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

Hillbilly D

August 16th, 2012
10:29 am

Maybe they should repeal some of those special tax breaks they’ve been handing out the last few years.

[...] As published by the Atlanta Journal-Constitution [...]

Tyshonna

August 16th, 2012
11:00 am

Georgia’s estimated one-half million illigal aliens (”undocumented workers”) cost the state about $2.4 billion per year for education, health care, incarceration. Could that be part of the problem?

atlpaddy

August 16th, 2012
11:22 am

With one-party Republican rule and low taxes, shouldn’t Georgia be a conservative utopia by now?

atlpaddy

August 16th, 2012
11:26 am

Georgia ranks number 45th in the United States for SAT scores, its state legislators refuse do their jobs, and along with the Governor are some of the most corrupt politicians in the nation. Could that be part of the problem?

Commonscents

August 16th, 2012
11:45 am

What must be understood is that some low-performing programs might be the result of inadequate funding. For example, if the time to get a driver’s license increases(actual low performance measurement)…..it is probably the result of the new I.D. law and decreases in the number of customer service positions at driver’s license facilities.

Pretty soon, we will have to determine whether we want public safety for our citizens(the number of troopers are getting lower each year), better education for our k-12(Education has taken massive cuts over the last 4 years), or drivable roads(again massive cuts to transportation). To everyone who wants smaller government……make your choice.

Commonscents

August 16th, 2012
12:08 pm

Tyshonna,

no. Undocumented People are not the cause of all/most our problems. We can’t scapegoat them for inefficiency in our government’s choices.

Marlboro Man

August 16th, 2012
12:53 pm

Progressive income tax and corporate use taxes are needed. Or have a crummy state. What we have, is falling behind and down while the fiddlers fiddle.

[...] GBPI Executive Director Alan Essig is featured in the Atlanta Journal-Constitution as a guest writer; read Essig’s piece on the structural deficit here. [...]

Chris Sanchez

August 16th, 2012
2:37 pm

Commonscents: Illegal aliens are not the cause of all of the problems Georgia faces but the cost to provide them services the state otherwise would not have to pay for is undeniable. $2.4 billion would go a long way to funding transportation infrastructure and education annually. Yet you would have the state look the other way rather than enforce existing law. Governing is about choices…so is voting.

Perhaps the one thing Georgians like less than crooked Republican politicians is crooked liberal Democrat politicians.

Jim S.

August 16th, 2012
4:14 pm

The political environment in this state with the no end in sight dominance of a very conservative republican party makes it highly unlikely that we will see a change in direction regarding the budget. Most citizens are convinced that government spending remains excessive and are not willing to pay additional taxes to fund the programs. Not only is it unlikely that we will see revenue increases, we will almost certainly continue to see special tax breaks negotiated for the winners of the lobbying wars at the state capitol. Politicians love to go home and brag about lowering taxes, particularly when their only real political test lies in the republican primary. This is even more true after the redistricting debacle that just occured last year(it’s been a debacle, even when the dems ran the state). It would be great if we had more level headed, forward thinking problem solvers in government, but the state is apparently not ready for that right now. Our debates are silly and pointless and nobody who is running for office wants to tell the truth about what is needed…at least not anybody who has any chance to win! I remain hopeful, however, that this will change; just probably not for a few more years. I hope we will not have caused permanent damage with our lack of vision on transportation and other important issues facing this state, but that remains to be seen.

blue dog

August 16th, 2012
4:59 pm

The Bush tax cuts failed to produce jobs as promised. The Ga GOP has had 91/2 years of total control yet their small gov, low taxes plan has resulted in a 9.3% unemployment compared to the Nat’l ave of 8.3%. Our schools are almost at the bottom. There are no plans to ease the traffic gridlock and all Deal and Co can do is “cut” even more.
Have you voters finally seen enough of these false economic plans continued to be the best way for our state to grow. How much more time do you voters need…5…10 years.
This is insanity. To keep voting in these “special interest” first…Ga citizens second, self serving politicians.
Vote them OUT !!!

Union stooge Get Educated blog distorts issues

August 16th, 2012
5:20 pm

Continuing “debate” on AJC’s Get Schooled blog about charter schools—is between teachers’ union shills … and teachers’ union shills!

With AJC “moderator” Maureen Downey making a cynical mockery of presenting the issue.

The teachers’ unions, represented locally by the Georgia Association of Educators, are steadfastly against education reform and parental choice. State Schools Superintendent John Barge’s decision to break with other Republicans and oppose the charter school constitutional amendment on November’s ballot plays into their hands.

And predictably, Ms. Downey is doing all she can to see that the anti-parental choice viewpoint is heard—while BLOCKING from comment those of us who advocate for greater choice and freedom to innovate.

Which is why I’m posting here instead.

Bernie

August 16th, 2012
5:22 pm

According to the Governor, Georgia, absolutely does not have any pressing financial problems. This is why, as Governor of Georgia he mill make sure Georgia will be moving Full speed ahead and saying “damn the torpedoes” and spend $430 million dollars on a unproven and untested State funded (100%) One-Hundred percent Charter School Plan.

What ever happened to his much raged about Republican mantra of Smaller Government, Less government intrusion into the lives of its citizens, Insuring Local Control of education matters, and the belief that the community knows its needs better than any Bureaucratic Bloated Plan?

Either ……He was Lying then or he is Lying NOW!

This is so confusing to me…….but in reality, I know this plan is really about the start of a final plan of a school voucher implementation plan to follow. This is so that we can no longer have the children of Georgia “All mixed” up together and sharing classrooms across Georgia. We just, cannot have that!! At ALL!

He and his supporters want to make sure, that ONLY the children of the LUCKY GENE POOL Club, get the best education possible. All of the others..well, they can just go and work for Chick-Fil-A!

Not Blind

August 16th, 2012
6:14 pm

The gov gets plenty of money. They just waste far too much of it on pork. And the illegal alien problem is part of our problem. $2.4B for people who should not even be inside our borders. Then you add in the expense of anchor babies…..Every unnecessary expense adds to the deficit.

johnboy

August 16th, 2012
6:31 pm

Essig hit it on the head. Wake up Georgia.

johnboy

August 16th, 2012
6:33 pm

there are no teacher’s unions in Georgia!!!

Bernie

August 16th, 2012
7:48 pm

Not Blind @ 6:14 pm – its Ironic that your User name is the complete opposite of your present thinking. It is also contrary to the American Spirit as well as the VERY CORE of her Values and very offensive to her Truly Patriotic and LOYAL Citizens who will do anything to uphold her beliefs.

I will share a little something surely you are not familiar with….

Poem Emblazoned On The Statue Of Liberty……….

New Colossus

Not like the brazen giant of Greek fame,
With conquering limbs astride from land to land;
Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome; her mild eyes command
The air-bridged harbor that twin cities frame.
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me,
I lift my lamp beside the golden door!”

Surely, somewhere along the line someone opened the DOOR for a relative of YOURS!

You DiD NOT BUILD THIS……. ALONE!

Bernie

August 16th, 2012
8:04 pm

Union stooge Get Educated blog distorts issues @ 5:20 pm – I am certainly not the one to rush to the defense of MS.DOWD about her topics ,subjects and opinions presented in many of her articles. I have disagreed greatly and many times with great angst!

However, I will say she appears to be a very respectable woman and will allow those who post, to post their comments fairly and openly as long as they are not offensive and abusive to other posters and readers as well.

I Can not the same, about a few of the others. Who are a little more prickly and sensitive about those will oppose and challenge their hard held beliefs.

SAWB

August 17th, 2012
12:01 am

Have I been blocked?

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.

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?

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.

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?

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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