(The following was filed for a Business Week story in October 1991.)

State Budget Cuts Rock Florida

By Bob Andelman

Barbara Gordon, 14, is a freshman at St. Petersburg High School in St. Petersburg, Fl. She's an ambitious student, learning two languages and already planning to attend Florida State University. But her mother, Judith, worries that Barbara may face a double-whammy by the time she's ready to graduate in four years. Budget cuts are forcing area schools to consider a reduction in class periods from seven to six, reducing the number of subjects a student can learn in four years. And the same cuts may have any equally adverse effect on FSU, making it less attractive in four years.

Another example of problems Barbara faces in her freshman year: a Spanish teacher initially refused to let students take their textbooks home because there were only 122 books for 128 students and no money in the school budget to buy more. Parents stepped in and purchased extra books out of pocket.

"Unless there's a real change in the way schools are financed in this state, I don't see any chance of (school boards) reinstating what they've cut or to keep them from cutting more," says Judith Gordon. "It's very disturbing because we're already not well thought of around the country as far as our kids' education and that in itself impacts the kind of colleges they can get into."

Gordon, a corporate child care consultant, is especially aggravated by the effect of budgets cuts at a time when everything she reads and hears touts how fanatically devoted the Japanese are to their children's education. "And what are we doing? We're cutting days off the school year and we're shortening the school day. It's crazy," she says. "It bothers me that people say they want to keep their taxes low. They don't understand the broader implications. I want to be taxed. Print that."

That's the message 20,000 parents, teachers and students sent to Florida Gov. Lawton Chiles at a tumultuous rally at St. Petersburg's Florida Suncoast Dome on October 17. (Chiles was invited but didn't show.) After five state-mandated cutbacks in education over the last year, the education community is mad as hell.

"If people thought the money would go to education in an efficient manner, I think Floridians would go for a tax increase," says Doug Tuthill, president of the Pinellas Classroom Teachers Association and an organizer of the rally. "I don't think people begrudge money for education. But there's an enormous distrust of our local politicians."

Tuthill doesn't directly fault Chiles for the cutbacks. In fact, he agrees with the governor that education cuts were "proportionate" to those in other departments. But "we started this year in dire straits. Class size has been increased and teachers laid off all over the state. We wish the governor would be more assertive in pushing up the timetable" for tax reform.

What is Chiles' plan? Some say he could have alleviated cuts to education by taking money from less painful sources but chose to telegraph a future punch. But who can read his lips? Florida has no income tax and suggesting one in this state is akin to suicide. Bob Martinez tried to push a services tax five years ago as a freshman governor and never stood a chance at re-election.

State Budget Director Doug Cook, a holdover aide from Chiles' days in the U.S. Senate, says the solution lies in Washington.

"The major problem we've had since we've been here is that the economic forecasts out of Washington have been extremely inaccurate," says Cook. "It has made it difficult for us to plan, as it has most of the major states. The day the President acknowledged we were in a recession, he said we were coming out of it."

Federal politics aside, Florida's over-reliance on sales and consumption taxes - more than 60% - is proving its undoing in the current crisis. After decades of near-immunity to national downturns, growth in the Sunshine State is slowing to a trickle and state - 80,000 construction jobs were lost in 1990 - and local governments are struggling to deal with overly optimistic revenue projections. Tourism is down markedly. So is state spending to attract new tourists. For the first time, Florida is facing a recession and its leadership is at a loss to react.

"When consumer confidence goes down, we lose not only tourists but our retail track goes down," according to Cook. "About 900 retail corporations pay 90% of our sales taxes. About 66% of their income is derived during two months in the Christmas season. We are very, very reliant on a tax which is tied to consumer confidence."

Cook says Florida must consider new revenue sources: perhaps a value-added tax, perhaps a second look at a services tax. "I'm not sure if we can talk about income taxes in the state of Florida. I suspect that's not a near-term option for us," he says. Also out of the running: further increases in the state sales tax, now at six percent statewide, although many counties have approved local option taxes that add up to another one percent.

"I don't know how many of us budget directors are still going to be here through too many more years of this," says Cook. "Do I sound depressed?"

* *

Dominic Calabro says Florida's problem is not revenues, just spending. The president and chief executive officer of Florida Taxwatch, a non-profit, non-partisan government watchdog and taxpayers' research institute, puts blame for Florida's latest crisis on the backs of bureaucrats who don't provide greater value for tax dollars.

"Bureacracies say governors come and go; bureaucrats will be here another 30 years, To the degree they can, they'll resist," says Calabro. "Additional 'assistant administrators' do not teach skills; teachers do. (Bureaucrats) create a lot of work but take away resources. The kind of bureaucracy downsizing that occurred in corporate America in the late '80s is the thing you'll see in state and local governments, particularly in Florida."

Calabro has his own ideas for funding the state budget, ranging from fewer exemptions for consumer goods to the gradual taxation of services. "We can expand our sales tax to include services that tend to grow much faster than the overall economy," he says. "If the legislation is written in a more thoughtful, less onerous way than in '87 (when Martinez supported it), it will be the tax of choice."

A new services tax should exclude advertising, says Calabro. Too difficult to tax and too messy dealing with the media. He recommends starting with other business services that are not seen as essential to the health, safety and well-being of Floridians. Then, as residents become accustomed to paying the tax, gradually expand it.

"There's no silver bullet," says Calabro. "There's no one tax that will solve all of Florida's problems. An income tax would not."

Bob Andelman
(813) 896-2600
(813) 896-2700 FAX
Florida Budget Notes
Oct. 29, 1991

NEW:

Historically, Florida has been virtually recession-proof. It is last in, first out, thanks to an unrelenting in-migration of tourists and almost 1,000 new residents daily. They buy consumer goods, build houses, transfer bank accounts and open businesses, driving the state's economy even when surrounded by national chaos.

Further supporting the state economy has been a reliable cushion of payments to retirees in the form of pensions (including tens of thousands of former military officers) and Social Security.

But in 1989, something began to go wrong. The state made the first of five consecutive budget cuts over two years that amounted to $2-billion, $1.1-billion from education alone. (Education amounts to 52% of the entire state budget.)

In September 1991 the problem became catastrophic when the state's revenue estimating conference found a $621.7 million shortfall in general revenues. Instead of $11.5 billion, the state had $10.9 billion. Immediate cuts were necessary and painful, including $289 million from education.

"Our process doesn't allow us to make constant revisions," says a state budget official. "So when we do make them, they seem to be pretty drastic."

The biggest difference in the 1990-91 recession and its effect on Florida compared to previous downturns is that in years past, new jobs were being created at a record pace as the total economy grew. And population growth slowed during early recessions because people couldn't sell their homes elsewhere to move to Florida. But in 1991, in-migration continues to be strong even as opportunity is weak. State unemployment is above the national average. New arrivals are unable to find work, putting strains on state services when it can least be afforded. People are ending up on the unemployment rolls and on Medicare.

And tourism is at its lowest level since 1981.