A year after pandemic concerns brought spending cuts, state tax collections up $1.5 billion

In the early months of the COVID-19 pandemic, Georgia lawmakers feared that the state's tax revenue would plummet and cut the budget by 10%. Instead, tax collections have surged, producing a $1.54 billion increase over the previous year. “I am certainly glad we are in the position we are in rather than the situation I thought we would be in,” said Senate Appropriations Chairman Blake Tillery, R-Vidalia. (Alyssa Pointer / Alyssa.Pointer@ajc.com)

Credit: Alyssa Pointer / Alyssa.Pointer@ajc.com

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In the early months of the COVID-19 pandemic, Georgia lawmakers feared that the state's tax revenue would plummet and cut the budget by 10%. Instead, tax collections have surged, producing a $1.54 billion increase over the previous year. “I am certainly glad we are in the position we are in rather than the situation I thought we would be in,” said Senate Appropriations Chairman Blake Tillery, R-Vidalia. (Alyssa Pointer / Alyssa.Pointer@ajc.com)

Credit: Alyssa Pointer / Alyssa.Pointer@ajc.com

This time last year Gov. Brian Kemp and state lawmakers were trying to figure out just how bad it would get.

With the COVID-19 pandemic starting to rage, Kemp’s economist said the state could quickly burn through half of its reserve funds to keep the government afloat, and the only real question was how many billions the state would have to cut from its budget and how many employees would get the ax.

The answer, by the time the legislative session ended in June, was $2.2 billion, or 10%, in spending cuts. But there were no widespread staff furloughs or layoffs, and the state didn’t have to dig deep into its rainy day reserve after all.

And Friday, Kemp’s office announced state tax collections — which pay for everything from schools and health care for more than 2 million Georgians to road building, prisons and highway patrols — are up $1.54 billion for the first three-quarters of this budget year, which ends June 30.

The next few months might not be so rosy as the state refunds income tax withheld from the unemployed last year, when checks to the jobless were boosted by extra federal payments. Still, the revenue report for March suggests the state could run a sizable surplus this fiscal year after expecting much less.

“I am certainly glad we are in the position we are in rather than the situation I thought we would be in,” said Senate Appropriations Chairman Blake Tillery, R-Vidalia.

Tillery credited both the influx of billions of dollars in federal aid and Kemp’s push to reopen the economy for the state’s faster-than-expected rebound.

“I have more help-wanted signs in my district now than I did in January 2020,” he said.

According to the Department of Revenue, state tax collections were up 3.7% in March over the same month last year.

Income tax collections were down 4.7% as the state paid out refunds from annual tax filers, but gross sales tax collections jumped 12.6%, suggesting Georgians are spending money.

A majority of what the state collects to pay for what it provides — from teacher salaries and university funding to business regulation and drivers’ licenses — comes from income and sales taxes.

Corporate income taxes, alcoholic beverage taxes, and car tag and property tax collections were up big as well. Gas tax collections were down slightly, and hotel fees were off 20%.

State budget writers expect a dip in collections later this spring as more Georgians file their tax returns for 2020. Specifically, they say there will be more in refunds because the state withheld taxes on the bonus unemployment payments the federal government included to help those who are out of work. Much if not most of the money the state withheld for income taxes is expected to go back to those filers, officials said.

“There is still a lot of uncertainty when it comes to state revenue through the end of this fiscal year and into the next (year),” Kemp said last month.

After making big spending cuts in June, Kemp and lawmakers backfilled agency budgets as they realized the economy was growing, rather than contracting.

In February, Kemp signed a $26.5 billion midyear budget to run though June 30 that added $654 million in new spending, including $1,000 bonuses for most state employees and hundreds of millions of dollars that went back into school districts, universities and other areas. Increased federal aid for Medicaid — the state/federal medical program for the poor and disabled — brought more health care spending.

And the state House and Senate boosted spending on the strained public heath system that was on the front line fighting the pandemic during the past year.

Kemp credited the state’s “measured approach” for the strong numbers released Friday.

“By prioritizing the health of our citizens and their paychecks — and strengthening our state’s top-ranked business climate — Georgia’s economy is on solid footing,” he added. “This strong state revenue growth follows a session where we worked together to cut taxes and incentivize job creation across the Peach State.”

The good financial news is on top of the additional $4.6 billion or so the state will receive as part of the latest COVID-19 relief package, although there are limits on how that money can be spent.

The federal package is such a big chunk of money — equivalent to 17% of next year’s state budget — that the governor’s office is setting up committees to review applications for spending the money.