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Problems and options for 09
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By now policy-makers and the public are both generally aware of the shortfall in the just completed fiscal year and have grasped the fact that substantial funds were used from the shortfall reserve fund to balance the state’s books at the end of June. They are also generally aware that a substantial amount remains in the fund ($902 million) as we begin the fiscal year. Citizens do understand that the economy has rapidly slowed and consequently state revenues have declined even faster and more deeply than first believed.  

So there is a feeling that revenues are flat going into this year and that the budget may have to be cut to keep expenditures on an even keel. If there is a misconception, it is the questionable belief that a combination of budget cuts that exclude education and Medicaid along with the revenue shortfall reserve fund are sufficient for the next year.

That scenario could play out exactly like the description above, but that is far from a certainty. Here are several points to ponder:

1. The trend line of revenues for the past few months is generally down and no leveling is apparent yet — meaning that we do not know if the bottom of the slide has been reached.  In 2002-03, the state went through an entire year of negative revenue figures.

2.   The 2009 budget contains about $700 million in new spending based on original adjusted year long growth rate projections. But we start the fiscal year $763 million short due to last year’s revenues not meeting the FY2008 estimate by the end of June. So, the shortfall is really the total of those figures, approaching $1.5 billion. Of course, that figure would be reduced by any positive growth in the next 12 months.

That is where we stand today. What could increase the shortfall would be on-going negative revenue collections month by month. These numbers, then, assume a flat or no growth rate in the coming year that is certainly not a sure thing.

Gov. Sonny Perdue has tasked executive branch departments to begin formalizing 3.5 percent budget cuts in the FY09 budget. But with education and Medicaid currently exempt from these reductions, these cuts will only accumulate about $250 million dollars. that is not to say that these are not substantive cuts. For example, 3.5 percent is a $40 million cut to the Department of Corrections. The Board of Regents’ 3.5 percent amounts to an $80.5 million cut.

The public should be reassured that the state has weathered stormy weather before and survived by using reserves and judiciously but fairly cutting budgets. As reported here last week, a positive is that the new fiscal year is just beginning and decisions can be made with a minimum of interruption. So here are some points to consider in the weeks ahead:

1.  The easiest cuts to be made are those cuts of new funds not yet expended. The new funding added in the 2009 budget for whatever reason are easier cuts to make than those of existing programs. Some growth areas of the 2009 budget are: DHR, $70 million plus; Department of Education, $420 plus million; Community Health, $110 million; just to name some of the top agencies in new funding.

2.  Is this a good time for a zero-based budgeting analysis of programs across state government to find non-productive or wasteful programs — and can departments be depended upon to make those objective decisions?

3. Another possible area of savings might be to delay or reduce capital outlay bonds for new construction of schools, colleges, and state buildings. While this totals over $112 million in cash, one negative impact would be the loss of stimulus to the economy from the construction expenditures.

4.  Included in the new spending is, of course, the pay raises totaling some $253 million for teachers, faculty and state employees. Of course, these funds go straight out into the community through expenditures, but, nevertheless, that is a large number included in new funding in the ’09 budget.

It is still a true statement to say, that if the ’09 budget was being written in June as North Carolina’s was, Georgia budget writers would not have included any new spending for ’09 and passed a flat budget as North Carolina did.

There is plenty of evidence, though, that Georgia will rebound strongly — just how soon is the question. The military build-up on each side of the state at Fort Stewart and at Fort Benning, the continued growth of imports and exports through the ports at Savannah and Brunswick, including millions of square feet of related warehouse space being constructed, other growth along the I-16 and I-85 corridors and of course the growth related to Kia, now at 6,000 jobs, all point to a strong recovery. But tax growth from new jobs follows along after the jobs go on-line.  
Georgians should not fear the future because this state’s best days are ahead of it, even as we ponder difficult short-term decisions.