Georgia’s Record $5B Budget Surplus Sets Up High Stakes Legislative Session

Illustration by Brittney Phan

The Gist

While Georgians' pocketbooks might be hurting from sky-high inflation and ripple effects of the Covid-19 pandemic, those same factors combined with the state’s conservative fiscal policy and a hot economy have given the Peach State an unprecedented multi-billion dollar budget surplus. How this money will be spent is a question voters will decide in November when they pick their governor and a new legislature.

What’s Happening

Georgia’s constitution requires the state to have a balanced budget, so budget surpluses aren’t new, or particularly surprising. Usually, the extra money goes into the state’s rainy day fund, officially called the Revenue Short Fall Reserve, which is capped at 15% of the state’s revenue, reported at $33.01 billion this past fiscal year.

But years of strong economic growth, a windfall of federal pandemic stimulus dollars, and increased sales tax revenue driven by inflation, among other factors, has handed Georgia’s state government an estimated $5 billion in “unobligated surplus,” money which the government can choose how to spend.  

The state has yet to officially close its books on the 2022 fiscal year, which ended June 30, so the $5 billion figure is a projection.

“It's a little bit of a perfect storm,” said Danny Kanso, a senior policy analyst with the Georgia Budget and Policy Institute (GBPI).

Click the image above to read about what $5 billion in surplus could pay for in Georgia's state budget. (Credit: Office of Gov. Brian Kemp)

Part of that storm, Kanso said, is that the governor’s office has each year predicted a much more conservative revenue estimate than what ended up happening. Last year’s unobligated surplus, the state’s first-ever, came in at nearly $2 billion. Gov. Brian Kemp handed much of that back to taxpayers as tax refunds.

Retiring State Rep. Terry England (R-Auburn) who chaired the Appropriations Committee responsible for overseeing the budget process, told State Affairs that he, too, did not expect such a large unobligated surplus.

“If you talk to 100 economists, you're gonna get 100 different ideas as to what’s going on. That's the quandary that everybody has been in for the last really three years since the start of the COVID pandemic and so [the surplus] is a little bit larger than what I was anticipating,” he said.

Why it Matters

Georgia isn’t unique in having a surplus. Nearly every state in the union has seen record green balance sheets. Nationally, state rainy day funds have grown 50%, according to a study by the Pew Charitable Trust. According to Pew’s data, Georgia is doing better than most, with enough reserves to run the state for 94 days without any new income, compared to the national median of 85 days.

But the question remains: How is the state going to spend the money? 

“We're in a position that I never in a million years would have dreamed we'd be in,” England said.

For Kanso, the state has a unique opportunity to invest in critical areas where funding is needed.

“State spending has remained pretty level, where we're still spending less per person than we were in FY 2008, before the Great Recession. So, we have deferred a lot of these hard conversations about how we improve our schools, how we improve our health care infrastructure, how we make state government more responsive and effective to the needs of Georgians,” Kanso said.

Illustration by Brittney Phan for State Affairs.

England suspects another tax refund, putting money directly into the pockets of Georgians, is likely to be considered, a proposal that Democratic gubernatorial candidate Stacey Abrams has also called for, along with continuing to suspend the state’s gas tax. Gov. Kemp has suspended the gas tax since March and can extend the pause in 30-day increments. That forgone revenue is estimated to cost the state $100 million to $200 million per month, a small dent in the massive surplus.

But where some see a unique opportunity to spend the money on priorities like staffing understaffed state agencies, raising state salaries to be in line with the labor market, and other recurring costs, others want to continue the state’s conservative fiscal policies.

Kyle Wingfield,  president of the Georgia Public Policy Foundation (GPPF), suggests the state avoid spending the surplus on recurring costs. “You don't want to get into spending money in future years because you had money to spend this year,” he said, adding that the state should use the extra money on “one-time” expenses: Upgrading a prison, fixing a road, or paying out a one-time tax refund. 

With many economists forecasting an impending recession, many conservatives say it would be prudent to not accept the current windfall as a “new normal.”

“If the economy is slowing down, it is possible that the fiscal year that just started, the fiscal year 2023, maybe it doesn't have a surplus at all,” said Tony West, deputy state director of Americans for Prosperity's Georgia chapter. “I think it's wise to be cautious of plans with high recurring costs if these surpluses end up being short-lived.”

What’s Next?

Ultimately, the decision on spending the money rests with the state’s leadership when the legislature reconvenes in January 2023 to pass a budget for the next fiscal year. But in the meantime, Georgians will either re-elect Gov. Kemp and other Republicans to statewide offices or elect the Democratic ticket headed by Abrams.

“This sets up to be one of the most consequential budget sessions that we've had in recent history,” said Kanso.

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Read State Affairs’ continued coverage of the budget surplus in Georgia: