I always get the question: “Will we make budget?” So, this is a quick look at the governor’s budget revenue estimates and what the executive branch seems to be thinking in terms of revenue growth.
First, some background: The amended and general budgets are built over the FY16 general (FY16G) budget as the base year. When agencies and citizens think about “new money” in the budget, they are largely thinking of funds that are not already committed to some purpose in the base. So one way to measure the revenue estimate is to look at the FY16 amended (FY16A) and FY17 general budget (FY17G) over the FY16G amounts.
Typically, when we talk about revenue growth though, we consider growth over the prior fiscal year. We have the audited revenues for FY15 now, so we will want to look at projected growth of FY16A over FY15 actuals and then FY17G over FY16A. Also, I’m going to look only at state general funds, not lottery, tobacco settlement funds and some other small fund types that make up the state’s total own source revenue portfolio of state funds.
One of the complicating factors this year is the passage of HB170, which added transportation funds to the budget and also shifted around $180 million in state general funds to be exclusively for transportation. This means when we look at the underlying revenues, we need to make an adjustment. The revenue estimate for HB170 is $758.7 million in FY16A and $825.6 million in FY17. In order to compare the revenue estimate to FY15 and FY16A, we have to deduct this amount and net out the $180 million state general funds shift, so an adjustment of $575.7 million in the bottom line revenues for FY16A and $645.6 in FY17G (see table below).
Looking at FY16A first: The state general funds revenue estimate in the governor’s budget for FY16A is $21.6 billion. Adjusting for HB170, it is $21 billion, representing an estimate of 3 percent growth over FY15. Interestingly, at 4 percent growth, the state would bring in around $21.2 billion, and the $200 million difference is exactly the amount coming out of the reserve funds to cover K-12 growth.
Why is this of interest? In the revenue shortfall reserve (RSR), there is a statutory set aside of 1 percent each year to meet K-12 growth needs in the amended budget. Every year, the governor releases these funds typically for adjustments in the education formula but also for other education purposes. However, what the governor can do is trim the revenue estimate at the other end to try to replace this funds. This year the amount available for the K-12 adjustment is $204 million. However, my guess is that the governor is shorting the revenue estimate (at 3 percent instead of 4 percent) in order to ensure that at the end of FY16, the state places at least $200 million back into the reserve. Obviously, I cannot say for certain, but this is what I’d do in his shoes.
The governor made a big point in his State of the State address that the reserve stood at $1.4 billion at the end of FY15. The state went into the Great Recession with $1.5 billion, so he’s likely interested in at least maintaining the reserve at this level, if not increasing it. (I can say from experience that these funds seemed to evaporate overnight, so I personally tend to favor a solid reserve.)
In any case, my guess is that the governor is banking on around 4 percent growth of FY16 over FY15 and is angling to return around $200 million to the revenue shortfall reserve (RSR) to keep it close to the $1.4 billion and perhaps add some if state growth is strong.
Looking at FY17G next: The state general funds revenue estimate in the governor’s budget for FY17 is $22.5 billion. After adjusting for HB170, the amount will be $21.9 billion. This is 4 percent growth over FY16A. If FY16 actuals though are 4 percent, then FY17 will only need to grow by 3% to make budget.
Last, for those who keep an eye on the Department of Revenue monthly revenue numbers, we’ll be looking for growth that actually includes HB170 going forward. Importantly, the Department of Revenue (DOR) numbers do not actually reflect all the revenues that the state receives. A small but important percentage are tracked through the state treasury department. However, the DOR revenues make up the majority of state revenues and are the ones publicly released, so they can stand as a rough proxy for the growth the state needs in order to make budget.
In order to “make budget” in FY16, the state general funds will need to see revenues grow by 5.8 percent over FY15. In order for the state to replace the K-12 reserve in the RSR, the state revenues will need to grow by 6.9 percent. In FY17, the state will need to grow by 4.2 percent in order to make budget over FY16, but be aware that this number will need to be adjusted once FY16 actuals are available. If the state is able to grow at 6.9 percent, then FY17 will only require 3 percent growth.
— Carolyn Bourdeaux, director of the Center for State and Local Finance and former director of Georgia’s Senate Budget and Evaluation Office