Florida budget to continue to thrive, economists project, but inflation casts pall on growth

Inflation, at 40-year highs for most of 2022, has shot up the cost of food, gas and other common household items. But it has also mushroomed state revenues, leading to the state’s $20 billion surplus.

Revenues overshot expectations by $3.9 billion last year and that trend is expected to continue, according to a long-term fiscal outlook presented by state economists to lawmakers Friday.

The projections show the fiscal stimulus related to COVID-19 helped keep Floridians and tourists spending, and inflation meant the cost of those goods pushed state revenues, heavily reliant on sales taxes, over the estimates.

Overall, economists estimate the state will have $54.2 billion in revenues in the 2023-24 fiscal year, a $7.6 billion increase on their projections last year. Inflation is also affecting the state’s expenses by increasing its costs, but Florida’s projected spending only grew by $2.2 billion for next year, giving the state an additional $5.3 billion in estimated surplus.

Those estimates, however, come with a high level of uncertainty. That’s according to Amy Baker, top economist with the Office of Economic and Demographic Research.

Baker made the comments while speaking to the Joint Legislative Budget Commission. If inflation remains at 40-year highs, as the 8.5% level in July was, then Florida residents could cut back, pinching state coffers.

“We’re assuming a soft landing but there are a growing number of economists … that are saying it’s not going to be a soft landing, the (Federal Reserve) is going to have to take much more stronger action than was originally envisioned,” Baker said.

One key is the action of the Federal Reserve, which has already hiked interest rates this year to 2.25-2.5% and is likely to raise them further later this year to combat inflation. Such a move could be necessary to curtail inflation but would also increase the cost of borrowing, harming the overall economy.