November 15, 2017 Bob Buschman and Maggie Reeves A Briefing on Georgia’s Budget: The Big Picture
Overview • CSLF and the Fiscal Research Center • Revenues • Budget Practices • Georgia’s Expenditures – By Policy Area and Over Time • Georgia’s Education Budget – Pre-K through High School – Higher Education 2
Revenues Georgia’s revenue recovery and structural changes. 3
Revenue Overview • Georgia’s Revenues – State revenue recovery and outlook – Economic recovery from Great Recession – Have revenues kept up? – Major revenue sources and structural changes – State fiscal health 4
Georgia Revenue Recovery and Outlook General Fund Revenues ($ millions) $30,000 Recession Periods $25,000 $23,272.94 $18,840.40 $20,000 Prerecession Peak FY2007 $14,689.00 $15,000 $10,000 $5,000 $4,010.60 $0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 State Fiscal Year Data Sources: State Accounting Office (SAO) and Governor’s Office of Planning and Budget (OPB) 5
Georgia Revenue Recovery and Outlook Real General Fund Revenues (2016 $ millions) $25,000 $22,951 $21,565 Prerecession Peak FY2007 $19,541 $20,000 $15,000 $10,000 $8,042 $5,000 $0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 State Fiscal Year Data Sources: SAO, OPB, and U.S. Bureau of Economic Analysis (BEA) 6
Have revenues kept up with growth? Real Per Capita General Fund Revenues (2016 $) $2,500 $2,333 $2,306 $2,200 $2,000 1984-2017 Average: $1,943 $1,500 $1,378 $1,000 $500 $0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 State Fiscal Year Data Sources: SAO, OPB, and BEA 7
Economic Recovery from the Great Recession Unemployment Rate* 12.0% United States 10.0% Georgia 8.0% 6.0% 4.0% 2.0% 0.0% 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Annual and 2017 YTD averages Data Sources: U.S. Bureau of Labor Statistics (BLS) 8
Economic Recovery from the Great Recession Real Per Capita Personal Income (2016 $) $60,000 $50,000 $40,000 $42,159 $40,737 Prerecession Peak 2006 $30,000 United States $24,566 $20,000 Georgia $10,000 $0 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Data Sources: BEA 9
Revenue recovery falling short? General Fund Revenues Percent of Lagged Personal Income 7% 6.36% 5.94% 6% $1.75B 5.35% 1989-2017 Average: 5.76% 5% 4.60% 4% 3% 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 State Fiscal Year Data Sources: SAO, OPB, and BEA 10
Sources of Georgia’s State Tax Revenues (FY 2017) Insurance Other Premium 4% 2% Corporate 4% TAVT 5% Motor Fuels 8% Personal Income 51% General Sales and Use 26% Data Sources: SAO 11
Revenue recovery falling short? Personal Income Tax Revenues Percent of Lagged Personal Income 4% 2.93% 2.78% 3% 2.72% 2.53% $0.2B 1989-2017 Average: 2.57% 2% Retirement income exclusion increased 4 times 1% 0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 State Fiscal Year Data Sources: SAO, OPB, and BEA 12
Revenue recovery falling short? Corporate Income Tax Revenues Percent of Lagged Personal Income 2.00% 1.50% 1.00% 0.52% 0.50% 0.29% 0.22% $0.3B 1989-2017 Average: 0.30% 0.00% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 State Fiscal Year Data Sources: SAO, OPB, and BEA 13
Revenue recovery falling short? State Sales Tax Revenues Percent of Lagged Personal Income 4% 3% State rate incr to 4% 2.44% 1.95% 1990-2017 Average: 1.89% 2% 2.02% $2.5B Food exemption phase-in 1.31% TAVT begins 1% Motor fuel tax changes 0% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 State Fiscal Year Data Sources: SAO, OPB, and BEA 14
Table 2. Georgia Sales & Use Tax Revenue Shortfall: Summary of Contributing Factors ($ millions) Est’d FY2014 Effect Legislative Actions: Replace sales tax on motor vehicles with TAVT -$536 Permanent sales tax exemptions -174 Temporary sales tax exemptions -64 Total of Legislative Actions since 2000 -$773 Household Economic Factors: Changing consumption mix toward services -$389 Growth of online sales (estimated maximum impact) -250 Higher household saving rates -28 Lower investment in new homes -32 Household Factors Total -$699 Business Economic Factors: Input materials spending $651 Input energy spending -234 Investment spending -798 Business Factors Total -$381 All Factors excl. Food -$1,853 Food -$439 Total Impact of all Factors -$2,292 Data Sources: FRC Report no. 273, Georgia’s Incredible Shrinking Sales Tax Base. 15
Not all bad news Other General Fund Revenues Percent of Lagged Personal Income 2.00% 1.50% 1.29% Motor fuel tax changes 1.18% TAVT begins $1.4B 1.00% 1989-2017 Average: 0.98% 0.50% 0.00% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 State Fiscal Year Data Sources: SAO, OPB, and BEA 16
More good news: Setting aside funds for a rainy day Revenue Shortfall Reserve Total and Percent of State Budget (right scale) $3.00 12% 9.87% $2.50 10% 8.54% 7.76% $2.00 8% Billions $1.50 6% 4.65% $1.00 4% $0.50 2% $0.00 0% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 State Fiscal Year End Data Sources: SAO, OPB, and BEA 17
Budget Practices Data from the Volcker Alliance Project 18
Budget Fo Forecasting ng C Compone nents Budget Forecasting Grade US average: B • Consensus forecasting SE average: B • Multi-year projections • Mid-year adjustments • Rationale/Methods Source: Volcker Alliance Truth and Integrity in State Budgeting, Center for State and Local Finance, University of Kentucky, and Florida International University (2017) 19
One-time Maneuvers Grade One-time e Maneu euver ers C s Compo ponen ents US average: B • Transfers, deferrals, cost shifting SE average: B • Debt or asset sales to finance recurring expenditures Source: Volcker Alliance Truth and Integrity in State Budgeting, Center for State and Local Finance, University of Kentucky, and Florida International University (2017) 20
Legacy Costs Grade Legacy Co Costs ts Co Components US average: C • Public pension and OPEB SE average: C contributions relative to actuarially determined amounts Source: Volcker Alliance Truth and Integrity in State Budgeting, Center for State and Local Finance, University of Kentucky, and Florida International University (2017) 21
Reserve Funds Grade Reser serve F e Fund unds s Compo ponents US average: B SE average: B • Rainy day fund policies • Tying deposits to revenue volatility • Rainy day/general fund balances Source: Volcker Alliance Truth and Integrity in State Budgeting, Center for State and Local Finance, University of Kentucky, and Florida International University (2017) 22
Expenditures 23
State Funds Budget FY2018 (Includes State General Fund, Motor Fuel, Lottery, Tobacco) All Other 3% Transportation 8% Debt 5% Pre K-12 Georgia’s state spending is dominated Public Safety Education and Judicial by education – both Pre-K - 12 and 40% 9% higher education. Health and Human Services Higher 21% Education 14% Source: Selected Summary Financial Information; Budget Documents (FY17 and FY18G) Inflation Index Used: Gross Domestic Product -NIPA Table 1.1.9 24
Share of Spending by Policy Area, FY2011- 18G 100% 3.8% 4.4% 4.8% 4.6% 4.4% 7.4% 7.8% 7.9% 90% 80% 70% 60% 50% 15.3% 14.3% 14.0% 13.8% 14.2% 14.0% 13.6% 13.7% 40% 30% 40.9% 20% 40.1% 39.7% 40.0% 39.1% 39.0% 39.4% 38.8% 10% 0% FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018G Pre K-12 Education Higher Education Debt Health and Human Services All Other Public Safety and Judicial Transportation Source: Selected Summary Financial Information; Budget Documents (FY17 and FY18G) Inflation Index Used: Gross Domestic Product -NIPA Table 1.1.9 25
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