Tax revenue forecasts not a pretty sight

Hidden in the appendices of Gov. Sonny Perdue’s latest budget report is some sobering news for the people who will be running the state the next few years.

Even with $2 billion in budget cuts this year, state officials project that tax collections will fall $600 million short of state spending in fiscal 2011.

Fiscal 2011, which starts July 1, 2010, is about a year after economists expect a weak economic recovery to begin.

And officials say that similar revenue shortfalls could continue through at least 2014.

“If that revenue estimate is accurate and the expenditure trend is accurate, there will have to be some choices made about where to spend dollars or raise revenue,” said Kenneth Heaghney, the state’s fiscal economist. “It’s really an indicator that over the long term, we face continued constraints in terms of spending.”

Legislators haven’t publicly discussed the projections, which are buried on page 417 of the governor’s fiscal 2010 budget report.

They’ve got their hands full trying to figure out how to cut agencies’ budgets 10 percent or more and still maintain services such as education and health care.

When asked about the potential long-term shortfall, Senate President Pro Tem Tommie Williams (R-Lyons) said, “It’s not going to matter because we’re going to wind up budgeting for the revenue we have.”

Like other states, Georgia law mandates a balanced budget. So a shortfall means either raising more money or cutting spending.

The budget and revenue projections —- which suggest potential shortfalls of $500 million in fiscal 2012, $400 million in fiscal 2013 and $500 million in 2014 —- back up Perdue’s argument for spending cuts that have a long-term impact.

Perdue is easing the pain of potential budget cuts next year by using reserves and other one-time fixes. Once reserves are spent, they are gone.

Alan Essig, executive director of the Georgia Budget and Policy Institute think tank, says the shortfall projections show the state has long-term structural budget problems that require some kind of increase in fees or taxes.

Education costs increase every year because the number of students in both k-12 schools and on college campuses continues to grow. Other programs, such as those for health care, also cost more each year.

“Everything staying the same, revenues are projected not to be strong enough to cover what we know the needs will be,” Essig said. “We either have to fundamentally cut the budget even more or we have to increase the revenue base.”

Essig’s group supports legislation that would raise cigarette taxes by $1 a pack. Other alternatives, he said, include increasing taxes on upper-income Georgians, eliminating special-interest tax breaks, taxing Internet sales and putting a sales tax on more services.

Tax increases are unlikely this year. Legislative leaders have said they won’t support any increases. Lt. Gov. Casey Cagle, the Senate’s president, is running for governor in 2010 opposing any tax increases.

Plus, lawmakers already face the prospect of being blamed for property tax increases this fall if they go along with Perdue’s proposal to eliminate the state’s homeowner’s property tax relief grants.

That $428 million program saves many Georgians $200 to $300 a year in taxes. But Perdue sees it as a yearly cost to the state that didn’t meet its objective: to hold down property taxes.

Projected long-term shortfalls aren’t new to Perdue. When he took office in 2003, revenue lagged behind spending, in part because the state was seeing annual double-digit increases in the cost of Medicaid, the health care program for the poor and disabled.

But state officials said stricter eligibility rules and better management of patient health care helped reduce the annual rate of increase to a little more than 3 percent a year.

Still, Trey Childress, director of the Office of Planning and Budget, said the long-term projections make it clear that the next few years won’t be easy ones for the people trying to decide how to balance the state’s $20 billion budget.

“Every year we start from square one having to cut back to get a balanced budget,” Childress said.