Transcript Georgia Budget Crisis by Alan Essig

Georgia Budget Crisis:
The Hole Gets Deeper
Alan Essig
Executive Director
Georgia Budget & Policy Institute
November 13, 2009
Georgia’s Short-Term
Revenue Problem

FY 2009 revenues declined by 10.5% overall, and
18.1% between January and June.

Revenues for first three months of FY 2010 are
down by 14.2%.

This year’s budget is based on 1.3% revenue
growth.

At the beginning of the year, Governor Perdue
announced more than $900 million in
additional cuts (revenue decline of 4%).
Georgia’s Short-Term
Revenue Problem Cont.

GSU Economic Forecasting Center projects that
revenues will decline 6% this year, forcing the
state budget into a deficit totaling $1.2 billion.

$900 million in cuts does not balance the budget;
the state is likely short in FY 2010 an additional
$300 million to $600 million.
Revenue Shortfall Reserve

Revenue Shortfall Reserve as of 6/30: $217
million.

Education Midterm Adjustment (governor can
use in January): $168 million

Reserve available to close out FY 2010: $49
million.
Population Has Increased
Yet Revenues Flat
18
16
14
12
10
8
6
4
2
0
Revenues
(billions)
FY 2005
FY 2010
Population
(Millions)
Georgia Always Has Ranked Low
49th
State spending per capita
43rd
State tax revenues per capita
43rd
State & local sources of revenue per capita
(taxes, fees, etc.)
41st
Combined state revenue and state and local
revenue as a percentage of income
Over 86% of Budget Spent on Education,
Healthcare, Criminal Justice, and
Social Services
Snapshot of State Spending
FY 2010
Education
58.1%
Medicaid and PeachCare
10.3%
Health and Social Services
8.5%
Criminal Justice
9.1%
Transportation
3.8%
Debt Service
6.1%
All Other State Agencies
4.0%
FY 2010 Budget Deficit Reduction
Strategy: $4 Billion Total
How Georgia Leaders Have Closed the
$4 Billion Budget Gap in FY 2010
Budget Cuts
38%
Federal
Stimulus
34%
Reserves &
Other Actions
17%
Elimination of
Homeow ners
Tax Relief
Grant
11%
How We Are Covering The Shortfall
Total Shortfall:
$3,989,238,026
Total Shortfall:
$3,989,238,026
Total Shortfall:
$3,989,238,026
Total Shortfall:
$3,364,858,578
$4,000,000
$476,394
$1,090,296
$3,500,000
$1,090,296
Thousands
$770,966
$3,000,000
$2,500,000
$1,402,769
$1,026,818
$672,009
$237,951
$2,000,000
$626,754
$573,285
$2,898,942
$1,500,000
$1,872,124
$1,000,000
$1,298,839
$1,298,839
$500,000
$FY2009
FY2010
FY2011 Projected
On-Going Agency Reductions
New Agency Reductions
Federal Stimulus Funds
Reserves (RSR and Authority)
FY2012 Projected
One-Time Funds
Budget Cuts Implementation and
Outlook

FY 2010




FY 2011


Eliminate Homeowners Tax Relief Grant ($428 million)
Cuts to state agencies ($1.4 billion)
$300 to $600 million in additional cuts expected
An additional $1 billion in cuts on top of all cuts
implemented in FY 2010.
FY 2012

An additional $1 billion in cuts on top of all cuts
implemented in FY 2010 and FY 2011.
Medicaid and PeachCare

FY 2010



FY 2011


$650 million in ARRA enhanced FMAP and $214 million
tobacco reserve funds in base of budget.
1.3% provider rate cuts
Medicaid shortfall of $477 million. FMAP enhanced match
expires January or 2011 ($325 million shortfall) and tobacco
reserves are one-time revenues.
FY 2012

Medicaid shortfall of $350 to $400 million due to remaining
ARRA enhanced FMAP leaving the base budget.
Short Term: A Balanced Approach to
Deficit Reduction

General Assembly should implement a balanced
approach including such options as:

Increase the cigarette tax by $1 a pack ($300 to $400
million);

Temporary 1% surcharge on family income over $400,000
($225 million);

Scale back special interest tax breaks;

Implement policies to help collect the estimated
$1.6 billion in uncollected tax revenues from all sources.
Short Term – Avoid Further Erosion
of Tax Base

Further tax cuts at this time will only
increase the out year deficits.
 So
called supply-side state tax cuts will have
minimal positive economic impact with
significant negative budget impact.
 Moratorium on new special interest tax
breaks.
Long Term:
Georgia Is Facing Structural Deficit
1. Basic growth in government next year and beyond:

Increased number of students in K-12, Board of Regents, and
tech schools

Increased number of enrollees in Medicaid and PeachCare

Increased number of state prisoners and aging of prison
population (increased healthcare costs)

Building and repair of roads, schools, and state-owned
buildings will result in increased debt service

Teacher & other state employee salary increases
Long Term:
Georgia Is Facing Structural Deficit
2. Georgia has an antiquated tax system:

Income tax was developed in 1937
•
•

Top level is $10,000
Sales tax implemented in 1951 has been
dramatically narrowed
•
•

Brackets basically unchanged since
Exemptions added yearly by legislature
Economy has changed from manufacturing to service
Economy and the expectations of state
government are radically different now
AS GEORGIANS INCOMES INCREASED, THE STATE TAXES COLLECTED
FROM GEORGIANS HAVE NOT KEPT PACE
State Revenues as Percent of Personal Income FY 1989 - FY 2010
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Stimulus Funds Gives Lawmakers
the Opportunity to Take Action
Long-Term Comprehensive TAX REFORM

Solidify tax base to assure adequacy

Improve fairness of the tax system

Modernize tax base for a 21st Century economy

Increase accountability
LONG-TERM Solution:
COMPREHENSIVE TAX REFORM
Increase Tax Transparency and Accountability:
Implement a Tax Expenditure Report
Treat tax expenditures as we treat budget expenditures:
Highlight all tax breaks currently in law
(i.e. sales, income, property)


Estimate lost revenue

Perform cost-benefit analysis

39 states do this, but Georgia does not!
SB 206
Georgia Has a Structural
Deficit
Can Georgia afford
billions of dollars in
additional budget
cuts over the next
two years?
Contact Info
Alan Essig
100 Edgewood Ave
Suite 950
Atlanta, GA 30303
404.420.1324
[email protected]
Sign up for email
updates at
www.GBPI.org