May 15, 2020

State Lawmakers Receive Update on Georgia’s
Pandemic Related Fiscal Challenges
Highlights

  • State budget strained by 36 percent drop in state revenue compared to 2019 with an additional decline anticipated in May. 

  • Georgia’s economy expected to improve in second half of 2020 though it is uncertain when it will fully return to normal.

Georgia House and Senate Appropriations Committees held a joint meeting on Thursday, May 7, the first legislative meeting since the session suspended in March. House Appropriations Chair Terry England (R-Auburn) introduced newly appointed Senate Appropriations Chair Blake Tillery (R-Vidalia). On May 1, England and Tillery, whose committees develop the state budget, along with Kelly Farr, director of the Governor’s Office of Planning and Budget, directed all state agencies to set their fiscal year 2021 budgets by cutting 14 percent from their 2020 budgets. This directive applies to all programs within the Georgia Department of Education, including the Quality Basic Education formula, the primary source of state funding for school districts. More information about the possible budget cut is available from PAGE here .

Farr and Dr. Jeffrey Dorfman, the state economist, updated committee members on the impact of the COVID-19 pandemic on Georgia’s current economic outlook and the state budget.
Sliding Consumer Confidence Reported by State Economist
Dorfman opened his remarks by highlighting the importance of strong consumer confidence in a normal economy. Consumer confidence has declined since the onset of the pandemic, dropping to 71.8 in April from 101 in February. A consumer sentiment rating below 80 is generally considered a recession. Much of the decrease in the consumer sentiment rating is attributed to the significant increase in both full and partial unemployment claims. The Georgia Department of Labor has received 1.4 million unemployment claims, including 540,000 partial claims, amounting to almost one-third of Georgia’s workforce. Dorfman’s presentation, which provides detailed information, is available here .

Dorfman indicated that the state’s sales tax collections reported in April, which reflect March collections, are 10 percent lower than in 2019. He expects that May’s sales tax report, which reflect April’s collections, will show a decline of approximately 20 percent. The accommodation industry has taken the largest hit with a 56 percent decline in sales tax collections. The general merchandise sector (50 percent decline) and the restaurant and bar sector (27 percent decline) have also experienced significant drops in sales tax collections. The online retail sector, which has experienced sales tax collection growth of 18 percent, is the only sector to increase in sales tax collections.

Noting a financial bright spot, Dorfman thanked legislators for their expedient passage of HB 276 , a bill that increases sales tax collections on internet purchases, which was signed by Gov. Brian Kemp in January . This revenue source could add $10 million or more per month to the state’s coffers.
Budget Director Details State Revenue Drop

Farr walked the committees through an update on Georgia’s revenue, which has fallen due to pandemic-triggered shutdowns. The available revenue data is based on March’s revenue, and shows that, overall, state revenue is down 36 percent, or just over $1 billion, compared to 2019. Farr said the state will not know much about April’s revenue until after Memorial Day. Individual income tax has been the hardest hit revenue source for the state, largely due to the Internal Revenue Service (IRS) moving the tax filing deadline from April 15 to July 15. Farr expressed hope that some revenue will be recouped in July. He expects May revenues to decline even further.
Presenters Answer Questions Submitted by Legislators

On May 13, the House and Senate Appropriations Committees held a second joint meeting to hear responses to questions that members of both committees submitted to Dorfman and Farr based on their May 7 presentations. Below are highlights from these questions:

Q: Do you expect third and fourth quarter revenues to pick up and return to near normal?

A (Dorfman): The third quarter is likely to be a pretty bad revenue projection, probably 10 percent below original projections. The fourth quarter may see more returning to normal. As the economy reopens, we will see improvement, and I think we are near the bottom right now. It will take a while to get back to normal.

Q: Is the executive branch engaging in conversations with Congress?

A (Farr): Yes, the governor has and continues to have conversations with Congress and encourages legislators to do the same.

Q: If the state is now reopening, why is a 14 percent (budget) reduction needed when we have another month and a half to normalize?

A (Farr): The 14 percent cuts for agencies is intended to get agencies prepared for any level of cuts that may be necessary. Once (revenue) estimates are updated around June 1, then the legislature can determine the actual cut needed.

Q: What (revenue) decline can be attributed to the income tax filing deadline shift?

A (Dorfman): Our best estimate now is that $1.35 billion in tax revenue has been delayed by the deferral. We should recoup $1 to $1.5 billion of this revenue.

Q: What is the estimated impact on revenue for increasing taxes on cigarettes or other similar items?

A (Dorfman): It depends on how much the tax rate is raised on cigarettes or other items. If the legislature proposes any changes, I and the Governor’s Office of Planning and Budget stand ready to help analyze how much money could be raised.

Josh Stephens
Legislative Affairs Specialist