State Responses to Budget Crises in 2004: Florida

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Background

While Florida ended state fiscal year (SFY 2002-2003) in better shape than most states, the outlook for the future is less sanguine. Voter-directed spending on several issues, including high cost initiatives on class size reduction in public K-12 education and the development of state-wide high-speed rail, cloud the picture for the out years. In addition, in recent years legislators have met much of the gap between revenues and expenditures by using non-recurring revenue to fund recurring expenditures, including Medicaid. Within the Medicaid budget, estimates of savings to be achieved by policy changes have sometimes been higher than actual savings, and caseload growth has exceeded projections in the more expensive eligibility categories, leaving the state with a carry-forward deficit at year-end reconciliation for the past three years that will need to be addressed eventually.

Insurance coverage is low in Florida for both children and adults relative to the national average. Forty-three percent of low income adults and 25.9 percent of low income children are uninsured as compared with 38.9 and 21.1, respectively, in the nation as a whole.¹ Employer-sponsored coverage is low with 61.8 percent of all adults and 56.8 percent of all children covered; the national averages for employer coverage are 67.0 and 63.3 percent, respectively. The state has fairly strict eligibility standards for Medicaid which are reflected in the program coverage rates—14.7 percent for low income adults and 42.2 percent for low income children—which are below the national averages of 18.1 and 45.6, respectively, for these groups. There is no state-sponsored general medical assistance program for people not eligible for Medicaid and the State Children's Health Insurance Program (SCHIP).

Florida's governor, Jeb Bush, is a Republican, and both chambers of the legislature are controlled by the Republican party. The Republican leadership has established a fiscal environment that has been characterized as "frugal," with substantial pressure to limit the growth of state government; the size of government and the role of taxes remain the central political debates. The governor's stated priorities are literacy, economic diversification, and families.² The state has a large elderly population and one of the fastest growing child populations in the nation.³

The lack of a state income tax makes sales, business, and intangibles taxes important. Tourism represents a substantial part of the economy, and Florida's tourism industry has rebounded since the aftermath of September 11th, attracting a record number of tourists in 2002. Unemployment remains below the national average.⁴ When Governor Bush was inaugurated in 1999, he inherited a $3 billion surplus.⁵ Tax cuts between 1999 and 2002 reduced annual state revenues by $1.2 billion, with the cumulative reduction in tax payments since Governor Bush took office estimated at $8.2 billion. While there were no tax cuts or increases in SFY 2002-2003,⁶ Florida was one of only two states with a net decrease in estimated revenues based on actions affecting revenues for fiscal year 2004.⁷ Tax changes in SFY 2003-2004 included decreases in corporate and other taxes and an increase in fees for a net decrease in revenues estimated at $27 million.⁸

Budgetary reserves in general revenues are held in the working capital fund, which can be appropriated for general revenue purposes, and the budget stabilization fund, which can only be used in the event of emergencies, such as hurricanes. All revenue is classified as recurring or non-recurring depending on whether the income stream is time-limited or not and, by practice not statute, only recurring revenues are to be used to fund recurring expenditures.⁹ Some revenues are earmarked for certain purposes and held in trust funds, e.g., hospital tax revenues are deposited in the Public Medical Assistance Trust Fund (PMATF) and used to fund Medicaid expenditures. Trust funds make up 58 percent of the total state budget with the rest classified as general revenue.

Medicaid represents 23.5 percent of the total state budget of $53.9 billion (SFY 2003-2004 general revenue and trust funds), and so is an important consideration in any budget talks. Changes in Medicaid policy designed to slow the growth in this program have resulted in a reduction in expenditures of at least $100 million (relative to the rising baseline defined by expected growth in caseload and services given existing policies) in almost every year since 1993.¹⁰ Growing caseload is one source of expenditure growth but pharmaceuticals are the biggest factor, in spite of substantial policy initiatives over the past several years aimed at containing this area of expenditure growth.¹¹

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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