Gov. Sonny Perdue outlined his plan last week to meet the expected budget shortfall of $1.6 billion over the next fiscal year. In a nutshell, here is where the state finds itself: The state’s revenue shortfall reserve has shrunk to $1.1 billion less the $190 million or so midyear education adjustment expected to be needed in the amended budget next session. Growth over this fiscal year is not expected to be above last year’s total and estimates by economists range from –1 percent to –4 percent. The $1.6 billion shortfall is tied to the –1 percent estimate.
Gov. Perdue’s plan includes:
•A 6 percent, $430 million cut across the board to all state departments. Does not include the QBE education formula and the Medicaid low income insurance program. These are substantial cuts. For example, the Department of Corrections’ cut will be over $60 million. The Regents cut will be over $100 million, and the Department of Human Resources faces over $90 million in cuts.
•A 2 percent cut to the Department of Education which really only eliminates the new funds added by the Legislature — $50 million austerity cut reduction and the total increase in the equalization formula of $90 million
•A 5 percent cut to Medicaid and Peachcare insurance programs
•Deferring pay raises for state employees, totaling about $66 million
•Eliminating the $100 million that was appropriated to go into the fund allowance for retirees health insurance costs in the future (OPEB)
•Changing from cash to bonds the $40 million appropriated for reservoirs
•Utilizing the year’s appropriation for the OneGeorgia Fund of $47 million
•Tapping the reserve built up by the State Employees Health Insurance Plan of $225 million
•Withholding the $428 million designated to be paid to local governments as property tax relief for homeowners or Homeowner’s Tax Relief Grant (HTRG)
The most controversial part of the governor’s plan is the withholding of the Homeowner’s Tax Relief Grant. This grant was begun during the Barnes administration as an appropriation and was set up to be considered and funded on a year by year basis in the appropriations bill.
The way this grant works is that local governments print homeowner’s property tax bills and in some cases go ahead and mail the bills to taxpayers. They then submit to the Department of Revenue a claim for reimbursement.
This credit, an additional $8,000 homestead exemption, comes right off the homeowner’s tax bill and typically may amount to $150-$200. The press has portrayed the action by the governor as a tax increase for either the homeowners who will have to pay the grant amount or for counties if they choose to absorb the loss. Counties have, in some cases, already printed and possibly mailed the notices.
In an election year, this presents a political problem, especially in a year that House and Senate leaders really wanted to fund some sort of tax cut, so this is a double whammy. Certainly lawmakers are sensitive to the increased cost of living expenses paid for by Georgia families and removing the HRTG seems to be adding an additional burden.
When the legislature meets in January, all of the governor’s actions will have to be included and passed in the amended budget so a vote will be required. To a large degree, the Legislature will have the last say on the governor’s plan, but no easy alternatives are apparent.
Leaders are presently looking for other sources to balance the budget that would not include the HTRG reduction.
And all the while, no one knows if the slowdown has bottomed out and that answer may not be apparent for two or three months.