4 Reforms for Florida in a Difficult Economy

By Tim Nash, Kurt Bouwhuis, Alexander Watts, and Jonathan Williams. Florida is facing a likely $3 billion budget gap in 2011-2012, and the temptation will be...
by | March 1, 2010

By Tim Nash, Kurt Bouwhuis, Alexander Watts, and Jonathan Williams.

Florida is facing a likely $3 billion budget gap in 2011-2012, and the temptation will be to raise taxes--a sure way to slow economic recovery.

Florida has built a national reputation for being a business friendly state with pro-growth fiscal policies. These pro-growth policies have attracted financial and human capital away from states with poor policies. More Americans have moved to Florida than any other state over the past decade. Even with a current unemployment rate at 11.8% (highest since 1975), construction employment down 38.5 % (since January of 2007), and distressed real estate, building, and tourism sectors, the fundamental economic outlook for Florida is optimistic.

An article from The American Legislative Exchange Council (ALEC) entitled Rich States, Poor States: The 2009 ALEC-Laffer State Economic Competitiveness Index produced economic outlook rankings for all 50 states. The report ranks the states based on 15 policy variables with a proven impact on the migration of human and investment capital throughout the United States. Florida enjoys a stellar economic outlook, ranking 11th best out of the 50 states due to its generally favorable public policy.

That said, the current downturn has hit Florida hard, and there are steps Florida should take to improve its economic future.

1. Florida must reign in its government spending and not increase its burden on taxpayers. The Tax Foundation ranks Florida 4th lowest for combined state and local tax burden nationally. Florida job losses rank among the highest in the country since 2007; adding to the tax burden will only exacerbate this.

2. Florida should avoid attempting to aid those industries suffering from the downturn, and instead focus on long run growth so the economy can diminish negative outcomes in the next recession. Any programmatic attempts to aid those experiencing hard times with government handouts will hinder long run growth and make the economy vulnerable to future recessions. Market prices in construction and housing reflect real circumstances in the economy, and therefore, aid will only mask the problem while simultaneously making it worse.

3. Thomas Sowell, in his book The Housing Boom and Bust (2009), argues that Florida would do well to significantly reduce its regulatory burden on zoning and housing to speed up recovery. This will enable Floridians to easily transfer and reconfigure their properties allowing them to effectively deal with Florida's high foreclosure rates. Florida currently has the country's 3rd highest foreclosure rate, which has fallen from its peak at almost 19 percent. Also, regulatory relief will allow the market to more accurately prices properties, making the Florida economy less susceptible to national booms and busts.

4. Florida law currently requires that the state Unemployment Trust Fund be replenished by raising the unemployment tax on businesses. With a large projected debt based on current unemployment, the minimum amount required to be paid by businesses will go from $8.40 per employee to $100.30 per employee if adjustments are not made to unemployment payments. If the 2010 unemployment tax rate is not changed, thousands of small business will be forced to cut staff in order to cover the new tax. A move to adjust this tax downward will help business in general and Florida's contracting economy in particular.

Florida's low tax policy fundamentals are solid and if policymakers can engineer a plan to withstand the current downturn without resorting to tax increases, Florida will remain an attractive venue for employees, employers, and investors alike.

About the Authors

Timothy G. Nash is a vice president and Fry Chair in Market Economics at Northwood University. Kurt Bouwhuis is a Koch scholar and economics major at Northwood University, Alexander Watts is professor of finance/economics at Northwood University and Jonathan Williams is a policy director at the American Legislative Exchange Council in Washington, D.C.

Timothy Nash | Northwood University | bfc@hks.harvard.edu