Gov.-elect Brian Kemp takes office next week after making some expensive campaign promises and facing an economy that may slow by the time his first budget takes effect.
After eight years of strong growth under Gov. Nathan Deal, one of Kemp’s top priorities will be to help keep Georgia’s economy humming and state spending — $26.5 billion worth this year — under control while remaining vigilant for signs of the inevitable cyclical downturn.
Those will be the same 2019 General Assembly session priorities of budget-writers, such as state House Appropriations Chairman Terry England, R-Auburn.
“I think we thought by this time we would have seen a recession or at least a little of the start of a downturn, and we really haven’t,” England said. “Everything remains fairly strong.”
But his state Senate counterpart, Jack Hill, R-Reidsville, said warning signs are flashing — concerns about auto sales declines, higher interest rates, stock market gyrations — so Kemp and legislators should take a conservative approach to budgeting for fiscal 2020, which starts July 1.
“Even though our unemployment numbers are real low and our economy continues to be very strong in Georgia, you still can’t ignore these signals,” said Hill, who has headed the Senate Appropriations Committee since 2003. “What I think it means for us is we should be very careful about expansive spending plans.”
That kind of thinking isn’t new to state budget-writers — they form the state’s spending plan during a January-through-March session based on what the economy might look like the following year.
But any new governor wants to quickly make his mark on state priorities, and nowhere is that spelled out more plainly than the budget Kemp will recommend to lawmakers this month.
Among the challenges for state leaders:
- About $650 million worth of typical growth in state programs, mostly to pay for increased costs of running Georgia’s k-12 schools, universities and public health care system.
- A promise by Kemp to back a $5,000 pay raise for teachers, a proposition that would cost the state about $750 million-$800 million a year in extra salaries and benefits.
- A state workforce of tens of thousands of state agency and University System of Georgia employees who haven’t seen regular raises since before the Great Recession.
- Promises by Kemp to eliminate state income taxes on retirement pay for military veterans, expand a network of career training centers to 22 tech college campuses across the state, put big money into safety grants and counselors for schools, and expand the tax credit for Georgians who donate to struggling rural hospitals. Combined, those promises could cost more than $200 million a year.
- Likely continuing bills to help clean up and rebuild southwest Georgia after it was devastated by Hurricane Michael, a focus of a special legislative session in November.
Kemp faces those issues at a time when, in a good year, the state sees about $900 million to $1 billion more in tax collections from economic growth.
The new governor also wants to amend the state constitution to cap how much spending can increase each year in Georgia. And he wants to continue following on the work of last year’s General Assembly and cut the top state income tax rate.
Uncertainty produces caution
How much of his agenda will be doable in 2019 is as unclear as the economic climate the state faces over the next few years.
The state’s economy looked strong about this time in 2008 before the bottom dropped out and the Great Recession sent joblessness soaring and government revenue plunging. Georgia had a sizable “rainy day” fund, but it quickly disappeared as tax collections dropped and the state wound up laying off or furloughing tens of thousands of teachers and employees and cutting deeply into school and University System funding.
None of the state’s budget-watchers are predicting a similar collapse, but a slowdown after years of sustained growth is possible.
It didn’t help confidence levels that the nation just went through the worst December stock market since the Great Depression and the second down year for U.S. markets since the financial meltdown of 2008.
Besides a local economy that appears to still be growing, Kemp takes office with other advantages Deal didn’t have when he became governor in 2011. Deal has rebuilt the state’s reserves to about $2.5 billion, making it likely the state can weather a downturn.
A U.S. Supreme Court ruling last year ensured the state can require online retailers to collect sales taxes on their products, a move that could mean $200 million to $300 million more in revenue.
House Ways and Means Chairman Jay Powell, R-Camilla, said there also may be an effort to raise cigarette taxes — Georgia has among the lowest in the country — and tax e-cigarettes. Other states have used increases in smoking-related taxes to help pay for public health care programs.
The hardest promise for Kemp to keep may be the teacher pay raise, since it could eat up a large share of all expected new revenue in the coming year and because it would be an ongoing cost — something lawmakers would have to take into account as they view the future fiscal landscape.
John Palmer, a Cobb County educator and spokesman for the teacher group TRAGIC, said the raises are needed “to keep the best and brightest” teachers in Georgia’s classrooms.
“We trust the governor will hold true to his promise to invest in our teachers and take the lead in convincing the state legislators to include his $5,000 teacher pay raise in the state budget,” Palmer said.
“We recognize this proposed raise would mean greater costs to the state,” he said. “However, legislators have recently shown a willingness to invest in vital components to our state, such as transportation, infrastructure, and corporate incentives. We believe investing in education and in our teachers is vital to ensuring a strong and vibrant future for Georgia.”
England said teacher pay raises are supported by lawmakers but the cost — $750 million to $800 million — may be difficult to squeeze into the budget this year. Especially when thousands of state and university employees have gone without raises and will be hoping for an increase as well.
“I think there is a way we can get there,” England said. “We may not get there in one year. It may be a four-year plan of getting there.”
Gov. Zell Miller did something similar in the 1990s, when he pushed Georgia’s teacher pay to tops in the Southeast over four years.
State Sen. Nan Orrock, D-Atlanta, a member of the Senate Appropriations Committee, said there are many other areas where the state needs to spend more, such as the Medicaid program that provides health care to 2 million Georgians and mental health services that are almost nonexistent in some parts of Georgia.
“We have significant challenges that need attention,” Orrock said.
Cap meets resistance
Like some other lawmakers from both parties, Orrock opposes Kemp’s idea of pushing a constitutional amendment to set limits on state spending. England said governors can already limit spending in Georgia because they set the estimate of state revenue. Legislators can’t spend above that estimate, so it essentially serves as a limit.
Orrock called the proposed spending cap amendment “a poor idea” in a growing state such as Georgia.
“Nobody knows where the market is going right now, nobody knows what this president is going to do, what the tariff wars are going to mean,” Orrock said. “It is very complex, and making throw-away campaign promises around constitutionally capping the budget is just ill-conceived.
“No one can predict when the next downturn will occur. We are having a good ride right now, but the smart people don’t bet on that being the eternal reality for the state.”
Having been part of the General Assembly when the Great Recession hit will almost certainly make veteran lawmakers careful about budgeting this year.
“I think it’s a time to be very aware of what is out there in the future,” Hill said. “I just think this is a year when we should be cautious.”