Georgia revenue down, spending up and a surplus is likely. What gives?

The reason? About $16 billion in reserves and Republican Gov. Brian Kemp’s conservative — critics would say low-ball — revenue estimates have played a major role.

Republicans say Kemp’s handling of the budget has put the state on solid financial footing for the future.

“He takes his gatekeeper role very seriously,” said state Senate Appropriations Chairman Blake Tillery, R-Vidalia. “I’m not upset with that at all.”

Democrats say he’s neglected to expand programs — such as the Medicaid public health program — that the state can easily afford but aren’t in the GOP’s political playbook.

Credit: TNS

Credit: TNS

“He’s all about control, and there is not a lot of evidence of shared power,” said state Sen. Nan Orrock, D-Atlanta, a member of Tillery’s budget committee.

Lawmakers at the state Capitol, like colleagues in almost every other state, are required to pass a budget every year that balances. That means they can’t spend more on services — from salaries for teachers, prison guards, state patrolmen, judges and park rangers to road paving, driver’s licenses and economic grants — than the state collects in revenue.

Most state revenue comes in from taxes collected by the Georgia Department of Revenue.

Legally, lawmakers can only appropriate what the governor estimates each January that the state will take in during the coming year. If he estimates, for instance, $30 billion will be raised from income, sales and other taxes, that is what lawmakers can appropriate to spend. When $35 billion comes in? Instant surplus.

Federal funding has spurred surpluses

Kemp isn’t the first governor to limit spending by setting low estimates, but it’s been more noticeable in recent years because massive federal funding, inflation, a strong stock market and other factors had, until last year, sent state revenue soaring and produced record surpluses.

At the beginning of the year, the state had $16 billion in rainy day and “undesignated reserves,” enough to run state government for nearly half a year without any other money. Georgia isn’t alone. The huge federal windfall sent to Americans and local governments, combined with the economic boost that came after the brief COVID-19 shutdown, produced fat state coffers across the country.

A Pew Charitable Trusts report last week said for the first time since 2000, no state had less than a month’s worth of operating funds in reserve.

That doesn’t even include the tens of billions states received in so-called COVID-19 relief funds, which also helped to stimulate the economy. Under Georgia law, Kemp had sole discretion over how to the spend that money, although he set up committees to make recommendations.

In 2022 — the year he ran for reelection — Kemp held a series of news conferences and issued press releases as he allocated most of the $4.8 billion in COVID-19 money for water and sewer projects, rural high-speed internet services, police bonuses, debit cards for low-income Georgians and other priorities.

Because his revenue estimates were below what was coming in every year during the boom period, spending was held down and the state saw huge surpluses for three consecutive fiscal years. The Kemp administration even sent agencies budget instructions last year telling them they could ask for more money, something that’s been almost unheard of most years since the beginning of the Great Recession of the late 2000s.

The state spent about $26.6 billion — excluding federal funding — in fiscal 2020, the last budget plan approved before the COVID-19 pandemic hit. Last year, it was more than $32 billion, and the midyear budget — which runs through June 30 — is almost $38 billion.

A few days after Kemp signed the fiscal 2025 budget — which begins July1 and includes raises for 300,000 teachers and state employees — The Atlanta Journal-Constituion reported tax collections for the first 10 months of fiscal 2024 were down 1.2%, or $341 million.

But Kemp assumed revenue would drop closer to 7%, which limited how much lawmakers could appropriate and may leave the state with a $2 billion-$3 billion surplus.

For the upcoming year, Kemp is projecting a 1.7% rate of growth — much lower than the state, on average, sees.

Part of the reason is the state lowered the income tax rate — a much celebrated decision that will mean a smaller tax bill for many and possibly less money for the government. Income taxes are the single largest source of revenue for the state.

But Kemp is also guided by what happened to Gov. Sonny Perdue during the 2000s. Perdue, whom Kemp successfully backed to become chancellor of the University System of Georgia, governed the state during two fiscal recessions — the last one, coming at the end of his second term, forced billions of dollars in spending cuts, furloughs, job reductions and skyrocketing college tuition increases.

The fiscal devastation of the Great Recession continued to hamper Perdue’s successor , Nathan Deal, into the 2010s.

“At the end of the day, we have to be a little conservative in our (revenue) estimate,” said Rick Dunn, director of Kemp’s budget office and a longtime state official. “You do not want to be in a situation where you overstate revenue and you are scrambling or furloughing people to make the budget. It’s easier to live with underestimates than overestimates.”

Heading in the right direction?

Danny Kanso, chief fiscal analyst for the left-leaning Georgia Budget and Policy Institute think tank, said, “By using the low estimates they have the surplus and can come back with money to spend on pet projects.”

But he also said the decision by Kemp and lawmakers to pay cash for construction projects this year — they typically borrow about $1 billion a year — gives the state the leeway to be able to fund more projects in the future. There is a cap on how much the state can borrow, and it isn’t close to hitting it.

“We’ve had an unprecedented level of resources that have given state leaders the best situation to govern in a generation,” said Kanso, a former aide to then-Republican Lt. Gov. Casey Cagle. “We’ve had to manage with tight resources (for years). Now the choices are choices of abundance.

“In the decade before this we pushed the boundaries of what state government could sustain. We have a lot of opportunities going forward.

“There are still a lot of needs out there,” Kanso said.

Democrats have, for more than a decade, sought the $200 million to $300 million a year it would take to allow hundreds of thousands of Georgians to get health care coverage through a full expansion of the state’s Medicaid program as part of the Affordable Care Act. Republicans have traditionally opposed such a move, saying the state couldn’t afford it, especially if the federal government stopped picking up most of the tab.

Orrock said while the federal government would largely foot the bill initially, Kemp has scuttled full expansion efforts at the Capitol.

“If he expanded Medicaid, if he hadn’t spent his time persuading Republican legislators to vote against Medicaid expansion, we would have $1.3 billion coming to Georgia,” Orrock said. “These decisions make no financial sense, but they are political decisions to continue to let him maximize his options to control spending.”

Tillery, the Senate budget leader, was a supporter of House Resolution 302, a proposed constitutional amendment that supporters said would have given lawmakers more control over how to spend big boosts in federal funding and major legal judgments, such as the opioid lawsuit settlements.

The measure stalled on the final day of the legislative session.

But overall, the Republican budget chairman said he is OK with the governor’s low revenue estimates and the surpluses they help produce.

“I would much prefer we undershoot revenue,” he said, “than overshoot.”