As voters focused on the election, the state’s budget writers were concerned about what comes after and whether Congress avoids the so-called fiscal cliff.
The U.S. Budget Control Act triggers a package of tax increases and broad spending cuts in January that most economists say will set off a recession. States will give up billions of dollars the federal government would have spent providing social services, and places like Georgia with a large military presence would feel a bigger sting.
Generally, it amounts to a 5 percent cut in projected spending across the board called sequestration, but there are exemptions. For instance, boating safety is exempt from the cuts, but home-delivered meals is subject to them. Adoption assistance is exempt, but homeless mental health is covered by the sequestration law.
No one expected Congress to act before the election but rather in a lame-duck session afterward.
Whether the cuts come from sequestration or Congress deliberately targets programs, the endless possibilities keep state officials guessing.
“We’re not sure the money will be there,” said Georgia Community Health Commissioner David Cook. He oversees several programs that get significant federal funding, including Medicaid that is exempt from the Budget Control Act, but could get trimmed in any effort to defuse the act’s trigger.
The state has enough problems of its own. Weak tax collections prompted Gov. Nathan Deal to order every state agency other than K-12 education to slice 3 percent of their budgets for the current fiscal year and the one coming.
The state’s reserves are extremely thin, and it has to absorb deficits from last year in its Medicaid and other health programs.
Plus, the state could see its own revenues change as a result of sequestration, not just what it gets from Washington. For example, Georgia could resume collecting an estate tax if the federal exemption disappears in January as part of the fiscal cliff, according to Jud Seymour, communications director at the Georgia Department of Revenue.
That would bring in more money. At the same time, a recession would lower what it collects from sales and income taxes.
“You cannot really ever fully prepare for this hit to (gross domestic product),” said Jeff Humpreys, director of the Selig Center for Economic Growth at the University of Georgia.
He estimates the recession would be mild and short overall, but slightly steeper in Georgia because it receives the third-largest portion of defense spending through bases like Fort Benning, Fort Stewart and Kings Bay Naval Base.
The defense cuts alone would total $2.1 billion, according to the Federal Funds Information for States, an independent foundation in Washington.
If Congress whittles unemployment payments, that will hit Georgia harder than other states, Humphreys said, because joblessness is higher here than the national average.
“These budget reductions reverberate across all of state government, affecting health care, higher education and a variety of other services that Georgia citizens have come to expect from their government,” said Thomas Lauth, dean of the UGA School of Public and International Affairs and an expert on government budgets.
An estimate of those reverberations was prepared by the U.S. Senate Appropriations Committee. For example, it predicted a $15.5 million cut to the Head Start program resulting in 518 layoffs and 2,486 fewer children in its preschool. The Title I reading funding to local schools would drop by $38.8 million, costing 534 jobs and 76,000 students their extra tutoring.
Various cuts to programs at the Georgia Department of Labor would lose $9.8 million, affecting 110,000 people who would not get services.
Lauth sums up the frustration felt by state and federal officials at the possible consequences of avoiding the cliff.
“We know what the options are. We need to muster the political will to make the adjustments,” he said.