By State Sen. Greg Goggans
Recently several prominent national figures including former House Speaker Newt Gingrich have expressed the opinion that individual states are so severly burdened by debt caused by the Great Recession that states declaring bankruptcy may be the only feasible way out of their economic crisis.
Many states are facing significant budget shortfalls with pension and debt service liabilities causing concern. Illinois is at the top of this list with a projected 47 percent budget gap and an estimated pension funding level of 54 percent.
In light of these scary figures, many residents have quickly come to an obvious concern:
Is Georgia at risk of becoming insolvent?
Thankfully, the short answer is NO. State budget experts do not see Georgia as needing the option of bankruptcy declaration due to the fiscally-responsible mechanisms put in place by elected leaders to ensure the state meets its budgetary obligations.
Safeguarding the Budget Process
The State has a Constitutionally-mandated balanced budget requirement that requires that the budget be lower or equal to the revenue estimate set by the Governor. Since 2009 when we saw our first budget shortfalls of the economic downturn Georgia has implemented spending cuts, removal of wasteful spending, the use of our “Rainy Day” reserves, and federal funds to cover the shortfalls. We did not rely on debt or underfunding of the pension system.
House and Senate budget writers have also placed several important safeguards in the event that revenues will not be sufficient to meet the budget as passed. This includes passing an amended state budget 3 to 6 months prior to the end of that specific fiscal year to address any revenue shortfalls or increases. The Governor can also withhold funds uniformly from state agencies if the amended budget is still above the revenue collections taken in after the budget is passed.
Finally, the state has a “Rainy Day” reserve fund that can be utilized in case of declining revenues. There are strict statutory requirements on the ability of lawmakers and the Governor to utilize this reserve.
Pension Program on Solid Ground
According to the Pew Center of the States, Georgia in 2010 was considered a “solid performer” along with 15 other states in terms of its pension system. The solid performer status was given to those states that had funding levels over 80 percent, had manageable unfunded liabilities and contributed at least 90 percent of the Actuarially Required Contribution (ARC) during the last 5 years. The ARC is the amount the state needs to contribute to the plan during the current year as calculated by actuaries.
Georgia is financially sound in terms of its pension liabilities, with its Teachers Retirement System funded at 87 percent with $42 billion in assets and the state Employee Retirement System is almost 86 percent funded with $10.5 billion in assets.
Effective July 1, 2009, newly hired State employees (and those who opted to switch) were enrolled into a new plan that depends more on defined contribution plans (i.e. 401k and 457) as opposed to the traditional defined benefit plans (pensions). Georgia was a leader in this initiative.
Premier Debt Service Policy and Bond Rating
Georgia has a “Triple Triple A” bond rating which means the three credit rating agencies (Moody’s, Fitch and Standard and Poor’s) each gave Georgia its highest rating for financial soundness. Georgia is one of only 7 states to have this high rating. The Triple-A rating allows Georgia to borrow at lower interest rates because we are a more secure investment to bond holders.
The State of Georgia is permitted Constitutionally to sell bonds to the extent that the debt service does not exceed 10 percent of total revenue receipts. Bond payments are required as stated by law so even if the state cannot pay any other bill, Georgia is obligated to pay debt service first.
Finally, Georgia’s bonds can only be sold for capital projects and, unlike states such as California or Illinois, cannot be sold for operations. All bond projects must be on state-owned land.
Georgia’s Unemployment Insurance Reimbursements Low
Georgia borrowed over $500 million to keep the unemployment trust fund solvent, but legally the state is only obligated to pay the interest payments on the loan. This comes out to approximately $6 million for the 2012 fiscal year. That ranks Georgia as one of the lowest states in the nation in terms of per capita owed. 31 states owe a combined $41 billion. Our neighbor North Carolina, which shares a similar budget and population with Georgia, owes $2.2 billion.
There is no doubt every Georgia family and business has felt the negative affects of this recession. The good news is that our state is well-positioned to ride out the financial problems that are severely plaguing other states. We will be ready for the eventual turnaround and the long-term economic growth and job creation that will come with it.
Please remember to contact me in my office on the issues that are affecting you and your area. I am here to represent you and it is an honor for me to work on your behalf. As always, I’d like to thank members of the Senate staff, who contribute regularly to my column.
Sen. Greg Goggans represents the 7th Senate District, which includes Atkinson, Bacon, Berrien, Clinch, Coffee, Echols, Lanier, Pierce and Ware counties and a portion of Cook County.
For Immediate Release:
January 31, 2011
For Information Contact:
Matt Colvin, Broadcast Director