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Friday, November 17, 2017

NOTES FROM THE SENATE, NOVEMBER 17, 2017

OCTOBER REVENUES MARK SLOWDOWN

State revenues were negative -3.2% for October and marked the second month out of the first four months that have been negative over the same month a year ago. Total revenues were $1.711 billion and were $56.4 million less than October of 2016.

So, with one third of the fiscal year behind us, year to date revenues are only growing at a 1.6% rate. This has repercussions. For the first time in recent memory, state revenues are not keeping up with the amount budgeted. Another way of saying this is that the state is behind budget by some $54.3 million. In addition, the 12 month trailing average for growth has slipped to 3.4%.

INDIVIDUAL INCOME TAX NUMBERS ANEMIC

Individual Income taxes for October were negative at -2.9% with Individual Tax returns down $26.8 million and Refunds up $28.1 million. A good sign showed Withholding collections up $17.5 million. Other categories including Estimated Tax payments were up altogether $10.4 million. Corporate tax collections were also negative at -$23.5 million, as net collections for the month were basically "0".

SALES TAXES CONTINUE POSITIVE

Net Sales taxes continued growing slightly with a 3.5% increase in October. Nationally, sales tax growth is flat, so any growth is seen as a positive.

Tobacco and Alcoholic beverages collections were both down for the month at -7.8% and -2.4% respectively. Title Ad Valorem taxes/fees were down some - $11.9 million or -14.0%.

FUEL TAXES SHOW GAIN

Motor fuel excise taxes were up slightly 2.2% or $3.09 million. Impact fees were up slightly at 7.6% and Hotel/Motel fees were up 5.5%. Altogether, Transportation taxes and fees were up $3.92 million for the month.

YEAR TO DATE REVENUES CAUSE CONCERN

After a couple of rapid growth years, Georgia is seeing a slowdown in revenue growth that is following regional and national trends. After previous months of growth at 4 - 5% and up, revenues are growing at an anemic 1.6% this fiscal year. Individual Income Taxes have slowed to a 2.3% growth rate while net Sales taxes are still relative positive at 2.3%. Corporate revenues through 4 months are flat at -0.1%. Title Ad Valorem Taxes/fees are negative YTD at -8.1% or -$28.5 million. Tobacco and Alcoholic Beverages are also flat at 0.7% and 0.1% respectively.

Motor Fuel Taxes and fees are positive altogether by $16.1 million YTD.

SO, WHAT'S GOING ON WITH REVENUES?

At this point in time a year ago, the state was collecting revenues ahead of the year before by some $323 million...twice the rate of increase this fiscal year. Again, what the state has taken in so far this year does not meet the amount budgeted and being spent. Besides national trends and numbers, you just do not see any warning signals or signs in Georgia that would cause the state to be concerned about the future. Job creation and investment announcements are continuing to happen, employment markets continue to be tight so businesses are not cutting back...so what explains Georgia 's slowdown in revenue growth and what does it mean to our state in the coming budget year?

SOME REASONS FOR SLOWDOWN?

--There were two hurricanes that eventually came through Georgia, causing business and spending interruptions in September. The entire Coast was shut down for a week and tourism had to have suffered not to mention work and earnings interruptions as well. The loss of power reduced payments to utilities and in turn reduced sales tax receipts.

Dr. Rajeev Dhawan, Economist at Ga. State University released his economic forecast November 15th and touched on Georgia's employment, income and tax revenue projections. He stated "Recently, however, there has been a lot of volatility in Georgia's employment data." "Employment in Georgia's manufacturing sector had experienced moderation since the 7,800 job gains in 2016."

He also noted moderation in individual income taxes pointing out that individual income tax receipts in the first quarter were half the growth rate from 2016. On revenues, Dr. Dhawan says that since employment is moderating, and sales tax increases account for most of any gross sales tax increases, that revenues are following suit.

EFFECTS ON FY 19 STATE BUDGET

Georgia's FY 2018 budget was built on approximately 3.2% growth over Amended FY 2017 revenues. Of course state revenues could pick up as the year progresses and we get into the peak collection months of March-May, but if this slowdown is a trend that continues, the effect will be a very tight budget for FY 19. And agencies and advocacy groups expecting increases may well be disappointed as this could turn out to be a "tread water' year. There are large expenditures already predicted for FY 19 including contributions to the Teachers Retirement System, Medicaid and other formula investments like K-12 QBE funding.

THE TAX CUT EFFECT

Optimism springs eternal as we saw a year ago after the election when economists were predicting great things because a tax cut was sure to pass. Markets and other signs took off on just that premonition. Now that there are actually tax cut proposals on the table before Congress, the outlook may be a little more muddled. But, historically, the passage of tax cuts has produced a positive economic bounce. So the trends mentioned above may fall away with events in Washington taking shape over the next months.

Georgia State University's Economic Forecasting Center - http://efc.robinson.gsu.edu/

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