Amid budget cuts, lawmakers seek millions in tax breaks

Exclusive coverageEvery year, The Atlanta Journal-Constitution dissects budget proposals in the General Assembly to see how the state is spending tax money. We search for expenditures that are not always apparent and monitor changes that lawmakers propose.

Georgia lawmakers have been doing the same fiscal two-step every session since the start of the Great Recession.

First they wring their hands about not having enough money to fund things like for schools and public health care. And then they dole out expensive special-interest tax breaks that ensure that they have trouble funding schools and public health care.

Already this session, House members have filed more than a dozen tax-break bills, including one that would make permanent a tax exemption for Gulfstream, the maker of private jets on Georgia’s coast, and other similar companies.

Together, the tax breaks would cost the state — and save select individuals and companies — tens of millions of dollars at a time when K-12 education funding has been cut more than $1 billion and the state’s public health program — which provides services to 1.7 million Georgians — has monumental funding holes.

Critics of the tax breaks have long complained that lawmakers are hypocritical when they say they must cut spending while at the same time giving tax breaks to big, successful companies like Delta Air Lines or Gulfstream.

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Many of the tax breaks are being pushed in the name of economic development. They are, according to their authors, designed to save or create jobs in industries ranging from the jet and mobile home businesses to small high-tech firms.

For lawmakers always striving to make Georgia an attractive place for business, it’s hard to say no. Especially when industries have hired lobbyists to make sure they say “yes.”

“Everybody has an idea about what economic development is. Everybody who is out there on the rope line (lobbying) has their own agenda,” said House Economic Development Chairman Ron Stephens, R-Savannah, who has long been among the most prolific of tax-break-bill filers at the statehouse.

Alan Essig, executive director of the fiscally liberal Georgia Budget and Policy Institute and a former state budget analyst, said lawmakers seldom look back to see whether tax credits actually work to create or save jobs.

“It’s throwing stuff against the wall to see if it sticks,” he said. “We’re walking down this path and we seem to be investing more and more money into these things without knowing if they work. They seem to be made on who has more political pull.”

Among the proposals this year: a measure to exclude capital gains from state income taxes; a sales tax break for expansion of the Atlanta Zoo; a tax break on mobile home sales; an income tax credit for buying specific commercial geothermal heat pump systems; tax breaks for a state-supported investment program and downtown redevelopment; credits on alcohol taxes, insurance taxes and other taxes due if companies give to private school scholarship organizations, and exemptions from state sales taxes for kidney dialysis machines and food banks.

Nearly all of the tax-break proposals will have to clear the House Ways and Means Committee, where Chairman Mickey Channell, R-Greensboro, has promised a close review.

“While state revenues have ticked up some, we still face financial problems,” Channell said. “A lot of members have some interest in them. We’re going to go through a very, very thorough vetting process.”

Two years ago a state panel of experts worked to reform the tax system, but their call to limit breaks didn’t fly with the General Assembly or lobbyists. Last year, lawmakers passed legislation granting some tax changes that industries have long sought, benefiting car dealers, manufacturers and brick-and-mortar retailers.

This year, the tax break likely to attract the most philosophical debate is one to help Gulfstream and other companies that maintain and repair planes. Lawmakers have long backed the tax break, approving it and re-approving it every few years. Nearby states have similar tax breaks, and Georgia officials say they fear losing business.

The exemption means Gulfstream doesn’t have to charge its customers sales tax on the parts and equipment used to repair and maintain aircraft. In a business in which repairs can run into hundreds of thousands of dollars, the savings is significant.

Ron Aldrich, general manager of Gulfstream’s facility in Brunswick, told a House committee this week that he had a potential customer bring up the tax break, which would end this year without action.

“It means a lot to Gulfstream and Brunswick if you pass this,” Aldrich told lawmakers.

Making the tax break permanent helps the company plan long-term, company officials said, bolstering chances that they could expand in Georgia. Officials say the tax break — so far — has enabled Georgia to remain competitive and Gulfstream has expanded more than once since it was originally approved. Company officials say they have hired more than 1,700 people since the end of 2010, when they announced a Savannah expansion.

But Republican leaders have traditionally opposed doing away with sunset provisions on such tax breaks because it eliminates any reason to review their effectiveness.

“We need to evaluate these tax credit on an ongoing basis to make sure we get the biggest bang for the bucks, because it is an appropriation of state funds,” said Rep. Allen Peake, R-Macon, vice chairman of Ways and Means and a co-sponsor of the Gulfstream bill.

There is precedent for making breaks permanent.

In last year’s tax bill, lawmakers made permanent a jet fuel tax break for Delta and other airlines. That will cost the state — and save airlines — more than $20 million annually in coming years.

Lawmakers first approved a tax break for Delta in 2005 when it faced serious financial problems. Last year, it racked up a $1 billion profit. Gulfstream’s parent company, General Dynamics Corp., reported earlier this year that revenues in its Aerospace Group, which is made up primarily of Savannah-based Gulfstream Aerospace, hit $6.9 billionin 2012. The company has added jobs as it ramps up production for its ultra high-speed, ultra-long-range business jet, the G650, and more than 2,000 people work in maintenance and repair in Georgia, lawmakers said.

Two years ago when the exemption was renewed for airplane maintenance and repair, officials estimated it could be worth up to $15.4 million a year.

State officials said they didn’t have a “fiscal note” which estimates the cost, for the latest bill.

Essig’s Georgia Budget and Policy Institute put out a report earlier this year saying the state commits hundreds of millions of dollars each year to economic development tax credits without evidence that they work.

Stephens is a big supporter of Gulfstream, but an opponent of eliminating the once-every-few-years review of tax credits.

“After a while, it just becomes corporate welfare,” he said. “Unless it’s creating jobs or generating revenue back to the state, they don’t need to be there. They (tax breaks) need to be very, very targeted.”

Essig argues it’s a hit-and-miss effort because lawmakers — with a few exceptions — do little to go back and find out whether tax breaks actually create or save jobs. Most of the time, when tax breaks sunset, lawmakers make decisions to renew them based on the testimony and “data” provided by industries that benefit from them.

“If it’s corporate welfare, why Gulfstream and not somebody else?” he said. “What Gulfstream is trying to do is save money on lobbyist fees. What have we gotten for the money?”

House Minority Leader Stacey Abrams, D-Atlanta, and other House Democrats say they want to build in more review of tax breaks. They have introduced HB 148, the Tax Accountability Act, which would require any tax credit bill to be introduced only in the first year of the two-year General Assembly term and stipulate that such proposals only be voted on in the second year.

It would require a thorough review of the financial impact of each credit. The idea, she said, is make decisions based on data, not the needs or wants of a particular special interest.

The data on Gulfstream, she said, shows they have created jobs and “that without the credit, jobs would not have come to Georgia.”

“The goal isn’t to make a hard and fast rule for or against, it’s too have enough data to determine the value,” Abrams said.

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