Unlike other states, Georgia remains fiscally solid
Bankruptcy for states?
Former U.S. House Speaker Newt Gingrich and Senator John Cornyn of Texas have stirred up controversy with a proposal to allow states facing severe financial problems to declare bankruptcy.
The intent is to provide an alternative to federal bailouts and allow states to re-negotiate their various debt obligations in a manner somewhat like a corporation or individual, in bankruptcy court. The proposal is being targeted at states like Illinois, which is currently expecting a projected 47 percent budget gap and an estimated pension funding level of 54 percent.
Is Georgia at risk of becoming insolvent?
No, Georgia is not at risk. Primarily because Georgia has a strong set of safeguards to help ensure responsibility in meeting the state’s fiscal obligations.
Perhaps the most significant of these is Georgia’s constitutional requirement of maintaining a balanced state budget. This prevents financing state government with debt by mandating that the total budget be less than or equal to the Governor’s revenue estimate.
With revenues taking a plunge over the past three years, Georgia has had to rely on the use of cuts, shortfall reserves, and some federal funds to close the gap.
Pensions, debt service, and bond issuance
Even with the difficulties of the past few years, Georgia has remained a “solid performer,” according to the Pew Center on the States (www.pewcenteronthestates.org) and is meeting pension obligations.
This status is given to states with an 80 percent or greater pension funding level, a threshold that Georgia has met and surpassed.
Currently, the Teachers Retirement System is 87.2 percent funded with $42 billion in assets, while the Employee Retirement System is 85.7 percent funded with $10.5 billion in assets.
Long-term pension obligations for state employees will decrease over time. Starting in 2009, newly hired state employees and those who opted to switch were partially converted from the traditional defined benefit plan to a new defined contribution plan that has a 401k or 457 type account. Governor Deal, in his FY12 budget, recommended an additional $21.2 million to meet required pension contributions.
Georgia has also managed to maintain an excellent “AAA” bond rating with all three credit rating agencies, and is one of only seven states to do so. This allows the state to borrow at lower interest rates and makes it a stable investment for bond holders.
Constitutionally, Georgia can sell bonds only to fund state-owned capital projects, and is limited to debt service that remains less than 10 percent of total revenue receipts. In comparison, some states, including California, have used bond sales to fund state operations.
If you would like additional information regarding a specific piece of legislation, you may access the Georgia General Assembly website at www.legis.ga.gov/
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[Sen. Ronnie Chance (R-Tyrone) represents Senate District 16, which includes parts of Fayette, Monroe and Spalding counties and all of Lamar and Pike counties.]