Charlie Harper: State Tax Revenues Strong In March; Cuts Likely Needed In Future

Charlie Harper

Thursday, April 9th, 2020

There was good news coming out of the state capitol this week as Governor Kemp announced state revenues for March were up 9.8% compared with March of 2019.  For the first nine months of the state’s fiscal year which began on July 1st, revenues are up year over year by 2.1%.

It’s safe to assume that good news with respect to the state’s budget picture will end here, at least briefly.  Tax receipts are a lagging indicator, meaning they are economic statistics that tell us more about what has already happened, rather than what is about to happen.

It should be noted, at a minimum, that Georgia’s economy entered the Coronavirus shut down on strong footing.  A study published by WalletHub found Georgia ranked as the state least exposed to Coronavirus from an economic standpoint.

With the state under a shelter in place order and much of the economy at a standstill, tax receipts for April are expected to nosedive.  Whether this is a short term blip or longer and deep recession will be determined by how long the threat of pandemic spread remains, and how much damage is done to the wages, sales, and profits of Georgians who pay taxes in the interim.

The Georgia General Assembly passed an amended budget for FY 2020 before suspending the session for fears of contributing to community spread of Coronavirus.  Five State Senators and one State Representative were subsequently diagnosed with Covid-19.

A budget for FY 2021 must still be passed, but appropriations have been made for spending through June 30th.  The state will likely have to further rely on the State’s “rainy day fund”, which contained over $2.5 Billion dollars going into this downturn.  That’s roughly one month of state spending, which will likely be consumed, at least temporarily, as many of the mechanisms the state uses to collect revenue have been impacted by the virus.

Georgia gets almost half of its general revenue from income taxes.  With tax filing deadlines extended at the state and federal level until July, it’s reasonable to expect a falloff in some payments.  The dramatic swell of those seeking unemployment insurance further represent Georgians whose employers are no longer collecting and remitting income tax receipts.

Most of the state’s retailers are closed along with dine-in restaurants, movie theaters, theme parks, bowling alleys, and sporting events.  All of these shuttered businesses represent not only the loss of income for their owners and employees, but the sales tax revenue they contribute to the state and local governments. 

Georgians are driving a lot less.  This benefit of eliminating traffic jams is somewhat offset by the state motor fuels taxes that won’t be collected on gasoline not used.  This won’t affect the state’s general budget, but could delay current and future road and bridge projects from the Georgia Department of Transportation.

Sales tax revenues make up about 25% of the state’s general revenues.  It should be noted that the apparent shift from restaurant spending to grocery store spending will also dent tax receipts, as Georgia does not tax the sale of unprepared food sold in grocery stores.

While local governments will also face belt tightening, they have the benefit of having a significant base generated from property taxes.  Providing there is no deterioration in property values, their main concern will be restoring sales activities that fund local sales taxes.

Larger cities that rely on hotel-motel taxes, rental car taxes, or tourism will feel fiscal effects of the downturn more than others.  Business travel is now almost non-existent, and vacation travel continues to be curtailed.

The result is that Georgia is a state that entered this unexpected downturn better prepared for most, but still likely to see cuts in state spending starting in July.  The magnitude of these still can’t be quantified, as the full impact of the shutdown on the state’s economy, nor the amount of promised federal rescue money, are known at this time.

Link to WalletHub study for those who embed links online: