Kyle Wingfield: During sunny times, Georgia must prepare for rainy days ahead

Kyle Wingfield

Brian Kemp takes office this week as Georgia's 83rd governor, and the difference in atmosphere compared to his predecessor’s inauguration could hardly be greater.

Nor could the difference in the challenges presented to each.

Eight years ago, Nathan Deal entered the governor’s mansion amid a battered economy and reeling state revenues. Jaded Gold Dome observers may roll their eyes when lawmakers list a balanced budget among their accomplishments for the year, but it’s no mean feat when the coffers are depleted.

Circumstances are much improved today. The state’s unemployment rate of 3.5 percent in November (the most recent data reported) was one-third of the 10.5 percent rate when Deal took office in January 2011. Almost 750,000 more Georgians are working. All of that translates into steadily rising state revenues: The first half of this budget year saw a 4.6 percent revenue increase over the same period a year earlier, in line with recent annual gains.

The good times, however, won’t roll forever. If the U.S. economic expansion lasts until June, it’ll complete a whole decade of growth. That growth has been subpar at times, and below the historical trend overall, but growing is better than shrinking.

Care to guess how many times, since records began in the mid-19th century, America has gone more than 120 months — exactly 10 years — without a recession?

Zero.

It is thus quite unlikely Kemp can make it through one term, much less two, without a recession.

Deal’s great challenge was to avoid the twin temptations of raising taxes amid a weak recovery and then raising spending rapidly as growth improved. For the most part, Deal’s budgets heeded the third pillar of Georgia’s motto: moderation. He leaves Kemp about $2.5 billion in reserves, or not quite 10 percent of a full year’s state budget.

Kemp’s biggest challenge may be to prepare for the inevitable downturn.

That means ignoring the rising cries to spend away those reserves Deal built. The proverbial “rainy day” may be just around the corner.

It means avoiding any large, new, ongoing commitments for state tax dollars. Beware price tags of “only” a few million here, or a couple of hundred million — or more — there. Numbers that seem manageable today may prove overwhelming quite soon.

It means continuing to adjust the state tax code to ensure it’s not only balanced and competitive, but resilient as well. In the 2001 budget year, the individual and corporate income taxes netted about 57 percent more revenue than the state sales and use tax. This year, the difference is projected to be 115 percent — a full doubling of that gap. That not only reflects a narrowing of the sales-tax base, but a troubling dependence on the more-volatile income tax. Left unaddressed, that combination could come back to bite Georgia during the next recession.

It means sticking with money-saving reforms such as Deal’s smart-on-crime overhaul of Georgia’s justice system. Changes to help nonviolent drug offenders get treatment rather than prison time, among other reforms, have spared Georgia the cost of building new prisons. They’ve also ensured more people are productive taxpayers, rather than incarcerated drains on other taxpayers.

It also means updating state spending on big-ticket items like pensions and health care. A mediocre year for stock markets in 2018 put a crimp on pension-fund investments; a deeper dip could force taxpayers to cough up even more to meet Georgia’s obligations to retirees. Better to make small structural changes now to ensure those obligations are met, rather than larger, more painful changes in the future. Likewise, this is a good time to bring state health spending in line with that of private employers.

Georgia has shown wisdom — another word from the state motto — in its fiscal management during the good times. There’s more to be done before harder days arrive.

Dalton native Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation (www.georgiapolicy.org).

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