Georgia revenue is down, spending up, surplus likely
ATLANTA — State tax collections have flagged all year with little prospect of much improvement, but Georgia is spending more on education, public health care, policing and other services than ever before.
The Georgia General Assembly just agreed to spend $50 million for a new medical school at the University of Georgia, $178 million for a dental school at Georgia Southern University, nearly $400 million remaking Capitol Hill and more than $700 million on raises.
Falling revenue and record spending generally aren’t considered a formula for financial success in government, but the state will likely still end the fiscal year June 30 with a hefty surplus the governor can recommend how to use. Or not use.
The reason? About $16 billion in reserves and Republican Gov. Brian Kemp’s conservative — critics would say low-ball — revenue estimates have played a major role.
Republicans say Kemp’s handling of the budget has put the state on solid financial footing for the future.
“He takes his gatekeeper role very seriously,” said state Senate Appropriations Chair Blake Tillery, R-Vidalia. “I’m not upset with that at all.”
Democrats say he’s neglected to expand programs — such as the Medicaid public health program — that the state can easily afford but aren’t in the GOP’s political playbook.
“He’s all about control, and there is not a lot of evidence of shared power,” said state Sen. Nan Orrock, D-Atlanta, a member of Tillery’s budget committee.
BALANCED BUDGET
Lawmakers at the state Capitol, like colleagues in almost every other state, are required to pass a budget every year that balances. That means they can’t spend more on services — from salaries for teachers, prison guards, state patrolmen, judges and park rangers to road paving, driver’s licenses and economic grants — than the state collects in revenue.
Most state revenue comes in from taxes collected by the Georgia Department of Revenue.
Legally, lawmakers can only appropriate what the governor estimates each January that the state will take in during the coming year. If he estimates, for instance, $30 billion will be raised from income, sales and other taxes, that is what lawmakers can appropriate to spend. When $35 billion comes in? Instant surplus.
Kemp isn’t the first governor to limit spending by setting low estimates, but it’s been more noticeable in recent years because massive federal funding, inflation, a strong stock market and other factors had, until last year, sent state revenue soaring and produced record surpluses.
At the beginning of the year, the state had $16 billion in rainy day and “undesignated reserves,” enough to run state government for nearly half a year without any other money. Georgia isn’t alone. The huge federal windfall sent to Americans and local governments, combined with the economic boost that came after the brief COVID-19 shutdown, produced fat state coffers across the country.
A Pew Charitable Trusts report last week said for the first time since 2000, no state had less than a month’s worth of operating funds in reserve.
COVID-19 RELIEF
That doesn’t even include the tens of billions states received in so-called COVID-19 relief funds, which also helped stimulate the economy. Under Georgia law, Kemp had sole discretion over how to the spend that money, although he set up committees to make recommendations.
In 2022 — the year he ran for reelection — Kemp held a series of news conferences and issued press releases as he allocated most of the $4.8 billion in COVID-19 money for water and sewer projects, rural high-speed internet services, police bonuses, debit cards for low-income Georgians and other priorities.
Because his revenue estimates were below what was coming in every year during the boom period, spending was held down and the state saw huge surpluses for three consecutive fiscal years. The Kemp administration even sent agencies budget instructions last year telling them they could ask for more money, something that’s been almost unheard of most years since the beginning of the Great Recession of the late 2000s.
The state spent about $26.6 billion — excluding federal funding — in fiscal 2020, the last budget plan approved before the COVID-19 pandemic hit. Last year, it was more than $32 billion, and the midyear budget — which runs through June 30 — is almost $38 billion.
2025 BUDGET
A few days after Kemp signed the fiscal 2025 budget — which begins July1 and includes raises for 300,000 teachers and state employees — The Atlanta JournalConstituion reported tax collections for the first 10 months of fiscal 2024 were down 1.2%, or $341 million.
But Kemp assumed revenue would drop closer to 7%, which limited how much lawmakers could appropriate and may leave the state with a $2 billion-$3 billion surplus.
For the upcoming year, Kemp is projecting a 1.7% rate of growth — much lower than the state, on average, sees.
Part of the reason is the state lowered the income tax rate — a much celebrated decision that will mean a smaller tax bill for many and possibly less money for the government. Income taxes are the single largest source of revenue for the state.
But Kemp is also guided by what happened to Gov. Sonny Perdue during the 2000s. Perdue, whom Kemp successfully backed to become chancellor of the University System of Georgia, governed the state during two fiscal recessions — the last one, coming at the end of his second term, forced billions of dollars in spending cuts, furloughs, job reductions and skyrocketing college tuition increases.
The fiscal devastation of the Great Recession continued to hamper Perdue’s successor , Nathan Deal, into the 2010s.
“At the end of the day, we have to be a little conservative in our (revenue) estimate,” said Rick Dunn, director of Kemp’s budget office and a longtime state official. “You do not want to be in a situation where you overstate revenue and you are scrambling or furloughing people to make the budget. It’s easier to live with underestimates than overestimates.”
Danny Kanso, chief fiscal analyst for the leftleaning Georgia Budget and Policy Institute think tank, said, “By using the low estimates they have the surplus and can come back with money to spend on pet projects.”
But he also said the decision by Kemp and lawmakers to pay cash for construction projects this year — they typically borrow about $1 billion a year — gives the state the leeway to be able to fund more projects in the future. There is a cap on how much the state can borrow, and it isn’t close to hitting it.