Sales Tax Gaps Create School Funding Fears

Monday, May 19, 2008

By CATHERINE DOLINSKI
The Tampa Tribune
Published: May 19, 2008

TALLAHASSEE - When the state lowered its revenue predictions this spring, lawmakers chose not to renew the annual sales tax holiday on hurricane supplies this year.

When it was reported that March’s tax collections came in $54 million short of predicted levels, the Senate killed the sales tax holiday on back-to-school supplies as well.

Now state analysts warn that April’s revenue will fall short as well.

The bad news won’t affect Gov. Charlie Crist’s decisions on budget vetoes, he said. GOP lawmakers say it won’t change their minds about raising taxes.

But with flagging sales tax collections causing most of the trouble, the state’s revenue trouble is fueling debate over a tax proposal on the November ballot that would make public schools more dependent on sales tax collections than ever before.

This spring, state analysts warned that revenue for the current and coming fiscal years would come up $3 billion short of what they had predicted.

Then March’s revenue fell $54 million short of even those lowered expectations.

Nearly $47 million of the shortfall was because of low sales tax collections.

The state is expected to release its final tally for April revenue this week.

“I think that the sales tax isn’t going to be any better in April than it was in March,” Amy Baker, director of the state Office of Economic and Demographic Research, said this week.

Any positive bounce-back, she said, is not expected until June or July - and that will depend in part, she said, on how aggressively people respond to the economic stimulus checks they receive from the federal government.

Although the checks are not expected to trigger any significant economic rebound, she said, the hope is that it will calm consumers’ worries a bit and spur them to spend again.

GOP ‘Playing Chicken,’ Gelber Says

Florida’s revenue problems will not spark any tax increases, Senate Finance and Tax Chairman Mike Haridopolos said.

“I took a No New Taxes pledge, and I was serious,” said Haridopolos, R-Melbourne.

“I don’t know of an economist of any credit that says that raising taxes will spur a weak economy.”

Likewise, he said, lawmakers should not have to cut the $66 billion budget this year in a special session.

That’s because lawmakers approved some safeguards this spring to deal with additional shortfalls.

The budget adds just more than $1 billion to the state’s emergency reserve, and increases Crist’s authority to spend the money.

Taken together with this year’s $4 billion in budget cuts, Haridopolos said, “the math works.”

Not so, according to Democrats, who proposed this spring to increase the cigarette tax and eliminate tax breaks that primarily benefit corporations.

House Minority Leader Dan Gelber sponsored unsuccessful legislation to close tax loopholes that allow out-of-state corporations to shelter their Florida profits from taxation.

With revenue continuing to plummet, Gelber said, Republicans are “playing chicken” with taxpayers as long as they refuse to repeal corporate tax breaks.

“Republicans are treating as sacred cows tax giveaways to special interests, which forces a larger burden of funding government on everyday Floridians,” he said. “They’re cutting critical services now, and they still won’t consider cutting these very imprudent tax breaks.”

Sen. Mike Fasano, R-New Port Richey, said he would happily eliminate some exemptions, such as the tax break on sports arena sky boxes. But many tax breaks do in fact help middle- and lower-class Floridians, he said, such as an exemption on goods for nursing home residents, and he will not consider repealing those.

Senate Majority Leader Dan Webster said the Democrats’ proposals “call for a permanent solution to a temporary problem.”

“No part of our economy has left this state,” he said, contrasting Florida with a state like Michigan, which has lost much of its auto industry.

“People are still moving here. We’re going to be building more homes again. ... In my mind this is just a readjustment. There is going to be a rebound.”

Pork Can Still Be Found

The 2008-09 budget also contains only a fraction of the usual earmarks for local projects across the state. But even this budget is by no means pork-free.

Lawmakers set aside $478,000 for a Miami Zoological Invasive Species Exhibit. About $135,000 is slated for spending on a Bradford County park; the same amount was allocated for other parks in Hillsborough, Miami-Dade and elsewhere.

There is $300,000 for a Palm Beach County wildlife refuge, $125,000 for the Florida Holocaust Museum and $75,000 for the Haitian Heritage Museum; the list goes on.

Fasano is among those lawmakers with plenty at stake. Fasano is awaiting the fate of a $5 million earmark for luring businesses to rapidly growing Pasco County, $10 million for a program to support the county’s schools with more roads and other infrastructure, and $10 million for an affordable housing initiative.

“What we’re proposing will create jobs and spur the economy,” Fasano said.

But while defending his own county’s earmarks, he noted that Crist could further shore up the state’s emergency reserves by vetoing even half of the $460 million in proposed spending that he rejected last year.

“If it’s something to create jobs, provide economic development or what we need for the hurricane season, I’m hoping he’d look at that differently than, say, he would a festival down in Miami or something,” Fasano said.

Crist has 15 days to sign the budget from the day he receives it - which he has not yet done. What will or won’t escape his veto pen remains unknown.

But the daunting revenue reports for March and April “aren’t really determining factors in deciding on what may or may nor end up in the budget,” he said last week.

“I look forward to being as fiscally prudent as I can,” he added.

Plan Ties Sales Tax, School Cash

A proposal on November’s ballot would cut property taxes 25 percent to 40 percent by wiping out the $8 billion worth of property taxes levied to pay for public schools.

Lawmakers would have to make up the difference by raising the sales tax one penny and repealing sales tax exemptions, cutting the budget, finding new revenue or any combination of those.

Haridopolos, who opposes the plan for several reasons, said the volatility of recent sales tax collections is another strike against it.

“The current fluctuation with the sales tax is another clear indicator of why this doesn’t hold water,” said Haridopolos, who plans to campaign against the amendment. “This puts education, K-12 funding, in a very precarious position.”

Former Senate President John McKay, who sponsored the proposal by the state’s Taxation and Budget Reform Commission, said the sudden drop in sales tax collections only further proves the point he has been arguing for years - that the tax base is too narrow.

Greater stability will come only from broadening it by repealing sales tax exemptions, he said - an option that was a requirement, rather than an option, in his initial proposal. He compared it to investing on Wall Street: “you have to have diversification in your investment portfolio.”

Haridopolos, who was a nonvoting member of the commission, argued that there is not enough money to be had by repealing tax exemptions, which means that lawmakers will have to carve the rest out of sensitive budget areas like universities and health care.

McKay disagreed, saying that the proposal will spur economic development, thereby providing more replacement revenue.

Gelber, who has criticized for years the state’s increasing reliance on property taxes to pay for education, said that McKay’s plan includes legitimate reform, but that its success depends upon how lawmakers implement it when it would it take effect in 2010.

Although Gelber supports ending exemptions, he is skeptical because the proposal does not make it mandatory. “I don’t know if the Legislature has the political will to walk away from the many of the sacred cows that they’ve created,” Gelber said.

Reporter Catherine Dolinski can be reached at (850) 222-8382 or .