Economists slash $5.4 billion from expected state revenue because of coronavirus
TALLAHASSEE — Florida economists Friday slashed a stunning $5.4 billion from expected state revenue over the next two years, with tax collections cratering as the coronavirus froze tourism and forced consumers to sharply reduce spending.
The plunge in dollars threatens state financing for schools, health care, roads and a host of other needs – possibly for years to come. With $3.4 billion of the reduction coming this year, it’s also heightened odds that Gov. Ron DeSantis and Florida lawmakers will have to dramatically re-tool this year’s $92.2 billion state spending plan.
The new revenue forecast comes less than two months after DeSantis vetoed $1 billion from the state budget approved by the Republican-led Legislature in March.
At that time, DeSantis was betting that the revamped $92.2 billion spending plan that went into effect July 1 could be maintained for the year ahead, aided by $6.3 billion in reserves and $5.8 billion in federal CARES Act money which would help cover state COVID-19 expenses.
But the latest retooling of the revenue forecast shows just how tenuous any financial planning can be for this year and beyond.
“This is one of the worst forecasts that we’ve had to produce,” said Robert McKee, chief economist with the state’s Department of Revenue.
The general revenue forecast is produced twice yearly and is usually a fairly routine matter. Sometimes, a few hundred million dollars is added or subtracted because of changing economic conditions.
But the economists Friday conceded that the pandemic, the state’s month-long shutdown in April, and sluggish recovery while the virus continues to rage has been like no other.
“Our (economic) models cannot deal with the kind of situation we’re in,” said Amy Baker, coordinator of the four-person revenue estimating conference, which includes economists representing the Legislature and governor’s office.
State Democratic lawmakers have been demanding a special session of the Legislature to address spending needs amid the shrinking revenue. But DeSantis and ruling Republicans have ignored the calls.
GOP lawmakers have effectively ceded their constitutionally guaranteed role in setting state spending to DeSantis.
And party leaders clearly see the prospect of a special session as only exposing them to questions ranging from President Donald Trump’s handling of the coronavirus response to the state’s own problems with getting unemployment benefits to jobless workers.
Anticipated sales tax collections, the biggest share of state revenue, were cut by $4 billion from an earlier estimate, with about half the loss attributed to a virtually dead tourist economy. But Friday’s revised forecast also included numerous other changes tied to the pandemic.
Corporate income tax will decline because of closures and reduced activity; tax collections from rental cars also slumped, because tourists aren’t here and, going forward, companies are not expected to replace their fleet of cars, usually another source for state tax money, economists said.
They added that the state’s insurance premium tax will take a hit, as companies offer rebates on rates to customers and some customers drop polices completely, because they’ve lost their jobs or otherwise are looking to save.
Taxes from workers compensation are also buffeted by the COVID-19 changed world, with claims down for now because people are not going into offices or have lost jobs, although some analysts cautioned that could change if workplace claims stemming from virus infections emerge on a large scale.
The future of business-space rentals and retail stores also have been clouded by the pandemic, challenging state economists to gauge how much tax revenue the state can expect from these sources.
Economists, though, also made the case for some consumer spending to be driven by Floridians staying – and spending – in their home state. With many people wary of travel, Florida dollars could stay within the state.
Similarly, Americans have been saving at an unprecedented rate during the pandemic. The U.S. Commerce Department said that the portion of monthly income being saved hit 33.5% in April and in June was still at a larger-than-normal 19%.
While Florida’s unemployment rate is 10.4% and the federal government’s $600 weekly checks to America’s jobless has expired for now, Baker said that some of that savings will eventually be unleashed within the state’s economy.
When Floridians feel comfortable enough to spend again, “When it comes back, it will have an upward effect on the economy,” Baker said.