Gov. Nathan Deal spent eight years after the Great Recession building up a record state savings account to leave to his successor.
The state may burn through more than half of its $2.7 billion reserve in three months of the coronavirus pandemic recession.
Jeffrey Dorfman, the state fiscal economist and a University of Georgia professor, told state lawmakers $1 billion to $1.5 billion worth of reserve funds will likely have to be used to pay for government salaries and services through the end of fiscal 2020. The fiscal year ends June 30.
Part of the state’s shortfall at the end of this fiscal year is due to its decision to put off the income tax filing deadline from April 15 to July 15.
But Dorfman also told members of the House and Senate budget committees Wednesday that he expects the plummet in tax collections to continue through the first quarter of fiscal 2021 before the economy picks up in the fall.
“The first three months … are likely to be pretty bad,” he said, projecting possibly a 10% decline in revenue over the same period in fiscal 2020. A 10% dip for those months would be about $600 million.
“We expect we are near the bottom now, but it will take us a little while to get back to normal,” Dorfman said.
The economic shutdown brought on by the pandemic has led to mass unemployment, and some businesses remain closed. Many of those that have reopened are doing limited business.
State budget writers are holding virtual meetings with expectations that their annual session will resume in June. Lawmakers must pass a state spending plan by the end of the fiscal year.
Through Georgia’s budget, taxpayers help educate 2 million children, provide health care to more than 2 million Georgians, build roads and bridges, manage parks, investigate crimes and incarcerate criminals, and regulate insurance firms and utilities, along with dozens of professions. The state issues driver’s licenses and helps pay for nursing home care for the elderly.
The state is a major provider of basic medical coverage and treatment for mental health and drug addiction, and it helps fund public health programs that are fighting the pandemic.
Besides paying salaries, it also helps make sure that hundreds of thousands of former teachers, university staffers and state employees receive pensions and health care.
For the first 10 months of fiscal 2020, overall revenue collections are down about $680 million, or 3.4%. That shortfall is expected to grow substantially — possibly topping $2 billion — which is why reserve funds will have to be used to plug holes through June 30.
Kelly Farr, the director of the state’s Office of Planning and Budget, said Gov. Brian Kemp will provide a new revenue estimate for the new fiscal year — which will determine how much the state will spend starting July 1 — after gathering collection data this month.
Deal built up the reserve after the state quickly went through a $1.5 billion savings account during the Great Recession. When he took office in 2011, the state had enough money banked to run its government for a day without any revenue coming in. Now it's more like a month.
Georgia and other states across the country used the post-Great Recession period of economic growth to build up savings, The Atlanta Journal-Constitution reported last month. But that is not expected to be nearly enough money to make up for the lost revenue during the coronavirus recession, and Georgia leaders have joined colleagues across the country in asking Congress for $500 billion in federal aid to help offset part of the shortfall.
House Appropriations Chairman Terry England, Senate Appropriations Chairman Blake Tillery and Farr sent state agencies a memo May 1 telling them to plan for 14% budget cuts in the upcoming fiscal year — more than $3.5 billion.
The state announced last week that April tax collections — mostly income and sales taxes — were down 35.9% from April 2019. Those numbers may get worse, since April's revenue count includes sales tax numbers from March. The state didn't start shutting down its economy due to the pandemic until the middle of March.
Income tax collections were expected to be down in April because the state agreed to postpone when income taxes are due by three months.
Dorfman estimated $1.35 billion worth of state income taxes were likely deferred in April, and he expects the state to recoup most if not all of that in July.
While there is no reliable Georgia-specific consumer survey available, he said, the latest polling suggests a majority of Americans won’t feel safe about fully going back into the economy — going to shops and restaurants — at least until July. Dorfman said businesses are opening and customers are returning. “It’s not everybody,” he said, “but there are some people who are still waiting.”
The economist expects housing prices to hold steady during the recession and doesn’t think price inflation will be a problem as long as the nation’s supply chain remains strong and products — such as food — remain available.
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