ATLANTA — State lawmakers passed a budget that was about $1 billion larger than what Gov. Brian Kemp expects Georgia will collect in tax revenue next fiscal year, so he took a scalpel to their spending plan.
The fiscal year 2027 budget he signed Tuesday trims $300 million from spending that the General Assembly had added.
“They may not be happy, but they also realize we’ve got a hole in the budget that we’ve got to fix,” Kemp said, before signing House Bill 974, which will govern spending starting in July.
The Legislature passed a $38.5 billion budget, but Kemp told reporters that revenue estimates for next year are only $36.6 billion. Part of the reason: income tax cuts that lawmakers passed in the waning hours of their legislative session and that Kemp signed into law Monday.
Richard Dunn, director of the Governor’s Office of Planning and Budget, said Georgia now has a $1.3 billion “structural deficit.”
He said Kemp’s cutbacks will address $300 million of the excess spending and that growth in revenue should take care of much of the rest. The state will likely have to dip into its surplus to fill whatever gap remains, he added.
That amount can change depending on the rate of economic growth.
“The state must now address a reduction in revenue for the coming fiscal year of nearly $1 billion,” Kemp said, “and that’s assuming we don’t have an economic downturn.”
The income tax cuts, which Kemp embraced, tipped his budget off balance.
On Monday, Kemp signed House Bill 463, which rolled back the income tax rate to 4.99% from 5.19% for the current year.
It also waived income tax on the first $1,750 of overtime pay and cash tips, retroactive to the beginning of the year, and it increased by $5,000 the amount of excluded retirement income for those 65 and older.
But that new law is designed to continue cutting the tax rate if state revenues remain strong, reducing the rate by another percentage point over eight years, to 3.99%. The rate is scheduled to fall 0.125 percentage points (an eighth of a point) next year.
HB 463 also increased the dependent and standard deductions by 25% this year and calls for gradually increasing both by that same amount over eight years, depending on the same revenue triggers as the tax rate cuts.
The standard deduction for single filers rose to $15,000 from $12,000 when Kemp signed HB 463. It is scheduled to go up another $375 next year, ultimately reaching $18,000. The amounts are doubled for couples filing jointly. The dependent deduction rose to $5,000 from $4,000 and would top out at $6,000 after eight years of steady increases.