Florida is among nine states in which tax revenue has not returned to peaks hit since before the Great Recession, after accounting for inflation, according to a report published by Pew Charitable Trusts.
Florida’s tax revenue is 9 percent below its pre-recession peak.
This is in part due to Florida politicians reducing taxes every year since 2010, Fiscal 50 Officer Justin Theal of the Pew Charitable Trusts said, while its economy and population grew.
Florida “had much more robust economic growth and it’s had the fifth-fastest population growth since the recession,” Theal said.
Florida is one of only nine states where tax revenue has not exceeded pre-recession levels. Tax revenue in 41 states now exceed 2007 levels, after adjusting for inflation, the report states. Without adjusting for inflation, 50-state tax revenue was 32.8 percent above pre-recession peaks, with tax collections recovering in 48 states (excluding Alaska and Wyoming) by the third quarter of 2018.
“State tax revenue turned a corner in late 2017 after the weakest two years of growth – outside of a recession – in at least 30 years,” the report states.
“In terms of recovery, Florida has made steady progress since its low right at the recession, mirroring the national trend,” Fiscal 50 Officer Justin Theal of the Pew Charitable Trusts said. “However, one key thing to note is the timing of Florida’s recession-era peak. The state was collecting unusually high amounts of taxes just prior to the recession due to a real estate boom. Rebounding to the state’s recession-era peak may take longer than it did for other states.”
States reporting revenue gains increased in part because of the 2017 federal Tax Cuts and Jobs Act, in conjunction with favorable economic conditions, strong stock market returns for more than a year and state policy actions, the report states.
Individual tax streams fluctuate and contribute to states’ overall revenue volatility, the report adds. Nationwide, overall state tax revenue had a volatility score of 5 for the 20 years ending in Fiscal Year 2017, meaning total tax revenue fluctuated 5 percentage points above or below the overall growth trend, similar to 2016. Tax revenue was more volatile than the national benchmark in 30 states and less in 20 states.
Florida’s rainy day fund had enough money to pay the state’s bills for 32.8 days in 2001 compared to 16.2 days in 2018. As a share of personal income, Florida’s total debt and unfunded retirement costs are ninth-best in the U.S., Pew notes.
“Florida's financial problems stem mostly from unfunded retirement obligations in the form of pension and other post-employment benefits,” according to an analysis by government financial watchdog Truth In Accounting (TIA).
“Of the $60.8 billion in retirement benefits promised, the state has not funded $10.9 billion in pension and $9.3 billion in retiree health care benefits,” TIA adds.
Florida has $58.6 billion available in assets to pay $70.1 billion worth of bills, according to the TIA analysis. As a result, every taxpayer would have to pay $1,800 to fill the $11.6 billion gap.
“Florida's reported net position is inflated by $4.3 billion, largely because the state defers recognizing losses incurred when the net pension liability increases,” TIA adds, noting that “government officials have failed to disclose significant amounts of retirement debt on the state’s balance sheet. Residents and taxpayers have been presented with an unreliable and inaccurate accounting of the state government’s finances.”
Although states can raise or lower tax revenue by changing tax policies, the underlying volatility of individual tax streams is often driven by a variety of factors, including industry, natural resources, workforce, and population growth, federal budget changes and natural disasters, the Pew report states.