Georgia's Perdue Pushes Debt Plan in Excess of $1 Billion

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As Georgia grapples with shrinking tax revenue and a protracted recession, Gov. Sonny Perdue is pushing for a big borrowing package to help keep the triple-A rated state's economy afloat.

This month Perdue announced an aggressive borrowing plan that is expected to exceed $1 billion, with the funds going toward infrastructure projects that would create jobs and stimulate the economy.

Georgia is in a relatively good position to take on the debt, given the gilt-edged rating.

"This state has a history of prompt responses to revenue shortfalls of the sort we're seeing now," said Ted Hampton, analyst for Moody's Investors Service. "Georgia has significant strengths, economically, when compared to a lot of other states and those nearby."

As of June, total outstanding general obligation debt was $7.85 billion with an additional $604.56 million of guaranteed debt. When debt issued in July is included, the total increases to $8.9 billion.

That was the last time Georgia sold debt, and though there is a proposal out for underwriters for new bonding, the state is in a "wait-and-see mode," according to Susan Hart Ridley, director of the administration, financing, and investment division of the State Financing and Investment Commission.

Georgia's tax base has shrunk over the last 10 years as the state eliminated the sales tax on food and increased certain tax breaks and credits, costing a minimum of $1.5 billion a year, according to the Georgia Budget and Policy Institute, an independent and nonpartisan group.

The impact on net revenue collections has been sizeable. Though collections inched up 1.4% to $1.42 billion last month compared to November 2007, the year-to-date number is down 1.3%. And that situation is only expected to get worse - the Georgia State University Economic Forecasting Center is projecting a 6% drop in revenue in fiscal 2009.

"A 6% revenue decline would result in a fiscal year 2009 budget shortfall of $2.5 billion," according to the Georgia Budget and Policy Institute's State Fiscal Crisis report released this month. "The current budget shortfall is due to the combination of a historically weak economy and a shrinking tax base. In short, Georgia has a revenue problem."

Even so, the state has maintained high ratings, in part because of officials' efforts to address shortfalls and expenditure reductions "while maintaining an adequate level of financial reserves," Standard & Poor's said in a recent report.

The report noted that the state has identified $1.6 billion of savings through revenue withholding measures such as expenditure cuts and the withholding of other grants and funds.

Georgia's overall debt burden remains "a manageable $886 per capita, or roughly 2.65% of personal income," Standard & Poor's said. "Debt service represents a modest portion of state general fund revenues, at less than 6.2%."

On March 10, the governor recommended a $65 million reduction in the state's revenue projection. The fiscal 2008 budget didn't reflect that, however, so Perdue exercised his line-item veto and eliminated additional funds for the North Central Law Enforcement Academy. On March 21 he signed into law the amended fiscal 2008 budget.

Perdue in May authorized a fiscal 2009 budget of $21.1 billion that included $7.5 million to expand his middle- and high-school graduation coach program and $6.4 million in lottery funds for expansion of Georgia's pre-K program to a total 79,000 slots.

The budget also set aside $39.6 million for Medicaid reimbursements, $17.6 million for nursing home reimbursements, and $31.3 million to upgrade the state's mental health system.

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