A day before the start of the new fiscal year, Gov. Brian Kemp on Tuesday signed a $26 billion budget that cuts $2.2 billion in spending amid an uncertain financial future for the state.
“To be honest, today is bittersweet,” Kemp said before signing the spending plan. “Yes, this budget reflects our values of this state. This budget emphasizes education, health care and public safety.”
But he added, it also reflects the reality of trying to balance a budget at a time when tax collections shrank due to the coronavirus recession.
“These are challenging times,” the governor said, “and the budget reflects that reality.”
The Kemp administration was expected to use about $1 billion in reserve funds to get through the fiscal year that ended Tuesday. The new fiscal year’s budget includes a 10% cut in spending — including $950 million less in basic k-12 school funding — and uses an additional $250 million in reserve funds.
Some economists say a full recovery could take years, and if so, state government — which helps pay teacher salaries and provides services ranging from public health and substance abuse programs to law enforcement, parks and business regulation — could continue to shrink.
As Kemp noted, the coronavirus pandemic is far from over. The number of COVID-19 cases has risen in Georgia and many other states.
“We are not out of the woods yet. There is still more work to be done to protect the lives and livelihoods of Georgians,” Kemp said, adding that he thinks the fundamentals of Georgia’s economy remain strong.
Despite the cuts lawmakers made in passing the spending plan last week, the budget Kemp signed was a good bit better than state officials expected a month ago.
The recession brought on by the pandemic — which produced record unemployment and closed thousands of businesses — has meant a huge drop in tax collections for governments. But unlike cities, counties and school districts, the state doesn’t collect property taxes — relying heavily on income and sales taxes that can plummet quickly when the economy tanks.
A month ago, House and Senate budget writers thought they’d have to cut state spending by 14%, or about $3.3 billion. State agencies — including the Georgia State Patrol and the Department of Public Health, which has been fighting the pandemic since March — responded by filing plans that forced staffers to take weeks off without pay.
But a week after the General Assembly reconvened its 2020 session — suspended because of the pandemic — Kemp said the state would only need 10% cuts.
While that still meant reducing spending in most areas of the government, it allowed the House and Senate to eliminate employee furloughs. Before the House gave final passage to the budget Friday, House Appropriations Chairman Terry England, R-Auburn, also said local school districts had enough in reserve funds and federal aid to mitigate state spending cuts.
Kemp noted that 53% of the budget will go to education. Lottery-funded programs, such as the HOPE scholarship and pre-kindergarten classes for 4-year-olds, were not reduced.
The budget calls for the state to borrow $1.1 billion for construction, maintenance and improvement projects, from roads and bridges to schools and campus facilities. Lawmakers used a similar uptick in borrowing during the Great Recession to boost the construction industry.
Kemp began the year with about $2.8 billion in the state’s “rainy day” reserve. However, he allocated $100 million to fight the pandemic in March. With what was used to fill holes in state spending during the final three months of fiscal 2020 and the allocation for fiscal 2021, nearly half of the reserve will be gone by this time next year.
That’s not unusual. The state went through its reserve quickly during the Great Recession — which started to hit the government’s coffers in 2008 and lasted for several years.
England said he’s hopeful Georgia’s economy will bounce back fairly quickly.
“Georgia continues to outperform the nation in our sales and credit card transactions,” he said. “We are doing about twice as well as the rest of the nation.”
Democrats and some Senate Republicans pushed during the recently completed General Assembly session for legislation to improve the state’s finances by increasing state cigarette taxes to the national average and trimming special-interest tax breaks. Lobbyists worked hard to pass measures to allow casinos and sports betting in the state.
But House Speaker David Ralston, R-Blue Ridge, opposed any tax increases and said reducing tax breaks would be a “jobs killer.”
None of the proposals moved during the session.
Danny Kanso, a budget analyst for one of the groups promoting the cigarette tax hike — the Georgia Budget and Policy Institute — said that was a mistake.
“If the lessons learned over the past decade from the Great Recession hold true, the $2.2 billion in budget cuts that will be implemented on July 1 are likely to further slow down the state’s economic recovery,” Kanso said. “And, unless Georgia’s leaders make an effort to raise revenue to close the gap between the growing demands on state government and underperforming tax collections, lawmakers may likely find themselves debating even deeper cuts when they reconvene in January.”
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