Will Rick Scott Save or Sink Florida?
By Mike Randle
For more than three decades Florida's economy could do little wrong. Fueled by a vast migration of people, business and industry that has been topped only by Texas in the burgeoning American South, the Sunshine State's economy was based for the most part on ... well, the economic effects of the migration of millions of people and thousands of companies.
In 1950, Florida's population was 2.8 million, the twentieth-most populated state in the U.S., behind the populations of states such as Alabama, Kentucky, Indiana, Tennessee and Wisconsin. But by 1970, Florida broke into the top 10 ranking of U.S. states with 6.8 million people. Just 40 years later, Florida currently has the fourth-highest population in the country with about 19 million residents, behind only California, Texas and New York.
But with an economy that collapsed more so than any other state in the South -- and certainly right up there nationally with Nevada, California and Michigan during the Great Recession of 2007-2009 -- Florida quit growing in 2009. The state's population declined for the first time since 1946. It should be noted that the only reason Florida's population declined in 1946 was because so many military personnel stationed in the state left after World War II ended.
Real estate, construction, agribusiness, trade (imports and exports), military and defense, the space industry, financial services, tourism, general services, manufacturing and public utilities have made up Florida's economic spine for years. Of those, the military, real estate, construction, tourism and financial services have been the largest job generators over the last 20 years in the Sunshine State. During the recession, four of those business sectors collapsed to levels not seen in 50 years with only military and defense escaping the brutal hammering.
There's no question that Florida officials discovered very early on that it was in big trouble during The Great Recession. It still is four years later. Florida's unemployment rate is the highest in the South at 11.5 percent and the third highest in the country, behind only California and Nevada. So what went wrong in paradise?
If you want to cut to the chase, blame it on the real estate crisis, but not the one that most likely still affects you. It wasn't the initial effects of the recession that officially began in late 2007 that first tipped off economists and the like that something was terribly wrong with Florida's economy after decades of continuous growth. SB&D first began hearing about a "housing crisis" from economic development officials in Florida as early as 2003.
In fact, I was the keynote speaker at the Tampa Bay Partnership's annual meeting in early 2005 and the question, "Do you think Florida is experiencing a housing crisis?" came up during the Q&A session. I had no answer for the question considering real estate values at the time were soaring everywhere else in the South. But there is a clear answer now to Florida's real estate crisis. As of February, Florida led the nation with one in five mortgages more than 90 days past due according to the Mortgage Bankers Association. In 2009 alone, there were 516,711 properties that received a foreclosure filing in Florida.
If you go way back, Florida has always been about real estate. When 16 million people move in over the course of three generations it's got to be. And with 2,276 statute miles of tidal shoreline, that real estate is precious, especially considering much of the inland portions of the state are made up of wetlands and large agribusiness interests such as "Big Sugar."
So when things began to turn way back in 2004 for the precious Florida resource and then folded during the recession, well, the free fall began throughout all economic sectors in the state. And it wasn't just lax lending that contributed to Florida's real estate meltdown. There is no state in the country where more people own a second home. With foreclosures setting all-time records over the last four years, it would be interesting to know how many of those foreclosures were second homes owned by people from out of state. After all, if you can't afford two, which one are you going to cut loose, your primary home or your second home?
However, blaming depressed real estate for Florida's economic woes is just way too convenient. The problems Florida faces run much deeper. Of all the states in the South, Florida has one of the weakest state economic development organizations (in our opinion) in the South and we have been monitoring every state economic development group in the region every day for almost 20 years.
Enterprise Florida, the state's economic development arm, has never been funded properly since it replaced the Florida Department of Commerce in 1996. And in the words of one economic development veteran in the Sunshine State, "Enterprise Florida is no longer an economic development agency. It's a think tank."
What that economic developer may have meant is that Enterprise Florida has lost its primary purpose, or the very definition of "economic development" in the original sense; to be the catalyst in the creation of jobs in the state. That means jobs, period. Not a certain type of job. Just jobs, particularly in a recession. And with an 11.5 percent unemployment rate, Florida can't afford to be picky in what business sectors it recruits.
But of all the state economic development agencies in the South, Enterprise Florida has demonstrated to us that it is the pickiest of the bunch. In other words, if it isn't a business that Enterprise Florida targets, then it is only somewhat supportive of the project, if at all. We have heard many times over the last ten years that if the project is not "endorsed" by Enterprise Florida leaders, then it is simply tossed back to local economic development officials. That, in short, we believe, is behind the reference to "think tank."
Enterprise Florida has marketed itself -- with the few dollars it has -- as a "premiere" destination state for "innovation." A generic term in today's economic development world, Florida's "innovation" initiatives center mostly on biotechnology, simulation, clean tech (otherwise called "green" industries), and other emerging industries like "advanced" manufacturing such as high-end aerospace. That's great, but what about jobs for Florida's lower and middle classes? What about new jobs for those in Florida who live in poverty, particularly those who live in the state's rural regions?
Florida's income gap between rich and poor is the widest in the South. Focusing on innovative companies as your primary if not sole recruitment effort won't do much for those in poverty and Florida has one of the highest poverty rates (9th worst) in the nation according to BusinessInsider.com.
Again, what Florida needs are jobs, any job, and that includes low wage call centers and general manufacturing, not just "advanced" manufacturing. Local economic developers in Florida realize this but we are not so sure the former leadership at Enterprise Florida did.
But back to the funding issue; Southern Business & Development publishes the SB&D 100 each year in June. The "100" is basically a score card for states and markets of various sizes -- state, mega, major, mid and small -- in terms of how they performed the previous calendar year at landing relatively large economic development projects (200 jobs or more and/or $30 million in investment or more).
We focus on the larger projects in the annual SB&D 100 for a reason. If more companies commit significant investments in a particular state, region or county then that can help guide others to do the same. Also, unlike other rankings, we publish every project in the print edition that earns points for a state or market, therefore providing the proof behind our rankings.
For almost 20 years we have received our list of projects for the SB&D 100 from each Southern state economic development agency. For almost 20 years no state in the South failed to report its projects until Florida declined to submit last year. That can mean one of only two things: Enterprise Florida doesn't have the resources to do the research that it takes to submit the state's job generating projects for the year, or it really is a "think tank" and not a state economic development agency that is even remotely interested in how they fared compared to other states they compete with in the South in terms of attracting lucrative, job generating deals.
The only way to fairly compare economic development success or failure in landing those job making deals is to do it on a per capita basis. For example, it is impossible to treat West Virginia (the South's smallest state) and Texas (the South's largest state) on a level playing field unless you divide the state's population into the number of job generating projects they land, all of which creates a sum of points. So to be fair, we simply divide the state's population into the number of points earned by projects landed and by doing that we get a "Points per Million Persons" annual total. That methodology gives us a level playing field for each state by showing how many points were earned per person that lives in the state.
If we were to rank states based on the total number of big projects, Texas would win every year in the South. That being the case, we do it based on population. West Virginia has 1.8 million people living there. Texas has 25 million, so it is impossible to compare the two in economic development performance if you simply rank them by the number of projects turned.
So, by our methodology, if West Virginia earned 75 points from 12 projects that met our thresholds then their score would be 41.6 points per million residents. And if Texas earned 590 points from 282 projects, their points per million residents (PPM) score would be 23.6. As you can see that hypothetical score for Texas is much lower than West Virginia's.
Florida's performance at landing job and investment generating projects using our methodology (PPM) has been abysmal in recent years, ranking 15th of 17 Southern states in 2007, 16th in 2008, last (17th) in 2009 and 16th last year. No wonder Enterprise Florida was reluctant to provide us with its projects last year.
Now let's get back to Florida's innovative economy efforts quickly before we try and get to the primary subject of this story, which is new Governor Rick Scott and if he is the guy who will save the Sunshine State or sink it. As mentioned, Enterprise Florida, which may be on borrowed time since Scott has suggested that state economic development efforts should return under a newly formed Florida Department of Commerce (more on that later), sells Florida as a knowledge-based, innovation "ecosystem" for industry that is on par with Massachusetts (think MIT) and the Silicon Valley.
The problem with that is, Florida is not home to any of the top 50 schools in the U.S. that produce science PhDs. To be deemed an "innovative" state you would think that you would at least have one, but probably more like three or four of the top 50 science PhD universities.
Regardless, the state of Florida has invested hundreds of millions of dollars to land biotechnology and biomedical ventures such as Scripps Florida, the Burnham Institute for Medical Research, the Torrey Pines Institute for Molecular Study, the Max Planck Society and they may soon get another -- genetics research leader, the Jackson Laboratory. All of these impressive innovation-based institutes are operating from Orlando to South Florida. Without a doubt they represent the state's biggest economic development coups over the last five years and are exactly what Enterprise Florida has targeted in its efforts to create an innovative or knowledge-based economy.
Yet, according to an article written by Randy Schultz and published in the Palm Beach Post in February, Florida has between 17,000 and 19,000 PhD scientists and engineers that are employed in Florida. Jack Sullivan, CEO of the Florida Research Consortium, believes Florida needs to double that number to elevate the state from its current ranking of 16th in the U.S. in research and development.
While the innovative economy pushed by Enterprise Florida has grown some legs in the I-4 Corridor and in South Florida, not much else is coming from the rest of the state in terms of significant job generating deals, as evidenced by Florida's bottom of the list PPM ranking in the SB&D 100 over the last five years. And this was a state in the late 1990s and early 2000s that saw Tampa Bay, Jacksonville and Orlando routinely rank at the top of their peer groups year after year. What's even more troubling is the state faces some immediate challenges as the Space Shuttle era winds down and spending by the Department of Defense continues to be reined in. Enter new Florida Gov. Rick Scott.
New Florida Governor Rick Scott
Rick Scott assumed office as Florida's 45th Governor on January 4, 2011. He is a wealthy businessman with most of his money coming from Columbia/HCA, which by 1997 had become the world's largest health care provider. On March 19, 1997, while Scott was Chairman and CEO, investigators from the FBI, the IRS and the Department of Health and Human Services served search warrants at Columbia/HCA facilities in El Paso and on dozens of doctors with ties to the company. El Paso was the home of the first hospital Scott purchased in 1988.
Following the raids, the Columbia/HCA board of directors forced Scott to resign as Chairman and CEO. Eventually, Columbia/HCA paid more than $2 billion in fees, reimbursements, law suits and other claims in what was the largest Medicare and Medicaid fraud settlement in U.S. history. Regardless, Scott was paid a $9.88 million settlement and left owning 10 million shares of stock worth over $350 million.
After the forced departure from Columbia/HCA in 1997, Scott formed Richard L. Scott investments in Naples, Fla. The company has stakes in health care, manufacturing and technology companies. In February of 2009, Scott founded Conservatives for Patients' Rights (CPR), which he said was intended to put pressure on U.S. Democrats to enact health care legislation based on free-market principles. CPR opposes the broad outlines of President Obama's health care bill that was enacted last year.
Scott, running as the Republican nominee, defeated Democrat Alex Sink in the 2010 election. Sink is a former President of Florida Operations at Bank of America and was the Chief Financial Officer for the state of Florida. Scott carried 49 percent of the vote and Sink won 48 percent, losing by around 68,000 votes. It has been reported that Scott spent $78 million of his own money on the gubernatorial campaign.
Since being elected as Governor of Florida, we can think of only one other politician that has been busier in this country than Scott and that's President Obama. Then again, Scott may have Obama beat in getting his agenda up and running. Here are just some of the decisions Scott has made since taking office about 90 days ago.
* Formed the Economic Development and Regulatory Reform transition team tasked with identifying opportunities to reduce the size of government, transform the regulatory climate in Florida and look for ways to attract new businesses that will create 700,000 new jobs over the next seven years. The Chair of the team is Wayne Huizenga, Jr. of Huizenga Holdings and the former owner of the Miami Dolphins, the Florida Panthers and the Florida Marlins.
* Put on hold $500 million worth of transportation projects in the state.
* The day he took office Scott signed an executive order requiring his approval for any new state rules in departments under his purview. Three days later, he sent an email asking agencies that are not under his control to voluntarily "consent to the pre-authorization process" as well. Scott said he wants to review all state regulations to evaluate their relative benefit to consumers vs. their cost to business in an effort to create the 700,000 jobs in seven years. Attorney General Pam Bondi, Chief Financial Officer Jeff Atwater and Agriculture Commissioner Adam Putnam declined Scott's request.
* Proposed to phase out the corporate income tax in Florida and slice education property taxes, all in the face of a $3.6 billion Florida budget shortfall.
* Scott told a Northwest Florida audience in January that he plans to change Florida through deregulation and lower taxes to make it the best state in the country for new business. Scott told the audience, "This state is ripe for success. We now have a government that believes in the free market." He also said Florida would rid itself of "every tax that we can get rid of" and keep business fees low to compete with states such as Alabama, Georgia and Texas.
* Signed an executive order to put on hold Central Florida's $1.2 billion SunRail project and froze 900 projects bound for approval and hundreds of contracts worth more than $1 million each.
* Fired John Adams, the CEO of Enterprise Florida, and proposed to lawmakers to re-create the old Department of Commerce in Tallahassee. Enterprise Florida's offices are in Orlando. Adams was appointed by then-Gov. Jeb Bush in 2005 to run what was designed originally in 1995 to be a public-private economic development organization. But there are very little if any private funds supporting Enterprise Florida. If there were, Scott wouldn't have been able to fire Adams. By re-creating the Florida Department of Commerce, Scott would be in control of economic development in the state -- funding, incentives and rebates that are now appropriated by the Legislature -- and he told business leaders at Enterprise Florida's own annual meeting that Commerce's offices would be 'two doors down' from his own. However, Florida Senate President Mike Haridopolos (R-Merritt Island) said in his weekly Q&A on March 16 regarding Scott's desire to control about $300 million in economic development funds, "The constitution is pretty clear. It's a check and balance." Currently, the governor must receive Legislative Budget Commission approval for incentives to new and expanding industry. Haridopolis basically said that will remain the case.
* Replaced Adams with Gray Swoope, the former executive director of the Mississippi Development Authority. In our opinion, the move was an excellent one for Scott. Swoope is exactly what Florida, Enterprise Florida or a newly formed Florida Department of Commerce needs. There are no "think tank" elements in Swoope's economic development genes. He's a job maker and has many valuable contacts. But if politics get too involved in the incentives process in Florida, will the Swoope hire be a wasted opportunity?
* Sold two state airplanes to out-of-state bidders for a total of $3.7 million. The aircraft were used heavily by former governors, Cabinet members and other top officials in Florida. Scott told the officials who used the planes to find their own mode of transportation. Scott uses his personal jet to fly him around on official state business.
* In February, Scott rejected $2.4 billion in federal high-speed rail funds. The move shocked even staunch Republicans. In a press release, Scott said, "Rather than investing in a high-risk rail project, we should be focusing on improving our ports, rail and highway infrastructure to be in a position to attract the increased shipping that will result when the Panama Canal is expanded, when the free trade agreements with Columbia and Panama are ratified and with the expansion of economies in Central and South America." Scott also said about rejecting the rail funds, "The truth is that this project would be far too costly to taxpayers, and I believe the risk far outweighs the benefits." Vice President Joe Biden said about Scott's decision to reject high-speed rail in Florida in a story published by the St. Petersburg Times, "Your governor, God bless him – I don't know him – but I don't get it. You had the chance. You were the best situated of all the states in the country to put a truly high-speed train line from Tampa to Orlando that would have made money. Even if you were doubtful, I don't understand how in this economy in Florida you could walk away from 24,000 high-paying jobs."
Reaction to the rail funds rejection, a bipartisan project that took entire organizations off their regular tasks for more than a year in order to apply for and win the money, was almost universal. Andy Marlette in an editorial published by The Pensacola News Journal wrote, "It is a reckless, devastating decision that has nothing to do with the merits of rail and everything to do with Scott's obsession with courting the Tea Party movement and fighting the Obama administration."
Republican state Sen. Paula Dockery said that Scott is wrong about potential cost overruns that could be picked up by the state. "Seven teams were planning to bid on the Florida High Speed Rail project representing companies from 11 different countries including Japan, South Korea, Germany and France, all experts in building and operating high speed rail systems. Each of these teams had explicitly agreed to design, build, operate and maintain Florida's high speed rail system for a firm, fixed price, with no cost overruns and no subsidies."
Tampa Mayor Pam Iorio called the decision "the worst decision by a governor in my 26 years of public life" in an article published in the St. Petersburg Times in February. Others weighed in, including the Tampa Bay Partnership and the Central Florida Partnership, two economic development heavyweights in the central part of the state. "The project could provide thousands of immediate and long term jobs plus an unprecedented boost to businesses and citizens across Central Florida and the state."
But a few Florida leaders supported Scott's decision to turn down the $2.4 billion in federal funds for the $2.7 billion high-speed rail project. Florida Senate President Mike Haridopolos, R-Melbourne, and House Speaker Dean Cannon, R-Winter Park, said that Scott was right to reject the money. Haridopolos said in a statement, "To President Obama and all members of Congress, I say we are far better off reducing the $1.5 trillion in proposed deficit spending by this $2.4 billion than we are to build a rail project that has a questionable, at best, economic viability." The problem with that statement is if Florida doesn't get the $2.4 billion for high-speed rail, another state will get it.
Will Rick Scott Save or Sink Florida?
Only time will tell if Rick Scott's maverick decisions and management style will help Florida emerge from the worst economic crisis it has most likely ever experienced. His approach to governing is unlike any we have seen in the South since Southern Business & Development published its first word back in 1992, and as of this writing he has governed for three months. Rick Scott is certainly unlike any governor Florida has ever seen. To us, he is unlike any governor the South has ever seen and we have personally known and worked with many.
But there is one thing that makes Scott totally unique. What enables him to plow new ground, whether that ground sprouts new jobs or not, is his lack of obligations to special interests. He apparently doesn't owe anything to anybody. Name a recent governor in the South, or any politician anywhere for that matter who can claim that.
Plus, it is obvious to us that Scott could care less about public or political reactions to his decisions at this point. That reminds us of one other recent politician: former President George W. Bush. And like Bush, Scott is an enigma. That does not necessarily mean he is ineffective.
While Scott may be as busy as President Obama has been at setting his agenda, the two men are obviously two polar opposites politically. Yet, you have to admire them both in that they strongly believe that their time to lead is short, therefore they want to get things done, period, whether you agree with what they are doing or not.
In time, Scott's maverick style will lighten up. It has to if he is going to get the support of the Legislature, legislative committees and other political and business entities in Florida that provide checks and balances to make sure the majority of the people are being served by the Governor himself.
And as far as creating those 700,000 jobs Scott wants to create in seven years? Well, while Rick Scott is chopping and lopping every state expense he can get his hands on; successful economic development doesn't work that way.
In economic development, you have to have three things: capable people (available, talented workforce and leadership), great product (land, industrial parks, available buildings and the latest infrastructure) and most of all, cash.
You need cash to invest in your people and your product, but mostly to help companies get up and running with ideas and their job generating projects. Being a successful businessman and wanting to run the state like a business, Rick Scott should know that firsthand. Money makes money. Tons of money almost always makes tons more. Lucrative incentives create jobs and so far Scott has made his mark at cutting, not investing (sorry, "spending" for the Tea Party set).
If "Chainsaw Rick" refuses to "write the check" to companies with large projects that consider Florida (something like $500 million in incentives for a 2,000 sustainable job project that is investing $1 billion or more. That's the current going rate in the South.), there is no way Scott's 700,000 new jobs plan in seven years will ever happen.
Regardless of how business friendly Rick Scott makes the state of Florida with his proposed tax cuts, easing of regulations and the elimination of certain fees for business, that is not enough to achieve what he wants. It is not enough in today's competitive economic development world because other Southern states have already done all of that.
But if Rick Scott does save some of the money he is cutting from state services and establishes a large incentive fund for locating, relocating and emerging business and industry, then Rick Scott may indeed save Florida. To do that though, Rick Scott will have to spend, a word he apparently has no use for right now.