Following the unprecedented downturn of the economy during the past two fiscal years, the positive revenue collections for June and July seem to signal a significant change in direction. But are two back-to-back months of positive revenue really good news?
I’ll try to answer that question as simply as I can, so please stick with me.
The budget for the State of Georgia peaked (all-time high) in the FY 2009 General Budget at $21.2 billion in state funds/tax collections.
Over the past two years, the budget has been scaled back by over $4 billion.
This steep decline of $4 billion within a very short period of time required many services and activities had to be reduced or ended quickly.
Revenue collections have been negative for 24 of the last 29 months.
The increases of 3.5 percent in June and 4.7 percent in July are good news — the first back-to-back positive months since FY 2008. However, we must not start celebrating just yet.
The budgets passed during the 2010 Session included very difficult cuts.
To downsize state government by $4 billion in less than two years involved cuts to many good programs and to areas we all consider high priority. This was especially true within the natural resources branches of government since it affected the Gold Museum and Amicalola Falls State Park.
During the past two fiscal years, the Revenue Shortfall Reserve (RSR) declined by 94 percent from $1.6 billion to $170 million.
As the state moves forward the next couple of months, we hope the revenue reports will continue to be more positive, building on the increases of June and July. But, we must be cautious.
The RSR is about 10 percent of what we would like it to be ($170 million vs. $1.6 billion).
It is expected that $150 million will be needed for the mid-year adjustment for education. With no increase in the RSR, that only leaves a balance of $22 million and very little margin for error.
The FY 2011 Budget approximates FY 2005 levels. If the FY 2011 budget is adjusted for population/per capita, the FY 2011 budget will be near FY 2000 levels. And, if the FY 2011 budget is adjusted for both population and inflation, the budget is near mid-1990’s levels.
Further, most economists suggest the recovery will be slower in Georgia than the rest of the nation.
This means Georgia will likely see modest 3 percent to 4 percent revenue growth for some time to come — not the 7 percent to 8 percent per year of the 90’s.
To put things in perspective, in a normal year, 4 percent revenue growth would generate approximately $600 million in new funds. In a normal budget, K-12 enrollment growth with teacher step increases would consume $150 million, University System and Technical College growth would consume $125 million, Medicaid enrollment would claim another $100 million to $150 million, prisons and juvenile justice claim $75 million, and debt service on a typical bond package would require $100 million.
This would leave little or no money for other needs, including law enforcement, child protective services, required improvements in Behavioral Health, and pay raises for teachers that cost about $80 million per 1 percent increase.
If we are looking at 4 percent revenue growth we will be stretched to meet basic needs.
To immediately begin addressing this deficit, the governor has called for 4 percent withholds from all agencies.
This is what our next governor and legislature face in January 2011.
I will keep you informed with the real revenue situation as information becomes available. When the sky is really blue again, I’ll tell you.
The link, http://fiscalresearch.gsu.edu/taxcouncil/index.htm, will take you to “The Special Council on Tax Reform and Fairness for Georgians.”
The Council was created by HB 1405 during the last session of the General Assembly to study the current tax codes and make recommendations for changes, if any, before the 2011 Session begins.
I encourage you to read about the council and to provide your ideas for improving Georgia’s tax system.
Rep. Amos Amerson can be reached at 689 N. Chestatee Street, Dahlonega, GA 30533; (706) 864-6589; e-mail email@example.com. Or call Gerald Lewy at (706) 344-7788.