Georgia’s Revenue Increase Trails Needs of Growing Population

For most Georgians July 1, 2017 was just another steamy summer day in the south. For state lawmakers and agency leaders, it marked the beginning of a new year, the annual restart of operating plans to track budget expenses against carefully prepared plans. Meanwhile, department heads close the books on the state’s 2017 fiscal year as they compare their projected spending to the actual expenses. Any unspent appropriations are returned to the state’s general fund, often headed to the state’s rainy day fund, technically known as the Revenue Shortfall Reserve.

Georgia’s revenue growth chugged along at a moderate rate the last few years. Just this week, the governor’s office said July net tax revenue collections were up 7.1 percent compared to the same period last year. However, when factoring year-to-year growth for the entire fiscal year that began July 2016, Georgia revenues grew just about 4.5 percent. This is moderate at best. Underlying the state’s steady revenue growth is the need for more to support population growth and the resulting new demands on our schools and universities, roads and other public goods.

So when you hear Georgia’s $25 billion 2018 budget is its biggest ever, some context is called for. Each year Georgia’s budget should be bigger because the state is growing and income should be growing too. That is the normal pattern from year to year. Other than recession years, state revenue growth is typical. Georgia’s experienced several consecutive years of growth since the last recession and some state lawmakers will be tempted to slash taxes when they return to the Capitol next January. State leaders will do well to remember Georgia’s history. In non-recession years, in the 1990s and in the next decade, state budget writers could count on 7 percent average revenue growth. Eight years into the economic recovery, Georgia continues to experience growth of less than 5 percent.

The responsibilities of the government for pensions, rising health care costs and services, cost of living increases for state employees don’t make the headlines like the big budget number does. But expenses are just as critical a part of the ledger as income. To maintain a competitive economy and workforce, Georgia falls short of the necessary investments to improve the quality of life. Tremendous needs exist and state lawmakers struggle to fill those needs with existing revenues and still balance the books. Georgia’s public schools are still underfunded by nearly $170 million dollars. More than 300,000 Georgians go without health coverage because the state refuses to accept Medicaid expansion that could pump about $3 billion into its struggling health care system as soon as 2018. Thousands of disabled Georgians languish on waiting lists to get services.

Much of Georgia’s inability to tackle the various public policy needs results from an eroded tax base. For the 2018 budget year, Georgia’s tax expenditures or tax breaks pull more than $8 billion in revenue out of the state treasury. Georgia’s sales taxes do not capture a large part of Georgia’s economic activity, including services and online sales. This summer, the Georgia Senate Study Committee on Special Tax Exemption is working to review the many tax breaks we give up each year and find a way to determine if Georgia is getting a good return. This effort holds promise to create a system that measures whether business incentives deliver on what’s promised and ultimately create a way for Georgia to strengthen its tax expenditure policies.

Meanwhile, keep an eye on those monthly state revenue reports, hope the healthy trend continues and watch for irresponsible calls to cut the revenue base. The widespread economic crash that started in 2007 might be a fading memory for some, but Georgia is still dealing with the aftershocks. Slashing taxes after a relatively short period of healthy revenues is a formula to put the state in a real bind.

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