Last week Kemp’s office reported that tax collections were up more than 12% in July and August over the same months in 2019, countering the widely held belief that the COVID-19 recession would devastate state finances.
States across the country were expected to see revenue drop $500 billion or more because many of them raise funding largely through income and sales taxes, and both were predicted to crater as millions lost their jobs and businesses shuttered because of the pandemic.
But Georgia tax collections have been better than expected since Kemp opened up the economy in late April, and the state wound up the previous fiscal year having to use little of its reserve despite dire predictions.
Some states have seen a summer surge similar to Georgia’s: The economy has picked up enough that spending cuts won’t be as deep as expected. That’s partly because of a massive infusion of federal money to both pay health costs associated with the pandemic and soften the financial blow for the unemployed through higher benefits.
Still, budget writers in Georgia remain cautious, concerned about what happens when federal funding stops or when evictions and bankruptcies begin rising.
Georgia House Appropriations Chairman Terry England, R-Auburn, was among those surprised by how good the revenue collection numbers have been in recent months and said it’s too early to predict where the economy is headed.
State Rep. Scott Holcomb, D-Atlanta, who serves on England’s committee, said much the same thing. “We are not out of the woods yet,” said Holcomb, who practices securities law. He said the strong stock market performance since March is “divorced” from other economic indicators.
The Kemp administration, meanwhile, last week touted announcements by companies that they planned to add jobs to Georgia’s economy, and his decision not to ask for more cuts next year is an indication that he’s willing to propose a larger state budget.
His predecessor, Gov. Nathan Deal, built up the state’s reserve for seven years by telling agencies they couldn’t ask for more money. That directive didn’t actually mean less spending because, like Kemp, Deal made exceptions for areas of the budget — such as k-12 schools and Medicaid, the public health care program for low-income and disabled Georgians — to pay for growth in enrollment and usage costs.
So even in years when most agencies were told they couldn’t ask for more, governors might get in the neighborhood of $900 million to $1 billion in requests in large part because of the growth in the state’s population, school attendance, the need for the programs and, some years, to pay for salary increases for the state’s more than 200,000 teachers and staffers.
Most of the about $700 million requested for next year would pay for increased k-12 costs, funding Medicaid, and building and maintaining the state’s road system, three areas that traditionally eat up much of the new revenue each year.
School funding is based on formulas that calculate budgets based on several factors such as enrollment and, in one program. the relative property wealth of districts. As things such as enrollment or teacher pay increase, the cost increases.
Medicaid has seen a sizable increase in enrollment as Georgians lost their jobs, and the program is also expecting a hike in health care usage because many put off going to the doctor or having procedures done during the pandemic. The expectation is they will make up for lost time in the next fiscal year, presumably because they will be more comfortable seeing a doctor or having a procedure done if there is a COVID-19 vaccine.
A few other agencies asked for increases — the judicial branch, for instance, requested the return of some of the funding cut in June.
Prosecutors asked for more money for salaries and 12 new assistant district attorneys. Superior court judges asked for enough money to eliminate furlough days for those making more than $100,000 a year. The furloughs for higher-paid employees were included in this year’s budget to reduce costs.
The state Supreme Court asked for $500,000 to pay higher rent to the Georgia Building Authority for space at the new Nathan Deal Judicial Center. Other courts in that building also asked for extra money for rent.
The judiciary is a separate branch of government, and its budget proposal bypasses the governor and goes directly to lawmakers.
That’s not the case for other agencies. and most asked for no new funding.
England said he wasn’t surprised by the requests, which were largely in line with the governor’s call to hold the line on spending.
“I think they all look at it and realize the unpredictability of the situation the state is in at this point.” he said.