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2015 Florida Legislative Session Wrap-Up May 2015 Dear Fellow Taxpayer, Each spring, the elected members of the Florida Legislature return to Tallahassee to perform their roles as the representatives of the people of the Sunshine State. Surrounded by interest groups both large and small, regular citizens and high-powered lobbyists, our senators and representatives propose and debate new laws and attempt to meet the needs of their constituents. The 2015 Regular Session will be remembered as a unique one, with an unusual ending that has not been seen in Florida in decades. On top of the progress of many bills coming to an abrupt end, the Legislature failed to pass its only required piece of legislation: a budget. During Session, Florida TaxWatch provides on our website the public a weekly recap of bills related to the issues that we are following, including economic development, health care, criminal and juvenile justice, and education policies and programs. This publication is a final look at the legislation followed by TaxWatch this Session, but does not address the budget, which is scheduled to be completed by the Legislature in June. For more information on any research topic highlighted in this publication, please visit http://www.floridataxwatch.org. Sincerely, Dominic M. Calabro President & CEO 1 Introduction The 2015 Legislative Session was certainly not a normal one. The session effectively ended three days early when the House unexpectedly declared “sine die†and went home, leaving a lot of work undone and creating more acrimony among lawmakers. Senate Democrats even asked the Supreme Court to compel the House to return, claiming the House’s unilateral adjournment violated the Florida Constitution, with which the Court ultimately agreed on principle, but acknowledged that there was little that could be done about it, as Session was set to end on the day of its ruling regardless. It was already apparent that the one job the Legislature is required to do, the budget, was not going to get done on time and a special session would be needed. The main reasons for the budget stalemate, Medicaid expansion and federal funding of the Low-Income Pool to reimburse hospitals for indigent care, seemed no closer to a compromise. It was expected lawmakers would finish most of the policy work, but most of the major issues remain unresolved, including many priorities of the two chambers’ leadership. Prison reform, a statewide water policy, the implementation of Amendment 1, and more opportunities for persons with disabilities are just a few of the issues on which some kind of resolution was expected. Omnibus legislation (or “trainsâ€) in areas such as education, health and human services and economic development also withered on the vine, killing many separate issues. A final tax cut package was also not passed. While taxes will certainly be part of the budget negotiations in special session, tax cuts are no longer a sure thing this year. The Legislature did manage to pass 231 bills (the fewest since at least 2000). A number of bills addressing Florida TaxWatch recommendations were considered and some were passed, including bills advancing justice reform, a first step in local pension reform and several measures relating to cost savings, and accountability recommendations. In addition, if there is ultimately an agreement on a tax cut package, a reduction in the communications services tax, a Florida TaxWatch priority, will likely be part of it. There were also some disappointments, as state pension reform and the collection of sales taxes on remote sales were again not addressed. Other Florida TaxWatch-supported measures, including bills relating to flexibility under the class size amendment, telehealth, medical tourism, justice reform, and enterprise zones advanced but ultimately did not pass. The Legislature will return to Tallahassee on June 1 and leaders expect to finish their work by June 20, just 10 days before the start of the new fiscal year. The official proclamation, which will enumerate the issue that can be considered, has yet to be released. The special session will likely be mostly limited to the budget and the budget implementing and conforming bills, but more issues could be added. Other unresolved issues that have a bearing on the budget may find their way into conforming bills. Past legislatures have shown that the definition of “conforming†may be broadly construed. 2 Informal, behind-the-scenes negotiations will be taking place over the next couple of weeks, as at least a basic framework needs to be agreed upon prior to the start of the special session. Smooth sailing is not assured. The Senate wants to include a debate on health care expansion in the session, the House wants to exclude it, and neither side has a shown any softening of its position. The following is a summary of the final results for legislation of interest to Florida TaxWatch and its Centers for Educational Performance & Accountability, Health & Aging, Smart Justice, Competitive Florida and Government Efficiency. Taxes Very few tax bills passed this session. However, while now in doubt, tax cuts are still alive. While no tax package was approved by the Legislature, tax cuts will certainly be part of the special session budget negotiations. Passed Corporate Income Tax “Piggy-Back†- Florida uses federal taxable income as the starting point for determining corporate income tax liability. The Legislature passes an annual “piggyback†bill to conform to any changes in the federal tax code. The federal Tax Increase Prevention Act of 2014 extended two deductions: an increase in the first-year expensing deduction from $25,000 to $500,000 and a 50 percent bonus depreciation deduction. Adopting these changes would have cost Florida $180 million in FY 2015-16, with revenue being recouped subsequent years. The Legislature chose to “de-couple†Florida’s tax code from these federal changes. HB 7009 requires Florida taxpayers to add-back the federal deductions and then subtract from income one- seventh of these amounts in the next six years. The existing federal deductions are treated this way. Value Adjustment Board (VAB) Petitions – Making a minor but worthwhile change, HB 489 allows a taxpayer to include multiple items of substantially similar tangible personal property on a single VAB petition and to pay a single petition filing fee. Substantial VAB reform was a victim of the sudden House adjournment (see below). Did Not Pass Tax Cuts – The House passed a $689.2 million tax cut package: HB 7141. The Senate did not produce a tax package, citing the budget stalemate; however, the Senate did advance several tax reduction bills. The centerpiece of the House proposal is a $470.5 million reduction in the communications services tax, a long-time Florida TaxWatch recommendation. Other provisions supported by Florida TaxWatch research include a reduction in the sales tax on commercial leases and an increase in the research and development tax credit. The package also includes three different sales tax holidays. The rest is a patchwork of many different tax cuts, some of them very small and many that had not yet been part of any legislation. A final tax cut package will likely be part of the budget conference negotiations. To review the provisions of the House tax package (and any Senate action on those provisions) see Appendix A. 3 Sales Tax Exemption for Manufacturing Machinery and Equipment - The 2013 Legislature passed a three-year exemption, set to expire April 30, 2017. SB 544 and HB 613 would have made the exemption permanent. This is a long-standing recommendation of Florida TaxWatch. Recurring tax savings were expected to be $142.5 million annually. This exemption is not part of the House tax cut package.  Both bills died in committee. Collection of Sales Taxes on Remote Sales: Once again, the Legislature failed to address the non- collection of sales taxes on sales to Floridians by out-of-state sellers, a situation that hurts Florida retailers. Florida TaxWatch has been researching this issue and recommending solutions for more than 10 years.  Many bills have been filed to help address this over the years. This year, SB 310 would have brought Florida fully into the Streamlined Sales and Use Tax Agreement, which provides an opportunity for Florida to begin collecting money from a compact of sellers that voluntarily collect the tax. HB 101 would have expanded nexus over remote retailers, requiring more retailers to collect tax on sales to Floridians. HB 1265 was a memorial urging Congress to support the Marketplace Fairness Act. None of these bills were heard this session. Corporate Income Tax Reduction - HB 49 and SB 138 would have increased the standard corporate income tax exemption from $50,000 to $75,000, as was recommended by Governor Scott. The exemption was increased from $5,000 to $25,000 in 2011 and to $50,000 in 2013. This higher exemption would eliminate corporate income taxes for 2,189 out of 9,934 taxpayers (22.0 percent), and save $18.7 million annually. This is not part of the House tax package. SB 138 passed two committees and died in Appropriations. HB 49 was not heard in committee. Value Adjustment Boards (VAB) - HB 695 and SB 972 would have made several Florida TaxWatch-supported changes to the VAB process including: taxpayers must sign the petition, interest on assessment and refunds would change from 12 percent to the prime rate and all VAB petitions must be resolved by June 1 annually, unless the county’s petitions increased by more than 10 percent. HB 695 also would have changed the composition of VABs from county commissioners, school board members, and citizen members to all citizen residents of the county appointed by their legislative delegation. This is an attempt to remove the conflict of interest created by the current composition which allows those who benefit from higher assessments to make the decisions. Both bills were passed by their respective chambers, but because of differences, both bills died. Aviation Fuel – HB 595 and SB 722 would have reduced the tax on aviation fuel from 6.9 cents per gallon to 5.4 cents per gallon, beginning July 1, 2018. Also, the bills would eliminate a refund of all aviation fuel taxes paid by transcontinental airlines that created a certain number of jobs. The idea is that the two changes together would be revenue neutral and that all airlines would benefit from lower taxes. However, at its last committee stop, SB 722 was amended to expand the current refund to include at least one other airline, which would 4 reduce revenues until the refund expired in three years. HB 595 was approved by the full House.  SB 722 died in the Appropriations Committee. Law Enforcement Services Special Assessment - SB 780 and HB 919 would have allowed the governing body of a municipality to levy this assessment to fund all or a portion of its costs of providing law enforcement services if the property tax millage is reduced by a similar amount. SB 780 limited the assessment to $200 per parcel. SB 780 died on second reading. HB 919 died in the Local and Federal Affairs Committee. The following bills passed one committee, but went no further: Save Our Homes (SOH) “Glitch†Bill - SJR1142 was a proposed constitutional amendment to repeal the recapture provision which allows the assessed value of homestead property to increase by the SOH cap, even if the market value falls, provided that the assessed value does not exceed the just value. Direct Mail Advertising (DMA)- SB 858 would have created a sales tax exemption for DMA goods and services. Renewable Energy Source Devices - SJR 400 and HJR 865 proposed an amendment to the state Constitution that would exempt the assessed value of these devices from the tangible personal property tax and allow the Legislature, by general law, to prohibit consideration of the installation of such device in determining the assessed value for real property taxes. It would expire December 31, 2036. Property Tax Discount for Spouse of Disabled Veterans - SJR 910 proposed an amendment to the state Constitution to authorize the living spouse of a deceased veteran, who upon death was aged 65 or older, partially or permanently disabled as a result of combat, and honorably discharged, to keep the discount on ad valorem taxes currently afforded the veteran. Low Income Elderly Homestead Exemption - SJR 652 proposed an amendment to the state Constitution that would revise the current homestead tax exemption for low-income, elderly people that have lived in their home for at least 25 years. The current exemption is 100 percent of the assessed value of a homestead with a just value less than $250,000. The amendment would lock in the just value of the home to its value when the exemption is originally applied for, meaning the taxpayer would not lose the exemption due to rising value. Food Desert Tax Credit - SB 610 provided an income tax credit for grocery businesses that sell nutrient-dense food items in areas designated as food deserts. The credit would be equal to 20 percent of its annual sales. For a summary of tax bills that were filed but not heard this session see Appendix B. 5 Economic Development Passed Freight Mobility and Logistics - HB 257 defines a freight logistics zone and allows a county, or two or more contiguous counties, to designate one. Projects within freight logistics zones, which are consistent with the Department of Transportation’s Freight Mobility and Trade Plan, may be eligible for priority in state funding and certain incentive programs.  Florida TaxWatch research has highlighted the importance of freight mobility to Florida’s economy. Did Not Pass Start-up and Second-stage Companies – HB 7067 would have created the “Startup Florida Initiative,†which would encourage start-up and second-stage company growth. Prior to the session, Florida TaxWatch released a report that highlighted the benefits of second-stage companies, including the creation of 394,000 net new jobs in Florida from 2009 to 2013. HB 7067 was approved by the full House but the Senate economic development package (SB 1214) did not include this provision. Enterprise Zones Program - There was much discussion of the Enterprise Zone program this session, as the program is scheduled to sunset in December 2015. Florida TaxWatch testified at several committee hearings, referencing our recent analysis of the program. The report calls on the Legislature to revise and extend the state’s Enterprise Zone program, designed to revitalize and redevelop distressed, blighted areas in Florida. However, the state’s enterprise zone program will not be renewed. Bills to extend and revise the program (HB 903, SB 1556, and SB 392) were not heard. HB 7067 would have replaced the state program with a Local Enterprise Zone Program.  Late in the session, language was added to SB 1214 that would have permitted businesses located in enterprise zones that have active economic development contracts to continue to apply for enterprise zone state tax programs and the child care facility property tax exemption for three years. Economic Development Programs – Both chambers had omnibus economic development bills that would have made numerous changes to several programs. SB 1214 and HB 7067 became “trains,†with more provisions added as the session progressed.  SB 1214 standardized the incentives application process, limited most incentive agreements to 10 years and required capital investment to remain in the state for the duration of the contract. It also set approval requirements for different thresholds such as allowing the Governor to approve projects requiring less than $2 million without legislative notice or approval. The bill also makes additional changes to the Quick Action Closing (QAC) Fund and the Qualified Target Industry Business (QTI) Tax Refund.  HB 7067 also makes numerous changes including creating a new approval process for performance-based cash incentive programs and capping economic development incentive programs at $60 million annually. While the two 6 chambers could not agree on this legislation, it is likely some of these provisions will show up in a budget conforming bill during the Special Session. Seaports – HB 7039 and SB 1554, in addition to several provisions related to the Florida Department of Transportation, increased the funding for the Florida Seaport and Economic Development (FSTED) Program from $15 million to $25 million per year. HB 7039 passed the full House. SB 1554 died in committee. This funding may be addressed in Special Session. Entertainment Industry Financial Incentive Program – This program, which tries to bring film and television productions to the state by offering sales and corporate income tax credits, has received a lot of attention this session. A report by the Office of Economic and Demographic Research, which reviewed the return on investment for many of the state’s economic development programs, said the entertainment program is not recouping the state’s investment (in terms of produced state revenue). SB 1214 and HB 451 would have made numerous changes to the program. Florida TaxWatch was asked by the sponsor to review HB 451 and we found it makes significant improvements to the current program, including changing from a first-come first-served process to one that prioritizes based on expected economic return. Both bills transferred and renamed the Office of Film and Entertainment under the Department of Economic Opportunity as the Division of Film and Entertainment under Enterprise Florida. The Senate bill reduced the size of the Florida Film and Entertainment Advisory Council and the House bill eliminated the Council. SB 1214 also created the Entertainment Action Fund Program to respond to extraordinary opportunities. A similar fund was removed from the House bill. SB 1214 set a sunset date of July 1, 2021 and July 1, 2025 for the action fund.  Under HB 451, the program would still expire July 1, 2016. Both bills died on second reading. Qualified Television Revolving Loan Fund - HB 237 and SB 196 would have created a qualified television revolving loan fund - an “evergreen†fund privately managed under state oversight, which offers loans (term limited to 36 months) for qualified television content production throughout the state. The program would use state money and private funds raised by a third-party loan administrator. Neither the bill nor the current House budget contain an appropriation for the fund.  HB 237 died on second reading. SB 196 was not heard in committee. These bills, containing potentially valuable concepts, did not get a hearing: Freight Mobility and Trade - HB 331 and SB 958 would have directed a portion of motor vehicle fees, such as title fees, to be set aside for specified freight mobility and trade projects. Incentives for Small Technology Companies – SB 1090 would have authorized the provision of loans to small technology companies through the Microfinance Guarantee Program. The bill appropriated $50 million for these loans. 7 New Small Business Tax Credit – SB 128 and HB 517 would have created a corporate income tax credit for new small businesses. If qualified, the business would receive a $1,500 credit for each employee, up to a maximum total credit of $21,000. Community Creative Grant Program - SB 1030 would have created this alternative to the expiring Enterprise Zone program. The program was a competitive process through which cities and counties could apply for grants to fund local economic development projects. Education Passed Testing, Student Assessments & Teacher Evaluations – HB 7069 will reduce testing time in Florida schools, capping the time students spend on state and local tests at 5 percent of their school hours, or up to 45 hours.  The legislation also reduces the reliance on test results in evaluating teacher performance from 50 percent to 33 percent of an evaluation. The bill eliminates the 11th-grade language arts test (ELA) and the Postsecondary Education Reading Test (PERT). It eliminates the requirement that a school district administer a local end-of-course assessment for each course that is not assessed by a statewide, standardized assessment. It codifies the rollout schedule for statewide, standardized computer-based testing and paper testing options through the 2017-2018 school year and requires independent verification of validity of statewide, standardized assessments before the results can be used to determine third grade retention or high school graduation. The bill has been signed into law by the Governor. Did Not Pass Class Size Requirements - SB 818 and HB 665 would have revised the method for calculating the penalty for failure to comply with the class size requirements by performing the calculation at the school average instead of at the classroom level. Florida TaxWatch released a report showing that adjusting the way class sizes are calculated will result in significant savings to Florida taxpayers, which can then be reinvested in measures that have been proven to improve student achievement. Florida’s class size limits have cost taxpayers more than $30 billion since voters approved them in a 2002 constitutional amendment. The report encourages the Legislature to adjust Florida’s class size calculation to a school wide average. Applying the school level average calculation across all of Florida’s public schools would allow school districts to comply with the class size reduction mandate, while reinvesting the savings into measures to improve teacher quality and student achievement. HB 665 passed the full House and even though it was identical, SB 818 died on second reading. Charter Schools/School Choice – HB 7037 aimed to increase charter school accountability and increase student access. It also changes some funding provisions. It required charter schools to begin submitting monthly financial statements upon approval of the charter contract, and clarifies that charter schools that earn two consecutive 8 grades of “F†are automatically terminated. It removed the limit on replication of high- performing charter schools if the school is created to serve high-need areas. The bill also created the Florida Institute for Charter School Innovation at Florida State University to provide technical assistance, conduct research on policy and practice and provide opportunities for aspiring teachers to experience teaching in charter schools. The bill earmarked $1 million annually for the institute. HB 357 established the Principal Autonomy Pilot Program Initiative (PAPPI) to provide the principals of schools in participating school districts with increased autonomy and authority regarding allocation of resources and staffing, similar to charter schools. SB 1552 and HB 1145 expanded school choice by allowing a student to attend an out of district school, provided it has capacity and the parents provide transportation. The bills also included the PAPPI program and SB 1552 included the charter school institute provisions. All the House bills were approved by the House. SB 1552 died on the Special Order Calendar. Digital Classrooms – SB 1264 directed the Agency for State Technology (AST) to establish information technology architecture standards for purposes of implementing the state’s new digital classroom funding allocation. AST was required to collaborate with the Departments of Education and Management Services to identify state procurement options and shared services available through the State Data Center to facilitate implementation digital classrooms. AST must also do an annual assessment and provide planning assistance to address issues identified by the assessment. The bill appropriated $10 million to the Agency for State Technology.  This language was also added to SB 948, the Senate education “train.â€Â Both bills made it to the floor but did not get to a vote. Reducing Educational Facility Costs - HB 181 and SB 1262 aimed to provide cost savings to school districts by allowing them to implement exceptions to the State Requirements for Educational Facilities (the public education building code). These exceptions relate to the use of wood studs in interior nonload-bearing walls, paved walkways, roadways, driveways, and parking areas, covered walkways for relocatable buildings, and site lighting. A school board must hold a workshop and then the resolution must pass by a supermajority vote at a public meeting. The school board must conduct a cost-benefit analysis prepared according to a professionally accepted methodology that describes how each exception achieves cost savings, improves the efficient use of school district resources, and impacts the life-cycle costs and life span for the facility. The cost-benefit analysis must also demonstrate that implementation of the exception will not compromise student safety or the quality of student instruction.  This language was also added to SB 948, the Senate education “train.â€Â All three bills made it to the floor but did get to a vote.
