State ends fiscal year with $600 million shortfall

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State ends fiscal year with $600 million shortfall
Outlook for '09 also gloomy

By JAMES SALZER, MICHAEL E. KANELL
Published on: 07/16/08

With the economy continuing to sputter, state government is going to have to spend $600 million in reserves just to pay its bills for the recently completed fiscal year.

And the outlook doesn't look a whole lot better for fiscal 2009, which started July 1.

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State tax collections were down 9.4 percent in June, the final month of fiscal 2008. They were off 1.1 percent for the entire fiscal year.

Collections of corporate income taxes and sales taxes — particularly on materials used in construction — dropped the most. That decline mirrors a national housing downturn that has hobbled the economy in many parts of the country.

Gov. Sonny Perdue said because of the tax collection decline, the state will have to use $600 million of its $1.5 billion reserve fund to balance last year's budget.

In anticipation of the slow economy, the governor already had ordered state agencies to come up with plans to cut 3.5 percent of their budgets this year.

Most state spending goes for education, public health care and prisons. For now, the governor has exempted most kindergarten through high school education as well as public health programs from those proposed cuts.

But that exemption may not stick if the economy weakens further.

"If the bleeding doesn't appear to be stopping, we'll have to look at all those options," Perdue told reporters.

"I think it's important for us to get ahead of this thing. There is no emergency. There will be some tough choices in the '09 budget over where we take these reductions."

During the past 35 years, overall collections have fallen only during fiscal years 2002 and 2003, said economist Roger Tutterow of the Stetson School of Business at Mercer University. Adjusted for inflation, the 'real' level of collections also fell during two recessions, in 1991-92 and 1980-81, he said.

Tax revenues not only fuel government, they also are a window on the larger economy.

Personal income taxes rise when companies add new jobs and people get raises. Sales taxes go up when consumers feel flush enough to boost spending. And corporate income taxes tick up when business is growing.

But in tough times, the flow from these spigots gets weaker.

"What we are picking up is that the national economy has been slowing down, and that is having repercussions in Georgia as well," Tutterow said. "The job situation in Georgia is a little better than the national picture — but not a lot."

State unemployment is up, but jobs are still being added, according to the state Labor Department. Georgia added 9,400 positions in May, while the jobless rate climbed to 5.7 percent. In May 2007, the state added 14,400 positions, and the jobless rate was 4.3 percent.

The state's economic slowdown started in the fall, as sales of homes slowed and new home construction virtually ceased.

Tax revenues really didn't suffer until the fourth quarter. That means that comparisons to the previous year will look even worse for the next few months, Tutterow warned.

Economic projections forecast modest growth the rest of this year. Few economists predict recovery until 2009, with many suggesting it will be late next year — and none too robust a rebound.

Perdue has been here before. He came into office in 2003 facing a shortfall of more than $600 million. After two years of slashing spending, he was able to build up state reserves from almost nothing to $1.5 billion now.

When the softening of the economy began accelerating during the first half of 2008, Perdue lowered his estimate of the revenue the state expected to take in. That essentially cut the amount of money lawmakers could appropriate. But it turned out that wasn't enough.

In the final three months of fiscal 2008, overall tax collections were down 7.3 percent over the same period in fiscal 2007, according to the Georgia Department of Revenue.

Corporate income taxes plummeted 26.7 percent, and sales tax collections fell 8.6 over the same months in fiscal 2007.

Perdue said the state and national economy is going through so much right now that it's hard to predict what will happen.

"We have wise economists in this state but ... in times of great changes in momentum, economic forecasts are not all that accurate or helpful," he said. "So you're somewhat flying by instruments."

Because of conservative budgeting and large reserves, Perdue said Georgia is in better shape than most states.

A recent National Governors Association and National Association of State Budget Officers report showed 13 states had to cut into their budgets in fiscal 2008 to make ends meet. That was up from three states the previous year. This fiscal year, 19 states expect to spend less money than they did in fiscal 2008.

Legislative leaders in Georgia said the state has no choice but to slow spending.

"Now is the time to drive down costs and focus our efforts to do more with less," said Lt. Gov. Casey Cagle, president of the state Senate.

Senate President Pro tem Eric Johnson (R-Savannah) said, "Georgia will do what families across this state are already doing — adjust our priorities and tighten the belt."

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Comments

By Georgia Legislators Are Criminals

Aug 1, 2008 9:20 AM | Link to this

I'm so happy to see that Georgia is in a major fiscal crisis. The state of Georgia and many (or most) of its local governments are criminal regimes that deserve nothing but problems. I say that based on the fact that they have passed so many illegal "sex offender" laws and will continue to do so until it becomes even more completely, abundantly clear that the laws are worse than just worthless and not really about "public safety" or "protecting children" and too many decent people demand that the politicians utilize facts, respect reality, and stop passing the laws.

The vast majority of Georgia citizens love the lies of the pandering politicians who created these laws and they support them. Therefore, Georgia and most of its citizens deserve all the misery they can get. I pray the economic crisis worsens and devastates Georgia.

Our criminal governments have grown far, far too large and are doing far, far too many tasks that they have no business ever doing. The law enforcement enterprise of the Criminal Regime of Georgia similarly has grown far, far too large and just has way too much time on their hands. The "sex offender" laws cannot be controlled by working on Georgia's legislature because they have proven that they will not utilize facts nor respect reality. I personally won't even attempt to work with those criminals any longer.

Some of the methods of controlling the laws that are being employed are to use the courts, civil disobedience and conflict, and economic warfare. The last item has worked fairly well and I will work hard in the future to ensure that Georgia's law enforcement agencies continue to not have the resources they need in order to accomplish their duties to any successful degree. Georgia's legislature have woken up a problem that isn't going to end. They have started a completely unnecessary war in exchange for no benefits at all.

By GA

Jul 21, 2008 7:25 PM | Link to this

Just who are these fDirector's that have overspent by 600 million dollars? The Director of each Agency that has overspent needs to be fired for not meeting the State's Expectation.

Why in the heck is the govenor complaining, at least he has the money in reserve to pay the bill. If this happened at my house I would be looking at forclosure.

By Sunny

Jul 17, 2008 3:10 PM | Link to this

Forgot ? ??????

By Sunny

Jul 17, 2008 2:55 PM | Link to this

How much double dipping is part of the $600,000,000.00.

There's some of your morals and family values.

What is GOP.

Some sort of joke.

By GeorgiaPeach

Jul 17, 2008 1:12 PM | Link to this

SC is right; DHR is out of hand. They hire whomever they want at whatever the cost. Some of them make way more than they're worth. They walk around the office all day from the cubicle to the mail slot, hoping someone will send them something. Just a complete waste of tax dollars. And, by the way, how does the state intend to pay for the mental health increases that the feds (Justice Dept) are about to order them to spend in the hospitals and community programs?

By deegee

Jul 17, 2008 12:49 PM | Link to this

Here is what Chip Rogers told Lou Dobbs back in 2005 concerning his crackdown on illegal immigrants. Even if he got half of what he thought the state would save, why are we so far in the red?

"ROGERS: Well, let me just first say, that I think the governor, Sonny Perdue is doing a great job. But oftentimes we don't see the direct connection between what's a federal problem, and the impact on the states. The federal government is just a collection of the 50 states. Remember that, you know, the federal government is simply a collection of the 50 states plus Washington D.C., so anything that's impacting the federal government is clearly impacting the states. For example, in the state of Georgia, because in 2002, we spent $231 million alone educating illegal aliens. That doesn't include the number of legal students that were here, but whose parents are illegal.

So the numbers are simply staggering. When you take a look at education, healthcare, incarceration, what's happened in our judicial system, environment, infrastructure problems, you add all that together. I think it's probably on the order of about $1 billion a year that Georgia taxpayers are having to pick up the tab for. So, anytime you're talking about a $1 billion problem, I think it's something the legislature seriously needs to look at. "

By Nojo

Jul 17, 2008 11:18 AM | Link to this

DHR isn't just cutting womens and childrens services, they are cutting services to nursing homes and senior services as well. Sonny SAYS DFCS isnt cutting public health services but DHR is planning for the instructions just the same. DHR understands that the cuts are coming and are planning their budget for the eventuality. Why should our most sick and vunerable have to suffer? Haven't they already paid their dues?

By BJ

Jul 17, 2008 11:09 AM | Link to this

Hmmmm....why doesn't Governor Perdue just pray for a miracle, the way he did when the drought was going strong?

Or turn away more business wanting to set up in Georgia, the way he did with the solar panel manufacturers a couple of months ago?

Or maybe the fact that guns can legally be carried almost everywhere in Georgia will encourage more people to buy guns and therefore save the economy....

By deegee

Jul 17, 2008 9:37 AM | Link to this

I thought that the crackdown on illegal immigrants that started last July was going to save the state millions. Where is the Chip Rogers dividend that we were supposed to realize?

By cws

Jul 17, 2008 9:31 AM | Link to this

This is a republican created nightmare and has been since 2000. The people that can not see this have their collective heads up..... well you get the picture
cws

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