Make No Mistake: There's Deep Concern In State Government Over Budget

By Dick Pettys
InsiderAdvantage Georgia

(7/22/08) Gov. Sonny Perdue was careful last week to keep any trace of alarm out of his voice when he announced he had to tap the state’s reserves by $600 million to make ends meet when the fiscal year ended on June 30.

“There’s no emergency,” he said, expressing confidence that the state’s economy will rebound faster than the nation’s and that the same kind of tight money management he used in 2003 and 2004 will see the state through the current rough patch. (Plus, even after that $600 million hit on the rainy day fund, there’s still $900 million in the kitty.)

But the news clearly wasn’t good, and while top state officials don’t want to talk too much gloom and doom, there is deep concern in government about what the future may hold.

For example: Sen. Jack Hill, R-Reidsville, chairman of the Senate Appropriations Committee, has raised the question of whether a special session might be needed if it is determined that the nearly two dozen tax-cutting bills approved by the Legislature this year while things looked somewhat rosier might need to be adjusted to take effect at a later date.

(According to the Georgia Budget and Policy Institute, the state will take a tax hit of as much as $165 million from the cumulative effect of those measures.)

“I don’t know if a special session is a good idea or not, but we can’t wait six months to see how bad this is going to get,” Hill said. “If it continues to slide, the 3.5 percent (in reductions the governor has ordered state agencies to find) is not sufficient.”

Here’s the problem: state revenue collections were expected to grow by 2.5 percent during the fiscal year which ended June 30 (compared to collections during the previous fiscal year.) Instead, they were down a little more than 1 percent.

The problem is compounded in the new budget year, because the new spending level is based on growth of 4 percent to 5 percent over the growth that failed to materialize in the just-ended year. So to meet the current year’s budget, the state now needs growth of 8 percent to 9 percent.

No one expects the state to come anywhere close to that, but how wide of the mark it falls will depend on how the economy fares. So what, exactly, will the economy do?

Perdue told reporters last week that’s one of his biggest frustrations.

“In major trends upward and downward, we have wise economists in this state but they’re not very helpful in times of great trend changes … In times of great trend changes, economic forecasts are not all that accurate or helpful,” he said.

That’s a good part of why the Senate’s Jack Hill is concerned.

At a recent meeting between Perdue and legislative leaders, Hill said he asked whether anybody could say yet whether the slide has hit bottom.

Said Hill: “When Governor Perdue came into office, we were in a slide and Governor Barnes had not revealed it to anybody. The problem was, everybody was wrong about how deep it was. It didn’t get better and it didn’t get better.”

But there is some good news, he said. “We’re at the beginning of the (fiscal) year and I just think we need to build some contingency plans, and some of them you couldn’t implement easily without a special session. If it is determined that some of the tax cuts and tax incentives make less sense now than four months ago, maybe we could delay some of them.”

GBPI expects the state to lose $50 million this year from a special income tax credit for contributions to student scholarship organization, nearly $13 million from the annual sales tax holiday, $11.5 million in sales taxes lost through an exemption for manufacturing machinery and $11.5 million from new tax incentives for high-deductible health plans, among others.

To some, it’s an open question how deep the cuts will have to be this year and whether Perdue can protect QBE and health services from the knife, as he has said he’d like to do.

Perdue told reporters last week that he’d like to protect education and health care, but if the bleeding hasn’t stopped by the end of the first quarter, “We’ll have to look at those options.”

Timing is everything, Hill said. “It gets harder every month that goes by because departments will have been spending and you have less latitude.”

Like Perdue, Hill doesn’t want to start a panic among state employees.

“We don’t need to plant the idea of panic because it’s just not so. What we want people to know is, we’re prepared for tough times and we’re going to continue to handle it in a business-like way. There’s going to be some bad news printed (in the newspapers) when agencies cut their 3.5 percent. All of us have to help convince the public that we’re well prepared, but there’s going to have to be some hard decisions, and everybody should get on the same page. I think the public will applaud it.”