How Will Georgia Legislature Decide to Spend $6.6 Billion in Surplus Cash?

New laws in Georgia ring in the new year

Several new laws will go into effect in Georgia in 2023. Some of the most powerful laws deal with mental health and what children see at school.

ATLANTA – Georgia’s mountain of cash looms over state lawmakers as the 2023 session begins on Monday.

The state government ended fiscal 2022 in June with a cash surplus of $6.6 billion, even after filling 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 refunds, with other Republican Legislative leaders signaling their support. But even that bonanza would leave about $3 billion to spend, save, or give away. And barring any notable economic disaster, the state should again generate a surplus in the current financial year.

Despite the apparent good fortune, Kemp and lawmakers are yet to announce any 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 $5,000 to university and state agency workers and $2,000 to public officials in the election year school teacher had raised.

Those pay hikes led to a sharp increase in spending, with this year’s budget increasing 11% from the original plan for 2022.

Georgia will spend $30.2 billion in state revenue and $57.9 billion in total. This money will 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 freeways and care for more than 200,000 people who are mentally ill, developmentally disabled, or addicted to drugs or alcohol are .

The federal health insurance program, Medicaid, is likely to require higher spending. Increased federal payments will begin to fall starting March 31, costing Georgia hundreds of millions. Also, after a pandemic period in which everyone was allowed to stay on Medicaid, the state may need to set aside money to verify each recipient’s eligibility.

Kemp wants to dig up the surplus for three large items. First, it replaces revenue Georgia hasn’t collected on gasoline and diesel taxes since March. The state will resume taxing gasoline at 29.1 cents a gallon and diesel at 32.6 cents a gallon next week. That money goes toward transportation, and Kemp plans to make up for lost revenue with $1.7 billion or more of the surplus.

The governor also plans to issue another round of state income tax refunds, like last year’s $1.1 billion payments. These payments brought in $500 for dual-income households, $375 for singles with dependents, and $250 for singles.

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

But that’s far from using up the surplus. Lawmakers could put more money into Georgia’s rainy day fund, but only if they change the law and cap it at 15% of tax revenue. The fund is currently filled to its limit of $5.24 billion.

You could also just leave the money where it is as some kind of informal additional rainy day fund. That could even out any bumps in a state income tax cut starting Jan. 1, 2024, which will cut Georgia’s revenue by $450 million in the first year. Budget writers must take this into account in the 2024 budget from July 1st.

Tillery and the new chairman of the House Appropriations Committee, Matt Hatchett, a Dublin Republican, are also considering whether the state should pay down debt.

A discussion of government liabilities during budget hearings will include Georgia’s $11.6 billion in debt, the $11 billion Georgia needs to pay for future pension benefits, and the $10 billion in post-retirement health care benefits owed on retirement.

“I think you’ll find that the existing liabilities would wipe out more than our unallocated surplus,” Tillery said.

Kemp and lawmakers will also have to make decisions about ongoing spending. Many economists are predicting a recession in 2023, and Tillery and others fear unemployment could rise.

“There will at least be tremors that we’ll feel, too,” Tillery said. “You can see that in our income. We’ve been gangbusters – increasing month by month, year by year – that are now starting to plateau.”

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

Through November, government revenue is 6.2% ahead of forecasts, a surplus of more than $800 million. Individual income taxes are 12.4% ahead of forecast, while sales taxes are 12.7% ahead of forecast. In addition, the collection of the gas tax will be resumed.

“I would predict that barring some kind of calamity or a really big increase in spending, we’re on our way to another multi-billion dollar surplus in 2023,” Kanso said.

One area Kanso is putting in the spotlight is the state government workforce, which is inflicting bleeding on employees, making it harder to maintain current levels of service.

A recent report shows that employee turnover hit an all-time high of 23% even as pay rises began last spring. The state cannot hire enough new workers to replace those who are leaving. Kanso said Georgia should spend money to raise salaries and hire more workers in critical areas, including mental health, “to address these labor shortages and challenges in a really conscious way.”