For the first time in his administration, Gov. Nathan Deal is letting the people who run state agencies ask for a little more spending money next year.
Of course, Deal is retiring in January, so he won’t be the one deciding whether they get it. The next governor will.
Still, the instructions Deal’s budget director gave to state agencies Wednesday were somewhat historic: For the first time since before the Great Recession, the agencies that help educate 2 million children, provide health care to 2 million Georgians, build roads, maintain parks, investigate crimes and run prisons were told they could ask for up to 2 percent more in spending.
In some areas of government, where growing enrollment is increasing costs — such as schools and Medicaid — agencies can ask for even more.
Deal had told agencies for seven summers not to ask for an increase in spending, but this August he changed his message because of the strong economy. A couple of areas of potential windfall for the state didn't hurt either.
“After eight years of conservative fiscal management, balanced budgets and strategic investments, today our state stands tall once again on solid financial footing,” Deal’s budget director, Teresa MacCartney, told agency leaders in a memo.
“As we look ahead to a new chapter in our state’s history, Gov. Deal would like to hear agencies’ strategies for further improving the way we do business,” MacCartney said.
The increases would be in budget proposals for fiscal 2020, which begins July 1.
Chris Riley, the governor’s chief of staff, said his office will work with the new governor on the midyear spending plan that runs through June 30, and it will present agency requests to the incoming administration to let it decide what to recommend to the General Assembly for fiscal 2020.
Former House Minority Leader Stacey Abrams, a Democrat, and Secretary of State Brian Kemp, a Republican, face off in the election to replace Deal in November.
State agencies will spend the next couple of months developing spending plans for the upcoming fiscal year and then submitting them to MacCartney’s office. The new governor will present his or her budget proposal to the General Assembly in January.
Abrams has voiced support for expanding Medicaid to provide public health care to more families. Kemp has called for a cap on state spending and promised more tax cuts.
MacCartney said the last time a governor sent budget instructions in which agencies were told they could increase spending was in 2007, just before the Great Recession hit.
For years after that, the state cut spending, furloughed teachers and laid off workers. When Deal took office in 2011, the state's financial situation remained troubled, and every year he has instructed agencies to hold the line on spending.
House Appropriations Chairman Terry England, R-Auburn, said he expects some agencies to request more money to increase salaries. Pay hikes for many employees have been small, if they've been given at all in recent years. England said businesses are hiring away state workers because they can offer more money.
“Private industry is hiring, and that’s a good thing,” England said. “But we still have to operate those agencies, and when you have skilled people, you want to keep them.”
In general, England said: “The economy is still rocking along pretty good. For the most part, all the indicators are that things are in pretty good shape.”
Like all legislative budget chairmen, he is keeping an eye on things that could go wrong: the eventual end of the current economic growth cycle or the waning benefits from federal tax cuts, a stock market drop, impacts from new tariffs, rising interest rates, etc.
But the next governor will have advantages Deal didn't have. As the Atlanta Journal-Constitution reported in July, the next governor is more likely to have to figure out what to do with all the tax money flowing into state coffers.
The federal income tax bill passed by Congress in December promised to bring the government significantly more money because it limits or eliminates some of the deductions Georgians use when figuring their state taxes.
So while many Georgians would pay less in federal taxes, at least some would have wound up with bigger state tax bills unless lawmakers made changes in Georgia’s tax code as well.
Deal and the General Assembly fixed that through a bill that will eventually lower the maximum state income tax rate from 6 percent to 5.5 percent and will double the standard deduction for Georgians.
Because the changes are being phased in, the federal law will still mean an initial windfall for the state over the next couple of years — much smaller than it would have been without the bill lawmakers passed during the 2018 session. Then, as the new rates kick in, the state will take in far less in income taxes.
Combined with a recent U.S. Supreme Court ruling allowing states to force online companies to collect sales taxes on what they sell, Georgia could see an additional $1.2 billion in revenue over the next two years.
That is on top of normal growth in revenue during a period when the state’s economy is strong. Tax collections were up $961 million, or 4.4 percent, in fiscal 2018, which ended June 30.
That type of growth is more than enough for the state to meet this year’s $26.2 billion budget.
Revenue gains
After years of economic growth and conservative spending policy, the state’s fiscal situation is looking up. Here are three things that may continue that trend, at least temporarily:
- State tax collections were up 4.4 percent, or $961 million, in the recently completed fiscal 2018. With the economy strong, more of the same is expected.
- The U.S. Supreme Court cleared the way for Georgia to enforce a new state law making e-retailers charge sales taxes on their goods. Now, some do, some don't, and the law could be a windfall for state and local governments
- Changes in the federal tax law will mean a boost for state revenue because it limits or eliminates some of the deductions Georgians use when figuring their state taxes. The boost will be temporary: Lawmakers have cut the top state income tax rate so the government will begin taking in less tax money in a few years when the changes are fully phased in.
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