With more than a million Floridians unemployed and poorly functioning banking, retail, construction and real estate markets, the stakes could not be any higher for businesses as the 2010 Legislature gets under way in Tallahassee tomorrow.
The dangers lurking in an economy overly reliant on residential construction and real-estate development have again been made abundantly clear. High foreclosure rates, fueled by double-digit unemployment, suggest that the old model is broken beyond repair.
One way forward, say experts, is a greater integration of Florida into the global economy.
"Global trade liberalization has contributed to the development and growth of Florida's international trade sector and in the process has helped to diversify the state's economy," according to a recent Florida TaxWatch analysis.
In one of the few bright spots in recent years, Florida's goods exports (manufactured and non-manufactured commodities and re-exports) totaled $54.1 billion in 2008 - up 21 percent from the prior year - making Florida the fifth leading export state in the nation. Since 1999, the value of Florida's exports more than doubled.
Manufacturers, who accounted for almost two-thirds of the state's exports, are looking to the state to keep taxes low while providing incentives to relocate and expand in Florida, which has established a busy pipeline to its No. 1 trading partner, Brazil. One idea being floated would provide a complete tax exemption for all capital investment used in the manufacturing industry (a break offered in many other Southeastern states).
Jobs Summit
Sen. Mike Haridopolos, R-Merritt Island, the 2011 senate president-designee, and 2011 House Speaker-designee Dean Cannon, R-Winter Park, aired workforce issues - for better and for worse - at a Florida Jobs Summit in January in Orlando. Attendees say the gathering galvanized the focus on economic development as never before.
From regulatory philosophy to space exploration, the consensus is building that Florida's public sector must work more closely with private entrepreneurs to broaden the state's economic base - or risk a downward spiral of deficits and stagnation.
Business leaders agree that the public sector has a role to play -- and that the state can help by reforming and revising the public education system.
Revisiting Class Size Rule
Among other things, business wants more flexibility on class-size reduction rules, which siphon billions of dollars from education budgets (already the biggest single state-spending category) and make less available for economic incentive programs.
Former Gov. Jeb Bush brought Florida out of the 19th century with a testing and accountability model that has been emulated across the nation. That has helped to lift achievement of low-income, minority students and narrow the performance gap. But graduation rates and college matriculation remain stubbornly low. Businesses say they need higher levels of academic proficiency from Florida graduates in order to compete in an increasingly skill-based economy.
Now business wants to revisit the FCAT program in high schools, design more rigorous college-prep curricula and, above all, reward the best teachers with performance-based pay. The Florida Chamber of Commerce and the Florida Council of 100 recently issued a sweeping policy package spelling out these reforms.
Competitive Disadvantage
On taxation, Florida TaxWatch says the state is "at a competitive disadvantage compared to an expanding number of states that have adopted the Single Sales Factor (SSF) apportionment formula for corporate income taxes."
The current system bases taxation on three factors: sales (50 percent), property (25 percent) and payroll (25 percent). Tax analysts say this formula effectively blocks businesses from locating here while discouraging existing firms from expanding in Florida.
The Florida Chamber of Commerce agrees, to a degree. Noting that not all businesses operate the same, the Chamber claims owners should have the option of paying the current corporate tax, or going with an SSF alternative.
Bidding Edge for Florida Companies
To further help local businesses, two newly filed bills would give an edge to Florida-based firms bidding on contracts with the state, cities, counties and school districts. Under HB 1161 and SB 2302, a state-based business would be awarded the contract if its bid is no more than 5 percent higher than a business located in another state.
One idea everyone seems to agree on is the need to reinstate the back-to-school sales tax holiday. Though the Florida Senate failed to authorize the 10-day holiday last year, the Florida Retail Federation calls it a crucial business driver that boosts economic activity in the state by $1.7 billion annually.
Retailers also want Florida to join 22 other states in adopting a streamlined sales tax, which would allow the state to collect taxes on "remote" sales (Internet, catalogs, TV solicitations, etc.).
The Florida Retail Federation cites studies showing that up to $2 million a year in state sales tax goes uncollected through electronic commerce. At least one analysis estimates that 100,000 Florida retail jobs - 10 percent of the sector's statewide total - have been lost as a result of the unfair tax advantage enjoyed by online marketers.
The FRF is "encouraging the Legislature to pass a joint resolution, which has no fiscal impact, to encourage Congress to pass federal legislation to authorize the implementation of the streamlined sales tax."
Going Beyond Tax Reduction
In any event, business leaders are looking for Tallahassee to go beyond Gov. Charlie Crist's proposal to simply reduce the state corporate tax from 5.4 percent to 4 percent.
Crist's plan amounts to a $100 million income tax cut, but for individual businesses the break maxes out at $10,000 and covers only the first $1 million of income. For a small business with $500,000 in income, the tax cut would be a modest $5,000.
The No. 1 concern on every business list is the impending twelvefold increase in unemployment tax. If lawmakers don't act quickly, the tax will jump from $8.40 annually per employee to $100.30. Lawmakers have pledged to delay the increase, but it's unclear for how long or by how much.
Another impediment to kickstarting the economy are regulations that prevent private equity funds from investing in community and mid-sized banks. Owing in part to their inability to obtain working capital from commercial banks, small businesses have been particularly hard hit with layoffs and closures.
Where commercial banks get balled up in regulatory requirements, private equity funds have financial resources and expertise to make investments in community and mid-sized banks that need capital injections. Lawmakers are studying proposals to ease state regulations that thwart such investments.
Robert Weissert of Florida TaxWatch says regulatory handcuffs and structural deficiencies hold back Florida's economy. So can government inefficiency.
"Cutting $200 million from the budget, as Gov. Crist has done, isn't enough," he says. "When non-recurring revenue is used to fund recurring expenses, businesses know what's coming - more taxes. Government needs to send a clear signal of operational efficiency."
Meantime, eyeing that global economy, Realtors and the Florida Home Builders Association are looking beyond the state boundaries to keep the peninsula an affordable, attractive place for new residents.
As an international destination for tourists, the Sunshine State would benefit from a retirement visa program that would allow foreign nationals who meet certain requirements (usually related to age and assets) to retire and purchase homes here, they say.
Working with state and federal lawmakers, the Florida Association of Realtors estimates that as many as 300,000 jobs could be created in the state over a 10-year period if a retirement visa were available here.
