Georgia's Budget Surplus: A Delicate Balance of Cuts and Spending

As the General Assembly prepares to convene in January, Georgia state leaders are facing a difficult decision: what to do with the state's swollen budget reserves, which stood at $14.6 billion as of June 2025. The reserves include $9 billion in undesignated budget reserves and $5.6 billion set aside in a rainy day fund. While lawmakers have used the extra cash to reduce Georgia's income tax rate and issue tax refunds in the past, some are now calling for more significant cuts or even the elimination of the income tax. Meanwhile, federal funding cuts are looming, with Medicaid health care spending expected to be cut by $10 billion over a decade. With the state's reserves having peaked, the budget debate for next year is likely to be more challenging than in recent years.

Key Takeaways:

• Georgia's budget reserves ballooned from $2.5 billion in fiscal year 2020 to $16.5 billion last year due to factors such as federal spending during the COVID-19 pandemic and a post-pandemic economic boom.
• The state's undesignated reserves, which can be spent in multiple ways, including tax refunds, are still high by historical standards despite a recent decline.
• Tax relief has been a recurring theme, with tax cuts and refunds costing the state more than $2 billion this year, a big reason reserves are down.
• Lt. Gov. Burt Jones, who is running for governor, wants to eliminate the income tax, and has launched a Senate committee to study ways to accomplish that.
• Eliminating the income tax would require significant spending all $14.6 billion in undesignated reserves on tax relief, which would not cover the loss of income tax revenue for one year.
• The impending federal spending cuts, including a $10 billion reduction in Medicaid health care spending over 10 years, will make budget writers want to set aside money to backfill the cuts.

Statistics:

• Georgia's budget reserves: $14.6 billion (as of June 2025)
• Undesignated budget reserves: $9 billion (as of June 2025)
• Rainy day fund: $5.6 billion (as of June 2025)
• Tax cuts and refunds: $2 billion (this year)
• Medicaid health care spending cuts: $10 billion (over 10 years)
• COVID-19 federal spending: contributed to Georgia's budget reserves growth
• Post-pandemic economic boom: contributed to Georgia's budget reserves growth
• Inflation: increased sales tax receipts, which in turn contributed to Georgia's budget reserves growth

Sources:

• "State Accounting Office confirms Georgia has plenty of money in the bank" by David Wickert, The Atlanta Journal-Constitution (no date)
• KFF, "Medicaid Spending in Georgia" (no date)
• State Accounting Office, "Georgia's Budget Reserves" (no date)