Amendment 5 A Bad Bet For Florida

1. Amendment 5 A Bad Bet For Florida Presentation to Florida Home Builders Association August 2, 2008 Dominic M. Calabro President and CEO, Florida TaxWatch

2. How Much $$ Need to Be Raised? The Education Hold Harmless Provision FEFP in the FY 2008-09 Budget RLE $8.267 billion State Appropriation $8.605 billion Total $16.872 billion Growth Adjustment 16.6% (previous 2 years growth) Total State FEFP Appropriation in FY 2010-11 Must Be: $19.7 Billion

3. Tax Swap or Tax Increase? State FEFP Appropriation Required in 2010-11 $19.7 billion Current State FEFP Appropriation $8.6 billion New State Funds Required $11.1 billion Property Tax Cut $8.3 billion $11.1 billion - $8.3 billion = $2.8 billion

4. Economic Impact of Tax Swap • The economic impact of replacing property taxes with sales taxes is at best debatable and at worst detrimental • Both Florida TaxWatch and TBRC research show such a swap reduces jobs (-47,000 annually), real disposable income (-$4.6 billion annually) and gross state product (-$1.7 billion annually) • Both analyses modeled a revenue neutral swap, this plan is likely a tax increase • Uncertainty about the tax structure could reduce investment in Florida in the next two years as the legislature decides what to tax

5. Other Concerns • Current revenue estimates and the state’s recent Florida economic forecast show that it will be even harder than expected to fund the swap. • Because a 1% sales tax rate increase and eliminating exemptions will likely not produce more than half of the $11.1 billion needed, significant, yet unidentified revenues will have to be raised. This raises the specter of a services tax. • Forcing the legislature to repeal a significant portion of current exemptions may produce some costly, counterproductive results, such as the elimination of critical economic development exemptions.

6. Implications for Education • Fiscal Trojan Horse - no assurance that education funding will be ‘held harmless’ after the first year. After year one, K-12 will have to compete with other education entities, as well as other state priorities, for funding every year. • Taking a dedicated funding source for public schools, like the RLE, and replacing it with a less stable general revenue would not be a good deal for Florida’s school districts. • It is doubtful future state appropriations for FEFP will grow as fast as RLE has in recent years • Further undermines local control of public schools. If you don’t want your local school run from Tallahassee, then vote No on amendment 5.

7. Other Implications • The hold harmless provision could create serious budget woes for non-K-12 entities, including universities, community colleges, and early learning and other budget areas such as Health & Human Services, Corrections, and the Courts. • It is doubtful the estimated revenue from a new $10-11 billion tax package will equal actual collections. This could put education funding and the entire state budget, at risk. • Because “first-year cash” from new taxes can be significantly less than annualized revenue, the legislature will have to enact annualized tax increases in excess of the replacement amount in order to meet the first-year mandate of Amendment 5.

8. What Will $11 Billion in New State Taxes Buy Florida? Having to enact as much as $11 billion in new state taxes to simply replace a long-standing local revenue source will seriously reduce the flexibility the state has to meet any future revenue needs of its own. These new taxes required by Amendment 5 will be several times bigger than anything the state has enacted before, but they will not significantly improve education, build more roads, provide better public safety, insure more children or enhance anything else.

9. Thank you for your interest in Florida TaxWatch.For more information, please visit: www.FloridaTaxWatch.org