Revenue Growth Makes State Budget Woes Less Worse

Although Georgia’s revenue growth trend is positive, the state still faces significant budget problems.

First, some good news:

According to a preliminary report of the Georgia Office of the Treasurer, revenue from all sources, including those collected by the Georgia Department of Revenue, grew 5.9 percent in the 2013 fiscal year that ended June 30th. This growth results in a revenue surplus of approximately $309 million.  The revenue surplus added to any spending surplus left after a final audit, and subtracting funds allocated for the Education Mid Year Adjustment, should increase the Revenue Shortfall Reserve, or rainy day fund, from $378 million to between $550 million and $600 million.  This is positive, but we still have a long way to go to reach the $1.5 billion contained in reserves prior to the Great Recession.

Due to the increased revenues in the fiscal year that just ended, a mere 2.8 percent revenue growth will be enough to fund the 2014 budget.  If revenues continue to grow at a 6 percent rate, the governor will gain new flexibility to raise the revenue estimate and apply it to fill holes in the 2014 budget, while at the same time plan to create a bigger surplus at the end of the fiscal year to continue to rebuild reserves.

Following the recent positive revenue news, the state Office of Planning and Budget last week issued instructions to state agency officials to start work on their 2015 budgets that will kick in next July. For the first time in years the instructions do not ask for state agency budget cuts.  The instructions say to “…submit a budget request that is equal to the level of funding that is appropriated for the [Fiscal Year] 2014 budget.”

This positive news does not mean the state’s financial woes are a thing of the past.

The not-so-good news?

Looking ahead to the 2015 fiscal year, Georgia needs about 3 percent growth in revenue to pay for new student enrollment, Medicaid and State Health Benefit Plan increases, retirement system obligations and other obligated expenses. The state needs another 2 percent growth in the 2015 fiscal year to increase reserves by a modest $200 million. If the governor plans on revenue growth of between 6 and 7 percent during 2015, that leaves between $300 million and $400 million to spend.

Keep in mind that the K-12 education funding formula is underfunded by $1 billion and the University System budget is down nearly $400 million. The Georgia Department of Human Services budget has also been cut by $125 million. There are hundreds of millions of dollars in additional cuts throughout state government.

Not only is Georgia a long ways from undoing years of cuts, many state employees have gone years without a pay increase. In fact many teachers and state employees have lost income due to furlough days and increased health insurance premiums. To slightly reverse that trend and give teachers and other state employees a 1 percent raise starting July 2014 would cost about $120 million.

For the first time in many years the governor could be in a position to undo some of the damage the Great Recession inflicted on the state budget. But his options are still quite limited. It will take a lot more than the modest revenue growth that is slowly emerging to get Georgia back on track.

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