Mike Klein Online

Budget Hearings: “Kind of Like Going to the Dentist Without an Anesthetic”

Mike Klein

Governor Nathan Deal pledged to restore revenue shortfall reserves when he addressed the Senate – House joint appropriations committee budget hearing Tuesday at the State Capitol.

Deal was followed to the podium by state fiscal economist Kenneth Heaghney who warned the weak housing sector and volatile energy prices could affect economic recovery. Heaghney predicted Georgia will not return to fiscal year 2007 revenue levels until fiscal year 2015.

State capitol budget hearings are the annual high profile grilling of agency chief executives. During light-hearted opening banter House Appropriations vice chair Terry England described the process as “kind of like going to the dentist without an anesthetic.”

Last week Deal used his Inaugural and State of the State addresses to emphasize government must spend wisely. “I campaigned as a fiscal conservative,” Deal said Tuesday morning, noting that Georgia is one eight states with a Triple A bond rating. “I intend to keep it that way.”

Revenue shortfall reserves peaked at $1.544 billion in fiscal year 2007, but the recession happened and reserves were drained to pay state bills. Just $116 million remained at the end of Fiscal 2010. State revenue improved during the past six months; it is up $590 million year-to-date.

“I do not believe we should spend additional revenue if actual collections, in fact, were good enough to exceed our estimate,” Deal said. “We must replenish the revenue shortfall reserve and hopefully that is what you will be committed with me to doing.”

Governor Nathan Deal

Last week Deal proposed an $18.162 billion budget that would be 3.75% more than this year. “I think all of you know that the greatest challenge in 2012 is going to be replacing almost a billion dollars of the federal stimulus funding that we will not have available to us,” Deal said.

The governor acknowledged last week’s unique Georgia weather — “You can’t say we didn’t get off to a memorable start in this administration” – before he recited economic indicators that Deal said show, “Businesses in Georgia are beginning to rebound from this global recession.”

First time unemployment claims are running below year-ago levels, private sector hours worked are up, individual wages and salary income have grown during the past two quarters, consumer spending is up 5% during the past six months and manufacturing expansion is occurring.

Deal said, “Our economy is not where we want it to be and it will not be there, in my opinion, until we make real sustained progress in reducing unemployment and underemployment.” State unemployment is 10.1% (higher than the national average) and Georgia lost 300,000 jobs during the recession.

The governor has used all three addresses since last week to emphasize HOPE scholarship funding must be fixed. On Tuesday, Deal said the program “is now on an unsustainable course dipping into reserves at an alarming rate. Without action HOPE will be unable to fund its obligations in fiscal 2013.”  Deal said HOPE will not be allowed to spend more than it receives from Georgia Lottery funds.

Deal’s proposed bond package includes $10 million to design a new Medicaid eligibility system that would integrate PeachCare and the current state Medicaid program. Deal said federal matching funds could be available to develop and implement the new program.

Economist Kenneth Heaghney

Heaghney, the state’s fiscal economist, followed Deal to the podium with a sober assessment: “Although we are in recovery mode, it is a long way back from where we were.” He predicted the state’s economy will continue to grow, labor markets will strengthen, consumer spending will rebound and inflation will remain relatively low.

Housing remains weak.  “We expect housing to be really at the bottom so it’s neutral in terms of growth, no longer a drag but no boost to the economy in the near term,” Heaghney said.

The Georgia State University economist said Atlanta metro home prices are falling again, construction employment remains down, foreclosures are rising and there has been no increase in new construction permits. One brighter note: Mortgage payment delinquencies are somewhat down.

One legislator asked if Georgians should expect gasoline to cost $4 per gallon. “We’re not projecting $4 (per gallon) gasoline in the next year,” Heaghney said. “The assumption is that energy prices, gasoline in particular, will rise about 3% per year on average. If we do have a rapid run-up, essentially a 30% or more increase, that would have negative effects.”

During Tuesday afternoon presentations University System Chancellor Errol Davis predicted higher education budget cuts could result in tuition tax hikes for students this fall.  This was the final presentation to the committee for Davis who who will retire this year.  Governor Deal’s proposed budget would trim $118 million from higher education, leaving it with $1.723 billion.

Newly elected state Schools Superintendent John Barge made his first presentation.  Barge warned the state’s more rigorous mathematics curriculum could result in lower high school graduation rates. This spring the Department of Education said the state achieved an 80% graduation rate.

Budget hearings continue Wednesday and Thursday.

Mike Klein is Editor at the Georgia Public Policy Foundation.

January 18, 2011 - Posted by | Uncategorized | , , , ,

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