Florida Solidifies Its Position as the Leader in Free-Market ReformsFloridians had high expectations when the Legislature’s 2011 regular session began. With a Republican super-majority in both chambers for the first time since Reconstruction and a newly elected Governor who touted fiscal conservatism and reducing the scope of government, many thought the stars had aligned to address some big ticket items that had fallen by the wayside in years past. In most cases they were right as lawmakers took on the daunting task of addressing many of the major policy decisions facing Florida all at the same time while also addressing serious budget challenges.At the end of the day, the Legislature approved a $69.7 billion budget (trimmed to $69.1 billion by Governor Rick Scott), passed 295 bills, and placed seven constitutional amendments on the 2012 general election ballot. The report below focuses on some of the many issues JMI tracked during this year’s legislative session.School Choice Opportunities Advance
School choice advocates may have been the biggest winners of the 2011 session. The first piece of legislation passed and signed into law was the Student Success Act, Senate Bill (SB 736). It was a revamped version of “SB 6” from 2010, which was ultimately vetoed by then-Governor Charlie Crist. This measure ends teacher tenure for new hires and requires a merit-based pay system be implemented for all teachers in every school district.Other measures that passed include sweeping expansions of charter schools (SB 1546) and virtual schools, House Bill (HB 7197), allowing more students to take advantage of these educational options.The House and Senate also brought back a modified version of Opportunity Scholarships by allowing students to attend another public school of their choice if they have been stuck in a failing “D” or “F” school for 2 years.Finally, one of the constitutional amendments the Legislature placed on the November 2012 ballot, House Joint Resolution (HJR 1471), would remove Florida’s controversial “Blaine Amendment,” the no-aid provision that prohibits any public funds going directly or indirectly to religious organizations.Health Care Freedom and Medicaid Overhaul
House Bill 1 and Senate Bill 2, the first pieces of legislation filed in the House and Senate and the first bill approved by the Senate was a new version of the Health Care Freedom Act, which the Florida Supreme Court had thrown off the 2010 ballot. This year’s version maintains that persons cannot be forced to buy health coverage and allows providers to accept direct payment from individuals or employers for health care services. This proposed constitutional amendment also contains a new ballot summary.The Legislature also spent months crafting, debating, and amending a statewide Medicaid overhaul plan (HB 7107 and HB 7109) similar to the five-county pilot project, which was initiated under Governor Bush in 2006 and expires this year. JMI President Dr. Bob McClure was pleased to see the expansion of these reforms, which the Institute has encouraged for over a decade. “The Legislature reformed an entitlement program, Medicaid, that needed to be reformed, allowing market forces to bring down the cost. Currently, Medicaid is roughly one-third of the state budget and it is continuing to gobble up the state budget,” said McClure. “The Legislature put in place reforms that, over the next few years, will rein in those costs and allow more dollars to be allocated to other important programs in the state budget, apart from Medicaid.”These reforms transfer Medicaid recipients into two types of managed care plans, Managed Medical Assistance for standard care, and Managed Long-Term Care for elderly or special needs patients. Plans from health maintenance organizations (HMOs), provider service networks (PSNs), and accountable care organizations (ACOs) will be eligible to compete for Medicaid contracts by an invitation-to-negotiate process based on their attributes. For this legislation to take effect, the federal Centers for Medicare and Medicaid Services (CMS) must approve a new waiver or waivers from Florida’s Agency for Health Care Administration (ACHA).At the time of this writing, it was still unknown how much or how little CMS will approve. Florida health care officials have already opened up public hearings around the state to get input from Medicaid beneficiaries and inform them about the reforms coming to this entitlement program.Property Insurance Reform
To address several property insurance issues, the Legislature passed SB 408. This omnibus piece of legislation attempts to give private insurers more rate flexibility, allowing private insurers to adjust rates more quickly and efficiently in a more market oriented manner, depending on economic and financial conditions. The bill also raises surplus requirements, which forces smaller companies to store away more adequate reserves to cut down on insolvencies. And it also addresses some issues with public adjusters, to aid in consumer protection.In addition, this bill attempts to deter fraud related to sinkhole claims. Bogus sinkhole claims, encouraged by trial lawyers, have been a major reason insurance companies have been losing money in a period where Florida hasn’t seen any significant storms. Ultimately, insurers concluded that it was often cheaper to settle claims up front rather than go to court. As a result, many false claims were never contested. SB 408 adjusts current law to shorten the statute of limitations for sinkhole claims, allows for property inspection requirements, and creates a revised process for the investigation of sinkhole claims. Government Employee Pension Reform
One of Governor Scott’s top goals this year was to reform the state retirement system. It was thus fortuitous that JMI’s Backgrounder 66: Protecting Florida’s Cities through Pension Reform was released the very week Governor Scott was sworn in. Taking on this recommendation, the Legislature ultimately passed a bill (SB 2100) that requires public employees covered by the Florida Retirement System (FRS) to contribute 3 percent of their salary into their retirement accounts.Prior to this measure, Florida was the only state that didn’t require any contributions from its employees. For new state hires, the bill also increased the vesting period from 6 to 8 years, slightly increased the normal retirement age and years of required service, adjusted the formula for calculating the average final compensation, reduced the DROP program’s interest accrual rate to 1.3 percent, and eliminated the cost of living adjustment (COLA).Unfortunately, the Legislature did not move any state employees from “defined benefit” to “defined contribution” plans.“Right now, FRS looks like it’s in pretty good shape, but a lot of the local governments really aren’t in that good of shape,” said JMI Senior Fellow, Randall Holcombe, a professor of economics at Florida State University. “The one sure-fire answer that I would recommend 100 percent is to move from defined-benefit pensions to defined-contribution systems.”Under a defined-benefit plan, pension payments are guaranteed. In a defined-contribution plan, retirement money is invested in an account that the employee controls. Retirement savings may win or lose over time, but employers know what their cost will be.“Because of the nature of the political system, it’s just too easy to make promises today that are going to leave future politicians and future taxpayers on the hook,” said Holcombe.During the legislative session, JMI was a leading partner in a newly formed coalition, Floridians for Sustainable Pensions (FSP). Governor Scott joined JMI President Bob McClure and a broad range of coalition partners to applaud the Legislature for its focus on this issue, but encouraged them to do more in order for the FRS to be put on a more sustainable fiscal path.Smart Cap on Spending
Another constitutional amendment placed on the 2012 ballot is a state revenue limitation or “Smart Cap,” Senate Joint Resolution (SJR) 958. This proposed amendment, if approved by at least 60 percent of voters, would phase in restrictions on increases in the amount the state can spend at a level tied to inflation plus population growth. Any excess revenue collected over the spending cap will be used to increase the budget stabilization fund, reduce the required local effort for public schools, and – if there is still anything remaining – returned to taxpayers. Finally, this measure also includes a provision to cope with emergencies, provided that a super-majority of the legislative body deems it necessary to override the cap.Tax Cuts for Small Business Owners
With the intent of putting Floridians back to work by reducing the red tape on business owners, the House and Senate also passed a bill (HB 7185), which increases the corporate income tax exemption to $25,000 from the current $5,000. This essentially eliminates the tax and paperwork for nearly half of Florida’s small businesses, saving them an estimated $30 million annually.Prison Privatization
Language in the state budget includes a proposal to privatize 16 prisons and correctional facilities in 18 South Florida counties. Since Florida’s statewide inmate population has grown to 101,000, addressing costs has been a major concern. This provision attempts to control some of those costs. The language allows companies to bid on a plan to manage prison administration and provide health care services. Projected savings are estimated at $40 million annually.Telecommunications
HB 1231, the Regulatory Reform Act, repeals several anachronistic government regulations relating to wire-line telecommunications services. Specifically the bill deregulates provisions of state law that relates to prices, taxation, and Public Service Commission oversight. By eliminating price regulation caps for basic and non-basic services offered by a local exchange company, it provides such companies with the flexibility to offer competitively priced services to consumers.Five Disappointments
Although the Legislature passed many monumental items, several important proposals were unfortunately left on the table. Some of the biggest disappointments for free market advocates in Florida include the failure to address these five issues:1. Paycheck Protection: There is no reason for government to bear the expense of using its payroll departments as a mechanism to collect union dues from public employees – especially when large portions of those dues are often used to support political candidates and causes. With paycheck protection in place, public employees would of course remain free to join a union and bargain collectively with their local government. When it comes to paying their dues, this bill would have allowed them to pay by cash, check, or credit card – not through automatic deductions from their tax-funded paycheck.2. Pension reform: As noted above, although some headway was made on pension reform, the Legislature failed to convert new government employee pensions from defined benefit to defined contribution plans, which would put Florida’s cities on a more sustainable fiscal path and allow government employees more control over their retirement plans.3. Citizens Property Insurance reform: Despite bipartisan support for reform, state leaders have not effectively addressed Florida’s dysfunctional property insurance system. Entering the 2011 hurricane season, Florida’s taxpayers and economy remain at great risk for financial devastation.4. Further reduction of the corporate income tax rate: The Legislature made great headway in the 2011 session, but did not go as far as the Governor had encouraged them to go. Doing so would make Florida an even more attractive place to do business.5. Local government spending: The Legislature failed to put a constitutional amendment on the 2012 ballot that would put a “Smart Cap” spending limitation that applies to local governments – where fiscal responsibility is rare, with a few exceptions.Fortunately, virtually all of these same lawmakers will get another chance to address these “leftovers” and other issues when they convene early next year – in January rather than the usual March – in order to deal with redistricting all of Florida’s legislative and congressional seats.Thomas M. Perrin
Director of Public Affairs
The James Madison Institute
To view as a webpage: June 16 Public Affairs Memo