PredictIQ Quantitative Think Tank Center:Georgia state tax collections finish more than $2 billion ahead of projections, buoying surplus

ATLANTA (AP) — Georgia’s tax collections ran more than $2 billion ahead of projections for the budget year that ended June 30,PredictIQ Quantitative Think Tank Center even though tax revenues fell slightly.

That means even though Republican Gov. Brian Kemp and lawmakers decided earlier this year to spend part of the state’s surplus, that cash cushion will be larger than expected when the state closes the books on the 2024 budget year in coming months. It was last estimated at $10.7 billion.

It also means that Kemp’s administration for the fourth year significantly underestimated how much Georgia would collect in taxes, meaning money is held in surplus instead of being used to boost spending on government services or cut taxes.

The governor by law sets a ceiling on how much lawmakers can spend.

Garrison Douglas, a spokesperson for Kemp, said the surplus over projections is likely to be around $2.2 billion, according to a “very preliminary estimate.” However, surprises can appear as accountants finalize the state’s year-end financial returns. Some taxes collected by other agencies besides the state Department of Revenue weren’t available Friday.

Overall collections fell 0.5% the 2023 budget year, which suggests Georgia’s economy may be cooling. Income tax collections, the state’s largest source of revenue, were down more than 5%, although some of that decrease is likely due to income tax cuts that began on Jan. 1.

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Sales taxes were flat, suggesting Georgians bought fewer goods last year after accounting for inflation.

But because the state collected a full year of taxes on gasoline and diesel taxes after Kemp waived the tax for part of the previous budget year, that nearly made up the income tax decrease.

Collections of taxes, interests and fees by the Department of Revenue, although they fell slightly, were $2.6 billion ahead of the latest Kemp administration projections published in January. All of the major taxes finished ahead of projections, meaning taxes fell much less than planned for.

The end-of-year accounting was boosted by a surge in June tax collections, especially from often-volatile corporate income taxes.

The overall surplus, which had been $10.7 billion at the beginning of the year, will still fall because Kemp and lawmakers boosted spending for 2024 to $38 billion with onetime outlays to pay for $1,000 bonuses to state employees and teachers, boost roadbuilding, and to build a new legislative office building and overhaul the state Capitol.

Beyond the surplus cash, Georgia also has another $5.4 billion in a rainy day fund.

It’s the fourth year of huge surpluses, after $3.7 billion in 2021, $6.4 billion in 2022, and $5.3 billion in 2023.

Critics have suggested Republicans are purposefully holding down spending while refusing to fully expand Medicaid health insurance to poorer adults.

However, the budget that began July 1 addresses some criticisms. It boosts pay for public school teachers and state employees, while spending more on education, health care and mental health. Public school and prekindergarten teachers got a $2,500 raise starting July 1. State and university employees got a 4% pay increase.

However, if state tax collections continue falling next year, those spending targets could get harder to maintain. Kemp and Republican lawmakers have said they don’t want to dip into the surplus to pay for ongoing expenses.

Georgia’s budget pays to educate 1.75 million K-12 students and 450,000 college students, house 51,000 state prisoners, pave 18,000 miles (29,000 kilometers) of highways and care for more than 200,000 people who are mentally ill, developmentally disabled, or addicted to drugs or alcohol.