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Business Observer Thursday, May 21, 2009 11 years ago

Floridians will pay more

With revenues declining, legislators go overtime to piece together a smaller budget betting on higher fees, cigarette taxes, future gambling dollars, the federal printing press, and industry to start turning around.
by: Jay Brady Government Editor

With revenues declining, legislators go overtime to piece together a smaller budget betting on higher fees, cigarette taxes, future gambling dollars, the federal printing press, and industry to start turning around.

Called the “worst budget environment in the state's history” by Florida House Majority Leader Adam Hasner, the Florida Legislature cobbled together a mish-mash of new fees, gambling revenues and wishful thinking to create a $66.5 billion budget.

That figure is $1.5 billion more than the reduced 2008-09 budget from January's special session, but $3 billion less than the original budget for the current fiscal year.

Over the past two years the state budget has been reduced by more than $5 billion and would have been cut more if not for strings attached to federal stimulus funds for social services. The budget was supplemented with $3.8 billion in one-time federal stimulus money.

The Senate approved the budget 32-8 with seven of the 14 Democrats being joined by one Republican, Sen. Ronda Storms, R-Valrico, in opposition. The House passed the budget 75-43 in a straight partisan vote.

The eleven Gulf Coast area Senate members voted 7-4 in favor of the budget while area House members supported it 23-7 with one, Rep. Ed Homan, R-Temple Terrace, not voting.

Senators needed a pep talk for a couple of reasons.

First, they had already agreed to an additional 2% pay cut on top of a previous 5% cut. Secondly, they went along with a budget that was $900 million higher than the Senate had approved going into conference with the House, and that budget was already more than the House budget.

Gov. Charlie Crist may need a pep talk, too, as he could blow it all up with a swipe of his veto pen. He has signed a governor's pledge with Americans for Tax Reform “to oppose and veto any and all efforts to increase taxes.” Crist also signed a “Taxpayer
Protection Pledge” as a candidate for U.S. Senate not to increase income taxes or reduce net deductions.

The St. Petersburg Times reported recently that the governor also promised Senate budget chairman J.D. Alexander, R-Lake Wales, he would not veto the “tobacco surcharge.” Alexander is quoted in the story saying, “If he vetoes the revenues, the budget would come apart.”

The budget includes more than $1 billion in new and increased fees, another $1 billion from tobacco taxes, $1 billion in spending cuts, and $5.3 billion in freshly minted fiscal stimulus funds from Washington, including $1.8 billion for education just made available May 11.

While some school districts are saying these funds are helping them to reduce layoffs, Sarasota County School District Superintendent Lori White says those funds were already incorporated into their budget for next year. But without the cigarette tax dollars or the new license fee revenues, the Medicaid and schools budgets will not have enough money.

The big gamble

What's not included in anyone's budget so far is gambling revenue.

The governor has been given authority by the Legislature to renegotiate the voided gambling compact with the Seminole Tribe by Aug. 31. About $150 million from the Seminole Tribe is being held in trust by the state for schools until a gambling compact is approved. Once approved, which is expected this fall, another $150 million would be available for schools, making a total of $300 million.

State Rep. Gary Aubuchon, R-Cape Coral, who is vice chair of the House Finance and Tax Council, believes the Legislature made the best out of a tough situation. He tells the Review, “I think the fact that we passed the budget and were able to fund important health care, education and economic development programs, in light of the fact that we started $6.3 billion in the hole, I think it's something that business can feel good about.”

At least one business that should feel good is gambling. In addition to the Seminole Tribe, pari-mutuels and other gambling operations can expect future revenue growth from expanded operations.

Senate President pro tempore Mike Fasano, R-New Port Richey, sums up the budget this way: “I think, overall, that when you consider we had to reduce the budget by several billion, that the one we came up with I believe is exactly what my constituents wanted — was to be fiscally responsible, creating industry and creating jobs.”

Key budget issues

Revenue increases: The Legislature approved approximately $1 billion in additional taxes and fees above the $1 billion from cigarette taxes. About $800 million are transportation related taxes, including driver's licenses, auto tags, and first time registrations. Court fees, such as filing a civil suit or probate case, were increased by $200. Hunting and fishing licenses were increased.

Tobacco tax increase: There's debate about whether it's a tax, a fee, or a surcharge, but it's another dollar on every pack of cigarettes (currently taxed at 33.9 cents per pack). The proposed $1 per ounce tax increase on other tobacco products (such as smokeless tobacco) was changed to a 70% tax on the wholesale price. Cigars are exempt. The tax will be levied on all inventory on July 1, 2009, but the Legislature provided a 5% collection allowance to compensate businesses for taking the inventory.

The legislation also limits the number of untaxed cigarettes that can be sold on Indian reservations. The tax package is expected to raise about $1 billion a year.

Trust fund sweeps: The budget takes $588 million from various trust funds to add to general revenue, including a compromised $120.2 million from the State Transportation Fund. The House wanted $420 million, but the Senate wanted zero. Floridians for
Better Transportation is urging the governor to veto the use of the Transportation Fund money.

Health care: Almost $3 billion in federal stimulus dollars and the higher tobacco tax help increase the health and human services budget. Florida's Medicaid program will grow from $16 billion to $18 billion. The federal money also kept alive the Medically
Needy and the MEDS-AD program. Both programs were set to expire. The trade-off is that Medicaid reimbursement rates for hospitals, HMOs, and nursing homes were reduced.

Education: Technically, the budget increases K-12 spending per pupil. The new per-student operation budget spending of $6,873 is $28 more than this year's (post-budget cut) funding, but it is $124 less than the amount originally adopted in the last budget. Statewide funding is higher than the current level, but some districts' funding, particularly in rural counties, will be reduced. Cuts to higher education were minimized as a result of tuition increases and expanding the tuition differential to all 11 universities. School districts can increase taxes under limited conditions.

Class size flexibility: Schools can continue to use the school level average to comply with maximum class size requirements by delaying implementation at the classroom level until 2010-11.

State employee pay cuts: All state employees, except the state university system, will see 2% cuts if they make more than $45,000. The Senate wanted 1% cuts on those making more than $100,000, the House had proposed cuts of 4%-5% on those making $26,400 or more. The state covers the increased cost of employee's health insurance.

Contracting: Senate Bill 2694, a major contracting bill, attempts to reform the contract process by requiring legislative approval for contracts with backloaded payments in future years, requiring prior notification of any contract that requires payments in excess of $10 million or any deal that that requires little or no payment to the state, and prohibiting any state agency from using a lease or deferred payment agreement to purchase equipment worth more than $500,000 unless it has been specifically approved in the state budget.

Budget Highlights

Some of the most important elements of the budget:

Creates a $30 million for down payment loans to first-time homebuyers eligible for $8,000 federal first-time homebuyer tax credit program;

Increases per student funding for K-12 schools by $28.21 to $6,873, but some districts will see declines;

Increases preK-12 funding to $13.4 billion, a 14.5% increase from last year;

Allows school districts to maintain 1.75 mills for capital improvements with flexibility for additional .25 mills for capital or operating purposes;

Increases funding for state universities by 2.9%;

Increases workforce education funding by $700,000 to $550.9 million with 8% tuition increase;

Maintains funding for Regional Workforce Boards;

Increases tuition for state universities by 8% (Bright Futures does not cover the 8% tuition increase.);

Allocates $13.5 million for the Quick Action Closing Fund to attract new companies to Florida;

Increases funding for Film and Entertainment Incentives from $5 million to $10.8 million;

Reduces budget for Transportation and Economic Development by 4.8%;

Moves $588 million from trust funds general revenue, including $120.2 million from the Transportation Trust Fund;

Reduces budget for government operations 4.3% to $1.7 billion;

Cuts employee salaries 2% for employees making more than $45,000, but state to pay for increased costs of health insurance premium;

Reduces funding for Visit Florida to $25 million by dropping special advertising campaigns over last two years;

Uses Medicaid stimulus funds to replace $780 million shifted out of health care;

Suspends the Florida Forever land-buying program to restrain growth in long-term debt;

Allocates $50 million for Everglades Restoration;

Maintains ability to fund Beach Restoration Program up to $15 million.

Wheeling and dealing

The Senate, led by Sen. Dennis Jones, R-Treasure Island, proposed a big expansion in gambling despite the objections of Sen. Ronda Storms, R-Valrico, while the House and its lead negotiator, Rep. Bill Galvano, R-Bradenton, opposed it.

Gov. Charlie Crist must now negotiate a new compact with the Seminole Tribe by Aug. 31, although the Legislature set forth many of the requirements. The compact will then have to be ratified by the Legislature.

The Seminoles may offer slot machines at all seven of their casinos, but blackjack and other card games will only be offered at three casinos in Broward County and Hard Rock Casino in Tampa. The tribe has 90 days to shut down blackjack at its Immokalee casino.

The compact would last for 15 years, but would be reviewed in five years. The Seminoles would have to pay the state a minimum of $150 million a year. A provision was also added to develop a plan to collect sales tax on goods purchased at the casinos by non-Indians. During the session, Florida TaxWatch released a report showing how the increased Seminole gaming would negatively impact sales tax collection and other revenues.

For pari-mutuels, there will be no expansion of electronic games, but the tax rate on their slots will be reduced from 50% to 35%. License fees will also be reduced. No-limit poker will be allowed and poker hours will be expanded to 18 hours a day and 24 hours a day on weekends. A Hialeah racetrack would be allowed to add quarter-horse races now and slots in two years. Horse tracks will be able to race at night.

It is unclear how much revenue gambling will raise, but no gambling dollars were included in the budget. Any revenue that does come in will go into reserves for next year and some have estimated it could be in the neighborhood of $300 million.

One possibility is that when the Legislature calls a special session this fall to approve the compact, it could also vote to amend the budget with these funds to provide more immediate relief to schools.

The tax increases

Here is a sampling of the fee and tax increases the Legislature passed to balance the budget:

Original driver license from $27 to $48

Driver license renewal from $20 to $48

Replacement driver license from $10 to $25

Vehicle title fees from $24 to $70

Initial registration fees from $100 to $225

New fee for filing circuit civil case from $295 to $396

Saltwater shoreline fishing license $7.50 (new)

$1 per pack increase for cigarettes

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