDATIONS


Repeal IofStatc Tax Evcniptions Findinas continuedd)


Subchapter S corporations, master limited
partnerships, partnerships and sole
proprietorships are exempt from the corporate
income tax. Based on federal data, there are at
least 168,000 S corporations, 12,600 limited
partnerships, 82,000 partnerships, and 684,000
sole proprietorships in Florida.

Out of 325,000 corporations mailed returns
by the Department of Revenue, only 225,000
(69%0) file cooperate returns. Of those 86,000
(26TLo) rent taxes, with only 66,000 (200o)
corporations paying in excess ofS100. Approxi-
mately 2.51, of corporations pay 9000 of
corporate income taxes.

8 Because of corporate tax law changes
at the federal level, Florida has experi-
enced a significant erosion of its corporate
tax base.

Since the Tax Reform Act of 1986, over
44,000 firms have changed their status from C(
corporations to S corporations, master limited
partnerships, or other forms of business organi-
zation that are exempt fronl the Florida
corporate income tax. Since Florida has no
personal income tax, this income escapes
taxation in Florida, creating a tax inequity
among types of business organizations.

Over the last decade, corporate taxes have
declined as a percent of general revenue from
9.69o to 6.7"o in fiscal year 1991-92. This has
resulted from, an actual decline in corporate tax
receipts and not from slow growth relative to
other tax sources. Over the last three fiscal
years, corporate income tax collections were
$898.5 million in 1988-89, $808. million inm
1989-90, and S701.6 million in 1990-91.

9 Florida's complex web of business tax
exemptions has no rational basis and
results in many violations of the principle of
maintaining a "level playing field."


For e.'ample, banks and savings and loan
associations can credit their intangibles tax
liability against their corporate tax liability
while other types ofl businesses cannot. Insur-
ance companies can credit their corporate tax
liability against the insurance premium tax,
however, other businesses cannot credit their
corporate tax liability against other business
taxes. Many retail businesses are subject to
corporate income taxes and intangibles taxes on
accounts receivables and must also collect and
remit sales taxes.

10 While a number of existing tax exemp-
tions can be justified on an individual
basis, the overall structure of tax exemptions
is not based on the systematic application of
rational criteria consistent with the High
Quality Revenue System Criteria used by the
Commission in its evaluation of the state tax
structure. Consistent application of these
criteria would create a tax structure that
would be equitable, neutral, reliable, ad-
equate, exportable, accountable, adminis-
trable, and acceptable.

The following are just a fe examples of
inconsistent or irrational exemptions which not
only confuse taxpayers but also complicate tax
administration and enforcement for the
Department ofRevenue and make compliance
more difficult for businesses:

Mineral water (minerals added) is taxable
but mineral water (in natural state) is exempt.
Dog food is taxable as is food for zoo animals
but feed for race horses is exempt.
Plastic sticks sold to bars for one time use are
exempt, but other one time use items such as
toothpicks, placemats, and menus sold to
restaurants are taxable.
Chocolate drink is taxable, rut Ovaltine
isn 't.
Insect repellent is taxable while ointments for
insect bites are exempt.







CHAPTER FIVE


Repeal of State Tax Evemptions (continued)


Recommendations
It is the intent of the Taxation and Budget Reform Commission to improve the overall equity and
reliability of the Florida tax structure in a revenue neutral context. Therefore, it is the intent of
the Commission that any increase in revenue generated by this proposal shall be offset by a
corresponding reduction in state taxes.

The Florida Taxation and Budget Reform Commission recommends:


SThat the Legislature abolish the follow-
ing tax exemptions: the sales tax ex-
emption for professional, insurance, and per-
sonal service transactions, except payments
for personal services by employers to em-
ployees; all other sales tax exemptions, ex-
cept those for the basic necessities of food,
medical prescriptions, hospitalization, and
housing; all exemptions from beverage, to-
bacco, pari-mutuel, motor fuel, gross receipts,
and motor vehicle license taxes.
2 That the intangible tax credit for banks
and savings and loan associations be
reviewed for the purpose of determining
whether it meets the criteria established in
paragraph 7.
3 That the corporate tax exemptions for
subchapter S corporations and partner-
ships be abolished.
SThat sales and purchases by non-profit
institutions or organizations which are
exempt under the existing general law shall
remain exempt from the sales tax provided
that such institutions or organizations:
a. serve a religious, charitable, educational
or other exempt purpose under 501 (c)
of the Internal Revenue Code of 1986 as
amended by any successor statute;
b. have no part of net earnings inure to the
benefit of any person, corporation, or
shareholder;
c. upon dissolution, distribute all remaining
assets to another non-profit organization
or to the state.
This exemption shall not apply to those
transactions stemming from unrelated business


income. Non-profit institutions or organizations
shall include, but shall not be limited to: homes
for the aged, nursing homes, hospices; and
religious, charitable, scientific, educational,
artistic, and veterans' institutions and organiza-
tions as defined by existing general law.

5That the definition of utilities subject to
taxation under the gross receipts tax for
utility services be reviewed to possibly in-
clude charges for: water, sewer, solid waste,
cable television, pay-per-view and closed cir-
cuit broadcasts, and telecommunications
charges for fiber optic transmissions, 900 call
service, and electronic information services,
according to the criteria provided in para-
graph 7.
6That sales and purchases by religious
institutions remain exempt from the sales
tax except for those transactions stemming
from unrelated business income.
7That the Legislature adopt the following
criteria to be used as the sole basis for
granting state tax exemptions:
a. The exemption is required by the U.S.
Constitution or federal law.
b. The exemption is necessary to maintain
a "level playing field" between Florida and
non-Florida businesses and among
Florida businesses.
c. The exemption is necessary to stimulate
job formation or prevent the loss of jobs
within the state of Florida.
d. The exemption is necessary to reduce the
regressivity of the Florida tax structure.
e. The exemption is necessary to avoid
double taxation or "tax pyramiding."


-M7^ Florida's Fiscal Future








FINDINGS & RECOMMENDATIONS


Comprehensive Taxation of Business


Findings
The Florida Taxation and Budget Reform Commission finds:


SThat all businesses consume public ser-
vices, regardless of form of organization,
and should contribute to their cost based on
some measure of benefits received.

The Governor recommended and the
Legislature enacted a joint resolution permitting
a corporate income tax with a $5000 exemption
in recognition of the fact that businesses are
entities that consume public senrices and should
contribute to their funding. The constitutional
amendment authorizing the corporate income
tax was approved by the voters of Florida on
November 2. 1972.

V'alue-added is the best available measure of
lbsiness size and activity an anas such is repre-
sentative of the governmental sen'ices consumed
by a business. The value added by a particular
business is the additional value which that
business firm adds to the value of the materials
and inputs it purchases from other businesses.
As such it represents the incremental contribu-
tion of each business to total business activity
and is therefore representative of that business's
consumption of public senices.

2 The burden of Florida taxes is not fairly
distributed among businesses.

The corporate income tax is the state's main
tax on businesses; however, only C corporations
are required to file corporate income tax returns.
Businesses organized as subchapter S corpora-
tions, partnerships, and sole proprietorships are
exempt from the tax. These businesses account
for over 945,000 businesses operating in Florida,
over four times the 225,000 C corporations
filing corporate income tax returns. Of those
corporations filing corporate income tax returns,
only 2.500 corporations pay over 900o of
corporate taxes.


3 Corporate income tax collections do not
provide a stable or reliable source of
revenue.

I)During the last recession, growth in Florida
corporate income taxes was only 4.200 in 1981-
82 and 1. Io in 1982-83. The increase in
collections in 1988-89, however, jumped up to
12.5"0. This growth was short lived and
followed Iby two successive years of declining
collections, a 10.1 o decline in 1989-90 and a
13.2o drop in 1990-91. As a percent of general
revenue, corporate income taxes have declined
from 9.6% in 1980-81 to 6.700 in 1991-92.

During the previous recession, in fiscal y)'ear
1981-82, total state taxes nationwiide increased
by 5.300, but corporate income tax revenue was
6.10 o below that of the previous year.

4 Florida's complex web of business taxes
and tax exemptions, allowances and
credits has no rational basis and results in
many violations of the principle of maintain-
ing a "level playing field."
Insurance companies are subject to insurance
premium, corporate income, and intangible
taxes; however, they caln deduct their intangible
tax and corporate tax liabilities from their
insurance premiuml tax liability.
Banks and savings and loan associations are
also subject to corporate income taxes and
intangible taxes; however, thic can deduct their
intangible tax liability, up to 6500 of their
corporate liability, from their corporate income
tax.
Corporations, other than insurance conlpa-
nies and financial institutions, receive no offset
for either their corporate tax liability or their
intangible tax liability.








CHAPTER FIVE


Comprehensive Taxation of Business Findins (continued)

5 A broad-based, single rate value-added
tax would provide a more stable source
of revenue than the corporate income tax.

A value-added tax is computed using total
business activity and input costs, not profitabil-
ity, which is more cyclical. The value-added tax
base also includes the service-producing sector,
which is expected to experience much faster
growth than the good-producing sector of the
economy. The service sector would pay 24.3%
ofa value-added tax compared to 6.7% of the
current law corporate tax and 14.4% of the
combination of the existing corporate income
tax, sales taxes on business equipment and
utilities, and the intangible tax on business.

The Florida Multitax Simulation Model by
Price Waterhouse estimated the expected growth
in current law corporate taxes compared to the
growth in an additive type value-added tax
(similar to Michigan's tax minus most of the
exemptions). By the end of this decade, current
law corporate taxes are projected to grow by
24%. A Florida value-added tax is projected to
grow 40% over the same time period.

6 A value-added tax does not discrimi-
nate among businesses based on in-
dustry type or form of organization.

A business tax based on value-added would
broaden the tax base to include subchapter S
corporations and unincorporated businesses
such as sole proprietorships and partnerships
which are currently exempt from the corporate
income tax. It would eliminate the distortion
created by businesses choosing a form of legal
organization primarily to gain favorable
treatment under the tax laws.

The top marginal tax rate for individual
incomes is less than the top marginal rate for
corporations providing an incentive for busi-
nesses to no longer organize as C corporations
and avoid corporate income taxes at both the
federal and state levels. This incentive is even
more pronounced for Florida corporations
because Florida does not tax personal income,


allowing the income of these business entities to
escape taxation.

7 A value-added tax avoids
"tax pyramiding."

With a value-added tax only the value added
by each business is taxed. It allows taxes paid at
earlier stages in the production process to be
deducted from a business's tax liability thereby
avoiding the pyramiding of taxes as each
business sells goods and services in the chain of
conunerce. As a result, a value-added tax
would avoid the pyramiding inherent in taxing
business services under the sales tax.

8 A value-added tax lessens the burden
on capital, thereby encouraging invest-
ment and economic growth.

A consumption-type value-added tax allows
businesses to fidly deduct business capital
expenditures in the year of purchase. Therefore,
the value added represented by capital equip-
mient is not subject to tax until it is consumed in
the production process. In effect, the immediate
tax deduction granted to users of capital
equipment imposes the tax only once on the
gross proceeds of the sales of goods and services
produced by the capital equipment.

9 The value-added tax is a broad based
tax allowing relatively low rates of taxa-
tion in comparison to corporate tax rates.

For the 28 states with a single corporate tax
rate, rates vary from 3.4% in Indiana to 11.5%
in Connecticut, with an average rate of 7.3%.
Florida's corporate tax rate is 5.5%. The tax
rate for the Michigan Single Business Tax (a tax
employing the additive approach to value
added) is 2.35%, the same rate as when it was
enacted in 1975.

The Florida Multitax Simulation Model
estimates that a 2.4% tax on value-added, using
the Michigan approach with a $100,000
statutory exemption, would generate $2.7


= Florida's Fiscal Future








FINDINGS & RECOMMENDATIONS


(.ompIrhtllInlIStt' J ai. tio; t ot Is:.S Findi nat s to inintcd


billion. Tlii. amount woii1 be .fllfiiui ,et to
replace the ( )rporltc income tax, the franchise
lx 0on baink' and savings' and loan associations,
the intangilbe tax on biiiness, and tile ,ales tiL\
on bltsiness 'qtiipinent and utilities.

0 A value-added tax is economically
neutral.
Eftictive 'ax rates arc relatively nmiifrm
across indisirices. The ,vI'erate Ic t Vctive tx rate
for the \liciai 'in e 'si ss l[ax ,s ..-" ..
The Met'cti rat" is loll-st ffor tile ervlic e SCtor"


S1.27 > and highest for the automobile
industry ( 1.76"). Thle effective tax rates are
lower thal tilthe stattory tha rate because of the
deduction for capital purchases and various
exemptions and credits for small businesses and
lalor intensive businesses.

Il contrast, tile effective rates for Florida's
insurance prentiumi tax vary from a low of
(0. 33 for Florida based life insurance comrpa-
nies to 1.7911" fo reign accident and health
insurancelt', companies. The statiutotry rate is
1.735%.


RecommendaItions
It is the intent of the Florida Taxation and Budget Reform Commission to improve the overall
equity and reliability of the Florida tax structure in a revenue neutral context. Therefore, it is the
intent of the Commission that any increase in revenue generated by this proposal shall be offset
by a corresponding reduction in state taxes.
The Florida Taxation and Budget Reform Commission recommends:


SThat the Commission continue its dis-
cussion and investigation of this issue
for the purpose of obtaining testimony in
the public hearings regarding its proposed
recommendations.

LEGISLATIVE

2 That the Legislature determine whether
the current system of multiple business
taxes should be replaced with a single com-
prehensive business tax based on value-
added applicable to all business entities re-
gardless of industry or form of organization,
with the tax reflecting the fact that a business
receives services from government and
should bear its fair share of the cost thereof.

3 That the Legislature determine whether
current business taxes should be re-
pealed effective July 1, 1993 to achieve rev-
enue neutrality while embracing the concept
of a single comprehensive business tax.


4That the Legislature determine whether
small business, which is currently paying
some business taxes, should pay some mini-
mum tax to reflect the repeal of such taxes.

5 That the Legislature explore the specific
ramifications of this proposal with the
following considerations in mind:

a. There should be incentives to business
development in Florida.
b. There should not be adverse impact on
Florida based businesses as compared
to out-of-state based businesses.
c. There should be no discriminatory
impact on specific industries, and, in this
regard, the impact on the banking/
financial and insurance industries must
be examined with care.
d. There should be an elimination of
pyramiding.


1 W-hi Ut 1-1-11 i W!"', M








CHAPTER FIVE


Limited State Income Tax


Findings
The Florida Taxation and Budget Reform Commission finds:


1 Over the last twenty years, the State of
Florida's revenue structure has not been
able to keep pace with growth in the economy
without several rate and base changes.

The Crossroads Report (1990) by the Florida
Chamber noted that over the last decade there
have been 52 changes in Florida's tax laws.
Had those changes not been made, general
revenue taxes as a percent of income would have
declined from about 4.1% to 2.9% in 1990-91
(according to an analysis by the Senate Finance
& Tax Committee).

2 Sales tax revenues are highly volatile
and sensitive to fluctuations in the
economy.
Since 1970, taxable sales (which measures
the growth in the tax base excluding the effects
of tax rate increases) have increased at an
annual average of 10.5%. Fluctuations in
yearly increases are dramatic, however, ranging
from a low of only 0.3% in 1974-75 during the
recessionary trough to a high of 18.4% in 1978-
79 when the nation recovered from the 1975
recession, a difference of 18 percentage points.

3 Personal income would provide a more
stable and reliable tax base than taxable
sales. Its annual average rate of growth is
not only higher than taxable sales, but it is
less sensitive to the business cycle.

During an economic downturn the rate of
growth ofpersonal income drops less than
taxable sales and its rate of growth during the
recovery is slightly less. Both of these trends
would improve Florida's financial situation by
providing more money to fund public services
during recessions and slightly less money than
the current tax structure during recovery
periods, lessening the tendency to fund new


programs which cannot be sustained during the
next slowdown in the economy.

Since 1970, personal income has grown at an
annual average rate of 11.6 percent, a full
percentage point higher than the growth rate for
taxable sales during the same time period.
Besides experiencing a higher rate of growth,
personal income growth was much more stable
over the last twenty years, ranging from a low of
7.2 in 1990 to a high of 17.4 in 1973, a differ-
ence of only 10.2 percentage points. In 1974-75,
when growth in taxable sales was virtually nil
(0.3%), the growth in personal income was
8.2%.

SSales taxes tend to be regressive
because lower income individuals spend
a greater portion of their income than do
high income individuals who contribute to
savings or other investments.

Florida has mitigated this effect somewhat by
exempting food, prescription drugs, and other
necessities from the tax. Nevertheless, all studies
of the incidence of taxes in Florida have
consistently shown a higher effective tax rate for
low income groups than high income groups,
although the estimated degree of regressivity
varies substantially. A useful summary statistic
is the ratio of the effective tax rate for the lowest
income group to the effective tax rate for the
highest income group, the higher the ratio the
greater the regressivity.

The Commission's tax simulation model
estimated the sales tax burden for families with
income less than $10,000 to be 5.9% of their
income. The comparable figure for families
with incomes between $100,000 and $200,000
was 1.7%. The ratio between the upper income
group and the lower income group was 3.5. The


M Florida's Fiscal Future








FINDINGS & RECOMMENDATIONS


Limited State Income Tax Findings (continiutd)


regressivity ratio for five previous studies of the
incidence of Florida taxes ranged from 1.3 to
5.5.

Applying the ability-to-pay principle of
tax equity, an income tax would improve
the overall equity of Florida's tax structure.

Enacting an income tax, while holding the
total tax burden constant, would decrease the
tax burden of low income groups relative to the
tax burden of higher income groups.

The tax simulation model showed that
fannilies with income less than S75,000 per year
would pay less taxes with a 2.600 income tax
(based on federal adjusted gross income) and a
sales tax rolled back to 400, than thel, currently
pay under the existing 600 sales tax. Families
with incomes less than S20,0X) would experi-
ence a 32%0 reduction in taxes paid dropping
from $662 to S452 annually. Families with
incomes between S100,000 and 5200,000 would
experience a 60o increase in taxes. The average
family's taxes would decrease from S1,314 to
$1,268 per year, or a 3.5%0 decrease.

6An income tax with a flat tax rate and a
large standard deduction would result
in a progressive distribution of the tax.

A generous standard deduction lowers the
effective tax rate at the low end of the income
scale, but not to the extent that it would
discourage persons with relatively high incomes
from moving to Florida. The effective tax rate
increases as income increases resulting in a
progressive tax burden compared to the regres-
sive burde, of the sales tax.

The Florida multitax simulation model
estimated that the effective tax rate for a 2.60o
flat rate income tax on federal adjusted gross
income with the following standard deduction:
515,000 for single persons, S25,000 for single


head of household, and S30,000 for married
persons filing jointly. The effective tax rate
ranged from 0.4% for families with incomes
between S30,000 and $40,000 to 2% for families
with incomes over 5200,000.

An income tax would give the stat te the ability
to target tax relief y income groups. In
contrast, reducing the regressivity of the sales tax
can only be done by exempting necessities for all
consumers regardless of income.

7 Florida's tax structure should export a
fair share of the tax burden to tourists
and the federal government.

Fxportability is measured by the extent to
which the tax burden is shifted ("exported")
onto residents ofanother political jurisdiction,
i.e., out-of-state residents and onto the federal
revenue system. Taxing tourists while theyt are
in Florida, taxing corporations which shift taxes
to nonresident shareholders in the fbrm of
reduced dividends, and using state taxes that are
deductible via the federal income tax are
alternative ways of exporting the tax burden.
The Tax Reform Act of 1986 repealed the
deductibility ofstate sales taxes on federal
income tax returns but left state income taxes
deductible.

One advantage of Florida's reliance on the
sales tax as the dominant revenue source is that
the 40 or so million tourists who visit Florida
each year contribute to the finding of state
government by' paying sales taxes on a portion of
their purchases: e.g., lodging, restaurant meals,
cigarettes, alcoholic beverages, admissions to
events and tourist attractions.

The Commission's muiltitLax model estimates
that 20.909 of sales taxes are exported to tourists;
however, no sales taxes paid by individuals are
exported via the federal income tax system
because sales taxes are not deductible.








CHAPTER FIVE


Limited State Income Tax Findings (continued)



8 Holding revenues constant, an income
tax would improve the overall
exportability of the structure because income
taxes are allowed as itemized deductions on
individual federal income tax returns.

One-third ofFlorida residents filing federal
income tax returns itemize deductions, with the
proportion itemizing increasing as income
increases. Tourists, however, would not pay
Florida income taxes.

9 Spreading the tax revenues to be
collected across several tax sources
rather than just one keeps the tax rate lower
on each source than it would be with more
exclusive reliance on one major source of
revenue. These lower tax rates in turn lead to
greater economic efficiency and less distor-
tion in the market place.

Only four states have a higher sales tax rate
than Florida, providing some incentive for
individuals and businesses to purchase major
items out-of-state or via mail order to avoid
taxation. Because out-of-state sales by Florida
businesses are exempt from the sales tax, Florida
business remains competitive relative to its non-
Florida competitors.

The Florida Multitax Simulation Model by
Price Waterhouse estimated that 42 percent of
sales tax collections are derived from business
purchases and therefore indirectly affect the
price of Florida goods and services. There
should be some concern that the tax rate does
not get too far out of line with other states
competing in the same regional market area.

1 Enactment of an income tax would give
policymakers the ability to reduce the
rate of other taxes which are regressive, for
example, the property tax or the sales tax.


The State of Connecticut used this option
when they recently enacted a broad based
personal income tax. They decreased their sales
tax from 8 to percent. The Florida Multitax
Simulation Model estimates that a 2.6% tax on
federal adjusted gross income would generate
revenues sufficient to roll-back the sales tax rate
from 6 to 4 percent (Price Waterhouse, 1991).
A four percent sales tax rate would be compa-
rable with the tax rates of Florida's neighboring
states of Georgia and Alabama.

11 Broad-based taxes with few exemp-
tions can be more efficiently and ef-
fectively administered.

Keeping exemptions and exclusions at a
minimum requires less personnel for rule-
making and technical assistance. Tax laws and
rules are more easily understood by tax practi-
tioners and taxpayers alike, thereby increasing
compliance and lowering the cost of enforce-
ment.

SDefining taxable income as federal
Adjusted gross income gives the state
the most control over income tax policy.

Using federal adjusted gross income as the
tax base allows the state to determine the
standard deduction, itemized deductions, tax
rates and tax credits independent of thefederal
government. This approach minimizes tax
windfalls or tax shortfalls like those that were
experienced by states who used federal taxable
income as the tax base or simply taxed a certain
percentage of the federal tax liability as a result
of the federal Tax Reform Act of 1986.

Twenty-six states conform to federal defini-
tions of sources of income as well as adjustments
to income such as Individual Retirement
Accounts.


= Florid a FisclOI Future








FINDINGS & RECOMMENDATIONS


Limited State Incoen Tax continuedd)


Recommendations

It is the intent of the Florida Taxation and Budget Reform Commission to improve the overall
equity and reliability of the Florida tax structure in a revenue neutral context. Therefore, it is the
intent of the Commission that any increase in revenue generated by this proposal shall be offset
by a corresponding reduction in state taxes.

The Florida Taxation and Budget Reform Commission recommends:


SThat the Constitution of the State of
Florida be amended to permit a limited
tax on personal income to improve the equity,
reliability, and balance of the tax structure of
the State of Florida.

2 To lessen the regressivity of Florida's tax
structure and minimize economic disin-
centives, the income tax should be broad-
based, exclude a subsistence level of income,
and use a flat rate structure.

3 For ease in administration and compli-
ance, the tax base or definition of in-
come should be linked to the federal code.
Taxable income should be defined as federal
adjusted gross income minus the following
standard deduction: the first $15,000 of
income for an individual, the first $25,000 of
income for a single head of household, and
the first $30,000 for married persons filing
jointly.

The tax structure should avoid itemized
deductions because they require a


higher tax rate, disproportionately benefit
upper income taxpayers, and they discrimi-
nate among taxpayers with equal incomes
but different consumption patterns.

5 That one of the following amendments
to article VII, section 5 of the state
constitution, to be further refined, be sub-
mitted to the electors of Florida at the gen-
eral election to be held in November 1992:

Option One: Removes the constitutional
prohibition against the income tax, caps the
tax rate, and specifies a standard deduction
amount.

Option Two: Removes the constitutional
prohibition against an income tax.

Option Three: Removes the constitutional
prohibition against the income tax, caps the
tax rate, and exempts owners of homestead
property from ad valorem taxes contingent
on passage of a state income tax, and requires
reimbursement of local governments.








CHAPTER FIVE


State Revenue Cap


Findings
The Florida Taxation and Budget Reform Commission finds:


STwenty-two states have enacted state
revenue or spending limitations.

These states enacted limitations over a period
of eight years. Fifteen states adopted caps in the
late 1970s (1976 to 1979), and the remaining
seven adopted caps in the early 1980's (1980 to
1984). According to Steven Gold of the Na-
tional Conference of State Legislatures, many
states adopted constitutional spending caps to
prevent more drastic citizen initiatives from
going on the ballot. For example, Florida's
Proposition 1, which was put on the ballot in
1984 and later removed by Florida's Supreme
Court.

2 Most state revenue/spending limits have
had little effect on state spending.

3 Limiting revenues is preferable to limit-
ing appropriations because appropria-
tions do not always reflect actual expendi-
tures.

First, appropriations include several
interfund budget transfers and other accounting
adjustments which result in a large difference
between what is appropriated and what is
actually spent. Appropriations have exceeded
actual expenditures by $500 million to $1.3
billion per year over the last decade. State
officials cannot use budget gimmicks as easily to
circumvent a revenue cap as they can with a
spending cap on appropriations by shifting
funds, etc.

Likewise, actual expenditures exceed revenue
collections. Most often this results from the
issuance of state bonds. A $300 million bond
issue would allow the state to finance $300
million worth ofstate facilities; however, the
$300 million expenditures would be paid for
through $30 million of actual state revenues for


debt service in that year contributing to an
excess of expenditures over revenues of $270
million in the year of issuance. Of course, the
remainder of the cost of the project is financed
by the expenditure of $30 million debt service
per year over the next twenty-five years.

4 A spending limitation should allow ap-
propriations for state capital outlay to
be amortized over a period not to exceed 25
years and make debt service subject to the
cap.

5 A revenue/spending limitation should
include all state revenues, except fed-
eral funds, and cover all program areas.

Federal revenues received by the state are
dependent on the actions of the federal govern-
ment. Federal funds for Medicaid, unemploy-
ment compensation, etc. increase in economic
downturns. A cap on revenues, including
federal funds, could stop the state from spending
federal finds in such critical times. However,
state revenues to match the federal funds would
be subject to the cap. If the expansion of the
federal program were substantial, it is possible
that the revenue cap would have to be exceeded
to allow the state matching funds to increase
correspondingly.

All state revenues must be included to
prevent budget officials from earmarking funds
or transferringfunds from the capped revenue
sources to the exempt revenue sources. This
means that Florida should place both general
revenue and trust revenues under the cap.

6 A constitutional limitation on revenue/
spending should have an override pro-
vision which allows the cap to be exceeded
for bona-fide fiscal emergencies but does
not allow the cap to be circumvented.








FINDINGS & RECOMMENDATIONS


'rtt~t' Rt-'cbu' C'ap Findi;as (cowtinucd)


Fiscal emergencies can result in
nondiscretionary increases in spending which
would requt're the cap to be exceeded or other
programs tc be cut in order to obtain the
necessary finds. Examples are economic
recessions creating a large increase in uneniploy-
mnent or welfare payments, natural disasters
such as hurricanes requriing energence aid or
government facilities to be rebuilt, and court
orders requiring large increases in spending,
such as feder al court orders regarding prison
medical care or county jails.

Many states require an extraordinary vote of
the Legislature to declare an emergency. Some
states require the concurrence of the Governor.
Another approach used by a number of states is
to require a two-thirds vote of the legislature to
approve specific appropriations in excess of the
lcap.

A New York task force (Legislative Conmmis-
sion on Public/Private Cooperation, 19901
reconm indeed an emergency provision allowing
the cap to be exceeded by a two-thirds vote of
the Legislature only in cases involving natural
disasters or economic recessions for program-
matic areas directly related to the emergcynev
suchli as disaster relief, civil defense, or public
assistance costs.


property taxes to fund education or rolling back
a state tax rate. With no personal income tax it
would be difficult for the state to send a tax
refund check to each Florida taxpayer.

Since growth in Florida's revenues is highly
sensitive to economic cycles, it would be prudent
to deposit revenues in excess of a revenue cap in
the \Working Capital Fund for later use to
minimize program cuts during the next
economic downturn. This would make more
sense than refunding taxes in one year, only to
make large budget cuts in a succeeding year.
Revenues that exceed the cap by, more than a
certain percentage (2% for example) could be
used for tax reduction.

8 A revenue limitation must mandate the
appropriate data sources from which
the revenue base and the expenditure base
should be calculated so there is consensus
regarding the capped amount.

For example, the cap should specify that
annual increases in spending cannot exceed the
growth in Florida's nominal personal income
for the prior three years as published by the U.S.
Bureau of Economic Analysis.

d\ A r JAldl, mia.L o mea- provision for


r\ ccu. ll.lu, ISlJ ni r1 wiII. |,l^ V *h*IVII IVI
the treatment of cases where there is a
7 A revenue/spending limitation should transfer of responsibility for government
require a provision specifying the dis- programs.
position of revenues in excess of the capped
amount. Half of tle states with limitations hIave


Excess reiveies could first be deposited in a
reserve or contingency fulnd, such as Florida's
W\'orking Capital Fund, up to a certain percent-
age of tle prior year's spending. The national l
Association of State Budget Officers reconl-
mends a resenr e of 5o of the prior year's
recurring spending. Remaining revenues, if tihe
balance in the resen'e fund is at the capped
amount, could be used for tax reduction.
Ixamnples are reducing the local share of


provisions for the transfer of program responsi-
bility. Most make adjustments to the revenue
limit or tihe spending limit if funding sources are
moved from sources covered under the limit to
sources exempt front the limit. Revenue from
xetmpt sources that is moved to nonexempt
accounts shall come under the limit, or ifa
proramn is transferred to local government, then
the spending cap has to be reduced rby an
equivalent amount. Likewise, a progranl
transferred to states by the federal government








CHAPTER FIVE


State Revenue Cap Findings (continued)

would require an increase in the spending limit
to incorporate the mandated prograni in the
spending base.


1 A cap should be resubmitted periodi-
S cally to the voters (every ten years, for
example) to allow for revisions in the for-
mula.


Recommendations
The Florida Taxation and Budget Reform Commission recommends:


SThat the Florida Constitution be
amended to limit total state revenue in
any given fiscal year excluding federal funds
to a specified percentage of the state's
A l I


3 That the revenue cap be adjusted for
the transfer of governmental functions
between levels of government.


e..cuInIImy as IIImasUIcu uy LULtotastate personal _II
incomeI3UI L.LI I 4 That state revenue in excess of the cap
shall be transferred to a surplus revenue
2 That this amendment be resubmitted to fund or refunded to state taxpayers.
the voters for retention or rejection ev-
ery ten years.


1 Florida's Fiscal Future


_ __







FINDINGS '& RECOMMENDATIONS


Improving Taxpayer Compliance


Findings
The Florida Taxation and Budget Reform Commission finds:


1 Significant audit coverage is essential in
developing a tax system that is fair and
equitable to the citizens of the state and
insuring that all citizens pay their required
taxes. Current audit coverage for the Depart-
ment of Revenue is approximately 2%.
Audit co.'eratc' oft4, is thet gnerallv'
recommended st andard fo r efi'cti'ely' deterrinig


2 Efficient collection of revenues is an
important element in administering the
current tax laws and could assist in maximiz-
ing tax collections and filling tax gaps.

Thc current electronic data ptrocessinHg
systems at t ct Department of Rc'i'v'ilt' (alr
outdated and incapable ofhandliing the inassive
burden of clicientlv collecting the state ",
trevenillet. 7 "It productivity of tile I )'partminlt't
oflRe''entc e i stfi'cring alnd its ability to mia.x-
fniz tla colhlctions is greatly hindered. Stlate-


of-lthe-art equipment would assist the Depart-
ment in efficiently managing operations and
ildentify)ing individuals whlo to o not comply with
the law'.
3There is an estimated tax gap of $196
million in the collection of intangible tax
on personal property, much of which is re-
lated to the failure of approximately 2/3 of
the stockbrokers and security dealers to re-
port to the Department of Revenue as re-
quired by law.
4Information sharing between the De-
partment of Revenue and local govern-
ments would assist in narrowing the tax gap
and enhancing compliance with current tax
laws.
Sharing information regarding registered
taxpayers could help with the collection ofthe
estimated S 1.5 billion in taxes that is currently)
Ilncollected, S750 million ofwhich is in
uncollected sales tax.


Recommendations
The Florida Taxation and Budget Reform Commission recommends:


SThat the audit coverage of the Depart-
ment of Revenue be expanded to pro-
vide a clear deterrent effect.

2In order to establish an efficient means
of revenue collection, the state should
consider and, where appropriate, take such
actions that would expedite and increase
tax collections and provide for an effective
system that can keep pace with the growth
of the state.

3 That the Legislature should adopt stricter
penalties on stockbrokers and security
dealers who fail to provide client listings to
the department in a timely manner.


4That the Legislature adopt a provision
which provides for the sharing of infor-
mation between the Department of Revenue
and local governments.

5 That the Legislature review the elec-
tronic data processing and management
information systems of the state to deter-
mine whether an integrated data processing
system can be implemented that will effect
more efficiency in state government opera-
tions, including not only the collection of
revenue but also the provision of services.


I -loria s Fts,,l Iuture M








CHAPTER FIVE


Taxpayers' Bill of Rights


Findings
The Florida Taxation and Budget Reform Commission finds:


SThe procedures and policies of the
Florida Department of Revenue affect
over 2.2 million Floridians who conduct busi-
ness or maintain investments in Florida.
The Department of Revenue administers an
annual budget of $121 million and employs
2,644 people to collect $13 billion in taxes each
year by processing 6.5 million tax returns.

Over 1.4 million taxpayers pay intangible
taxes on items such as stocks and bonds,
347,000 pay corporate income taxes and sales
taxes are collected by 436,000 vendors in
Florida. In addition, other taxes such as those
on motor fuels, certain documents, insurance
premiums, estates, mineral severance, and oil
and gas are collected.

Florida leads the nation in the formation of
new businesses. In so doing, the Department of
Revenue experiences a considerable number of
new taxpayers on an annual basis to whom
Florida tax laws and administrative rules must
be explained.

2 The administration and enforcement of
Florida's tax system is highly dependent
on the voluntary compliance of taxpayers.
Of total taxes collected, 95% are remitted by
voluntary compliance. According to the Florida
Department ofRevenue, 40% percent of non-
compliance results from taxpayer misunder-
standing rather than willful violation of the tax
laws. Increased complexity in tax laws requires
that taxpayers more filly understand their tax
obligations in order to maintain and enhance
voluntary compliance.

3 Laws regulating taxpayer rights and re-
sponsibilities in dealing with the Florida
Department of Revenue are contained in sev-
eral sections of the Florida Statutes and are
generally in technical language. An inte-
grated codification of these rights and re-


sponsibilities in laymen language would bol-
ster public confidence in the fair administra-
tion and application of Florida's tax laws.

Toward achieving this goal, the Florida
Legislature created a Taxpayers' Bill of Rights
Task Force in 1989. This nine member body
drafted legislation for a proposed Florida
Taxpayers' Bill of Rights.

This legislation spells out, in non-technical
language, a list of rights and responsibilities
which can be readily comprehended by citizens
and agency personnel alike. It would demystify
and codify laws, protect taxpayers and ensure
equitable, impartial collection practices.

4 In 1988, Congress passed a federal
Taxpayer Bill of Rights. Since the federal
action, twelve states have enacted taxpayer
bill of rights legislation with a number of
other states putting similar measures in place
administratively.

5 The federal government has the same
statute of limitations (three years) for
both audits and tax refunds.

Florida law also had this provision until
legislation enacting a tax amnesty and the sales
tax on services passed in the 1987 regular
session. This legislation increased the statute of
limitations for audits to 5 years. When the
services tax was repealed in a special session in
December of 1987, however, the 5 year statute of
limitations for audits remained. (section
95.091, F.S.)
Section 214.16, F.S. limits claims for tax
refunds to three years.

SAt the federal level, taxpayers must pay
interest on overdue assessments. Like-
wise, the federal government pays interest
on money owed to taxpayers over a certain
length of time.


M|1 Florida s Fiscal Future







FINDINGS & RECOMMENDATIONS


Taxpa;rs'' Ril! of Rights Findins (continued

Under current law and rules of the Depart-
ment of Revenue, taxpayers are liable for
interest at the rate of 12%o per r ear for under-
payment of taxes. The State of Florida pays
interest on "efiimds or overpayment of taxes;


however, this is only for corporate tax refunds
paid more than ninety days from the date upon
which the taxpayer files a written notice
advising the department of the overpayment
(s. 214.14, F.S. .


Recommendations
The Florida Taxation and Budget Reform Commission recommends:


CONSTITUTIONAL

SThat the Florida Constitution be
amended to require a Florida Taxpayers'
Bill of Rights.

LEGISLATIVE

2 That the Legislature shall include the
following provisions in the Taxpayers'
Bill of Rights:

a. the right to available information and
prompt, accurate responses to ques-
tions and requests for technical assis-
tance;
b. the right to obtain simple, non-technical
statements which explain the proce-
dures, remedies, and rights available
during audit, appeals, and collection
proceedings;
c. an equal time period for audit assess-
ments and refund of overpayment of
taxes;
d. the right to have the state tax collection
agency begin and complete its audits in
a timely manner after notification of
intent to audit;
e. that interest be paid on all tax refunds
not made in 90 days from the date of
application;
f. the right to request assistance from a
taxpayers' rights advocate who shall
facilitate the resolution of taxpayer
complaints and problems not resolved
through normal channels, including any


taxpayer complaints regarding unsatis-
factory treatment by employees of the
state tax collection agency;
g. the right to assurance that the individual
employees of the state tax collection
agency are not paid, evaluated, or
promoted on the basis of the amount of
assessments or collections from taxpay-
ers;
h. the right to be represented or advised
by counsel or other qualified represen-
tatives at any time in administrative
interactions with the state tax collection
agency;
i. the right to be informed of impending
collection actions which require sale or
seizure of property or freezing of assets,
except jeopardy assessments;
j. the right to have all other collection
actions attempted before a jeopardy
assessment unless delay will endanger
collection, and the right to have an
immediate review of the jeopardy
assessment;
k. the right to procedures for requesting
cancellation, release, or modification of
liens filed by the state tax collection
agency and for requesting that any lien
which is filed in error be so noted on the
lien cancellation filed by the agency in
public notice and notice to any credit
agency at the taxpayer's request; and
I. the right to refund of taxes declared
unconstitutional by the court of final
jurisdiction.


I loada s I iscal -'lure







CHAPTER FIVE


State Revenue and Expenditure Projections


Findings
The Florida Taxation and Budget Reform Commission finds:


SArticle XI, section 6 of the constitution
requires the Taxation and Budget Reform
Commission to examine the revenue needs
of the state.

2 Forecasts have been developed using
four methodologies.

General revenue growth was projected to the
year 2000 based upon the following:

a. Growth in the Consumer Price Index plus
population;
b. Current law/current administration plus
inflation and constituency growth. Increases in
case load, student population, Medicaid and
Aid to Families with Dependent Children is
incorporated. The assumed General Revenue
level offending ofK-12 is 54.3% of the total
funding requirement indicated by the Depart-
ment ofEducation (this is the same as the
1991-92);
c. Personal income growth; and
d. Growth patterns of the corresponding years in
the previous decade.

Four revenue options were then applied to
the four projection methodologies:

a. Current utilization of the sales tax only
b. Current sales tax plus 1987services tax
c. Current sales tax plus 1987services tax plus
expanded corporate income tax to include sub-
chapter S corporations and partnerships
d. All that is in (c.) plus 2.5% personal income tax
on federal adjusted gross income
Assumption was made that the various
forecast scenarios would be funded by one of the
various taxing alternatives.


The evaluation of trust fund growth was
complicated by the number of trust funds, the
methods of funding of the various trust funds,
and the difficulty of determining specifically
where revenue enhancement occurred in the
past decade. The 1991-92 Appropriations Bill
shows $17.8 billion in appropriations, yet
estimated revenues are $13.1 billion. The
difference is comprised of bonding proceeds and
double-budgeting in the appropriations process.
There is, however, no document which clearly
identifies all the sources offunds, whether
revenues, bond proceeds or interfund transfers.
To estimate "trust funds" available, the current
year appropriation of $17.8 billion was selected
as the beginning level. The amounts projected
for subsequent periods were calculated from that
beginning point by the same percentage of
growth which was projected by the Revenue
Estimating Conference to forecast trust find
revenues. The projected funds available were
then compared to a projection of trust fund
appropriations based upon the growth pattern
of the previous decade. The projected deficit was
combined with the General Revenue deficit
obtained by the same methodology.

3The Revenue Forecasts are from the
October 1991 Revenue Estimating Con-
ference. The General Revenue (GR) projec-
tions utilized do not include the impact of
any future recessions. Projections which
consider future recessions suggest revenue
shortfalls of $1 billion, $1.2 billion and $800
million over a three year period.

4The Working Capital Fund is currently
$195 million (approximately 1.7% of the
$11,539.3 million of GR originally estimated
for the 1991-92 Legislative Appropriations).
Approximately $600 million would be re-
quired to provide five percent of the current
1992-93 GR estimate.








FINDINGS & RECOMMENDATIONS


State Rcrenu' and Evpenditure Proicctiolns Findinls (continued)


5In the past decade (1982-83 through
1991-92) state government appropria-
tions have increased from $10.547 billion to
$29.476 billion or 179%. During this same
period, population increased thirty percent
and the Consumer Price Index increased forty-
one percent. Since 1988-89 the state has
experienced budget shortfalls of $91.1 mil-
lion, $435.3 million, 952.7 million and $621.7
million (the impact of the current budget
shortfall is not contemplated in these fore-
casts). From 1981 through 1990 the state
enacted taxes and fees in each Legislative
Session to add new revenues of $3,892 mil-
lion. The state budget includes approximately


$5.6 billion in federal funds. Any future
reduction in these funds would potentially
affect state funding needs or program deliv-
ery.

6 If state spending continues until the
end of this decade at the same rate as
the corresponding years of the previous de-
cade, significant tax revenue increases would
be required. For example, a funding formula
of a personal income tax at a 2.5% rate, an
expanded corporate income tax at current
rates, plus a sales tax on current goods and
1987 services of almost 11 % could be re-
quired for one of the shortfall projections.


Projected State Revenue & Spending Deficit
IS in billions)

GENERAL REVENUE FUND 1993 1994 1995 1996 1997 1998 1999 2000 TOTAL
Revenue* $11.73 $12.55 $13.38 $14.19 $14.99 $15.81 $16.76 $17.73$117.14

Spending Deficit**


CPI and Population*


$0.62 $0.54 $0.48 $0.45 $0.50 $0.57 $0.60


$0.65 $4.41


Current Law + Inflation +
Constituency Growth $1 51 $1.87 $2.27 $2.73 $3.23 $3.81 $4.36 $4.99 $24.78

Personal Income Growth $0.84 $100 $1.21 $1.48 $1.84 $2.26 $2.63 $3.05 $14.33
Historic Growth Pattern $1.39 $2.05 $2.58 $3.31 $4.96 $6.98 $9.06 $10.63 $40.97


* Proijctions arc fromt the Consensuls Estinating Confierence cforcasts (Atugust 1991
* Projected deficits are based on ronth factors indicated.







CHAPTER FIVE


Required Sales Tax Rate in the Year 2000 to Fund
General Revenue Deficit
($ in billions)

CUMULATIVE
DEFICIT BASED ON THESE DEFICIT OPTION OPTION OPTION OPTION
GROWTH FACTORS (1993-2000) A B C D
CPI + Population ($4.41) 6.30% 5.01% 4.90% 3.21%
Current Law/Inflation/Constituency Growth ($24.78) 8.28% 6.59% 6.48% 4.79%
Personal Income Growth ($14.33) 7.39% 5.89% 5.77% 4.08%
Historic Growth Pattern ($40.97) 10.85% 8.64% 8.53% 6.84%
Option A = Current law sales tax base.
Option B = Current sales tax, plus services tax as adopted and defined in 1987.
Option C = Current sales tax, plus services tax, plus expanded corporate income tax to include subchapter S
corporations and partnerships.
Option D = Current sales tax plus services tax, plus expanded corporate income tax, plus 2 1/2% personal
income tax on Federal Adjusted Gross Income.




General Revenue & Trust Funds
($ in billions)

1993 1994 1995 1996 1997 1998 1999 2000 TOTAL
Gen. Rev. & Trust Funds* $31.11 $33.62 $36.02 $38.40 $40.82 $43.38 $46.21 $49.25 $318.81
GR & TF Spending ** $32.94 $37.58 $41.86 $45.71 $50.77 $57.04 $66.10 $71.18 $403.19
GR & TF REVENUE DEFICIT $1.83 $3.96 $5.84 $7.31 $9.95 $13.65 $19.89 $21.93 $84.37

REQUIRED SALES TAX RATE IN THE YEAR 2000 TO FUND DEFICIT
A = Current law sales tax base 16.02%
B = Current sales tax, plus services tax as adopted and defined in 1987 12.75%
C = Current sales tax, plus 1987 services tax, plus expanded corporate
income tax to include sub-chapter S corporations and partnerships 12.64%

D = Current sales tax, plus 1987 services tax, plus expanded corporate
income tax, plus 2 1/2% personal income tax on
Federal Adjusted Gross Income 10.95%
General Revenue projection from Consensus Estimating Conference forecasts (August 1991). Trust Fund
projections based on Consensus Estimating Conference forecasted growth rates, applied to 1991-92 appropria-
tions for trust funds (base year).
** Projections reflect historic growth pattern from the 1980s.


= Florida's Fiscal Future








FINDINGS & RECOMMENDATIONS


Lottery Funds (with choice)


Findings
The Florida Taxation and Budget Reform Commission finds:


SIn November, 1986, Florida citizens
voted to amend their State Constitution
to allow creation of state-run lotteries. Voter
and legislative intent indicate lottery revenues
were to be used to "enhance" education.

A review of lottery proponent's literature,
poll results, letters to newspapers legislative
hearings and findings ofa Florida Chamber of
Commerce report entitled The Florida Lottery:
A Study of the Intent Behind Its Passage and
It's Effect on Education Appropriation Trends
(The Florida Lottery Report) conclude that
Florida voters intended lottery funds to be used
solely to enhance education.

The Florida Public Education Lottery Act,
which implemented the lottery constitutional
amendment provides "That the net proceeds of
lottery games conducted pursuant to this act be
used to support improvements in public
education aid that such proceeds not be used as
a substitute for existing resources for public
education," s. 24.102(2)(a), F.S.

2 Since inception of the lottery, over $3.3
billion has been appropriated for edu-
cation; however, lottery funds are being used
to fill gaps in the general revenue budget.
The existing statutory language is not strong
enough to keep the Legislature from using
lottery proceeds to supplant, instead of en-
hance, public education funding.

Inflation, more students, fewer taxpayers per
student, and a decline in the annual increase in
state personal income per student have all
contributed to a deceleration in the rate of
growth in real education spending. Because the
high rate of student enrollment growth is
expected to continue for at least the next five
years, finding for education as a percentage of


general revenue should be increasing instead of
declining. Legislators are aware that lottery
finds are being used to supplant sources of
revenue normally used to fund education.
Several bills intended to prevent this were filed
in 1989.

3The recurring education appropriations
as a percentage of total general revenue
fund recurring appropriations has significantly
declined since the inception of the lottery.

In 1986-87, the recurring education appro-
priation as a percentage of total General
Revenue Fund recurring appropriations was
61.19 percent. That percentage has decreased
each year and is 52.78 percent for the 1991-92
fiscal year.

4 The Legislature has adopted a system
of school improvement and educational
responsibility which returns the responsibil-
ity for education to those closest to the
students-the schools, teachers and parents.
School Based Management is a local man-
agement tool which can be used to implement
accountability.

"Blueprint 2000," as adopted, provides a
comprehensive revision ofFlorida's system of
school improvement. The Florida Conmmission
on Education reform and Accountability was
established to recommend details of the program
and oversee the development, establishment,
implementation and maintenance ofan
education accountability system. Schools will be
required to develop school improvement plans
designed to implement state education goals and
student performance standards and shall be
based on a needs assessment which includes
goals, performance standards, strategies and
evaluation procedures. To ensure that schools


Hod I I ar =







CHAPTER FIVE


Lottery Funds (with choice) Findings (continued)


are truly "accountable", School Based Manage-
nent should be implemented.

5 Directing lottery proceeds to each
school will allow the school, teachers
and parents to utilize the total lottery pro-
ceeds to enhance education in their commu-
nity.

Placing lottery money into public schools
complements accountability. Local schools


would choose enhancements and be accountable
to the local community for disbursement of
finds.

6 Florida's schools need to improve stu-
dent performance, decrease student
dropout rates and disciplinary problems, and
provide better overall education for the chil-
dren of Florida. Providing parental choice in
education is seen as a way to increase com-
petition and encourage schools of excel-
lence in providing the service of education.


Recommendations
The Florida Taxation and Budget Reform Commission recommends:


LEGISLATIVE


SThe Florida Constitution shall be
amended to provide that net proceeds
derived from the lotteries and deposited in
the State Education Lotteries Trust Fund
should be distributed to each public school,
community college, and university in the state
on a per student basis. Proceeds shall be
divided as follows: Public Schools (K-12) 70
percent, Community Colleges 15 percent,
and Universities 15 percent.

2 The Florida Constitution shall be
amended to require the Legislature to
appropriate the proceeds directly to the
school districts, with consideration given for
minimum distribution to small schools.


3By July 1, 1994, the Legislature shall
require each public school to implement
School Based Management, pursuant to
guidelines enacted by the Legislature, to be
eligible to receive State Education Lotteries
Trust Fund proceeds.

4 Before July 1, 1993, the Legislature
shall enact, by general law, guidelines
for school boards to use in offering parents
choices in the public education of their chil-
dren. The guidelines should permit a variety
of options for school boards, and they shall
not prohibit any school board from devel-
oping policies that permit intra-district trans-
fers.


=- Florida s Fiscal Future


CONSTITUTIONAL








FINDINGS RECOMMENDATIONS


State Government Accountability


Findings
The Florida Taxation and Budget Reform Commission finds:


SPublic opinion polls have consistently
reported the public perception that
government wastes tax money and generally
cannot be relied on to conduct public busi-
ness efficiently.

A poll conducted /lr Florida TaLx\atch in
April 1991 indicated that the respondents
believed that an average of 36 cents of every ttax
dollar collected is wasted (this was up from 33
cents when T7axlcatch asked the question inI
1987). The poll also found that 76"% fiaorcd a
system of performance imeasures to evaluate
agencies' perorItan ce and to help determine
their budgets and 5900 favored "budget re-
forms" before aly new tLaxes or tax increases are
considered. A poll conducted by Florida
International! University (FL') in the Fall of-
1990 found that 52.5 "o believed that state/local
government wastes taxpayer monev ( tht5s wa
up from 4500 in 1989).

Interestingly, the FIL' poll ( 1990) flund that
citizens are willing to spend more for specific
programs or policies which they support. 7lis
poll, a sunrey conducted for tthe Florida League
of Cities (198-1) and the Florida Annual Policy
Sun'eys (1986 91), conducted by' Florida State
University, halve also shown that the public
prefers to maintain services rather than to
reduce taxes. Ilis suggests t tithe public will
support policies, with tihe provision of adequate
finding, when the purpose of the polices and
programs are cominunicated and understood.
The Florida League of Cities found that while
the public was misintnrmed about some aspects
of city govern lent, there was public support tfor
cities to spend ttinds as necessary' to ensure that
the citizens ar infonired.

2 Two task forces have been established
by Florida Governors to review state
agencies and programs and make recom-
mendations regarding productivity, program


measures, accountability and reporting re-
quirements.

In 1987 Governor Martinez estlablished
"Partners in Productivity" which is a coopera-
tive effort between public and private sectors.
This itnittiave, coordinated by Florida
Ti'LL\'atch and The Florida Council of 10), is to
identify cost savings, develop a "government
performances and productivity measurement
systemm, rand to recognize anld reward program
efficiencies and innovations. The Productivity
Task Force proposed 274 cost-saving measures
and management improvements in 1988 89.
Currently Partners in Productivity and officials
from each state agency arte working to develop
program measures which will become the basis
for an annual report card. Partners in Produc-
tivity and the Giovrnor's Office of Planning and
Budgeting are working to link the performance
and program measures to the budget process.

Governor Chiles established the Governor's
Commission for Government By The People
which is to make recommendations to "redie-
sign" Florida government and make it more
citizen-oriented. Among the items being
considered by the Governor's Comnnission are
"tcvecloping an accountability system that
evaluaittes the perfolirmanace of state government
agencies based on how well the) sen'e and the
outcome of their activities, ...revamping key
management systems in Florida state govern-
ment-including the budget, procurement, and
personnel systerns..."

3Several recent legislative initiatives have
focused on performance improvements,
accountability and visibility. The three largest
state agencies have been the subjects of
these reforms.

During 1990, the Legislature passed revenue
enllanccmcnts ( tax increases and bonding








CHAPTER FIVE


State Government Accountability Findings (continued)


authority) for the Department of Transporta-
tion (DOT). Included in this legislation is the
requirement that the Florida Transportation
Commission, in conjunction with Partners in
Productivity, adopt standards for evaluating
DOTperformance. If the DOT does not meet
these standards its funding level may be reduced
to the 1989 90 level.

The 1991 Legislature passed a bill reorganiz-
ing the Department of Health and Rehabilita-
tive Services. Among other things, this bill
requires the development of performance
standards, the implementation of "unit cost
budgeting" and annual client outcome evalua-
tions. The Department received an appropria-
tion of $750,000 to establish a "unit-cost"
budgeting system and is authorized to assess
each budget entity an amount not to exceed
0.05 percent of its operating budget to finance
the outcome evaluation and program effective-
ness activities.

The 1990 Legislature (Ch. 90-288, Laws of
Florida) created the Commission to Improve
Schools and Simplify Education Reports to
establish a system of school improvement and
responsibility based on the performance of
students and educational programs, and
provided an initial outline for such a system.
The Commission to Improve Schools and
Simplify Education Reports was renamed the
Commission on Education Reform and
Accountability by the Public Schools Account-
ability Bill passed in 1991. This commission is,
among other things, to recommend performance
standards for indicating progress toward state
and local goals, methods of measuring progress
and a definition of "adequate progress" and
methods for reporting progress to the public.

Finally, the 1991 Legislature passed a
provision in Chapter 91-282, Laws ofFlorida,
that the Auditor General, when conducting
performance audits, shall use Agency Func-
tional Plans to evaluate an agency's perfor-
mance.


4 The Florida Fiscal Accounting Manage-
ment Information System (FFAMIS) Act
was enacted in 1980. This legislation intended
that Florida develop a unified financial man-
agement system which would provide accu-
rate and timely information for decision
making and management.

FFAMIS is comprised of seven subsystems:
accounting, budgeting, personnel, revenue and
regulations, banking and collateral securities,
purchasing, and investment and debt control.
The development ofFFAMIS is the joint
responsibility of seven agencies. These "func-
tional owners" are the Executive Office of the
Governor, the Treasurer, the State Board of
Administration, and the Departments of
Banking and Finance, Revenue, General
Services, and Administration. A representative
from each of these agencies comprises the
FFAMIS Coordinating Council, which was
established to act as the organization's working
group. The Fiscal Accounting Information
Board, comprised of the Governor, the Comp-
troller and Treasurer, was created to adopt rules
and to issue orders to enforce implementation
and compliance with FFAMIS.

5The Auditor General issued a review of
FFAMIS in April 1991. This report rec-
ognized the difficulties of developing FFAMIS,
but observed that the intended results have
not been realized. The report makes recom-
mendations to facilitate the FFAMIS's devel-
opment.

The Auditor General, in a review of
FFAMIS, made several recommendations to
facilitate FFAMIS's development. First,
FFAMIS support staff should be established in
the Comptrollers Office to serve as "data
administrator and manager/operator" of
FFAMIS. Also, design teams, comprised of the
functional owners, the State Comptroller's
Office and the Auditor General, should "be
appointed to direct the design and implementa-
tion ofsuch data gathering systems as are
needed to implement FFAMIS." Finally, they


M Florida Fiscal Future








FINDINGS & RECOMMENDATIONS


State Government Accountability Findinas (continued)


recommended that "the Fiscal Accounting
Information Board use their oversight authority'
to establish an Administrative Committee to
actively coordinate and expedite the develop-
ment ofFFAMIS." This last recommendation
has been implemented and the committee is in
the process o developing an action plan and
resource needs for review by the Cabinet.

6 The Governmental Accounting Stan-
dards Board (GASB) establishes "gener-
ally accepted accounting principles" for state
and local governments. In recent years GASB
has been encouraging and researching ser-
vice efforts and accomplishments (SEA) re-
porting. Information about service efforts
and accomplishments would be used to set
goals and objectives, allocating resources,
and assessing government performance by
management, elected officials and the citi-
zenry.
GASB is encouraging state and local govern-
ments to develop SEA reporting and is compil-
ing and distributing data on projects and
research. The Office of the Auditor General is
actively participating with GASB on SEA
reporting.

7 The Florida Tax and Budget Reform
Commission has made several recom-
mendations and findings related to program


and performance measurement, account-
ability reporting, and FFAMIS.

In February 1991 the Florida Tax and
Budget Reform Commission made recommen-
dations requiring:

a. the adoption of performance measures s part
of the approved budget,
b. agencies to adopt an annual productivity plan
with standards and measures to assess quality
and cost effectiveness ofagency operations,
c. performance and productivity measures as an
integral part of the state budgeting process,
d. the Governor to provide a productivity report
evaluating each state agency's performance,
e. the use ofa standard set ofprogram evaluation
criteria in planning and evaluating processes,
and
f. the provision of resources and staff to imnple-
ment all components of FFAMIS.

The Commission also noted in its findings
that a performance and productivity measure-
ment system, among other things, "should be
an integral part of the budget process in order to
provide a means of tracking the state budget
expenditures in order to show how taxpayer
resources are being spent and would contribute
to increased public confidence in government."


Recommendations
The Florida Taxation and Budget Reform Commission recommends:


SThe Legislature should establish and
implement a Commission for Govern-
ment Accountability to the People, as rec-
ommended in the Final Report of the
Governor's Commission for Government By
The People (Volume II, 1991) to institutionalize
the measurement of state government per-
formance.


2The Commission should be charged with
the following responsibilities:

a. Adopt performance and productivity
measures to be achieved by government
in Florida.


I lhrihl'.. I I-11ol I t14r"







CHAPTER FIVE


State Government Accountability Recommendations (continued)


b. Audit the performance of agencies in
meeting those standards and report its
findings publicly.
c. Collect and publish other data relevant
to the performance of government in
Florida.
d. Review and report on Auditor General
recommendations and the status of
those recommendations.
e. Evaluate costs and levels of quality of
services and recommend to the Gover-
nor and the Legislature regarding activi-
ties or services to be consolidated,
eliminated, or provided by alternative
providers such as the private sector,
local government, and not-for-profit
organizations.


f. Review and recommend improvement in
the management structure of the state
and its agencies, including consolidation
of agencies and/or functions.
g. Review and recommend improvement in
the state accounting system to develop
a uniform accounting system that relates
to the agency functional plan.

3Previous recommendations of the Taxa-
tion and Budget Reform Commission re-
garding program and performance measures,
accountability and FFAMIS should be imple-
mented and then monitored by the Commis-
sion for Government Accountability to the
People.


'lorida s Fiscal Fiuture







FINDINGS & RECOMMENDATIONS


Executive Budget Authority


Findings
The Florida Taxation and Budget Reform Commission finds:


SThe case Children A, B, C, D, E and F vs.
Lawton Chiles, as Governor of the State
of Florida, et. al., caused great concern for
the Taxation and Budget Reform Commis-
sion. Article VII, section 1 (d) of the Florida
Constitution requires a balanced budget, and
for many years the Governor and Cabinet
had, during times of revenue shortfalls, main-
tained a balanced budget by acting quickly
to make budget reductions as authorized in
section 216.221, Florida Statutes. By striking
down this provision, the Florida Supreme
Court forced the Legislature to meet in spe-
cial session, at great public expense, to make
the budget reductions. This litigation and
ruling delayed the budget reductions by ap-
proximately 60 days or 16.4% of the fiscal


year. The less time remaining in the fiscal
year and the less unexpended funds remain-
ing in the budget, the more difficult and
painful it is to cut $621.7 million.

2This court decision is not in keeping
with the Commission's findings and rec-
ommendations in phase one of its work. In
examining the budgeting and spending prac-
tices of the state, the Commission made sev-
eral recommendations to increase the au-
thority of the Executive in order to increase
accountability and efficiency. Consequently,
on October 23, 1991, the Commission voted
to amend its "Executive Budget Authority"
budget reform proposal to add the following
provision when it was voted onto the Consti-
tutional Calendar.


Recommendations

The Taxation and Budget Reform Commission recommends:


1Article IV of the Florida Constitution
should be amended to allow the Gov-
ernor and Cabinet to establish and implement


all necessary reductions in the state budget,
including the legislative and judicial branches,
in the event of a revenue shortfall.


Florida's Fiscal Futurne


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