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Issue 6: March 31, 2008
Topic 1: Budget Cuts Target Health Care Spending
The cutting process for the 2008-09 budget began in earnest this past week with the budget knife falling hard on health care. Since the vast majority of the state budget falls into four categories, social services, public safety, transportation and education, it is not surprising that cuts to health care funding were proposed. The cuts follow the reductions made to health care funding in the second week of the 2008 session when the legislature cut more than $500 million from the current year budget.
Both the House and Senate are working on budgets that include hundreds of millions in health care cuts. The Senate proposal calls for more than 800 million in cuts, with the house seeking more than a billion. The House and Senate will ultimately agree in conference on the allocations, and the Governor will have his say when the budget is presented to him. The Governor can restore a cut through a veto.
Each legislative session, lawmakers face a myriad of tough choices. Even in the best budget years, there is never enough money to go around. This year, however, reductions in funding for group homes, county health departments and dental and vision services for some of Florida's most vulnerable seem to run deeper than usual, especially when the elimination of some funding is compounded through the loss of federal matching funds. While Democrats have urged that funding be restored through closing tax exemptions or raising taxes outright, Republicans have cautioned that state government should slow spending in difficult economic times.
In the midst of massive budget cuts, there is some cause for optimism as legislators review Governor Crist's proposal to address access to affordable health insurance through a comprehensive, market-based strategy. Current law provides one size fits all insurance that makes coverage out of reach for more than 3.6 million Floridians. Under the Governor's proposal, Florida would embark upon a bidding process to contract with competitively-selected private insurance companies to offer low-cost coverage solutions to uninsured Floridians. Coverage would be market-based and voluntary – no mandates. The Senate Banking and Insurance Committee approved the measure and the Florida House is expected to take up the legislation shortly.
Bottom Line: Health care funding for the poor will have to be reduced in order to balance expenditures with decreased revenues. The Governor’s plan for the uninsured provides health insurance for more Floridians at no cost to the state and effectively reduces Florida's health care expenditures by keeping people out of emergency rooms. Getting more Floridians covered by insurance will ultimately be the only way Florida can afford to provide health care coverage to those who cannot currently afford it.
Topic 2: Hitting Bottom?
The National Association of Realtors reported home sales up for the first time in a year. While sales of existing homes in Florida fell 25 percent from February 2007, with sale prices falling 16 percent from a median price of $237,000 to $198,900, some markets like Sarasota and Ft.Myers saw increased sales.
At the same time, the Agency for Workforce Innovation reported that the seasonally adjusted employment rate held steady in February at 4.6 percent. The rate represents 422,000 unemployed out of a workforce of 9,211,000.
Whether Florida's economy has hit bottom or still has further to fall is unknown. University of Central Florida Economist Sean Snaith predicts unemployment will hit 5.3 percent in 2009 and not begin to recover until 2010. Stimulus packages from the federal government as well as property tax cuts in Florida may begin the turnaround in fiscal year 2008-09.
Bottom Line: The jury is still out on where the economy is headed. Public works projects, tax cuts and efforts to shore up the nation's credit markets may provide the catalyst needed to begin the recovery.
Topic 3: Recommendations to Revamp Investment Pool
Local Governments across Florida have traditionally deposited surplus revenue into Florida's Local Government Investment Pool (LGIP), managed by the State Board of Administration (SBA). Nearly $2 billion invested in the fund was compromised late last year when it was revealed that investment firms sold the LGIP less than stellar mortgage-backed securities. Concern led to panic as local governments began liquidating their investments, prompting the SBA to freeze the fund. BlackRock, a well known asset manager, was called in to provide an independent financial review. SBA hired Federated Investors Inc., to manage the fund.
In February, Florida House Speaker Marco Rubio hired a group of independent consultants to conduct a due diligence review. The team came back last week with 16 recommendations aimed at restoring confidence in the LGIP. Recommendations include additional training for SBA employees and a more thorough and regular audit process.
Additionally, the team recommended returning the LGIP to management by the SBA, but expanding the board to include finance and investment professionals.
Bottom Line: The State should look for a way to end its involvement with the LGIP once all prudent steps have been taken to make local governments whole from last year’s melt down. It is the not the State’s job to provide banking services for local government and while well intentioned, the program is beyond the State’s responsibilities and core competencies.
Topic 4: Education on the Ballot in November
Two important votes on the future of education in Florida occurred last week. The Florida Senate passed legislation to change the governance of Florida’s higher education system by limiting the power of the Board of Governors in favor of an elected Commissioner of Education. Meanwhile, the Taxation and Budget Reform Commission favored a Constitutional Amendment to remove the Blaine Amendment in Florida's State Constitution, a provision the Supreme Court has interpreted to prohibit using taxpayer funding to support religious based institutions.
The Senate proposal would end the legal battle between the Florida Legislature and the Board of Governors over which entity holds the power to set and regulate tuition rates at Florida's public universities. The Board of Governors, created through an amendment passed by Florida Voters in 2002, would be reduced to six members. The legislature would have more say in tuition rates and an elected education commissioner would again serve as a member of the Florida Cabinet.
The TBRC's proposal would eliminate Blaine Amendment, utilized by Florida's Supreme Court to overrule the Opportunity Scholarship Program that provided vouchers to attend private schools for students in failing public schools. The Blaine Amendment dates back to 1885 and was originally motivated by an anti-Catholic sentiment. The TBRC is also expected to consider a proposal that would clarify the constitutional mandate requiring uniformity in public education, to moot another challenge to the voucher program.
Bottom Line: While rising student achievement has been a bright spot for Florida education, numerous proposals that will ultimately be put before the voters will significantly impact education in Florida going forward. Floridians will need to choose wisely as changes to the state constitution are difficult to undo.
Topic 5: Insurance Rate Hold, But Will Citizens’ Reserves be Redirected?
The Senate Banking and Insurance Committee agreed to continue the rate freeze on Citizens Property Insurance, Florida's state-run insurance company, through 2009. While detractors argued the rate freeze prevents insurers from doing business in Florida, supporters agreed that keeping the state-run insurer competitive with private companies encourages a free-market approach, more likely to stabilize Florida’s insurance industry.
Other provisions, passed by the Senate Committee last week, include stiffer penalties for companies in non-compliance with the Office of Insurance Regulation and require the use of state approved hurricane project models that take into account a greater time period when assessing risk.
While one hand of the legislature sought to shore up Citizens, a bill passed last Thursday by the House Jobs and Entrepreneurship Council proposed taking $100 million set aside by Citizens for payment of claims to instead fund a program to provide additional capital for start-up and newer insurance firms.
Bottom Line: The changes made last year to expand the CAT Fund and allow Citizens to compete have led to decreases of more than 15 percent statewide and more companies have entered Florida's insurance market, expanding choice for more Florida homeowners. While it is commendable to continue to encourage new insurance companies to the market, Citizens is short on reserves and the State should be considering ways to shore up Citizens’ reserves, not deplete them. Both Citizens and the CAT Fund should aggressively pursue reinsurance and liquidity options prior to the June 1 start of Hurricane Season.
Question of the Week
The rumor is that Congress is considering making significant amendments to the Family Medical Leave Act (FMLA). Is the rumor true and if so, what amendments are likely to be made, and who will they effect?
Click here for the answer…
Things to Watch
The Florida Taxation and Budget Commission (TBRC) passed a proposal for a constitutional amendment to give working water fronts a tax break. The industry generates 18.3 billion for the state and employs 220,000 Floridians. The amendment will be put before Florida voters in November and assesses commercial waterfront properties in a similar manner to the way agricultural lands are taxed.
The next meeting of the TBRC is this Friday April 4, and as time until the final recommendations are due to Governor Crist and the Legislature is winding down, several important proposals are left on the table. Look for the commission to revisit the "Taxpayer's Bill of Rights." The proposal, still undergoing modifications, would cap state and local government revenue to growth and inflation plus one percent.
Additionally, the TBRC will consider the proposal to recalculate Florida's Class Size Amendment, giving districts more time to meet the voter mandated cap. The commission will also decide whether Florida should join 22 other states in an agreement to tax some Internet sales.
The 2008-2009 budget proposed by the Florida House would cut $200 million in funding to restore Florida's Everglades and Lake Okeechobee. Last month, President Bush recommended a $215 million investment by the federal government. Thus far, Florida has invested 2 billion in the project.
The Florida Senate passed a plan to change the way the Florida Comprehensive Assessment Test (FCAT) is utilized to determine a school's ranking. Under the Senate plan FCAT student scores would be analyzed along with a high school's graduation rate, students' performances and participation in advanced courses as well as SAT and ACT scores.
A proposal to end daylight savings time passed the Senate Governmental Appropriations Committee this week. If passed, Florida would join Arizona and Hawaii as the only three states without the practice. Opponents argue the possibility of an adverse effect on Florida’s tourism industry.
