With a dozen constitutional amendments on Florida’s ballot this fall, one measure is raising a red flag for the “disastrous effects” opponents say it could have on state funding for priorities such as education and infrastructure.
“It is quite frightening how little attention has been paid to an amendment that threatens our state’s ability to provide for the most vital needs of its citizens,” Patricia Brigham, president of the League of Women Voters of Florida, said Tuesday.
Amendment 5 would require a vote of a two-thirds majority of both the state House and Senate to raise a tax or fee, including highway user fees and university tuition and fees.
The same requirement would apply to decreasing or eliminating any state tax credit, tax exemption or fee exemption.
To pass, the amendment must be approved by 60% of voters casting ballots.
Currently, changes to state taxes and fees – up or down - require a simple majority vote. That includes the sales tax, the main funding source of the state budget because Florida does not have a state personal income tax or state property tax.
“Amendment 5 would lock the state into failed priorities of lawmakers who have consistently put tax breaks for big corporations and special interests ahead of the needs of hard-working Floridians,” said Brigham, who contends that Florida currently gives away more in tax breaks and tax credits than it spends on K-12 education.
“Amendment 5 would make it nearly impossible for future lawmakers to change that,” she said.
Florida ranks 47th in attracting and retaining teachers, 44th in high school graduation rates, 42nd in spending per K-12 student, 49th in K-12 spending as a percentage of personal income, and 42nd in per pupil spending for Voluntary Pre-K education, said Joseph Pennisi, chairman of the Floridians for Tax Fairness political committee.
State education funding has not kept pace with needs, and state mandates have created “impossible choices for many local school districts,” he said Tuesday.
Pennisi said there will be another recession that will result in a significant decrease in state revenues, and a voting restriction will make it difficult to raise funds for investments.
“It can be terribly disastrous,” he said.
According to the Florida Policy Institute, a left-leaning nonprofit think tank, state lawmakers need flexibility to set state taxes and fees to address a wide range of infrastructure needs.
“Florida has significant unmet infrastructure needs and falls behind on several key measures of infrastructure health,” the FPI said in a Sept, 19 report. “Unless the state increases its investment in infrastructure, the unmet need is projected to increase over the next few decades. Amendment 5’s revenue limitations would make such investments much more difficult.”
FPI based its assertions about the state of Florida’s infrastructure on an evaluation of aviation, bridges, coastal areas, drinking water, energy, ports, roads, schools, stormwater, transit, and wastewater by the Florida section of the American Society of Civil Engineers.
The ASCE gave the state a C grade-point average in its 2016
FPI’s report is “full of outdated information and makes bad comparisons,” according to the governor's office.
“Under Governor Scott’s leadership, Florida has paid down more than $10 billion in state debt and taxes have been cut nearly 100 times, saving families and businesses more than $10 billion,” Scott’s press secretary, Ashley Cook, told The Bond Buyer. “This was all accomplished while making record investments in transportation, education and our environment.”
When he proposed the amendment, Scott said it would “protect families from unfair tax increases.” Scott, a Republican term-limited out of office, is campaigning to replace long-time U.S. Sen. Bill Nelson, a Democrat.
FPI Interim Co-Executive Director Sadaf Knight said a restrictive voting requirement
“Florida currently has the highest bond rating for states, which means it can borrow funds to raise capital for large-scale infrastructure projects at a lower cost to taxpayers,” Knight said. “Amendment 5’s supermajority requirement could put the state’s bond rating and infrastructure initiatives at risk.”
Knight cited reports by Moody's Investors Service, which upgraded Florida’s general obligation bond rating to Aaa from Aa1 in June, making it the third rating agency to assign its highest rating to the state’s GOs.
“We expect Florida's strong fiscal management practices and healthy reserves will allow it weather the impact of future downturns,” said Moody’s senior analyst Genevieve Nolan. “These strong practices and financial flexibility are also key mitigants to the state's above-average exposure to climate change generally, and storm damage costs more specifically.”
She said November’s vote will be a key credit challenge for the state.
“While some other states have a higher bar for revenue and budget approval, [Florida’s] act could stymie the state's ability to raise revenues especially during economically difficult times,” she said.
Florida needs to maintain and pay for the infrastructure demands of a growing population, according to Knight.
Florida surpassed New York in 2014 as the third most populous state with 19.9 million people, according to the U.S. Census Bureau. Last year, the bureau estimated the number of state residents had grown to 20.98 million.
During his eight years in office, Scott has been largely debt-averse approving new bond financing largely for transportation, projects that he said would provide the most benefit for the investment.
Florida isn’t the only state considering a measure in November that could “constrain fiscal flexibility,” Moody’s vice president and senior credit officer Ted Hampton said Tuesday.
Arizona, which already has a two-thirds voting requirement of each chamber to enact tax increases, will consider Proposition 126, which would prevent the state from levying taxes on any services that were not already taxed before the end of 2017.
“Given the expanding economic role of the service sector, this prohibition could greatly reduce the state's financial flexibility,” Hampton said.
California voters will consider repealing a 2017 fuel tax increase that generates about $5.4 billion per year for transportation infrastructure. If the fuel tax is repealed, the measure would also require all fuel tax increases proposed in the future to be approved by voters.
Some restrictive measures don’t bode well for new infrastructure projects, given the sector’s lack of investment the last nine years, Hampton said.
Citing data from the Bureau of Economic Analysis, he said state and local government investment in fixed assets has declined steadily as a share of gross domestic product, dropping to about 1.9% in 2018 from 2.5% in 2009.
“This indicates ongoing deferral of infrastructure costs and weightier future funding burdens for infrastructure, a credit negative for state governments,” Hampton said. “Moreover, states are suffering the effects of essentially flat federal infrastructure funding.”
Fitch Ratings also said Amendment 5 could reduce the state’s ability to address future economic volatility.
“This amendment would not have an immediate impact on state credit quality, although over time, the more stringent requirement for raising revenues could lead to erosion in the state's financial resilience,” Fitch analyst Karen Krop said in March.
Fitch's AAA Florida GO rating incorporates the state’s current unlimited legal ability to raise revenues.
“The addition of a super-majority requirement to raise taxes would not in and of itself imply a weakened legal ability to raise taxes since the power to do so would remain within the legislature,” Krop said. “However, the higher bar for raising taxes would make it more difficult to utilize one of the key tools that states have to manage financial operations during periods of economic and revenue weakness, potentially lowering the state's resiliency through the economic cycle.”
According to the National Conference of State Legislatures, although supermajority votes of two-thirds, three-fourths or three-fifths of a legislature are not spending limits in the traditional sense, they can limit spending decisions if agreements can’t be reached between lawmakers.
That’s happened in Oklahoma, where a 75% voting requirement of both chambers is required to increase taxes.
The measure resulted in deep cuts in education and other services over the past 10 years because it gave leverage to conservative members of the Legislature because it gave them veto power over tax increases, said David Blatt, executive director of the Oklahoma Policy Institute.
What happened in Oklahoma is “very much a cautionary tale for other states, such as Florida,” he said Tuesday. “Since the Great Recession Oklahoma has received widespread attention for our failures to provide adequate funding for education.”
On a per pupil basis, he said the state cut funding 27%, adjusted for inflation, an amount twice that of other states. That prevented Oklahoma from giving raises, and led to a massive teacher shortage.
“Last year, some school districts operated four days a week in a desperate move to save money,” said Blatt.
In 2018, lawmakers finally increased taxes and fees to give teachers 18% raises.
“We ultimately saw a funding crisis in our schools that lasted much longer than it should have,” Blatt said. “It took way too long to solve the problem.”
