Rising state revenues could boost Deal’s re-election campaign

But Deal has kept a lid on spending since taking office, largely out of necessity, and his aides suggest no immediate plans to change that strategy. Key lawmakers warn that the state still might not have enough money to make big election-year promises, even with a surplus in the fiscal year that just ended June 30.

“You’ve always got the choice of whether to spend it or save it,” said Senate Appropriations Chairman Jack Hill, R-Reidsville. “I just don’t see several hundred million dollars laying around to spend.”

That may be true, but it's traditionally been tough for politicians not to spend any extra tax money, or give it back to voters in the form of tax breaks or other incentives. That desire could be tested in an election year where Deal faces a Republican rival who claims he hasn't done enough to slash taxes and spending.

“It’s just human nature that what has happened most recently is what voters are going to remember,” said Steve Anthony, who lectures on state politics at Georgia State University and served as chief of staff to longtime House Speaker Tom Murphy. “What they are going to remember is what’s happened in the last six months.”

State government hasn't had a lot of uplifting budget news since before the Great Recession. More than 200,000 employees and teachers have gone for years without cost-of-living raises. Federal tax money helped prop up the state during the worst of the recession, but the budget cutting has continued throughout the slow recovery.

Most new state money has been used to fill holes in public health care, pension and education systems, while tuition and fee increases have kept the university and technical college systems from deeper cuts. Deal won’t release a detailed budget until early 2014, but health care and education spending will almost certainly grow.

‘Yes, Georgia, there is a Santa Claus’

The figures set to be released next week show state tax collections increased 5.9 percent, or $951 million, during the recently completed fiscal year. Sales tax collections remained relatively stable, but the state’s income tax take rose 7.5 percent.

That jump in collections has helped the state build its reserves, which are up more than 400 percent from where they were when Deal took office.

Not splashing around in the increased revenue in an election year will take fiscal and political discipline.

Seeking a second term in 1994, Gov. Zell Miller called for a $100 million tax break for families with children and the elderly, an expansion of the HOPE scholarship, 5 percent pay raises for teachers, more prison beds and even an 18-hole golf course in a state park at the Okefenokee Swamp.

“Yes, Georgia, there is a Santa Claus, and he’s running for governor,” quipped Senate Minority Leader Skin Edge at the time.

Even as recession buffeted the state in 2002, Gov. Roy Barnes proposed an election-year raise for teachers and $1.3 billion in borrowing to accelerate school construction, jump-start rural highway projects and build prisons.

Barnes' successor, Sonny Perdue, entered his re-election year with rising tax collections. He proposed a 4 percent pay raise and $100 gift cards for teachers, broadband Internet access in rural areas, a child-care tax credit for families and $866 million in construction projects.

Likely targets for spending increases

Some economists say resisting the temptation to spend big is important to Georgia’s fiscal health. With the economy in the fifth year of a sluggish recovery, Mercer University economist Roger Tutterow said it’s crucial to rebuild the reserves and ensure that any spending increases are carefully targeted.

“One of the lessons of the last recession may be that the economy can contract greater than we expect,” he said. “This allows the government to step back and ask if we can justify the spending. We’ve had to cut so much I think every agency will now have to make the case for increases.”

If Deal decides the state can afford to spend, he may follow the path trod by his predecessors.

Hiking pay for teachers and state employees would cost about $128.6 million for each percentage point increase. Anything would be better than nothing for the employees, who haven't had cost-of-living raises since the recession while facing furloughs and increasing health insurance bills.

Deal could also call for increased construction spending, a favorite of many past governors, though he's tried to hold borrowing below Perdue's level.

And he’s already facing calls from conservative lawmakers for a broad-based tax cut. That kind of overhaul can give budget writers fits because, like pay raises, it is an annual hit to the state’s bottom line rather than a one-time cost.

‘The best cap on taxes is the veto pen I hold’

So far, the governor is sounding a cautious note. He's asked lawmakers to submit tax-cutting legislation to a panel to vet before it lands in the Legislature, saying otherwise it could lead to a "dangerous" mix of proposals. He's also not keen on legislation pushed by some Republicans to cap the state income tax at 6 percent.

“The best cap on state income taxes is the veto pen that I hold,” he said. “It’s got a cap on it. And it’s going to be a cap on raising any income tax in our state.”

Even with the additional financial breathing room, the budget will still be tight.

Alan Essig, a former state budget analyst who runs the Georgia Budget and Policy Institute, said new revenue is needed just to fill holes in the public health and retirement systems and to pay for growing enrollment in public schools. How the state budget weathers an election year will be telling, he said.

“Basically, you have a very optimistic revenue estimate, you keep your fingers crossed that the economy is good, and you worry about (what you spend) after the election,” Essig said. “That’s how it’s been done in the past. It’s more a political question than a policy question.”