That statistic is a measure of the depth of Florida’s fall since its housing market collapsed in 2006 — a year before the rest of the U.S. economy began to tip. When that happened, Florida’s population stopped growing for the first time since the end of World War II. Jobs disappeared and credit tightened, leaving Florida’s housing market frozen in place.
But the glut of empty homes — which is further depressing already low home prices — may turn out to be crucial to Florida’s return to prosperity. Economists say the ample supply of bargain-priced homes, along with the sun, beaches and low taxes that have always made Florida an attractive place to retire, will propel its growth once again.
Demographics are on Florida’s side. For the next 25 years, the market of retirees will be 20 percent larger than it was in the last decade, thanks to 77 million members of the baby boom generation born between 1946 and 1964. Of course, many of them will stay put or postpone retirement. And for those looking to move, states across the South and West compete for retirees. So Florida isn’t the shoo-in for snowbirds that it once was.
But the sheer number of baby boomers should be enough to soak up Florida’s surplus of homes and get the state’s biggest economic engine moving again. According to census estimates, healthy population growth will return by 2014, when the state is expected to be growing at a rate of 300,000 people per year. As Peter Morrison, a demographer with the Rand Corporation, puts it, “There’s nothing on the immediate horizon to indicate Florida in the next 10 to 15 years will fade in the way California has as a destination for opportunity-seeking migrants.”
If those projections pan out, it would mean a return to an old formula that has worked in Tallahassee for decades. Retirees come with Social Security checks and typically enough money in the bank that they contribute more to the economy than they require in government services. According to the Florida Department of Elder Affairs, their per-capita income is 25 percent higher than residents aged 18 to 49. While Florida does not have an income tax, retirees generate healthy sales tax revenues for Florida as they spend their way through their golden years.
Retirees also are a key driver of a real estate market that kicks out substantial revenues in the form of transaction fees and property taxes. In more normal times, the construction industry hums along building homes for retirees and others to live in, generating a healthy stream of sales tax revenues and plenty of related jobs.
As Florida comes off an especially tough budget debate, the key question is how long it will take for all these familiar fiscal forces to start clicking again. Jim Zingale, Florida’s former budget chief, says Florida has to begin working now to reaffirm its retirement appeal, even if it means targeting older Americans with advertising, something Florida hasn’t done much of in the past. “There are some really great deals down here,” Zingale says. “We need to let people know.”
A tough budget year
Compared with the budget gaps other states have been wrestling with this year — $26 billion in California, $27 billion over two years in Texas — Florida’s woes sound relatively modest. For the fiscal year that begins July 1, lawmakers had to close a $3.7 billion deficit, about 5 percent of last year’s budget.
Still, some budget experts say this year’s budget battle was the toughest in the state’s history. When negotiations started, federal stimulus funds had evaporated and the state’s rainy day fund was nearly depleted. Demand for Medicaid and other safety-net programs had spiked, putting pressure on entitlement spending.
Rick Scott, the Republican governor elected last year with strong Tea Party support, saw the state’s deficit as an opportunity to shrink the size of government. He encountered more opposition than he expected from a legislature controlled by fellow Republicans. When the shouting was over, lawmakers passed a budget that spends $70 billion. That’s about $1 billion less than last year’s budget and $4 billion less than Florida spent back in 2006.
Those cuts will impact Floridians in palpable ways. Tuition at state universities will rise by at least 8 percent, for example, and scholarship funding will be cut by 20 percent.
But some of the anticipated savings could be described as speculative. For example, Florida expects to save $1 billion on Medicaid by expanding a pilot program that enrolls all patients, including the elderly and disabled, in managed care plans. A study of the pilot program, which has been going on in five counties since 2007, shows little evidence that it saved any money at all. To go statewide with the program, Florida will need a waiver from the Obama administration.
Lawmakers also cut deeply from K-12 education, normally a sacrosanct area of spending. They are spending $1.3 billion less than what the state education agency had requested, a cut made possible by new legislation reclassifying most classes as “non-core” to get around a 2002 constitutional amendment limiting class sizes.
The budget also dramatically pares the size of a state government that was already one of the smallest in the country on an employee-per-capita basis. It envisions privatizing most prisons and laying off 1,700 prison guards. In all, the budget eliminates 4,500 positions, nearly 3 percent of the workforce. It also assumes that money can be saved by consolidating all human services agencies into one. Similar consolidations are planned for environmental and economic development agencies.
“Florida really has never had to confront many of these problems,” says Amy Baker, who heads the legislature’s economic and demographic research office. The Florida growth machine, combined with a conservative tradition of maintaining substantial cash balances, has never produced a need to cut so deep and so wide. “It was a sea change,” Baker says.
Long road to recovery
Florida’s housing market peaked higher and fell more sharply than in almost any other state. The reckoning also came earlier than it did in other parts of the country. Signs of a crash appeared in 2005 when home sales began to sink. Ironically, however, a pair of devastating hurricanes around that time delayed the inevitable, as Florida received a surge of insurance money and federal aid to help rebuild.
If it weren’t for the national recession that came in 2008, economists say, Florida’s housing bubble likely would have corrected itself within a year. Instead, the collapse of the financial markets caused tourism to dry up. Low-income residents affected by the hurricanes finally got fed up and left, followed by jobless construction workers and others whose livelihood depended on real estate. Florida was hit by two waves of foreclosures. The first came in 2006 when lax loan practices began to backfire. The second came in 2008 when unemployment shot up and thousands of jobless residents could no longer afford to pay their mortgage.
“It used to be that no one left Florida alive,” economist Sean Snaith of the University of Central Florida says of the exodus Florida experienced. “We had both hands tied behind our back — a terrible labor market and virtually no growth.”
Governor Scott, a former corporate executive, argues that Florida’s recovery can’t depend on housing alone. He’s pledged to make Florida — whose business climate already ranks favorably among big states because of its low taxes and low regulation — even more business-friendly. In his state of the state speech in March, he vowed to cold-call prospective businesses from his office every day. He also set out to eliminate corporate taxes over the next five years, a phase-out that would cost Florida nearly $2 billion in annual revenues.
Republicans in the legislature didn’t go along with Scott’s tax-cut plan, arguing that it was too big at a time when government was cutting so much. In a last-minute concession to Scott at the end of the session, lawmakers did agree to $30 million in corporate tax cuts. To the delight of real estate developers, they also repealed a 1985 growth planning law aimed at curbing suburban sprawl, leaving restrictions on land development up to local authorities.
Before developers can take much advantage of the new growth rules, however, homebuyers will need to snatch up many of Florida’s 1.6 million empty homes. At the moment, that number is growing. Florida’s foreclosure rate remains stubbornly high, and the state has a relatively slow process for running foreclosure proceedings through state courts.
And there may be many more foreclosures to come: More than half of all Florida homeowners are underwater on their mortgages, meaning that they owe more than their homes are worth. According to Moody’s economist Chris Lafakis, Florida home prices aren’t expected to hit bottom until sometime in 2012. Even if population growth picks up in 2014 as expected, some economists say it may be another two years before Florida sees real growth in the construction industry.
Tony Carvajal, of the nonprofit Collins Center for Public Policy, says he is confident that Florida will boom again. It just might take a while. “I’m optimistic,” Carvajal says. “For a lot of people in the state, life doesn’t look so good right now. But we’re attractive to people outside of Florida. We’re a very undervalued state at the moment.”
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