“If something cannot go on forever,” the economist Herb Stein once said, “it will stop.”
This common-sense observation is nonetheless hard for some people to heed. Never more so than when they’re spending other people’s money.
Regular readers know that for as long as the state’s record budget surpluses have been piling up, I’ve been urging caution not only in how to use them but how long to expect them to last. It appears the party may be coming to an end sooner than many had hoped.
January revenues were just a click more than they’d been a year ago: up by 1.1%, or $32.9 million, to be exact. Matters are cheerier through the first seven months of the budget year: Total revenues are up by 5.6%, or just about $1 billion. And that, of course, is on top of the swollen revenues from a year ago that led to a surplus of more than $6 billion.
There are details within this monthly report to embolden optimists and pessimists alike. On the sunny side, corporate income tax revenues are almost double what they were a year ago, reflecting in part the still-strong state of Georgia’s producers, while consumers keep shopping and boosting sales tax revenues by double-digits. That $1 billion increase so far this year also comes despite a nearly $1.2 billion hole caused by Gov. Brian Kemp’s suspension of the motor fuel tax last year as gasoline prices surged. He lifted the suspension last month, so those funds should resume flowing into state coffers.
Then there are the clouds: Personal income taxes, the largest source of state revenues, were lower than in January 2022. Various components of those revenues (withholding payments, refunds issued, etc.) gyrated in diverging directions.
The coming months will tell an important tale, as the April tax filing deadline means annual revenues are back-loaded on the calendar.
One example of what observers will be watching for: Tax filers who enjoyed large capital gains in 2021 and paid them last year are unlikely to repeat that performance, given the stock-market slump of 2022. Jeff Dorfman, a University of Georgia professor who serves as the state’s fiscal economist, has said that alone could reduce revenues by $3 billion. We’ll begin to find out over the next few months.
Failing to plan for revenues to come back to earth has already bitten states like California, which spent heavily last year thanks to a surplus of some $100 billion – only to ride the wave down to what is shaping up as a shortfall of more than $20 billion this year.
In the most recent election campaign, voters heard from some candidates who touted big plans for Georgia’s own surplus, as if the good times would roll on forever. They wanted to use this one-time bounty to justify all manner of new, permanent government programs – or to grow existing ones, with Medicaid expansion most often mentioned.
Just three months after the election, it’s already clear that such plans would have gotten us into a budgetary jam.
The corollary to Herb Stein’s warning is the need to prepare for hard times before they arrive. Children are taught this lesson by Aesop’s fable, “The Ant and the Grasshopper”: During the days of plenty we make the decisions that will make life easier, or harder, when the lean days come.
But somewhere along the way to adulthood, some of them forget it.
Not that Georgia’s near future will necessarily be “lean.” State revenues ballooned by almost $10 billion between 2020 and 2022 – or about as much as they’d grown over the previous nine years. Current projections simply have them falling back down to the earlier trajectory of solid annual growth.
When that happens, we’ll all be grateful for our state leaders’ prudent planning and cautious handling of an unexpected windfall.
