"Any Ponzi scheme can be sustained as long as new investors continue to be added to the pyramid. Problems emerge and the scheme breaks down when the inflow of new investors is no longer strong enough to provide payments to existing investors."
In those two sentences, buried inside an 89-page report on Florida's economic future, University of Central Florida economist Sean Snaith diagnoses the central problem with Florida's current tax structure: It's a scheme, not unlike the one employed by investment schemer Bernie Madoff, that relies on constant influxes of new money to paper over its deficiencies. So long as Florida's population keeps booming each and every year, necessitating new housing construction and bringing in money to spend, we can scrape by on low taxes and still afford (albeit mediocre) infrastructure and public education.
But those booms are a thing of the past; now it's time to reap the whirlwind. Thus, you have a state legislature scrambling to patch a $6 billion hole in its budget, even after hacking $8 billion in public services over the past two years. You have 15 percent tuition hikes in the state's universities and some of the most poorly funded and poorly producing K-12 schools in the country (with more cutbacks and layoffs to come).
And all this, Snaith says, is but "a little taste of what the future might look like."
Snaith's four-year economic projection isn't quite doomsday, though he does see Florida lagging a few months behind the national economy which, he says, will start to rebound at the end of 2009; Florida's economy will do the same in mid-2010, with more solid growth in 2011 and 2012. He also sees unemployment peaking at over 10 percent in 2010, then gradually declining through 2012.
"There is no reason to believe that there will be a rapid reversal in the unemployment rate over the forecast horizon without a boost from the usual suspects: population growth and a construction boom," Snaith writes.
Only that's not going to happen. Snaith's forecast shows Florida growing at 1 percent or less per year in the short term, far from the rabid 5 percent growth rates of the 1970s, or even the strong 2 percent-plus growth of the early 2000s. Florida is no longer a low-cost haven for retirees, so a budget built on attracting them won't work.
"Now is the time to take a look at the structure," he says.
For instance, when Florida voters passed Amendment 1 last year and effectively doubled the state's homestead exemption while also allowing homeowners to transfer their existing exemptions around the state, city and county governments became wholly reliant on attracting new homeowners — who don't have the full exemptions — for new revenue. With the inflow of newcomers at historic lows, governments must now slash services just to stay afloat.
Reality has caught up to us: You can't keep cutting taxes and still expect to pay the bills. Or, to quote a fortune cookie Snaith once cracked open, "Valuable things are not cheap, and cheap things are of no value."
To plug the ever-increasing holes, Snaith advocates repealing the more than 500 exemptions to the state's sales tax now on the books, including those for swimming-pool chlorine and bottled water. Also, he says the state needs to extend its sales tax to services, especially since Florida is moving toward a service-based economy.
That doesn't appear likely to happen. The Republicans who have controlled Tallahassee for a decade now are proudly and defiantly tax-anemic. Earlier this year, for instance, they opted to cut a half-billion dollars out of the state's education budget rather than raise cigarette taxes $1 per pack.
"It's perplexing," Snaith says of the Florida Legislature. "The problem is, by not funding schools and infrastructure and public safety, you're hamstringing future economic growth."