Florida's Economic Future: Nothing Is Certain Except Death OR Taxes

More bad news for Florida - yesterday the Pew Center on the States issued a report that ranked Florida as among the six states most likely to suffer an economic collapse of California proportions (here's a link to the Palm Beach post story on the report: http://www.palmbeachpost.com/news/state/pew-study-florida-s-economic-problems-comparable-to-52459.html). The study pointed to Florida's plummeting tax revenues and rising unemployment rate as primary factors behind the State's weakened economic condition. Further, the Pew Center noted that Florida's population is shrinking for the first time since World War II, "a disturbing revelation for a state that has built its economy – and structured its budget – on the assumption that throngs of new residents will move to its sunny shores each year."

To its credit, Florida law mandates that the Legislature pass a balanced budget (meaning that the State's expenditures cannot exceed its revenues) each year, which precludes the kind of deficit spending that can occur in the likes of California. Of course, this also means that falling tax revenues require the State to pare back its spending on items important to its citizenry, and we have seen significant impacts to education spending over the past two years. As State Representative Ron Reagan (R-Sarasota) told the Palm Beach Post, "We've had to make some very tough decisions the last two years and we're going to have to make tougher decisions in the next cycle. But we are going to live within our means."

Which begs the question of just what our means should be? As we all acknowledge, Florida's economy has changed from an agriculturally-based to a service-based economy, and I and others (notably the Florida Chamber of Commerce) have put forward that it must evolve into an innovation-based economy in order to remain relevant in today's global marketplace. As we've talked about, that mean attracting talented people to the state, which means it falls on the State and local governments to provide the infrastructure (education, transportation, recreation, culture, etc.) necessary to attract those talented people. How, then, do we provide those required conditions when our state budget is subject to wild fluctuations such as we've seen the past several years?

Luckily for us, the folks at the Pew Center on the States have been studying just that question, with a particular focus on identifying the appropriate tax structure for the emerging innovation economy. I found their "Growth & Taxes" report published in January 2008 (http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Competitiveness/Tax_Report.pdf) fascinating, especially its discussion of the effects of a low-tax environment on economic competitiveness. Allow me to quote from that section of the report:

"It is theoretically possible to use low tax rates to drive economic vitality. Robert G. Lynch, chair of the Department of Economics at Washington College in Maryland, points out that academic studies on tax rates “suggest that state and local tax cuts and incentives may help economic growth, provided that government services are not reduced to pay for the tax cuts.”

But as Lynch makes clear, in reality, lower taxes tend to lead to service reductions, some of which inevitably fall in areas that fuel economic vitality. Bruce Johnson, a former lieutenant governor of Ohio and head of economic development for that state, notes that “ground zero for economic development is a high-value workforce.” That requires a considerable investment in education as well as in quality of life to enable states to compete effectively in the worldwide market for talent. Then there are investments in R&D at a time when innovation is key to economic development and in infrastructure, including broadband access, bridges, airports and, of course, roads."

If we do believe in making Florida economically competitive, this is bad news indeed for those Axe The Tax'ers in our community, since here in Florida lower taxes seem to always lead to service reductions, especially in areas that concern economic vitality (again, look at our schools). Somehow, someway (and perhaps with some guidance from the Pew Center), we have to find a way to stabilize our tax revenues at such a level that we can provide the service levels necessary to attract talented people to Florida. Otherwise, I fear that nothing is certain except for the death of Florida's economic future.

More Confirmation - Orlando On The Fringe

Some interesting commentary yesterday from the Natural Resoures Defense Council on the Urban Land Institute's annual joint report with PriceWaterhouseCoopers entitled Emerging Trends in Real Estate 2010 (http://switchboard.nrdc.org/blogs/kbenfield/major_real_estate_report_shift.html). As the NRDC's Kaid Benfield points out, this otherwise gloomy report shines some light on the types of real estate that investors may want to seek out as enduring assets, chief among them being those properties that are located along transit corridors and are proximate to job centers and cultural offerings. Mr. Benfield also notes that the report cautions real estate investors to stay away from fringe areas "with long car com­mutes or where getting a quart of milk means taking a 15- minute drive." Keep in mind that this is a well-respected report from two highly-competent organizations; the kind of report that finds its way into broad circulation within the real estate community.

Uh-oh - seems like we might have quite of bit of those fringe areas that fit the above description here in Orlando. Are those areas destined to wither away as their current residents tire of spending time in their cars? For those areas that remain distant from job centers and cultural opportunities, the answer is probably "yes." But doesn't that mean that we must move with the utmost urgency to connect these same areas with jobs and culture via transit? For if we do not, doesn't it mean that Orlando will start to contract in a way that will bleed talent from our population as those residents flee to cities that have figured out how to move them around?

Orlando, this seems like yet another wake-up call to me. We've been able to ride our cheap land and abundant sunshine for a long time, but our land is not so cheap (particularly if we are serious about protecting our natural environment) and sunshine isn't as much fun if you have to view it through your car window most of the time. Once again, here is another national report that exhorts the value of transit and urban-style living in today's global marketplace.

Will we wake up and change our ways? Will we get serious about bringing transit to the area, not just to downtown Orlando but linking all of our job centers and cultural institutions?

If we don't, another report shows that Orlando might be a very bad real estate bet...