Georgia state government is flush with cash. At the end of the 2023 fiscal year, Georgia had unrestricted reserves of $10.7 billion, which are the cumulation of annual budget surpluses. The reserves are unrestricted, meaning the state can use them in any way it wants, as long as it is not illegal. You can think of the reserves as a bank account the state can draw on.
Exactly how big is the $10.7 billion reserve? It is about $1,000 per person, and about one-third of total state government annual expenditures. In other words, it is a lot of money!
Suppose you are asked by a member of the General Assembly to suggest what the state should do with these funds. What would you recommend?
Credit: contributed
Credit: contributed
That is a big question and given the thousands of ways these funds could be used and the many factors to consider, making such a recommendation is not easy. In considering this request you might be interested in knowing that Georgia is a low-tax state, it ranks 43rd in terms of state taxes per capita, and is not a wealthy state, it ranks 41st in per capita income.
What are the possible alternative uses of the $10.7 billion? I list five broad categories, along with a few specific programs, to consider. But it is not necessary to pick just one of five categories. In October, the Georgia Budget and Policy Institute (GBPI) issued a report entitled “Georgia’s $16 Billion Question: Will the State Equitably Invest in Its People?” that discusses the unrestricted reserves and makes specific suggestions for their use. I draw on that report. (Full disclosure: I am on the Board of Directors of GBPI.)
First, the state could simply leave the $10.7 billion in the bank as insurance against having to make large expenditure cuts due to a recession-driven reduction in tax revenue. The state already has a Revenue Shortfall Reserve, with a balance of about $5.4 billion, to use for this purpose. Whether simply holding on to the funds is a good decision depends on the likelihood that the state would need to make use of the funds. Since 1980, the biggest decrease in state tax revenue was $3.6 billion during the 2007 to 2009 Great Recession. It is possible of course to be over-insured.
Second, the state could refund the revenue through a tax cut or by providing a tax rebate, i.e., a direct payment. Earlier this year the state provided a one-time rebate to taxpayers, and the governor has recently proposed a reduction in the income tax rate to 5.39% from 5.49%. There are issues of equity and fairness to be addressed in deciding the nature of a tax cut or rebate program. For example, should the rebate be the same for every individual, or depend on the amount of taxes they paid, or be larger for lower-income households?
If the reserves are used to fund a tax cut, there is a plethora of options, including which taxes to cut. Rebates are usually one-time payments while tax cuts extend indefinitely. It is argued that these funds were collected from taxpayers and should be returned to them. Of course, all tax revenues are collected from taxpayers, but the state doesn’t give it all back, but uses it to fund programs.
Third, the state could add the reserves to general fund revenue, perhaps incrementally over several years, in order to provide additional services or remove program fees such as tuition for University System and Technical College System schools. The problem with this option is that when the reserves are used up the state must either cut the funding for these additional services or raise taxes to continue paying for them. Neither of those options is very welcome.
Fourth, the state could spend the funds on one-time projects, for example, making needed computer system upgrades or remodeling older buildings. GBPI suggested modernizing Georgia’s statewide fleet of school buses, noting that 1 out of every 3 buses have been in service for 15 years or longer, and funding an employee bonus program to address the very high employee turnover rate.
Fifth, the state could allocate the reserves to special accounts and use the annual earnings from each account to fund some specific needed program. If the funds are well managed, the programs could be funded indefinitely. This option seems most suitable for standalone programs, low-budget programs and programs that fill a critical but unmet need. The GBPI recommended creating a $7.5 billion, self-sustaining Child Care Trust Fund that promotes statewide access to affordable, quality child care. Other possibilities include a literacy program for high school dropouts, a summer advanced science and math program and a program that funds new programs on a trial basis to test their feasibility and desirability.
So, what would you recommend doing with the $10.7 billion and why? Not an easy decision to make, is it?
David Sjoquist is a professor of economics at Georgia State University.
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