Gov. Brian Kemp’s economic and budget teams have been predicting a big slowdown in state tax collections — which have skyrocketed since mid-2020.
Kemp even told lawmakers on the final night of the General Assembly’s 2023 session that there were “significant holes” in the state budget that legislators had just passed.
Revenue numbers released Friday could be the first indication they were right and that worse is yet to come this month.
Collections overall for March were off 3% — or almost $83 million — from March 2022. But individual income tax collections — the largest single source of money for the state — was down 25%, or $400 million. Gross sales tax collections were up 6%, which is decent historically but less than what the state took in during many months in recent years.
Kemp’s staff thinks the decline will be even more pronounced in April, when income tax returns are due. They have projected a $3 billion drop from last year in revenue from capital gains taxes because of the stock market decline in 2022.
Sales and income taxes provide the majority of state funding to help pay for schools and public health care, prisons, highway policing and parks. When collections are up, it means Georgians are working, earning and spending money.
Through March, overall collections remain up about $1 billion over the first nine months of fiscal 2023, which ends June 30. That gain, however, could quickly evaporate in coming months if Kemp’s team is correct.
The governor and his staff have been keeping a close eye on projections that the country could be headed for a recession later this year.
“I think it’s important for me to say that the recent news from the Federal Reserve and others suggest there may be storm clouds on our nation’s economic horizon,” Kemp told members of the Senate on the final day of the session last month. “Additionally, there are significant holes in this year’s final budget that my office will need to work closely with you all, the House and the Office of Planning and Budget to address in the coming months.
“As we have done in years past, our job is to make the tough decisions necessary to keep the financial health of this state on sound footing, and I believe that there remains work to be done after the session to conclude and achieve that goal,” Kemp said.
The General Assembly approved a midyear budget that includes a nearly $1 billion property tax rebate, plus a $32.4 billion spending plan for the fiscal year that begins July 1 with raises for teachers and state and university staffers.
Arvin Temkar/AJC
Arvin Temkar/AJC
In addition, the General Assembly approved a $1.1 billion income tax rebate that should begin going out in coming weeks.
Those rebates were due to a record $6.6 billion state surplus in fiscal 2022. State officials aren’t expecting that kind of surplus this year.
Consecutive surpluses in fiscal 2021 and 2022 helped the state boost state employee and teacher salaries and expand services for things such as mental health and substance abuse programs, law enforcement and education.
Salaries have increased throughout the state in recent years, bringing in more income taxes. But the state also benefited mightily last year from big collections on capital gains taxes due to a booming stock market in 2021.
Kemp’s economist and budget staff say that will change because of last year’s dip in the stock market.
Taxes were paid in fiscal 2022 based on 2021 earnings, and the S&P 500 index returned 26.61% in 2021. By contrast, last year it was down almost 20%.
Corporate income tax collections have remained strong so far: They are up more than $1 billion, doubling what came in during the first nine months of fiscal 2022. But those too could dip if the economy struggles later this year.
Kemp showed in the second half of 2019 that he isn’t afraid to pull back state spending. That August, he called for 4% agency cuts that year and 6% for the next, even as the economy continued to grow.
Some of the cuts riled lawmakers but the reductions only got bigger in June 2020, when the COVID-19 pandemic brought worries of a dramatic decline in state revenue.
That never happened, as the economy quickly recovered, tax collections soared and lawmakers have since approved record state spending.
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