State legislators must contend with an increasingly unfavorable demographic climate, the end of federal pandemic funds, and a housing market with cost pressures that discourage transactions.
As a result, they will face increased challenges in meeting obligations in the next three fiscal years.
That’s the grim takeaway from Tuesday’s legislative briefing from the Office of Economic and Demographic Research (EDR) regarding the state’s long-term economic outlook.
While the upcoming budget year presents minimal challenges at current spending levels, projections suggest that tough choices await the Senate, the House, the current Governor and whoever succeeds him.
Expenditure is bound to increase without a revenue match.
EDR Coordinator Amy Baker described Florida’s gross domestic product as returning to “normal” after the pandemic, saying the GDP was projected to be around 2% for the next three years. Florida is now 18th in the nation, “slowing as we expected it to slow,” at 3.2%, down from sixth back in September.
The Interstate 4 corridor, which is experiencing population growth, has also seen a strengthening in terms of GDP in recent years. Fiscally constrained counties are lagging in relative terms, leading to some “worry” from EDR.
Turning to personal income, COVID dollars created “robust” growth during the pandemic, but “wage growth” has driven the trend since, with more than 5% growth in the last two fiscal years, with a gradual settling predicted toward the end of the three years of projections.
Florida is 24th in terms of personal income growth, but at 5.2%, the annual change is slightly below the 5.3% national average.
“This has a lot to do with your thinking about the budget,” Baker said.
She noted that Florida historically was a low-wage state compared to the average, but a “significant change” is underway. Florida wages are at 91% of the national average now, representing a high point.
Wages are expected to grow roughly 4% a year, and “it’s almost certain these higher wages are here to stay,” Baker said.
This “service wage issue” will affect state contracts and increase budgetary obligations.
Job creation, meanwhile, is slowing, expected to be 1.2% in Fiscal Year 2025-26 and to stabilize at that level, which is half of what it was in recent years.
Unemployment is edging up, though at 3.3%, the state is below the 4% target.
“Even though it’s coming back up, it’s still on the good side at this point of time,” Baker said, though she expects it to edge up to 4.6% in the coming years.
Baker noted that population growth continues to be driven by in-migration, though the numbers will moderate in the coming years to 1.2% by the end of the decade. This removes “pressure” seen in previous eras, but Florida’s population growth is expected to triple the nation overall.
Deaths outweigh native births, a trend that turned negative during the pandemic but which was expected given the aging “demographic profile.” However, newcomers are expected to make up for the difference created by these negative trends.
Population growth is uneven, concentrated in Southeast Florida, the I-4 corridor and Duval. Meanwhile, “fiscally constrained” counties in North Florida are essentially static.
The housing market has been a “roller coaster,” Baker said, with the pandemic seeing artificially lower interest rates and a “big surge” in home buying in the state that exceeded the surge back in the middle of the century's first decade.
The bubble has largely popped, Baker said, due to rate increases and “price inflation” leading to “people being priced out of the market.”
Growth is expected in the forecast years, but it will be “moderated” even though interest rates are expected to be lowered.
By Fiscal Year 2027-28, the state will be approaching a $7 billion deficit unless changes are made. Pressures will build in Fiscal Year 2026-27, forcing legislators to make a “big decision” ahead of the projected fiscal cliff.
Meanwhile, potential “black swans” such as hurricanes, wildfires and other environmental emergencies present potential wildcards.
Though the state is in “reasonably good shape” to deal with one emergency, multiple risks present graver doubts.
The forecast also presents a potential recession as a “black swan,” given decreased personal savings by Florida families and personal debt that is “really taking off again,” removing “cushion” for citizens in the event of an economic downturn.
Baker expects inflation to cool but says that people in legislators’ districts are still experiencing higher costs. Deflation, which would lower costs, is not anticipated.
Meanwhile, Baker said that given prior experience with storm recovery, costs from 2024’s hurricanes are expected to drive more pressure on legislators.
