State ends fiscal year with another huge surplus, despite slumping collections

That means there may be another income tax refund to Georgians come spring 2024

Credit: AJC on Twitter

Credit: AJC on Twitter

State tax collections were down slightly for a fourth consecutive month in June.

The good news? Overall, the state ended the fiscal year on June 30 way ahead of what Gov. Brian Kemp and his economic team projected and budgeted, which means a third consecutive healthy surplus — this time in the range of $5 billion.

The past two surpluses brought income tax rebates in the spring of 2022 and this year. The governor wasn’t making any promises, but his administration repeated that he doesn’t want to use the surplus on long-term expenses, such as new programs or building projects.

“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.

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.

Overall collections were off 0.4% in June over the same month last year. They ended the fiscal year slightly ahead of fiscal 2022, by $40 million.

However, that’s far better than the governor predicted when he set the revenue estimate in January.

Then, Kemp’s team projected a huge decline in revenue for the fiscal year, including a $3 billion drop from last year in revenue from capital gains taxes and an additional $600 million decrease in corporate taxes.

His estimate is important because lawmakers can only budget to spend for schools, public safety and roads based on what the governor says will come in. So when lawmakers approved the $32.5 billion midyear budget in March, it was based on that projection.

Income tax collections were expected to take a big hit because of declines in the stock market last year.

Taxes were paid in fiscal 2022 based on 2021 earnings, and the S&P 500 index returned 26.61% in 2021. By contrast, last year it was down almost 20%, so Kemp’s economic team was expecting far less paid in by investors this spring when taxes came due. They also expected a rough year for corporate income tax collections.

While individual income tax collections dropped in fiscal 2023 — down $1.3 billion, rather than the more than $3 billion projected — corporations paid $1.3 billion more as the state’s economy continued to grow. And taxes on the things Georgians buy were up 8.4%, in part because products cost more due to inflation.

The state had also run record surpluses the past two fiscal years, and that has meant income tax rebates for millions of Georgians. This year, Kemp and lawmakers added property rebates.

The state in May began sending out income tax rebates paid for with the record $6.6 billion state surplus in fiscal 2022.

Those surpluses helped the state boost state employee and teacher salaries, and expand services for things such as mental health and substance abuse programs, law enforcement and education. Lawmakers budgeted a record amount of spending for K-12 schools next year.

Still, what lawmakers budgeted for this fiscal year was less than what the state took in, which is leading to a sizable surplus. How big it is won’t be known until all the bills are paid and surplus funds from state agencies are returned, but it could top $5 billion, administration officials said.

Kemp has remained cautious, repeatedly saying there is economic uncertainty ahead and telling lawmakers there were holes in the budget they approved on the final night of the 2023 session.

In May Kemp vetoed or told agencies to ignore about $230 million in spending that lawmakers had included in the fiscal 2024 state budget, a move that angered legislators from both parties.

Georgia governors have traditionally been conservative about projecting how much revenue they expect to come in. Setting a low estimate can also be a way to limit state spending. During the 2004 session, when state government was in a fiscal recession, then-Gov. Sonny Perdue lowered the revenue estimate four times in three months, forcing the General Assembly to budget less spending each time.

Collections have been down in recent months compared with fiscal 2022 in large part because the state was collecting money at a record place last year, with inflation rampant, workers getting raises and taxes from the previous year’s stock market boom coming in.