Deal warns: New Ga. tax money already spent

Agencies told to brace for lean year as pension, school, health costs rise.

Good times or bad, Gov. Nathan Deal warns state agencies each summer not to plan on getting any more money to spend in the coming year.

This time around, he may have a good reason. Most if not all of the new tax money the state will take in next year is likely spoken for as another huge teacher pension bill comes due and school and health care costs continue to rise.

“Any growth we are going to see is going to be eaten up naturally,” said House Appropriations Chairman Terry England, R-Auburn. “It’s all got a name and a number beside it.”

Teresa MacCartney, the governor’s budget director, sent out budget instructions Tuesday making it clear to state agency directors that most shouldn’t ask for anything new when they develop their spending proposals for the upcoming year.

“We will continue to put investing in our citizens and the longterm fiscal health of our state first and foremost,” she wrote in a memo obtained by The Atlanta Journal-Constitution. “This includes fully funding our pension obligations, continuing to invest in transportation infrastructure and fully funding growth needs in our education and human services/mental health systems.

“To ensure we are able to fund these priorities, agencies are to maintain (fiscal year) 2018

spending levels for agency programs.”

The state’s latest budget year, fiscal 2018, began July 1.

State agencies will spend the next couple of months developing spending plans for the upcoming fiscal year and then submitting them to Deal for his consideration. The governor will present his budget proposal to the General Assembly in January.

The latest instructions are similar to the ones agencies have received ever since Deal took office in 2011.

But a lot has changed since then. Deal became governor when Georgia was still feeling the impact of the Great Recession, when teachers and state employees were still being forced to take furloughs to help make ends meet.

Now Deal will be writing a budget — his final one before leaving office — after several years of economic growth during which tax collections rose faster than in many states across the county.

Collection for the fiscal year that ended June 30 increased $930 million, or 4.5 percent. The state is projecting further growth this year, and Deal has squirreled away more than $2 billion in reserves.

However, the Nelson Rockefeller Institute of Government, the public policy research arm of the State University of New York, is projecting weak tax collections nationally. The National Association of State Budget Officers reported earlier this year that nearly half the states were making budget cuts.

Georgia, traditionally late going into an economic downturn and late coming out of one, isn’t immune to the national trend, officials say.

“I kind of am of the mind that we’re going to start seeing a little bit of a slowdown,” England said.

That may mean, say, 2 percent to 3 percent growth in collections instead of 4.5 percent, which can make the difference between a small raise for 200,000 teachers and state employees next year and no raise at all.

Every year much of the state’s growth in revenue is used up by a corresponding growth in the cost of Medicaid — the public health care program for the poor and disabled — k-12 schools and colleges. Public schools and colleges are funded using a per-student formula, and enrollment, particularly in k-12 schools, always goes up in Georgia. Each student carries a corresponding increase in school costs for the state.

In addition, the state faces another huge bump in payments to the Teacher Retirement System, which covers about 400,000 teachers, University System of Georgia employees and retired educators.

During the past legislative session, Georgia lawmakers raised the alarm when they had to provide an extra $223 million to help boost the financial security of the system. Next year that figure could hit $400 million, likely the largest one-year infusion in state history.

The “employer,” or government, contribution rate into the fund — a percentage of employee payroll — will have more than doubled since 2012.

The $400 million would have been enough to provide teachers with their biggest raises since at least the 1990s and would be more than twice what’s needed to fill holes left by “austerity cuts” that have been included in education budgets for more than a decade. Teacher groups, however, say the pension program is a great tool to attract and keep talented educators, so it’s worth the cost.

Lawmakers will want to be able to offer teachers and state employees some kind of pay raise next year, if for no other reason than 2018 is an election year in which several lawmakers are running for higher office. The race to replace Deal, for instance, so far includes four state lawmakers and the lieutenant governor, who is the Senate president.

The Republican-led General Assembly would also like to leave town next spring having cut taxes, always a plus on the campaign trail in Georgia. Efforts to cut the state income tax last year failed in the final hours of the 2017 session. Reducing taxes would cut into the state’s revenue in coming years, and Deal has not championed recent moves to reduce the top income tax rate.

Kelly McCutchen, the president of the conservative Georgia Public Policy Foundation and a longtime proponent of reducing the state’s 6 percent top income tax rate, isn’t counting on a big tax cut, even in an election year like 2018.

“I don’t expect tax reform, but you could set the table for 2019, when there is a new administration,” he said. “It’s very hard to predict. Based on history, there is going to be a lot of talk about it and nothing will happen.”