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Revenue Shortfall Expected

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By CATHERINE DOLINSKI, The Tampa Tribune

Published: November 15, 2007

Updated: 11/15/2007 01:11 am

TALLAHASSEE - Florida's state revenue will fall nearly $2.5 billion short this fiscal year and next, taking its steepest nose dive since the early 1990s and behaving as if the state were in a recession, state analysts said Wednesday.

The projected shortfall - $1.03 billion this fiscal year and $1.44 billion next year - comes despite the $1.1 billion cuts that lawmakers made last month to the current budget. It remained uncertain Wednesday whether lawmakers would attempt more budget-cutting this fiscal year.

Florida's general revenue is expected to reach about $25.5 billion in 2007-2008, falling short of the previous year's collection for the second-straight year. That has not occurred since at least 1971, when the state began holding revenue-estimating conferences, said Amy Baker, coordinator of the state Office of Economic & Demographic Research.

Economists do not project recessions for states, Baker said. They reserve that label for national economic trends, which do not point to a full-blown recession. Nonetheless, "Florida is behaving as though we're in a national recession," based on its dwindling revenue and stalled economic growth.

Housing Market Takes The Blame

Revenue is expected to improve slightly in 2008-2009, but will not surpass 2005-2006 levels until 2009-2010.

"You have to remember that we're falling from an artificially high plateau because of the hurricane rebuilding and the housing bubble," said Kurt Wenner, tax research director for the business-backed, fiscally conservative Florida TaxWatch group. "Tax collections grew significantly for several years; there was bound to be a correction."

Florida's housing market took most of the blame for Wednesday's gloomy fiscal outlook. Declining home construction and home sales are driving down tax collections on real estate transactions, a major source of state revenue, as well as sales tax collections. The expected downturn, the analysts said, has been exacerbated by the "subprime financial shock and tightening credit and lending practices" that have rocked the mortgage industry.

Consumer stubbornness is another problem, they said. The state's economic analysts had forecast a faster recovery based on predictions that home prices would drop more quickly than they have this year.

"That's got to happen in order for us to get the inventory of houses that's so large across the state to clear," Baker said, chalking up the "hold-out" behavior among home sellers to human nature.

"Once you've got this investment - in some cases you've just bought it - you were hoping for double-digit price appreciation in it, and instead it's just staying flat, or falling," she said. "People try to hang on for a period of time."

The weakened housing market has shaken consumers' sense of financial confidence, dampening sales tax revenue. Sales of durable goods also have dropped off because people are no longer able to rely on quick home value appreciation to support their spending habits by refinancing, said Frank Williams, an analyst in Baker's office.

Shortfall Won't Create Deficit

Other contributing factors include a slowing of population growth, from a rate of about 2.2 percent to 1.8 percent. The state had been adding more than 400,000 people a year, Baker said, "which is a city the size of Miami. What we're adding now is a city the size of Orlando every year."

Florida's $1.8 billion reserve fund means this year's shortfall will not push the state into a deficit situation, Baker said, which could save lawmakers from having to return in January for additional budget trimming. Absent more cuts, analysts expect the state to have a remaining reserve of $800 million at the start of fiscal year 2008-2009.

It would be difficult for lawmakers to make meaningful cuts at this point to the state budget, Baker said, because half of the fiscal year will have already passed.

TaxWatch is urging lawmakers to try, Wenner said, given the budget pressures lawmakers were facing without the additional shortfall.

Jan. 29 Vote Key To Economy

After the estimating conference, House Speaker Marco Rubio said he is "prepared again to take whatever steps are necessary to keep the state budget balanced while providing essential services to the citizens," but did not specify whether additional budget-cutting would be required prior to the regular legislative session.

"We are going to continue work towards solutions for the economic pressures that are squeezing Floridians' wallets," he said in a released statement. "We are committed to working to make Florida affordable again."

Asked about the projections, Gov. Charlie Crist stressed the need for Floridians to "vote 'yes' on Jan. 29" for a property-tax cut that he says will stimulate the economy. It will put "more money in people's pockets to spend, and more money in the treasury," he said.

House Minority Leader Dan Gelber agreed on the need for property-tax relief but criticized the Legislature's other priorities.

"Florida's tax system is Robin Hood in reverse, where those with the closest ties to the powerful elite pay little while everyone else pays more than their fair share," he said in a statement. "Our revenue policies are wrongheaded in that they place too much burden on home and property owners, yet we somehow always find money for tax giveaways and exemptions for special interests."

Reporter Jerome R. Stockfisch contributed to this report. Reporter Catherine Dolinski can be reached at (850) 222-8382 or cdolinski@tampatrib.com.

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