A “perfect storm” of deepening economic problems dropped FY2008 state revenues into negative territory for the first time in five years as June figures ended the fiscal year. While it was apparent the past few months that the state would not make the revenue growth estimate and that dipping into the reserves would be necessary, the June revenues were a negative $168 million in what was expected by many to be a positive revenue month.
Georgia will be forced to draw down reserves of $590 million out of the $1.5 billion total to balance the books for FY08.
There are two positive things you can say about this result:
1. Georgia, unlike the federal government, must balance its books yearly and cannot just continue spending or printing money. So the state faces its problems straight up and takes the action necessary to balance its budget.
2. Due to the foresight of Gov. Sonny Perdue and the legislative leadership, Georgia has a robust revenue shortfall reserve and the $590 million will not present a problem.
Bonus positive note — at least the Legislature did not listen last session to those who proposed huge tax cuts funded out of the reserve fund.
This week and next we will discuss some of the problems the FY08 shortfall creates in the 2009 budget which just began in July.
June revenue report
June revenues were down from June 2007 by $168 million. The general budget was actually down more than that when you consider fuel taxes boosted the overall total by $35 million. These funds are not in the general fund so the actual deficit was over $200 million as far as state general funds are concerned.
For the first time, it seems, individual income taxes did not drive the month’s revenue. A small increase of 1.7 percent was recorded in that area, but the $13 million gain was washed away by the negative $97 million reduction in sales tax revenues.
Additionally, the other oddity was that the 15 percent of the budget made up of other revenues including corporate income taxes, tobacco taxes, alcohol taxes and motor vehicle fees, combined for a negative total of some $82 million to increase substantially the deficit for the month.
So FY08 went out with a whimper ($1.68 billion in total revenues) compared to 2007 when the fiscal year closed with a huge month of almost $1.8 billion in revenues.
FY08 revenue report
FY08 total revenues showed a drop of $189,975 over 2007. It is actually worse because the negative figure would be increased by motor fuel taxes increase of $72 million included in the general funds total. If the governor’s revenue estimate had been met, total revenues would have shown an increase of $703,147,357. And this was after a $245 million reduction in the revenue estimate during the 2007 session.
Personal income taxes were up only marginally at 0.3 percent, or only $24 million. Every other revenue category was negative for the year. For example, sales taxes were down by $134,652 when the payout to local governments was calculated.
Incidentally, local governments are the beneficiary of rising food prices. The 3 percent sales tax that the state collects and distributes to local governments rose by $74 million in FY08 and much of that had to have been tied to food sales tax collection. Food sales tax collections increased by 4.3 percent in 2007 — the only category in sales tax to increase besides utilities. So local governments gained as the 3 percent was applied to higher food prices.
Other sales tax categories showed decreases over 2007 including automotive at 0.7 percent, home furnishings at 1 percent, lumber at 13.4 percent and manufacturing at 2.7 percent. Recent years had shown high single digit increases in these categories.
Corporate income taxes, a growing category in the past few years, slumped to a decrease of $76 million, or -7.5 percent. This total of only $943 million slipped below the $1 billion total in 2007.
Tobacco and alcohol taxes also showed decreases for the year
Fuel taxes reflected decreasing tax collections for the excise tax on per gallon sales, going down by -4.1 percent, or -$20 million for the year. As the price for fuel rose, the sales tax, now capped, rose also. This amounted to a $92 million increase over 2007 for a net total going to the roads and bridges budget of $72 million or $1.01 billion for the year.
So the 2009 fiscal year has begun with the state in an unenviable position. If the 2009 budget were being written today, there would be no new funds appropriated and the budget would be at best flat. But the 2009 budget actually contains expected new funds that will likely not be there, and because we did not meet the 2008 revenue estimate, we start the year in the hole, so to speak.
Next week, we will discuss the depth of the problem and options that the state is facing.
But one thing is clear, it will be necessary to make some difficult and possibly painful decisions over the next 12 months lacking a miraculous recovery.
