Legislative Roundup: Consolidating Gains

REVIEW SUMMARY
Issue. Legislative session
Key. Building on last year's successes and making Florida more competitive

To use a military analogy, if last year's legislative session was a full-frontal assault on the defenses of an anti-business climate, this year's session was more about consolidating those gains.

As an army needs to regroup after a big push into enemy territory, re-establish supply lines and get coordinated for the next offensive, so lawmakers needed to clean up some bills from last year, expand some of them and generally strengthen the pro-jobs gains.

And, in this case, they also needed to wage a resource-depleting battle on a second front: Redistricting the state's congressional and state legislative seats to conform to the 2010 U.S. Census results.

The Legislature was successful in a few ambitious bills intended to help businesses and the economy, but was rebuffed in many others.

“I wish we could have gone further,” Sen. Mike Fasano, R-New Port Richey, says of the package of economy-building legislation.

Rep. Ray Pilon, R-Sarasota, gave a similar assessment, putting the session's business-legislation grade at about a 'C.' He pointed out that it is an election year and redistricting sucked up a lot of the oxygen.

“My hopes are we really move forward on some good economic policy issues next year,” he says.

So for instance, a major priority of Gov. Rick Scott and the legislative leadership was reforming the state's no-fault insurance. Fraud and loose legal guidelines had allowed the expenses to swell for insurance companies and car owners who must obtain auto insurance. Personal injury protection (PIP) premiums rose rise 387% in the last five years and were going to go up another 40% this year.

“It was an issue we just couldn't ignore,” says Rep. Jim Boyd, R-Bradenton, the point man for the bill in the House. The bill, which Scott is expected to sign as he pushed for its passage, goes after the “PIP clinics” where much of the fraud is alleged. Victims must go to an emergency room or their personal physician within a few days of the accident in order to get access to the automatic $10,000 in PIP help under the new law. Plus, the multiplier that judges could grant lawyers in awards was eliminated, although a cap on legal fees in the original bill was removed.

Boyd thinks the compromises were acceptable. “It was a pretty good bill, because everyone was a little unhappy,” he says.

Not everyone agrees. While the bill requires that insurance companies reduce their PIP premiums 10% by Oct. 1, and cut them 25% by 2014, they do have an out. They can request those reductions be waived via the Office of Insurance Regulation. Although that would be politically challenging, Fasano — a consistent critic of the insurance industry — thinks that is exactly what the companies will do and consumers won't see the rate decreases.

“I voted against it, but I hope I'm proven wrong,” he says. “Insurance companies got away with a lot.”

Other business-helpful changes that made it through were less dramatic but still beneficial.

A package of $830 million in tax cuts over a dozen categories was approved, along with a cut in the huge planned increase in the unemployment compensation tax and a revamping of that program; an increase in the corporate income tax exemption, impacting most dramatically small businesses; increased authority for the governor to implement rules on new legislation and oversee regional workforce boards; some paring back of the lengthy and expensive development of regional impact regulations; easing of some environmental permitting processes and regulations; and an increase in the corporate tax credits program for school scholarships.

Not a lot of banner headlines in that list, but all working in the same direction: stimulating economic activity.

Major failures
And there were epic failures.

A key issue for businesses, the insurance industry and legislative leaders was changing the state's expert testimony law. The current standard is attacked by businesses as allowing “junk science,” resulting in many large judgments against businesses -- which then pass those costs on to customers.

Florida is ranked 42nd in terms of the courts' friendliness to businesses.

Business organizations such as the Florida Chamber of Commerce wanted the more common national standard that is considered tougher on who can be expert witnesses. The Florida Justice Association, representing the state's trial lawyers, fought the change bitterly and won when it kept the Legislature from coming to any agreement on the changes.

Probably the most high-profile defeat came on an issue on which the business community was divided: the $2 billion mega-casinos proposed for Miami-Dade and Broward counties.

Major Florida business interests opposed the gambling bill, including the Florida Chamber, the Florida Restaurant and Lodging Association, Disney World, the Seminole Tribe of Florida, individual businessmen and anti-gambling consumer activists.

But the gambling industry itself may have been its own worst enemy.

Rep. Doug Holder, R-Sarasota, was chairman of the House Business and Consumer Affairs Subcommittee where the bill was pulled by its sponsor when it became obvious it wouldn't pass. Holder says it was touted as a way to limit and regulate gambling in the state, but the bill kept growing to expand to casino-style gambling at existing gambling locations, and maybe adding a mega-casino in Tampa Bay. Further, gambling interests were not agreeing on what to have in the bill.

Sen. Mike Bennett, R-Bradenton, was not opposed to the gambling concept and points out that the state is already loaded with gambling opportunities. “We need controlled gambling,” he says. He gives 10-1 odds it will come up again next year.

What's not clear on the gambling bill is if its defeat was bad for Florida business. Plenty of studies have shown that Atlantic City has not thrived with mega-casinos, for the casino district is the only vibrant part of the city and existing businesses were hurt. Even the “Mississippi Miracle” seems to disappear upon closer scrutiny. That was the case of the chamber, representing thousands of Florida businesses.

That ambivalence was not the case with foreclosures.

Everyone knows the problem. The lengthy foreclosure backlog continues to be an anchor on the housing market, one of the state's bigger economic sectors. It takes an average of 676 days for a foreclosure to go through the system, long enough to rank Florida as third worst in the nation. And those numbers remain high despite the fact that 85% are default foreclosures where the homeowner does not contest the complaint.

“This is the underbelly of one of the things that is keeping our economy from recovering,” Sen. John Thrasher, R-St. Augustine, said at the time the bill was introduced.

The bill was supposed to speed foreclosures up by taking away some benefits and protections from both the lenders and the homeowners. However, it was painted as anti-consumer, even though the banks opposed the bill on several grounds.

The bill's sponsor, Rep. Greg Steube, R-Sarasota, a real estate attorney, thinks that was a shame.

“This was one of the most consumer-friendly bills in the Legislature,” Steube says. The bill passed the House 94-17, but died in the Senate Judiciary Committee.
Bennett was somewhat noncommittal on the bill. “You want to protect the consumer, but at the same time, you want to protect the lender, too.”

Tax cuts
If the long-term goal is to make Florida one of the most attractive states in which to do business, the net result of $830 million in tax cuts is bound to help, albeit not in dramatic fashion. The most prominent cuts were reducing the unemployment tax and the corporate income tax.

Unemployment tax was scheduled to rise from $72 per employee this year to $171 next year to pay down the debts incurred when Gov. Charlie Crist took out $2.4 billion in loans from the federal government during the recession. The legislation cuts that increase to $121 per employee. While that is an increase from this year, it saves companies about $276 million on what the hike was supposed to be.

The corporate income tax exemption was increased from $25,000 to $50,000 — meaning now about half of the state's businesses will not pay any corporate income tax. But the entire savings for businesses statewide amounts to a modest $29.4 million.

There is a list of 17 other tax cuts that passed the Legislature, but not all of them are obviously beneficial to the whole economy (See box, below).

For instance, the city of Miami gets a $1.2 million tax break for the Miami Marlins' stadium garage parking; a new Ocala slaughterhouse got a $1.2 million break on electricity taxes; fruit packinghouses were exempted from electricity sales taxes, saving them $1.1 million; fixed-based operators at government-owned airports were exempted from taxes, saving them $900,000.

These are the sorts of exemptions that always raise eyebrows with the public, and often other businesses, when specific businesses get tax breaks while others continue to pay. Backers give reasons for each, mostly centering on job-creation and economic stimulation.

Maybe the most popular element of the tax cuts is the sales tax holiday Aug. 3-5, which eliminates sales taxes on back-to-school supplies and other retail items such as clothing. Retailers and consumers love that one, but it has never been clear that there is a net gain over a 12-month period.

The $70 billion budget plugs another year of revenue shortfalls with no tax increases, and it eliminates more than 4,000 state jobs. However, tuition at the state's universities increased by 5% while funding for those universities was cut by about $300 million. More than $340 million in Medicaid funding cuts were made to hospitals and nursing homes and public schools get $150 more per student from the $1 billion increase in school spending.

Taken in total, this year's legislative session improved the climate for businesses to grow, expand and hire new workers. The changes were not nearly as dramatic or ambitious as last year, but they continue moving the state in a more competitive direction.

Legislature tax relief 2012
Below is the package of tax cuts approved by the Legislature this year.
HB 1127 Unemployment tax: Reduces unemployment compensation taxes for businesses $276 million

HB 5505 Insurance: Provides tax credits for insurers that pay their premium taxes early $150 million

SB 1996 Incentives: Provides Gov. Scott funds to use for drawing companies to Florida $100.9 million

SB 962 School donations: Provides tax relief for corporations that make donations to schools $76.3 million

HB 7087 Machinery: Additional sales tax exemption for business machinery and equipment $56.4 million

SB 1060 Communication: Allows companies like AT&T to reduce taxes by bundling products $35 million

HB 95 Property: Cuts taxes for spouses of veterans killed in the line of duty and poor seniors $33.2 million

HB 7087 Tax holiday: Provides three-day sales tax holiday for consumers in August $31.8 million

HB 7087 Corporate tax: Increases corporate tax exemption from $25,000 to $50,000 $29.4 million

HB 1003 Tangible property: Doubles tax exemption for business property to $50,000 $20.3 million

HB 7087 Private planes: Eliminates sales taxes on repair and parts for small planes $12.3 million

SB 770 Real estate: Eliminates the local business tax on real estate broker associates $3.7 million

HB 7087 Cattle ranch: Eliminates sales taxes on electricity for a new Ocala slaughterhouse $1.2 million

HB 7097 Marlins stadium: Exempts Miami from paying taxes on stadium parking garages $1.2 million

HB 7087 Fruit packinghouse: Eliminates sales taxes on electricity used at fruit packinghouses $1.1 million

HB 7087 Fixed-base operators: Eliminates some taxes at government-owned airports $0.9 million

HB 7097 Schools: Provides a small tax break for certain privately run schools $0.1 million

Total $829.8 million

SCOTT LEARNS SWIFTLY
If the 2012 legislative session is a guide, Gov. Rick Scott is a quick study of maneuvering in Tallahassee's labyrinth of power.

The governor got much of what he asked for, and he asked for fewer sweeping changes. His focus had been 100% on job creation in his first year in office, but he expanded that in year two to include keeping Floridians' costs of living down and putting more money into public education.

He's smoother in front of the camera, with the media and with lawmakers. He may always view the world through the eyes of a CEO, but he is not trying to run state government like a company, knowing the fundamental designs are just too different. But there is no doubt that he remains Rick Scott.

The biggest issues Scott pushed at the beginning of the session included a $1 billion increase in education spending, reforming the state's no-fault auto insurance law to save Floridians $1 billion in premiums, and a series of tax cuts totaling about $830 million.

“Auto insurance fraud reform, my job creation agenda (and) $1B for K-12 education,” Scott tweeted.

He got them all through, although the auto insurance was close.

“Members of the Legislature heard our call to put Floridians ahead of special interests and combat the fraud that has become a billion-dollar tax on drivers,” Scott said in a written statement when the bill passed.

But he did not bat a thousand.

Scott and the Republican leadership in the Legislature failed to pass tort reform relating to the expert witness testimony that costs businesses and their customers millions; prison privatization to save $40 million annually; or an overhaul of Citizens Property Insurance to reduce taxpayer exposure in case of bad hurricane season.

Expect tort reform to be a higher profile element next year as businesses again go after the expert witness standard and other elements of the courts that make Florida's judicial system one of the lowest ranked in the nation for business.