Spending reductions, recurring budget deficits

Moderated by Rick Badie

Many states reacted to the stalled economic recovery by cutting spending and services. Citing a still-slow recovery, Gov. Nathan Deal has asked state agencies to trim another $553 million through June 2014. It marks the fifth consecutive year department heads have had to find additional savings. Are spending reductions the best strategy to address recurring budget deficits? Our guest writers weigh in.

By Alan Essig

The numbers don’t add up for Georgia. They haven’t in years and they won’t any time soon unless the state takes a new path toward economic growth and job creation.

We need a change in course because state government clings to a system built to fail.

Experts call it a “structural deficit”: Year after year, budget after budget, money coming in from revenues isn’t enough to keep pace with increasing needs in education, health care, public safety and other essential services.

So far, the way state leaders have chosen to deal with this crisis makes it worse. It’s overwhelmingly a one-dimensional approach: cut, cut, and then cut some more.

Granted, telling people the problem is caused by overspending might have appeal for politicians who don’t want to ask anyone to pay more. But the disastrous flip side is that it also means abandoning the very investments that make Georgia a great place to live, raise a family and start a business.

You don’t have to look far to see how this cuts-only approach is hurting our economic future.

A state that once prided itself on having among the smallest class sizes in the nation now has larger classes and fewer school days. This is not the way to prepare our kids to compete in the global economy.

College tuition is way up. Lots of young men and women without money are barred from higher education.

From fewer patrol officers on our highways to longer lines for driver’s licenses to burdening child protective service workers with more cases than they can reasonably handle — the impact of failing to face up to the structural deficit is felt across Georgia.

And there’s more trouble ahead.

Georgia’s still-struggling economy produces only weak state-revenue growth because people make less money and buy fewer things than before the recession hit. Hospital fees that helped balance the state budget are expiring.

Tax cuts passed during the prior legislative session continue to drain state coffers.

Meanwhile there are more students in Georgia schools and more children need Medicaid because their parents lost employer-provided medical coverage or just can’t afford health insurance.

Gov. Nathan Deal is calling on state agencies to make plans for more than $550 million in additional spending cuts over the next two years. That’s on top of more than $3 billion in cuts in services over the past four years.

But there comes a point where Georgians are right to question whether our state is – economically speaking – cutting off its nose to spite its face.

There’s a better way. The governor and General Assembly need to take a balanced approach to the fiscal crisis, one that includes revenues instead of only cuts in spending.

Lt. Gov. Casey Cagle put it well when he campaigned for the transportation special local option sales tax: “You can never cut your way to prosperity; you grow and invest your way to prosperity.”

We don’t have to look far for solutions. Recommendations the Special Council on Tax Reform made last year offer a good starting point for an honest, rational, long overdue discussion of the role tax policy can play in turning Georgia around.

Suggestions include increasing the cigarette tax, updating the sales tax to cover more services, and eliminating all economic development tax credits.

In addition, state leaders could work with our congressional delegation for national legislation allowing states to collect sales taxes people owe on purchases made over the Internet.

The cuts-only strategy isn’t working.

It’s time for comprehensive tax reform so Georgia can get back to building a future.

Alan Essig, executive director for Georgia Budget and Policy Institute.

By Elizabeth McNichol

Georgia has faced difficult choices in the wake of the Great Recession. It’s not alone.

The recession brought an unprecedented collapse in state revenues at the same time that public needs were rising.

The result: massive gaps between those needs and the resources it takes to meet them.

Combined, states have closed over $600 billion worth of shortfalls over the last five years. Georgia’s experience was typical.

At the depth of the fiscal crisis, Georgia faced budget shortfalls equal to over a quarter of the state’s general fund, comparable to the national average.

States used all the tools at their disposal — spending cuts, reserves, assistance from the federal government, and tax increases — to close these budget gaps.

But they relied too heavily, unfortunately, on spending cuts. States made almost $3 in spending cuts for every $1 in new taxes and fees between 2008 and 2012 to close their huge budget gaps.

Here, too, Georgia fell in line with other states, favoring cuts as its top budget-balancing strategy.

Overall, the state has cut services by more than $3 billion since the recession began, including some of the greatest declines in state support for schools among all states since 2008.

Over-reliance on spending cuts to close budget gaps carries heavy short- and long-term economic costs:

• State and local governments have eliminated almost 700,000 jobs since August 2008, with more than 28,000 cut in Georgia alone. States have also cancelled contracts, reduced payments to businesses and nonprofits that provide services, and cut benefit payments to individuals. All of these steps take money out of the economy and threaten the recovery.

• By diminishing support for elementary and high schools, making college less affordable, and reducing residents’ access to health care, the cuts threaten to reduce the U.S. economy’s competitiveness.

In most states, revenues have only just bottomed out and begun to grow again, though slowly. Georgia’s revenue decline was one of the most severe.

The state’s tax collections are more than 20 percent below 2007 collections adjusted for inflation — considerably worse than the national average of 5.5 percent.

But its tax collections are recovering at about the same rate as other states.

With Georgia facing a persistent budget gap,the governor now is calling for even more spending cuts without any tax increases.

Georgia would be better served taking another path. The best approach for a state is a balanced one that includes thoughtful budget cuts and some new revenue, along with the use of reserves.

Maryland is a good example of a state taking a balanced approach. The state recently adopted a combination of spending cuts and revenue increases that saved it from having to slash support to schools and other services. Revenue increases will affect households with the highest incomes, an approach that a number of prominent economists have described as the most effective during periods of economic weakness.

This balanced approach also will pay off in the long run.; By protecting its schools from big cuts today, Maryland will boost the productivity of its workforce tomorrow.

The steep spending cuts of the last few years have reverberated through state services. Revenues have begun to rebound, but even if they grow faster than average, they won’t return to a normal track for several years.

As a result, states will likely continue to face significant shortfalls in funding for education, health care and other services.

Only a balanced approach that includes revenues that allow states to invest in the education, transportation and other systems that build a strong economy will speed Georgia’s — and the nation’s — recovery.

Elizabeth McNichol is a senior fellow with the State Fiscal Project of the Center on Budget and Policy Priorities, a non-partisan research and policy organization based in Washington, D.C.

By Debbie D. Alford

Following are excerpts from budget planning instructions sent to state agencies July 23.

Georgia has faced nearly unprecedented fiscal challenges in recent years as a result of the national economic downturn, but with your leadership and commitment to strong fiscal stewardship, we have managed these challenges while maintaining essential core services for Georgia’s citizens. As we look forward to fiscal year) (FY) 2014, we remain optimistic that Georgia will continue to see a steady economic recovery.

While revenues are expected to grow moderately, so too are the basic needs of our growing state. We must be prepared to meet these needs while also planning for contingencies should revenues fail to grow as projected in order to meet our constitutional requirement of a balanced budget.

Therefore, we will continue with a fiscally conservative approach to the amended FY 2013 and FY 2014 budgets, focusing on the core businesses of the state and making strategic investments that will strengthen Georgia’s economy and government.

Gov. [Nathan] Deal’s approach to the budget is to make state government more strategically focused and accountable for performance. To continue this effort, zero-based budgeting and performance management will remain central to the budget development process.

Agencies should use these tools in formulating their budget requests to determine the efficiency and effectiveness of their programs. It should allow agencies to identify low-priority or low-performing programs and to rethink service delivery for programs. To make the most efficient use of limited resources, budget requests should be targeted and strategic and avoid broad, across-the-board reductions.

 Each agency, department and authority must submit state general funds reduction plans of 3 percent in both fiscal years. For FY 2014, the Department of Community Health should submit an additional 2 percent reduction plan for the Medicaid and PeachCare programs. Funding for Quality Basic Education, Equalization, and State Schools programs are exempted from reductions in both fiscal years. Please consult with your (Office of Planning and Budget) OPB analyst to discuss any additional items not subject to reductions and to establish an adjusted base budget.

Requested changes to program structure will be reviewed jointly by OPB and the House and Senate Budget Offices. Agencies will be notified of approved program changes by Aug. 17…  Budget submissions are due Sept. 4.

Debbie D. Alford is director of the Governor’s Office of Planning and Budget.

25 comments Add your comment

Mary Elizabeth

August 18th, 2012
12:34 pm

I just posted, on Kyle Wingfield’s blog, the following comments regarding Alan Essig’s article, above, and I wish, also, to repost my remarks, here. I value Alan Essig’s thinking, and I appreciate his financial expertise, which he has offered to Georgians. See below:
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“Please read Alan Essig’s excellent article which he wrote for the AJC, and which was published online on August 16, 2012, on the “Atlanta Forward” blog – the thread entitled, “Spending Reductions – Budget Deficits.” He is the Executive Director for the Georgia Budget and Policy Institute. He explains this financial concept of economic growth as a priority over more budgetary cuts, at this time, much better than I.”

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Get Schooled blog = teachers' union pet

August 17th, 2012
11:28 am

Disagreement within the opposite party. A field day for Maureen, and for the teachers’ unions dumping big money into defeating this latest initiative to give parents more choices!

If the amendment passes, after all, the union strategy of fielding phony “Republicans” in local school board races to doom all charter school applications—will ultimately prove less fruitful.

Parents and kids be damned, eh?

citizen

August 17th, 2012
11:22 am

I am so worried about stagnation. If you have a small number of individuals that are extremely wealthy, another fairly large group who are civil servants and then a larger number of individuals who are living just above the poverty level but not making enough to have at least a little bit left over after the cost of living is deducted, this scenario leads to stagnation. Have you checked the Georgia Department of Revenue’s website to see how many Georgians owe back taxes? Education is another area that has a bloated budget. Some teachers are getting online degrees to boost their salaries upwards of $60,000 to $90,000 and teaching second grade. If higher salaries produced a better outcome, we wouldn’t even be talking about vouchers or charter schools.

Dcb

August 17th, 2012
7:44 am

I started to place the word “strange”at the beginning of this comment when It suddenly occurred to me that it’s not strange at all – it’s more often the rule than the exception.

After reading all the comments on the original question, I couldn’t recall what that original question was in the first place. Am I the only one who finds it frustrating that posters stray so much to gain a foothold for their pet peeves that no consistency in gaining a feel for opinions on that original question is possible?

SAWB

August 17th, 2012
12:04 am

Well, guess not. Wonder why my earlier post never made it? If there is a filter blocking certain words maybe you could post those words so we can avoid them.