1. Overview and Outlook for Georgia’s Revenue Situation and Economy Fiscal Management Council Office of Planning and Budget Ken Heaghney September 2015

2. Agenda State of Georgia Revenues Georgia’s Economy – Current Trends and Outlook

3. State of Georgia Revenues - Overview Revenues have grown for five consecutive years after the Great Recession. FY 2015 revenue growth far exceeded plan. This creates some headroom for additional funding in future budget years and adds to reserves. Revenues, adjusted for inflation and population growth, are still below pre-recession peak. Current revenue trends are still positive – few signs of slowdown.

4. Five Consecutive Years of General Fund Growth – (FY 2015 Preliminary)

5. Rapid Revenue Growth in AFY 2015

6. Rebuilding the Revenue Shortfall Reserve – Over $850 Million as of FY 2014 Expect RSR to Exceed $1 Billion as of FY 2015

7. Inflation Adjusted Per Capita General Fund Revenues are Rising but Still 13% Below 2007

8. Tax Revenue Growth Remains Solid

9. Withholding Revenue Growth is Strong

10. Other Types of Individual Payments are Growing at Double Digit Percentages

11. One Area of Concern: Sales Tax Growth Has Weakened

12. Revenue Growth is Strong but Georgia Still Faces Budget Challenges Revenue trends by major tax components indicate economic conditions continue to improve – thus, revenues are expected to continue to grow at a moderate rate. Tax changes associated with transportation funding will further boost reported growth. However, formula growth (education, health-related) expected to continue to consume much of future revenue growth. Unfunded liabilities will have to be addressed over time RSR needs further replenishing

13. Georgia’s Economy – Current Conditions and Outlook “Solid Growth Meets Increasing Market Turmoil”

14. Markets in Turmoil: Equity Values have Dropped Sharply

15. Commodity Prices have Declined Over 18 Months; Oil Price Decline a Key Driver

16. Market Turmoil Adds Uncertainty to an Economy Growing at Solid but Unspectacular Rate Key Fundamentals 1.Employment growth is solid but softer than 2014 2.Consumer finances are in good shape but spending growth is modest 3.Manufacturing growth has decelerated 4.Housing recovery is on-track 5.Inflation and interest rates are very low Will Market Turmoil Alter these Fundamentals? Will the Fed Delay Interest Rate Hikes to Begin Normalizing Monetary Policy?

17. #1) Labor Market Growth is Solid but Softening – Growth in Georgia Outpacing US Growth

18. Net US Job Additions Over 200k Per Month – Down from Late 2014 Peak

19. Georgia Net Job Additions Have Eased Over the Last 3 Months

20. Unemployment is Falling Steadily

21. But Georgia’s Labor Force has Declined Last Two Months

22. Unemployment Insurance Claims are Low Indicating Low Level of Layoffs

23. Employment Growth is Fairly Well-Diversified Across Sectors

24. And Across Metro Areas

25. #2) Consumer Balance Sheet in Good Shape Household Wealth has Grown Rapidly but Recent Declines in Stock Values Puts This At Risk

26. Household Debt Obligations are Down

27. Real Disposable Income Growth is Solid

28. Low Gas Prices Expected to Boost Consumer Spending Growth

29. Expected Impact: Boost to Economy Drilling Activity Cut – Lower Employment & Investment “Tax Cut” for Consumers – Higher Spending But consumers have been slow to spend their “windfall”

30. But Consumers Spending Growth is Tepid Despite Strong Fundamentals

31. One Area of Strength - Auto Sales

32. #3) Manufacturing Easing as Stronger Dollar and Lower Oil Prices Create Headwinds

33. Manufacturing Has Lost Some Momentum

34. Exports Have Dropped

35. Key Manufacturing Activity Indicators have Softened

36. #4) Housing Recovery – Home Sales are Volatile But Trending Up

37. Housing Starts are Also Trending Up

38. Pace of Price Appreciation is Moderate

39. #5) Inflation and Interest Rates are Low

40. Interest Rates

41. Implications for the Economy Broadly solid fundamentals indicate economic growth remains intact. Tightening labor markets are pushing the Fed to begin raising interest rates. However, low inflation gives the Fed leeway to defer a rate increase beyond September, if desired. Prospects for stronger growth tied to consumers beginning to spend more of the gasoline “tax cut” and a quickening in the pace of recovery in housing market. Market turmoil adds more uncertainty to the outlook. Risks to the outlook include impact of monetary policy normalization and weakness in global economy (especially China and Eurozone).