Gov. Kemp’s spending cutbacks follow historic pattern: Moody’s Investors Service
By David Pendered
Gov. Brian Kemp has ordered a 4 percent reduction in state spending starting Oct. 1 and a 6 percent cut starting next July 1. The move is in keeping with the long line of Georgia governors who have cut spending as revenues decline and maintained a high credit rating, according to Moody’s Investors Service.
Georgia governors haven’t dawdled to cut spending, according to a Moody’s report that observes:
- “A history of prompt spending cuts in response to revenue shortfalls has been an important aspect of the state’s credit profile.”
Kemp ordered spending cuts at the forefront of this month’s rising tide of discussion of a possible economic recession. That said, Georgia has yet to experience a decline in revenue, according to tax revenue reports issued by the governor’s office. July revenues were up 3.1 percent compared to the prior July, a report showed.
Kemp didn’t mention the economy in either his public announcement of the spending cutbacks, nor in the internal budget memo sent to top administrators by his budget director. In each, efficiency was the stated reason for the reduction.
On Aug. 15, Kemp announced to the public that he had ordered spending cutbacks for the current and the upcoming budget years.
On Aug. 6, Kemp’s budget officer delivered the message to agency heads and fiscal advisors. The internal memo contained two deadlines:
- Sept. 6 – A 6 percent cutback is to be built into budget proposals due this day for the Fiscal Year 2021 budget that begins July 1, 2020;
- Oct. 1 – A 4 percent reduction in spending is to start, based on the Fiscal Year 2020 budget that took effect July 1. The reductions are to be included in the budget revisions department heads will present to the governor late this year.
The governor’s timeline gave administrators a month to decide what to cut in the next year’s budget. Administrators have two months to cut programs that lawmakers – and the governor – approved last Spring in the current budget.
The internal paper hinted that state revenues may not be sufficient to meet the needs of the Fiscal Year 2020 budget, which took effect July 1. This is the language used by Kelly Farr, director of the Office of Planning and Budget:
- “[E]ven while state revenues grow, agencies should bge continuously looking for ways to carry out their responsibilities more efficiently….
- “Additionally, in order to mitigate the need for larger reductions in the latter half of this year, agencies should expect to begin withholding the estimated 4 percent Amended FY 2020 reduction from their standard monthly allotments on Oct. 1.”
In ordering the cutbacks, Kemp may as well have torn a page from the latest evaluation of the state’s creditworthiness by Moody’s Investors Service. Moody’s issued a rating action June 11 that observed the state has sufficient resources to manage normal volatility in the market. The rating action pointed toward spending cuts should economic conditions worsen:
- “Pressure, however, could arise in the midst of another large recession, which absent expenditure cuts would consume much of the state’s reserves. In 2009, revenues fell 10.7 percent year-on-year, while over a three-year period revenues fell a total of 19.6 percent, yielding cuts to spending.”