The coronavirus has forced everyone to make changes, not least among them Georgia’s lawmakers and government agencies. Despite years of fiscally-sound decisions, the state’s finances were not prepared for a crisis like this. How could they be? A rapid drop in economic activity robs the state of revenue, while the government must pay more to fight the coronavirus and support its citizens.
This puts Georgia’s finances in a bind. Lacking funds, the state government will need to make some hard choices. That’s going to be hard on Georgians.
Georgia does have some things working in its favor. According to the Governor’s Budget Report for the amended fiscal year 2020 and the fiscal year 2021, Georgia had amassed over $2.8 billion in its Revenue Shortfall Reserves, a fund that the state can draw from in case of a “rainy day.” That's far more than it had before the Great Recession.
Still, it might not be enough. Kemp already spent $100 million of it in March to help Georgia fight the COVID-19 pandemic, and experts warn that it might be used up rapidly.
To make matters worse, revenue collections from income and sales taxes will also likely crash. When people are out of work, there's less income to tax, and consumers won't buy as much, hurting sales tax. The resulting lack of funds will lead to pain for Georgians as the state will have to cut spending.
Even before the state was hit hard by the coronavirus, Kemp was requiring state agencies to make deep cuts for this fiscal year. Now that the economy is in free fall, state agencies will have to make more drastic cuts.
The University System of Georgia, for example, has to reduce its budget by 14% for fiscal year 2021, which begins on July 1. This may force USG to lay off or furlough staff.
Besides universities, the state government also helps pay for childhood education, infrastructure, health care, parks, law enforcement, regulation, care for the elderly, and public health programs. The state's financial situation might affect all of these.
Unemployment is another problem. The Georgia Department of Labor reports that over 1.3 million Georgian workers have filed initial unemployment claims since mid-March. Over the previous six weeks, $388 million in regular unemployment insurance benefits had been paid, greater than the total paid in each of the past four years.
It will be hard for Georgia to solve this problem. The Georgia Constitution says the state cannot have a deficit. The state also passed a constitutional amendment in 2014 that caps its income tax rate at 6%. Even if the income tax rate were not capped, a tax increase could reduce consumption and lead to more economic harm. Thus, the state government's options are limited.
There won’t be easy answers, but the state government will have to find something. A lack of revenue will handicap Georgia’s ability to fight the coronavirus and fund important programs. If Georgia doesn’t fix its budget, then there will only be more hardship in store.