Is it a correction or a reckoning?

Was March the month pessimists have been warning us about?

State revenues have been on a multiyear binge, soaring in a way no one expected. After a three-month plunge when the pandemic began in 2020, revenues have increased almost every month since.

During the 2020 budget year, well underway when the pandemic hit, the state wound up taking a hit of just less than $73 million (less than 0.3%) compared to the previous year. That did represent a budget shortfall, given that spending typically grows each year. But it was far from the disaster widely anticipated when COVID-19 struck.

Since 2020, the increases have been simply staggering: more than $3.4 billion in 2021, and over $6.2 billion in 2022. That worked out to a 36% rise over just two years.

For months, officials have warned that this couldn’t last forever. For months, the data defied them.

Through February, two-thirds of the way through fiscal 2023, total collections were about $1.17 billion higher than a year earlier. Which, again, was a year that saw $6.2 billion worth of growth – and that on top of $3.4 billion growth.

The streak stopped in March, whose revenues were reported this past Friday. They declined by almost $83 million, or about 3%, compared to March 2022. Significantly, collections from the personal income tax fell by $400 million.

The question is whether this is a correction or a reckoning.

So far, the evidence points toward the former. The fall in individual tax receipts might herald the $3 billion drop in capital gains tax revenues that Kemp administration officials have been predicting in light of the stock market’s downturn starting last year. But corporate income taxes continued to flood the state’s coffers, by some $293 million more than in March 2022.

Gross sales tax receipts, reflecting the continued surge of consumer spending, were up by $76.5 million, or 6%. That’s lower than the 10% rises in January and February, but still fairly strong. Inflation nationally is beginning to moderate, albeit atop the jarring increases of 2022, so we might expect sales tax revenues to level off as well.

Motor fuel tax receipts remain in a $1.2 billion hole for the year. The tax was suspended as gas prices soared last year, going uncollected between March 18, 2022, and Jan. 11, 2023. So, we are only now reaching the point where full-month collections in 2023 are replacing full-month suspensions from 2022. At typical levels, we can expect a net increase of $400 million to $500 million from that tax alone over the rest of the fiscal year.

But let’s assume a further decline over the next three months of $3 billion – allowing for the entire expected fall in capital gains payments, plus further erosion to counteract even the renewed motor fuel levy’s collections and the seemingly indomitable Georgia consumer. The state in that case would land $2 billion below last year’s record. That would be a sharp fall in a short amount of time, yet the official revenue estimate called for a drop of almost $4.4 billion.

If things play out that way – admittedly, still a big “if” – the state would find itself with another multibillion-dollar surplus.

Now, just so there’s no misunderstanding, it’s far better to budget this way than to expect the good times to roll forever. Cautious forecasts and disciplined spending have paved the way for Georgia’s AAA bond rating and plump rainy-day fund.

Compare that to, say, California, where state officials’ profligacy turned a $100 billion surplus into a $20 billion shortfall practically overnight.

We can’t rule out further declines after June. Some people have predicted a recession for many months now, and if they keep it up then eventually they’ll be right.

But for now, looking across the entire economic landscape and trying to divine what it means for the state budget, “eventually” doesn’t appear to be around the corner.

« Previous Next »