What to do with $16 billion: child care, bonuses, school buses, tax cuts?

Georgia announced earlier this month the state has a $16 billion surplus in tax money.Gov. Brian Kemp has reacted to past surpluses by giving Georgia residents a tax rebate.A recent report by the nonprofit Georgia Budget and Policy Institute, however, says some of the money should go for long-term state needs and investments.The governor looks forward to working closely with the General Assembly on priorities for how the state’s one-time funds will be utilized in a strategic, fiscally responsible way that does not commit short-term revenue gains to long-term obligations, Spokesman for Gov. Brian Kemp.Senate Appropriations Chairman Blake Tillery, R-Vidalia, said the state should refund some of the tax surplus if possible.House Minority Whip Sam Park, D-Lawrenceville, and other Democrats say the state should greatly expand Medicaid to cover hundreds of thousands of uninsured Georgians

When the state announced earlier this month that it was sitting on a mountain of tax money, the one given, considering how Gov. Brian Kemp and Republican legislative leaders have reacted to past surpluses, is that Georgians will likely be in for more tax rebates in 2024 unless the economy seriously tanks.

But a new report released Tuesday by the Georgia Budget and Policy Institute, a left-leaning nonprofit that studies government spending, recommends the state do more with the $16 billion in rainy day and undesignated reserves than dole out tax breaks. The organization says some of it should go for long-term state needs and investments in things such as expanded child care.

It’s the kind of debate that will be going on in the coming months as the General Assembly heads toward its annual legislative session in January.

Kemp has already suspended the state gas tax, costing the treasury and saving Georgia drivers $160 million to $190 million a month at the pump. And he almost certainly will recommend some kind of tax rebate after doing so the past two years when massive surpluses bulged state coffers.

“The governor looks forward to working closely with the General Assembly on priorities for how the state’s one-time funds will be utilized in a strategic, fiscally responsible way that does not commit short-term revenue gains to long-term obligations,” a spokesman for the governor said after the massive surplus was first reported.

At the time, Senate Appropriations Chairman Blake Tillery, R-Vidalia, said the state should again look to refund some of the tax surplus if possible.

“I think we have some liabilities, but I think it’s important that we remember where the money came from, and every time we can, we should return it to where it came from,” he said.

Democrats, meanwhile, recently said the state has more than enough money now to greatly expand Medicaid, the health care program for the poor and disabled, to cover hundreds of thousands of uninsured Georgians.

“We have a lot of room and capacity to continue to invest in the citizens of Georgia, which is our responsibility as stewards of taxpayer dollars,” said House Minority Whip Sam Park, D-Lawrenceville.

About $5.4 billion of the $16 billion in reserves is essentially set aside in case of a fiscal emergency to fund state government. Those reserves played a big role in helping to limit the impact of the spending cuts during the Great Recession. But about $11 billion of the reserves are “undesignated,” or not earmarked for anything in particular.

Danny Kanso, senior fiscal analyst at the Budget and Policy Institute and a former aide to then-Republican Lt. Gov. Casey Cagle, said the massive reserves are a product of Kemp repeatedly underestimating how much tax money — mostly from income and sales taxes — that the state would bring in at a time when the economy was booming.

As governor, Kemp sets the revenue estimate, and the General Assembly can’t appropriate more than that estimate. So if Kemp estimates a low figure — and revenue surpasses that — it pretty much guarantees tax collections will be above state expenditures, creating a surplus.

Georgia governors, Democrats and Republicans, have generally been conservative in estimating expected revenue to restrain spending and avoid having to make drastic cuts during a downturn. The state constitution requires a balanced budget in Georgia. The same is true in most other states.

In his Budget and Policy Institute report, Kanso said that trend of conservative estimating is continuing in this fiscal year’s budget, which runs through June 30. The budget is based on a projected 13% decline in general fund tax revenue, which would be the worst performance by the state in generations, Kanso said. Revenue for the first quarter of fiscal 2024 was up 6.1%.

Meanwhile, the institute’s report says spending on state services has not kept up with the growth in the state’s population.

“There are several unique areas in which surplus funds present a rare opportunity to address deficits built up over time and projected needs for the future — all while strengthening Georgia’s economy, supporting job creation and benefiting families statewide,” Kanso said.

The Georgia Budget and Policy Institute recommends that the state use reserve funds to set up a $7.5 billion self-sustaining child care trust fund to provide access to affordable child care to tens of thousands of families each year.

Credit: File photo

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Credit: File photo

Among other things, the report calls for:

  • Setting up a $7.5 billion self-sustaining child care trust fund to provide access to affordable child care to tens of thousands of families each year.
  • Using reserves to fund modernization of the state’s fleet of 20,000 school buses, at a cost of between $850 million and $2.7 billion. Kanso said that in 1991, the state paid over half the cost of student transportation. Last year it was 20%, forcing local districts (and local property taxpayers) to pick up a bigger part of the tab. He said at the beginning of fiscal 2022, districts had 6,300 buses that had been in service 15 years or longer. Replacing the buses would save districts money and free them to put more into student services, he said.
  • Providing bonuses for the state government’s workforce to address persistently high turnover rates, prioritizing frontline workers, such as those in mental health fields. Kanso said the state government workforce declined by nearly 6,400 full-time staffers between 2018 and 2022. By that year the state had a record 29% employee turnover rate, at least partly because the private sector was begging for workers and luring state staffers with higher salaries. The institute recommends $5,000 bonuses this year and pay raises the following years to help reduce turnover.

Some of what Kanso and the institute are proposing has been on the Legislature’s radar for a while. Lawmakers have been putting money into replacing aging school buses — albeit not at the rate the report recommends.

And Kemp and state lawmakers have attacked turnover rates, proposing bonuses and raises since it was clear that state tax collections were rising and agencies were having trouble keeping staffers because of low pay.

For instance, Kanso noted, in the 2022 session the General Assembly allocated $405 million to give $5,000 raises to about 81,000 state employees — including lawmakers.

“While it’s probable that most employees would need cost-of-living hikes to maintain salary competitiveness, the state can utilize its reserve funds to design suitable bonuses and gradually introduce related salary increases,” Kanso wrote in the report. “This approach can lead to significant improvements in employee retention and recruitment.”

Bonuses are one-time expenses and could be funded out of reserves. But the governor and lawmakers are unlikely to go along with using reserves for cost-of-living raises because they would be an ongoing cost. So, for example, the $5,000 raises approved for fiscal 2023 will continue costing the state $405 million every year going forward, while a bonus is a one-time expense.

Earlier this year the head of the Georgia State Patrol made a possibly more costly long-term suggestion: reinstating a full pension system for troopers, something that all state employees had before lawmakers did away with it during the late 2000s.

“This is going to be tremendously expensive,” said Rep. Chuck Martin, R-Alpharetta, a member of a House committee that is considering the proposal. Lawmakers are waiting for a review to tell them approximately how expensive.

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