The Supplemental Budget

The Supplemental Budget receives much attention. Because the Governor traditionally sets a very conservative revenue estimate, actual revenues typically exceed the estimate by a fairly substantial amount. The appropriation of these additional revenues in the supplemental budget often causes debate over whether these are “extra” funds that should be rebated to the taxpayers rather than fund “pork barrel” spending projects, or whether these are simply funds that would normally be appropriated in the original budget if not for Georgia's traditionally more conservative revenue estimate.

Alan Essig of Georgia State University has explored these questions in his paper, “Where has the Money Gone? Part II: The Supplemental Budget” published in 2001. The executive summary is below:

There have been over $4.1 billion in additional revenues contained in the supplemental budget during fiscal years 1996 through 2001. Additional revenues available in the supplemental budget has increased from $224 million in FY 1996 to $1.2 billion in FY 2001. The increased use of the supplemental budget over the past six years has led to questions regarding the appropriate role of the supplemental budget within the overall budget process. There are three main major policy questions involved in the use of additional funds within the supplemental budget:

1. For what purposes or categories should funds be appropriated within the supplemental budget?

2. Should funds not appropriated within the supplemental budget be rolled over and appropriated within the next fiscal year budget?

3. Should funds not appropriated within the supplemental budget be given back to the taxpayers through a tax cut?

Sources of the $4.1 billion in additional revenues between FY 1996 and FY 2001 include: surplus revenues collected above the Governor's revenue estimate from the previous fiscal year ($2.9 billion); funds which have lapsed due to state agencies not spending their entire appropriated budget from the previous fiscal year ($452 million); funds from the Midyear Adjustment Reserve ($694 million); and funds from the Motor Fuel Reserve ($156 million). Surplus revenues account for almost 70 percent of all supplemental budget additional revenues between FY 1996 and FY 2001.

The additional $4.1 billion in revenues have been used in several different ways including: separate appropriations bills for one time critical spending ($1.05 billion); pre-funding debt service ($500 million); education mid-term adjustment ($512 million); new debt service ($301 million); and general appropriations to state agencies ($1.25 billion). In addition, a portion of these revenues ($485 million) have not been appropriated in the supplemental budget, but have been rolled over for appropriation in the next fiscal year. Over 34 percent ($1.4 billion) of all available supplemental funds was appropriated for education purposes.

There are several arguments in favor of eliminating the supplemental budget. First, the General Assembly would have to consider only one budget and could thus spend more time considering the regular budget. That would be expected to lead to more informed decisions. Second, all budget requests would be considered together, making it easier to prioritize all budget requests. There is also a philosophical argument that the surplus funds available within the supplemental budget are actually excess revenues, and therefore ought to be returned to the tax payer through a tax cut or tax rebate.

There are also several drawbacks in eliminating the supplemental budget. The option of eliminating the supplemental budget would result in some combination of available supplemental funds being rolled over into the next general budget or available supplemental funds being used for a tax cut or tax rebate. A probable consequence of an elimination of the supplemental budget would be that the Governor would use a more liberal revenue estimate, thereby eliminating or minimizing the surplus, in order to ensure that the priorities of the Governor are funded in the beginning of the fiscal year.

This would leave the state budget in a more precarious position in case of an economic downturn. The elimination of the supplemental budget could also make it more difficult to handle emergencies and make it more important to estimate budget needs accurately in that, as a result of a more liberal revenue estimate, there would be less excess funds available to fund emergencies or shortages. The only way to fund emergencies or shortages in such a situation would be to cut existing funding. This could cause confusion and uncertainty within the state budget process.

A conservative approach to supplemental budget expenditures would limit the purposes/categories that should be funded (have first priority) to the following: education midterm adjustment; unplanned emergencies; predicted emergencies; legislation; and shortages. A less conservative approach to supplemental budget expenditures would include: surplus motor fuel funds, surplus funds from the Hazardous Waste Trust Fund, and surplus funds from the Solid Waste Trust Fund; new debt service; pre-funding of debt service; and a tax rebate. The least conservative approach to supplemental budget expenditures would include appropriations to agencies for various projects requiring one-time influx of funds (without an ongoing budget expense) and for new or expanded programs that have an ongoing budget expense.

The question as to whether funds not appropriated within the supplemental budget should be rolled over and appropriated in the next fiscal years budget or whether such funds should be given back to the taxpayers in the form of a tax cut must be looked at in terms of the states overall budgetary and fiscal picture. All of the surplus funds are not “extra” funds that were unexpected. These funds are part of the overall budgetary and fiscal plan, and therefore should not be considered separately. Any decisions on the appropriateness of tax cuts should be made in regards to the broader overall budgetary, fiscal and economic priorities.

A potential model for a supplemental budget would encompass the funding of budget emergencies, the education midterm adjustment, and one-time expenditures. There is a strong argument to be made for funding new bond projects in the supplemental budget in that there may be cost savings due to the potential of lower interest rates. Any additional funds would then be rolled over into the next fiscal year to be made part of that year's budget and tax deliberations.