State economist: Georgia likely in for mild recession in early 2024

With the state sitting on $16 billion in reserves, Gov. Brian Kemp has called for billions of dollars in new state spending, even though tax collections were slow for most of 2023 after three years of skyrocketing growth. (Arvin Temkar/arvin.temkar@ajc.com)

Credit: Arvin Temkar/AJC

Credit: Arvin Temkar/AJC

With the state sitting on $16 billion in reserves, Gov. Brian Kemp has called for billions of dollars in new state spending, even though tax collections were slow for most of 2023 after three years of skyrocketing growth. (Arvin Temkar/arvin.temkar@ajc.com)

Georgia’s fiscal economist told lawmakers Tuesday that a mild recession is “more likely than not” in the first half of 2024, but massive surpluses following the COVID-19 shutdown have allowed the state to squirrel away money so big spending can continue.

“We have mitigating factors that should make any recession a mild one, and we may still avoid one,” Robert Buschman, a longtime Georgia State University economist, said on the opening day of joint House and Senate budget committee hearings reviewing Gov. Brian Kemp’s spending proposals.

In recent weeks, Kemp has called for billions of dollars in new state spending — including tax cuts, pay raises and infrastructure projects — while sitting on $16 billion in “rainy day” and undesignated reserves.

He called for new spending hikes despite the fact that for the first six months of the fiscal year, which began July 1, collections are up only 1.6%. Had the state been collecting gas taxes during the first half of the previous year — Kemp suspended them to reduce the cost of fuel — revenue would have been down 2.5% during the comparable months.

Collections were slow for most of 2023 after three years of skyrocketing growth.

That matters because the money the state collects in taxes helps pay for K-12 schools, colleges, public health care, prisons, policing, business regulation, roads and a host of other services.

But three years of massive surpluses — and Kemp is planning for another one this fiscal year — have built up record reserves.

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.

Kemp’s midyear budget proposal would boost spending to $37.5 billion. Of that, $2 billion would come out of “undesignated” reserves.

Kemp is estimating the state will take in less in taxes this year and in 2025 than it did in 2023. Lawmakers can only appropriate what the governor estimates will come in. If his estimates are low, it often leads to a surplus, as it has the past three years.

That has some Democrats skeptical of Kemp’s budget plans. They say the giant surpluses are a product of Kemp underfunding key areas such as public health care while building up reserves that he can later help dole out on politically popular spending in an election year.

House Minority Leader James Beverly, D-Macon, asked Buschman, “How can you assure the General Assembly that we’re going to be on track — not because of revenue underestimates — but that you factored in a potential recession? And how should we be allocating money in that space?”

Georgia state Rep. James Beverly, D-Macon. (Arvin Temkar / arvin.temkar@ajc.com)

Credit: Arvin Temkar/AJC

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Credit: Arvin Temkar/AJC

Buschman responded, “As budgeters, you have to be conservative.

“We have had huge surpluses, we don’t expect them to continue,” he added.

The fiscal economist walked lawmakers through the boom times in the state during the years after the start of the COVID-19 pandemic. Spurred by record federal spending, low unemployment, a sometimes hot stock market, huge personal savings and consumption as consumers paid off debt and bought new products, state tax coffers reaped the benefits.

Inflation on goods has slowed dramatically, but not as much on services, which are largely untaxed in Georgia. Labor costs remain high for employers, he said, and the office market remains down. The Federal Reserve may lower interest rates this year, he said, which could help the housing market. Unemployment could rise modestly, but again, on that front, Georgia is in better shape than much of the country.

Overall, Buschman told lawmakers, “A mild recession is more likely than not, beginning in the first half of this year.”

Senate Appropriations Chairman Blake Tillery, R-Vidalia, reminded colleagues that some of the costs associated with rising state spending — such as higher salaries or payments to medical providers — are baked into the budget for years to come.

“It’s going to get difficult in the next few weeks,” he said.

Earlier in the hearing Tuesday, Kemp touted his proposed massive infrastructure spending and plans to speed up cuts in the state income tax rate that lawmakers approved in 2022.

“I remain committed to fully implementing this landmark tax reduction during my administration, giving Georgia families billions of dollars back in their pockets to invest directly in our economy,” he said. “We’re able to do this at a time when other states find themselves in financial trouble because we have focused on growing our economy and not the government.”

Of the billions in new infrastructure, maintenance and renovation projects he has proposed, Kemp told lawmakers, “I believe that in times like these, when our state is on strong financial footing, we should make careful and strategic investments to ensure we’re prepared for when times are lean.”


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