Florida’s pandemic-era tax revenue surge, driven by temporary factors like federal aid and consumer behavior shifts, raises concerns about the sustainability of this growth as spending patterns normalize, according to a Pew analysis.

Florida experienced a surge in tax revenue during the pandemic, surpassing pre-pandemic expectations and providing the state with an unexpected financial boost. However, an analysis published on Thursday by Pew Charitable Trusts indicates that the growth was largely driven by temporary factors, including unprecedented federal aid, changes in consumer behavior, and a strong stock market, raising concerns about the sustainability of the revenue.

When COVID-19 struck in 2020, there were widespread concerns of a prolonged economic downturn. Instead, Florida, alongside other states like California, Texas, and New York, saw a rapid recovery in tax revenue. A major factor was federal aid, including billions of dollars in stimulus payments and enhanced unemployment benefits, which temporarily increased consumer spending and, consequently, sales tax revenues—a key part of Florida’s tax income.

According to Pew’s analysis, much of the revenue growth exceeded Florida’s pre-pandemic trends, indicating it may not be sustainable over time. During the pandemic, consumer spending shifted from services, which are often untaxed, to goods that are typically subject to sales taxes. This shift temporarily boosted sales tax revenue, but as spending patterns normalize, concerns arise about potential revenue declines.

Moreover, Florida’s economy relies heavily on tourism, a sector that was hit hard by the pandemic. While tourism revenue initially dropped due to travel restrictions, it later rebounded as restrictions eased. However, Pew’s analysis suggests the recorded recovery may be transient, driven by pent-up demand, and may not be sustained as global travel normalizes, making Florida’s economy particularly vulnerable to economic fluctuations.

“Looking ahead, states face increasing budget pressures as revenue begins to dip below pre-pandemic trends,” the analysis says. “States risk facing shortfalls and deficits if they don’t take steps to determine how much revenue they can count on year after year – and how much revenue was unique to this wave.”

The State of Florida’s Long-Range Financial Outlook, published last year, presents a cautiously optimistic fiscal trajectory, projecting General Revenue Fund surpluses for the three-year period from Fiscal Year 2024-25 to 2026-27. The report identifies a total General Revenue need of $4.9 billion in FY 2024-25, rising to a peak of $5.3 billion in FY 2025-26 before declining slightly to $4.7 billion in FY 2026-27. Despite expenditure requirements, the state expects to maintain a reserve of at least 3.9 percent of annual estimated revenues. However, the declining ending balances indicate that expenditures may begin to outpace revenue growth in the latter years of the forecast.

“The State of Florida’s General Revenue Fund collections have continued to exceed expectations, in part because the previously expected recession failed to materialize during the 2022-23 fiscal year,” the report’s Executive Summary reads. “Within the Outlook period, projected expenditures are less than the General Revenue funds expected to be available. While surpluses are projected for all three fiscal years, the ending balances decrease each year of the forecast.”