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Georgia Budget Outlook: Long Road Ahead, but There’s Room for Optimism

(This article was first published by Georgia Fiscal Management Council for its January newsletter.)

Georgia’s state budget has been through a long, tough period during and after the Great Recession. The good news is that this year it’s looking like the state is finally going to have some breathing room. That being said, the state has suffered from some serious economic resets, and Georgia has a long way to go before its budget and spending levels look anything like they did pre-recession.

So first, I’m cautiously optimistic about next year’s budget.

The state had some nice revenue growth last year. Initial reports show around 6.6 percent growth in fiscal year (FY) 2015 general fund revenues over FY 2014. What this means is that the state’s reserves appear to be at a decent level, about $1.45 billion or 7 percent of net revenue collections. Additionally, it means that FY 2016 general budget will only require the state to grow by 1.3 percent for the state to meet the revenue estimate.

(For additional analysis of Georgia’s budget, download a recent presentation made by the Center for State and Local Finance.)

Assuming that the state can hit at least 4 percent growth over actual FY 2015 revenues in FY 2016, the state should have around $560 million in additional revenues over the original FY 2016 general budget general funds revenue estimate. This doesn’t include the $700 million in new transportation revenues per HB170.

Most of this money is largely committed though around $170 million will be allocated to fund transportation. Additionally, the state will likely spend around $130-200 million on various K-12 programs to cover growth and other needs.

However, FY 2017 should be better. The state generally builds its budgets off of the prior year general budget, so the FY 2016 general budget will serve as the base for the amended and FY 2017 budget discussion. At 4 percent growth over the base budget, the state will be able to add around $830 million to FY 2017; however, with any luck, FY 2016 will grow 4 percent and FY 2017 revenues will grow 4 percent, which would mean around $1.4 billion to add to the base. Again, this does not include the new transportation revenues. Also, the governor’s revenue estimate for FY 2017 may be more conservative in its projections.

However, even with a more modest revenue projection, there is also some space opening up on the expenditure side. Since the end of the recession, almost all growth in revenues has been consumed with shoring up reserves, pension, Medicaid or other health benefits and covering growth or replacing cuts in the K-12 and higher education funding formulas.

The good news this year, is that to date, growth in Medicaid appears to be small — $118 million based on the Department of Community Health’s fall presentation. The state health benefit plan appears to be running at least close to breakeven, and the state also appears to be caught up on its retirement system contributions, though it does need to start socking away funds to cover retiree health benefits (“other post-employment benefits” or OPEB).

What this means is that even after covering growth in K-12 and higher education formulas (about $250 million), covering the transportation funding shift (about $170 million plus), and possibly socking away some additional fund to start covering the state’s long term OPEB liability, there is still likely to be some funds for policy investment.

Already there are some ideas about how any “extra” money could be spent:

  • Eliminating the state’s so-called “austerity” education cut, about $460 million
  • Covering an increase in school spending based on the new formula, about $241 million
  • State pay raises at 3 percent of payroll, around $400 million

The growth in revenues doesn’t mean that Georgia is about to re-gild the Dome – it only means that the state may finally be able to move past the treading water stage of recovery.

Georgia’s real per capita tax and fee revenues are 14 percent below the 2001 peak. Adding new transportation funding only brings the state to 12 percent below the peak. There are a number of agencies whose state funded budgets are today lower in actual dollar amounts than they were in 2008, some significantly so. The state’s real per capita revenues are essentially the same as they were in 1996 — nearly 20 years ago.

The state is not now and has never been spendthrift and for many years has ranked among the most conservative states in terms of revenues per capita or revenues as a percentage of personal income. This rank is unlikely to change any time soon. The good news is that there is likely to be some reasonable space in the state budget to actually make policy choices beyond trying to maintain the state quo. The challenge now is to use any additional dollars to invest carefully and wisely in the future of the state.

Carolyn Bourdeaux, director of the Center for State and Local Finance and former director of Georgia’s Senate Budget and Evaluation Office

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