A new analysis predicts that Florida might have to make deep budget cuts because of the economic collapse brought on by the coronavirus pandemic. Numbers released Tuesday by Moody’s Analytics run contrary to cautious optimism expressed by legislative leaders who have contended that Florida has reserves large enough to help weather the financial blow brought on by the pandemic.
Moody’s concluded that a combination of tax revenue losses and increased Medicaid spending will wipe out the reserves of many states, including Florida. If that were to happen, it would require legislators to return to Tallahassee and adjust the $93.2 billion spending plan they adopted for the upcoming 2020-2021 fiscal year.
“The COVID-19 pandemic is set to inflict an unprecedented amount of stress on state governments throughout the country,” the report said.
Moody’s did an analysis that looked at two different scenarios. In one case, economists looked at the pandemic causing a deep recession in the first two quarters of 2020 followed by a modest rebound at the end of the year. That scenario concluded that as hundreds of thousands of people lose their jobs, many will try to enroll in Medicaid.
The analysis predicted that a “moderate stress” scenario would create a “combined fiscal shock” of $8.1 billion for Florida — a figure more than double the amount the state has in reserves.
A more severe scenario, which envisions travel and business restrictions remaining in place into the third quarter, would result in a $10 billion “combined fiscal shock” to the state, analysts predicted in the report.
In each scenario, Florida is projected to be one of 10 states whose budgets would be hit hardest.
Florida Chief Financial Officer Jimmy Patronis has been calling for the state to look closer at the potential impact to the budget, but state economists have said they won’t have a clear idea of how bad the situation is until May, when more information about tax collections will be available.
“Today’s Moody’s report makes it clear that as more folks lose their jobs, there will be greater demand for public services like Medicaid,” Patronis said in a statement. “The report also points out that the government is going to have to move faster than normal to get families back on their feet.”
Legislative leaders, though, have said that the combination of reserves and increased funding from the federal government would be enough to shield the state from severe budget problems.
Senate President Bill Galvano, R-Bradenton, wrote in an April 2 memo to senators that the state has enough cash to get through the current fiscal year without having to make cuts and pointed to billions of dollars coming to Florida through a federal-stimulus law known as the CARES Act.
“In addition to the healthy reserve set aside this (legislative) session, the influx of federal funding under the CARES Act should help alleviate concerns regarding significant budget cuts to the 2020-21 fiscal year budget,” Galvano wrote in the memo. “Any line item vetoes Governor Ron DeSantis deems necessary (in the newly passed budget) will further buffer the already healthy reserve.”
Katie Betta, a spokeswoman for Galvano, said Tuesday the Senate was reviewing the findings in the Moody’s analysis, calling it a revision from a previous report.
The Moody’s report noted that analysts did not “explicitly” account for an increased federal contribution rate for Medicaid, the safety-net health care program jointly funded by the state and federal governments. Congress recently agreed to a 6.2 percentage-point increase in federal funding for Medicaid.
Patronis’ office did not know Tuesday how much Florida has received because of the increased federal Medicaid funding, staff told The News Service of Florida.