Fiscal Overview: Guide to the Issues 2020

How the state budget process works

Georgia’s fiscal year is July 1 to June 30. Each January, when the legislative session begins, the fiscal year is just over its halfway point, requiring the General Assembly to pass two budgets: an “amended” budget, which makes adjustments to the budget for the current fiscal year, and a budget for the upcoming fiscal year.

Unlike the federal government, Georgia’s Constitution mandates a balanced budget. The state also has a constitutional debt service limit of 10% of prior-year revenues.

Each year’s budget is constrained by the revenue estimate, which is set by the Governor, and the General Assembly cannot appropriate funds that exceed the revenue estimate. This is a strong executive power: Technically, the Governor could set the revenue estimate at $1 and the General Assembly could change how that dollar is allocated but could not increase the budget above $1.

Traditionally, Georgia’s governors are conservative in setting the revenue estimate. If the economy experiences an unexpected recession, a lower initial revenue estimate makes it less difficult to curtail spending. This also means actual revenues will exceed the revenue estimate in most years. The “amended” budget decides where to reduce appropriations in a recession or how to spend excess funds during a growing economy.

The state has two primary reserve funds. The Midyear Adjustment Reserve allocates funds to be appropriated in an amended budget during the next legislative session to fund the increased cost of new students enrolled in the fall.

If the economy experiences an unexpected recession, a lower initial revenue estimate makes it less difficult to curtail spending.

The Revenue Shortfall Reserve, often referred to the state’s “rainy day” fund, allocates funds to offset an unexpected shortage in revenues during the upcoming fiscal year.
At the beginning of 2020, the revenue shortfall reserve, also known as the “rainy day fund” balance, was estimated at $2.8 billion.

Where does the money go?

Chart 1.1 shows how state dollars were allocated by policy area in the Governor’s FY 2021
budget, which anticipates spending $28.1 billion in state dollars. That amount increases to $54.2 billion when it is combined with federal dollars and other revenues such as higher education tuition payments and state employee health insurance premium payments.

The U.S. Census Bureau data for FY 2017 (latest data) provide the most accurate overview of state spending because it includes all sources of revenue – federal, state and local – for all states.

Considerations When Comparing States

Some states are more decentralized, with local governments accounting for a large portion of all government spending; in others, state government plays a larger role. State spending as a percentage of total K-12 education spending, for example, ranges from 32% in New Hampshire to 90% in Vermont. For this reason, it is important to examine state spending plus local spending when comparing states.

Most state comparisons use per capita amounts, which are easy to understand but fail to take into account cost-of-living differences. A more accurate comparison is achieved by adjusting per capita amounts for cost of living or calculating amounts as a percentage of state personal income.

Revenues

Of Georgia’s $73 billion in total federal, state and local revenues, 54% is from taxes. Georgia’s state and local taxes rank 43rd highest per capita and as a percentage of personal income. (State-only taxes are $22.4 billion and rank 41st highest per capita.)

State and Local Revenues (FY 2017)

  Per CapitaRank
Taxes$38,940,992$3,74143
Federal Government$16,327,419$1,56848
Charges (Fees)$13,011,618$1,25040
Miscellaneous Revenue$4,458,754$42849
Total General Revenue$72,738,783$6,98749

 

Three major taxes make up 83% of state and local tax revenue: local property taxes, state individual income taxes, and state and local sales taxes. The eight categories in Table 1.2 account for 92% of all tax revenues.

Selected Sources of Tax Revenue (FY 2017)

  Per CapitaRank

Property

$12,089,876$1,16134
Individual Income$10,977,693$1,05527
General Sales$9,287,472$89240
Motor Fuel$1,741,092$16718
Corporate Income$971,898$9336
Motor Vehicle License$364,255$3547
Alcoholic Beverage$340,596$3313
Tobacco$220,774$2149

 

Spending

Of the $71.5 billion in total general expenditures, $63 billion goes toward annual operating expenses and $8 billion toward capital projects.

 

State and Local Expenditures (FY 2017)

  Per CapitaRank
Operating Expenditure$63,133,771$6,06550
Capital expenditure$8,419,784$80938
Total General Expenditure$71,553,555$6,87348

 

The 10 categories in Table 1.4 account for 92% of all expenditures.

Selected Expenditure Categories (FY 2017) and National Rank

  Per CapitaRank
Elementary & Secondary Education$19,868,901$1,909 

Public Welfare Payments
(Primarily Medicaid)

$12,157,978$1,168 
Higher Education
$6,013,401
$578 
Hospitals$4,776,476$459 
Highways$4,353,117$418 
Police Protection$2,729,315$262 
Health$2,286,321$220 
Other Education (Primarily Pre-K)$2,181,117$210 
Corrections$2,120,131$204 
Interest on General Debt$1,495,683$144 

The best way to evaluate spending is to look at individual policy areas. Here is a summary.

  • Pre-k education: The National Institute for Early Education Research ranks Georgia seventh in the nation in terms of access for 4-year-olds and 26th in state spending on pre-k programs.
  • K-12 education: Georgia’s state and local spending on K-12 education per capita ranks 27th and 15th as a percentage of personal income, but per-pupil spending in FY 2016 ranked 35th.
  • Higher education: Georgia offers the third highest amount of financial aid per FTE (full-time equivalent) in the nation. The average amount of 2019-20 tuition and fees for Georgia public four-year institutions ($8,720) ranks below the national average at 39th.
  • Healthcare: Georgia ranks 47th in terms of Medicaid spending per capita. Spending on hospitals ranks 25th.
  • Corrections: Georgia ranks 29th in spending on corrections, down from 17th in 2013. Georgia is a national leader in criminal justice reform. Reforms started in 2011 have saved the state more than $200 million.
  • Transportation: Georgia ranked 46th in spending on roads and bridges per capita in FY 2017 and 38th as a percentage of personal income. Georgia’s motor fuel tax was increased from 28.5 cents per gallon (20th highest) in 2013 to 35.15 cents per gallon in 2017 (17th highest).
  • Debt Service: Georgia is one of only nine states with a AAA bond rating (the highest) from all three major credit-rating services.
  • Pension unfunded liabilities: As of 2018, Georgia had $22.9 billion in unfunded public pension liabilities, giving it a funded ratio of 80.1%, ranked 18th highest by the Pew Charitable Trusts.

Spending Trends

One factor to keep in mind is that in Georgia, as in most states, spending rises during good economic times and must be ratcheted back during recessions due to balanced budget requirements. (Chart 1.6 shows dips starting in 2002 and in 2008, with increases in between.) It’s easy, but misleading, to make the case that spending is growing either too fast or too slowly by cherry-picking the right starting and ending points in the economic cycle.

A more accurate picture is achieved by looking at spending over an entire economic cycle. Finally, budget predictions can often be inaccurate because no one can perfectly predict the future. Where possible, audited, actual spending figures should be used.

It's easy, but misleading, to make the case that spending is growing either too fast or too slowly by cherry-picking the right starting and ending points in the economic cycle.

A reasonable benchmark for government growth is population and inflation. On an inflation-adjusted, per capita basis, the size of Georgia’s state government (as measured by spending) in 2016 was the same as it was in 1996.

 

There are several sources and many ways to look at state revenue and spending. Here is an overview of the various sources of data:

Comprehensive Annual Financial Report – Federal government accounting rules require every state to produce a Comprehensive Annual Financial Report (CAFR). This is the most accurate measure because it reflects audited, actual revenues and expenses and includes all state and federal funds. The latest available CAFR is for FY 2019.

Governor’s Budget – The most recent information can be found in the Governor’s Budget, published each January. It includes the Governor’s revenue estimate as well as detailed budgets for each state agency and spending over the previous three years. The most recent information is for FY 2021.

U. S. Census Bureau – The U.S. Census Bureau publishes an annual survey of federal, state and local funds for each state. The information is usually a couple of years old; the latest is for FY 2017.

Open Georgia – Open Georgia is a gateway for obtaining information and key documents about how the State of Georgia spends tax dollars and other revenues to provide services to Georgians.

Fiscal Research Center at Georgia State University publications:

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