Assessing the Impact of Revenue Limits on Florida

Local GovernmentsRobert 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 32306-1601

850-644-1441 ~ 850-644-1442 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 129 - Balanced Budget• Effect is Limit on Revenues = Limit on

Expenditures

• Florida Statute 200.186 - 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

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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

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Estimating Revenue

• Use 1979-2008 revenues (LCIR & DFS)▫Estimate 2011 revenue

• Estimate 2009-2011 (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. 2010-June 2010 actual CPI-UC

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80

.05

.1.1

5

1980 1990 2000 2010year

CPI for Urban & Clerical Wages CPI-UC 3-Year Moving Average

Historic CPI-UC 1980-2008

90

.05

.1.1

5

1980 1990 2000 2010year

Annual Change in Per Capita Income 2-Year Moving Average

Historic Per Capita Income Change 1980-2008

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%

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Forecasting Baseline FY2011 County Revenues

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Baseline County Revenue for FY2011“Proposed Bill” Estimate Alternative 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%.

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-44.00%

-34.00%

-24.00%

-14.00%

-4.00%

6.00%

16.00%

26.00%

36.00%

Series1

Baseline FY2011 Revenue Compared to Actual FY2008 Revenue

Zero (0%) Growth

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

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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 $345,383,727.

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Forecasting Baseline FY2011 City Revenues

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Baseline City Revenue for FY2011“Proposed Bill” Estimate Alternative 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%.

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18

-66.00%

-46.00%

-26.00%

-6.00%

14.00%

34.00%

54.00%

Series1

Baseline FY2011 Revenue Compared to Actual FY2008 Revenue

Zero (0%) Growth

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).

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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 $ 22,805,518.

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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.

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Forecasting the Future Growth Ceiling Based on the Proposed

Bill

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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

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Estimates

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• 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%

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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

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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.

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Possible Changes to Proposed Bill“State revenues” means revenues to the General RevenueFund 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.

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Possible Changes to Proposed BillREVENUE 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.

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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.

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