Irma is gone, and Florida is discovering a massive fiscal storm looming on the horizon.
The Legislature’s chief economist says the hurricane’s impact on the economy will make the state budget “much worse” next year, and possibly in 2019 and 2020.
Amy Baker delivered that sobering news Friday to lawmakers as part of a revised long-range outlook used as the foundation for critical spending decisions on schools, social services, public safety and other areas that affect nearly 21 million Floridians in a state where a balanced budget is required by the Constitution.
As the state’s fiscal picture darkens, it means less money for schools and the social service safety net, less chance of raises for state workers and a possible downgrading of the state’s bond rating, which would make it more expensive for Florida to borrow money.
Florida’s budget is based on projections of how much money is expected next year.
As director of the state Bureau of Economic and Demographic Research, Baker is a trusted source of economic models known for being conservative, just as politicians want.
Contrary to the oft-repeated myth that government makes money during hurricanes, state government typically ... becomes a net loser when all expenditures are taken into account.
Draft report from Amy Baker, director of the state Bureau of Economic and Demographic Research
They would rather build next year’s budget based on a projection of less money rather than more — only to see the revenue not show up after it has been spent.
But long before Irma began to swell into a catastrophic destructive force, Baker had been warning state legislators that they have created a “structural imbalance” in budgeting that will produce projections of $500 million shortfalls in each of the next three years.
“It’s not a surprise,” said Sen. Bill Galvano, R-Bradenton, who’s in line to become Senate president after the 2018 elections.
Galvano is a member of the Joint Legislative Budget Commission that received Baker’s forecast Friday.
Future state budgets are based partly on projected gambling revenue, which has peaks and valleys. Legislators, unwilling to raise taxes, also have habitually raided single-purpose budget accounts, known as trust funds, to pay bills.
Even with conservative Republicans making all of the state’s key spending decisions, Baker said: “Your budget is growing faster than your revenues.”
As yet another storm churned in the eastern Atlantic Friday, Baker said a tiny projected $52 million surplus for next year is already “gone,” and the revenue picture will deteriorate further.
Baker said the recovery costs from Irma will be between $25 billion and $46 billion, or the present-day cost of what Florida spent after Wilma in 2005 and Andrew in 1992.
After three days of post-Irma recovery, the state said Friday the cost is approaching $300 million.
Baker also seized the opportunity to puncture a popular myth that hurricanes are actually a boon to Florida’s economy.
That misconception is based on Florida’s consumption-based 6 percent statewide sales tax, which taxes consumer goods, but not professional services.
The more people buy items such as trucks, furniture, plywood and generators, the more tax revenue goes to the state.
But long after people make those purchases, Baker said, the recovery will last for two to three years and those costs will overwhelm any revenue spike.
“Popular belief has spread the misconception that hurricanes are somehow beneficial to the state from an economic perspective. However, the reality is much more complicated,” Baker’s report said. “Contrary to the oft-repeated myth that government makes money during hurricanes, state government typically has expenditures greater than the incremental increase in the revenue estimate and becomes a net loser when all expenditures are taken into account.”
It wasn’t all bad news.
Tourism is way up, Baker noted, and the state unemployment rate dropped to 4 percent Friday.
The last major storm that hit Florida was Wilma in 2005. Due to term limits, most of the members of the current Legislature were not in office.
They are not fully familiar with the potential fiscal, economic and political repercussions of Hurricane Irma on the state.
Baker noted that Florida typically has four distinct phases of hurricane activity, each with unique impacts on the state economy: preparatory, crisis, recovery and displacement.
Baker said Florida will be in the crisis phase for some time to come.
In calculating a storm’s economic impact on the state budget, economists use recovery-related budget expenses, and that doesn’t show the full picture.
It excludes a lot of other expenses, like the program of bridge loans that Gov. Rick Scott announced Thursday.
It also does not include the impact on cities and counties, which in parts of the state will be massive, with billions of dollars’ worth of damaged and ruined homes and businesses disappearing from tax rolls.
Taken together, the four major storms of 2004 (Charley, Frances, Ivan and Jeanne) produced $752 million in added revenue and carried $791 million of added expenses.
The gap was much wider for the four hurricanes of 2005 (Dennis, Katrina, Rita and Wilma).
The 2005 storms produced $422 million in added revenue and cost $625 million, Baker’s office reported.
Contact Steve Bousquet at firstname.lastname@example.org and follow @stevebousquet.