In what could be the calm before the financial storm, the state reported that tax collections improved 9.8% in March, although much of the activity occurred before the government and businesses started shutting down because of the coronavirus.
The state is expecting to see much worse numbers in coming months as the impact of closed businesses and skyrocketing unemployment kicks in.
Overall collections were up $163 million for March over March 2019, mainly because people were paying income taxes at a higher rate. Income tax collections were up 25.5% for the month.
The net sales tax take was down 2.4%, and hotel/motel taxes were off 6.7%. The sales tax numbers were basically for sales in February so they didn’t include collections for March, when the coronavirus shutdown took hold. The state could see a 50 percent decline in sales tax collections in the next few months with retail businesses and restaurants closed and hotels mostly vacant, if they remain open.
Sales taxes are the state’s second largest source of revenue.
The Atlanta Journal-Constitution reported last month that a massive drop in revenue in April and May could mean a shortfall in the state budget for fiscal 2020, which ends June 30.
The state is expecting a boost from the federal coronavirus relief package, but it’s unclear if any of that can go to fill budget holes caused by declining revenue.
The federal government decided early on to delay the day income tax returns are due from April 15 to July 15, and Gov. Brian Kemp followed its lead.
That pushed Tax Day into fiscal 2021, which begins July 1.
The state has about $2.6 billion to $2.7 billion in reserves, enough to fund services for about a month without other revenue. Kemp has already committed $100 million worth of reserves to fight the pandemic.
Danny Kanso, a former Georgia Senate aide and budget analyst for the Georgia Budget & Policy Institute, said he expects the state can make it through the next few months using reserves and federal help.
“The real effects will be felt next (fiscal) year,” Kanso said, when the impact of historically high unemployment and business closings linger.
Through the state’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, mental health and drug treatment, and it helps fund public health programs that are fighting the pandemic.
It also pays the salaries of more than 200,000 state workers, university system staffers and teachers.
The 2020 General Assembly session is currently suspended because of the pandemic. When lawmakers return, they will have to pass a budget for fiscal 2021.
House Speaker David Ralston, R-Blue Ridge, said it's doubtful the state will be able to afford either the teacher pay raise Kemp has promised or the income tax cut his chamber has approved next year because of the economic slowdown brought on by the coronavirus.
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