March Revenue Review: Revenue Growth Insufficient to Fund Reserves

The March revenue report shows a slight increase in revenue collection compared to last March.

• March 2011 revenue collections were up 5 percent compared to March of 2010.
• Revenue growth in the first 9 months of the current fiscal year (FY 2012) was only 4.7 percent.

What do these numbers mean?

Although revenues are on pace to meet the governor’s current FY 2012 revenue estimate of 4.25 percent growth, it’s also important to exceed the revenue estimate to fund the Revenue Shortfall Reserve (RSR) and the Education Mid-Year Adjustment Reserve. The General Assembly cannot appropriate funds to these reserves through the normal budget process; funds are automatically transferred from surplus funds to the reserve funds at the end of the year.

The RSR acts as a savings account or “rainy day” fund for the state should revenue collections decline unexpectedly. Increasing the funds in the RSR is important for keeping Georgia’s AAA bond rating, which saves the state millions of dollars in interest payments, and helps minimize budget cuts during the next economic downturn.

The Education Mid-Year Adjustment Reserve funds K-12 student enrollment growth in the amended or mid-year budget. Without an adequate Education Mid-Year Adjustment Reserve, cuts would need to be made in other budget items in order to fully fund the increased cost of newly enrolled students.

It seems unlikely that revenue growth will be sufficient to significantly fund the RSR or fully fund the Education Mid-Year Adjustment Reserve.

The FY 2013 budget, which begins on July 1, is based on 5.2 percent revenue growth. Revenues would need to grow closer to 8 percent to fund the adopted budget, fully fund the Education Mid-Year Adjustment Reserve, and significantly increase the RSR. Such robust growth becomes more difficult considering the nearly $50 million in tax cuts passed during the 2012 legislative session that have not been incorporated in the revenue estimate.

Currently the RSR contains only $328 million. A fully funded RSR would total approximately $1.7 billion. Revenues would have to pick up significantly to drive a surplus big enough to fund the RSR—a surplus of $300 to $500 million needs to be generated each year for the next three to five years.

Obviously revenue growth between 5 and 6 percent is not only inadequate to fund the budget and the reserves, but would most likely result in additional budget cuts to education and other vital government services.