We expect state government to provide public goods and services. Elected officials bear the burden of deciding which services are offered and setting the tax rates and fees necessary to fund them. A look at Florida’s fragile revenue structure demonstrates the state will struggle to sustain the quality and scope of its current offerings.
As the old business saying goes, “You can have your services good, fast or cheap. Pick any two.” Services provided under the pressure of rapid delivery but with budget constraints can mean quality suffers. Agency heads and government employees experience the difficulty in managing the triangle of quality, speed, and cost in delivering key services ranging from teaching our children to ensuring the safety and efficiency of our transportation system.
At one end of the continuum is the option of being the low-cost provider with minimal taxpayer expectations beyond basic necessities. At the other is the high-cost provider with immense pressure to meet high demands for increased quality and speed. Where Florida falls on this spectrum is the product of countless decisions as to priorities and ability to pay for them. We can examine trends in state revenue to get a sense of Florida’s capacity to pay for future service expectations.
In its 2015 “How Florida Compares: Taxes” report, TaxWatch indicates that state revenue is significantly less than the U.S. average on a critical “per capita” (per person) basis. Per capita revenue suggests how much the average individual contributes to paying for the state’s activities. It also implies how much government money is available for services if measured with the assumption that the revenue were to be distributed on an equal basis to all residents. As an obvious by-product of the simple math used to make per capita calculations, any per capita figure (e.g., revenue or spending) decreases as population growth increases. It’s like spreading one jar of peanut butter on three loaves of bread instead of two. Each slice gets a little less. So Florida has less for each resident as revenues don’t keep pace with population gains.
How much less? Using 2013 data, TaxWatch reports that Florida’s “Per Capita State Tax Collections” rank 48th behind Georgia and New Hampshire. Our “Per Capita State Own Source Revenue” (including non-tax revenue such as service charges, special assessments, impact fees and lottery revenue) is 49th behind only Georgia. In addition, consider a first in the history of the state budget:
“From 2006 to 2013 [most recent available data], Florida’s ‘State Tax Collections’ decreased 11.8 percent, by far the largest drop in the nation, while the 50-state average increase in collections was 18.3 percent. In fact, only one other state saw a decrease during the same period: Louisiana (-5.4 percent).”
This may be a mind-bending fact to encounter for Floridians comfortable reading reports of record state government budgets and general revenue surpluses. During this down period of the Great Recession, the Legislature dipped into state reserves and swept many trust funds to bolster general revenue, which only accounts for about 37 percent of the total budget. Intergovernment (mostly federal) grants provide another 32 percent, and 190 active trust funds generated the remaining 31 percent in 2014-2015.
I’ll admit that relying on the comparison of 2006-2013 may be judged as an unfair comparison because Florida was riding the crest of an economic bubble nine years ago. To offer a more balanced perspective, I compared the pre-bubble budget of 2003 -2004 to the most recent 2014-2015 fiscal revenue projections. Total state direct revenue per capita in 2003-2004 was $4,270 in comparison to $3,691 in 2014-015. Per capita general revenue collections decreased from $1,730 to $1,368 and per capita state trust revenues decreased from $1,220 to $1,149 over the same time period. All dollar amounts in these comparisons are reflected in 2014 dollars.
One additional observation made by TaxWatch frames the real jeopardy of Florida’s revenue structure: “The Sunshine State relies more heavily on transaction taxes than most states” at a rate of 82.9 percent of all Florida state tax collections. The national average is 46.5 percent. Recessions mean reduced transactions — and revenue. It’s not a question of whether but when this happens.
Many readers will judge the reduction in state tax and fee collections as a welcomed and deliberate outcome. The context of decreasing revenues against increasing competitive demands dampens any long-term celebration, however, by returning the conversation to the question of funding services to meet voter expectations. With more residents and visitors using government services, even goals of maintaining status-quo quality will prove elusive. Eventually, political discussions must turn to fundamental questions of living with degrading quality, cutting services, or restructuring revenue collections. Evidence from 2012-2014 demonstrates that raising revenues requires more than just increasing economic growth. We must come to grips with the problem of having more bread than peanut butter.
Dr. Dale Brill is founder and obsessive thinker for Thinkspot Inc., a Florida-based consulting firm. He has previously served as chief marketing officer for VISIT FLORIDA under Gov. Jeb Bush, director of the Office of Tourism, Trade & Economic Development within the Gov. Charlie Crist administration and president of the Florida Chamber Foundation. You can reach Dale by e-mail at email@example.com. Column courtesy of Context Florida.