Assessing the Impact of Revenue Limits on Florida Local Governments Robert J. Eger III Florida State University August 19, 2010 LeRoy Collins Institute ~ Carol Weissert, Ph. D., Director FSU Campus ~ 506 W Pensacola Street Tallahassee FL ~ fax

Senate Joint Resolutions [SJR1906 (2009) & SJR2420 (2010)] – “Revenue Limits” “The creation of a new section in Article VII of the State Constitution to limit state and local government revenues and require voter approval of new taxes and fees.” Focus of Today’s Presentation

Constitutional Amendments - Specific to Ad Valorem Tax Amendment 10 - Save our Homes (Implemented FY 1995) Amendment 1 (Implemented FY 2008) Florida Statute Balanced Budget Effect is Limit on Revenues = Limit on Expenditures Florida Statute Millage Rate Limits Effect is limit on millage rate based on calculated rolled-back rate and adjusted for growth in per capita personal income Background

Proposed “Revenue Limits” Amendment Baseline Revenues = FY2011 Revenue Sources Effected All Taxes Fees Assessments Licenses Fines Non-Federal Intergovernmental Funds Charges for Services Bond Revenue Annual debt service reduces revenue limit dollar for dollar Setting for Revenue Limits

Proposed Formula for Growth Growth = CPI-UC + State Population Change ▫CPI-UC = CPI for urban wage earners in the South region and clerical workers ▫State Population Change = % change in state population annually 5

Alternative Growth Formulas Growth = CPI-UC + State Per Capita Income Change ▫Potential effect is reducing adverse effects of growth due to location wealth Growth = CPI-UC + Pop Change (County) ▫Potential effect is allowing local population impact 6

Estimating Revenue Use revenues (LCIR & DFS) ▫Estimate 2011 revenue Estimate (BLS, BEA, and EDR) ▫CPI-UC ▫Population change for state & county ▫State income change Compare with 2009 actual pop change and state income change Compare with 2009 and Jan June 2010 actual CPI-UC 7

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Bottom Line - FY2011 Base Revenue CPI-UC ▫2009 – Actual = -0.9% ▫2010 – Est. = 2.9% ▫2011 – Est. = 2.1% State Income Growth ▫2009 – Actual = -3.3% ▫2010 – Est. = -0.3% ▫2011 – Est. = -0.1% Population Change – Average County ▫2009 – Est. = 2.2% ▫2010 – Est. = 0.7% ▫2011 – Est. = 0. 7% 10

Forecasting Baseline FY2011 County Revenues 11

Baseline County Revenue for FY2011 “Proposed Bill” EstimateAlternative Estimate Uses growth = CPI-UC + State Population Change Outcomes ▫Explains 90% + of the variance over time for 55/66 counties (Duval excluded) ▫Average revenue will increase between FY2008 and FY2011 by 8.76%. Uses Growth = CPI-UC + State Per Capita Income Change Outcomes ▫Explains 90% + of the variance over time for 55/66 counties (Duval excluded) ▫Average revenue will increase between FY2008 and FY2011 by 2.27%. 12

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Model Quality- Counties Model quality is measured as greater than 84% explained variance. ▫The model can predict between 85-89% of revenue variation over time for 11 counties.  2 counties have a unincorporated/ total population ratio below the average county (average is 69.56%)for FY2008  11 counties are: Calhoun, Charlotte, DeSoto, Gadsden*, Glades, Hamilton, Hardee*, Holmes, Lafayette, Liberty, and Union 14

County Baseline Revenues Summary Using population and CPI-UC as indicators, average forecasted county revenue for FY2011 is $375,639,341 compared to average actual FY2008 revenue of $345,383,727. Using State Income Change and CPI-UC as indicators, average forecasted county revenue for FY2011 is $ 353,223,938 compared to average actual FY2008 revenue of $345,383,

Forecasting Baseline FY2011 City Revenues 16

Baseline City Revenue for FY2011 “Proposed Bill” EstimateAlternative Estimate Uses growth = CPI-UC + State Population Change Outcomes ▫Explains 90% + of the variance over time for 39/50 cities ▫Average revenue will increase between FY2008 and FY2011 by 2.30%. Uses Growth = CPI-UC + State Per Capita Income Change Outcomes ▫Explains 90% + of the variance over time for 39/50 cities ▫Average revenue will increase between FY2008 and FY2011 by 2.12%. 17

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Model Quality- Cities Low quality Estimates ▫Revenue estimation does not meet minimal threshold for time period  Where quality is measured as explained variance greater than 84% Eleven (11) cities have low quality forecasted revenue estimates for FY2011 ▫Bascom (pop. 111), Bay Lake (pop. 20), Cedar Key (pop. 928), Fort Pierce (pop. 44,227), Greensboro (pop. 634), Highland Park (pop. 248), Laurel Hill (pop. 634), Live Oak (pop. 6,712), Montverde (pop. 1,196), Sopchoppy (pop. 424), Virginia Gardens (pop. 2,298). 19

City Baseline Revenue Summary Using population and CPI-UC as indicators, average forecasted city revenue for FY2011 is $23,330,045 compared to average actual FY2008 revenue of $ 22,805,518. Using State Income Change and CPI-UC as indicators, average forecasted city revenue for FY2011 is $ 23,288,995 compared to average actual FY2008 revenue of $ 22,805,

Overall Baseline Estimation Summary Overall, estimations and explained variance are very close for cities using either proposed estimator. Overall, estimations and explained variance are good for counties with the “Proposed Bill” estimator providing a higher average FY20011 revenue. Consideration must be given to the lack of quality with both estimators for cities. 21

Forecasting the Future Growth Ceiling Based on the Proposed Bill 22

Estimating the Growth Ceiling Use both prior and current (2010) year data Data sources ▫BEA ▫BLS ▫EDR Estimate CPI-UC, State Income Growth, and Population Change 23

Estimates 24 CPI-UC ▫2012 – Est. = 1.4% ▫2013 – Est. = 2.1% ▫2014 – Est. = 1.9% ▫2015 – Est. = 1.8% State Income Growth ▫2012 – Est. = 0.6% ▫2013 – Est. = 0.3% ▫2014 – Est. = 0.4% ▫2015 – Est. = 1.3% Population Change – Average County ▫2012 – Est. = 1.0% ▫2013 – Est. = 1.6% ▫2014 – Est. = 1.7% ▫2015 – Est. = 1.7%

Estimated Growth Ceiling Proposed Bill Proposed Bill ▫Growth = CPI-UC + State Population Change ▫Additive effect – (FY2012+FY2013+FY2014+FY2015) = 12.79% growth ▫Compounding effect – 13.41% growth Alternatives ▫Growth = CPI-UC + State Per Capita Income Change ▫Additive effect – 9.69% ▫Compounding effect – 10.04% ▫Growth = CPI-UC + Pop Change (County) ▫Additive effect – 13.08% ▫Compounding effect – 13.73% 25

Considerations We are estimating FY2011 revenues with error All estimates excluded capital funding ▫Capital funding is very “lumpy” ▫Is capital revenue really revenue? ▫Legislation appears to be focused on operating revenues 26

Considerations Estimates include State and Local Intergovernmental Revenues ▫This could possibly be the cause of some of the variation of the estimators since some cities and counties receive a larger proportion of revenue from these sources. ▫Consideration should be given to placing all intergovernmental in the exempt category, not just Federal intergovernmental revenues. 27

Possible Changes to Proposed Bill “State revenues” means revenues to the General Revenue Fund from taxes, fees, assessments, licenses, fines, and charges for services imposed by the legislature or executive branch agencies on individuals, businesses, or agencies outside state government. However, the term does not include: proceeds from the issuance of bonds, proceeds from the state lottery returned as prizes, receipts of the Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corporation or their successor entities, tuition and fees charged to students by public universities and community colleges, gifts, intergovernmental funds, collections for another government, pension contributions by employees and pension fund earnings, budget stabilization fund transfers, damage awards, and property sales. 28

Possible Changes to Proposed Bill REVENUE RELATING TO BONDS. Revenues do not include the proceeds from the issuance of bonds. However, the debt service on bonds, excluding bonds for capital projects, shall decrease the revenue limit by the amount of the annual debt service. 29

Possible Changes to Proposed Bill “Rate of population change” means the percentage change in the population of the state or county as estimated by the United States Census Bureau or the Bureau of Economic and Business Research (BEBR) at the University of Florida. The stated percentage shall be established annually in the manner prescribed by general law, and shall be based on a comparison of the average of the Census Bureau or BEBR estimates for the most recent two consecutive calendar years. 30