A Georgia Budget and Policy Institute Commentary By Alan Essig Executive Director

Putting politics and personalities aside, the actions of both the Legislature and the Governor over the past several months raise serious fiscal policy questions: Will there be any surplus money to increase the reserves and fund next year’s education enrollment growth? Does the state have a fiscal plan? While several policy missteps led to the current turmoil and concerns, one significant policy solution by the Governor can bring us back to the fiscally responsible path.

The first misstep occurred when the Governor raised the revenue estimate for the current fiscal year. The original FY 2007 budget was based on 1.8 percent growth in general revenues over the FY 2006 actual revenue collections. In January, the Governor increased the projected FY 2007 revenue growth to 5.1 percent. Revenues have only increased by 4.7 percent in the first nine months of the fiscal year.

While this optimistic revenue estimate could put a strain on meeting the budget this year, it is more problematic in policy terms because of its effects on the broader fiscal plan of the state. The Governor’s revenue estimate must account for a planned surplus to fund school enrollment growth in next year’s FY 2008 budget. That is, the Governor needs to be conservative in how high he sets the revenue estimate so that there are “extra” revenues left over to spend on next year’s enrollment growth. The reality is that revenues actually need to grow closer to 6.1 percent in order to fully fund the FY 2007 budget and generate a surplus to fund next year’s school enrollment growth ($180 million).

In addition, a revenue estimate should account for increasing the Revenue Shortfall Reserve (RSR), which is the state savings account. The RSR needs an additional $1 billion to be fully funded. The Governor should be setting a goal of increasing the RSR by a minimum of $200 million a year to prepare us for the next recession. To reach such a goal the Governor would need to set a revenue estimate that plans for a surplus of $380 million ($180 million for the education mid-term adjustment and $200 million for reserves). The Governor’s current revenue estimate does not account for such a planned surplus.

The Governor wasn’t alone in swerving from the path of good policy, though. Faced with an impasse on what to fund in the supplemental budget, the Legislature spent $142 million on a one-time property tax cut. Again, the “extra” money was not focused on a sound fiscal plan of increasing the reserves and funding enrollment growth. The Legislature irresponsibly funded a tax cut for political reasons, while knowingly under-funding next year’s education mid-term adjustment and not planning to increase the Revenue Shortfall Reserve.

While the policy missteps were glaring, the Governor’s veto of the supplemental budget gives the Governor and General Assembly the opportunity to fix a fiscally unsound budget. The Governor should establish a state fiscal plan that fully funds the education mid-term adjustment and increases the RSR through planning for a surplus. The Governor should lower the FY 2007 revenue estimate, which would eliminate the revenues available for the tax cut and channel any surplus funds to reserves and education growth. The General Assembly would then be in a position to pass an FY 2007 Amended Budget that is both responsible and fiscally conservative. There is still time to place sound policy over political pandering.

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