Cothran, Henry

Mulkey, W. David

English

Research Papers in Economics

 
PBTC 02-2
 
 
STATE GENERAL REVENUES AND EXPENDITURES 
IN FLORIDA 
By 
 
David Mulkey and Henry Cothran 
 
 
 
PBTC 02-7                   December 2002
POLICY BRIEF SERIES 
PBTC 02-7INTERNATIONAL AGRICULTURAL TRADE AND POLICY 
CENTER 
 
 
MISSION AND SCOPE: The International Agricultural Trade and Policy Center 
(IATPC) was established in 1990 in the Food and Resource Economics Department 
(FRED) of the Institute of Food and Agricultural Sciences (IFAS) at the University of 
Florida. Its mission is to provide information, education, and research directed to 
immediate and long-term enhancement and sustainability of international trade and 
natural resource use. Its scope includes not only trade and related policy issues, but also 
agricultural, rural, resource, environmental, food, state, national and international 
policies, regulations, and issues that influence trade and development. 
 
OBJECTIVES: 
 
 The Center’s objectives are to: 
 
•  Serve as a university-wide focal point and resource base for research on 
international agricultural trade and trade policy issues 
•  Facilitate dissemination of agricultural trade related research results and 
publications 
•  Encourage interaction between researchers, business and industry groups, 
state and federal agencies, and policymakers in the examination and 
discussion of agricultural trade policy questions 
•  Provide support to initiatives that enable a better understanding of trade and 
policy issues that impact the competitiveness of Florida and southeastern 
agriculture specialty crops and livestock in the U.S. and international markets STATE GENERAL REVENUES AND EXPENDITURES 
IN FLORIDA 
 
David Mulkey and Henry Cothran
1 
 
Introduction 
 
A number of policy issues in Florida lead to discussions regarding the way(s) in 
which the state generates revenues (taxes) and the process whereby those monies are 
expended to support various state programs (expenditures). Included are concerns over 
the adequacy of revenues to meet critical state needs (education, health care, 
environmental protection, etc.), impacts on the state of the national recession, recent 
events affecting the tourism and travel industries, and more recently, discussions of sales 
tax reform in the state.  To aid in understanding these concerns, this paper provides a 
brief overview of major sources of taxes that support Florida’s General Revenue Fund, 
the types of programs funded with those revenues, and the options for dealing with 
reductions or revenue “short falls.” The paper ends with a discussion of the revenue 
outlook for the 2003-2004 fiscal year.   
State General Revenue Funding and Appropriations 
Each year as citizens and government agency officials follow legislative debates 
over state budgets, the issues being debated generally revolve around the allocation of 
state General Revenues. The General Revenue Fund consists primarily of sales tax 
receipts (around 70-75 percent of the total) and receipts from other taxes such as the 
corporate income tax, the estate tax, and beverage taxes and licenses. Total expenditures 
from the General Revenue Fund represent about 41 percent of all state government 
                                                 
1 Professor and Associate In, Department of Food and Resource Economics, University of Florida/Institute 
of Food and Agricultural Sciences, Gainesville, Florida. spending, but they represent essentially all state revenues that are not earmarked for trust 
funds that support specific purposes and/or programs in the state.  
General Revenues represent the major source of funding for a number of 
important state government functions that are subject to annual allocation through the 
legislative process. In addition to the expense of operating state government, the General 
Revenue Fund provides funding for education, human services, criminal justice and 
corrections, programs in environmental and natural resources, growth management, and 
transportation. The General Revenue Fund also supports the state judicial system. 
Each year the General Appropriations Act is enacted during the annual sixty-day 
session of the Florida Legislature (April-May) to cover state spending for the fiscal year 
that begins on July 1 following the session. Since the state is required to have a balanced 
budget (Section 216.221, Florida Statutes), funding appropriated by the legislature is 
limited by estimates of available revenue during the coming fiscal year. For example, the 
revenue estimate available for the 2002 legislative session and the resulting 
appropriations bill provided the basis for spending by state agencies, local governments, 
and school districts for the 2002-2003 state fiscal year (July 1, 2002-June 30, 2003). The 
General Appropriations Act for the 2002-2003 state fiscal year was passed by the 
Legislature in May 2002 and subsequently signed into law by the Governor.  
In terms of dollar amounts, the General Appropriations Act for the 2002-2003 
fiscal year was based on a revenue estimate of slightly less than $20 billion. Of that 
amount, about $14.8 billion (74 percent) was projected sales tax revenues, and the 
remainder was to come from other sources. Combining the forecast with other revenue 
considerations, the General Appropriations Act provided slightly more than $20 billion to cover fiscal year 2002-2003 expenditures. Table 1 reports the actual dollar appropriations 
and shows, by general category, the amounts allocated to various program areas.  
Table 1: Operating Funds from General Revenue 
For Fiscal Year 2002-2003 
Program Area  Million Dollars  Percent of Total 
Public Education K-12  $7,531.4  36.8% 
Community Colleges  $800.8  3.9% 
State Universities  $1,748.0  8.5% 
Other Education  $710.0  3.5% 
    
Total Education  $10,790.7  52.7% 
    
Human Services  $5,534.3  27.0% 
Criminal Justice and Corrections  $2,674.4  13.1% 
Natural Resources, Environment,  
Growth Management and Transportation  $294.4 
 
1.4% 
General Government  $947.8  4.6% 
Judicial System  $247.9  1.2% 
    
Total General Revenue Appropriations  $20,489.5   
Source: 2002 General Appropriations Act 
 
The largest single program funded from the General Revenue Fund is education 
(Figure 1). Total education funding accounts for almost 53 percent of General Revenue 
appropriations. Of this amount, the largest component is funding for the K-12 public 
education system. Total funding for this component is almost $7.5 billion, most of which 
goes to local school districts through the Florida Education Finance Program. Funding for 
public schools makes up approximately 37 percent of General Revenue appropriations, 
state universities get 8.5 percent, and community colleges receive 3.9. Other program 
areas accounting for relatively large portions of expenditures from the General Revenue 
Fund include human services at 27 percent ($5.5 billion) and criminal justice and 
corrections with 13.1 percent ($2.7 billion). Again, numbers reported in Table 1 represent 
funding appropriated by the legislature during the 2002 session to provide for state spending in fiscal year 2002-2003 beginning July 2, 2001 and are based on revenue 
estimates available in March 2002. 
Figure 1: Operating Funds From General Revenue
for Fiscal Year 2001-2002
Human Services
27.0%
Universities
8.5%
Other Education
3.5%
Community Colleges
3.9%
K-12
36.8%
General Government
4.6% Judicial System
1.2%
Criminal Justice & 
Corrections
13.1%
Natural Resources, 
Environment, Growth 
Management & 
Transportation
1.4%
Education
52.7%
 
Dealing with Revenue Shortfalls 
 
A key point in considering the numbers reported in Table 1 and Figure 1 is that 
they represent appropriations based on estimates of revenue available at the time of the 
legislative session. They do not represent actual revenues. Throughout the fiscal year, 
actual collections of state revenues may fail to meet projections or may exceed 
projections.  In the latter case excess revenues can simply be carried over to the next 
fiscal year.  However, if revenues fall short of projections during a particular fiscal year, 
then further actions are necessary to balance the state budget.   
Article VII, Section 1 (d) of the State Constitution requires the state to raise 
“sufficient revenue to defray the expenses of the state.”  And Section 216.221(1), Florida 
Statutes requires the Governor to ensure that “no deficit occurs in any state fund.”  Thus a shortage in general revenues during the course of a fiscal year must be addressed either 
by increasing income into the General Revenue Fund or reducing spending.  
Two general options are available for addressing revenue shortfalls. If the deficit 
is less than 1.5 percent of the General Revenue appropriation, the Joint Legislative 
Budget Commission can take steps to resolve the deficit by either reducing state 
spending, transferring excess trust fund balances or dipping into the Budget Stabilization 
Fund, sometimes called the “Rainy Day Fund.” Deficits that exceed 1.5 percent of the 
General Revenue appropriation require a special session of the Florida Legislature for 
resolution. A special session of the Legislature may be called to deal with any deficit, but 
is required when the deficit exceeds 1.5 percent of appropriations. 
A deficit occurs when the official estimate of funds available in the General 
Revenue Fund falls below the total amount appropriated from that fund during that fiscal 
year.  The Governor must certify that a deficit will occur and then has 30 days to develop 
and submit a plan to eliminate the deficit to the Joint Legislative Budget Commission and 
the Legislature.  Florida Statutes require that all branches and agencies of government 
receiving General Revenue must participate in deficit reduction efforts and that, generally 
speaking, the reductions must be applied uniformly.   Chapter 216.221(5)(b) of the 
Florida Statutes provides guidelines for developing budget reduction plans.  Chief among 
the guidelines is preservation of legislative policy and intent as expressed in the General 
Appropriations Act.  
Deficits can be resolved in one of five general ways.  (1)Funds from the Budget 
Stabilization Fund may be transferred to the General Revenue Fund.  (2)Current 
appropriations may be reduced (following the guidelines set forth in Chapter 216(5)(b), F.S., as noted above).  (3)Excess cash balances in trust funds may be transferred to the 
General Revenue fund.  (4) Some combination of the above three options may be used.  
(5) Finally, if the deficit resolution involves a special legislative session, the Legislature 
may increase revenues through the enactment of tax or fee increases, or the Legislature 
may choose to eliminate some state programs and/or reallocate spending across programs 
in efforts to resolve differences between state revenues and expenditures.   
The Current State Revenue Picture 
Clearly, reductions in state revenues or the introduction of programs that require 
significant increases in state spending have implications for a number of programs of 
statewide importance that are funded from General Revenue appropriations. As noted, 
these include state agency as well as municipal and county governments and local school 
districts. At this point (December 2002), although some concerns have been raised, there 
is no indication that revenue shortfalls will occur within this fiscal year. Based on recent 
information from the Florida Department of Revenue, state sales tax receipts are running 
less than estimated, but collections from virtually all other general revenue sources are 
above amounts projected.
1 Further, the state reports adequate monies in reserve funds to 
cover potential problems in the short run.
2 
 With regard to the current fiscal year Florida is faring better than many other 
states. A recent report by the National Governor’s Association indicates that 23 states had 
plans to reduce budgets below the amount enacted for the 2002 fiscal year.
3 The report 
notes that many states are experiencing revenue declines in the face of increasing costs 
for state programs, particularly expenditures related to health care. A Wall Street Journal 
article notes that the effects of the current recession on state budgets is the worst since 1983, partly because states are now responsible for funding a larger portion of education 
and social service costs than in the earlier period.
4 
 Florida, although currently in better fiscal shape, is not immune to the general set 
of pressures affecting other states. Serious concerns are being raised over the prospects 
for state revenues in the coming fiscal year and the challenge that will be faced by the 
Legislature in the 2003 session as they attempt to balance the state budget for 2003-2004. 
A recent article in Florida Trend details expected increases in costs of state programs and 
expected decreases in state revenues.
5 
According to the Florida Trend article, Florida faces revenues losses resulting 
from changes in the Federal Estate Tax and in the Federal Corporate Income Tax 
expected to total around $490 million in 2003-2004. In both cases Florida tax collections 
are geared to tax policy at the Federal level. Further, Florida will experience the loss of 
additional revenues from changes in the State Intangibles Tax (approximately $140 
million in 2003-2004), and increasingly, the state is expected to lose revenue due to the 
inability to collect sales taxes on transactions that take place over the internet. On the cost 
side, Florida faces increased costs for Medicaid ($400 million), increased costs due to 
new student enrollments in public schools ($300 million), and the requirement of a 
previous constitutional amendment (1998) that the state assume the costs of operating the 
court system (more than $700 million). 
Most importantly, the costs of state programs cited in the previous paragraph do 
not include the fiscal implications of recently passed constitutional amendments. Voters 
in the November general election passed constitutional amendments requiring the state to 
reduce class size in public schools and to provide pre-kindergarten programs to all four-year olds in the state. Further, a previously passed constitutional amendment (2000) 
requires the state to begin construction in 2003 on a high-speed rail link between Miami 
and Tampa. A separate article in the same issue of Florida Trend cited earlier provided 
cost estimates on some of the amendments that passed recently.
6 Their estimate is that the 
amendment requiring pre-kindergarten programs will cost between $300 and $400 
million per year, and that the class size reduction amendment could cost as much as $29 
billion over the next eight years. At this point, no estimate is available on the cost of the 
high-speed rail link, and all estimates of costs associated with the other amendments are 
uncertain and depend on legislative decisions.  
Where does this leave the state at this point? The most recent estimates of state 
revenues (November 2002) provide the best insight available.
7 As noted earlier, the state 
appears to have sufficient funds to cover budgeted expenditures for the current fiscal year 
(2002-2003). Increases in funds from the corporate income tax and the documentary 
stamp tax are more than offsetting sales tax collections that are running behind predicted 
amounts. In fact, the state is projected to end the fiscal year with a surplus of $159 
million.  
As for the 2003-2004 fiscal year, the revenue picture for the state is still positive. 
The state is expected to have $802 million more in revenue than the amount available in 
the current fiscal year. This amount, however, is not sufficient to cover the increased cost 
noted earlier associated with Medicaid, school enrollments, and the cost of the court 
system. In short, the next session of the legislature will face a real challenge in finding 
sufficient revenues to cover the costs of existing state programs, and this challenge is 
further complicated by the potential costs of recently passed constitutional amendments. Unless the state’s economy recovers more quickly that expected, the legislature may face 
the unpopular choice of increased taxes or reductions in spending on state programs.  
 
                                                 
1 Florida Department of Revenue, Revenue Collection Report October 2002, November 14, 2002. 
2 Randolph Pendleton, “As Ballot Measures Loom, A Fiscal Storm Threatens Florida’s Fiscal Stability,” 
Miami Herald, October 20, 2002 (www.miamiherald.com).  
3 National Governor’s Association, “State Budget Outlook Remains Bleak,” News Release, November 25, 
2002 (www.nga.org). 
4 Russell Gold and Robert Gavin, “Fiscal Crises Force States to Endure Painful Choices,” Wall Street 
Journal, October 7, 2002, p. A1. 
5 Mary Ellen Klas, “Batten Down the Hatches,” Florida Trend, October 2002, pp. 54-57. 
6 Mary Ellen Klas,  “Changing Florida’s Constitution,” Florida Trend, October 2002, pp. 58-63. 
7 Office of Economic and Demographic Research, “General Revenue Forecast: Executive Summary, 
November 15, 2002. 

STATE GENERAL REVENUES AND EXPENDITURES IN FLORIDA

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