A report authored by the Naples, Florida-based Foundation for Government Accountability (FGA) and the Washington, D.C.-based Tax Foundation takes a close look at a tax most taxpayers are unaware of, but hits hard at many businesses’ bottom line.

The report, States Moving Away From Taxes on Tangible Personal Property, was authored by FGA Senior Fellow for Tax Policy Joyce Errecart, and the Tax Foundation’s Ed Gerrish and Scott Drenkard.  It provides a detailed explanation of tangible personal property taxes (taxes, typically targeting businesses, charged on the value of items such as furniture and manufacturing equipment), an overview of TPP tax policies across the states, and why states are moving away from TPP taxes as a source of revenue.

This November, Florida voters will vote on Amendment 10, which seeks to increase the amount of equipment a business can own before being subjected to tangible personal property taxes, and gives counties and municipalities the ability to reduce TPP taxes even further, or eliminate them entirely.

“This report shows that the tangible property tax is a particularly bad tax,” Errecart said.  “It can be burdensome, especially for small businesses, and can cause economic distortions.  In Florida, we need to reduce this tax, and let small businesses can do what they do best—create jobs. “

Upcoming publications by the Foundation for Government Accountability will discuss more directly what Amendment 10 means for small businesses in Florida, and the out-of-work Floridians hoping entrepreneurs will have the resources to grow and create more jobs.

Download report here (PDF)

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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.

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.

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

Start-Up Companies Created More Than 1 Million Jobs from 2005-2009

NAPLES – Start-up companies in Florida created nearly 1.5 million jobs between 2005 and 2009, indicating that newly-launched companies are the drivers of job creation in the state, according to a new report released today by the Foundation for Government Accountability (FGA).

The report, Job Growth Overview: Start-Up Companies are Florida’s Top Job Creators, was authored by FGA economist Dr. Joseph Burke, and is the first report of the think tank’s Start-Up Florida initiative, a wide-ranging effort to research and raise awareness of the policies that impact start-up entrepreneurs, and advocate meaningful reforms to promote job creation in the state.

“Start-up companies are Florida’s top job creators.  Our policies must help start-up entrepreneurs open their doors sooner, hire their first employees quicker and get Floridians back to work,” said FGA Chief Executive Officer Tarren Bragdon of the Start-Up Florida initiative.

Since 2005, start-ups created a net total of 788,256 jobs in Florida (job creation minus job destruction).  In that same time, net total job creation from all types of establishments—start-ups, existing firms and firms that relocated to the state—was 159,836. Had it not been for start-ups, Florida would have experienced significant negative job growth since 2005 instead of modest job gains.

Other key findings from the report:

• 1.475 million – total jobs created by Florida start-ups established between 2005 and 2009
• 217,558 – average number of new jobs created by Florida start-ups annually
• 788,256 – number of net jobs created by Florida start-ups since 2005
• 159,836 – number of net jobs created in Florida by all types of establishments since 2005
• 44,295 – average number of start-ups established each year (2005-2009)

The recession has had a significant impact on the launching of Florida start-ups.  Since the recession began in 2007, the average number of start-up companies created annually is down 23.5 percent.

“Promoting start-ups is the key to Florida’s economic recovery.  Reducing the time and cost it takes entrepreneurs to launch start-ups will encourage job creation and help put more Floridians back to work,” Burke writes.

Future Start-Up Florida reports will delve into specific policies at the state and local level that impact start-ups, and a more in-depth look at how policies impact specific industries within the state.

“The conventional wisdom that small businesses are the key to job creation is incomplete,” Bragdon said.  “To create jobs and help get people back to work requires a complete picture of what’s working, and that picture must include start-ups.  Start-ups are Florida’s top job creators.  They are the crucial to lifting Florida from this recession.”

CLICK HERE to read the report.

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

Download the report: Job Growth Overview: Start-Up Companies are Florida’s Top Job Creators

Abstract
Florida’s start-up companies have driven job creation throughout the recession. New start-ups have created 1.475 million jobs in the state of Florida between 2005 and 2009. Net job creation by Florida start-ups—job creation minus job destruction—was 788,256 since 2005. Without start-up activity, Florida would have lost more jobs than were created over this period. This paper presents an analysis of the contribution of start-ups compared to older firms to job creation in the state of Florida over the last fifteen years.

Introduction
Net job creation has always been driven by start-up activity.  On average, new start-ups create about 217,558 jobs in Florida each year.

Net job creation is job creation minus job destruction. Policymakers wanting to increase net job creation can focus on either encouraging job creation or reducing job destruction. Job creation is driven by start-up activity, and job destruction is driven by older firms. Net job creation from firm relocation to the state is an insignificant contributor net to job growth in Florida.

Net job creation can be positive or negative, with negative net job creation referred to as net job destruction. Net job destruction was 404,624 in Florida in 2009, meaning that about 400,000 more jobs were destroyed than were created in Florida that year. In Florida that year, 915,172 jobs were created and 1,319,796 jobs were destroyed.

Jobs are created and destroyed by firms, and firms are composed of establishments. Job creation can occur either by opening new establishments or expanding existing establishments. Similarly, job destruction can occur either by contracting or downsizing at existing firms or by closing establishments. In the language of the Census Business Dynamic Statistics (BDS) database, jobs created by opening new establishments are called births and jobs destroyed by closing existing establishments are called deaths.

A start-up is a firm in its first year of business. This follows the definition used in other research of start-ups (Kane 2010). In the BDS statistics, a start-up is a firm of age zero. A new start-up is a firm that was established in 2005 or later, with one exception. In Chart 1, start-ups refer to start-ups founded in the corresponding five year period.

Table 1 shows job creation, destruction, and net job creation in Florida from 2005 to 2009. These data come from the BDS database. Comparing 2009 to 2005 shows that job creation decreased by almost the same amount that job destruction increased—Florida created 400,000 fewer jobs and lost 300,000 more jobs in 2009 than it did in 2005.

Cumulative net job creation in Florida is only 159,836 for 2005-2009, and net job creation in Florida has been negative since 2007 when the current recession began. Most recently, Florida lost 400,000 net jobs in 2009, a significant increase in net job loss from 2008.

Table 1 indicates that the recession has had a significant impact on net job creation by both reducing job creation and increasing job destruction. Net job creation peaked in 2006 at 440,619, and since the recession net job destruction has increased every year to its most recent high of 404,624 in 2009.

Chart 1 shows cumulative net job creation for new start-ups and older firms for the periods 1995-1999, 2000-2004, and 2005-2009. The numbers are cumulative job creation numbers at the end of the five year period. For each period, new start-ups are start-ups founded in the corresponding period, so start-ups founded between 2005 and 2009 had created 788,256 net jobs. Similarly, start-ups founded between 2000 and 2004 had added 958,945 net jobs as of 2004 (Census BDS data).

These data indicate that new start-ups have been the driving force behind job creation in each five year period, and that there would be no net job creation during the fifteen year period were it not for start-up activity. For every five-year period but the first, net job creation by new start-ups is positive and net job creation by older firms is negative. Whether in times of economic expansion or recession, start-ups consistently add more jobs than they destroy, and older firms typically destroy more jobs than they add.

Table 2 shows the contributions to net job creation in Florida from 1999 to 2008 from the opening of new establishments, the expansion of existing establishments, and the relocation of firms to Florida from other states. The number of jobs in Florida increased by 3 million jobs during this time, from 8.5 million in 1999 to 11.6 million in 2008. The second column shows the number of net jobs created by each activity as a percent of the 1999 total job level, and the third column shows the contribution of each activity as a percent of total net jobs created. Start-up activity is part of net job creation at new establishments, which also includes jobs created at new establishments opened by existing firms.

These numbers reflect the cumulative effect of openings, relocations, and expansions over the period. According to YourEconomy.org, “The opened factor reflects the difference between births and deaths (openings and closings) of establishments. The expanded factor reflects the difference between establishments that have increased jobs compared to those that have contracted their labor force. And the relocated factor looks at establishments that have moved into a designated region versus those that have left the region, along with the resulting impact on jobs.”1 For example, jobs created by the expansion of a company that relocated in the previous year count as part of the relocation total, not the expansion total.

Table 2 shows that almost all job creation is through opening new establishments or expanding existing establishments. The opening of new firms—start-ups—and new establishments is the largest contributor, followed by the expansion of existing establishments. More than 1.9 million net jobs were created by Florida start-ups, and another 1.1 million were created by the expansion of existing establishments. Close to two-thirds of the increase was due to openings, and about one-third from expansions.

The contribution to net job creation from the relocation of existing firms to Florida is relatively insignificant. Approximately 33,000 net jobs were added by the relocation of firms to Florida, about 1% of the total increase. This figure is in line with national numbers, as only a handful of states added more than 1% to their 1999 job levels from firm relocation. In percentage terms, Delaware added the largest percentage of net jobs through firm relocation, leading to an increase of 1.8% net jobs since 1999, though this amounts to only 9,921 net jobs over the period. This statistic should provide policymakers with an upper bound to their estimates of how much net job creation can be affected by firm relocation.

Conclusion
Start-up companies are Florida’s top job creators.  Job creation is driven by start-up activity, and policies that promote start-up activity will generally lead to net job creation. Such policies can be considered aggressive.

Job destruction is driven by the activity of older firms. Policies promoting employment at existing firms generally affect net job creation not by the creation of new jobs but by increasing the retention rates and reducing job destruction. These policies can be considered defensive.

Job creation in Florida through firm relocation is an insignificant contributor to net job growth. Policies encouraging firm relocation from other states are not likely to have a significant impact on job creation and net job creation. These policies do not contribute any net national jobs and may encourage retaliatory efforts from other states. Policymakers should be responsive to firms already intent on relocating from another state, but efforts spent recruiting companies not already considering relocation are likely wasted.

Promoting start-ups is the key to Florida’s economic recovery.  Reducing the time and cost it takes entrepreneurs to launch start-ups will encourage job creation and help put more Floridians back to work.  The Start-Up Florida initiative from the Foundation for Government Accountability will provide research and specific reforms that will help get Florida working again.

Notes and Sources
Census (U.S. Census Bureau), Business Dynamics Statistics Database. Available at: http://www.ces.census.gov/index.php/bds/bds_database_list.

Kane, Tim, “The Importance of Startups in Job Creation and Destruction,” Kauffman Foundation Research Series: Firm Formation and Economic Growth, Ewing Marion Kauffman Foundation, July 2010. Available at: http://www.kauffman.org/uploadedFiles/firm_formation_importance_of_startups.pdf.

1 YourEconomy.org database. Available at: http://youreconomy.org/.

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.