By Maggie Lee / Staff

State legislators this month start figuring out how to divvy a budget shrunk to $18.2 billion from about $20 billion at this time last year, while simultaneously protecting Georgia’s Triple-A bond rating and plugging a budget hole that the governor projects will only get bigger in 2012 against tax revenues that might not recover until 2013.  

  
According to outgoing Gov. Sonny Perdue, the budget that legislators will confront next spring will be bleaker than this year’s — a gap of $2.6 billion. 

“In FY ’12, after I’m gone, Georgia will face the loss of about $1.4 billion in stimulus funds as well as $300 million in one-time monies we’ve injected into the budget,” Perdue testified to the House and Senate appropriations committees this month.

“As you know, our demand will continue to grow,” he added, calculating some $840 million more in such mandates as education, Medicaid and the state health benefit plan.

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After presenting a 2011 budget recommendation that cuts most state departments by four to 16 percent, he recommended two revenue streams to tap next year.

A one-time $300 million might be got out of selling some loans held by the Georgia Environment Facilities Authority, Perdue suggested.  GEFA finances infrastructure construction statewide. It’s also the agency that purchases land for conservation purposes. GEFA’s loan portfolio as of its last financial statement, in June 2009, totaled some $1.4 billion, but its state appropriations, especially for land purchases, have been slashed in the past few years. 

In the healthcare department, he recommended levying a1.6 percent “provider fee” on hospitals and care management organizations. If Georgia collects that fee, as most states do, hospitals will, in return, be able to tap some matching federal funds.

That means hospitals with a heavy Medicaid load, such as Grady, actually will see a gain in funds, Perdue said. 

  
However, budgets that are too optimistic or overly reliant on one-time revenue like the GEFA sales aren’t popular with bond-rating agencies, cautioned Susan Hart-Ridley, director of the Georgia State Financing and Investment Commission. 

Georgia’s Triple-A bond rating is valuable. The state is borrowing money at a historic low interest rate of 1.4889 percent on five-year debt. 

“A Triple-B borrower like California … issued debt last fall at over 6.25 percent,” Hart-Ridley pointed out for contrast.

To protect that rate, Georgia must be seen as fiscally prudent, she said; the flip side is that money is cheaper now than it has been for years:  a good time to issue bonds.

JONES: 'GREAT IDEA'

House Speaker Pro Tem Jan Jones (R-Milton) thinks that, because of the rates, it is a “great idea”  to take up Perdue’s plan of a $300 million bond issue for transportation projects. 

“More bang for the buck ... [and] we have declining gas tax revenues primarily because cars are more efficient,” she noted. Under the state constitution, most of the state gas tax for years has been set aside for big transportation builds.  Now the pot’s getting smaller relative to the number of cars and people.

Perdue suggested such a bond issue every year for 10 years.

The director of the nonpartisan Georgia Budget and Policy Initiative agreed that a big transport bond this year is wise.

“It’s a good time to bond” due to the low interest rate, said Alan Essig, adding, “It’s one of the few things the state can do to stimulate the economy.”

But Jones’ House colleague, Jill Chambers (R-Atlanta), who sits on the House Appropriations Committee, is concerned with some of the projects.

“In the big transport bond initiative, I can’t find any projects on the list that benefit DeKalb and a lot of it not even Fulton County,” Chambers said.

Though the list of projects isn’t finalized yet, the governor’s suggestions include five north Fulton projects, among them three intersection improvements on Jones Bridge Road in Johns Creek.  Many of the final items likely will be taken from the Georgia Statewide Transportation Plan, a product of Perdue’s office and Todd Long, whom he appointed director of planning for the Georgia Department of Transportation.

CHAMBERS WARY

“I’m concerned about the level of bonded indebtedness that’s being proposed, especially the smaller expenditures that could be paid without paying interest,” Chambers added, like buying new state patrol cars. 

Watchdog Essig said something similar. 

“The one thing we have to be concerned about is that we’re coming up to a point where our debt service is getting quite high.”

Rating agencies like to see a lower debt service to revenue ratio. But as revenue goes down, a larger percent of the budget must go into paying debt. If the ratio is too big, it might raise flags with the agencies. 

“I give the governor credit for trying to manage this as humanely and responsibly as possible,” said Essig, but cautioned that this governor, his successor and the legislature would be unwise to depend too heavily on spending cuts versus new revenue.

“We won’t be just cutting waste, we’ll be cutting essential services,” he said, especially in things that pay off later, such as education. 

The budget will remain in a trough in the short term. “It’ll take until about FY 2014 for the budget to rereach the 2007 level,” predicted state fiscal economist Kenneth Heaghney.

Revenue from income, sales and corporate taxes are down by 11, 16 and 24 percent, respectively, and only sales tax show any signs of life in the fiscal year to date, he said.

DIVERSITY PREFERRED

Asked about the use of state income tax at all, Heaghney made clear that Georgia income tax historically has indeed been more volatile than sales tax; that makes it harder to forecast.

However, he added that bond-rating agencies prefer diverse revenue streams and he thinks they like Georgia’s three-prong tax system. 

As for North Fulton, Jones reflected that, “there’s nothing in the budget that would surprise the mass majority of my constituents. I think my constituents are more concerned with their own income so they can pay their bills.”

State fiscal years run from July to June and are referred to by the year they end.  This spring, the legislature will pass the fiscal year 2011 budget, which will take effect in July 2010.