Sunday Conversation with…David L. Sjoquist

The director of Georgia State University’s Fiscal Research Center is co-author of a new study that predicts that the state will face years of massive budget shortfalls unless something dramatic changes. The economist also serves on a special council charged with reshaping Georgia’s tax code.

Q: In words a grade schooler could understand, what’s the situation with the budget?

A: We don’t have enough coming in through lottery sales, sales taxes, income taxes, fees to pay for the expenditures that would be required to maintain current service levels.

Q: What services?

A: We are talking about everything — transportation, education, the state patrol, parks, those are the biggest ones. Education — both college and Pre-K, K-12, vocational — takes up more than half of the budget.

Q: How bad off are we?

A: We are looking at a $1.5 billion to $2 billion shortfall going into the current budget year. Whoever becomes governor is faced with that.

Q: Did you see this coming?

A: What’s the story -- you put a frog in a pot of cold water on a burner and somehow he didn’t see it coming? This has been a problem for a while. But in some ways we put off the reckoning with reserves and stimulus money. Now the reserves are used up. The stimulus money will be used up.

Q: Is the time of reckoning now?

A: Yes.

Q: Even if the economy turns around, we are still going to be in the hole?

A: Given what we currently believe, the economy will begin to grow but not the way it did in the past. The revenues will not keep up with what we need. We are either going to have to continue to reduce expenditures or increase taxes.

Q: You said reduce expenditures or raise taxes. Could that be and raise taxes?

A: Yes. That is really a political decision. I have a hard enough time forecasting the economy. Forecasting political behavior is even more dangerous.

Q: Is there anything left to cut?

A: Sure. We can reduce funding for education and increase class sizes. Reduce the number of people on Medicaid. Close more state parks. We could close some of the universities. There are all kinds of ways to cut the budget. The question is, how important are those services?

Q: It sounds like whatever we do is going to be painful?

A: No doubt.

Q: How do we stack up against other states?

A: Georgia has been hit harder than most states by this recession. The revenue declines have been greater than average.

Q: Why is that?

A: We are trying to figure that out. There is some evidence that the recession hit certain sectors harder than others. Construction and financing got hammered. A large portion of our economy was in construction and real estate and finance.

Q: Do you think the stimulus should have been bigger?

A: Yes, in retrospect. It looked pretty large at the time. Without the stimulus, the unemployment would have gone up a good bit more.

Q: How many times a day do people ask, "When are things going to get better?"

A: Probably not as often as I ask myself that question.

Q: So, when are things going to get better?

A: We are turned around. When does unemployment get down to 5 percent? That is probably three years away. When does the housing market turn around? It will take a while.

Q: Do you agree that our kids will not be as well off as we are?

A: I am not sure that is necessarily the case. It is dependent upon continued innovation, new skills, new technologies. That has driven the economy in the past.

Q: What is the state tax reform council doing?

A: The step now is to look at some options. You could increase the income tax rates. Some states have added an additional tax on the very wealthy. We could eliminate or add some deductions and exemptions. We could increase the cigarette tax – we have one of the lowest in the country. We could reduce tax rates. But any significant change has implications for the state’s economy.

Q: Do you know what you would do?

A: I have thoughts about that but am very open to ideas. The last 14 years of my life have revolved around studying tax policy. Part of the work now is getting to know what Georgians think about our tax system. The council is learning about this tax and that tax. The tax policy issues we have to address are more than simply people don’t like paying taxes.

Q: You have an interest in urban economics and poverty. Does anyone even talk about the poor anymore?

A: I think the current way is talking about young families with children -- they tend to be lower income. That becomes the focus politically.