New legislative session, old troubles

By James Salzer

The Atlanta Journal-Constitution

Lawmakers who are coming to Atlanta for the 2011 legislative session looking for some sign of an end to the state’s fiscal crisis will almost certainly be disappointed.

When the General Assembly convenes a week from today, they face a third consecutive year of massive spending cutbacks, a financially troubled HOPE scholarship program and a self-imposed goal of rewriting a state tax code built on an agrarian economy of the 1950s.

Money matters always take up a lot of the General Assembly’s time. Even with a slimmed down $17 billion to $18 billion budget, the state pays most or all of the salaries of 200,000 teachers and state employees, helps educate about 2 million students, provides health care to more than 1 million Georgians, issues 2.8 million driver’s licenses and IDs, incarcerates more than 50,000 criminals and operates 48 parks.

But the new governor and General Assembly head into this year’s legislative session with more work to do on state finances than usual.

Shrinking budget

First off for Gov.-elect Nathan Deal and lawmakers will be the shrinking state budget, which was $21 billion only a few years ago. Over two years of recession and falling tax revenue, lawmakers have cut about $3 billion in spending.

Cuts in education have brought teacher furloughs and layoffs, shorter school years and, in some instances, higher local property taxes.

While tax collections are starting to trend upward, the state is having to pay for more students, and more Georgians are joining Medicaid rolls. There is little money left in reserves.

In addition, the state’s budgets have been propped up the past few years by federal stimulus money. That ends this year. So budget-writers have predicted shortfalls ranging from $1.2 billion to $2 billion for the next fiscal year, which starts July 1.

“We don’t have all the numbers yet, but right now, we know we have a very bleak budget year ahead,” said House Appropriations Chairman Ben Harbin (R-Evans).

That’s the same thing teachers and state employees have heard since 2008. Most have gone without cost-of-living raises and have had to take days off without pay.

It’s a similar story, with a few exceptions, everywhere in the country. The Washington, D.C.-based Center on Budget and Policy Priorities estimates that state governments will face combined shortfalls of $140 billion during the upcoming fiscal year. That’s after cutting spending and raising revenue to make up a $130 billion gap this year.

In Georgia, governors set the amount of money that can be appropriated and recommend a budget at the beginning of each session. The House and Senate use those recommendations as a baseline and then rewrite the budget before passing it back to the governor for his signature.

Deal has said little about the budget proposal he will make next week. But he has warned that jobs will have to be cut to keep state finances in the black. Unlike Congress, where Deal served before being elected governor, the General Assembly is required to approve a balanced budget. It can’t borrow money to pay its bills.

Deal told the Atlanta Journal-Constitution his priorities are to build up the state’s economic development efforts to help create private sector jobs and to protect education and public safety as much as possible.

“You are going to see us shifting some emphasis to economic development and beefing up that agency with the purpose of having the kind of outreach we know we have to have to recruit new businesses and build the base of our existing businesses,” he said.

Closing the gap

The economic development agency is a relatively tiny part of the state’s budget. College education and k-12 spending account for more than half of the budget. So trying to protect schools from further cuts will be extremely difficult.

Herb Garrett, executive director of the Georgia School Superintendents Association, said schools aren’t expecting to escape another round of spending cuts this year.

“You simply can’t close that kind of gap without touching education,” Garrett said.

He said the best school systems can hope for is that the state gives them the flexibility to decide how to implement the spending cuts.

Few systems have much in the way of financial reserves left to make up for the smaller state checks, and with property values still falling, property tax increases probably would only provide limited help.

“For schools, it will be scrambling to do our best with mighty little in state resources,” Garrett said.

Terri Beech, a mother of two children attending Chamblee Charter High School, has watched her school run short of everything from copy paper to Band-Aids over the past few years.

“As a parent, I have to tighten my belt. I understand that,” she said. “We know they (cuts) are coming again. Where does that money come from? They cannot lay anyone off because they are bare bones right now.”

But Lt. Gov. Casey Cagle said there is still room for the state to consolidate and privatize services and reduce spending.

“It (cutting more) will not be the end of the world, and the government will continue to provide services,” Cagle said. “There are some services we provide that we need to either do in a more efficient manner or we need to allow the private sector to perform in a more cost-efficient way.”

Like most lawmakers, Cagle opposes raising taxes to make up any shortfall.

“I am one of those who thinks we don’t need to be raising taxes and we need to focus on the expense side of the ledger.

“You don’t simply cut to cut. You cut versus raising taxes.”

Coming up short

At the same time lawmakers will be trying to balance a budget short of money, Deal wants them working to stabilize the HOPE scholarship program. HOPE provides full tuition and book and fee money to college students who maintain at least a “B” average.

HOPE and pre-kindergarten classes are funded by lottery proceeds. Although Georgia’s lottery is considered one of the most successful in the country, its revenues aren’t keeping up with the growth in the cost of the programs.

More students each year are qualifying for HOPE, and colleges have raised tuition annually, often to make up for cuts in state funding to schools.

Last fiscal year, lottery revenue didn’t generate enough to pay for the programs and state officials had to dip into a $1 billion reserve fund. Deal, who served in the state Senate when HOPE was created in the 1990s, said within a few years, the reserves could be gone if no action is taken.

Deal didn’t disclose what he thinks should be done, but General Assembly will probably have to either cut back on the benefits paid to students or reduce the number of students receiving the scholarship.

Deal told the AJC that with the reserves being depleted so quickly, lawmakers cannot wait until 2012 to fix the problem.

“That’s an election year, and sometimes it’s very hard to get those decisions made in an election atmosphere,” he said. “We are going to ask them to make some hard decisions this year.”

Redirecting emphasis

The first two money issues lawmakers will have to tackle. The third, rewriting the tax system, is an issue of their own making.

A panel created by the General Assembly to rewrite Georgia’s tax code – the Special Council on Tax Reform and Fairness — is expected to release its recommendations in coming days.

A.D. Frazier, the council’s chairman, hasn’t stated publicly what those recommendations will be.

But in a speech to lawmakers last month he made it clear the general philosophy guiding the recommendations will be to charge state sales taxes on more goods and services — including possibly groceries — and reduce income taxes.

That would fall into line with what many Republican lawmakers have been pushing for years.

Republican leaders and some economists support redirecting the state’s taxing emphasis to what people buy and the services they use rather than the income they earn. Cutting taxes on business inputs — for instance, energy used by manufacturers to make a product — would help make those businesses more competitive and allow them to hire more workers, they argue. Deal ran for office last year promoting a reduction in taxes levied on businesses, and at least some reduction in corporate income taxes will be debated.

Advocates for the poor and elderly stress that those groups spend a higher percentage of their income on goods and services that would be taxed under the Republicans’ scenario. So, cutting income taxes and making people pay more in sales taxes would provide a tax break for upper-income Georgians and make the poor pay more, they argue.

Frazier has avoided saying anything directly about the idea of putting the sales tax back on groceries. The state’s 4 percent tax was removed from most groceries in the late 1990s. Putting it back on such food purchases would raise about $600 million per year.

Even if such a plan passes the General Assembly, it might have a hard time getting Deal’s signature.

“That is going to be a difficult sell because so many of us have taken a position that we would be opposed to that kind of thing,” Deal said.

However, Deal has left himself an opening, saying a tax package would be more palatable if it includes “a redistribution of where the taxes come from.” So if Georgians pay more in sales taxes but the income tax rate is reduced, it could win the backing of lawmakers who have generally opposed adding the sales tax to groceries.

Whatever tax plan winds up being considered by the General Assembly will bring a lively debate in a statehouse where every interest – from big businesses to social services – has a throng of lobbyists.

“Any tax break is going to have a constituency,” said Sen. George Hooks (D-Americus). “They don’t want you to do it to them (tax them), but they want you to do it to the other fellow. “