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 State general revenue funding and...
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 The current state revenue...






Group Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 02-7
Title: State general revenues and expenditures in Florida
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Permanent Link: http://ufdc.ufl.edu/UF00089757/00001
 Material Information
Title: State general revenues and expenditures in Florida
Series Title: Policy Brief Series - International Agricultural Trade and Policy Center. University of Florida ; no. 02-7
Physical Description: Book
Language: English
Creator: Mulkey, David
Cothran, Henry
Publisher: International Agricultural Trade and Policy Center, Institute of Food and Agricultural Sciences, University of Florida
Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2002
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Bibliographic ID: UF00089757
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.

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Table of Contents
    Front Cover
        Page 1
    Center information
        Page 2
    State general revenue funding and appropriations
        Page 3
        Page 4
        Page 5
    Dealing with revenue shortfalls
        Page 6
        Page 7
    The current state revenue picture
        Page 8
        Page 9
        Page 10
        Page 11
Full Text

PBTC 02-7


POLICY BRIEF SERIES
















SFLORIDA
institute of ood and Agricutu Sciences


STATE GENERAL REVENUES AND EXPENDITURES
IN FLORIDA
By
David Mulkey and Henry Cothran


PBTC 02-7 December 2002










INTERNATIONAL AGRICULTURAL TRADE AND POLICY
CENTER


MISSION AND SCOPE: The International Agricultural Trade and Policy Center
(IATPC) was established in 1990 in the Food and Resource Economics Department
(FRED) of the Institute of Food and Agricultural Sciences (IFAS) at the University of
Florida. Its mission is to provide information, education, and research directed to
immediate and long-term enhancement and sustainability of international trade and
natural resource use. Its scope includes not only trade and related policy issues, but also
agricultural, rural, resource, environmental, food, state, national and international
policies, regulations, and issues that influence trade and development.

OBJECTIVES:

The Center's objectives are to:

Serve as a university-wide focal point and resource base for research on
international agricultural trade and trade policy issues
Facilitate dissemination of agricultural trade related research results and
publications
Encourage interaction between researchers, business and industry groups,
state and federal agencies, and policymakers in the examination and
discussion of agricultural trade policy questions
Provide support to initiatives that enable a better understanding of trade and
policy issues that impact the competitiveness of Florida and southeastern
agriculture specialty crops and livestock in the U.S. and international markets









STATE GENERAL REVENUES AND EXPENDITURES
IN FLORIDA

David Mulkey and Henry Cothran1

Introduction

A number of policy issues in Florida lead to discussions regarding the way(s) in

which the state generates revenues (taxes) and the process whereby those monies are

expended to support various state programs (expenditures). Included are concerns over

the adequacy of revenues to meet critical state needs (education, health care,

environmental protection, etc.), impacts on the state of the national recession, recent

events affecting the tourism and travel industries, and more recently, discussions of sales

tax reform in the state. To aid in understanding these concerns, this paper provides a

brief overview of major sources of taxes that support Florida's General Revenue Fund,

the types of programs funded with those revenues, and the options for dealing with

reductions or revenue "short falls." The paper ends with a discussion of the revenue

outlook for the 2003-2004 fiscal year.

State General Revenue Funding and Appropriations

Each year as citizens and government agency officials follow legislative debates

over state budgets, the issues being debated generally revolve around the allocation of

state General Revenues. The General Revenue Fund consists primarily of sales tax

receipts (around 70-75 percent of the total) and receipts from other taxes such as the

corporate income tax, the estate tax, and beverage taxes and licenses. Total expenditures

from the General Revenue Fund represent about 41 percent of all state government



1 Professor and Associate In, Department of Food and Resource Economics, University of Florida/Institute
of Food and Agricultural Sciences, Gainesville, Florida.









spending, but they represent essentially all state revenues that are not earmarked for trust

funds that support specific purposes and/or programs in the state.

General Revenues represent the major source of funding for a number of

important state government functions that are subject to annual allocation through the

legislative process. In addition to the expense of operating state government, the General

Revenue Fund provides funding for education, human services, criminal justice and

corrections, programs in environmental and natural resources, growth management, and

transportation. The General Revenue Fund also supports the state judicial system.

Each year the General Appropriations Act is enacted during the annual sixty-day

session of the Florida Legislature (April-May) to cover state spending for the fiscal year

that begins on July 1 following the session. Since the state is required to have a balanced

budget (Section 216.221, Florida Statutes), funding appropriated by the legislature is

limited by estimates of available revenue during the coming fiscal year. For example, the

revenue estimate available for the 2002 legislative session and the resulting

appropriations bill provided the basis for spending by state agencies, local governments,

and school districts for the 2002-2003 state fiscal year (July 1, 2002-June 30, 2003). The

General Appropriations Act for the 2002-2003 state fiscal year was passed by the

Legislature in May 2002 and subsequently signed into law by the Governor.

In terms of dollar amounts, the General Appropriations Act for the 2002-2003

fiscal year was based on a revenue estimate of slightly less than $20 billion. Of that

amount, about $14.8 billion (74 percent) was projected sales tax revenues, and the

remainder was to come from other sources. Combining the forecast with other revenue

considerations, the General Appropriations Act provided slightly more than $20 billion to









cover fiscal year 2002-2003 expenditures. Table 1 reports the actual dollar appropriations

and shows, by general category, the amounts allocated to various program areas.

Table 1: Operating Funds from General Revenue
For Fiscal Year 2002-2003
Program Area Million Dollars Percent of Total
Public Education K-12 $7,531.4 36.8%
Community Colleges $800.8 3.9%
State Universities $1,748.0 8.5%
Other Education $710.0 3.5%

Total Education $10,790.7 52.7%

Human Services $5,534.3 27.0%
Criminal Justice and Corrections $2,674.4 13.1%
Natural Resources, Environment,
Growth Management and Transportation $294.4 1.4%
General Government $947.8 4.6%
Judicial System $247.9 1.2%

Total General Revenue Appropriations $20,489.5
Source: 2002 General Appropriations Act

The largest single program funded from the General Revenue Fund is education

(Figure 1). Total education funding accounts for almost 53 percent of General Revenue

appropriations. Of this amount, the largest component is funding for the K-12 public

education system. Total funding for this component is almost $7.5 billion, most of which

goes to local school districts through the Florida Education Finance Program. Funding for

public schools makes up approximately 37 percent of General Revenue appropriations,

state universities get 8.5 percent, and community colleges receive 3.9. Other program

areas accounting for relatively large portions of expenditures from the General Revenue

Fund include human services at 27 percent ($5.5 billion) and criminal justice and

corrections with 13.1 percent ($2.7 billion). Again, numbers reported in Table 1 represent

funding appropriated by the legislature during the 2002 session to provide for state











spending in fiscal year 2002-2003 beginning July 2, 2001 and are based on revenue

estimates available in March 2002.


Figure 1: Operating Funds From General Revenue
for Fiscal Year 2001-2002

General Government
S4.6% Judicial System
Natural Resources,
1.2%
Environment, Growth
Management &
Transportation K-12
1.4% 36.8%0
Education
Criminal Justice & 52.7%
Corrections
13.1%


Human Services Other Educa
27.0% 3.5%


Community Colleges
3.9%



Universities
8.5%

ition


Dealing with Revenue Shortfalls

A key point in considering the numbers reported in Table 1 and Figure 1 is that


they represent appropriations based on estimates of revenue available at the time of the

legislative session. They do not represent actual revenues. Throughout the fiscal year,

actual collections of state revenues may fail to meet projections or may exceed

projections. In the latter case excess revenues can simply be carried over to the next

fiscal year. However, if revenues fall short of projections during a particular fiscal year,

then further actions are necessary to balance the state budget.

Article VII, Section 1 (d) of the State Constitution requires the state to raise

"sufficient revenue to defray the expenses of the state." And Section 216.221(1), Florida


Statutes requires the Governor to ensure that "no deficit occurs in any state fund." Thus a









shortage in general revenues during the course of a fiscal year must be addressed either

by increasing income into the General Revenue Fund or reducing spending.

Two general options are available for addressing revenue shortfalls. If the deficit

is less than 1.5 percent of the General Revenue appropriation, the Joint Legislative

Budget Commission can take steps to resolve the deficit by either reducing state

spending, transferring excess trust fund balances or dipping into the Budget Stabilization

Fund, sometimes called the "Rainy Day Fund." Deficits that exceed 1.5 percent of the

General Revenue appropriation require a special session of the Florida Legislature for

resolution. A special session of the Legislature may be called to deal with any deficit, but

is required when the deficit exceeds 1.5 percent of appropriations.

A deficit occurs when the official estimate of funds available in the General

Revenue Fund falls below the total amount appropriated from that fund during that fiscal

year. The Governor must certify that a deficit will occur and then has 30 days to develop

and submit a plan to eliminate the deficit to the Joint Legislative Budget Commission and

the Legislature. Florida Statutes require that all branches and agencies of government

receiving General Revenue must participate in deficit reduction efforts and that, generally

speaking, the reductions must be applied uniformly. Chapter 216.221(5)(b) of the

Florida Statutes provides guidelines for developing budget reduction plans. Chief among

the guidelines is preservation of legislative policy and intent as expressed in the General

Appropriations Act.

Deficits can be resolved in one of five general ways. (1)Funds from the Budget

Stabilization Fund may be transferred to the General Revenue Fund. (2)Current

appropriations may be reduced (following the guidelines set forth in Chapter 216(5)(b),









F.S., as noted above). (3)Excess cash balances in trust funds may be transferred to the

General Revenue fund. (4) Some combination of the above three options may be used.

(5) Finally, if the deficit resolution involves a special legislative session, the Legislature

may increase revenues through the enactment of tax or fee increases, or the Legislature

may choose to eliminate some state programs and/or reallocate spending across programs

in efforts to resolve differences between state revenues and expenditures.

The Current State Revenue Picture

Clearly, reductions in state revenues or the introduction of programs that require

significant increases in state spending have implications for a number of programs of

statewide importance that are funded from General Revenue appropriations. As noted,

these include state agency as well as municipal and county governments and local school

districts. At this point (December 2002), although some concerns have been raised, there

is no indication that revenue shortfalls will occur within this fiscal year. Based on recent

information from the Florida Department of Revenue, state sales tax receipts are running

less than estimated, but collections from virtually all other general revenue sources are

above amounts projected.1 Further, the state reports adequate monies in reserve funds to

cover potential problems in the short run.2

With regard to the current fiscal year Florida is faring better than many other

states. A recent report by the National Governor's Association indicates that 23 states had

plans to reduce budgets below the amount enacted for the 2002 fiscal year.3 The report

notes that many states are experiencing revenue declines in the face of increasing costs

for state programs, particularly expenditures related to health care. A Wall Street Journal

article notes that the effects of the current recession on state budgets is the worst since









1983, partly because states are now responsible for funding a larger portion of education

and social service costs than in the earlier period.4

Florida, although currently in better fiscal shape, is not immune to the general set

of pressures affecting other states. Serious concerns are being raised over the prospects

for state revenues in the coming fiscal year and the challenge that will be faced by the

Legislature in the 2003 session as they attempt to balance the state budget for 2003-2004.

A recent article in Florida Trend details expected increases in costs of state programs and

expected decreases in state revenues.5

According to the Florida Trend article, Florida faces revenues losses resulting

from changes in the Federal Estate Tax and in the Federal Corporate Income Tax

expected to total around $490 million in 2003-2004. In both cases Florida tax collections

are geared to tax policy at the Federal level. Further, Florida will experience the loss of

additional revenues from changes in the State Intangibles Tax (approximately $140

million in 2003-2004), and increasingly, the state is expected to lose revenue due to the

inability to collect sales taxes on transactions that take place over the internet. On the cost

side, Florida faces increased costs for Medicaid ($400 million), increased costs due to

new student enrollments in public schools ($300 million), and the requirement of a

previous constitutional amendment (1998) that the state assume the costs of operating the

court system (more than $700 million).

Most importantly, the costs of state programs cited in the previous paragraph do

not include the fiscal implications of recently passed constitutional amendments. Voters

in the November general election passed constitutional amendments requiring the state to

reduce class size in public schools and to provide pre-kindergarten programs to all four-









year olds in the state. Further, a previously passed constitutional amendment (2000)

requires the state to begin construction in 2003 on a high-speed rail link between Miami

and Tampa. A separate article in the same issue of Florida Trend cited earlier provided

cost estimates on some of the amendments that passed recently.6 Their estimate is that the

amendment requiring pre-kindergarten programs will cost between $300 and $400

million per year, and that the class size reduction amendment could cost as much as $29

billion over the next eight years. At this point, no estimate is available on the cost of the

high-speed rail link, and all estimates of costs associated with the other amendments are

uncertain and depend on legislative decisions.

Where does this leave the state at this point? The most recent estimates of state

revenues (November 2002) provide the best insight available.7 As noted earlier, the state

appears to have sufficient funds to cover budgeted expenditures for the current fiscal year

(2002-2003). Increases in funds from the corporate income tax and the documentary

stamp tax are more than offsetting sales tax collections that are running behind predicted

amounts. In fact, the state is projected to end the fiscal year with a surplus of $159

million.

As for the 2003-2004 fiscal year, the revenue picture for the state is still positive.

The state is expected to have $802 million more in revenue than the amount available in

the current fiscal year. This amount, however, is not sufficient to cover the increased cost

noted earlier associated with Medicaid, school enrollments, and the cost of the court

system. In short, the next session of the legislature will face a real challenge in finding

sufficient revenues to cover the costs of existing state programs, and this challenge is

further complicated by the potential costs of recently passed constitutional amendments.










Unless the state's economy recovers more quickly that expected, the legislature may face

the unpopular choice of increased taxes or reductions in spending on state programs.





1 Florida Department of Revenue, Revenue Collection Report October 2002, November 14, 2002.
2 Randolph Pendleton, "As Ballot Measures Loom, A Fiscal Storm Threatens Florida's Fiscal Stability,"
Miami Herald, October 20, 2002 (www.miamiherald.com).
3 National Governor's Association, "State Budget Outlook Remains Bleak," News Release, November 25,
2002 (www.nga.org).
4 Russell Gold and Robert Gavin, "Fiscal Crises Force States to Endure Painful Choices," Wall Street
Journal, October 7, 2002, p. Al.
5 Mary Ellen Klas, "Batten Down the Hatches," Florida Trend, October 2002, pp. 54-57.
6 Mary Ellen Klas, "Changing Florida's Constitution," Florida Trend, October 2002, pp. 58-63.
7 Office of Economic and Demographic Research, "General Revenue Forecast: Executive Summary,
November 15, 2002.




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