Kemp and lawmakers to decide plan for $6.6B in surplus cash

State government ended the 2022 budget year in June with $6.6 billion in surplus cash, even after it filled its savings account to the legal limit.

Gov. Brian Kemp has announced plans to spend more than $3 billion of the amount through a combination of one-time tax givebacks, with fellow Republican legislative leaders signaling support. But even that bonanza would leave about $3 billion that could be spent, saved or given away. And barring a notable economic disaster, the state is likely to run a surplus again in the current budget year.

Despite the evident good fortune, Kemp and lawmakers have yet to announce additional spending or tax breaks. Senate Appropriations Committee Chairman Blake Tillery, a Vidalia Republican, said lawmakers are likely to pause on broad pay increases after giving election-year $5,000 raises to university and state agency employees and $2,000 raises to public school teachers.

Those pay raises drove a big increase in spending, with this year’s budget rising 11% over 2022’s original plan.

Georgia will spend $30.2 billion in state revenue and $57.9 billion overall. That money pays to educate 1.75 million K-12 students and 465,000 college students, house 48,000 state prisoners, pave 18,000 miles (29,000 kilometers) of highways and care for more than 200,000 people who are mentally ill, developmentally disabled or addicted to drugs or alcohol.

The state-federal Medicaid health insurance program is likely to require higher spending. Enhanced federal payments will begin decreasing on March 31, which will cost Georgia hundreds of millions. Plus, the state may need to earmark money to check the eligibility of every recipient, after a pandemic period during which everyone was allowed to stay on Medicaid.

Kemp wants to dig into the surplus for three big items. First is replacing revenue Georgia hasn’t collected on gasoline and diesel taxes since March. The state next week will resume taxing gasoline at 29.1 cents per gallon and diesel at 32.6 cents per gallon. That money is used for transportation, and Kemp plans to backfill foregone revenue using $1.7 billion or more of the surplus.

The governor also wants to give another round of state income tax rebates like the $1.1 billion in payments issued last year. Those payments gave dual-earner households $500, single adults with dependents $375, and single adults $250.

Finally, Kemp wants to revive a property tax rebate abolished in 2009. The governor wants to spend $1 billion to save about $500 a year for homeowners.

But that will far from deplete the surplus. Lawmakers could stash more money into Georgia’s rainy day fund, but only if they amend the law capping it at 15% of tax receipts. The fund is currently filled to its $5.24 billion limit.

They could also just leave the money where it is, as a sort of informal additional rainy day fund. That could smooth out any bumps from a state income tax cut beginning Jan. 1, 2024 that will reduce Georgia’s revenue by $450 million in the first year. Budget writers must account for it in the 2024 budget beginning July 1.

Tillery and incoming House Appropriations Committee Chairman Matt Hatchett, a Dublin Republican, are also considering whether the state should pay down debts.

A discussion of state liabilities during budget hearings will examine Georgia’s $11.6 billion in bonded indebtedness, the $11 billion Georgia needs to pay future pension benefits and the $10 billion owed in post-retirement health care benefits.

“I think you’re going to find out that the liabilities that are there would knock out more than our unallocated surplus,” Tillery said.

Kemp and lawmakers will also face decisions on current spending. Many economists are predicting a recession in 2023, and Tillery and others fret that unemployment could rise.

“There will be at least tremor effects that we feel too,” Tillery said. “You can see that in our revenues. We’ve been gangbusters — month over month, year over year increases — that now are starting to plateau.”

But higher wages and inflated prices should keep revenue above target, said Danny Kanso, senior fiscal analyst at the liberal-leaning Georgia Budget and Policy Institute.

Through November, state revenues are running 6.2% ahead of projections, a more than $800 million surplus. Individual income taxes are 12.4% over projections, while sales taxes are 12.7% over projections. Plus, gas tax collections are resuming.

“We are on track, I would predict, for another multibillion dollar surplus in 2023, barring some kind of calamity, or a really sharp increase in spending,” Kanso said.

One area Kanso spotlights is a state government workforce that is hemorrhaging employees, making it harder to even maintain current service levels.

A recent report shows that even as pay raises were beginning last spring, employee turnover hit an all-time high of 23%. The state can’t hire enough new workers to replace departing ones. Kanso said Georgia should spend to raise salaries and hire more workers for critical areas including mental health, “addressing these staffing shortages and challenges in a really intentional way.”

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