The Atlanta Journal-Constitution
Deal faces challenges with budget
Governor likely to emphasize stability in spending decisions.
At the top of lawmakers’ to-do list every General Assembly session — like the one starting Monday — is deciding how they will spend the billions of dollars Georgians have paid into the state treasury each year.
In other words, it’s time to start paying attention.
Why?
Because the state budget — which will be about $26 billion in state revenue and around $50 billion with federal funding included
—touches the lives of millions of
Georgians.
It helps pay for the schools and colleges 2 million Georgia stu
dents attend, plus the salaries 100,000 teachers earn. It provides health care and nursing services to 2 million Georgians. It will likely help fund the bid
to bring Amazon to Atlanta, and it pays for roads and bridges with the aim of speeding up commutes, and makes sure state parks remain open.
It builds — a lot — of schools,
college classrooms and other facilities, creating thousands of private-sector jobs, and ensures teachers and state employees can sustain themselves in retirement.
Gov. Nathan Deal will present his spending plan to lawmakers this week, and then it will be up to them to decide what makes the cut and what doesn’t.
What they produce — likely gaining final approval in late March — will be influenced by:
■ Massive payments to prop up the teacher retirement system. That could mean other things — like teacher raises, for example — don’t get funded.
■ The need to pay for higher enrollment in schools and public health care programs, problems that are in part a product of the state’s continued growth.
■ Whatever gets set aside to try to attract Amazon’s second headquarters to the state.
■ The possibility of spending cuts from the federal government. That could particularly affect those on public health care programs.
In addition, Deal’s office won’t find out until the first week of the session what impact the federal tax law Congress passed in December will have on the state budget because number-crunching wasn’t completed over the holidays.
But 2018 is also an election year, with all the optimism and big ideas that spring from those running for office. That could mean lawmakers will eagerly push sure-fire political winners such as lowering state income tax rates.
Deal, like many a corporate CEO, prefers stability, and it’s unlikely he’d support a major cut in Georgia’s income tax rate. In fact, with a budget that’s largely spoken for just maintaining the status quo, leading lawmakers aren’t expecting anything too flashy from the governor’s spending plan.
“It is going to be one of those years that you are not going to see a lot of new and exciting things,” predicted House Appropriations Chairman Terry England, R-Auburn.
Many states are taking a conservative approach to spending as they see revenue — tax collections — slowing and worry about the uncertain effect of federal tax and spending policy. Also, some officials are concerned that after one of the longest expansion periods in modern history following the Great Recession, the U.S. economy is due for a downturn.
Georgia Senate Appropriations Chairman Jack Hill, R-Reidsville, is bullish on the state’s economy. He said Georgia is growing at a faster clip than much of the rest of the country.
“I am really pretty optimistic about this next year,” Hill said. “There are some unknowns. I have tried to look around the corner and see what could go wrong, but I don’t see the negative.”
Still, the fact that the state is growing also means a greater need for services, more children in schools and colleges, more people getting health care, more and better roads and bridges. So the state budget grows to cover those costs.
“As you grow bigger, the amount of money you need to fill the needs grows bigger,” Hill said. “I think it’s a natural issue. It takes money.”
Deal’s budget director, Teresa MacCartney, warned last fall that the biggest increase in state spending in the upcoming year in Georgia wouldn’t go to expanding health care or paying for ever-growing school enrollment or for funding a new tax cut, but to help ensure the financial stability of the teacher retirement system, which provides pension checks to more than 100,000 Georgians.
The state will pump $350 million to $375 million more into the fund next year — after adding $200 million more this year. That means 200,000 educators and state employees may go without pay raises or receive minimal increases, and “austerity” funding cuts to school districts that go back more than a decade may remain during fiscal 2019, which begins July 1.
John Palmer, a Cobb County educator and spokesman for the group TRAGIC, said teachers don’t expect much from Deal and lawmakers this year. Even when they provided raise money in recent years, he said, cuts to local districts meant not all teachers got a pay boost.
“I think educators have figured out this political doublespeak and don’t expect any real changes while this current administration is in charge,” Palmer said.
Just maintaining funding for education and public health care programs and paying for enrollment growth will add an additional $400 million to the budget.
Some other areas, such as mental health programs and efforts to attack the opioid addiction epidemic may also receive extra money in the budget. A House task force wants the state to spend money in small-town Georgia to improve broadband services and provide tax breaks to people willing to move to rural areas. A task force appointed by Lt. Gov. Casey Cagle, who is running for governor, called for spending state money on salary hikes for local law enforcement, something the governor and House leaders will likely oppose as an election-year gimmick.
Other areas — such as the impact of the federal tax overhaul and federal spending — remain a question mark. Deal’s office still doesn’t know what the tax bill — which will likely lead to fewer Georgians itemizing their taxes rather than taking deductions for things such as local taxes — will mean for the state.
State officials also don’t know whether congressional leaders will cut federal spending on Medicaid — the health care program for the poor, disabled and nursing home residents — to help make up for the loss of money the federal government will see after cutting income taxes.
“We are very concerned about how this may impact Georgia’s Medicaid program,” said Laura Colbert, the executive director of Georgians for a Healthy Future. “When we talk about cutting Medicaid at the state level, you are really talking about cutting health care to children, seniors and people with disabilities.”
Backers of the tax overhaul promised it will boost the economy, which would be a good thing for state finance. Georgia tax collections grew 4.1 percent during the first six months of this fiscal year, about the same rate as the previous year.
Deal has traditionally been conservative in his predictions of growth, and despite optimism among his fellow Republicans in Washington about the tax plan, he can’t be sure when the business cycle of expansion and retraction will turn down. Many lawmakers were around a decade ago when the Great Recession brought widespread budget cutting and teacher furloughs.
The governor’s conservative nature on finances is why he’s unlikely to jump on the bandwagon some legislative leaders have gotten rolling to reduce the state income tax rate. The top income tax rate currently sits at 6 percent. It is the largest source of income for the state, and the governor is concerned cutting it could destabilize state finances and threaten Georgia’s highly prized top bond ratings, which keep borrowing interest rates low.
Both chambers of the state Legislature passed bills to lower the top income tax rate during the 2017 session, and that legislation remains in play and eligible for a vote this year. Leaders in both chambers sound eager to take another shot at it this year.
“I think it is a priority and will be a priority to get something through that will lower the income tax burden on Georgians,” said House Speaker David Ralston, R-Blue Ridge. “I think it’s important we let Georgians keep more of the money they earn and it stimulates job growth.”
Senate Finance Chairman Chuck Hufstetler, R-Rome, said: “The state income tax of 6 percent has not been cut since 1955. I would like the get something done this year. I just want to make sure it is fair to everybody.”
Bill Fogarty, the state director of a group hoping to replace the income tax with higher consumption taxes, is skeptical that major changes will move forward this year.
“We’ve been told that the governor will be very cautious in his approach to fiscal affairs during his last term in office and any bill that contains significant change will probably not move forward,” Fogarty said.
The iffiness over an income tax cut may make it difficult to pass another major bill the House overwhelmingly backed last year: one to enforce taxes on internet sales.
Brick-and-mortar businesses, such as Main Street stores — have long said they are at a disadvantage because they charge their customers sales taxes and some internet retailers don’t. That means the price for what they sell may be higher.
“It’s fundamentally unfair for internet sellers to not collect sales taxes on sales to Georgians,” Fogarty said. “For a business to suffer a disadvantage because government has imposed a separate tax treatment for one competitor vs. another is inappropriate.”
While many lawmakers may agree, the internet retailers that currently don’t collect a sales tax will call it a tax increase on their customers.
House Ways and Means Chairman Jay Powell, R-Camilla, says internet companies are already supposed to be collecting the tax. Amazon, for instance, does. But many still don’t.
A state fiscal analysis suggests collecting those taxes could mean an extra $274 million in revenue for the state and $200 million for local governments. The combined figure could hit $621 million by 2022.
But in an election year, lawmakers may have a hard time passing an internet tax bill — which would raise revenue — without correspondingly passing legislation to cut income taxes — which would lower revenue — to offset it.
“If it involves a new tax or a new fee, it will take a good selling job to pass it,” said Hill, the Senate budget chairman.