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News Clips 08/29/2013
PECO's Promise: Schools' capital funding not keeping pace with growth
Source: Florida Current, 08/28/13
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By James Call
Florida went on a school construction spree between 2001 and 2010 and now its Public Education Capital Outlay fund is paying the bill with little money left to do anything else. In one decade, the state floated more than $7.2 billion in bonds to expand, renovate and build facilities. Then a recession rippled through the economy and the revenue source used to back the bonds stopped growing.
Although the Gross Receipts Tax, which funds PECO, produces more than a billion dollars a year in revenue, PECO can’t take on any more debt until the third quarter of 2016. It hasn't been able to since 2011 and state economists don't expect it to be able to back new bonds until 2016.
“We still were able to address capital needs,” said Sen. Bill Galvano, R-Bradenton, chair of the Senate Appropriations Education Subcommittee. “It just means issues are addressed through general revenue rather than the Gross Receipts Tax.”
The GRT is levied on natural gas, electricity and communication services. The money is dedicated for all schools: K-12, colleges and universities. Leading up to the Great Recession the fund was leveraged at 90 percent of collection with 10 percent used to float bonds. When collections flat-lined at $1.1 billion in 2008 -- that is no growth over the previous year -- it produced no money for new bonds to pay for new projects and maintenance.
“On the one hand, it can be argued that it was smart and responsible because of the need to stimulate the economy and because of the actual needs of higher education to have more buildings," said Aubrey Jewett, associate chair of political science at the University of Central Florida. "On the other hand, some fiscal conservatives would argue that government stimulus through building projects is not a very effective way to stimulate the economy and that the prudent course of action in borrowing is to stay well below the debt ceiling."
The GRT grew for 20 straight years and then collections dropped an average of 2.2 percent between 2009 and this year, when it is expected to start growing again. State economists project an annual average growth of 1.5 percent through the end of this decade with GRT matching its pre-recession high of $1.1 billion in 2020.
However, a private government watchdog group says that for the GRT to go five years without being able to finance new bonds should serve as a warning about Florida’s method of paying for school construction.
“It’s not sustainable,” said Kurt Wenner, vice president of tax research for Florida TaxWatch. “Maybe they should have used some of that as pay-as-you-go instead of bonding everything, but there is a significant need in higher education.”
PECO spending increased dramatically in 2006 when lawmakers dedicated $1.1 billion to school construction aimed at reducing class sizes in accordance with a constitutional amendment approved by voters in 2002. That year the state had a $4 billion surplus, a $1.5 billion tax cut was proposed by then-Gov. Jeb Bush, and the Legislature passed a budget that had PECO issuing $1.4 billion in new bonds. A year later, the economy went into recession and PECO floated another $1.3 billion in bonds. In the next three budgets lawmakers would use GRT money to take on an additional $1.3 billion in PECO bonds, completely leveraging the GRT as collateral for borrowing.
“It is always politically easier for politicians to borrow money than to raise taxes and pay for projects with cash each year -- they get the electoral credit for building school buildings without the electoral pain of having taxpayers pay for it now.”” Jewett said.
Lawmakers, however, won’t be able to use the GRT to execute that maneuver again until at least fiscal year 2016-2017.