Florida taxpayers today are on the hook for less unpaid state debt than taxpayers in a majority of other states, according to a new report by the Pew Charitable Trust.
The report on state debt and unfunded retirement costs, released Tuesday, measures the state’s total outstanding debt between 2003 and 2013, including its health care and pension obligations to retirees. According to data provided to the Herald/Times Tallahassee bureau, Florida ranks ninth best in the nation in total outstanding bills, and debt as a share of personal income is 7.2 percent, compared to the national average of 14.8 percent.
But that is only one piece of the equation on Florida’s fiscal health. Data collected by the U.S. Department of Commerce’s Bureau of Economic Analysis show that during that same decade, as the state’s total debt as a share of personal income dropped, so did the value of all the goods and services produced in Florida. The state’s gross domestic product per person, the monetary value of its economy, was declining more than $10,000 below the national average.
Florida has lagged behind the national average on the GDP index for years — including during the time both Jeb Bush and Charlie Crist were governor — but it had been improving until the recession. In 2003, the gap was $5,490 per person but, since then, as parts of Florida’s economy recovered and its debt burden dropped, the per capita GDP has declined. The number inched slightly upward in 2012 and 2013, but the gap between Florida and the U.S. average has widened steeply according to the U.S. Commerce Department data.
The two data sets underscore the competing tensions Florida policymakers face as they try to decide whether to move Florida from its austere no-new-debt position held by Republican Gov. Rick Scott, or take the position of moderate Republicans and Democrats who say that a healthy amount of government spending into growth-producing infrastructure projects could expand the economy.
Scott was elected to public office for the first time on the promise of reducing spending and shrinking the state’s debt, and the drop in the debt burden is a testament to his determination. But while the strategy was embraced by the GOP-led Legislature, others are now asking whether Florida should start increasing its spending to invest in infrastructure and boost its GDP.
Florida’s debt includes bonding for such things as construction projects for schools, prisons and transportation, and states with healthier debt levels have more flexibility to balance their budgets than a majority of other states, the Pew report concluded.
“It makes sense when you’re under-invested to ask if you’re maybe being too fiscally careful and not investing enough in the future,” said David Matkin, an assistant professor in the Reubin O’D. Askew School of Public Administration and Policy at Florida State University. “It’s a reasonable question, but I’m not sure there’s any study that has said, ‘Here’s the answer.’ ”
The data from the Pew report and other sources, provide this picture of the competing tensions:
▪ Between 2003 and 2013, as Florida was taking an austere approach to its debt and spending, the per capita GDP — the value of goods and services produced — dropped from $40,368 to $38,197, the U.S. Commerce Department found. By comparison, the national average per capita GDP increased from $45,858 in 2003 to $48,397 in 2013.
▪ In 2013, the state’s total outstanding debt was among the highest in the nation at about $19.7 billion but, as a share of all of Florida’s personal income, Florida’s outstanding state debt, excluding retirement debt, was lower than 26 others states. (Personal income comprises all income received by a state’s residents from wages and salaries to employer-sponsored health and retirement benefits, income from owning a business and having investments. It also includes government benefits such as Medicare, Medicaid, Social Security, and Temporary Assistance for Needy Families. It does not include capital gains or losses.)
▪ In the last decade, Florida’s outstanding state debt dropped from 3.2 percent of personal income to 2.4 percent — the fastest drop in the nation, according to data released by Pew.
▪ The state with the highest unfunded liabilities for both pensions and retiree health care as a share of personal income in 2013 was Alaska, the Pew report found. That means that Alaska’s “total long-term obligations including debt amounted to more than half of all the wages, salaries, business and investment income, and government-issued checks and benefits received by Alaska residents in 2013.”
▪ Florida’s retirement fund picture is not as rosy as its debt. In 2003, Florida had more in pension fund reserves than it owed to retired state workers and teachers but, after 11 years of actuarial surpluses, the FRS Pension Plan took a hit during the recession and has been underfunded since, according to Florida Retirement System annual report.
▪ In 2013, the state pension plan’s liabilities exceeded its assets by $31.2 billion deficit, translating to a fund ratio of 80.8 percent, the Pew report found. That ratio was better than all but 10 other states and the debt amounted to 3.9 percent of personal income.
▪ As the Great Recession took its toll and Scott reduced the state payroll, bringing fewer workers into the Florida Retirement System, the state’s unfunded liability for the state pension fund grew by more than 6.2 percent between 2003 and 2013, according to the Pew report. Those numbers include the $1 billion added to the fund from employee cost-sharing, when the governor and lawmakers required employees to pay 3 percent a year into their retirement accounts.
▪ From 2003 to 2013, the unfunded retiree health costs edged up only .3 percent and in 2013 Florida ranked 18th best in the nation, according to the Pew report.
▪ According to the U.S. Department of Environmental Protection 2013 Drinking Water Needs Assessment report to Congress, Florida will need to invest $16.9 billion to sustain its drinking water infrastructure and another $19.6 billion for wastewater in the next 20 years.
▪ The 2012 American Society of Civil Engineers infrastructure report card gave Florida a C- grade, noting that the coastal areas, faced with beach erosion and poor inlet management, are near failing.
▪ A report by the Washington, D.C.-based Center for Budget and Policy Priorities found that Florida spends 6.5 percent of its annual budget on infrastructure. Since 2002, Florida’s annual investment in state and local infrastructure as a percent of its gross domestic product dropped from 2.89 percent to 1.86 percent in 2013, more than every other state except Nevada.
Although states have decades to pay off their outstanding debt or change their retiree health care plans to reduce their liabilities, unpaid bills “claims on future revenue can limit states’ budget flexibility when the costs come due,” the Pew report explained. “Less money may be available to fund other priorities, such as health care for low-income Americans or education, or to cover unexpected needs. As part of a state’s full financial picture, these liabilities also can affect credit ratings and borrowing costs.”
Matkin, who has studied pension systems for the Collins Center for Public Policy, said that “Florida is in as good a position as any large pension system in the country, but they face significant risks.”
“Things could go bad in a hurry,” he said. “If the investment returns take a major slide again, for several years, that can further erode the asset values at a time when people are really starting to retire in large numbers.”
Unlike other state plans, the Florida Retirement System does not include many of the local government employees that are included in other state plans compared to Florida in the Pew study, Matkin said. In Florida, many local pension funds are in much worse fiscal shape than Florida’s state plan.
Should the state be spending more on infrastructure given the low interest rates, an improving economy and its current fiscal picture?
Sen. Jeff Brandes, R-St. Petersburg, has been an advocate for more spending on roads and has authored legislation to help municipalities shore up their pension funds, but he is not sure the Legislature and governor would support taking on more debt to pay for infrastructure development.
“My gut is we are comfortable with the level we are at now, but are not looking at expanding that level,” he said. “While the rates are low, I don’t think anybody feels the economy has fully recovered.”
He also notes that since Florida continues to be a retirement haven, the fact that other states’ pension funds are more precarious than Florida’s could become a liability for Florida taxpayers.
”My concern is that retirees coming to Florida from Illinois, Connecticut, Kentucky and New Jersey — who may be dependent on bankrupt pensions — could get here and not have the resources down the road,” he said. “They are going to be more expensive when they retire to Florida.”
Mary Ellen Klas: email@example.com; follow her on Twitter @MaryEllenKlas