Bigger budget shortfall expected next year

Florida's upcoming bad budget year is looking even worse, now that state analysts are predicting a shortfall of at least $3.5 billion in revenue to cover the Florida's most basic needs.

That's a jump from the $2.5 billion budget gap that the analysts were predicting just a month ago for 2011-2012, which starts July 1. And it could easily could widen to a $4.5 billion, depending on how much money lawmakers decide to set aside for a rainy day.

That's bad news for Gov.-elect Rick Scott, who ran for election on pledges to slash business and property taxes. Scott claims that tax cuts will boost the economy and improve the state's fiscal health, but when and to what extent that would happen remains unclear.

In the meantime, Scott will have to propose his first state budget proposal in early February based on Tuesday's revenue estimate. Come spring, lawmakers will be constitutionally obligated to pass a balanced budget for the coming fiscal year, based on the latest projections.

Asked about the latest gloomy turn in revenue forecasts, Scott spokesman Brian Burgess, said it's too soon to start delving into the specifics of the governor-elect's budget proposal.

That said, "the Governor-elect has made it quite clear that state government needs to get smaller and more efficient. He is determined to find a way to do more with less, just as he said he would during the campaign," Burgess said.

The state's economy is improving, said Amy Baker, coordinator of the state Department of Economic and Demographic Research. So are state tax receipts, which are now expected to increase nearly $860 million, or 4 percent, this fiscal year over 2009-2010. Next year's collections are expected to grow another 7.5 percent over the current year's collections.

The problem, Baker said, is that those improvement rates are considerably slower than expected, making it an "abnormally slow" economic recovery.

The top problem spot for the state is the biggest contributor to annual revenues -- sales tax receipts. Based on the sluggish recovery, the analysts lowered their projections for tax receipts based on car sales, tourism and recreation-based sales, building investments and consumer goods like appliances and paper.

All told, the analysts dropped their estimates for state revenues in the current fiscal year by $585 million, or 2.6 percent, and by $612 million, or 2.5 percent, for 2011-2012. The state has enough unspent revenue to cover this year's gap, Baker said -- but that means the state will have that much less to carry forward into 2011-2012.

Meanwhile, Medicaid costs are expected to rise as much as $300 million above prior estimates for this year and next, while property tax receipts are falling below projection.

Factoring in those and other negative trends, Florida is expected to come up at least $3.5 billion short next year of covering its highest-priority needs, like Medicaid and public school spending.

"That's a challenging number, given that we have already scrubbed a lot out of the budget over the last several years," said JD Alexander, R-Lake Wales, the state Senate's budget chief.

Additionally, lawmakers always build a "rainy-day" reserve into the annual budget to absorb unexpected costs.

Analysts for the state are recommending that the state keep at least $500 million in reserve in 2011-2012, which House lawmakers have talked of boosting to $1 billion. Alexander spoke in similar terms about state reserves, noting that the state's credit rating can suffer if reserves are set too low.

Whatever amount they choose to set aside, it will only add to the $3.5 billion gap now predicted. Leaders of the GOP-controlled Legislature have pledged not raise any taxes next year, which likely means they will have to carve into vulnerable areas of state spending, like health care, to make up the difference.

House budget chief Denise Grimsley, R-Sebring, said Tuesday in a prepared statement Tuesday that the budgeting process is full of tough choices, "but I am confident that we can fulfill our constitutional responsibility to pass a balanced budget, maintain our bond rating and secure adequate reserves without raising taxes on Florida's families and businesses."