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Business Observer Friday, Oct. 23, 2009 10 years ago

Shell Games

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The state's economy has a lot of could happens and should happens when looking into the future. One major issue: Who will pay for rising Medicaid costs?
by: Jay Brady Government Editor

The state's economy has a lot of could happens and should happens when looking into the future. One major issue: Who will pay for rising Medicaid costs?


We're not who we thought we were.

Positive signs that the state's economy was starting to turnaround in August smashed into a brick wall Oct. 16.

That's when the state employment agency announced that the September seasonally adjusted preliminary unemployment rate rose to 11.0%, up from the upwardly revised August rate of 10.8%. The number of Florida's jobless broke the one million mark, hitting 1,012,000.

It was only Oct. 7 when members of the Legislature's Select Policy Council on Strategic and Economic Planning were told that the state's unemployment rate would peak at 11.0% — next spring. And while there are some positives in the September announcement (no big layoffs were announced the week of Oct. 5-9, the first time that has happened in a year), other significant risks to the state and regional economy are looming.

The list is wide-ranging, from hurricanes to houses. The rising cost of Medicaid is another large issue and a central concern magnified in the state's new three-year financial outlook, which covers fiscal years through 2013.

But jobs, or the lack thereof, has been a major topic of discussion when it comes to economic projections. For example, the state's seasonally adjusted unemployment rate had first been announced as a slight decline in August, to 10.7% from the revised July rate of 10.8%. That was due to 5,500 more construction jobs.

To be sure, the unchanged rate from July to August is a positive these days, but the latest data pops that balloon. And now construction employment has dropped by 12,800, more than double the prior month's reported increase, despite 1,635 jobs added by stimulus projects.

The mix of good followed by bad job data can be considered a microcosm of the state when it comes to an economic outlook for 2010. Consider Cynthia Lorenzo, director of the state's Agency for Workforce Innovation. Lorenzo expressed her optimism in a Sept. 18 press release, saying, “We anticipate improvement in Florida's job market in the second quarter of next year and are already seeing glimmers of hope to that effect.”

That optimism, however, was tempered in the agency's Oct.16 press release with Lorenzo saying, “The recovery is coming slowly, but it is coming.”

Medicaid meltdown
Another aspect of the economy that is coming soon: The Medicaid cost explosion.

In fact, Medicaid has now become “the biggest problem for our state,” according to State Rep. Ed Homan, R-Temple Terrace, whose day job as assistant professor of orthopedic surgery at the University of South Florida medical school gives him a unique perspective and a central role in the coming debate next legislative session. He's chairman of the House health and family services policy council and is a member of the Health Care Appropriations Committee.

Homan has seen the data in the financial outlook showing it will take over $1.5 billion more to fund Medicaid for the 2010-11 state fiscal year “just to maintain the status quo,” he says.

This part of the budget mess comes about mostly because the state will have to replace revenue lost when temporary federal stimulus assistance goes away at the end of December 2010. “We don't have $1.5 billion,” says Homan.

The report states that, “Medicaid services are the primary driver of these increases and become the single largest critical need in the new outlook.” That disappearing revenue will have to be replaced with increasingly scarce general revenue funds, major budget cuts and/or sweeping big dollars out of state trust funds, as was done to balance this and other year's budgets.

Homan also expresses deep concern for how the federal health care bill will impact the state budget because parts of the legislation would raise the number eligible for Medicaid in the state by 50%, from 2.7 million to 4.1 million.
“We only have 18.5 million people. We're looking at about 22% will be funded for Medicaid,” says Homan.

The state's outlook report doesn't even acknowledge that wildcard.

'Budget shell games'
Past the Medicaid issue, there is, of course, the issue of housing. But for now, statewide housing starts are up along with existing home sales. That has allowed the excess inventory to work its way down helped by lower, but flattening, median home prices. Though the absolute numbers are relatively small, home starts for the eight Gulf Coast counties from Pasco to Collier have been up year-over-year for both August and September, the only two up months this year.

Some credit the $8,000 first-time homebuyer tax credit for stimulating home sales the last few months.

But the credit is set to end Nov. 30 unless Congress takes action to continue it. Such a move would need to balance nebulous benefits of further economic stimulus with the possibility of inflating another housing bubble already pumped by low mortgage rates and housing prices.

Although federal stimulus funds saved teaching and construction-related jobs in the state and Gulf Coast, a recent Review analysis of school district capital budgets shows that nearly $800 million was cut in the last year. That easily exceeded the sum of all the federal stimulus funds passed down to the districts for operating expenses, plus that being spent on transportation projects across the eight county area. (See Oct. 9 Review.)

Speaking of schools, another long-range potential budget buster lingers in the form of a state class size amendment, which could increase spending dramatically if passed.

But tax credits, stimulus programs and school budget shell games may seem inconsequential should state constitutional Amendment 4 — aka Hometown Democracy — pass in November 2010.

On Amendment 4, which would require citizens to vote on any amendment to a local city or county plan, State Sen. Mike Bennett, R-Bradenton, who serves on the Select Committee on Florida's Economy, has this to say: “It would disrupt the entire economy of the state of Florida.”

Another potential for economic disruption looms in the form of hurricanes. If one or more big hurricanes hit the state it would trigger massive insurance policy assessments, which would be a whole other set of issues for everyone — though some in the construction industry might argue that's what the economy needs.

Last month, that risk prompted Sen. J.D. Alexander, R-Winter Haven, chairman of the Senate budget committee, to elicit near unanimous support from his colleagues on the Joint Legislative Budget Commission to add five paragraphs to the state's shaky three-year financial outlook.

Alexander's add-on to the outlook report questions the ability of the Florida Hurricane Catastrophe Fund (FHCF) and Citizens Property Insurance Corporation “to fulfill their financial responsibilities in the event of major hurricanes.”

The new language concludes by stating that “though the FHCF and Citizens serve significant roles in Florida's property insurance market, their ultimate dependence on public assessments and access to credit markets may expose the state to much greater potential financial liability for hurricane-related costs.”

Bumpy road
Florida's economy, therefore, faces a road littered with potholes in 2010.

Moving onto a less bumpy road, however, would require resolution of the Medicaid problem; housing prices to stabilize and inch back up rather than re-inflate; no Category 4 or 5 storms to hit a major city; Amendment 4 to fail (though University of Florida economist David Denslow reported to a legislative committee this month that it's showing 59-61% support, right at the 60% required to pass); and no new problems to appear, such as worsening credit markets, significantly more residential or commercial foreclosures or a costly cap-and-trade bill.

That's a lot to ask and to lookout for while trying to figure out who we are and where we're going. And don't forget, 2010 is also a mid-term election year, so anything — or nothing — could happen.

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