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FLORIDA ECONOMICS.
Term Paper ID:19318
Essay Subject:
Revenue structure, problems & causes, lottery, taxation, outlook. Charts.... More...
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Paper Abstract:
Revenue structure, problems & causes, lottery, taxation, outlook. Charts.
Paper Introduction:
"Florida is a state with jammed highways, polluted natural resources, struggling schools, poorly paid teachers, teeming jails, neglected children, needy senior citizens, inadequate health care, a shortage of affordable housing and a declining quality of life" (Reier, 1988, p. S28). This was the stinging conclusion of the Final Report of the State Comprehensive Plan Committee in 1987.
Despite this, only three other states (Alaska, Arizona and Nevada) posted higher population growth rates during the 1980s (Seelig, 1990, p. 90). Growth is the term used most often to explain Florida's economy, and growth did, in fact, characterize the economy during the 1980s.
Florida is the nation's fourth most populous state, with more than 12 million people (Willson, 1991, p. 49). It is one of
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These are illustrated in the following chart:Function 1984 % 1987 % 199 %Education 3,583,841 36% 4,728,662 34% 6,754,376 36%Health 2,581,966 26% 3,363, 87 24% 5,678, 86 3 %Gov't Direction 1, 55,245 11% 1,581,686 11% 2, 45,579 11%Public Safety 583,866 6% 743,88 5% 1,298,654 7%Capital Outlay 256,142 3% 1, 68,681 8% 1,184,616 6%Source: Lewis, 128. The debt service fund is used to service general long-termdebt. Given the resentment to direct taxation, Florida has turned to other,less direct methods of increasing revenues. Transportation funds should not be divertedto other programs, for example. Florida is also known to take an aggressive approachto meeting companies' transportation needs, such as new roads (Tharp andArrarte, 199 , p. Lacking one of the most obvious ways astate has to raise money, Florida's legislators have been particularlycreative in their revenue generating. 92), and it is a popular retirement destination. Denied other tax remedies, Florida is alsoless likely to be generous to corporate taxpayers who dispute their bills.This attitude pervades the tax system to the extent that even when some taxlegislation was ruled unconstitutional, refunds were withheld fromqualifying companies (Barrett and Greene, 199 , p. This means that recovery in Florida may well take longer than ifwages were more commensurate with those in other areas of the country sincethe "trickle-down" effect is less. New York, Ohio,Michigan and New Jersey were four of the top five states which suppliedFlorida with its immigrant population in 1989 and 199 . Without a personal income tax, the state sales tax becomes an obvioustarget for increasing revenue. The median age of residents was 37.6 in 199 (Seelig,199 , p. Despite this, only three other states (Alaska, Arizona and Nevada)posted higher population growth rates during the 198 s (Seelig, 199 , p.9 ). 19). This was increased to six percent from fivepercent in 1988 after the service tax was repealed, and politicians arereluctant to tinker with such an obvious tax (Szabo, 1988, p. There are two types of proprietary fund types: enterprise funds andinternal service funds. Taxable sales are expected to increase nearly 5 percent between 1995and 2 , compared to an increase of 41 percent during 1985 - 199 .Tourism, one of the state's strongest industries, is expected to regainstrength as Americans forego foreign travel (Willson, 1991, p. Companiestransferring in bring jobs with them which helps alleviate unemployment andincreases the dollars which are available for consumer spending. Other New Yorkcompanies who have announced moves to Florida include Merrill Lynch toJacksonville (6 jobs) and Salomon Brothers to Tampa (6 jobs). The following chart illustrates the contribution of revenue sourcesduring the 1984 - 199 period. The decrease in construction starts translates to a lossof more than 36, jobs since 1988. Grace and Company is moving operationsfrom New York to Boca Raton, bringing 5 jobs with them. According to the 198 census, 17 percent of Florida's population was overthe age of 65. Not all areas of the economy are doing so well as health care andcitrus, however. The general fund isused for transactions which are not required to be allocated to otherfunds. Tharp, Mike and Anne Moncreiff Arrarte. Unemployment,which lagged behind the nation as a whole from 1981 - 1988, overtook thenational average in 1989, and remained ahead of the nation in 199 (Lewis,1991, p. Smallcompanies who used outside accountants to prepare tax returns paid the taxon those fees. Theforgotten state house. Lewis, Gerald. 131). These residentswere fleeing the recession, high housing prices and urban blight, andbrought with them strong and marketable skills (Willson, 1991, p. Analysts agree that Florida isgood at estimating its revenues and creating jobs for the many newcomers,but caution that the state needs to improve its management ability.Examples of transportation monies being transferred to other areas withinthe state and adding programs in November that cannot be financed in thefollowing year are used to illustrate Florida's lack of managementexpertise (Barrett and Greene, 199 , p. One ofthese uses tax revenues to finance vocational-training programs forincoming companies. S29), and it is known for its sunnyand warm climate. 5 ). Thereare three types of funds used in Florida: governmental funds, proprietaryfunds and fiduciary funds. These revenuescontribute to a state budget which had more than 57 billion dollars inassets in 199 , and 52 billion dollars in assets in 1989 (Lewis, 1991, p.3). 15). The income tax would alsoenable the state to do away with some of its more creative user fees (suchas the rental car fee). Seelig, Pat. This strategy of attracting companies and skilled workers from out ofstate is working for Florida. Florida also has followed the lead of several other states in keepingnet general revenues in cash reserves. America's'Little Dragons.' U.S. (199 , April 17). One of the most obvious benefits that Florida offers potentialcompanies is a highly skilled workforce. The benefits that Florida receives from new jobs and new companies,for example,increased revenues from sales taxes, pale beside the revenuethat would accompany a personal income tax. Expenditures in the health and social concern areas can be expectedto remain high as Florida continues to attract a large number of retirees. Within the governmental fund, there are four fund types: general,special revenue, capital projects and debt service. (199 , June). VI). This is because many retirees are on fixed incomes and havealready made their major purchase decisions (large items such asautomobiles and refrigerators) which contribute significant sales taxdollars. Florida Department of Revenue. Fiduciary funds include trust funds and agency funds which are usedto track financial resources held by the state in an agent or trustee rolefor individuals, organizations or other state agencies. The unbridled growth thatcharacterized the state during the 197 s and 198 s overloaded the state'sability to provide a high quality of life for its citizens. 4 ). (1991). (1991, July). Thestate lottery is one example of the proprietary fund. 48). 45). 12). Florida has imposed a 5 cent per day fee on rentalcars, and makes more money from alcohol taxes than any other state (Barrettand Green, 199 , pp. The service tax of 1987 is a primeexample. 4 ). Two southern states: Florida andMississippi. It increases the corporate tax which thestate is able to collect, and also increases the property tax that countiescollect as commercial real estate increases in value. Before a personal income tax is imposed on the residents of Florida,however, the state itself must come to terms with better internalmanagement of its operations. Financial World, 157, pp. Here, the costs of thegoods or service may be recovered through user charges. The drug tradehas become increasingly prevalent in South Florida, and refugees continueto flood Florida from Haiti and other parts of the Caribbean. State of the states: Florida. Florida bases its accounting system on funds and account groups.Funds are self-balancing and are used for "recording assets, liabilities,fund equity, revenues, either expenditures or expenses depending on fundtype, and other financial sources and uses" (Lewis, 1991, p. 45). The remaining revenue comes fromlicenses, fees, interest and refunds (Lewis, 1991, p. There are other problems which plague Florida's revenue, as well.Sales tax revenues for 199 and 1991 have not advanced at the rateoriginally projected by the Department of Revenue, a result of the generaleconomic downturn (Department of Revenue, 1991, p. VIII). Many of Florida's residents arefrom urban areas in other parts of the country where they learned the hightechnology skills that Florida's employers require. 12).Revenue Source 1984 % 1987 % 199 %Taxes 7,238,27 69% 9,671,838 7 % 12,829,532 68%Licenses/Permits 297, 74 3 466,259 3% 6 5,873 3%Fees/Charges 236, 14 2% 55 ,979 4% 773,895 4%Grants/Donations 2, 19,792 19% 2,681,921 19% 3,99 ,957 21%Interest 244,647 2% 247,1 4 2% 367,749 2%Fines 1 ,562 O% 1 8,673 1% 11 ,177 1%Refunds 95,934 1% 16 ,246 1% 222,2 2 1%Other 419,331 4% 26, 8 O% 1 5,91 1%Total 1 ,561,624 13,913, 28 19, 6,295Source: Lewis, 128. As a result of such opposition,the tax was repealed after being in effect for less than one year (Szabo,1988, p. Florida is the nation's fourth most populous state, with more than 12million people (Willson, 1991, p. Sales andMarketing Management, 142, pp. Also, since they are no longer working, many no longer havehealth insurance other than that provided by Medicare and whatever statesystem is in place. 43-51.----------------------- 12 The state regularly targetsbusinesses to relocate to Florida, and entices them with benefits. Without implementing a state income tax and the controls that wouldaccompany it, Florida may find that its growth will quickly outstrip thestate's ability to meet the needs of the new residents and businesses.This would result in a deterioration of the quality of life which residentsare likely to find unacceptable. Expenditures of governmental funds are focused in three major areas:education, health and social concerns, and government direction and supportservices. 15). Tourism plays alarge part in Florida's economy, and its climate makes it one of the bestlocations for citrus crops in the United States. Citrus is another segment of Florida's economy which is doing well,and analysts expect 1991 to be the most productive year in Florida citrussince 198 . 131). (1988, October 18). This approach of bringing businesses from other areas benefits thestate on a number of levels. These caveats aside, Floridamaintains high bond ratings (Aa from Moody's and AA from Standard andPoor's) (Lewis, 1991, p. S28).This was the stinging conclusion of the Final Report of the StateComprehensive Plan Committee in 1987. 44). Growth is the term used most often to explain Florida's economy, andgrowth did, in fact, characterize the economy during the 198 s. The amount of revenue thatwould be generated by a personal income tax would necessitate tighterfiscal controls within the state government, and the state may not be readyto accept those controls. The taxlevied an additional 5 percent to all services which were provided by bothin-state and out-of-state businesses. But Florida has a revenueproblem that has only been exacerbated by the recent economic downturn.This research examines the nature of Florida's revenue structure, thecauses of the current situation, and the outlook for Florida revenues overthe near future. There are more citrus trees planted in Florida than everbefore, and federal officials are predicting bumper crops (Willson, 1991,p. 49). Grants and donationsalso make up a significant part of the revenue stream (19 and 21 percentfor 1989 and 199 , respectively). The bulk of Florida's general governmental revenue (69 and 67 percentin 1989 and 199 , respectively) comes from taxes. Tourism, a significant contributor to the state economy,continues to increase, but at a decreasing rate during the 198 s (Lewis,1991, p. News and World Report. Special revenue funds are used to track revenues which arerestricted to specific types of expenditures. Loss of convention business andadvertising revenues contributed to the repeal of the tax in 1988 (Szabo,1988, p. Analysts are suggesting that health care will continue to be one ofFlorida's fastest growing job sectors over the next several years, withsome forecasts indicating a 15 to 2 percent growth rate (Willson, 1991, p.43). Nation'sBusiness, 76, p. 24-4 . This 5 percent tax was levied on most services, includingadvertising, and included out of state companies. Gas taxes and federal grantsare two examples of special revenue funds. The cash reserves should be brought up toa reasonable amount and strict guidelines set up to prevent theirinappropriate and sometimes impulsive use. References Barrett, Katherine and Richard Greene. "Florida is a state with jammed highways, polluted natural resources,struggling schools, poorly paid teachers, teeming jails, neglectedchildren, needy senior citizens, inadequate health care, a shortage ofaffordable housing and a declining quality of life" (Reier, 1988, p. 14). It is one of seven states lacking apersonal income tax (Reier, 1988, p. That figure is expected to increase to 19 percent by 2 .Such an increase will put an increased strain on the number and types ofhealth services needed by Florida's retired population. However, Florida has also used thisfund more than some analysts would like: the fund reached a high of 344million dollars in 1988, but dropped to below 1 million dollars by mid-199 (Barrett and Greene, 199 , p. Housing starts were down by one-third from 1985 to 199 ,and analysts do not expect pent-up demand for housing to lead the state outof this recession (Willson, 1991, p. S28-S29. W.R. The service tax uproar did not discourage creative revenuegenerating, however. 19. VIII). This citrus news is a double-edged item, however, since demand forthe citrus must also increase, or prices will be forced down as a result ofover supply. Financial World 159, pp. Setback for service tax. Willson, Elizabeth. The sun will shine again.Florida Trend, 33, pp. Of course, one of the aspects of doing business in Florida whichmakes it attractive to companies for relocation is the relatively lowwages. (1991, April). Tallahassee, FL: Office ofComptroller. Florida comprehensive annual financialreport, fiscal year ended June 3 , 199 . 9 -1 3. Advertisers who rannational campaigns which included Florida media had to pay the tax. (1988, February). Internal servicefunds are used to track the goods or services provided by one governmentdepartment to another. It should be noted that Florida had a short,disastrous experiment with a service tax between 1987 and 1988, whichcontributed to the increase in tax contributions during that year. Capital projects funds are usedto track resources associated with acquiring or constructing facilitieswhich are not funded from other sources (such as internal service funds ortrust funds). Trust funds may beclassified as either governmental or proprietary (Lewis, 1991, p. For Florida to cope with the high rates of population growth that ithas enjoyed during the 198 s, it will have to continue to attract companiesand industry. Enterprise funds are used for activities which areoperated in a manner similar to private industry. 12). It may be that Florida's total GNP avoids a decline during thecurrent recession, but optimistic analysts are forecasting zero growth.Small segments of the economy are expected to pull the state out of thedownturn, rather than large segments, such as construction, which have doneso in years past (Willson, 1991, p. Szabo, Joan. 35). The United States Chamber of Commerce opposed the taxbecause of its reach beyond Florida, and Florida business leaders opposedits broad reach across the service sector. Or, adetermination of net income may be appropriate for these activities. Florida has placed itself in a precarious revenue situation byconstitutionally prohibiting an income tax. Tallahassee, FL: Advisory Council onIntergovernment Relations Economic and Demographic Research Division,Florida Legislature. Reier, Sharon. 38, 39). Since opening in 1971, Disney World has expanded to includenot only the East Coast version of the Magic Kingdom, but also Epcot Centerand the Disney/MGM studios. 12. Florida has successfully courted the movieindustry to film on location within the state, which brings with itincreased revenues for Florida's coffers. At a time when constituentsare particularly sensitive to taxation, it is unlikely that any Floridalegislators would be willing to take on the challenge of working toestablish a personal income tax. The lottery makes up the largest enterprise fund in the state, withrevenues increasing from 2.1 billion dollars in 1989 to 2.3 billion dollarsin 199 , and operating expenses increasing from 1.3 billion dollars to 1.4billion dollars during the same time (Lewis, 1991, p. But Florida may also have to face the fact that it may be necessaryto institute a personal income tax. (199 , July 3 ). Local governmentfinancial information handbook. More jobsalso mean that housing is in greater demand. The percentages have remained remarkablysteady during that time, with taxes and grants making up the bulk of thegovernmental revenue. The large number of retirees has other ramifications as well, foralthough such individuals typically demand greater health services, theyare less likely to pay for those services through other means, such assales tax. In fact, Medicaid spending increased 27 percent inFlorida from 1987 to 1988 (more than any other state), and makes up nearly9 percent of total state appropriations (Barrett and Greene, 199 , p. 1 9, p. 28).
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