Florida lawmakers ease off tax cut plans to pass budget

The Republican leaders of Florida’s legislature settled their differences and approved a budget with much reduced tax cuts while also approving a state debt reduction proposal.

Both legislative chambers approved a $115.1 billion all-government activities budget Monday night, down from this year’s $118.6 billion budget.

Both measures will go to Republican Gov. Ron DeSantis, who will have the opportunity to apply a line-item veto to the budget. DeSantis has until the end of the month to act on the budget. If he chooses to veto some measures, the legislature could override the vetoes with 66% votes from the legislators in both chambers.

Proposals in earlier budget versions for significant cuts to the state sales tax rate or to include state rebates of local property taxes were replaced with more modest tax cuts, including an end to a tax on commercial rents and a sales tax holiday on affordable clothing in August. Together the tax cuts are supposed to cost $1.07 billion per year.

The budget process had evolved into a three-way squabble among the House speaker, the Senate president and DeSantis, who is believed to be positioning his wife to enter the GOP governor’s race in 2026, when he is term-limited.

“It is clear how much the 2026 ballot in Florida is driving this process,” said Joseph Krist, publisher of Muni Credit News. “The agreement is an effective punt. There is no political mechanism to drive them to a real solution. It’s not just whether the governor can wrangle the Republican nomination for governor to [his wife] but also a drive for a property tax reduction initiative in 2026.

The business sales tax and back-to-school tax cuts were “a couple of easy steps,” Krist said. “The smaller tax cuts seem wiser,” he said, particularly given uncertainties about federal funding as the state enters hurricane season.

The tax cuts are welcome, said Dominic Calabro, president of Florida TaxWatch. His organization has worked to repeal the business rent tax for 10 years and so its repeal is particularly welcome. The state has been the only state with a tax on commercial rents.

The liberal Florida Policy Institute saw things differently. “Against the backdrop of looming cuts to federal funding with devastating potential impacts, a forecasted state deficit, and a potential economic recession, the fiscal 2025-26 state budget is by and large ‘business as usual’ — further erosion of our tax base, lack of adequate investment in core public programs and glaring missed opportunities,” said FPI CEO Sadaf Knight.

State economists project a $6.9 billion deficit by fiscal 2027-28 and the state faces a potential loss of billions of dollars in federal funding for health care and food assistance, Knight said. “Yet, discussions on these issues during the state budget process have been largely ignored.”

House Speaker Daniel Perez called in May for a cut in the state sales tax to 5.75% from 6.00%, which would have cost billions in dollars of revenue.

Senate President Ben Albritton started sympathetic to Perez’s tax cut in early May but then became skeptical and moved toward supporting DeSantis in providing a state tax rebate for local property taxes, which also would have proven expensive.

In the end, neither proposal survived.

In addition to the budget both the House and Senate approved amendments to the state’s debt reduction measure Monday specifying the state’s general fund will contribute $250 million each fiscal year to paying off debt in advance of its maturity. The money is not to be used for Department of Transportation or Florida Turnpike Enterprise bonds. The measure is to start fiscal 2026, which begins July 1.

As a one-time measure, the legislature’s approved budget includes an additional $580 million for the advance payment of bond debt, making the total for advance payment $830 million in the coming fiscal year.

The measures continue Florida’s long-running approach to early bond payoffs.

Albritton said the measure would create significant savings by reducing annual debt service payments and avoiding interest payments. “When we have fewer obligations for the taxpayer funding … coming in, we have more room to budget for tax cuts, emergency savings, and long-term infrastructure investments that benefits families, businesses, and our economy.”

The approved budget would eliminate more than 1,700 vacant positions across state government, with more than 1,000 from the state’s health care agencies.

Calabro said this was a good approach to shrinking the state’s government. Many of those vacant positions are for positions whose programs have run their course. If the state didn’t end the positions the departments would transfer the positions to other parts of its operations.

Florida is a beacon of fiscal stewardship because of measures like these, which have been used in past years as well, Calabro said. The state has one of the smallest government payrolls in the country as a proportion to the state’s population. Florida has a budget less than half the size of New York, even though Florida has a larger population, Calabro noted.

“Personnel wise, vacant is vacant,” Krist said. “It’s a favorite misdirection from the need for real cuts.”

A spokesman for DeSantis said the governor would review each specific budget appropriation and decide whether to support each item.

Calabro said the legislature has overridden DeSantis twice this year, which is unusual, and it is possible it will override his budget vetoes.

The budget sets aside $429.6 million for the state’s rainy-day fund. If the budget is approved, the rainy day fund would end up near 10% of the general fund.

Many state Republicans are looking to alter the state’s constitution to increase the maximum level of its rainy-day fund to 25% of the general fund from 10%. Calabro said he was unsure if his organization supported this.

Florida is rated triple-A by Moody’s Ratings, S&P Global Ratings and Fitch Ratings.