Over the last year, Georgia has seen historic drops in revenue. Our state has had only 10 years of revenue declines since 1952, and 2009 proved to have the most significant decline of those 10 years. Looking ahead to the 2010
Legislative Session, creating a fiscally responsible state budget will be our most critical task.
Here’s an overall look at our current budget situation, how other states are managing their revenue shortfalls, and what the Senate is doing to prepare for the upcoming budget process.
Georgia is one of 32 states that are constitutionally required to balance their budget, which does not allow us to spend more money than we receive.
The sobering reality is that our revenues continue to decline. Our state budget consists primarily of revenue from income tax and sales tax. The state’s revenue figures for the month of September were down 14 percent compared to last year.
Our budget has been cut from $21 billion in 2007 to $15 billion in 2010. During that period we gained 300,000 new Georgians. Our current debt is $121 per capita compared to the national debt of $40,000 per capita and growing. We have the lowest debt per capita of any other state in the nation, and also rank 50th among the states in revenue collected. No other state is less expensive to live in than Georgia based on the state taxes collected.
We are filling the budget gap through a combined strategy of reducing agency budgets and utilizing short-term funding sources. However, this year has also brought some unexpected budgetary issues that must be addressed. Due to the flooding last month, the state must recognize a 25 percent match for FEMA flood relief payments. Money must also be found to assist with the costs of the H1N1 virus and vaccinations, enrollment growth in colleges, and the need for additional mental health funds.
The last fiscal year brought hardships to almost every state across the nation. According to the National Conference of State Legislatures, states have had to make significant cuts across a variety of policy areas in order to balance their budgets, many of which have been similar to reductions made in Georgia’s FY09 and FY10 budgets.
Alabama, Arizona, Idaho, Illinois, Kentucky, North Carolina, Oregon and Utah have reduced funding across the board for K-12 education. In the case of Utah, funding for K-12 education was reduced by 13 percent, though this was partially backfilled with stimulus funds. Other states have reduced teacher pay, shortened the school year and reduced or eliminated special programs such as gifted education, athletics, after-school care or bilingual programs.
California, Idaho, Nebraska, Nevada, New York and Utah have reduced funding for state parks.
A number of states are furloughing employees, and Rhode Island, Illinois and New Hampshire will furlough state employees 12 days. Delaware, Florida, Hawaii and Idaho reduced salaries for some government officials. Maine, New Jersey, Ohio, Pennsylvania and Virginia have either deferred or eliminated scheduled pay raises.
Other states have increased taxes in order to mitigate declining revenues, which is not an option for Georgia.
California, Delaware, Hawaii, New Jersey, New York, North Carolina and Oregon have raised individual income taxes. Massachusetts, Nevada and North Carolina increased the state sales tax. Other states have broadened sales taxes to apply to items including online sales, political advertising and services other than goods.
Georgia’s strategy to mitigate the impact of revenue shortfalls on state operations this year will not be enough to sustain us in the future if revenues do not begin to grow.
Short-term funding will be depleted in future fiscal years, and reserves are running low. Like many states, Georgia had to access rainy day funds to balance the budget.
The FY10 budget uses nearly $480 million in reserve funds to cover the shortfall. This means that only a little over $200 million, including $168 million which can be used for the mid-year adjustment, will be left in the reserves to meet any further fiscal year end revenue shortfalls.
Without revenue growth, the state will have fewer options for meeting shortfalls in future fiscal years and will become more dependent on reducing agency budgets and state operations in order to balance the budget.
The challenge this year will be to make precise budget cuts while not sacrificing state services that are vital to Georgians.
Last year, agency budgets were cut in equal amounts across the board. Many have raised concerns that additional across the board cuts will do more harm than good to cash-strapped agencies. At some point, harsh budget realities require us to prioritize our spending, similar to how families manage their own budgets at home.
The Senate is getting a head start on the budget process by holding agency budget reviews over the following months leading up to the start of session in January.
Sen. Chip Pearson can be reached at his Capitol office, 321-B Coverdell Legislative Office Building, Atlanta, GA 30334, by phone at (404) 656-9221 or via e-mail at chip.pearson@senate.ga.gov.