State economists bumped up Florida’s projected general revenue last week by about $5.3 billion, despite concerns about an economic “downshift” this fiscal year and an anticipated slowdown in the raging housing market.
The revised projection means state lawmakers will have more money to play with as they draw up a budget during the 2023 legislative session.
But economists, acting as the state Revenue Estimating Conference, acknowledged significant forecasting challenges as they pieced together the latest estimates. Inflation has helped lead to sales-tax collections topping expectations, but the economists struggled in predicting key turning points associated with a slower economy.
“The risk associated with the national economic forecasts is skewed to the downside with almost equal probability that the new forecast will unfold as predicted or fall short of expectations,” Amy Baker, coordinator of the Legislature’s Office of Economic and Demographic Research, read from a conference statement.
“Economic disruption is still evident,” Baker continued, “with challenges including the end of significant federal monetary and fiscal stimulus provided during the early years of the (COVID-19) pandemic, the rapid drawdown of savings over the past year, the elevated use of credit over the past few months, the continued normalization of spending on services and away from taxable goods, and strong inflationary pressures on households.”
The panel meets periodically during the year to update estimates of general revenue, a key source of money for schools, health programs and prisons. Those estimates are used by lawmakers in building an annual budget. The next revision is expected in February, before the 2023 session starts in March.
The economists increased the projected amount of general revenue in the current 2022-2023 fiscal year by $3.45 billion and increased the projection for the 2023-2024 year by $1.82 billion. Baker said the biggest adjustment last week was in sales-tax revenues, up $3.6 billion over the two-year period.
The higher-than-anticipated sales-tax collections are due to continued increased consumer spending on goods and the initial effects of inflation, which drives up prices and, as a result, sales-tax revenues.
But Baker said sales-tax collections face a risk of consumers returning to more-typical management of personal budgets amid rising inflation.
The next-biggest adjustment involved corporate income taxes. Economists increased the projections of those taxes by $1.17 billion over the two-year period.
Before settling on the projections, economists debated several issues, including the future of Florida’s housing market, which has seen rapid price increases in recent years.
While documentary-stamp taxes on real estate transactions are expected to remain high, forecasts point to a slowdown in 2023 and for the market to remain flat in 2024 because of increased mortgage and insurance costs.
The question is how much of a dip the state will experience from current sales and for how long.
Holger Ciupalo, policy coordinator for the governor’s Office of Policy and Budget, said the market is still seeing demand and isn’t growing based on speculation, as was the case when the housing market burst before the 2008 recession.
“What happened in the housing crisis was a lot of churn of properties … artificial demand,” Ciupalo said. “People didn’t really need the houses to move into. They’re basically bought and sold themselves. … And as a result of the artificial demand going away, yes, sales dropped and prices dropped. This here is based on a real demand for people actually moving into houses. It’s a different driver of the prices. And that will not change.”
Baker said the state is already experiencing an increase in pending home contracts being broken, speculating that buyers are often unable to lock in lower interest rates before closing or, to a lesser degree, simply being worried about making major commitments.
Baker said broken contracts have reached 26.7 percent of pending sales in Lakeland, 25.7 percent in Cape Coral, 25.7 percent in Port St. Lucie, 25.3 percent in Jacksonville, 21.5 percent in Miami, 24.9 percent in Palm Bay, 23 percent in Tampa, 24.5 percent in Orlando and 21.9 percent in Pensacola.
“It means that sales, where homes were flying off before they even went on the market, in some cases, are starting to skitter,” Baker said.