Report shows Florida's economic outlook has some pitfalls.

Report shows Florida’s economic outlook has some pitfalls.

By Ashley Lopez
Florida Center for Investigative Reporting

Florida’s economic outlook is not looking too good, according to a new report.

The LeRoy Collins Institute at Florida State University released a report last week called Tougher Choices: Shaping Florida’s Future, which looks at the state’s fiscal outlook, tax base, retirement system, Medicaid spending, education spending and infrastructure. In short, Florida is falling behind in most areas.

According to the authors, Jim Dewey and David Denslow with the Bureau of Economic and Business Research at the University of Florida, the news is grim.

Revenues were hit hard by the recession and are only recently recovering. At the same time, the demand for education, health, and infrastructure spending continues to grow. This report also highlights the role of demographics and labor markets both now and in the future. And, ominously, it points out that Florida is experiencing a “hollowing out” of middle-wage jobs at a rate faster than the rest of the country. We hope that Tougher Choices will serve as the catalyst for meaningful discussion between citizens and their elected representatives about the future of Florida. The state seems to be falling behind in a number of economic and policy measures relative to other states, and those trends will continue without long-term thinking and thoughtful conversations about our state’s future.

One of the areas of concern is outlook for middle class jobs in the state.

The report found that the state shed many middle class jobs during the recession and has been steadily bringing in new jobs that are on either side of the spectrum.

Other reports in the past few years have shown, that in the past few years low-skilled tourism and service industry jobs have flooded the state. However, high skilled work has not been as abundant.

According to the report:

Together, the decline in output per worker relative to the U.S., lagging educational attainment among young workers, and relative declines in the skill level of the state’s job structure in the 2000s constitute strongly suggestive evidence of a long-term downward trend in Florida’s economic productivity relative to the national average.

If the trend is downward, it will likely be strengthened by two megatrends: Baby Boom retirements and labor market polarization. Baby boom retirees will increase demand for many relatively low-skilled and low-paying occupations that do not require much education – though they will increase the demand for doctors and other health professionals as well. Retirees also drive up housing prices and thus crowd out firms that might employ higher skilled workers. Polarization means the jobs that used to make up the middle of the income distribution will be replaced by either lower or higher-skilled jobs, and the Baby Boomer retirements mean that in Florida those new jobs will disproportionately be low-skilled.

For Florida, which has few concentrations of such high-skill jobs, this means the deck is stacked even more in favor of continuing declines in output per worker and per capita income relative to the U.S. Thus, the interaction of these two trends – continuing labor market polarization and Baby Boomer retirements – along with Florida’s initial low job-skill level and young worker education gap, do not bode well for growth of high skill jobs in Florida’s economic future.

Because of the Affordable Care Act and ongoing reform efforts, the state’s future on Medicaid spending is expected to grow, but almost everything else in unpredictable.

An area of very serious concern remains the state’s spending on higher education. The past few years have seen some deep cuts to spending on the state’s university system. Gov. Rick Scott’s first budget dealt the hardest blow to higher education. About $1.3 billion was cut from total education spending during Scott’s first year in office, which is less than what he proposed– a $3.3 billion cut.

While cuts to higher education are particularly bad in Florida, the sunshine state is not the only place where students are facing higher tuition rates.

According to the report, total revenue per full-time equivalent student dropped 8 percent nationally from 2007 to 2012. In Florida, however, the overall decline in revenue was 26 percent– the largest decline among the fifty states.

…It is difficult to find much reason for optimism regarding state funding. While being at the bottom of the 50 states means we can only go  up, the prospects for additional funding for higher education seem bleak. The demands placed on state funding by Medicaid and K-12 education will grow, leaving less left over for higher education. Again, technology may help in ways we don’t yet fully grasp, or some other unforeseen event may occur. Universities may be granted the freedom to set their own tuition and compete as they see fit. Finding creative ways to take advantage of perhaps universities’ most important but largely untapped educational resource—student study time—might help as well. But, absent such developments, the coming decade looks to be bleak for higher education in Florida. The “Squeeze Facing Higher Education” identified in Tough Choices has been worse than we expected. A leaner higher education system seems likely, at least for the identifiable future.

The Atlantic reported last year that the effects of many states cutting their public higher education will be very hard to reverse any time soon:

Unless technology allows colleges to become massively more efficient quicker than anybody currently expects, or state coffers heal enough to start restoring these lost dollars, we’re going to be living with the effects of these cuts for a long time. We’ll see them in the form of higher student loan bills and students who can’t graduate on time, because the classes they needed filled up too quickly. We’ll see it in the form of the jobs lost on campuses.

Again, there are some people who might think these cuts are overdue. Others might simply argue that states, needing to balance their budgets, didn’t have a choice. But I’d argue that these numbers are a vivid demonstration of why Washington’s post-recession path has been so disastrous. Instead of taking advantage of historically low borrowing rates and aiding the states, Congress cut the lifeline once the first round of stimulus funding dried up.

As pointed out by The Tampa Bay Times/Miami Herald, the report also pinpointed some other problems. Among them:

  • Teacher salaries in Florida declined at the fourth fastest rate among states between 2000 and 2012, and it will be difficult to make significant progress “without increasing tax rates, however unlikely that might be.”
  • Gas taxes, the principal funding source for transportation, continue to erode because they are not indexed for inflation and the popularity of energy-efficient cars means people are buying less gasoline.
  • Florida’s lack of a personal income tax results in a heavy reliance on the 6 percent statewide sales tax and property taxes, and property taxes fall heaviest on businesses.

But, the news wasn’t all bad.

The report noted Florida’s retirement system was among the best in the country.

According to the authors, “even after the market crash of 2008 and in spite of the severity of the collapse of the housing boom in Florida, in 2010 the FRS pension system was 87 percent funded, compared to the 76 percent national average.”

However, the system is facing some political backlash, which could mean some substantive changes are likely in the future.

According to the report:

In spite of the praise for the FRS, Defined Benefit (DB) plans for public employees are under attack in Florida as elsewhere. A major reason is a sense that public retirees have an unfair advantage. Nationally only 24% of those private workers who have pension plans are in DB plans, compared to 97% of public employees (Munnell, 2012). Private sector employees whose pensions may have suffered during the stock market crash may resent either paying higher taxes or seeing public services cut back to maintain public retirees’ pensions (Whitney, 2013). In response, some Florida legislators propose shifting FRS employees to a defined contribution program. Currently, the FRS offers both DC and DB programs but allows employees to choose between the plans.

You can read the full report here.