State revenue appears to have plateaued after years of increases. The new Trump administration has threatened to impose tariffs that analysts say could undermine the economy. And the administration is considering cuts to safety-net programs such as Medicaid health insurance that could leave Georgia and other states scrambling to plug the gap.

“We’re going to be facing a very different state and local fiscal situation over the next couple years,” Teryn Zmuda, chief economist for the National Association of Counties, told reporters during a recent briefing on public finances.

Georgia is well-positioned to withstand any turbulence. The state has socked away about $16.5 billion in “rainy day” and undesignated reserves — enough to run state government for about six months at current spending levels.

Kemp and legislative leaders are already making plans to spend some of that money. How much to spend and how to spend it are key questions that will occupy them when the General Assembly convenes Jan. 13.

Hurricane aid a top concern

In recent years, Georgia and other states have benefited from a combination of massive federal spending, an economic boom that followed the COVID-19 lockdown, inflation (higher prices for consumers means more sales tax revenue for the state) and other factors. State spending rose more than 11% to $36.1 billion over the past year alone.

Georgia’s budget reserve has also surged.

Kemp and the General Assembly have found a variety of ways to spend that extra cash, including raises and bonuses for teachers and state employees. At the same time, they’ve provided tax rebates and tax cuts to Georgian residents and businesses.

Georgia still has plenty of cash on hand. It finished the fiscal year that ended in June with an $11 billion undesignated budget surplus, plus nearly $5.5 billion set aside in case of revenue shortfalls. That doesn’t include $2.4 billion in lottery funds and other restricted reserves.

In January Kemp will unveil a proposed spending plan for fiscal 2026, which begins July 1, as well as a revised plan for the remainder of the current year. He and legislators are already planning to spend some of the surplus.

Relief for Hurricane Helene victims will be a top priority.

The September storm left a path of destruction across Georgia, causing an estimated $5.5 billion in losses to the state’s agricultural and timber industries. It also damaged 212,747 homes across the state and left 34 Georgians dead.

Congress recently approved a federal budget deal that provides $100 billion in disaster aid and $10 billion for farmers. But Kemp told Georgia lawmakers recently that he’ll introduce a state relief package during the first week of the legislative session.

State Sen. Blake Tillery, R-Vidalia, chairman of the Appropriations Committee, believes Kemp’s request will gain quick support.

“It’s going to be disaster relief, disaster relief, disaster relief,” Tillery said of lawmakers’ budget priorities.

“You’ve got farmers who are wondering if they’re going to be able to replant,” he said. “Sometimes families with forestland they had saved for retirement are now seeing it flat on the ground.”

Kemp and Republican legislative leaders also have announced plans to refund more than $1 billion to Georgians when they file their income taxes next year. If approved by the General Assembly, they would receive a maximum refund of $250 for single residents, $375 for heads of households and $500 for married couples filing jointly, based on their 2023 earnings.

Legislators also will consider other priorities. Lt. Gov. Burt Jones, who is considering a run for governor in 2026, recently announced support for new and expanded child tax credits to make day care more affordable.

And House Speaker Jon Burns said legislators “will continue to focus on making investments that ensure the continued success of our state and provide a better quality of life for every Georgian and their families.”

“Whether it’s health care, education, public safety or economic development, what you will see in the House’s budget is an emphasis on investments that uplift our citizens and communities across the state,” the speaker said in a statement to The Atlanta Journal-Constitution.

Changing conditions

State Rep. David Wilkerson, D-Powder Springs, a member of the House budget committee, would like to see Georgia make bigger investments — such as free breakfasts and lunches for all schoolchildren.

“We’ve got so much money that we’re not necessarily using it as wisely as we should,” Wilkerson said. “It’s almost like we’re hoarding it in some cases.”

Indeed, there’s no shortage of ideas for how to spend surplus funds, such as financial aid for low-income college students and Medicaid expansion.

But changing economic and political conditions could limit legislators’ options going forward. For starters, state revenue is flat so far this year after years of increases as the economy finds a new post-pandemic normal.

Fitch Ratings, a credit-rating agency, recently said it expects slower economic growth and a “weaker but normalized revenue environment” for state and local governments in 2025. It also cited the governments’ “strong financial resilience.”

“A combination of robust reserves, significant liability reductions and other prudent budget management measures leaves state and local governments well positioned as pre-pandemic fiscal conditions take hold once again,” Fitch said.

Less certain is the effect that Trump administration policies will have on state finances. President-elect Donald Trump has proposed steep tariffs on goods imported from Canada, China and Mexico — a prospect Fitch says could spark a trade war and a recession.

Republicans in Congress also are discussing cuts to programs such as Medicaid that could leave Georgia and other states scrambling to make up the difference.

Carolyn Bourdeaux is a former Democratic congresswoman from Georgia and former budget evaluation director for the state Senate. At a recent media briefing sponsored by the New York-based public policy group the Volcker Alliance, she said there’s “a big difference between going in with a lot of bravado and actually tackling these programs.”

Nonetheless, she said state governments have a lot at stake as the Trump administration looks to cut spending.

“States are in a lot of business lines that are going to be affected by this,” Bourdeaux said.

The Georgia General Assembly begins its legislative session next week. The Atlanta Journal-Constitution is running articles every day this week previewing some of the action. Stick with the AJC throughout the session for the most comprehensive coverage in the state.