TALLAHASSEE — Amy Baker presented the Legislature's long-range financial outlook on Oct. 15, telling senators the state is projected to show a $3.8 billion general revenue surplus for fiscal 2025-26 but that projected deficits of about $1.5 billion in year two and $6.6 billion in year three will require policy action.

The outlook, which Baker said is required by the constitution and was prepared with input from the estimating conferences, legislative tax and finance staff, and appropriations staff, attributes much of the improved near-term picture to budget-related actions taken during the 2025 session and to one-time or nonrecurring adjustments. "We essentially bought one more year and pushed out what we thought we knew last year by one more year," Baker said.

Why it matters: the presentation frames the choices legislators will face during the upcoming session. The state shows strong reservesjust under $15 billion across unallocated general revenue, the Budget Stabilization Fund and the emergency preparedness and response fundand the Budget Stabilization Fund is at its constitutional maximum. But Baker warned most of the first-year surplus is nonrecurring and that recurring spending growth would outpace revenue if left unchecked.

Most important drivers and near-term numbers

Baker said the single largest critical need added to the outlook is a general-revenue transfer to the emergency preparedness and response fund, roughly just under $2.4 billion across the outlook window. The second-largest critical need driver is Medicaid-related costs, which she said total roughly $1.8 billion across the three-year planning window and are driven primarily by rising unit costs and services now embedded in managed care, including a continuing increase in behavioral analysis services.

Baker told the committee the Legislature's session actions that freed money into general revenue accounted for a large share of the improved balance: session budget-related actions represented about $5.7 billion of the roughly $7.8 billion change she described in the current-year fund balance. Separately, the estimating conference identified roughly $142.6 million in current-year shortfalls, nearly all tied to Medicaid services.

Revenue and economic context

Baker walked senators through economic assumptions behind the revenue forecast. Florida's GDP growth is projected to slow from recent rates to about 1.9% in the current year and then roughly 2% in the following two fiscal years, while personal income growth and wage growth are expected to remain relatively stronger. She said average annual wage growth was projected at about 4.5% in the current year and about 4% in fiscal 2026-27, and noted Floridawhich has a large retiree populationrecently approached the national average on annual wages.

The presentation highlighted doc stamp (document stamp) tax receipts, a revenue source tied to real estate and construction. Baker said doc stamp receipts surged to roughly $5.4 billion during the pandemic-driven housing boom and then fell back sharply (down about 28% in one year and another 7.4% in the next), producing a forecast of weaker growth in construction-related revenue in the near term.

Reserves and "black swan" risks

Total state reserves reported in the outlook are just under $15 billion, which Baker described as a strong position; the Budget Stabilization Fund is at its constitutional maximum, leaving little room to add further to that account. Baker said the outlook does not include a standard recession stress test this year, but it does model a "co-occurring" catastrophic event scenario using the Great Miami hurricane of 1926 as a normalized case study. That exercise suggested a single catastrophic hurricane following that path could consume an estimated $3.4 billion to $3.8 billion of the Budget Stabilization Fund; back-to-back catastrophic events would strain reserves and response capacity.

Medicaid and managed care concerns

Senators pressed Baker on Medicaid cost drivers. Senator Smith asked why Medicaid costs remain high despite a falling caseload and slightly more favorable federal matching (FMAP). Baker attributed the increase to medical inflation and, particularly, rapid growth in behavioral analysis services now delivered within managed care. "Medical inflation tends to lag a little bit and so we're seeing ... where that medical inflation is kind of baked into the numbers," she said.

Senator Burgess asked about forecast accuracy; Baker replied, "I think we're fairly confident," and noted that many of the components most sensitive to economic swingsfor example, Medicaid and TANFare captured as critical needs in the outlook.

What the outlook does not do

The presentation is an analytic document and does not itself change policy. Baker and the committee noted the estimating-conference process will continue: agencies are completing reviews of recently passed legislation and further impact conferences are planned in late October or November, with a fuller round of estimating conferences likely in December and January ahead of appropriations work.

Bottom line and next steps

Baker concluded that while the state has a strengthened near-term position, the revenue forecast will not sustain recent spending growth over the three-year horizon without additional fiscal strategies. She told senators that delaying adjustments would increase the total required actions in later years: resolving the three-year recurring and nonrecurring projected deficits now would require roughly $2 billion in adjustments; delaying a year would raise that figure toward $3.5 billion.

The committee followed Baker's presentation with questions from several senators and closed without taking formal vote action on budget items during the meeting.