Christmas is over, but Gov. Brian Kemp and state lawmakers may still be in the gift-giving mood as they head into an election-year session of the General Assembly.

A pay raise for teacher? Almost certainly. Higher pay and cost-of-living increases for state employees and retirees? Quite possibly. Elimination of austerity cuts and full funding for k-12 schools? Yes and yes. A state income tax cut for at least some Georgians? Very likely. Increased spending on mental and public health programs? A pretty safe bet.

Those are just some of the things Kemp and lawmakers may be able to provide this session, which begins Jan. 10, because the state has seen a bounty of tax revenue since shortly after the COVID-19 pandemic hit Georgia.

With help from federal pandemic-related aid to Georgians, the state took in a record amount of revenue in fiscal 2021, which ended June 30. It wound up with a $3.7 billion surplus. This fiscal year it is on pace to lap those revenue numbers, just in time for an election-year legislative session.

“I think everybody realizes we are in a really good financial situation,” said Kelly Farr, the governor’s budget director. “We are feeling really positive. The economy is smoking hot.”

And that means there will be more tax money than ever to spend, or give back to taxpayers, this year.

Credit: Isaac Sabetai

Credit: Isaac Sabetai

Georgia’s unemployment rate dropped to 2.8% in November, an all-time low. Tax collections were up 16.7% for the first five months of the fiscal year, with sales and income revenue remaining strong.

The state’s fiscal economist, Jeffrey Dorfman of the University of Georgia, recently tweeted about retail sales running ahead of pre-coronavirus numbers.

“Still experiencing a huge amount of spending and a big shift from services to goods,” he wrote.

UGA forecasters predict Georgia’s economy will expand in 2022 nearly twice as fast as its pre-pandemic pace.

However, rising prices and the difficulty some businesses are having filling jobs also mean a rise in what the state spends for everything from retaining staff and buying tires for state patrol cars to building roads and bridges.

“Our cost of doing business is about to increase dramatically,” said longtime House Appropriations Chairman Terry England, R-Auburn.

Election-year timing

Georgia isn’t the only state seeing rising tax collections. Governors across the country are trying to figure out what to do with hefty surpluses and federal largesse in the form of COVID-19 relief funds.

The taxes the state collects help it educate 2 million children, provide health care to more than 2 million Georgians, manage and improve parks, investigate crimes and incarcerate criminals, and regulate insurance firms, utilities and dozens of professions. The state issues driver’s licenses and helps pay for nursing home care for the elderly.

The state is a major provider of treatment for mental health and drug addiction, and it helps fund public health programs that are fighting the pandemic. Besides paying salaries, it helps make sure that hundreds of thousands of former teachers, university staffers and state employees receive pensions and health care.

Budget writers know they will be saying “no” to a lot of ideas for how to spend the rising revenue, as well as last year’s surplus. England said he’s emphasized to lawmakers that a surplus is like a one-time bonus — you shouldn’t use it on something that will have an annual price tag, such as a pay raise or new program.

But 2022 is an election year. Each legislator is up for reelection. Kemp is facing both a difficult Republican primary and, if he survives, a likely rematch with Democrat Stacey Abrams. So it will be difficult to resist playing Santa Claus.

Kemp promised when he first ran in 2018 that he’d give teachers a $5,000 pay raise. He’s delivered on $3,000. So the other $2,000 raise is all but certain.

England said with businesses having to raise salaries to find workers, it is becoming increasingly difficult to find and keep state staffers. So they too may wind up with raises. Some lawmakers have also pushed Kemp to include in his budget recommendations a cost-of-living raise for state government pensioners, who haven’t had one since the Great Recession.

Kemp and lawmakers also would like to run for reelection without getting hammered over austerity spending cuts they approved in 2020 for schools and colleges when they thought the COVID-19 pandemic would throw the state into a deep recession. So with extra revenue coming in, there is a good chance those holes in funding will be filled.

The minority party in the General Assembly — the Democrats — have said they want more money to go to education and health care so that fewer Georgians are uninsured.

“With this near-once-in-a-lifetime opportunity, the state is poised to do the right thing for millions of Georgians,” said Senate Minority Leader Gloria Butler, D-Stone Mountain.

“We can expand health care coverage through Medicaid, we can fill the public education funding gap, we can invest in mental health, we can raise the minimum wage and provide workforce training,” Butler said. “These are the things that will support everyday Georgians.”

Tax cut coming?

But Butler said Democrats would fight a proposal pushed by Senate President Pro Tem Butch Miller, R-Gainesville to eliminate the state income tax, which provides Georgia about half of its revenue.

“Eliminating the state income tax might sound like a good idea, but it would be disastrous for Georgia,” Butler said.

Miller, who is running for lieutenant governor against a candidate backed by former President Donald Trump, has already filed a bill that would do away with the tax. It doesn’t speak to how the state would make up the difference to fund schools, public health and other programs.

“Florida and Tennessee don’t have income taxes and they make it work,” Miller said. “We can too.”

Two of Kemp’s Republican opponents, former U.S. Sen. David Perdue and ex-Democratic state Rep. Vernon Jones, also support ending the state income tax.

Legislative leaders say the idea — which has been around for decades — isn’t likely to go far in 2022. Some have suggested more modest measures — such as passing a tax break for military retirees or lowering the income tax rate — are more likely to fly.

Even in an election year, top budget writers don’t expect the state to stray from its traditional path of being fiscally conservative, despite its flush bank account.

“I think Georgia taxpayers still expect us to be frugal and prudent with their tax dollars,” said Senate Appropriations Chairman Blake Tillery, R-Vidalia. “Some of the current headlines may cause folks to feel differently, but I still believe in small government, in taking as little money from taxpayers as we have to.”

England, who became chairman of the House budget committee during the Great Recession, is equally cautious, despite the ongoing growth in revenue over the past 18 months and strong economy.

“Even though the money situation is a lot better than it was in 2008, ‘09 and ‘10, the way you go about operating doesn’t change,” he said. “You have to concentrate on what are the core services for the state and maintain those. We’re making sure we are taking care of those core services.”

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