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Hill calls revenue slump ‘mystifying’
Runs counter to state’s economic good news
hill
Sen. Jack Hill, right, chats with Kiwanis Club of Statesboro members Carlos Brown, center, and George Sterling after speaking to the club during a recent meeting. - photo by AL HACKLE/Staff

Georgia’s state revenues through the first five months of the fiscal year trailed budget projections by more than $300 million, and the cause of the revenue slowdown remains undetermined, Sen. Jack Hill,  chair of the state Senate Appropriations Committee, cautions in recent remarks.

One place he reported this was to the Kiwanis Club of Statesboro, as guest speaker at its Dec. 12 lunch meeting. Hill, R-Reidsville, has represented the 4th District since 1991. His “Notes from the Senate” column also appears in the Statesboro Herald each Tuesday and has included related information.

“For some reason, in Georgia our revenues have been flat or even a little negative for the first five months of this fiscal year,” he told the Kiwanis Club. “They’re actually down. We’re used to growing beyond our revenue estimate every month. Well, we have a completely opposite problem today.”

The state’s fiscal year 2020 budget totals $27.5 billion. During those five months, July through November, the state collected $9.62 billion, but during the same five months a year ago, the total was $9.65 billion. The $33.5 million difference so far amounts to a 0.3% decline in revenue, which sounds small, but lawmakers had budgeted based on a projected 3% increase.

 

Despite good news

“What’s perplexing about the problem with the declining revenues is that it defies what we physically see in the state economy,” Hill said. “Our unemployment is at a historically low rate. The job creation continues to be very productive; job creation in our area is still doing very well. Personal income growth has been very good compared to previous years as well.”

But the state income tax, which provides about half of the state government’s revenue, sales tax, which provides about a third of the revenue, and the title ad valorem tax on vehicles, which the state shares with the counties , were all either flat or slightly negative for several months.

Income tax revenue dropped almost 1%. Sales taxes, which had also been coming lower than the previous year, were back in positive territory in November, with 2.1% year-to-date growth, Hill reported. However, he noted that sales taxes had previously grown at about double that rate.

“It’s just mystifying, to tell you the truth,” he said.

Even Georgia’s motor fuel tax, changed a few years ago to an excise tax so that it is based on gallons instead of the sales price, has been down about 0.5%.

“This is serious business,” Hill said. “We passed a budget last March with about 3 percent growth built into it, and that’s a very conservative growth in our budget in this day and age in a state that’s growing over a hundred thousand people a year.”

So, just to meet budgeted spending, the state needed to bring in about $70 million more each month, beginning in July, than in the same months of calendar year 2018, he said.

“Today, after five months, as I’ve said, we’re about $350 million to date under budget. …,” Hill said. “We’ve already spent that money.”

 

What’s the problem?

“There are obviously some weaknesses in our state economy that we don’t really recognize yet, but there are so many positives that you just can’t say that we’re headed for a recession,” Hill said.

A windfall in state revenues expected after a cut in federal income taxes two years ago has not materialized. The state government cut its own income tax rates in expectation, and that cut cost about $500 million, Hill noted.

The top rate was trimmed from 6% down to 5.75% effective last January, and lawmakers are slated to action during the 2020 session to lower it further, to 5.5%.

However, tax accountants in Hill’s district tell him that people generally are paying a little more in state income tax now and less in federal tax. So, the accountants believe a bump in the state revenue is still coming, he added.

But volatility in state revenues started occurring before January and is not explained by the first phase of the state income tax cut, Hill said.

Gov. Brian Kemp directed state agencies in August to find cuts of 4% in their spending this fiscal year and another 6% for next fiscal year, but this is offset by planned new  spending in other areas, such as teacher raises.

 

Tax credits’ effects

“One of the things that I’ve been talking about a little bit is the growth in tax credits that we’ve granted to different individuals and businesses as a state,” Hill said, “and we’re beginning to look at that information to see how these tax credits are growing as the years go by.”

In 2010, Georgia lawmakers enacted a senior citizens’ state income tax exclusion, exempting the first $65,000 earned income for individuals age 65 and above. For senior married couples, the exemption is available to both spouses.

Projected to cost about $150 million in a 2010 fiscal note, this exclusion now exempts almost $1 billion in tax annually, and the state’s population continues to age, he noted.

“The Film Tax Credit, which I think has been very successful in Georgia – it’s caused a tremendous amount of investment  in movie studios, it’s a great deal for them and I believe overall a good deal for the state – that has grown to almost half a billion in cost per year,” Hill added.

The cost is projected at $474 million for the coming year, after increasing about 10% in the past year.

 

Needs a bounce

“In this week’s column I say – and it’s not entirely in gest – that all we need are a couple of $300 million gain months and then another $100 million gain month out of the last seven and we’ll be fine,”  Hill said. “And maybe we’ll get it. I don’t know.”

Last fiscal year, he observed, the revenue surged about half a billion dollars in April.

“The problem, though, is we’re going to be in Atlanta in January, February and March writing a budget, sitting there with a deficit in our revenues,” Hill said.

In follow-up conversations, he said he does not want to sound negative about the economy and is not opposed to tax credits or a further income tax cut, but believes the Legislature must proceed cautiously.

“Caution ought to be the byword right now,” Hill said Tuesday.

 

Herald reporter Al Hackle may be reached at (912) 489-9458.

 

 

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