The state could face at least a $4 billion shortfall over the next 15 months without more federal aid, likely meaning layoffs and furloughs across the government in the coming year, a new report out Monday says.
For fiscal 2021, which begins July 1, the shortfall could top 10% of current state spending, which goes for everything from teacher salaries to prisons, health care to road building.
Gov. Brian Kemp said Monday that leaders have “tough conversations about the state budget” ahead.
The Georgia Budget and Policy Institute report said beyond the initial financial hit due to the coronavirus shutdown of the national economy, unemployment rates of 10% to 20% over the next year could raise serious questions about the state's ability to adequately fund schools, health care and other programs.
“Rather than forcing spending cuts that could negatively affect Georgia families for the next decade, state leaders should work with their federal counterparts to ensure a robust aid package is quickly deployed to help Georgia avoid state-driven layoffs, furloughs or deep cuts to essential programs like education, human services and Medicaid,” the report said.
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Governors, mayors and independent policy groups have called on Congress in recent weeks to supply more federal aid to governments that are seeing income and sales tax revenue evaporate during the business shutdown, which has resulted in skyrocketing unemployment.
Even after the economy reopens, the nation is expected to face a severe recession that will stress government budgets. Most state revenue comes from income and sales taxes. With hundreds of thousands of people unemployed in Georgia, it could take months if not years for collections to recover.
Kemp signed a midyear budget — which runs through June 30 — after the General Assembly suspended its session in March because of the pandemic. The institute projects at least a $1 billion shortfall in that budget. Under the Georgia Constitution, the state must balance its budget each year.
Kemp has a hefty reserve fund to help temporarily cushion the blow if more federal aid isn’t approved.
Next fiscal year, however, as the recession hammers the state’s economy, the shortfall could exceed $3 billion — enough, at least theoretically, to exhaust the reserve fund.
The General Assembly has yet to pass a fiscal 2021 budget and will do so when it restarts the session.
Alex Camardelle, a senior policy analyst with the institute, said almost 1 million Georgians have filed for unemployment benefits. Many of those losing their jobs in the pandemic shutdown are in the food services and hospitality industries that disproportionally employ minority staffers and often pay relatively low wages.
Danny Kanso, a former staffer for then-Republican Lt. Gov. Casey Cagle who put the report together, said the group wanted to give Georgians a realistic picture of what lies ahead.
“We can’t cut our way to prosperity,” he said. “We can’t borrow our way out of this.”
Under the Georgia Constitution, the state can’t spend more than it takes in from taxes and fees.
The institute, a left-leaning think tank, suggested lawmakers consider making moves to increase revenue.
For instance, the report notes Georgia has one of the lowest tobacco taxes in the country. Raising tobacco taxes to the national average — from 37 cents per pack to $1.81 — would raise about $575 million a year. Health advocates have been lobbying for that increase for years but gotten nowhere in the General Assembly.
Before the session was suspended, lawmakers were already looking at putting an excise tax on vaping products, another of the group's recommendations.
A third recommendation may be less likely to win legislative approval: trimming or capping some of the current special-interest tax breaks on the books, including the politically popular film tax credits. State auditors earlier this year found several problems with the way the $800 million-a-year film tax credit program is administered and said the state gave credits on questionable expenditures by the film companies.
The group also recommended limiting the transferability of tax credits. The ability of film companies to transfer credits is something that has made them very popular because they can be sold to businesses that have major state tax liabilities for cash.
The General Assembly has shown little interest in changing that. Kanso said the group wanted to give Georgians a realistic picture of what lies ahead.
Kanso said, “If we are not prepared to do some commonsense things to increase revenue, we are going to have holes” when any federal aid expires.
Without major federal assistance, Kanso said, Georgians can expect a repeat of the Great Recession from state government.
“You would probably have large-scale layoffs across state government, you’d almost certainly see furloughs across state government, in education, you’d see reductions in funding … and you’d probably see every politician in the state lose priorities they have been working on for years,” he said. “Those effects would be devastating.”
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