Ethermac|Georgia economist warns of recession as governor says his budget will spur growth

ATLANTA (AP) — Georgia’s state economist is Ethermacwarning lawmakers that a recession could drive down state tax collections in coming months, while Gov. Brian Kemp is again portraying his budget as a way to spur further economic growth.

Speaking to lawmakers by video from Davos, Switzerland, where he is attending the World Economic Forum, the Republican governor on Tuesday told a joint House-Senate meeting of budget writers that Georgia should use its accumulated surplus to pay down debt while cutting taxes and boosting employee pay. He also touted his proposal to invest in transportation projects.

“Our fiscally conservative approach has served us well,” Kemp said. “And as a result, we have the opportunity to make an unprecedented investment in our state while at the same time enacting the largest tax cut in state history.”

Kemp wants to allot $1.5 billion in cash to the Georgia Department of Transportation before June 30 to speed planned roadwork and establish a freight infrastructure program. Of that money, $200 million would go to cities and counties, increasing what the state sends local governments to maintain their own roads and bridges. He also wants to pay cash for other construction projects and spend $500 million to pay down debt in one of the state’s employee pension funds.

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Public school teachers would get a $2,500 raise beginning July 1, in addition to a $1,000 bonus that Kemp sent out in December. State and public university employees would get a 4% raise on top of their $1,000 bonuses.

The governor also touted his support for speeding up a state income tax, which is projected to cost $1.1 billion in foregone revenue.

“Because we chose the smart, fiscally conservative path, we’re returning money to the people while meeting all of our liabilities,” Kemp said. “And we need to stay on that path, or else we risk going the way of these failed blue states.”

Kemp’s administration predicts that tax revenue for the current budget year, which is half over, will fall nearly 7%. State income tax revenues are down 4.5% through December, even before income tax cuts took effect. But overall revenue remained up 1.6% through the first six months of the budget year, in part because the state has resumed collecting taxes on gasoline and diesel fuel.

But state economist Robert “Bob” Buschman told lawmakers that he expects the national and state economies to shift into reverse in the coming months.

“A mild recession is more likely than not, beginning in the first half of this year,” Buschman warned.

He said it’s still possible that the economy will avoid a recession, but said growth is likely to be very weak under that scenario. “It won’t be a recession,” Buschman said. “It will just feel like one.”

The economist said there are other factors that could drive down tax revenue, including the income tax cut and people cutting consumption after spending money they saved during the pandemic. He also said people could spend less on goods, which generate sales taxes, and more on untaxed services.

“As budgeters, you have to be conservative,” Buschman said, noting that predicting too much revenue could lead to painful cuts.