State revenue up 8.7% in February, but big drop still predicted soon

Credit: Arvin Temkar/AJC

Credit: Arvin Temkar/AJC

A day after releasing a solid jobs report, the state on Friday said its revenue collections were up 8.7% in February on strong income and sales tax numbers.

But state officials are still predicting the upward trend won’t last, and they haven’t changed their projections that collections could be off by $3 billion in coming months as more Georgians file their income tax returns.

“I think it’s a question of timing,” Kelly Farr, the governor’s budget director, said about February’s revenue report that showed collections were up $170 million over the same month last year.

The Georgia Department of Labor reported Thursday that the state added 16,600 jobs in January as the unemployment rate stayed at a historically low 3.1%.

On Friday, the state reported individual income tax collections were up 9.2% and net sales tax collections were up 10.6% in February over last year.

Sales and income taxes provide the majority of state funding to help pay for schools and public health care, prisons, highway policing and parks. When collections are up, it means Georgians are working, earning and spending money.

Through the first eight months of fiscal 2023 — which ends June 30 — total collections are up 5.9%, or $1.17 billion. That’s over a year — fiscal 2022 — that produced a record, $6.6 billion state surplus.

Friday’s news came the day after the Georgia House passed a $32.45 billion state budget for the coming year and as the Senate began work on its version of the spending plan.

State finances have been on a roll since the COVID-19 pandemic shutdown ended in the spring of 2020. Consecutive surpluses helped the state boost state employee and teacher salaries and expand services for things such as mental health and substance abuse programs.

The state rebated $1 billion to Georgians last year, and Gov. Brian Kemp has pushed for about $2 billion in rebates this year. One of the rebates — on property taxes — has already been approved by lawmakers as part of the midyear budget. The other, an income tax rebate, has passed the House and will likely get through the Senate next week.

Salaries have increased, bringing in more income taxes. But the state also benefited mightily last year from big collections on capital gains taxes due to a booming stock market in 2021.

Kemp’s economist and budget staff say the skyrocketing revenue increases of the past will disappear — at least temporarily — in large part because of last year’s dip in the stock market.

State fiscal economist Jeffrey Dorfman of the University of Georgia told state lawmakers in January that the jolt will come as Georgians file their income tax returns. The state, he said, could see a $3 billion drop from last year in revenue from capital gains taxes because of the 2022 market decline.

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%.

That and slower corporate income taxes from earnings — which so far have been extremely strong — will mean a decline in collections for fiscal 2023, Dorfman said.

Farr, the governor’s budget director, said February’s revenue report doesn’t change that outlook. The deadline for filing income tax returns this year is April 18.