Last week we outlined the growth trend that state revenues has been in the last 17 months or so but pointed out that pressing state needs would lay claim on any new funds generated this coming year plus an unknown amount. We started the list of challenges with the $400 million hole in Medicaid and State Health Insurance funding.
This week, we will complete the list.
1. Department of Community Health — Medicaid Shortfall — $345 million and State Health Benefit Plan Shortfall — $55 million (noted in previous column)
2. Retirement Systems—$170 million
3. Behavioral Health—DOJ Agreement —$66 million
4. Tax cuts — Property tax 1⁄4 mill and senior citizen income tax exclusion — $60 million
5. K-12 and Higher Education Growth—$217 million
With all the discussion of pension systems, it is important to state from the beginning that Georgia is in good shape with its pension systems. The Teachers Retirement System (TRS), Employees’ Retirement System (ERS) and Public School Employees’ Retirement System are funded above 80 percent — a level that indicates soundness. Many states are well below this.
But these systems are facing pressures that will require the addition of $170 million between the three. First, like many of our individual stock portfolios, the pension system was hurt during the stock market downturn of the past few years. Second, as the state laid off employees who were retirement age and others retired to avoid the budget reductions occurring, the system increased the number of recipients. Third, like the State Health Benefit Plan, there are fewer current employees (with lower salaries) to contribute to the systems.
All of these pressures require the state to add funding in order to meet the important Annual Required Contribution. Georgia has always met the ARC and I foresee that we will meet it this time as well.
Behavorial Health — DOJ agreement
The settlement agreement between the state and the U.S. Department of Justice requires Georgia to expand services in the area of mental health and developmental disabilities. These include staffing for mental hospitals, mobile crisis teams, supported housing, respite care among other things. As a result of this agreement, Georgia has obligated itself to additional funding of $66 million in FY13.
Tax cuts for seniors
The ad valorem tax and senior income tax exemption passed in HB1055 will also reduce revenues by $60 million as the state approaches the final $223 million revenue reduction expected by 2016. That will completely eliminate the 1⁄4 mill property tax the state receives as well as all state income taxes on senior citizens 65 and above.
In tax year 2012, each spouse will be granted a $65,000 exclusion to state income tax. This next step in the elimination of the income tax got caught up in the tax reform debate in the 2011 session and could become part of any new proposal as well.
K-12 and Higher Education
FY13 general need: $217 million
K-12 enrollment growth has not been reported yet, but we are assuming approximately $90 million in K-12 funding will be needed for FY12 and FY13.
In FY12, the state did not fund enrollment growth in Regents or technical schools. For FY13, Regents is requesting $104 million to cover a projected 3.1 percent increase in semester hours and other operational costs. An additional $7 million is being requested to fund the physician and nursing graduate expansion.
Georgia’s technical schools system, one of the fastest growing technical school systems in the country, has submitted requests for $17 million to cover enrollment growth and other operational needs in FY13.
Next week: A quick review of other issues and unknowns
I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or call toll-free at
1-800-367-3334 day or night
Reidsville office: (912) 557-3811