MIXON AND ASSOCIATES
ADOPTED THREE YEAR FINANCIAL OUTLOOK
FISCAL YEAR 2013-2014 - FISCAL YEAR 2015-2016
The process by which the Legislature builds the General Appropriations Act (GAA) begins with the adoption of the Long-Range Financial Outlook by the Joint Legislative Budget Commission (LBC) each September. The Outlook provides the Legislators and staff members with a comprehensive multi-year look at patterns of revenues, appropriations, policy issues and debt levels that the Legislature must consider while building the budget.
The data in the Three Year Outlook gives us some insight into the issues that will likely arise during the session and in the following years. There are many changes that will occur throughout the current and future budget cycles. It helps the district to keep staff members informed and aware of the issues for Fiscal Year (FY) 2013-2014 and beyond early in FY 2012-2013, to help leaders to make sound decisions concerning expenditures and long term financial commitments that are more likely to be within the constraints that may develop.
The Long Range Financial Outlook for FY 2013-2014 through FY 2015-2016 is a complex 118-page report filled with charts and graphs and analysis of almost every aspect of the Florida economy. The report is based on results of the most recent revenue estimating conferences and attempts to apply recent Legislative policy decisions to the revenues that are forecast to result from those estimating conferences.
To keep this report from becoming too complex to apply, a few key points have been extracted. These key points can be used to inform fiscal decisions and to guide efforts to influence the appropriations process during the 2013 session of the Florida Legislature.
1. There is no mention of increasing per student funding in the Florida Education Finance Program (FEFP) in any of the three years of this Outlook.
In prior years, included in the “Other High Priority Needs” reported in the Three Year Outlook was the application of previous years’ Legislative policies to increase per student FEFP funding.
This is a very important omission, particularly in light of the reductions in funding that have occurred during the past five years, and the increase in the amount of the Class Size Reduction categorical fund that has occurred as the total budget has decreased. It is well established that for the district to meet the class size caps imposed by the Constitution and punitively enforced in Florida Statutes it must use all of these funds to employ teachers in the core subjects.
Despite relatively low levels of inflation for the past ten years, the district has not been immune to cost increases that have been and are likely to be at least as great as the rate of increase in the Consumer Price Index (CPI). The prospect of continuing the policy of no increases in per student funding for at least another three years presents extreme challenges to the district.
2. The Outlook anticipates using available funds to pay for projected enrollment increases and to maintain per student funding that exists in the FY 2012-2013 FEFP.
A forecast that projects that the Legislature can maintain current year funding levels with the projected revenue is certainly more positive than previous forecasts that projected significant revenue shortfalls that foreshadowed deep budget cuts. However the Outlook does not hold out any prospect for restoring the cuts incurred during the depth of the recession. To stay in place for another three years at a funding level that is substantially lower than the budget that was passed five years ago, while trying to pay for increases in Class Size Reduction costs, and inflation in the expenses of essential parts of the operating budget is a forecast that portends substantial challenges and hardships. It is important for the district to be able to quantify and communicate those challenges.
3. The Outlook projects using about $90.4 million in new recurring state general revenue to replace non-recurring revenue used in the FY 2012-2013 FEFP.
Replacing non-recurring revenue is a step in the appropriations process every year. Using non-recurring revenue, including revenue captured from sweeps of trust funds, is also a part of the appropriations process every year. Non-recurring funds and trust fund sweeps are not generally considered until the latter stages of the appropriations process. It may be that funds from these sources will be able to be used to build a more favorable FEFP budget.
4. The Outlook projects that increases in local funds for the FEFP forecast to result from recovering property values will be offset by decreases in state funding.
The Outlook reports projected increases of local funds in the FEFP of about $45.3 million in FY 2013-2014, $219.7 million in FY 2014-2015, and $283.7 million in FY 2015-2016. It remains to be seen whether such increases will occur, or whether in fact the increases will be even higher than the forecasts. The Constitutional amendments related to property taxes may or may not pass. Most of the proposed amendments do not apply to school property taxes.
In recent years the Legislature has used increased state funding to replace local funds lost to the FEFP due to declining property values. Prior to the recession, the Legislature used property value increases to raise the level of local funds in the FEFP and made other appropriations decisions about the use of state general revenue in that context.
The outlook assumes that the millage rates in the FY 2012-2013 FEFP will remain at the same level during the coming three years. It seems virtually certain that the Legislature will not increase the millage rates. Whether the Legislature chooses to lower millage rates to offset increases in property values, leave them level and reduce state funds to offset the increase in local funds, or maintain or increase state funds and allow the increase in local funds to restore funding cut in prior years are all options at this time. These will be key issues for the district during the 2013 session of the Legislature.
5. The Outlook does report the availability of new general revenue beyond what is needed to fund the current budget, “Critical Needs” and a reserve of $1 billion in each of the next three years.
The Outlook reports on page 15 the availability of about $1.1 billion in new State General Revenue in FY 2013-2014 after funding the current budget, “Critical Needs”, and a $1 billion reserve. The balance after funding those items in FY 2014-2015 is about $2.5 billion, and in FY 2015-2016 it is almost $5 billion.
6. The Outlook projects the impact of Legislative policies to fund the current budget, “Critical Needs”, “Other High Priority Needs”, and a reserve of $1 billion. Funding the “Other High Priority Needs” significantly decreases the new state general revenue available for Legislative use.
The Outlook reports on page 16 the impact of funding items identified as “Other High Priority Needs.” The Office of Economic and Demographic Research (EDR) identifies these items based on forecasts and prior patterns of Legislative policymaking. Including the “Other High Priority Needs” reduces the new state general revenue available to $71.3 million in FY 2013-2014, $53.5 million in FY 2014-2015, and about $600 million in FY 2015-2016.
“Other High Priority Needs” do not include increased funding for the FEFP in any of the three years. ‘Other High Priority Needs” in FY 2013-2014 include an additional $445 million in state administered funds. This is the projected cost of paying for part of the unfunded actuarial liability in the Florida Retirement System (FRS). Also included are increases of $157 million for Transportation and Economic Development, $15 million for Natural Resources, about $150 million for Human Services, and $43 million for Criminal Justice. These data illustrate the range of discretion still available to the Legislature as members begin the appropriations process.
7. The Outlook does not include any changes in the revenue forecasts.
After the problems encountered in trying to forecast the impacts of the recession, the forecasters are understandably conservative when making revenue forecasts. However, there have been some interesting trends in the monthly reports of revenue collections.
The Monthly Revenue Report from the EDR for August 2012 reports a collection of $93.4 million more in general revenue than was projected for that month in the latest revenue forecast. That same report shows a total of $108.1 million more in total general revenue for FY 2012-2013 than was projected in the last forecast. The June 30, 2012 Monthly Revenue Report showed collections were about $407 million higher for the period from January through June, 2012 than the January General Revenue Forecast. These trends of revenues in excess of forecasts have not been incorporated into the Outlook Statements from the most recent estimating conference.
Should the trends continue and compound in FY 2012-2013 and in the next three years, the result could be an increase of $650 million in FY 2012-2013, $1.3 billion in FY 2013-2014, and $2.6 billion or more by the end of FY 2015-2016. If the economy continues to improve the forecasts will too, and there may be more revenue available.
The Three Year Outlook does not include the potential impacts of events that will unfold before the 2013 Florida Legislature convenes. As district staff members implement the FY 2012-2013 budget and begin planning for the FY 2013-2014 budget, they may want to include contingency planning related to these potential impacts.
1. The Florida Supreme Court will render an opinion in the FRS case.
If the Supreme Court opinion supports the position of the plaintiffs in this case there will surely be an impact on the state budget, and on the district budget. If the plaintiffs prevail, the district should expect additions to the employer contributions to the FRS. The district would expect the employer rate to add another 3% to replace the employee contribution that is currently required. The district would also expect the employer rate to add another 2.5% to pay for the impact of the change in the Cost of Living Adjustment (COLA) should those components of the law be overturned. Revenue increases in current general revenue and ad valorem forecasts are not sufficient to support funding increases to pay those costs.
2. The November General Election will render an outcome for proposed Amendment Eight to the Florida Constitution.
The actual short or long-term impacts of the passage of Amendment Eight have not been projected. Supporters and opponents of Amendment Eight seem to agree that one eventual impact, should the amendment pass, might be an increase in school vouchers. Both of the incoming presiding officers of the Legislature and the Governor have expressed support for increased parental choice. There are some religious schools with capacity. These factors could come together to increase the loss of students to vouchers. Historically these losses have not occurred in patterns that allowed overhead costs to be cut at levels equal to the revenue losses.
3. Competing policy positions may drive appropriations decisions that consume resources for other purposes.
The Governor, House Speaker, and the Senate President each have policy priorities. Their priorities include reductions in taxes, such as the Corporate Income Tax, which provides significant dollars for state general revenue, and school property taxes, which provide significant local revenue for the FEFP. There are also priorities for infrastructure improvement and economic development that could consume available revenue.
4. Efforts to transfer capital outlay revenue from district operated schools to charter operated schools may be adopted and the district may have to fund certain maintenance and other facilities needs from the reduced operating budget.
The 2012 session of the Legislature passed legislation requiring the creation of a task force related to charter school capital outlay funding to develop recommendations for legislation.
5. The national general election may have an impact of state budgeting.
Changes in national health care policy and efforts to change the Federal budgeting dynamic may result in less state funding available for public schools due to increases in health care costs, or less Federal funding for public education.
Another way to discern trends for future budgets is to listen carefully to the public statements of the incoming leaders of the Legislature and the Governor. For example, recently the News Service of Florida (NSF) quoted Senate President Designate Don Gaetz as he spoke about public school funding for FY 2013-2014. The NSF reported the following.
“Incoming Republican Senate President Don Gaetz of Niceville, a former school superintendent and school board member, said funding shouldn't be the main issue when discussing education anyway, dismissing the central element of the Democratic criticism. ‘I can attest that more money does not always equal better student performance,’ Gaetz said in an interview. ‘It depends on how that money is deployed.’ The schools budget isn't likely to go up this year, either, he noted. Any extra money expected to come in, as a result of rising tax collections is "a footnote" when compared to the budget as a whole, Gaetz said. ‘There is no new money,’ he warned.”
These and other sources will be monitored. Additional data will be forwarded to district staff members, as it is developed to help keep everyone informed throughout the budgeting process.