Florida projects deficit as soon as fiscal 2027-28
6 min read
Bloomberg News
A Florida official is warning of growing state deficits starting in fiscal 2027-28 unless the legislature and governor take actions.
Amy Baker, coordinator for Office of Economic and Demographic Research, told state lawmakers Friday the state faced combined deficits of $8.1 billion in fiscal 2027-28 and fiscal 2028-29.
“The bottom line is that the revenue forecast will not support spending at its recent rate of growth, meaning fiscal strategies continue to be needed,” Baker said.
Last year, Baker and her office
Now, Baker said, unless the state takes measures to reduce anticipated spending or increase revenues, Florida state faces
Since the COVID pandemic the state has tried to maintain these reserves, Baker told The Bond Buyer. Because state officials are aware that Florida is susceptible to hurricanes it tries to keep these amounts around 3.9% of revenues as a safety hedge.
If the state used the reserves, it would have enough money in fiscal 2027-28 but have a $4.45 billion deficit in fiscal 2028-29.
For fiscal year 2026-27, “Funds available are nearly 10 percent higher than expected, largely due to a higher balance forward generated by the release of several large contingency reserves and permanent redirects that the legislature approved during the 2025 session,” Baker’s office said in a note to a slide for the legislature. “Projected expenditures are also 2.6% percent less than expected, a direct function of the lower recurring budget authorized for fiscal year 2025-26 which became the base budget for fiscal year 2026-27.”
The chair of the Florida House’s budget committee, Lawrence McClure, responding to Baker’s presentation, said he was pleased the fiscal year 2026-27 now looked fiscally healthy, with an anticipated ending balance of $3.77 billion in addition to the $2.03 billion reserve.
“But our work is just not done because years two and three are in a position that looked very similar to the way years two and three looked last year,” he said. “So I intend for the House this year to dig even deeper for efficiencies, waste and ineffective programs.”
For their report Baker and her staff examined 15 “critical” and 28 other “high priority” spending needs and made projections for spending based partly on recent levels of spending on them and partly on expected increases in enrollments for things like Medicaid, school enrollment and prison population. The staff also projected nonrecurring spending on things like capital stock and computer systems.
Based on these calculations Baker and her staff are assuming expenditures of $54.69 billion in fiscal year 2026-27, $57 billion in fiscal 2027-28 and $59.13 billion in fiscal 2028-29. Based on these projections of expenditures and projections of revenues, they expect deficits in the out years.
The projected deficits are not a surprise, said Joseph Krist, publisher of Muni Credit News. “The looming 2026 gubernatorial election dominates everything. These numbers reflect the effort to put off serious actions to create long term budget balance until 2027.”
Gov. Ron DeSantis can’t run again because of term limits.
A spokesperson for the governor didn’t respond to a request for a comment on Baker’s numbers.
Dominic Calabro, president and chief executive officer of Florida TaxWatch, said he was confident the state will take actions to remain in good fiscal shape. The state is a fiscal beacon among the country’s large states, he said.
At the end of Baker’s presentation on Friday, state Sen. Jim Boyd told McClure, “I can assure you that the Senate shares your desire and concern for fiscal responsibility and we will work real hard with our partners in the House to accomplish that.” Boyd is a member of the Florida Joint Legislative Budget Commission that heard Baker’s presentation.
Of the office’s identified 15 critical needs addressed by the budget, four of these needs explain 86% of the new spending projected for all 15 needs over the fiscal years 2026-27, 2027-28 and 2028-29, she said. They are a general revenue transfer to the Emergency Preparedness and Response Fund ($2.35 billion), the Medicaid program ($1.83 billion), the Florida education finance program ($2.39 billion) and increases in employer-paid benefits for state employees ($1.18 billion).
The EPRF is the state’s primary fund for
The projections for increased Medicaid costs come from caseloads and expenditure estimates from the state’s Social Services Estimating Conference, Baker said. About 72% of Medicaid is used to pay for managed care, Baker said, primarily for elderly in nursing homes.
Baker said the proportion of Florida’s population age 65 or over continues to increase. Whereas 17.2% of the state’s population was over 65 in 2010, 24.7% will be in 2030. Florida, Maine, West Virginia and Vermont are the states with the highest elderly proportions of their populations.
Florida’s government “will likely come up with a package of spending cuts (watch out Medicaid) and revenue increases but I don’t see significant new revenue sources being developed,” Krist said. “There is also the issue of exposure to disaster and whether the Trump administration will reduce or eliminate the Federal Emergency Management Agency. They will seek to cut their way out … as much as they can.”
John Mousseau, chief investment officer and vice-chairman of Cumberland Advisors, said he expected the government to increase the state sales tax rate.
Florida has triple-A ratings from S&P Global Ratings, Fitch Ratings and Moody’s Ratings.
The state’s near-term fiscal position is strong, “but the legislature’s annual long-range financial outlook points to rising spending pressures that will need to be addressed in future budget negotiations,” Fitch Director Tammy Gamerman said. Conservative revenue forecasting, along with the recent use of surplus revenues to build reserves and reduce debt, provides a substantial cushion, she said.
“The state has a variety of options to balance the budget and has accumulated substantial reserves available for short term use,” Moody’s Vice President and Senior Analyst Denise Rappmund said.
“It’s not that our economy is going to hell in a handbasket,” Calabro said. Rather, the problem is that revenues are expected to grow more slowly than expenditures. To address this, Florida should develop something like the federal Department of Government Efficiency, Calabro said.
“The problem is that migration to the state of Florida has slowed quite a bit,” said Mousseau. “Except for not having income taxes, Florida is now starting to face the same type of revenue challenges that other states are.”
Baker’s warnings of impending deficits will temper the state government’s efforts to reduce property taxes, Calabro said. DeSantis has talked recently of eliminating property taxes on homestead properties and holding a state referendum on the topic.
Florida has no personal income tax. Sales tax brings in the majority of general state revenue.
Property taxes support Florida’s county governments, city governments, school districts and other local governments. However, state government is affected because it generally provides aid to 21 “fiscally constrained” county governments and is considering providing aid to school districts.
The moderation of Florida’s housing values may affect the property tax debate. The state’s median housing price has fallen from 107% of the median to 96.5% of the median in May, Baker said.
Krist said the state should slow spending growth to deal with the anticipated revenue shortfall. “The legislature embarked on several efforts that have more to do with politics – the expansion of school vouchers by removing income limits just shifts costs from people already paying tuition at private institutions, is one example. It increases the spend on education without expanding access for its target audience.”
McClure said healthcare and education are the key drivers for additional spending and the legislature will be looking at those areas for possible cuts.
The state’s reserves are “very high,” Baker said. The Budget Stabilization Fund is $4.9 billion, near the constitutional limit. There is $9.3 billion in unallocated general revenue. The Emergency Preparedness and Response Fund is expected to rise to $811 million in the next few months following a government report on emergencies that have occurred since June 2022.
