Rainy Days and “Record” Budgets

Georgia’s budget for Fiscal Year 2017 is set to be its largest ever. The House and Senate will negotiate the final details of the $23.8 Billion package between now and March 24th. Along the way they may also consider a couple of plans to cap the budget, taxes, and the rainy day fund. While well intentioned, those looking at doing the latter should proceed with caution.

Georgia’s budget peaked before the recession in FY 2008. The crash of the financial and real estate markets hit Georgia hard. We lost 25% of our banks. The value of real estate plummeted putting a strain on local property taxes and thus county and education budgets. Income taxes declined with the loss of jobs and diminished incomes of those taking business and investment losses. It was a mess.

Georgia went into the decline with $1.5 Billion dollars in our rainy day fund. By 2010, we had not only spent all of these reserves, but had gone through about $2 Billion in additional federal stimulus dollars.

Teachers and state employees were furloughed even as budgets were cut, with these cuts lasting well into FY 2014. Teachers received minimal raises while most state employees received a single one percent pay raise over the last eight years.

As economic conditions have improved, the vast majority of increased tax revenue has been put back into education to replace funds taken due to austerity cuts. But during the past decade Georgia’s population has grown almost ten percent. The number of Georgians on Medicaid has grown by almost half. We have more students in our K-12 schools, and more students returned to college due to the bleak job market. Our expenses during this time have gone up, not down.

The result is that while we have a “record” budget, we’re still spending about 9% less per capita than our state budget spent at the 2008 peak when adjusted for inflation. Our state continues to try to do more with less. This is even after the additional money for transportation was approved last year.

The new budget will give most state employees a 3% raise. Others may see as much as 10% in areas where current salaries are much below the current job market and turnover is high. While many cling to the “cut the fat” mantra for state government, the history of Georgia’s last decade of budget cuts and a comparison to neighboring low-tax southern states shows we’re still operating pretty lean.

Gone are the days where the annual supplemental budget was used to fund pet projects in key committee chairmen’s districts. Instead, surplus funds above revenue estimates have been used to replenish that rainy day fund that was emptied six years ago. At the end of last year Georgia had almost $1.4 billion dollars in reserve. While that sounds like a lot, it’s less than 7% of next year’s budget – less than half currently allowed under Georgia law. It’s also less than 1/3 what it took to get Georgia through the last downturn that still resulted in furloughs.

A cautionary tale on minimizing reserves comes from Louisiana, which enjoyed the recovery better than most states due to oil royalties and the taxes that came from those employed in the petroleum industry during boom times. While many of us are doing better, they are not. TheWashington Post reports they face almost a $1 Billion deficit for the remainder of this year and are scrambling to plug a $2 Billion hole for next (on a budget roughly half our size).

Louisiana held itself out as a model of fiscal conservatism under Governor Jindal’s administration, but the budget was often balanced by selling off state assets, liquidating trust funds, and paying general obligations from law suit settlements. Now that tough times have returned, their cupboard is bare. The state is facing drastic cuts in services, possible bankruptcy of some colleges, and/or massive tax increases.

Georgia is a state that maintains and closely guards a AAA bond rating with all major agencies. Part of maintaining that rating is keeping sufficient reserves on hand to handle the routine downturns that come with economic cycles. Astute observers will note that while this recovery has nationally been quite flat, it is still about as long as one can reasonably expect without another recession hitting soon.

Georgia’s lawmakers have spent the last eight years undergoing a delicate balancing act of nursing the state through difficult times, balancing a budget, maintaining basic services, and not squandering surpluses. The challenge now will be to continue to take a long range view, and ensure that our fiscal house remains ready for the next rainy day.

Charlie Harper is the Executive Director of PolicyBEST, a public policy think tank focused on issues of Business & Economic Development, Education, Science & Medicine, and Transportation. He’s also the publisher of GeorgiaPol.com, a website dedicated to State & Local politics of Georgia.

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