May Revenue Review: Revenue Growth Insufficient to Fund Reserves

Posted by Alan Essig

Although revenue has increased 5.1 percent over the first 11 months of the current fiscal year, the revenue growth is inadequate to increase funds to the Revenue Shortfall Reserve (RSR) or fully fund the Education Mid-Year Adjustment Reserve. The economic health of Georgia depends on developing a fiscal plan that produces revenues adequate to grow the reserve funds and to make the investments in education, transportation, and health care that are vital for a strong state economy and robust job growth.

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 in  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.

Prior to the 2008 recession, the RSR contained $1.5 billion and a fully funded RSR would total approximately $2.5 billion; however, the reserve currently contains only $328 million.

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.

The FY 2012 budget is based on revenue growth of 4.3 percent.  Revenues would need to grow 5.3 percent to fully fund the Education Mid-Year Adjustment Reserve.  Moreover, revenues would need to increase greater than 5.3 percent to actually grow the Revenue Shortfall Reserve.

Growing the reserves may be even more problematic in FY 2013.  The FY 2013 budget is based on revenue growth of 5.2 percent. Revenues would need to increase by over 6.2 percent in FY 2013 to fund the Education Mid-Year Adjustment Reserve and grow the Revenue Shortfall Reserve.

Dramatically increasing the RSR should be a fiscal priority of the state.

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1 thought on “May Revenue Review: Revenue Growth Insufficient to Fund Reserves”

  1. Pingback: State revenues still far behind pre-recession levels — Peach Pundit

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