PRESS RELEASE

TALLAHASSEE – Florida TaxWatch today issued a report that examines the effects a future economic recession would have on the state's budget. Findings indicate Florida learned its fiscal lesson with the 1990-91 recession, which was used as a comparison. The state now has strong, healthy reserves and is well positioned to handle a recession similar in scope to the recession of 1990-91.

Florida and the nation are now experiencing the longest uninterrupted economic expansion in recent history, but the expansion won't go on forever.

"The longer this economic expansion continues, the more probable a recession becomes," said Dominic Calabro, president of Florida TaxWatch. "However, Florida has substantial reserves in its rainy day account to initially weather an economic storm."

The 1999-2000 budget enacted by the Legislature projects a Working Capital Fund balance of $416 million and a Budget Stabilization Fund of $847 million, for a total of $1.3 billion in reserves. That amount is approximately seven times the amount of money available in 1990-91. These dollars would be available to offset a shortfall in the General Revenue Fund due to a recession of the same magnitude as the 1990-91 recession. The increase in reserves since 1991 would almost be sufficient to eliminate the need for a tax increase to cover the shortfall. Projected reserves total $1.263 billion even before tapping available unencumbered trust fund balances. Projecting the 76.1% budget increase to the 1990-91 direct recession cost would indicate a potential direct cost of the next recession at $1.589 billion.

However, TaxWatch recommends incrementally increasing the state's Budget Stabilization Fund from the constitutional minimum of 5% to the 10% cap. TaxWatch points out not bolstering the state's reserves during the economic good times of the 1980s resulted in the 1990-91 recession. That recession hit Florida harder than most of the nation, had a broader reach and resulted in longer lasting unemployment.

Few, if any, states have budget reserves, which would totally offset the deepest of possible recessions – nor should they, according to Florida TaxWatch.

"There is virtually no state in the country with a reserve base that expands during a recession," said Dominic Calabro. "The real question is 'Are there sufficient reserves to avoid deep cuts in critical state programs?' Because of Florida's fiscal discipline in recent years, the answer is yes, and with continued vigilance, we'll be in even better shape," Calabro said.

"Citizens simply don't want the state to hoard taxpayer dollars at the expense of their own savings accounts, so states must walk a fine line between fiscal prudence and taxpayer fairness," Calabro said.

The next recession may require judicious budget reductions, but with utilization of the Budget Stabilization Fund and with the augmented Working Capital Fund, the costs can be better managed.