Georgia’s new state economist warned state lawmakers Thursday that there is a fifty-fifty chance that a “mild recession” awaits next year, likely beginning early in the year.
If that happens, the downturn would not be as severe as what was experienced a decade ago, when state lawmakers were forced to make deep cuts across the board, according to Jeffrey Dorfman, who teaches applied economics at the University of Georgia. Gov. Brian Kemp tapped Dorfman to be state economist last month.
Dorfman also said state revenues were “disappointing” so far this fiscal year. Instead of about 2% growth in revenues collected for the first quarter, a 0.5% dip might be more likely, he said.
“Right now, after two months, you need to know we’re $97 million under budget, and that’s a pretty sobering thing to me,” Sen. Jack Hill, who chairs the Senate Appropriations Committee, said to his colleagues at the beginning of two days of budget hearing.
The budget hearings, which are usually held in January when lawmakers reconvene for a new session, were called early after Gov. Brian Kemp unexpectedly ordered a 4% budget cut for this year and a 6% reduction for next year.
But instead of hearing from agency heads, as some lawmakers had originally hoped, the group listened as economists and business executives painted a picture of the economic landscape in Georgia.
Dorfman’s forecast, in particular, shed some light on the rationale behind Kemp’s budget cuts, which were announced just months after the first-year governor signed a record $27.5 billion state budget.
Dorfman said the state’s finances were solid, but he said economic trouble elsewhere – say, a collapse in trade talks with China – could easily hurt the state’s spending capacity.
A proposal to cut Georgia’s income tax rate a second time in three years also loomed large during Dorfman’s talk. Lawmakers first cut the top rate to 5.75% back in 2018, partly in response to changes made to federal tax law. They set to cut it again next session – at a cost of more than $500 million.
Dorfman advised lawmakers to view the proposed budget cuts as prudent but also “priority-setting.”
“We have a certain amount of money to spend and this Legislature has been very interested in returning tax dollars to taxpayers, and that means the governor needs to set the priorities to make sure that there’s enough money for the agencies, such as k-12,” Dorfman said.
Income tax collections are down more than 3% nearly three months into the new fiscal year, although Dorfman said the exact reason is unclear.
“So what you are saying is the bills that we passed giving these tax cuts are now coming back to bite us,” said Sen. David Lucas, a Macon Democrat.
“You said that,” Dorfman said.
Some lawmakers also questioned whether the state’s $3 billion reserves should be enough to sustain the state through a small economic downturn – a question Dorfman said he would leave to lawmakers. “Nobody elected me to decide how to spend the money,” he said.