Georgia lawmakers due to reconvene the 2020 legislative session next month face a daunting task: plugging a projected budget shortfall of $3 billion to $4 billion inflicted by the coronavirus pandemic.
By Dave Williams and Beau Evans
Capitol Beat News Service
ATLANTA – Georgia lawmakers due to reconvene the 2020 legislative session next month face a daunting task: plugging a projected budget shortfall of $3 billion to $4 billion inflicted by the coronavirus pandemic.
“It’s a different world than it was three or four months ago,” said state Rep. Terry England, R-Auburn, chairman of the House Appropriations Committee. “Nothing’s going to be easy.”
England’s committee and its Georgia Senate counterpart began meeting online last week to start looking for ways to meet a target of 14% across-the-board state agency spending cuts, which the Governor’s Office of Planning and Budget ordered up May 1 in a joint memo also signed by England and Senate Appropriations Committee Chairman Blake Tillery, R-Vidalia.
In deciding on that percentage, lawmakers and state officials looked at several studies but particularly at a report released last month by Moody’s Analytics, which predicted Georgia’s revenue shortfall could range between roughly 12% to 15% depending on the severity of the economic downturn.
During last week’s meeting, legislative budget writers got their first look at just how much Georgia’s economy is reeling. They were greeted with the dismal news that state tax revenues fell by more than $1 billion last month compared to April of last year.
With those numbers actually reflecting taxes collected in March, when the pandemic was just starting to affect Georgia, lawmakers were told worse is yet to come.
The only silver lining in the scenario is that the $27.5 billion fiscal 2020 mid-year budget adjustment the General Assembly adopted in March already incorporates 4% spending reductions Gov. Brian Kemp ordered for state agencies last summer, when revenues were showing slow growth for reasons other than COVID-19.
Still, lawmakers returning from a nearly two-month break brought on by the pandemic will have to find about $1 billion to address the looming shortfall in tax revenues through June 30.
England said he expects much of that money will come by drawing down the state’s reserves, now a healthy $2.8 billion.
Saving for a rainy day
In fact, Georgia is among several states that likely has enough in its “rainy day” reserve fund to keep the budget afloat along with “relatively limited amounts of spending cuts or revenue increases,” the Moody’s report notes.
But state lawmakers may not dip too deep into the reserve fund again this year after already approving Kemp’s request in March to pull $100 million from the fund for the coronavirus response.
Tillery said he expects lawmakers may look at using some reserves to plug shortfalls for the current fiscal year, which runs through June. But beyond that is up in the air.
“It’s going to be difficult,” Tillery said. “We’ll have to make hard decisions and sometimes deadlines are quite the catalyst for hard decisions.”
There is precedent, however, for significantly raiding Georgia’s reserves in times of economic downturn. The rainy-day fund was shrunk to just $116 million to make up for losses of tax revenue during the Great Recession a decade ago and to less than that during a recession that hit the state in the early 2000s.
“In a perfect world, you don’t go that deep,” England said. “[But] at this point, you’ve got to go with the hand you’re dealt.”
England pointed out that Georgia never lost its AAA credit rating from Moody’s and other bonding agencies despite thinning out the reserves, a practice the bond market tends to look upon unfavorably.
Hoping for help
After addressing the mid-year fiscal 2020 shortfall, lawmakers will have to deal with the heavy lifting of the fiscal 2021 budget, which takes effect July 1.
While some of the spending reductions will come through such obvious steps as freezing vacant positions and furloughing employees, budget writers will have to get creative to achieve the deep cuts necessary to fill the huge shortfall.
England said one possibility that has emerged from the pandemic is letting some state employees keep working from home and save costs on office space after the all-clear is given to return to work.
“This teleworking thing has worked out pretty good,” he said. “Productivity is actually up in some areas and folks are happier because they’re not having to drive an hour to work.”
But no matter how innovative lawmakers approach cutting the budget, spending reductions alone won’t get the job done. England and Tillery conceded as much last week when they sent a letter asking members of Georgia’s congressional delegation to release $500 billion to help Georgia and other states prop up their coronavirus-ravaged budgets.
Georgia already is set to benefit from billions of dollars in federal relief, part of a $150 billion package for state and local governments inside a $2.2 trillion economic-stimulus bill Congress passed in late March. But those funds for now can only be used for specific purposes like public schools and costs to curb the virus’ spread – not to bolster state budgets.
The outlook for the additional federal funds is far from certain. President Donald Trump has said he won’t sign another economic-stimulus bill without a payroll tax cut, a step U.S. House Democrats don’t support.
Taxes to the rescue?
Absent a federal bailout, the General Assembly likely will be pushed to raise some taxes as an alternative to relying completely on spending cuts to plug the shortfall.
The legislature passed and Kemp signed a bill in January to collect taxes on online purchases made through such “marketplace facilitators” as Amazon and Google. That should raise as much as $15 million per month in additional tax collections, said State Economist Jeffrey Dorfman.
But lawmakers must look at more revenue-raising alternatives, said Danny Kanso, a policy analyst for the Atlanta-based Georgia Budget and Policy Institute.
“State leaders should do everything in their power to avoid making devastating cuts that would be likely to disproportionately hurt public schools and higher education – and possibly weaken Georgia’s already stretched-thin health care system,” he said. “Lawmakers should approve common-sense options to raise revenues, such as lifting the tobacco tax to the national average and closing special-interest loopholes that cause the state to forego billions of dollars every year.”
Senate Finance Committee Chairman Chuck Hufstetler, R-Rome, said those options will be on the table when the legislature reconvenes under the Gold Dome.
“We’re looking really at all the tax credits and potential revenue sources to see what we can do, even if it’s items that would sunset in a couple of years that could help out on the revenue side,” Hufstetler said.
“I think there’s the potential to maybe not eliminate credits but maybe tailor them in a way that really helps Georgia, not so much people outside of Georgia,” he added.
The American Cancer Society’s Cancer Action Network is calling for raising Georgia’s tax on cigarettes from 37 cents per pack, third lowest in the nation, to $1.87. That would generate more than $425 million a year in state tax revenue.
“Today’s pandemic has placed a heightened awareness on the need for strong public health infrastructure,” said Andy Freeman, the organization’s government relations director in Georgia.
“Increasing our state’s alarmingly low cigarette tax … would place us at a significant advantage in our [COVID-19] response plan and benefit the health of thousands of Georgians long after the pandemic passes.”
But Rep. Brett Harrell, chairman of the House Ways and Means Committee, said such a huge increase in the cigarette tax would unfairly single out one product.
Harrell, R-Snellville, supports raising the tax to 62 cents per pack, which would make Georgia’s cigarette tax comparable to what surrounding states charge. That would generate about $50 million a year, he said.
“I’m willing to move legislation out of our committee that would raise taxes,” he said. “[But] I don’t think it’s right to zing the hell out of a product nobody likes. That’s not sound policy.”