Gov. Brian Kemp touted his record $30.2 billion spending package to budget writers Tuesday just before his chief economist warned of a slowdown in state revenue growth in the coming year.
“We’ve got a lot of good things to talk about this year,” Kemp said at a joint meeting of the Georgia House and Senate Appropriations committees as they began a week of reviewing his proposals. “I have never been more optimistic about our state.”
Kemp’s budget plan — which he released last week — includes pay raises and bonuses for teachers, school staff and state employees; a refund for income tax payers; $600 million for new prisons; and hundreds of millions more for health care and mental health programs.
It was a politically ideal spending proposal for a governor who faces stiff Republican and Democratic opposition for reelection this year.
Two years ago at this point, Kemp was asking for spending cuts because economists were worried a recession was around the corner. It was, but not because of the business cycle. COVID-19 hit the state in March, causing the General Assembly to suspend its session for a few months and forcing the economy to shut down.
But sales and income tax collections have been on the rise since mid-2020, after the economy reopened. The record income produced a $3.7 billion state surplus in the fiscal year that ended June 30, and collections continued to soar as the state’s economy recovered.
University of Georgia professor Jeffrey Dorfman, the state’s fiscal economist, told lawmakers that personal income is up 8% from before the COVID-19 pandemic. With massive federal spending, he said, Georgians have saved an extra $75 billion since the start of the pandemic.
“That is going to support our economy going forward,” Dorfman said.
Now that most Georgians are no longer receiving direct federal payments, the state will see less revenue because that extra money boosted sales tax collections. That could mean slower growth in the coming year, he said.
Consumers also added much less debt than usual during the pandemic — in part because of the federal aid payments — which means most would head into any economic slowdown in better financial shape since they owe less and have more savings.
“This was the first time in American history we had a recession when credit card debt went down and credit scores went up,” he said, adding that the federal largesse in particular helped lower-income families.
Dorfman said he expects the current high inflation rate — the rising price of goods and services — to fall, but slowly, over several months.
He added: “The odds of a recession in 2022 are very low. I do think growth will slow down to a more normal pace.”
Tax collections were up 13.5% in fiscal 2021, which ended June 30, and they improved more than 16% over the first five months of this fiscal year. That rate of growth — far above normal for the state — will be hard to top again in 2022.
BUDGET HIGHLIGHTS
Gov. Brian Kemp’s spending proposal includes:
- $5,000 salary increases for state employees to cut down on high turnover rates.
- $2,000 pay raises for teachers; bonuses for teachers and state employees in the budget for fiscal 2022, which ends June 30.
- Income tax refunds worth $1.6 billion.
- The first cost-of-living raise for state retirees in more than a decade.
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