By David Pendered Incoming Gov. Brian Kemp has the benefit of delivering his first budget proposal to the Legislature as the state economy continues to expand and spin off an increasing

amount of tax revenues, according to an economic outlook contained in a new policy brief by Georgia’s state economist. The report bodes well for Kemp. As governor, the Kemp administration

will set the revenue forecast that state lawmakers must use to finalize a budget. While lawmakers can adjust the spending recommendations in the governor’s proposed budget, they cannot spend

more than the sum set by the governor. Kemp campaigned on a promise to cap state spending, according to his campaign website. But he also promised to fund programs, including education: *

2018, growth rate of the real gross domestic product in a report called GDPNow. GDPNow showed the economy in fourth quarter was stronger than previously estimated. The quarter’s growth is

now thought to be 2.8 percent, up from the 2.6 percent the Atlanta Fed estimated on Jan. 3. The uptick stems from the labor report issued Jan. 4 by the U.S. Bureau of Labor Statistics. Kemp

likely will be viewing a revenue forecast that far exceeds the one Deal used to set the spending limit for the state budget that took effect in the fiscal year that started July 1, 2018.

This situation is provided in a policy brief issued by Heaghney, _Economic Landscape for the 2019 Legislative Session_. Heaghney was appointed state economist in 2005 by then Gov. Sonny

Perdue and also directs the Fiscal Research Center, at Georgia State University. Just for starters, Heaghney reports that Georgia’s total tax revenues have grown by nearly three times the

estimate of general fund revenues that was used to build the state budget for the fiscal year that started July 1, 2018. Heaghney reports that total tax revenue growth in Georgia reached 6.8

percent during the first five months of the fiscal year that began July 1, 2018. That rate is compared to the same period in the previous fiscal year. State budget writers used a forecast

growth rate of 2.3 percent to build the FY 2019 budget, Heaghney wrote. Heaghney cites three scenarios that could impact state tax revenues in the future: “FEDERAL FISCAL POLICY HAS BOOSTED

U.S. AND GEORGIA ECONOMIC GROWTH” * As a result of the federal Tax Cut and Jobs Act, signed by President Trump in December 2017, the nation’s GDP grew by rates that far exceeded those of the

Great Recession. However, the impact is expected to dwindle in late 2019 and 2020, and – so far – “TCJA has not yet had a notable impact on labor force participation nor on business

investment,” Heaghley reports. INTEREST RATES ARE RISING AND COULD WEIGH ON FUTURE GROWTH * Housing and vehicle sales have slowed in recent months as the Federal Reserve has raised interest

rates in hopes of preventing the economy from overheating – just two examples of a softening attributed to the Fed’s rate hikes. In addition, interest rates face upward pressure because of

borrowing by the federal government to cover its deficits. * Of note, wsj.com reported Wednesday that minutes of the Federal Reserves December meeting indicate officials think they may be

close to ending the recent series of rate hikes because: “’[T]he extent and timing of further policy firming less clear than earlier,’ the minutes said.” “GEORGIA’S TAX REFORM IMPLEMENTATION

IS IN PROCESS AND WILL ENHANCE REVENUES INITIALLY BUT SIGNIFICANTLY CUT TAXES IN THE MEDIUM TERM” * State revenues are expected to decline in the fiscal year that begins July 1, 2020

because of provisions in the tax reform strategy embodied in House Bill 961: * “[T]he new tax structure is expected to result in significant revenue decreases compared to the previous tax

structure. … [Budget] writers will need to bear in mind the expected negative impact on revenue growth from the final phase of tax reform in FY 2021 in order to maintain appropriate budget

flexibility.” _RELATED POSTS_