“After a strong start to the new fiscal year in the month of July, we set a goal to do even better for Georgians in August,” Kemp said. “Despite economic challenges due to COVID-19, we remain laser-focused on getting Georgians back to work and creating opportunities in every region of the state.”
The state tax collection numbers are closely watched as a sign both of the strength of the economy and of whether the state will be able to fund its $26 billion budget for fiscal 2021, which began July 1.
Some state budget writers remain cautious about the future of the economy, saying the summer gains could be temporary before another slowdown.
The state gets the majority of its revenue from income and sales taxes. Income tax collections were up 10.3% in August over the same month last year, and sales tax collections improved 10.8%. Fuel, car and hotel taxes were down for the month.
For the first two months of fiscal 2021, overall collections are up 12.4%.
Kyle Wingfield, president of the Georgia Public Policy Foundation, said it’s too early to say whether it’s a case of the economy being propped up by federal spending or the start of a strong recovery.
“For the moment, it is painting a much better picture than anyone imagined,” Wingfield said.
He added that some other states are seeing similar, better-than-expected numbers.
State Rep. Scott Holcomb, D-Atlanta, a member of the House Appropriations Committee, said the July and August numbers are being compared with months in 2019 when collections were relatively slow. August of 2019 was the month Kemp asked state agencies to cut spending because revenue was not coming in as fast as expected.
“There’s still considerable economic uncertainty and too many unemployed,” Holcomb said. “We’re not out of the woods yet.”
Income tax collections had been bolstered by tax withholding on unemployment checks, which the federal government had, until recently, been boosting with $600-a-week supplements.
With so many Georgians out of work because of the pandemic recession and the federal government adding to unemployment checks, the state was collecting $120 million or more a month in income tax withholding from the unemployed, versus the $1 million to $5 million that more typically comes in.
The federal government’s extra payments for unemployment expired in July. The U.S. House of Representatives passed an extension, but Congress hasn’t been able to come to a final agreement.
In response to the lack of action and with millions still jobless, President Donald Trump signed an executive order Aug. 8 to shift funding from the Federal Emergency Management Agency to temporarily supplement unemployment benefits by $300. The state Department of Labor had to set up a system to distribute the extra money, but the first checks could go out next week.
Lawmakers in June passed a fiscal 2021 budget that cut $2.2 billion — including $950 million in basic aid to school systems. The cuts were based on the likelihood that state tax collections would be down during the new fiscal year, which will end June 30.
Kemp is expecting that a more stable economic picture over the next several months will allow the state to afford its budget, which helps to pay teacher salaries, run the University System of Georgia, fund state policing and supply money to build highways.
In a sign of his confidence in Georgia’s economy, the governor said last month that he would not ask for new spending reductions in the coming year.
Still, this year’s cuts are having an impact on some school districts. Most had reserves to help soften the blow. A recent survey by the Georgia Budget and Policy Institute think tank showed 85% of responding systems said they would use their savings accounts to help make up for state budget cuts.
Among districts that responded to the survey, 13% said they would be furloughing teachers, and 28% said they would be consolidating or eliminating jobs and/or instituting a hiring freeze.