By Jonathan Ingram, Director of Research

Executive Summary

Supporters of the Affordable Care Act’s optional Medicaid expansion have made a series of promises to Florida lawmakers as they decide if the government health program should include parents and childless adults earning up to 138 percent of the federal poverty level. These promises include a reduction in the rate of uninsured, gradual enrollment increases, low and predictable costs, and a reduction in the amount of charity care.

These same promises were made in other states that previously expanded their own Medicaid programs. Because of this, Florida lawmakers now have an opportunity to see how Medicaid expansion impacted those states, and if
supporters’ promises were actually kept.

This report takes a closer look at Arizona, Maine and other states that expanded Medicaid. It finds that, unfortunately, expansion supporters have a poor track record of keeping promises.

• Enrollment among the expansion populations was much higher and faster than the slow and gradual enrollment that was projected.
• Medicaid expansion had little impact on the rate of uninsured. Arizona’s uninsured rate actually increased in the five years after expansion, while Maine’s did not change.
• Per-person costs for the new expansion populations were much higher than projected—particularly for the childless adult populations.

The experiences of these other states are instructive for Florida lawmakers. In those states, promises made by supporters of Medicaid expansion were unable to be kept. The same will likely be true for Florida if lawmakers ultimately decide to expand.

READ THE FULL REPORT (pdf)

By Jonathan Ingram, Director of Research

EXECUTIVE SUMMARY

As a result of the U.S. Supreme Court decision upholding the federal Affordable Care Act, Florida policymakers are forced to decide whether or not they should expand the state’s Medicaid program to cover individuals earning up to 138 percent of the federal poverty level.

Whichever decision they reach will impact the state’s long-term finances, overall patient health, and taxpayers’ bottom line.  The decision is made even more difficult due to a lack of consistent projections related to costs (both short and long term), participation rates, and per person spending.

Myriad academic and advocacy groups have generated projections on the impact of Medicaid expansion in Florida.  However, the projections lack consistency—varying widely from one another.  This should be a red flag to policymakers.

• Over the next ten years, Florida will spend $270 million on Medicaid if the state does not expand.  Spending climbs to $341 billion over the decade if expansion occurs.
• In other states, providing Medicaid coverage for childless adults costs anywhere from 67 percent to four times the cost of providing coverage to parents.
• Looking at expansion scenarios for Florida given the actual experiences in other states leads to a wide range of possible costs for the expansion population ten years out–from a lowest cost projection of $4.1 billion to a highest cost projection of $19.5 billion.

Without a clear understanding of how Medicaid expansion will affect patients and taxpayers, the best decision for Florida policymakers would be to reject expansion.  At the very least, they should delay their decision until they can see the results of expansion in other states.

READ THE FULL REPORT (pdf)

The individual mandate that forces people to pay federal penalties if they don’t buy federally-approved health coverage they may not want or need.  An employer mandate that drives up the cost of doing business. And, the more than 20 new or increased taxes that ObamaCare imposes on families and businesses.

ObamaCare raises a lot of money for the government to spend, but where is it all going?

Some states will put more people on the broken Old Medicaid program that is failing patients and taxpayers.  Others will funnel billions through health insurance exchanges, which are new federal bureaucracies designed to regulate and subsidize health insurance.  Think of these exchanges as having to buying health insurance at the DMV.

And then there’s the ObamaCare slush fund.

Officially the Prevention and Public Health Fund, this little-known component of ObamaCare directs $10 billion to state and local health promotion programs through 2019—and requires a startling $2 billion in funding each year in 2020 and beyond.

Although the Fund must statutorily “improve health and help restrain the rate of growth in private and public sector health care costs,” the federal government will give billions to health prevention programs before finding out if they even accomplish these goals.

And unlike the typical federal budgeting process, the U.S. Department of Health and Human Services (HHS) and its subagencies unilaterally determine how much of the money is spent.  To date, Florida grantees were awarded more than $118 million in 170 awards from the Fund.  Of these $118 million in grants, $30 million went to the state of Florida, $40 million to Florida non-profits, $30 million to Florida county or city governments, and $11 million to for-profit Florida companies.[1]

When “Public Health” Means the Nanny State

The U.S. spends about $24 billion annually funding “public health,” a term whose definition has changed over time.[2]

Traditionally, “public health” activities meant controlling communicable diseases, like tuberculosis or smallpox.  But as these diseases were brought under control and life expectancy increased, federal public health programs veered away from disease treatment and prevention, and towards regulating lifestyle choices, like eating, drinking, or smoking.

For example, the U.S. Centers for Disease Control and Prevention (CDC) was established during World War II as a unit of the U.S. Public Health Service, and charged with malaria control in war areas.  Today, only two of the CDC’s eight “CIOs” (“centers, institutes, and offices”) are formally charged with the prevention of infectious diseases.[3]

Grants from ObamaCare’s Prevention and Public Health Fund have followed a similar pattern.  Since the Fund began disbursing grants in 2010, a majority of funds have been allocated to influencing lifestyle and behavior choices like nutrition,
physical activity, and tobacco control:

Prevention and
Public Health Fund: Major Grants by Year, 2010-2011

Source: U.S. Centers for Disease Control and Prevention[4]

When “Education” Means Lobbying

A closer look at the grants reveals an even more disturbing trend—federal dollars used for lobbying.

The watchdog group Citizens Against Government Waste reports that the Fund’s Community Transformation Grants  (CTG) not only support efforts to modify behavior through anti-obesity campaigns, but also fund advocates who call for increased taxes and regulations on soda, cigarettes and even whole milk.[5]  The CDC reports that to date, CTG has awarded $173 million and will “improve the health of more than 4 out of 10 U.S. citizens.”[6]

CTG’s sister initiative, Communities Putting Prevention to Work (CPPW), has faced similar criticism.  This CDC program, which began as part of the 2009 stimulus and continues to receive federal dollars through the Fund, offers grant making to local health promotion programs nationwide.

Miami-Dade County in Florida is one of 44 localities to receive CPPW funding.[7]  In 2010 the County received $14.7 million to launch the “Make Healthy Happen Miami” initiative charged with reducing obesity by, among other things, installing federally-reimbursable, healthy vending machines; supporting policies that encourage breastfeeding; and installing 50 bike racks in North Miami.[8]

Unsurprisingly, the initiative did little to affect overall obesity outcomes.  According to the Robert Wood Johnson Foundation’s County Health Rankings, the adult obesity rate in Miami-Dade was 21% in 2010, the year the CPPW grant was awarded.  In 2012, the adult obesity rate increased to 24%.[9]

Miami-Dade’s CPPW activities might be viewed as ineffectual.  But in other localities, some CPPW activities may actually be illegal. In June, HHS Inspector General Daniel Levinson reported inappropriate lobbying activities by some CPPW grantees, which violates federal laws and regulations prohibiting the use of federal funds to influence federal, state, or local officials.

Specifically, CPPW applicants were asked to provide “a comprehensive plan to reduce tobacco use through legislative, regulatory, and educational arenas” and that some of the strategies encouraged by the CDC included zoning restrictions, labeling initiatives, and changing the prices of healthy and unhealthy items.

Levinson concluded that “some of the CDC information, as well as the non-CDC resource materials posted to the CDC Web site appear to authorize, or even encourage, grantees to use grant funds for impermissible lobbying.”[10]

The Futility of Government Prevention Efforts

Let’s imagine for a moment that it’s the proper role of the federal government to fund “for your own good” programs that regulate lifestyle choices.  Let’s also imagine that all CTG and CPPW funds have been used in an ethical manner.  The question still remains: Do federal health promotion programs really work?

In 2009, Congressional Budget Office (CBO) Director Doug Elmendorf was asked to determine if federal health care costs would be reduced if the government expanded support for preventive care and wellness.  Elmendorf concluded:[11]

“Although different types of preventive care have different effects on spending, the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall.

“That result may seem counterintuitive.  For example, many observers point to cases in which a simple medical test, if given early enough, can reveal a condition that is treatable at a fraction of the cost of treating that same illness after it has progressed. … [But] to avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway.”

The CBO similarly found that expanded government support for wellness services, like encouraging healthy eating and reducing smoking, have little effect on reducing federal health costs because “designing government policies that are effective at inducing people to be healthier is challenging.”[12]

What’s Next?

Some officials have proposed reducing or eliminating the Fund to relieve federal budgetary pressures.  In February, Congress agreed to cut the Fund’s spending from $15 billion to $10 billion in order to preserve jobless benefits, Medicare payments to doctors, and the temporary payroll tax cut.  And with the “fiscal cliff” looming, the Fund may again be on the chopping block as Congress looks to make further cuts.

Because of federal fiscal uncertainty, states would be wise to avoid soliciting Fund grants to bolster existing health promotion programs.  But more importantly, lawmakers should reject these “for your own good” lifestyle interventions that are
costly, bureaucratic, and simply don’t work.

Click HERE for a PDF of the report.

Tarren Bragdon is chief executive officer of the Foundation for Government Accountability, a Naples-based free market think tank.

Sources

Some states will celebrate.  Others will cringe.  Policymakers, bureaucrats and child advocates are sure to thumb through the pages of the first-annual Right for Kids Ranking to see how their child welfare system compares to every other states’ and the District of Columbia’s.

The 2012 Right for Kids Ranking, authored by Foundation for Government Accountability Chief Executive Officer Tarren Bragdon, is a first-of-its-kind report that scores each state’s child welfare system performance overall, and in 11 key outcome areas.  The ranking methodology relies on 41 different data measures uniformly reported to the federal government, and a state’s 2012 ranking compared to its ranking in 2006.

A state’s child welfare system typically operates out of the public eye unless a tragedy, often the death of a child, pulls the system from the shadows to the front page.  It shouldn’t be this way, Bragdon said.  1,770 children in America die from abuse each year, and at least 740,000 more are abused or neglected.  The Right For Kids Ranking shows which states are doing the best job for vulnerable kids, and serves as a guide for states to improve in the 11 key outcome areas.

The report identifies the overall Top Five Right for Kids states as: Idaho (1), New Hampshire (2), North Carolina (3), Florida (4), and New Jersey (5).  The Bottom 5 Wrong for Kids states are: South Dakota (47), Illinois (48), Oregon (49), Massachusetts (50), and Washington D.C. (51).  RightForKids.org, a companion Web site to the report, presents nine years of child welfare data in an interactive way, and allows users to chart information unavailable in the report.

A state’s overall rank is important, but its rank in each of the 11 key outcome areas is also meaningful.  A state may perform well overall, but may need improvement in a specific outcome area.

New Hampshire ranks second overall in the 2012 Right for Kids Ranking, but ranks 36^th in Outcome 4—length of time before a state safely returns children to their biological families whenever possible and appropriate.

The Granite State could learn how to improve its Outcome 4 performance from a state like Mississippi.  Although Mississippi ranks a disappointing 43^rd overall, its Outcome 4 fourth place rank is impressive.

A rare showing of bipartisanship made it easier for a state’s child welfare system performance to improve.  Last fall, Congress gave states tools for child welfare reform, including flexible funding waivers with the freedom to dedicate resources toward prevention strategies.

Every state, regardless of their overall rank, can and should improve its child welfare performance, Bragdon explained.  Now that Congress has given states the tools and flexibility, governors and state policymakers should use the 2012 Right for Kids Ranking as a handbook to guide reform.

###

Read the full report here

Visit the companion website at www.RightForKids.org
________________________________________________________________

CONTACT:
Chris Cinquemani, Chief Operating Officer
239.244.8808 (o), 207.240.7090 (m) chris@FloridaFGA.org

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.

NAPLES – Job creation isn’t the only reason policymakers should explore ways to fast-track the creation of start-up businesses in Florida.  A new report by the Foundation for Government Accountability (FGA) indicates that bureaucratic red tape delaying start-ups causes big costs to out-of-work Floridians and state and federal taxpayers.

In The Cost of Bureaucratic Delay, FGA economist Joseph Burke, PhD, calculates the fiscal impact of delaying by just one week the creation of Florida start-ups to unemployed workers, and federal, state, county and municipal governments.

For an out-of-work Floridian receiving an unemployment check, a one-week delay costs an average of $900 in net lost wages and benefits.  Florida’s 2009 start-ups created 173,236 new jobs.  If those new jobs were delayed by just one week, the unemployed workers who would go on to find jobs as a direct result of start-ups would lose a total of more than $155 million in forever lost wages and benefits.  That compensation would go a long way toward financial security for out-of-work Florida families.  Their economic opportunity is forever lost because of bureaucratic delay.

“Start-ups are the drivers of job creation in Florida, but bureaucratic red tape is delaying start-ups and robbing out-of-work Florida families of good jobs, more pay, and freedom from government dependence,” said FGA Chief Executive Officer Tarren Bragdon.

Lost wages to out-of-work Floridians are not the only result of bureaucratic delay.  As a consequence of additional unemployment compensation and forever lost tax revenue, taxpayers also the sting of delay.  The report finds that delaying a single start-up just one week costs the state of Florida $288, while a one-week delay to a single start-up costs the federal government $1,393.  Delaying all Florida start-ups created in 2009 by just one week cost the state and federal governments about $9.9 million and $47.7 million respectively.

“Promoting start-up creation achieves two critical goals; putting Floridians back to work, and increasing revenue, without tax hikes, to a state and federal government consistently strapped by budget shortfalls,” Bragdon explained.  “Start-ups are the key to Florida’s economic recovery.  Future policies must reflect this critical point.”

Counties and municipalities also experience costs of delay, but far less than their state and federal counterparts.  Delaying a single start-up by one week costs the average county government $51.00 in declining property values and costs the average municipality just $19.00.  In total, delaying all 2009 start-ups by one week cost counties only $1.74 million and municipalities only $670,000.

“Regardless of who is to blame for delaying the creation of start-ups, there is a significant ripple effect throughout the entire system.  The consequences of red tape and inefficiencies are too great to ignore.  Out-of-work Floridians are being robbed of new jobs and greater economic freedom, and cash-strapped governments are losing revenue,” Bragdon said.  “We must cut the red tape, get government out of the way, and fast-track the creation of Florida start-ups.”

CLICK HERE to read The Cost of Bureaucratic Delay.

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CONTACT

Chris Cinquemani, Vice President

239.244.8808 (o), 207.240.7090 (m)

chris@floridafga.org

The bill, offered by Governor Scott, requires a constitutional amendment.  If it passes the full Legislature, Floridians will vote on the measure in November.

The Foundation for Government Accountability (FGA) engaged early on.  We had regular discussions and meetings with the House sponsor, Rep. Eric Eisnaugle, staff from the Senate sponsor of a companion bill, Sen. Nancy Detert, and the Governor’s office.

An earlier version of the proposal did not include county and municipal option to enact even greater TPP relief.  FGA Chief Executive Officer Tarren Bragdon and Senior Fellow for Tax Policy Joyce Errecart urged the inclusion of the local option, sharing research that confirmed such a reform would truly make Florida the Tax Haven of the South.

No state in the Southeast or Southwest instituted such meaningful business tax relief.  Tarren shared this information with members of the Committee during his testimony this morning, and each member received the overview document we prepared explaining how the reforms would make Florida more competitive for business investment and growth, and the positive impact the local option flexibility had in the state of Vermont.

Meaningful business tax relief like that accomplished by the Governor’s proposal is critical to creating jobs and improving the Florida economy.  There are more steps in the process before this proposal is voted by the Chambers and put to the voters in the November, but FGA will be there every step of the way.

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.”

###

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

Encourage Business Investment and Create New Jobs with Lower Personal Property Taxes and Local Freedom and Flexibility

Background:
Tangible Personal Property (TPP) taxes are property taxes that must be paid every year on TPP such as business equipment, machinery and furniture, in addition to property taxes on real estate and sales taxes on purchases of TPP.  Current law exempts the first $25,000 in value from any property tax.

HJR 1003/SB 1062 Strengthens Florida’s Business Climate:
As part of Governor Rick Scott’s Jobs Plan, these companion proposals amend the Florida Constitution to create Tangible Personal Property Tax Relief, making it more affordable for Florida businesses to grow and create more private sector Florida jobs.  Most importantly, the constitutional amendment accomplishes the following:

• A new exemption from TPP taxes is created for businesses with less than $50,000 in personal property.
• Provides a county or municipality the freedom and flexibility to create greater TPP business tax relief to meet their community’s unique needs and economic goals.

• Enacted local option to repeal TPP from municipal taxes in 1991.
• 210 of 272 municipalities exempt tangible personal property from municipal property tax (as of 2011).
• Most notable repeal: Essex Junction – site of Vermont’s largest manufacturing facility – which repealed TPP tax over a period of years to ease the impact on the property tax base.
• Many towns that continue to tax tangible personal property have quarrying operations, ski area, or older factory buildings.
• Town of Waterbury – location of major companies including Ben & Jerry’s and Vermont Coffee Roasters – has exempted TPP.

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.