Download a PDF of the report HERE.

Abstract

What is the impact of one week of government-caused delay in the creation of a start-up business in Florida?

Ralph Desiano, owner of Naples Flatbread and Wine Bar in Naples, Florida, will likely tell you it’s significant.  Mr. Desiano planned to open his popular local restaurant in the fall of 2008, a perfect time to take advantage of the influx of hundreds of thousands of hungry snowbirds and tourists.  Instead, he was delayed four months because of a slow and bureaucratic permitting process, and almost missed prime season entirely.[1]

How much did this bureaucratic delay cost Ralph Desiano?  How much did it cost the bureaucracies responsible for the four-month wait?

This paper estimates of the cost of one week of delay in creating a start-up.  The one-week costs to unemployed Florida workers is measured, as well as the cost to federal, state, and local governments.

The cost of a one-week delay to an unemployed worker is an estimated $900 in lost wages and benefits, while the total combined cost in lost wages and benefits for a typical start-up staff is $2,700.  A week of delay to all start-ups costs the state of Florida up to $9.9 million.  The one-week cost to the federal government is about $47.7 million.  The costs of delay to county governments are as much as $1.74 million, and $670,000 to municipal governments.

Introduction

Start-ups are the drivers of job creation in Florida.  In 2009 (the latest year of available data), start-ups created 173,236 net new jobs.  One of the most important factors to an entrepreneur deciding whether or not to start a new business is the cost.  An entrepreneur creating a new business must incur significant direct and indirect costs before he or she makes the first dollar of revenue.  The cost of delay is an important part of the indirect costs paid by a start-up, as an entrepreneur must apply for and receive the many various  licenses, permits, registrations, inspections and approvals  required for the particular business and industry into which the start-up will enter.  Depending on the industry, it may be weeks, months, or longer before a new business opens.  Increasing the cost of delay increases entrepreneurs’ start-up costs and discourages economic initiative.  Reducing the cost of delay would encourage economic initiative, start-up activity, and faster private-sector job creation.

Cost to Unemployed Workers

The cost of delay to an unemployed worker is the value of lost time, measured in lost wages and benefits.

From the Bureau of Labor Statistics, the average annual wage for Floridians is $40,270.[2]  The corresponding weekly wage is $774.42 ? $775.

The percentage of unemployed workers who qualify for unemployment insurance benefits is known as the recipiency rate.  Florida’s recipiency rate was 48 percent for all programs.[3]  Average weekly unemployment compensation in 2011 in Florida was $225.72.[4]  Thus, an individual drawn randomly from the population of unemployed workers would have a 48 percent chance of receiving unemployment benefits.  Expected unemployment benefits for a random Florida worker are therefore the average amount of weekly unemployment compensation times the recipiency rate:

$225.72 × 48% = $108.

With this figure, the net cost of lost time to the unemployed worker is the average weekly wage minus the expected unemployment benefit:

$775 – $108 = $667.

A conservative estimate of a standard benefits package (e.g. health insurance) increases compensation by 30 percent.  Including benefits, the net cost of lost time to the unemployed individual is the average weekly wage plus the value of a benefits package minus the estimated unemployment benefit:

$775 (1 + 30%) – $108 ? $900.

The cost of a one-week delay to an unemployed worker is about $900, including benefits.  The cost of a one-week delay to all 173,236 unemployed workers who would eventually find jobs because of start-up activity is more than $155 million.

Cost to the Typical Start-Up Staff

An entrepreneur is assumed to be unemployed while he works on starting a business.  The cost of delay to an entrepreneur is the value of lost time, measured in lost wages and benefits, and any lost profits.  Therefore the likely cost of delay to an entrepreneur is at least as great as the cost of delay for a typical unemployed worker, which is $900.

The employees who will eventually be employed by the start-up may also bear the cost of delay.  The average start-up created in 2009 had five employees in its first year.

Unemployed workers who will find a job at the start-up must remain unemployed for an additional week and therefore also incur a cost of delay.  Employees who switch jobs to work at the start-up will bear no cost of delay.  However, unemployed workers who fill the vacancies created by workers moving from an established business to the start-up bear the full cost in lost wages and benefits.  The cost of delay to start-up employees is the combined value of lost time to the entrepreneur and to the future employees (either currently unemployed or working elsewhere).

If all new start-up employees were previously unemployed, the cost of delay to the five workers who remain unemployed for an additional week is their total lost earnings—lost compensation times the typical start-up workforce of five employees:

$900 × 5 = $4,500.

This number provides a maximal cost of the delay.

If all new start-up employees switch from other jobs, excepting the entrepreneur, only the entrepreneur bears the cost of delay.  This gives a minimal cost of delay to the employees of the start-up of $900.

Including benefits, the cost to the start-up for one week of delay is between $900 for a start-up with one previously unemployed worker and $4,500 for a start-up with five previously unemployed workers.  Taking the midpoint of this range provides a fair estimate of $2,700.

The cost of a one-week delay to a previously unemployed entrepreneur is at least about $900, including benefits.  Using this number, the cost of a one-week delay to all 34,231 entrepreneurs who created a start-up in Florida in 2009 is a combined $30.8 million.  Using the midpoint estimate of $2,700 in combined lost wages for a start-up staff of five, the aggregate cost of delay to employees at new start-ups in 2009 is $92.4 million.

Cost to Florida State Government

A week of delay affects the finances of the state of Florida through lost tax revenue and continuing unemployment compensation.

Start-ups in Florida created 173,236 jobs in 2009.  With a recipiency rate of 48 percent for unemployment compensation, a one-week delay for each of the jobs created would have increased total combined state and federal unemployment costs by the weekly unemployment compensation amount times the recipiency rate times the number of jobs created by start-ups:

$225.72 × 48% × 173,236 = $18,769,358 ~ $18,800,000.

Unemployment Insurance (UI) programs are administered by the state of Florida.  Funding for regular unemployment insurance programs is a cost to the state of Florida, with the exception of those UI programs for former federal employees and ex-service members.  These constitute a relatively small portion of the total unemployed workers eligible for UI.  The recipiency rate for regular Florida UI programs was 19 percent,[5] so a one-week delay for each of the jobs created would have increased the unemployment compensation paid by the state of Florida by the weekly unemployment compensation amount times the recipiency rate for state UI programs times the number of jobs created by start-ups:

$225.72 × 19% × 173,236 = $7,429,423 ~ $7,430,000.

This calculation assumes that all workers hired by a start-up are unemployed.  To be considered unemployed, workers must be looking for work.  Workers who are not looking for jobs are discouraged workers.  Discouraged workers are not counted as part of the workforce, so the recipiency rate overstates the percent of workers who are out of work and receiving unemployment benefits.  As a result, this estimate of $7.4 million dollars represents an upper bound of the  direct cost to the state of Florida.

These figures are reduced by the extent to which start-ups hire discouraged workers over unemployed workers.  For example, if 10 percent of employees hired by start-ups are discouraged workers, then the cost of $7.4 million to the state of Florida is reduced by 10 percent.  The assumption here is that start-ups hire predominantly unemployed workers and a trivial number of discouraged workers.

Estimating the lost sales tax revenue to the state of Florida requires calculating the amount in sales tax paid from the average annual Florida salary of $40,270.  The weekly tax revenue collected from a single worker at average income and standard deductions making $40,270 is $16.28.  The weekly tax revenue from an unemployed worker receiving unemployment benefits is $4.74.  Given the overall recipiency rate of 48%, the net loss in weekly sales tax revenue from an unemployed worker is $14.01.[6]  (A breakdown of the assumptions used to calculate this figure is provided in the Notes and Sources section.)

The net lost sales tax revenue of a one-week delay to the state of Florida is the weekly estimated net sales tax revenue collected from an unemployed worker times the number of jobs created by start-ups:

$14.01 × 173,236 = $2,426,813 ~ $2,430,000.

One week of delay to start-ups costs the state of Florida about $2.4 million in lost sales tax revenue.

Table 1 summarizes the cost of delay to the state of Florida.  Delaying the creation of all Florida start-ups by an additional week in 2009 would have cost the state $7.43 million in additional unemployment compensation and $2.43 million in lost sales tax revenue.  The total combined cost of an additional one week of delay to the state of Florida is therefore up to about $9.9 million.

Cost to the Federal Government

Unemployment benefits not funded by the state are funded by the federal government.  Unemployed workers who exhaust their Unemployment Insurance (UI) from state programs may be eligible for additional unemployment compensation through the Emergency Unemployment Compensation (EUC) and Extended Benefits (EB) programs.  Workers must first exhaust state unemployment insurance before receiving emergency unemployment compensation, and then exhaust EUC before receiving extended benefits.  The Emergency Unemployment Compensation program was created in 2008 and is 100 percent federally funded.  Funding for extended benefits is typically split 50-50 between state and federal budgets, the American Recovery and Reinvestment Act of 2009 began temporary 100 percent federal funding of EB.[7]

The cost to the federal government in additional unemployment compensation of a one-week delay would be the total amount of unemployment compensation paid (state and federal) minus the amount funded by the state of Florida:

$18,769,358 – $7,429,423 = $11,339,935 ~ $11,340,000.

As with the calculation for the cost to the state of Florida, these figures are reduced by the extent to which start-ups hire discouraged workers over unemployed workers.

For this calculation, we focus on federal tax revenues from income tax, Medicare, and Social Security taxes.  Income taxes are paid by all workers, but Medicare and Social Security taxes are paid by workers and employers.

After standard deductions, the federal government collects $4,746 in income tax per year, $2,497 in Social Security   taxes, and $583.92 in Medicare taxes from a typical Florida worker earning $40,270 per year.  Additionally, his employer would pay another $2,497 in Social Security taxes, and $583.92 in Medicare taxes.  Total federal revenue from these taxes would be $10,907.84 per year, or $209.77 per worker per week.  Total lost tax revenue to the federal government for an additional week of delay is therefore the weekly amount collected by the federal government in taxes per worker times the number of jobs created by start-ups:

$209.77 × 173,236 = $36,339,049 ~ $36,340,000.

One week of delay to start-ups costs the federal government about $36.3 million in lost tax revenue.

Table 2 summarizes the annual cost of delay to the federal government.  Delaying the creation of Florida start-ups by an additional week in 2009 would have cost the federal government $11.34 million in additional unemployment compensation and $36.34 million in lost tax revenue.  The total cost to the federal government of an additional one-week delay is therefore about $47.7 million.

This calculation only includes the cost of additional unemployment compensation and lost tax revenue.  It does not include tax revenue on unemployment compensation, which is insignificant.  While unemployment compensation is subject to federal income tax, the average unemployment compensation received by unemployed Floridians is less than the standard deduction for single individuals.[8]  In fact, despite this omission, this is likely an understated estimate of the cost of a one-week delay to the federal government, since unemployed workers have a higher probability of becoming eligible for housing assistance, food stamps, Medicaid, educational grants and scholarships, and other federal programs.

Cost to County and Municipal Governments

Revenue to county and municipal governments is largely funded through property taxes and fees.  As a result, the cost of an additional week of delay has only an indirect impact on county and municipal budgets.

Indirectly, the cost of delay discourages entrepreneurial activity and leads to lower revenues by discouraging entrepreneurs from starting a business and seeking a permit in the first place.  This results in lower overall entrepreneurial activity and fewer new jobs and businesses.  Commercial property values decrease as fewer new businesses are formed and residential property values decrease as fewer jobs are created.

According to the Florida Department of Revenue, the just value, or market value, of all real estate in Florida in 2011 was $1.70 trillion, the assessed value was $1.56 trillion, and the taxable value after exemptions was $1.19 trillion.[9]  Dividing the taxable value by the just value shows 70 percent of the market value of real estate was taxable in 2011.  The relationship between market and taxable values is assumed to be unchanged.[10]

Table 3 shows the taxes levied by county and municipal governments for the fiscal year 2011-12.  This data comes from the Florida Department of Revenue.[11]  About 70 percent of all statewide property tax revenue comes from residential property and 16 percent from commercial property.  Additionally, this table shows that about 73 percent of property tax is collected by county governments and 27 percent is collected by municipal governments.

According to the Florida Department of Revenue, the total value of all residential property in Florida is $1.17 trillion, and the total value of all commercial property is $218 billion.  After exemptions, the total taxable value of all residential property is $891 billion and the total taxable value of all commercial property is $209 billion.  Dividing the taxable value by the market value shows that 76 percent of the market value of all residential property and 96 percent of the market value of all commercial property is taxable.  Additionally, dividing taxes levied by taxable value yields average county mill rates of 6.79 and 6.02 on residential and commercial property respectively, and average municipal mill rates of 2.41 and 3.01 respectively.

The value of commercial property is calculated as present value of the discounted stream of expected rents that the property can generate.  Assuming the property can be rented, these rents are or would be paid by businesses, and a reduction in start-up activity will reduce the demand of businesses for commercial property.  In the short run, a one-week delay affects the present value by reducing the probability that the property will be rented.  In the long run, a one-week delay lowers the amount of commercial property available for rent by reducing the overall level of business activity.  In either case the delay lowers the value of commercial property.

In the short-run, the effect on commercial property values depends on the importance of start-up job creation relative to overall employment in Florida.  In 2009, start-ups accounted for 173,236 of the 6,536,884 jobs in Florida, or 2.6 percent of all jobs.  If a one-week delay reduced start-up job creation by one percent,[12] then revenue on commercial property would fall by 1% × 2.6%.  One percent of jobs would not have been created and therefore those workers would not have required office space.  If this increased delay results in a lowering of overall business activity by one percent, then the value of commercial property would be reduced by the total taxable value of all commercial property times the percent reduction in start-up job creation caused by one week of delay times the percent of all jobs created by start-ups:

$218 billion × 1% × 2.6% = $56.6 million.

Using the above mill rates and a 70 percent ratio of taxable real estate to market value, this reduction in commercial property value would have lowered county government tax revenues by the reduction in commercial property value times the percent of taxable market value of all commercial property times the average county mill rate on commercial property:

$56.6 million × 96% × 6.02 mill rate = $327,551 ~ $330,000.

Similarly, municipal government tax revenues would be lowered by the reduction in commercial property value times the percent of taxable market value of all commercial property times the average municipal mill rate on commercial property:

$56.6 million × 96% × 3.01 mill rate = $163,807 ~ $165,000.

The reduction of residential property values is a little more straightforward.  The one percent reduction of jobs created by start-ups results in a reduction in the total number of jobs by 1% × 2.6% = 0.026%.  All jobs are assumed to pay the same average wage in this analysis, so this reduces overall income by the same 0.026 percent.

A reduction in income reduces demand for housing and property values.  Studies show that a one percent reduction in income typically reduces demand for housing by 0.9 percent.[13]  This is known as income elasticity of housing.  In this case, the demand for residential property is reduced by the reduction in the total number of jobs times the income elasticity of housing—0.026% × 0.90 = 0.023%.  The reduction in residential property value would then be the total value of all residential property times the percent reduction in start-up job creation caused by one week of delay times the percent of all jobs created by start-ups times income elasticity of housing:

$1.17 trillion × 1% × 2.6%× 0.90 = $273 million.

Using the same average mill rates and taxable market value ratio as before, this reduction in residential property value would have lowered county government tax revenues by the reduction in residential property values times the percent of taxable market value of all residential property times the average county mill rate on residential property:

$273 million × 76% × 6.79 mill rate = $1,416,215 ~ $1.41 million.

Similarly, municipal government tax revenues would be lowered by the reduction in residential property values times the percent of taxable market value of all residential property times the average municipal mill rate on residential property:

$273 million × 76% × 2.41 mill rate = $503,335 ~ $500,000.

The reduction in residential property tax value would reduce county tax revenue by approximately $1.42 million and   municipal tax revenue by $500,000.

Table 4 summarizes the cost to county and local governments assuming that the one-week delay reduces start-up activity by one percent.[14]  Under this assumption, the total cost to county governments resulting from declining residential and commercial property values of a one-week delay is $1.74 million, and the total cost to municipalities of a one-week delay is $670,000.  Total cost to county and municipal governments together is $2.41 million.

Cost of Delaying a Single Start-Up by One Week

The calculations thus far are the costs of delaying all 34,231 Florida start-ups created in 2009 by one additional week.  The cost of delaying a single start-up by one week is calculated by dividing the cost of a one-week delay to all start-ups by the number of start-ups.

Table 5 gives the cost of delaying a single Florida start-up by one week to federal, state, county, and municipal governments.  A one-week delay of a single start-up costs the federal government $1,393.00 in lost tax revenue and additional unemployment compensation.  A one-week delay costs the state of Florida $288.00 in lost sales tax revenue and additional unemployment compensation.  A one-week delay costs county governments $51.00 and municipal governments $19.00 in lower residential and commercial property tax revenue respectively.

Conclusion

Regardless of which layer of government is at fault, bureaucratic delays and inefficiencies have a ripple-effect.  While unemployed workers and the state and federal government are the most victimized by the cost of delay, all parties should be concerned that such delay reduces economic initiatives and carries with it significant costs.  Future reforms should identify the primary causes of delays to start-up creation and promote greater efficiency and accountability to ensure such delays are minimized.

The estimated cost of a one-week delay to an unemployed worker is about $900 and the cost to the typical start-up workforce of five is $2,700.  These costs are significant to a start-up business, which has scarce capital and no revenue.

A week of delay costs the state of Florida $2.43 million in lost sales tax revenue and up to $7.43 million in unemployment compensation for a combined cost of up to $9.9 million.  At the federal level, a week of delay costs $11.34 million in   unemployment compensation and up to $36.34 million in lost tax revenue, added together to create a combined cost of $47.7 million.  This number is likely understated, however, because is does not consider the additional net costs incurred by the federal government for the distribution of other entitlement programs—food stamps, Medicaid, public housing, etc.—to unemployed workers.  The state of Florida incurs a $288.00 cost as a result of a one-week delay per start-up while the federal government incurs a $1,393.00 cost.

The costs to local governments are much smaller.  The average county government experiences just a $51.00 cost as a result of a one-week delay of a single start-up, and the average municipality experiences just a $19.00 cost of delay.  In total, a week of delay costs county governments approximately $1.74 million and municipal governments $670,000 in lost residential and commercial property tax revenue.

Bureaucratic obstacles and inefficiencies slow the permitting and licensing process, with the most significant costs falling on unemployed workers in forever lost income, and the state and federal governments in increased unemployment   compensation costs and forever lost tax revenue.

Start-ups are Florida’s top job creators.  Future publications of the START-UP FLORIDA series will examine other ways in which bureaucratic regulations and policies impact start-up businesses, and specific reforms that will put people back to work, and lessen the strain on government budgets.

Appendix A

Appendix B

Appendix C

Notes and Sources

¹ Gruss, Jean, Skill, Luck and Divine Intervention, Gulf Coast Business Review, January 6, 2012.

² Bureau of Labor Statistics, “May 2010 State Occupational Employment and Wage Estimates – Florida.” See the “All Occupations” wage  estimate.  Available at: http://www.bls.gov/oes/current/oes_fl.htm.  Accessed 1/17/2012.

³ US Dept of Labor, “Unemployment Insurance Data Summary.” From 2010.2 to 2011.2.  We use the average recipiency rate from 2010.2 to 2011.2.  See the Second Quarter Report for 2011 at: http://workforcesecurity.doleta.gov/unemploy/content/data.asp.

⁴ US Dept of Labor, “Unemployment Insurance Data Summary.”  See footnote 3.

⁵ US Dept of Labor, “Unemployment Insurance Data Summary.”  See footnote 3.

⁶ Ghandi, Natwar, “Tax Rates and Tax Burden in the District of Columbia: A Nationwide Comparison 2010,” Government of the District of  Columbia, Sept. 2011.  Gandhi estimates that a Jacksonville resident would pay $1,053 in sales tax on $50,000 of income.  At 6%, this implies that $17,550 is subject to sales tax.  This estimate implies 35% of gross income or 44% of disposable income is subject to Florida sales tax.

⁷ US Dept of Labor, “100% Federal Funding of Extended Benefits (EB) Extended to March 7, 2012.”  Available at:  http://www.ows.doleta.gov/unemploy/supp_act_eb.asp.

⁸ $225.72 per week × 52 weeks × 48% recipiency rate = $5,634.  The standard deduction for an individual is $5800.

⁹ Florida Dept of Revenue, “FL Dept Rev – Florida Property Valuation and Tax Data.”  Available at: http://dor.myflorida.com/dor/property/resources/data.html.

¹⁰ This implies that exemptions increase on average with increases in property values.

¹¹ Florida Dept of Revenue, “FL Dept Rev – 2011 County Municipal Data Table 2.”  Available at: http://dor.myflorida.com/dor/property/taxpayers/cmdata/table2.html.

¹² This number is not known, but it might actually be too low.  For example, if each start-up took a year longer to start, making the additional delay is 52 weeks, then it doesn’t seem unreasonable to believe that perhaps half of the entrepreneurs would not have bothered to start a business, reducing the start-up activity by 52 × 1% = 52%.

¹³ De Leeuw, F., “The Demand for Housing: A Review of the Cross-Sectional Evidence,” Review of Economics and Statistics,  53(1), pp. 1–10.  See p. 9 for the income elasticity estimate.  De Leeuw’s estimates are between 0.81 and 0.99.

¹⁴ A 1% reduction in start-up activity means both that the probability that an entrepreneur will create a start-up is reduced by 1% and the   contribution of start-ups to overall employment is reduced by 1%.  The first number is a one-year effect, and the second is a permanent     equilibrium effect.

Georgia State Representative Jason Spencer, sponsor of HB 668, invited Bragdon to testify in support of his bill after studying earlier FGA research on Florida’s welfare cash drug testing requirement.  FGA analysis of state-generated data from the first quarter of the Florida law showed a 48 percent drop in monthly cash assistance approvals and a drug-related denial rate of 19 percent.  In all, Florida taxpayers saved an estimated $1.8 million.

In December, Bragdon gave a similar presentation on Florida’s welfare cash drug testing law to the Health and Human Services Task Force of the American Legislative Exchange Council, an association of public, private and non-profit policy leaders who collaborate to develop ideas that address common challenges faced by the states.

“Drug testing ensures taxpayers’ generosity won’t fund illegal drug addiction by setting reasonable parameters for welfare cash,” Bragdon explained.  “Florida’s law proves this welfare accountability measure achieves major taxpayer savings.  It preserves benefits for the truly needy, and keeps children safer by no longer enabling meth moms and dope dads with no-strings welfare cash.  Representative Spencer’s bill will accomplish these same positive results.”

Georgia State Representative Jason Spencer (left) with Foundation for Government Accountability CEO Tarren Bragdon (right) at a legislative hearing on Rep. Spencer's bill to require drug testing for welfare cash applicants in Georgia.

Like Florida’s law, the Georgia bill requires welfare cash applicants test negative for drug use before receiving welfare dollars and compels the state Department of Health and Human Services to provide a list of area drug treatment facilities to applicants who test positive.  The Georgia bill specifically exempts applicants’ drug testing results from public records laws and criminal investigations.

“It’s critical for both taxpayers, and for the children state welfare programs are meant to protect that welfare cash assistance is not used to subsidize an illegal addiction.  My bill in Georgia is one part of a broad and important nation-wide movement toward welfare accountability,” Rep. Spencer said.  “I’m grateful the Foundation for Government Accountability has done such great work researching the success of Florida’s law.  Tarren’s testimony is important for my colleagues in the Georgia Assembly to hear and understand.”

According to recent media reports, up to 37 states are considering welfare cash drug testing.  Besides Florida, Arizona and Missouri have already passed such legislation.  Many reject the activist ruling of pro-addict federal Judge Mary Scriven temporarily halting Florida’s law.  State leaders understand her decree—criticized by legal scholars and child advocates—is wrong and puts kids at risk.  Governor Rick Scott has appealed her decision.

“The success of Florida’s welfare cash drug testing law is clear, and I am encouraged that Georgia and other states are headed in the same direction,” Bragdon said.  “Representative Spencer should be commended for his leadership on this important issue.  The Foundation for Government Accountability supports his efforts, and the work of other state leader looking to protect kids and save taxpayer dollars.”

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CONTACT
Chris Cinquemani, Vice President
239.244.8808 (o), 207.240.7090 (m), chris@floridafga.org

Visit FloridaOpenGov.org right away, and see how government spends your hard-earned taxes…down to the employee, department and dollar.

Did you know that the highest paid state worker, Frank Brogan, took home more than half a million dollars in salary and benefits in 2010—more than President Obama?

Or that one Miami-Dade County school employee, Alberto Carvalho took home nearly $300,000 in FY 2011 just in salary, and that Lee and Leon Counties have some of the top paid county employees in the state?

Or that the amount the state has paid to Central Florida Behavioral Health skyrocketed 330% in the last six years?

FloridaOpenGov.org has all this information and more; much, much more.

FloridaOpenGov.org includes nearly 35 million records, and more than a decade of government spending information.  The easy-to-use site lets you search government spending by employee name, business, department, municipality, spending category and more, and it’s all just a few clicks away.

FGA CEO Tarren Bragdon unveiled FloridaOpenGov.org at a Statehouse press conference today, Monday, January 9.  With a full house in attendance, Tarren was joined by Florida Chief Financial Officer Jeff Atwater, State Representatives Matt Hudson (R-Naples), Rachel Burgin (R-Tampa Bay) and Joseph Abruzzo (D-Wellington), and City of Longwood Mayor Joe Durso.

Each of them praised FloridaOpenGov.org as a major addition to the state’s transparency movement.

CLICK HERE to see what these and other government and citizen leaders including Governor Rick Scott and Speaker of the House Dean Cannon had to say about FloridaOpenGov.org.

You can also see photos from yesterday’s press conference HERE, and video footage of the event filmed by Sunshine State News HERE.

Here’s what you can access on FloridaOpenGov.org:

•    County government payroll (FY 1997-2011)
•    Local K-12 public education payroll (FY 1997-2011)
•    State government payroll (1995-2010)
•    Local government spending (1993-2010)
•    State vendor payments (FY 2005-2011)

FloridaOpenGov.org is shining the light of transparency on all levels of government.  Visit FloridaOpenGov.org right away.

FloridaOpenGov.org will change all future conversations over government spending.  That’s because this easy-to-use online transparency hub allows citizens and taxpayers to become more informed than ever before.  An informed citizen is strong and powerful.

Visit FloridaOpenGov.org today and learn all there is to know about how government spends your money.  Don’t hesitate to tell your friends and neighbors about FloridaOpenGov.org either.  The more we know, the more accountable our government becomes.

TALLAHASSEE – The Foundation for Government Accountability (FGA) is shining a light on Florida government spending with the largest and most interactive government transparency Web site in the state—FloridaOpenGov.org.  With about 35 million public records detailing nearly $1.4 trillion in spending and payroll by state, county, municipality and school, FloridaOpenGov.org is taxpayers’ online transparency hub for government spending down to the employee, department and dollar.

FloridaOpenGov.org includes 18 years of spending and 15 years of payroll data—all obtained through public records requests—with a simple user-interface allowing visitors to search by employee name, department, salary, county, spending category, year, and more.

“FloridaOpenGov.org is about super sizing taxpayers’ right to know how politicians are spending their money—down to the employee, department and dollar,” explained FGA Chief Executive Officer Tarren Bragdon.

FloridaOpenGov.org includes:

•    County government payroll (FY 1997-2011)
•    Local K-12 public education payroll (FY 1997-2011)
•    State government payroll (1995-2010)
•    Local government spending (FY 1993-2010)
•    State vendor payments (FY 2005-2011)

FGA unveiled FloridaOpenGov.org on Monday at a Statehouse press conference, with a bipartisan group of state and local elected officials.  These officials helped raise awareness about FloridaOpenGov.org and the opportunities it creates for taxpayers to learn more about politicians’ spending decisions.

Florida Chief Financial Officer Jeff Atwater praised FloridaOpenGov.org as a powerful new taxpayer tool:

“As an advocate for government transparency, I support all resources both public and private, including FloridaOpenGov.org, that provide taxpayers with the tools to keep tabs on how their dollars are being spent,” he said.

State Representatives Matt Hudson (R-Naples), Rachel Burgin (R-Tampa Bay) and Joseph Abruzzo (D-Wellington) and City of Longwood Mayor Joe Durso also endorsed FloridaOpenGov.org as an important addition to Florida’s government transparency movement.  Other leaders noted the site’s value as well.

At the Capitol, Bragdon highlighted key findings from FloridaOpenGov.org, including the top ten highest paid state government workers (Department of Education employee Frank Brogan is number one), government workers who are members of the $100k salary club, state vendors with the most in government contract and payments, and local spending data.

CLICK HERE to see the PowerPoint presentation shown at Monday’s press conference.

“FloridaOpenGov.org will change all future conversations over government spending.  This easy-to-use online transparency hub allows citizens and taxpayers to become more informed than ever before.  An informed citizen is strong and powerful,” Bragdon said.

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CONTACT
Chris Cinquemani, Vice President
239.244.8808 (o), 207.240.7090 (m), chris@floridafga.org

NAPLES – The federal agency deciding the fate of Florida Medicaid patients and taxpayers now has factual research, not just liberal talking points, as it deliberates over whether to permit a statewide expansion of Florida’s successful Medicaid Reform Pilot.

The Foundation for Government Accountability (FGA) sent a letter to the Centers for Medicare and Medicaid Services (CMS) today urging the agency to approve six pending waiver and amendment requests that would authorized the state’s Reform Pilot to expand statewide.  Earlier this year, the Legislature passed, and Governor Rick Scott signed legislation to implement statewide Medicaid reform, pending federal approval.

The letter was sent with the 24-page study authored by FGA President and Chief Executive Officer Tarren Bragdon comparing the Reform Pilot to traditional Medicaid and commercial HMOs.

“It is critical CMS has factual research on hand.  The decision CMS makes regarding Florida’s waiver and amendment requests is of significant consequence to Medicaid patients and taxpayers across our state,” Bragdon explained in his letter.

The letter highlights the many successes Florida’s Reform Pilot has achieved, including more plan choices for enrolled patients, additional services, better patient health outcomes, higher patient satisfaction, and lower taxpayer costs.

Reform Pilot patients had better health outcomes for 64 percent of measures on a widely-used health care effectiveness benchmarks, HEDIS, compared to patients confined to traditional Medicaid.  In 68 percent of measures, Reform Pilot patients had greater health improvement compared to non-Reform patients.  Reform Pilot patients are also happier with their care and services, with 83 to 100 percent of satisfaction measures among Reform Pilot patients at or above national benchmarks for Medicaid managed care and commercial HMO plans.

“Meaningful health reform accomplishes two essential goals: patient health outcomes must improve, and patients must be satisfied with the care they receive.  The Medicaid Reform Pilot has met and exceeded these goals,” Bragdon said.

Taxpayer savings have spiked as well.  The Reform Pilot has already saved taxpayers an estimated $118 million annually.  If statewide expansion goes into effect, Florida taxpayers could expect savings up to $901 million annually.

“Traditional Medicaid funding consumes almost one-third of Florida’s $69 billion state budget,” Bragdon wrote.  “As Medicaid costs continue to grow faster than general tax revenue, important future investments in education, infrastructure and job creation are put at risk.  Medicaid must be transformed.  Now, the health future of Florida’s Medicaid patients and the fiscal future of Florida taxpayers rest with CMS.”

CLICK HERE to see the letter sent to the Centers for Medicare and Medicaid.

###

CONTACT:

Chris Cinquemani, Vice President

239.244.8808 (o), 207.240.7090 (m), chris@floridafga.org

Download the report: Florida’s Medicaid Reform Shows the Way to Improve Health, Increase Satisfaction, and Control Costs

Background

• Florida passed Medicaid Reform Pilot for 5 counties with bipartisan support in 2006

• Shift heath care from the government-controlled status quo toward patient-centered care

• Goals: greater choice, expanded services, improved access to specialists, higher health outcomes, ability to opt-out for private coverage, & increased patient satisfaction

Greater Choice and Control for Patients

• Increase patient choice by expanding number and types of plans offered

• Patients deserve the power to choose, and the ability to reward good plans

• Reform Pilot patients can choose among 2 and 11 plans, depending on county

• Ability to choose plan that best meets patients’ unique health needs

Lower Costs for Taxpayers

• Per enrollee costs for Reform Pilot counties are flat over last five years

• Reform Pilot has already saved Florida taxpayers $118 million annually

• If implemented statewide, Reform would save Florida taxpayers up to $901 million annually

• Reform Pilot achieves 16.8% savings per person for families and children, and 10.9% savings per person for elderly and disabled compared to estimated Florida averages

The Patient is the Priority

• Reform Pilot plans feature 12 additional services (7 extra offered in one or more plans)

• Access to and satisfaction with specialists for Reform Pilot enrollees at or above national averages for Medicaid and commercial plans

• Reform Pilot patient health outcomes exceed national Medicaid average in 53% of target areas, and near national average in another 15%

• Reform Pilot patients offered over $31 million in financial incentives for better health behavior

• Premiums for Reform Pilot patients are stable and predictable

• Reform Pilot patients report significantly higher rate of satisfaction than traditional Medicaid enrollees and commercial HMO enrollees

________________________________________________

CLICK HERE to download the report.

During its five years of operations, Florida’s Medicaid Reform Pilot has been a decided success. It has improved the health of enrolled patients, achieved high patient satisfaction, and kept cost increases below average, saving Florida up to $118 million annually. Since then, Florida has passed its Statewide Reform, which promises to extend these benefits throughout the state, build on the lessons learned from the pilot program, and save up to $901 million annually. If Florida’s Medicaid Reform Pilot experience were replicated nationwide, Medicaid patient satisfaction would soar, health outcomes would improve, and Medicaid programs could save up to $28.6 billion annually.

That was the message FGA President and CEO Tarren Bragdon delivered to members of the Florida Government Efficiency Task Force during his testimony in Tallahassee last week.

You can hear Tarren’s testimony HERE (beginning at 7 min, 28 sec).

During his testimony, Tarren used a PowerPoint presentation to highlight FGA research in the area of Florida Start-Ups and the estimated costs of bureaucratic delay on the entrepreneur, the potential employees and the State.

Some noteworthy findings presented to the Government Efficiency Task Force:

• 254,00 – Number of new jobs created by Start-Ups established in 2005
• 7 in 10 – Number of jobs from 2005 Start-Ups remaining today
• $775 - Estimated loss of income for potential employees caused by just one week of bureaucratic delay
• $23 million – Estimated cost to the State for one week of bureaucratic delay of a Start-Up

To see all of the information presented at the Government Efficiency Task Force, including additional research findings and discussions on potential reforms to reduce bureaucratic delay, be sure to listen to Tarren’s testimony and take a look at his presentation online.

ABSTRACT

Florida’s Welfare Cash Assistance Drug Testing requirement has been law for one full quarter.  Florida is the first state in the last decade to implement a drug testing requirement for adults otherwise eligible for welfare cash assistance (TCA).  The impact of the new law has been profound, with a 48 percent drop in monthly cash assistance approvals, 19 percent of otherwise eligible applicants being denied for a drug-related reason, and savings of $30.64 for every one dollar spent on the new requirement.  At the county level, eleven Florida counties have a drug-related denials rate of greater than one in three, while ten counties have had no drug-related denials over the full three months.

BACKGROUND

Beginning in July 2011, Florida began requiring adults who were otherwise eligible for welfare cash assistance to submit a negative drug test before receiving benefits.  Since the program has been in effect for a full quarter, this report looks at the state’s experience during these first three months, and updates projections of the law’s likely fiscal impact during the first full year of operation.  The program is currently subject to a lawsuit in federal court filed by the ACLU of Florida challenging the constitutionality of this requirement, which is explicitly allowed by federal law.

FIRST QUARTER RESULTS

• 48% drop in cash assistance approvals since drug test requirement

The impact of drug testing for welfare cash assistance is having a dramatic impact on approvals for cash assistance.  Approvals for September 2011 (for cash assistance applicants for eligible adults subject to the drug testing requirement) were 62 percent lower than September 2010 and 48 percent lower than in June 2011, the month before the drug testing requirement took effect.[1]

This reduction is exclusive to cash assistance.  Food Stamps and Medicaid approvals are consistent with levels seen throughout 2010 and to date in 2011, as shown in Chart 1.

• $58,000 in drug testing fees reimbursed

In the first quarter, 7,028 applicants completed the drug test and tested negative for drug use, completing their eligibility requirements for welfare cash assistance.  Of these 7,028 approved applicants, only 2,163 adults (from 1,971 families) requested and received reimbursement for their drug testing fees.  That means just 28 percent of approved applicants have requested and received reimbursement in the first quarter.  Average reimbursement per adult is $26.78 with a total of $57,920.95 in testing fees reimbursed.

• 19 percent (First Quarter) and 35 percent (September 2011) of otherwise eligible applicants received a drug-related denial

For the 7,028 welfare cash assistance applicants approved in the first quarter of the drug testing requirement, another 1,629 were denied for a drug-related reason.  All but 32 of these denials were because the applicants did not get the required drug test at one of 350 drug testing sites across the state.  Thus, in the first quarter, 19 percent of otherwise eligible applicants were denied for a drug-related reason.  For September, these drug-related denials were an astounding 35 percent of all otherwise eligible applicants, as shown in Table 1 on page 3.

• $1,125 –taxpayer savings for each drug-related denial

The Department of Children and Families reports that the average cash assistance recipient family with an eligible adult receives a monthly cash benefit of $250 and receives cash benefits for an average of four and one-half months.  Thus, each drug-related denial results in savings to taxpayers of $1,125 ($250 average monthly benefit times 4.5 months).[2]  Using this average savings, Table 1 shows that the total first quarter savings from all drug-related denials is $1.8 million.  Monthly savings from August and September denials account for almost all of this $1.8 million.  This suggests that total annualized savings from the drug testing requirement could approach $11 million, based on the experience in August and September projected forward for a full 12 months.

• $30.64 –savings for every $1 spent reimbursing drug test fees for those testing negative

With almost $58,000 spent reimbursing drug test fees and total savings from drug-related denials at $1.8 million, the drug test requirement is saving Florida taxpayers $30.64 for every $1 spent.  More importantly, that is $1.8 million in welfare cash denied to individuals unwilling to confirm it will not be used to subsidize an illegal drug addiction.

County-Level Results for Florida’s 67 counties

County-level reporting for the first quarter shows that drug-related denials vary dramatically by county.  In Liberty County, there was a 100 percent drug-related denial rate as the one otherwise eligible applicant never went for a drug test.  However, in Hendry and Jackson Counties, half of otherwise eligible applicants were denied for a drug-related reason.

Table 2 shows county-level denials for the first quarter.  Eleven counties have a drug-related denial rate of 33 percent or higher.  And ten counties had NO drug-related denials.  Interestingly, rates do not vary significantly based on the number of drug testing sites in the county, also shown in Table 2 on pages 4 and 5.  Counties with no drug-testing sites have some of the lowest rates of drug-related denials.

National Implication

If Florida’s policy were replicated nationwide, the fiscal savings would be substantial.  According to the U.S. Department of Health and Human Services, there was an average of 140,842 Temporary Assistance for Needy Families (TANF) applicants approved each month during Fiscal Year 2011.[3] If, like in Florida, a similar 19 percent were denied for drug-related reasons (26,760) with a similar annualized savings as Florida’s, then nationally, a drug testing requirement just for new applicants for just TANF alone could save American taxpayers more than $361.3 million every year.  Even accounting for the expense of reimbursing all testing costs for negative results ($26.78 times 114,082 applicants monthly with a negative test =  $3,055,116) would achieve net savings of  $324,598,338 annually for federal and state budgets.

Conclusion

The first quarter results show the dramatic impact of Florida’s drug testing requirement for applicants for welfare cash assistance.  This requirement has led to a dramatic 48 percent drop in monthly approvals, an overall drug-related denial rate of 19 percent, and almost $1.8 million in savings to taxpayers.  Denials vary greatly by county, with at least one in three applicants being denied for a drug-related reason in 11 counties and no drug-related denials in another ten counties.

The Foundation for Government Accountability will continue to monitor the impact of Florida’s drug testing requirement with regular reports.

Sources:

1. All data taken from a public records request to the Department of Children and Families completed on October 7, 2011, unless otherwise noted.

2. Department of Children and Families public records request on October 10, 2011.

3. “TANF: Average Number of Applications Approved: Fiscal Year 2011.” U.S. Department of Health and Human Services’ Administration for Children and Families.  July 25, 2011.  Available at: http://www.acf.hhs.gov/programs/ofa/data-reports/caseload/applications/tanf_fy_tappsapprv_2011.htm

View a PDF of the report

Background

In May 2011, the Florida Legislature passed and Governor Rick Scott signed into law HB 353[1] requiring applicants for Temporary Cash Assistance (TCA, Florida’s Temporary Assistance for Needy Families program) to have a negative drug test before receiving cash benefits. Federal welfare reform legislation signed by President Clinton in 1996 specifically allows states such discretion.[2]  Florida’s Department of Children and Families implemented the drug testing requirement on July 1, 2011.  On September 7, 2011, the American Civil Liberties Union of Florida announced a lawsuit challenging the constitutionality of the new law.[3]

Drug Testing Process

Not all cash assistance applicants are required to get a drug test.  According to Department of Children and Families (DCF) officials, agency specialists perform an initial screening to determine if an applicant is otherwise eligible before requiring a drug test.  This is important as typically 37,400 applicants for TCA are processed monthly, but only about 7,000 (19 percent) are determined eligible and given cash assistance.[4]

DCF tests 10 major categories of drugs.[5]  Most drugs have to have been used within the past few days to be detected, although some are detected in a urine sample as long as six weeks after usage (42 days)[6], as shown in Table 1.

Applicants must pay for the test themselves (about $30) at one of more than 340 approved sites statewide.[7]  However, if they test negative for drugs, the State reimburses the cost of the test with the first month of cash assistance benefits.  Those who test positive for drug use are ineligible for cash assistance for one year, but may reapply after six months if they provide proof of completing substance abuse treatment. 

Given this, applicants who are drug users have a big incentive to never get tested at all (since the TCA application requires that all drug test results are reported to DCF).[8]  From the perspective of the applicant, to not complete the application process is better (and cheaper) than testing positive for drug use and definitively losing eligibility for six months to a year. 

A Temporary Cash Assistance application remains active for 45 days before it is closed for being incomplete (if no drug test is ever completed).[9]  Therefore, applicants who apply in one month (say July) but do not complete the drug test will likely have their application closed and be denied cash assistance the following month (August).

Levels of Reported Drug Use and a Past Florida Pilot Program

According to a 2009 federal survey, 4.5 percent of pregnant women aged 15 to 44, 10.6 percent of non-pregnant women in the same age category, and 17.0 percent of unemployed adults used illicit drugs during the month prior to being surveyed.[10]  These major categories provide some possible benchmarks against which DCF results could be measured.

In addition, a decade ago a State-funded pilot program in Jacksonville that drug-tested cash assistance applicants reported a 3.8 percent positive test rate.[11]

Initial Results in Florida

To truly understand the results of this new policy it is critical to note that denials for incomplete applications due to missing drug test results do not appear until the following month.  This is shown in Table 2 and in the DCF data. 

Almost all drug-related denials by DCF are for missing drug test results.  According to DCF, in July there were only 9 applicants denied for a drug-related reason, but the number of drug-related denials climbed to 565 in August (reflecting the one month lag).  Of these 574 total drug-related denials, only 9 were for a positive test. [12]   Almost all remaining applicants never completed a drug test even though these individuals completed all other steps in the application process and were determined eligible once DCF received negative drug test results.

As previously noted, it can be assumed that all drug-related denials in July 2011 (9) and August 2011 (565) were for July applicants, given the time lag for closed applications due to missing drug test results.   

Table 2 shows that for July, 9.6 percent of otherwise qualified applicants for cash assistance were denied for a drug-related reason.  With an approximate annual savings to the state of $1,608 per drug-related denial (see Table 3), these 574 denials from July 2011 represent annualized savings to Florida taxpayers of $922,992.  The cost of reimbursing the 5,390 approved applicants with a negative drug test ($30 average for each) reduces this annualized savings figure by $161,700, for a net savings to taxpayers of $761,292 for the first month of the program alone.  Since Florida’s initial denial rate is 9.6 percent, the State is currently saving an estimated $5.71 on drug testing for every $1 it spends reimbursing approved applicants with negative drug tests who ultimately receive cash assistance. If these July trends continue throughout the first year, the drug testing requirement will save Florida taxpayers $9,135,504 from July 2011 through June 2012.

What is unclear is why the total number of cash assistance approvals in July, even if all drug-related denials were to have been approved, is about 10 percent lower than June 2011. 

Last year, July 2010 approvals were higher than in June 2010.  August 2010 was higher than both June and July 2010.  Thus, this does not seem to be a seasonal fluctuation as the experience during the 2010 summer months was much different than during the 2011 summer months.  It may be a result of otherwise qualified drug users not even applying given the recent drug test requirement.  This trend will be studied further in future reports.  Given the significant decline in August 2011 approvals, it appears to be a very significant trend and quite likely related to the drug testing requirement, as the economy did not change radically from June through August.

As also shown in Table 3, for the program to generate savings for the State of Florida, just 1.87 percent of those who would otherwise be approved for cash assistance would have to be denied for a drug-related reason.  Remember, July 2011 drug-related denials totaled 9.6 percent of otherwise qualified applications—much higher than the 1.87 percent break-even point.

Policy Recommendation: Expand Drug Testing to Current Recipients

Given the positive initial experience of Florida’s cash assistance drug testing requirement, the Foundation for Government Accountability recommends the program be expanded to include testing of all current recipients of cash assistance as well.

Drug Testing Requirements Becoming More Common in Other States

Drug testing for public assistance applicants is being considered in at least ten states this year, and has already passed in Missouri.[13]  Arizona already drug tests welfare applicants.[14]  In addition, in July Indiana became the first state to require drug testing for state-funded job training programs.  A positive test in Indiana does not affect the individual’s unemployment benefits, which are separately administered.[15]  Last week, Linn State Technical College, a public two-year college in Missouri, announced it was drug screening the general student body.[16]

Given the initial experience in Florida, this trend will likely continue and accelerate across the nation.

National Implication

If Florida’s policy were replicated nationwide, the fiscal savings would be substantial.  According to the U.S. Department of Health and Human Services, there was an average of 140,842 Temporary Assistance for Needy Families applicants approved each month during Fiscal Year 2011.[17] If, like in Florida, a similar 9.6 percent were denied for drug-related reasons (13,520) with a similar annualized savings as Florida’s, then nationally, a drug testing requirement just for new applicants for just TANF alone could save taxpayers more than $173.3 million every year.  Even accounting for the expense of reimbursing testing costs for negative results ($30 times 122,322 applicants monthly with a negative test = $3,819,660) would achieve savings of $10,620,589 monthly or almost $127,447,068 annually for federal and state budgets.

Sources

The findings are startling, particularly when you consider that Florida’s health insurance markets are similar to Wisconsin’s in how they are currently regulated, although Florida has more mandates.

The short takeaway – if you like the plan you have now, you will likely lose it and pay a lot more.

By the numbers, the impact of ObamaCare on Wisconsin is estimated to be as follows (for perspective, note that Florida is about 3.3 times larger in population than Wisconsin):

• 40% of individuals buying insurance outside their employer will be forced to buy more expensive plans because of the new federal mandates and regulations
• The individual insurance market will shrink by 150,000 (equivalent of 495,000 in Florida)
• 100,000 employees will be involuntarily dropped from their employer coverage as their employer will stop offering health insurance (330,000 equivalent in Florida)
• Even taking into account tax credits and subsidies in the much-touted exchange, 59% of the individual market will receive an average premium increase of 31%
• 53% of individuals working at small employers will receive an average premium increase of 15%
• 46% of those individuals who start receiving taxpayer-financed subsidies will already have coverage (currently are not uninsured), just moving to subsidized coverage – if the individual mandate stands

Most interesting, if the individual mandate is declared unconstitutional by the U.S. Supreme Court, as it was by the 11th Circuit Court of Appeals in ruling on Florida’s lawsuit, only 62,000 more Wisconsin individuals (just 1 in 9 of those currently uninsured in WI) are estimated to become newly insured because of ObamaCare.  (For Florida, only reaching 1 in 9 uninsured would mean 3.39 million would remain uninsured in Florida and just 423,000 would become newly insured.)

Lots of higher costs for everyone with coverage now and few newly insured – unfortunately that may be the ObamaCare legacy if it is not repealed, replaced or amended by Congress.