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More budget issues await
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Last week this column started a look at the budget issues and needs facing the governor and the Legislature when the 2013 session convenes. They are considerable.  Part I examined the largest single issue: a $400 million shortfall in the state’s Medicaid program. This is not reflecting any expansion, just meeting current obligations of this entitlement program. The hospital provider fee is included and if not passed, would increase state funds needed to fill the Medicaid hole by at least $150 million.

This week is a discussion of the other budget issues and some sense of where the funds may come from to fill these holes. If the state was growing at a 6 percent rate, just revenue growth would meet these budget needs.

Unfortunately, after five months, not only are state revenues not meeting the FY13 estimate of 5 percent, but the current growth rate is only about 3.7 percent and falls under 3 percent when the growth of corporate income tax collections, a volatile category, is taken into account.

Education enrollment growth, retirement funds and SHBP highlight balance of FY14 issues

K-12 education
FY14 – enrollment/formula growth: $200 million
K-12 education will require approximately $130 million to cover enrollment growth, according to the latest projections. This is a jump over the $100 million we had come to expect. Step increases for teachers will probably require between $50 and $60 million in additional funds. The remainder will go towards complying with the charter school amendment passed in November. The underlying law required the state to match a certain level of local funds lost to charter schools.

Higher education
FY14 - formula growth: $100 million
Technical schools are not anticipated to need additional funding due to flat enrollment growth in FY14.  But the university system, due to enrollment growth, health insurance costs and maintenance, needs approximately $100 million.

This is a tricky area when it comes to the budget. The university system is seen as an economic development engine for the state and is often a reason that businesses relocate to the state.  The university system did not receive growth funding two years ago but did a year ago.

Other areas
FY14 hole - retirement, mental health, SHBP: $200 million
Employee retirement obligations due to increasing number of retirees, a shrinking state work force to contribute to the retirement system and wavering stock market performance will require over $150 million to be added to the budget to beef up retirement funds. Our continuing settlement agreement with the U.S. Department of Justice in the area of mental health will also require additional funds.

How to meet the shortfall
According to projections given to bond rating agencies, Georgia is expecting $600 million or 3.5 percent tax revenue growth in FY14 over FY13. The remainder of the deficit will have to be covered by agency cuts.

We discussed the Medicaid reductions earlier in the column. The QBE formula and equalization funds are off the table in terms of cuts to the base. The majority of funds going to K-12 education go to fund teachers’ salaries. In fact, 37 percent of the entire $19.3 billion state funds budget goes toward teachers’ salaries.

The primary tactic that Georgia will have to cover the remaining deficit is through agency cuts. The governor has called for 3 percent reductions in the FY14 general as well. With the exclusions he outlined, this will only generate approximately $300 million for the general budget. Medicaid has offered up $100 million in cuts; higher education, $64 million; corrections and public safety agencies, $52 million and all other state agencies, $77 million.

I may be reached at
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(404) 657-7094 (fax)
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