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Deficit to surplus? Understanding Florida's budgeting process

In less than one year, Gov. Rick Scott says he's taken Florida from the red to the black.

"I started with a $3.7 billion budget deficit. Now we are projecting a $1.2 billion surplus," the new governor boasted to CNBC's Larry Kudlow last week.

Has Florida righted its financial ship so quickly?

We turned to Amy Baker, the state's chief economist, looking for answers.

Scott referred to a budget "deficit" — but the state Constitution forbids a deficit (not having enough money to pay its expenses). The better word is "shortfall" — meaning projected revenue falling short of projected expenses. Facing a shortfall, legislators have to come up with a way to erase the gap and balance the books.

Entering the 2011-12 budget year, the current year, economists predicted a budget shortfall of $3.6 billion. The projection looks at what it would cost to continue existing services, taking into account growth factors such as inflation and whether the number of students or prisoners will increase.

That's where Scott got his figure about the "deficit" — or more accurately, "shortfall."

On top of that, legislative leaders decided to increase the state's reserves, setting aside $1 billion for its general revenue reserve fund. So legislators building this year's budget had to cut $3.6 billion to balance the books and an additional $1 billion to offset an increase in reserves.

Legislators ultimately cut about $4.5 billion in projected, additional spending from the budget — eliminating thousands of state jobs and slashing money for schools, hospitals and other services. Combined with Scott's vetoes, the state spent about $181.2 million less then it had available in addition to the $1 billion it set aside in reserves.

That's the $1.2 billion "surplus" cited by Scott. (As of July, that figure grew to about $1.3 billion because of increased revenue estimates.)

Is that a surplus?

So the dollar figures aren't in dispute. But comparing the two numbers together is troublesome.

That's because the state is required to have a "surplus" every year to meet its obligations to pass a balanced budget.

Baker sent us chart going back to 1984-85, detailing the size of the surplus — economists for the record call it "unallocated general revenue" and say using the word surplus can be misinterpreted.

Since 1984, the amount of leftover money has fluctuated from year to year — from less than $400 million to a peak of $1.9 billion in 2006-07.

In 2010-11, Charlie Crist's last year as governor, the unspent balance was $433 million.

That's the same year, by the way, that Scott claimed a $3.6 billion deficit.

We'll say that again: By Scott's own definition, Crist left office with both a $433 million surplus and a $3.6 billion deficit.

How can that be? Because Scott is comparing apples to oranges — a projected budget shortfall that accounts for growth and inflation, vs. an actual budget "surplus" that is a result of the state's requirement that legislators pass a balanced budget.

No matter how big a projected shortfall the state has at the beginning of its budgeting process, it will end up with some type of "surplus" as Scott calls it, or "reserve" as Baker calls it.

That's a critical distinction.

Our ruling

Let's look at Scott's statement again. He said, "When I walked into office we were projecting somewhere between a $3.4-3.7 billion budget deficit. Right now we are projecting for the fiscal year that started July 1 a $1.2 billion surplus."

Scott's numbers are generally right but his word choice is problematic and, more important, the comparison is misleading.

In reality, the state ends every year with what Scott calls a surplus because the state is required to pass a balanced budget and generally can't borrow money to pay its bills. And in recent years, because state revenue has been declining, the state enters the next year with a projected "deficit" using Scott's word — or more accurately a shortfall.

The fact is that while Scott has his numbers right, he's comparing apples to oranges to paint his fiscal policies in the best light.

We rate this claim Half True.

The statement

"I started with a $3.7 billion budget deficit. Now we are projecting a $1.2 billion surplus."

Gov. Rick Scott, Aug. 10 in an interview.

The ruling

Politifact ruling: Half true
Scott's numbers are generally right but his word choice is problematic and the comparison is misleading. The state ends every year with what Scott calls a surplus because the state is required to pass a balanced budget. And in recent years, it's started with a projected "deficit" — or more accurately a shortfall. The numbers measure different things. We rate this claim Half True.

Deficit to surplus? Understanding Florida's budgeting process 08/21/11 [Last modified: Monday, August 22, 2011 12:28am]

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