New Georgia governor will work with a far different economy than Deal

Georgia’s state Capitol.
Georgia’s state Capitol.

Seven years ago Nathan Deal became governor at a time when the state was struggling to pay its bills and the government’s piggy bank was nearly empty.

When Republicans Casey Cagle or Brian Kemp, or Democrat Stacey Abrams replaces Deal in January, he or she will more likely have to figure out what to do with all the tax money flowing into state coffers.

Each has a different plan.

Cagle, Georgia’s lieutenant governor who faces Kemp in the July 24 GOP runoff, has vowed to cut the current maximum state income tax rate from 6 percent to below 5 percent and invest extra money in college and career academy programs to prepare more students for good-paying jobs.

Kemp, who is Georgia’s secretary of state, would like to cut taxes too, but his top priority is to cap state spending to prevent the government from using any tax windfalls that come its way.

Abrams, who is awaiting the winner of the runoff, wants to expand Medicaid to provide health coverage to more Georgians and eliminate some of the myriad tax breaks and loopholes the General Assembly has provided over the years to select industries.

The ultimate winner will have choices to make that Deal could only dream of when he took office in 2011 to run a state still feeling the impact of the Great Recession.

"As things stand today, barring some unforeseen financial turmoil, the situation couldn't be any different than when Nathan Deal came into office," said Kyle Wingfield, the president of the conservative Georgia Public Policy Foundation think tank.

“But it can be harder to keep everybody happy when times are good than when times are bad because it’s easier to tell people (wanting something) no when times are bad,” Wingfield said. “The challenge is going to be different, but it doesn’t mean it’s going to be easier.”

$1.2 billion more over two years

When Deal took office, unemployment was high, state reserves were barely enough to pay a day’s bills, and spending was still being slashed.

While the state budget for this fiscal year — which began July 1 — tops $26 billion, the government is only now spending in the neighborhood of what it did before the recession, once inflation and population growth are considered.

State spending has risen, but so have the needs from a larger population of students attending schools and Georgians receiving public health care or crowding roads.

Still, times look relatively flush for the state. Unemployment is low, tax collections rose 4.8 percent during the first 11 months of fiscal 2018, and for the first time in about 15 years, the state could afford to fully fund the formula used to pay for local k-12 schools.

Deal will likely leave his successor with $2.5 billion in reserves.

The federal income tax bill passed by Congress in December promised to bring the government significantly more money because it limits or eliminates some of the deductions Georgians use when figuring their state taxes.

So while many Georgians would pay less in federal taxes, at least some would have wound up with bigger state tax bills unless lawmakers made changes in Georgia’s tax code as well.

Deal and the General Assembly fixed that through a bill that will eventually lower the maximum state income tax rate from 6 percent to 5.5 percent and will double the standard deduction for Georgians.

Because the changes are being phased in, the federal law will still mean an initial windfall for the state over the next couple of years — much smaller than it would have been without the bill lawmakers passed during the 2018 session. Then, as the new rates kick in, the state will take in far less in income taxes.

Combined with a recent U.S. Supreme Court ruling allowing states to force online companies to collect sales taxes on what they sell, Georgia could see an additional $1.2 billion in revenue over the next two years.

That’s on top of normal growth as the state’s economy expands, as it has done for several years.

Spending cap or lower tax rate?

The two Republican candidates who meet in this month’s runoff take conservative approaches to that potential infusion of money , while the Democrat, Abrams, backs using the growing state coffers to spend on things such as providing more Georgians with health care.

That’s somewhat predictable on the Republican front: GOP candidates in particular have long campaigned on cutting taxes and spending.

Kemp said the budget “has grown a lot” and that he’d make a cap on the growth in state spending a top priority. He said his office had to become good at holding down spending because of budget cuts the agency dealt with after the Great Recession.

“I think we should start any of this with a spending cap, we budget conservatively, and then we fund the things we should be doing in state government, like education, public safety, transportation, health care,” Kemp said. “If we do that and we don’t grow more than we should when times are good, then we can have real tax reform.”

Kemp said he’d give excess money back to taxpayers and would like to lower income tax rates, but the spending cap should come first.

Georgia lawmakers looked at a law similar to Colorado’s Taxpayer’s Bill of Rights, or TABOR, in the mid-2000s. TABOR tied government spending to inflation and population growth.

If inflation and population growth added up to 4 percent in a year, for instance, that’s the maximum percentage increase in revenue the government could keep to spend. The rest was supposed to be rebated to taxpayers.

Critics in Colorado said the law’s inflexible limits on spending forced deep cuts in funding for schools and health care, and in 2005 voters there approved a ballot measure to loosen restrictions. It remains a controversial law, but about two dozen states now have some kind of spending restrictions.

Wesley Tharpe, the research director for the left-leaning Georgia Budget & Policy Institute, said TABOR-like laws can limit spending in areas that grow — such as schools and public health care — as the need for those services rise.

“About 70 percent of the (state) budget is education and health care, and a good chunk of the rest is public safety,” Tharpe said. “The talk of cutting spending tends to gloss over the reality of how crucial these investments are to our success.”

Wingfield said the original idea behind TABORs is sound, but often there are amendments and changes made over time that weaken such laws’ impact.

“I like it in theory, but it would take a tremendous amount of long-term discipline by the governor and the Legislature to make it work,” he said. “What you have to learn from a state like Colorado is there will constantly be efforts to undermine it.”

Cagle says Georgia is already conservative in how it spends taxpayer money. It typically ranks among the lower-spending and lower-tax states in national rankings. Each summer, Deal tells state agencies to submit budget requests for the following year with little or no increases in spending, except for enrollment growth in education and health care programs.

An Atlanta Journal-Constitution analysis in 2016 showed that when population and inflation were taken into consideration, many state agencies were spending less money than they did in 2008, before the recession started hammering state finances.

“For anyone to make the argument that we have not budgeted conservatively and have not held to those principles is a false narrative and false attack,” Cagle said.

Kemp also said he wants the state to do a better job of making sure it is getting a return on special-interest tax breaks that lawmakers approve each year, and that transportation, infrastructure and workforce development will be high on his priority list for state spending.

“I think when we get done doing that, Georgians are going to be appreciative of looking at how we can cut government, streamline government, and make it more efficient,” Kemp said.

Cagle began his campaign for governor promising a $100 million tax cut, quite a bit less than the General Assembly approved during the 2018 session. He now says he wants to get the maximum income tax rate below 5 percent. And he wants to do so while maintaining the state’s top bond rating, which allows Georgia to borrow money at low rates.

“What’s important to note is I am being consistent, I am campaigning to govern,” Cagle said. “It’s easy to make empty promises, but it’s another thing to have the knowledge to back up what you say.”

The lieutenant governor said if elected, he would appoint a commission to study how best to lower tax rates in his first term.

Recently, Cagle has also called for eliminating income taxes on military pensions. Senior citizens can already shield all or much of their pension from state income taxes under Georgia law, although that doesn't cover younger military retirees.

The lieutenant governor said the state will still have plenty of money to spend on roads and bridges, to expand college and career academies and access to health care, and for other priorities.

Cagle said he’d also like to see the state put money into programs to get “able-bodied individuals” into jobs and off government-funded programs such as food stamps.

“When you look at the revenue increases we are projected to have, and you look at the additional revenue from the (internet sales tax) ruling,” he added, “we are going to have ample resources.”

2018 campaign

The Atlanta Journal-Constitution is covering the issues and candidates in a busy election year. Previous stories have focused on topics such as gun rights and immigration. Look for more at as the state approaches the next political milepost, the July 24 Republican runoff for governor.