Georgia governments could see $1 billion hit in sales tax revenue from coronavirus

July 11, 2019  Atlanta : The United States and State of Georgia flags flew half-staff at the Georgia State Capitol on Thursday July 11, 2019 after Governor Kemp signed an executive order in memory of Hall County deputy Nicolas Dixon who was shot and killed. JOHN SPINK/JSPINK@AJC.COM
July 11, 2019 Atlanta : The United States and State of Georgia flags flew half-staff at the Georgia State Capitol on Thursday July 11, 2019 after Governor Kemp signed an executive order in memory of Hall County deputy Nicolas Dixon who was shot and killed. JOHN SPINK/JSPINK@AJC.COM

Credit: JOHN SPINK / AJC

Credit: JOHN SPINK / AJC

Georgia State University fiscal researchers say the state and local governments could see up to a $1.27 billion loss in sales tax revenue from key sectors of the economy this year because of the coronavirus shutdown and its aftermath.

That’s not good news for local governments and the state, which will have to figure out how to provide services, educate the state’s public school students and pay hundreds of thousands of employees with less money because of the shutdown and expected recession brought on by the pandemic.

State officials say it's still too early to say how bad the economic fallout will be for state finances, although House Speaker David Ralston, R-Blue Ridge, said lawmakers are likely to approve an austere budget for the upcoming fiscal year when they return to the Capitol later this spring.

Peter Bluestone and Robert Buschman of GSU’s Fiscal Research Center looked at the economic impact of the pandemic and the shutdown on several key areas of the state economy, such as airlines and restaurants.

“Our conclusions are limited to the near-term depth of the economic and revenue impacts from cutbacks in these specific sectors and to plausible short- and extended-duration scenarios for the remainder of the calendar year,” the researchers write in their report.

The researchers said cutbacks in the key sectors they studied would cost state and local governments between $729 million and $1.27 billion in lost sales tax revenue.

The report said other areas of state revenue will also likely be affected, such as alcohol and motor fuels taxes and the fees Georgians pay when they buy cars. Fewer people are driving during the lockdown, so less gas is being sold. Fewer Georgians are also buying cars.

In both cases, if there is a severe recession and unemployment remains high, collections will continue to be lower than last year, when the state’s economy was strong.

The state gets most of its funding from income taxes and sales taxes.

Through the state's budget, taxpayers help educate 2 million children, provide health care to more than 2 million Georgians, build roads and bridges, manage parks, investigate crimes and incarcerate criminals, and regulate insurance firms and utilities, along with dozens of professions. The state issues driver's licenses and helps pay for nursing home care for the elderly.

The state is a major provider of basic medical coverage and treatment for mental health and drug addiction, and it helps fund public health programs that are fighting the pandemic.

Just after the General Assembly suspended its 2020 session, Gov. Brian Kemp signed a $27.5 billion midyear budget that runs through June 30.

Lawmakers must return by the end of June to pass a budget for fiscal 2021, which begins July 1.

The state is getting some money from the federal coronavirus relief package, but that cannot go toward replacing tax revenue lost because of the shutdown economy.

The state has about $2.6 billion to $2.7 billion in reserves, enough to fund services for about a month without other revenue. Kemp has already committed $100 million worth of reserves to fight the pandemic.

While state officials don’t yet fully know the impact of the shutdown, University System of Georgia Chancellor Steve Wrigley said Tuesday that financial losses are accumulating from an abrupt systemwide closing of campuses that triggered $200 million in reimbursements in student housing and dining hall costs.

That revenue loss will climb to $340 million to $350 million through the summer as other funding sources dry up, including income from canceled camps, professional learning programs and study abroad courses, he said.

Some college officials are already warning that there will be less state funding for their schools.

“I expect that the state is experiencing a decline in revenues that likely will result in a major reduction in funding for all of public higher education,” Georgia State University President Mark Becker said in a letter to faculty and staff.