Florida, our nation, and, indeed, the world are facing unprecedented times. The Governor and his team have steadily guided the full power of the state to address the needs of the citizens of Florida who are facing something that they didn’t know about or contemplate as they rang in 2020. Our state has been blessed with a robust economy and massive job growth. This economy has allowed legislative leaders to craft the largest budget in Florida’s history. During the regular session this year (held earlier than usual because of the election year), the Legislature passed a $93 billion budget that takes effect July 1st, the beginning of the state’s new fiscal year. The full impact of the COVID-19 scourge on the economy and tax collections was just becoming evident as the Legislature concluded its work.
Florida has no personal income tax, has one of the lowest corporate tax rates in the country, and relies largely on a sales tax. As required by the State Constitution, the 2020 budget is balanced and meets the needs of Floridians in a fiscally responsible way that includes lower taxes overall, as well as sales tax holidays for hurricane preparation and back-to-school supplies.
A great number of businesses have been forced to close, furlough and or lay off employees. The sales tax receipts are declining. This decline will have a significant impact on the state budget. There has been much discussion on how to proceed. While some projections indicate that the state will be able to meet its financial obligations through the end of the current fiscal year ending June 30th and past the summer, the ultimate shortfall could be significant and may impact non-recurring funds that were expected to be available for the fiscal year beginning July 1, 2020. The Governor, the Legislature and their teams have a tough task ahead to eliminate any deficits, as required by the State Constitution and state law.
In the short term, the Governor and his agencies have a number of tools at their disposal. These include implementing cuts on spending at every agency level. The challenges associated with Executive action to resolve a significant deficit occurring so late in the fiscal year are complicated by the compressed time frame and the large amounts of state funds associated with non-discretionary items such as Federally required Medicaid matching funds and Constitutional and statutory provisions meant to ensure guaranteed levels of funding to the public education system.
Another tool is the Budget Stabilization Fund created to help address projected deficits in the General Revenue Fund presented by sudden shocks to the economy, as has occurred with COVID-19. That current balance is around $5 billion. Governor DeSantis has used his broad statutory authority in a declared emergency to use this Fund to cope with the present emergency. He also has the authority to transfer any unexpended money appropriated for other purposes or unappropriated surplus funds to support Florida’s emergency response. The Governor also has limited authority to transfer funds from appropriated uses, including certain trust funds, to the General Revenue Fund subject to certain requirements, including notice to the Legislative Budget Commission. That should be enough.
In addition, there are billions of dollars of Federal disaster funds coming to Florida. Governor DeSantis has the power to spend those funds for emergency prevention, mitigation, preparedness, response, and recovery. And, unless prohibited by the General Appropriations Act, state law requires that the state provide the entire match requirement for state agencies and one half the match for local government to meet any matching fund requirements of any Federal Public Assistance grants and gifts. The Governor has authority to waive the required local match if he determines it beyond the capabilities of the local government, provided he gives appropriate notice to the Legislature.
Although the Constitution and state law give the Governor broad discretion to act during a state of emergency, the Legislature is required by law to resolve deficits greater than 1.5% and may need to authorize expenditure of certain Federal funds, such as those that come without restrictions.
Even if the state can get through the current fiscal year through these monetary transfers, the next challenge will be the recent budget passed by the Legislature starting July 1st. It includes a number of ambitious proposals by the Governor, including a historic teacher pay raise. As of this writing, the budget bill had not been presented to the Governor. Usually, the Legislature and the Governor’s office coordinate the timing of when the budget is presented to the Governor. Once it’s presented, the Governor has 14 days to act once the Legislature sends the budget to him.
Some have speculated that the Governor would like to have the budget sooner rather than later and make up for shortfalls with vetoes and reserves. That might not be enough. A large part of the state’s budget includes non-discretionary spending on Medicaid. How will other non-discretionary entitlement program requirements affect other worthwhile programs such as state programs serving the elderly and other vulnerable populations? How will the state law requirement of proportional budget cuts affect the teacher pay raise? Will the Governor have to veto increases to vital and popular public programs and bring the Legislature back in special session for a smaller increase or abandon the idea altogether until Florida slowly recovers and tax revenues return to more normal levels?
The next 60 days may be more fluid than the 60 days of the Florida legislative session. Questions needing to be answered: How big is the hole? Can Budget Stabilization Fund combined with Executive actions to reduce spending compensate for revenue shortfalls to balance the budget? How much Federal money is coming? How many stimulus bills? What can Federal money be spent for? When?
The Governor has established his task force to reopen Florida. It remains to be seen how soon that will happen and how quickly sales tax and other revenue can recover. Perhaps the Federal stimulus funding may be enough to get the State to a point where it can have a clearer picture of the impacts. Florida’s Constitution requires a revenue estimating conference no later than September 15 each year. This would provide more guidance but gets perilously close to the election for a special session. In addition to the November General Election, the State holds primaries in August for all offices other than President.
The Governor and the Legislative leadership are faced with the challenge of how to make this work. They will have to consider many things that will not be clear for a while. Through the short term, a wait and see attitude may be what is best before the Legislature comes back to Tallahassee for an inevitable special session. By then, a clearer picture of the economic and fiscal impacts will emerge. A special session too soon may not stave off the need for another one. There are still too many unknowns.