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November 7--  State Senator Jack Hill of Reidsville discusses the state's budget in this edition of "News From the Senate."

 

ADDITIONAL FY 2013 BUDGET CHALLENGES-UNKNOWNS AHEAD

Amid the good news of a highly successful bond issue last week, the State of Georgia faces budgetary challenges nearing $1 billion but beyond that are unknowns affecting the state that may be impossible to plan for.

 

This column noted previously that the state was poised to issue bonds during a period of historic lows in interest rates enhanced by the state's retention of its AAA bond rating.  The sale of $247 million in general obligation bonds last week and the refinancing of $153.8 million in outstanding debt were sold at historically low rates. 

 

In the General Obligation bonds sold, 5 year bonds brought record lows of 0.85% and 20 year bonds were sold at a low 3.13 %.  The refinanced debt was sold at 2.34% generating some $13.3 million in savings for the state.

 

Not to beat a dead or even a live horse, the point brought out in this column recently about this being an opportune time for the state to invest in infrastructure due to low borrowing costs and cheap construction costs seems to be borne out by the bond interest rates just received.

 

The bond underwriters noted Georgia's AAA rating was due to the state's "history of making difficult decisions, mainly through expenditure reductions, to restore fiscal balance and strong oversight" and the rebuilding of the states Revenue Shortfall Reserve.

 

The underwriters praise Georgia's governmental framework and ability to respond to contingencies giving the state its highest rating in those areas.  Management of the states' finances receives a "strong" rating, again the highest rating by agencies.

 

UNKNOWNS CLOUD THE HORIZON

For the last two weeks, this column has outlined the challenges faced by the state in FY012 even as moderate growth has returned to revenue collections. These challenges, adjusted for updates are as follows:

 

Medicaid/PeachCare Growth                                   $130 million

State Health Benefit Plan Shortfall (DCH)                 $55.1 million

Previously "shorted" Medicaid funds                         $77.0 million

CMO Payment shift (DCH)                                      $82.1 million

FMAP State Match Increase (DCH)                        $47.1 million

Retirement Plans Contributions (ERS, TRS, PSES)   $170 million

Behavioral Health/DOJ Settlement                            $65.5 million

Ad Valorem Tax elimination step and increase

in Senior Income Tax exclusion step                          $60.0 million

Growth for Regents and Technical Colleges               $140 million

K-12 Enrollment Growth (Est.)                                 $90 million

 

But beyond these challenges are unknowns for the state that have possible fiscal impact. The state recently paid out $21 million in interest on the $700 million debt due by the state to the federal Unemployment Benefit Trust Fund.   While payments must begin through the system to repay the debt, the interest payments will probably be a state obligation.

 

Possible tax reform initiatives could net a decrease in state revenues through design or by error.  For example, support for removal of the sales tax on energy in manufacturing is supported in all quarters but could go from costing $30 million in FY2013 to $78 million in FY 2014 if not offset by some revenue source.

 

FEDERAL IMPACTS

Federal debt pressures driving budget cuts will have effects on the state starting with the $11 billion that is included in the state total funds budget of $34 billion.  Cuts in Medicaid funding along with funding for departments heavily dependent on federal funds like DNR/EPD, DPS, Education, Public Health and Human Services would be seriously impaired with significant federal budget cuts.

 

A recent column here pointed out some $90 billion in federal funds that come to Georgia each year through transfer payments, contracts and federal employees' payrolls.   

Some of these sources include:

 

               Social Security Payments                                         $15 billion

               Medicare Provider Payments                                   $10 billion

               Federal Military & Civilian Retirement                     $3.8 billion

               Federal Procurement Contracts                               $11.2 billion

               Military Salaries                                                       $8.8 billion

               Civilian Salaries                                                       $4.8 billion

               Research Grants (probably incomplete)                   $1.2 billion

 

So the effects of unknown federal policies on budget cuts could have effects on Georgia's economy and on state revenues, but remain unknown as we close out 2011.

 

Additionally, the bond underwriters noted that Georgia economic recovery plans might be overly optimistic.