Georgia has once again secured its AAA rating from all three external rating agencies as of June 2023. According to the Georgia Department of Revenue, “Fitch, Moody’s, and S&P cited the strength of Georgia’s economy with a positive employment trend, full funding for the state’s rainy day fund, a balanced approach to primary revenue sources, and consistent funding of obligations as factors contributing to their rating scores.” Additionally, APA’s dedicated Credit Research Committee finds strength in the state’s healthy reserves, strong funded pension plans, ongoing population growth, and above-average liquidity levels compared to state medians for the respective period.
Despite the AAA-rating, recent headlines have been quick to point out that the state of Georgia’s monthly net tax collections have declined “once again.” While this may be true on a yearly month-to-month analysis, it is important to take a step back and look at the big picture. In APA’s view, we are not seeing a cause for alarm of significant deterioration in revenue tax collections; rather, we are seeing a return to normal or stabilization. In fact, as seen in the graph below, total net tax revenues and total fund balance for the peach state continue to climb compared to prior fiscal years. While May 2023 tax collections were down 7.6% compared to May 2022, year-to-date net tax collections for the period totaled $30.29 Billion, an increase of $51.2 million compared to fiscal year 2022.¹
Monthly Department of Revenue Collections | Georgia State Financing and Investment Commission
In Georgia, money is not always appropriated each year into the Revenue Shortfall Reserve (rainy day fund). Instead, the balance grows at the end of each fiscal year should there be a surplus of up to 15% of the prior year’s state revenues. According to the Georgia Budget & Policy Institute (GBPI), in Fiscal Year 2021, Georgia funded its rainy day fund to 15% ($4.3 billion) for the first time. In Fiscal Year 2022, unspent revenues grew the state’s Revenue Shortfall Reserve to $5.2 billion. Additionally, GBPI projects Georgia will generate revenues over $5 billion above what the state spends in fiscal year 2023.²
Source: Monthly Department of Revenue Collections | Georgia State Financing and Investment Commission
APA continues to find strength in our high-quality state’s strong fiscal management, sound financials, and appropriately structured budget. According to PEW Charitable Trusts, at the end of 2022, Georgia was one of five states to fill their rainy day funds to their maximum balance.³ Furthermore, APA trusts Georgia’s robust rainy day fund will allow the state to weather a potential decrease in revenue during this upcoming period of potential pre-pandemic stabilization.
Although it is easy to highlight strengths in our AAA-rated state of Georgia, regardless of the record high revenue collections and surpluses seen over the last two years, APA emphasizes the importance for all states to prepare for the waning of Federal aid, impacts of high inflation, and potential slowdowns in revenue collections. APA finds comfort in our in-depth credit analysis of both short and long-term trends, key metrics in current financials, sector comparisons, and monitoring management and budgets. As we navigate through what may be the turning point of record financial strength.
Sources:
1. Monthly Department of Revenue Collections | Georgia State Financing and Investment Commission https://gsfic.georgia.gov/monthly-department-revenue-collections
2. Georgia Budget and Policy Institute https://gbpi.org/georgia-budget-trends-primer-for-state-fiscal-year-2024/
3. PEW Record State Budget Reserves Buffer Against Mounting Fiscal Threats https://www.pewtrusts.org/en/research-and-analysis/articles/2023/03/16/record-state-budget-reserves-buffer-against-mounting-fiscal-threats
Disclosures:
Past performance is not indicative of future results. Investing involves risk including the potential loss of principal. Information was obtained from third party sources which we believe to be reliable, but are not guaranteed as to their accuracy or completeness.
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