Georgia's sitting on a big rainy day fund, with few clouds in the financial forecast

The next governor of Georgia will inherit a much more comfortable budget than outgoing Republican Gov. Nathan Deal did, and there’s talk that the new federal tax laws will make state budget-writers yet more comfortable — at least for a while.

In an ornate state Capitol room on Tuesday, lawmakers sat at the desks and lobbyists lined the walls on the first day of budget hearings.

Deal presented his first budget in 2011, when the state’s rainy day fund was drained from spending to cover the recession years. For much of his final budget presentation, on a proposed $26 billion in spending for the year beginning in July, he reviewed the road behind him.

While the state has had solid growth over the last seven years, he said, it’s also had steep obligations it’s had to meet that have taken the majority of new revenue. Those are things the state has to fund and that grow as the population gets bigger, such as K-12 schools and Medicaid, health insurance for low-income people.

State spending per Georgian has recovered since the depths of the recession, but isn’t as high as it was in the early 2000s, adjusted for inflation.

“We’ve tried be strategic to use our remaining funds to make significant long-term investments in the overall well-being of the state and its citizens,” Deal said.

In the past few years, some of those new spends from the state's main bank account have included raises for some state staff and money to deepen the harbor at Savannah. And money for what are called “accountability courts.” Those courts channel certain nonviolent offenders into rehabilitation rather than what could be expensive and counterproductive prison sentences. They’ve been part of a long list of criminal justice reform bills Deal and the Legislature have approved.

Though, Georgia’s spending plans have had their critics. Democrats regularly call for more spending on K-12 schools to make up fully for cuts during the recession. And they want to expand Medicaid coverage to more Georgians.

So, under Deal’s fairly conservative watch, the state’s rainy day fund has grown to $2.3 billion. Now the question is when might it get tapped again.

Ken Heaghney looked into Georgia’s near fiscal future — about 18 months — for lawmakers, as part of budget hearings. Heaghney, the state fiscal economist, told the audience that the economy is near full employment, consumer spending is solid, a housing recovery is continuing and inflation is below target.

“What we don’t see in the economy is any real signs of bubbles or imbalances or that would say the economy is about to enter into a recession,” he said.

For about the next 18 months, he’s expecting solid growth. Though he said there are two things he’s watching: interest rates and the new federal tax law.

If interest rates go up and it’s costlier to borrow money, it could slow sales of houses and cars.

But he thinks the new tax-cutting law, which President Donald Trump signed in December, has some upside potential.

“I think there’s the possibility that would boost growth especially in the near term,” Heaghney said.

State Rep. Terry England, R-Auburn, has overseen the state House’s budgeting process as chair of the Appropriations Committee for seven years.

England said about a month or two ago he might have expected to be in a recession by maybe late 2019. But the tax bill changed his point of view.

He pointed to news like Apple’s announcement that it would repatriate more than $200 billion it’s holding overseas, under a provision of the tax bill. And that Walmart and AT&T, citing tax savings, were giving employee bonuses.

“There are some strong things that point to the federal tax bill considerably bumping whenever the next recession comes, if everything continues to play out the way it looks like it’s playing out.”

He said the only thing that gives him hesitation is wondering if there will be a stock market crash. But even if there is, he thinks momentum from the tax bill may soften any damage a crash would do.

So for now, the mood that will be passed to next year’s budget writers is optimism.

Budget hearings will continue in the coming weeks.

This story was originally published January 19, 2018 at 8:49 AM with the headline "Georgia's sitting on a big rainy day fund, with few clouds in the financial forecast."