Don’t Let Strings on Covid Cash Make Georgia Feds’ Puppet

Tuesday, March 30th, 2021

The federal money being dumped on states is already burning a hole in some pockets. And with $4.7 billion in play, it’s an awfully big hole.

The trick for Georgia’s fiscally conservative leaders is to spend it without blowing a hole in future budgets. You can land yourself in financial trouble by receiving a windfall, as too many lottery winners can attest.

The first thing everyone could do is to slow down. A lot. The money hasn’t even landed in state coffers yet, and it won’t all arrive at once when it does come; there will be at least two tranches. So there is not, as of today, any money to spend.

What’s more, state leaders don’t yet know which restrictions will accompany the money. I wrote recently that Congress included language in the bill appropriating the money that rules out using it for tax cuts, an awful bit of micromanagement if the goal really was to help boost the economy.

Since then, U.S. Treasury officials reportedly have told our state leaders that some tax cuts – such as a bill to raise Georgia’s standard deduction, and another to increase the tax credit for families who adopt foster children – are permissible. But other cuts may not be, and there may be different rules for the second tranche of money, whenever it comes. This is a moving target.

And it’s not as if the state is hurting for money at the moment. Tax revenues for the fiscal year that ends June 30 remain higher than a year ago – even looking at the months in 2019-2020 that preceded the pandemic. The budget remains leaner than before, but to a small enough degree that lawmakers can backfill it next year if they so choose.

In short, despite the “emergency” rhetoric surrounding this funding, there is no budgetary emergency in Georgia.

When the money does arrive and the rules are clear, a few guiding principles would help state leaders make the wisest decisions.

Chief among these should be not to use this one-time money to create recurring spending obligations. If your boss gives you a $1,000 bonus, you probably shouldn’t run out and buy a new car that comes with a $400-a-month payment. The extra cash might help you for a few months, but soon it will be gone. The payments won’t be.

So, sorry folks, but using this money to justify expanding Medicaid is a bad idea. Spending hundreds of millions of dollars a year in perpetuity was a bad fiscal idea without this new federal money. It will remain a bad fiscal idea when the money is gone. Just because Georgia could cover the payments for a few years – remember, the whole $4.7 billion is supposed to be spent by the end of 2024 – doesn’t make it a good fiscal idea in the meantime.

Instead, state leaders should look for one-time investments or projects that could be wholly funded now without creating future obligations.

For example, as during the previous recession, the state has run up a debt to the federal government in order to make its required unemployment-insurance payments. Paying that back, thereby expediting the job-market recovery by not burdening employers with higher taxes, is an obvious choice. (If the feds try to disallow that, as some have speculated, we should doubt their sincerity that this money was really intended to stimulate economic recovery.)

Paying down other state debts, or avoiding new ones by paying for new infrastructure projects that otherwise would have required issuing bonds, would help tidy up the state’s balance sheet and reduce the degree to which its spending crowds out private-sector investment. Either option would give a jolt to economic recovery.

The states didn’t actually need this money, on top of the billions they’d already received. But since it’s coming, they may as well use it as responsibly as possible. In Georgia, that means not using it to stimulate growth in government.


Kyle Wingfield is President and CEO of the Georgia Public Policy Foundation.

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