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Misery loves company
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As the 2008 fiscal year limped to the June 30 end, one thing is certain, the economists predicting Georgia’s growth for this fiscal year were wrong all year long and wrong as recent as March when the governor lowered the revenue estimate for FY 2009 by $245 million. The economists seemed confident the FY08 revenue growth would be within shooting distance of balancing with maybe $100 million to make up out of the reserve fund. The final FY08 figures will come out this week, but the odds are that the state will have to dip into the reserve fund for several hundred million dollars.

This continued decline in revenues — now virtually flat with no growth — means the 2009 budget could be overspent by $600 million. And that is if the bottom of the revenue slide has been reached and the state does not continue the decline into negative territory.

Based on weakening revenue forecasts, Gov. Sonny Perdue has directed state agencies to make significant budget reductions in their 2010 annual budget request submissions due this September. Additionally, the governor has asked that state agencies reduce spending in the amended fiscal year (FY) 2009 budget by 3.5 percent of the amount budgeted for FY09, that the General Assembly approved this past session. Agencies are further directed to take an additional 1⁄2 percent reduction in the FY10 general budget resulting in a 4 percent budget cut over FY09. Hopefully, this is a worst case scenario and only a combination of cuts and reserve funds would be needed.

But Georgia is not alone in having to curb spending in FY09 and FY10. States across the nation are feeling the effects of the economic slowdown. The Center for Budget and Policy Priorities in Washington, D.C., reports that 29 states and the District of Columbia are facing revenue shortfalls in FY09. They also report that three additional states will face budget shortfalls in FY10.

Of course, Georgia watches our neighbors closely for comparison, so here is a short overview:

North Carolina – Total budget – $21.4 billion
North Carolina uses a two-year budget system. Last Tuesday, the North Carolina Legislature reached an agreement on its FY08-09 budget. Although the adjustments still await the governor’s signature, the version passed by the legislature indicates rough financial times for the state.

Tax collections were $63 million short of estimates.

Florida – Total budget –- $66 billion
In June, Florida passed its budget for FY09. Overall, the budget is $4 billion less than ’08.  Florida, which does not have a personal income tax, has seen a significant downturn in general sales and corporate income taxes.

Overall, $1 billion was cut from public education.

Tuition to Florida’s public universities and community colleges will increase by 6 percent.

Spending per public school pupil will fall by $131, to $6,997. This follows a decrease of $185 per pupil in the previous budget.

The state prison system is reducing staff by 400 employees, including probation officers, prison teachers and chaplains.

Legislators have authorized the governor to utilize half of the state’s $700 million rainy day fund.

Alabama –Budget – General $11.4 billion, Education $12.66 billion (federal and state)
Although Alabama’s fiscal year does not start until Oct. 1, the state’s leaders are already preparing to deal with difficult decisions in their FY09 budget.

The director of the state’s Legislative Fiscal Office anticipates that revenues for the state’s two main funds will drop by approximately $800 million next year.

Revenues available for the state’s Education Trust Fund for public schools and colleges will drop by $574 million, which is an 8.5 percent decrease.

Revenues for the general fund will most likely have to be reduced by $232 million, which is a 12.6 percent reduction.
The director anticipates that collections of income and sales taxes to “decline sharply” next year.

In addition, the governor might have to utilize $428 million from the state’s rainy day fund to avoid current year budget cuts between now and Sept. 30. This would leave only $254 million to cover the anticipated $800 million shortfall in the next fiscal year.

Tennessee – Total budget – $13.8 billion
Tennessee is also facing difficult financial times.  The state’s finance commissioner described Memphis and Chattanooga as being some of the “hardest hit in the nation” by the sub prime mortgage crisis.  In addition, he described the state’s tax structure as being “largely consumer-based,” which will only add to the state’s troubles.

Business taxes have shrunk by 6.5 percent.

Anticipated revenues are down $494 million in FY08.

However, the state does not anticipate utilizing its $750 million rainy day fund.

The state wants to reduce its workforce by 2,000, at a cost of $50 million, and yield $64 million in annual savings which would be achieved through a buy-out.

Mississippi passed a 2009 budget with a decrease of 1 percent. Virginia amended its FY08 budget and reduced spending by 2.2 percent.  The 2008-09 budget is level with no growth.  (Probably what Georgia would do if we were drafting the FY09 budget in June/July instead of March.)

So, there are uncertain times ahead. Until the economic slide reverses itself and an upward trend is established, Gov. Perdue and the state leadership must operate on a “pay as you go” basis.