State tax collections were down for a third consecutive month in May.
The good news? Overall, they are still well ahead of what Gov. Brian Kemp and his economic team projected and budgeted for the fiscal year that ends June 30, which could mean a third consecutive healthy surplus.
Overall collections were off 7.6% in May over the same month last year. They remain barely ahead of last year, up 0.2%, or $51 million, for the soon-to-end fiscal year.
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 have dropped — down $1.1 billion so far, rather than the more than $3 billion projected — corporate income tax collections are actually up $1.3 billion. And taxes on the things Georgians buy are up.
“The corporate income taxes have outperformed what we projected,” said Kelly Farr, the governor’s budget director.
The state has 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 just last month began sending out income tax rebates paid for with the record $6.6 billion state surplus in fiscal 2022.
Consecutive 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 will be less than what the state takes in, which will lead to a sizable surplus. Farr said his office doesn’t yet have a projection on how big the surplus will be.
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.
Last month 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.