Capitol Recap: State economist gives gloomy forecast for Georgia tax revenue

Credit: arvin.temkar@ajc.com

Credit: arvin.temkar@ajc.com

Stock market’s drop in 2022 will make an impact on state’s budget

The flow of cash to Georgia that has fed huge surpluses in recent years for the state government could soon see a major source of revenue dry up.

That was the warning state fiscal economist Jeffrey Dorfman of the University of Georgia gave state lawmakers this past week during hearings on Gov. Brian Kemp’s $32.5 billion spending plan.

The problem? It starts with the stock market.

Georgia finished fiscal 2022, which ended June 30, with a record $6.6 billion surplus, and a big part of that was taxes collected on capital gains from 2021. That was a strong year for stocks, with the S&P 500 index posting a return of 26.61%.

But those good times rolled into a ditch in 2022, with the S&P 500 index falling by nearly 20%.

As a result, Dorfman said, the state’s decline in revenue just from capital gains taxes could reach $3 billion.

“We know we are going to get a big shock when those tax returns come in,” Dorfman said.

The economist said the drop in capital gains revenue, combined with a decline in the state’s take from corporate income taxes on earnings, will produce a much smaller surplus. If there is one at all.

While Dorfman predicts difficult times ahead, the state has been socking away cash up till now.

Tax collections for the first half of fiscal 2023 are up 6.5%, or $966.7 million, over the same period the previous year.

That money will help pay for Kemp’s budget, which calls for $2,000 raises for more than 200,000 teachers and state and university employees, as well as big increases for education and health programs.

Dorfman did have some good news about Georgia’s economy. Unemployment is low after adding 167,000 jobs since the beginning of the COVID-19 pandemic in 2020.

Georgians, Dorfman said, also have larger amounts in savings since the start of the pandemic. They have continued to spend money, he said, creating the boon in sales tax collections in recent years.

“So far, consumers are not running out of money,” Dorfman said, adding that while credit card debt is growing, payment delinquency rates remain low.

Special-interest tax breaks draw scrutiny

A new part of this legislative session’s budget hearings involves special-interest tax breaks — lawmakers are trying to determine whether they work.

Lobbyists often seek tax breaks for certain industries, promising in return that they will create jobs that will then lead to new revenue.

That formula is now facing scrutiny.

Greg Griffin, the state auditor, told lawmakers this past week that all the audits the House and Senate tax committees requested concerning 10 special-interest tax breaks are almost completed.

So far, they show the tax breaks cost the state more money than they bring in, said Matt Taylor, deputy director of the Georgia Department of Audits and Accounts.

Special-interest tax breaks have drawn special interest from the Georgia Senate, which has shown an eagerness to eliminate them or scale them back.

Opponents want to rein in the tax breaks, seeing that as a way to finance cuts to the state’s income tax rate. Lawmakers voted to reduce the income tax rate last year, and some senators want to eliminate it altogether.

Kemp plan would fully fund HOPE scholarships

A relatively small line item — $61 million — in Republican Gov. Brian Kemp’s $32.5 billion budget proposal could have a big impact on Georgia college students.

The money would boost funding from lottery proceeds to once again finance 100% of tuition for all students receiving HOPE scholarships.

That would save full-time students an average of $444 a year.

It would also reverse the course set in 2011, when then-Gov. Nathan Deal and the General Assembly — facing a slowdown in lottery revenue and a greater costs for the scholarships — tightened eligibility requirements and reduced award payouts to prevent the program from going broke.

Before the overhaul, students who maintained at least a “B” average received free in-state tuition. After the 2011 legislation, full scholarships were limited to a smaller group of students who had scored higher grades. A reduced share went to the other HOPE scholars, who now receive 90% of their tuition.

That two-tier system drove a divide within the state Democratic Party.

Then-House Minority Leader Stacey Abrams had backed the change as a necessary step to avoid deeper cuts to the program. In exchange for her support, however, she also won concessions from Republicans, including more funding for tech school students taking remedial classes.

State Rep. Stacey Evans, who would run against Abrams in the 2018 Democratic primary for governor, saw the overhaul as a betrayal of the scholarship’s promise.

She cried “hallelujah” when she saw Kemp’s proposal.

“This helps students, families and our workforce,” she said. “I know personally the impact this will have because I know what a difference HOPE made for me, allowing me to go to (the University of Georgia) and change my life in ways I never could have imagined.”

But Kemp’s proposal only lasts as long as he or a succeeding governor chooses to support it with funding.

A full restoration of the HOPE scholarship, eliminating the two-tier system, would require a revision of the 2011 law. That would probably need a bipartisan effort, and Democrats are likely to press for a needs-based scholarship in return for their help.

“These HOPE changes help a lot, and I’m so grateful for them,” Evans said, “but there is more we can do to leverage the $1.3 billion in unrestricted lottery reserve funds currently available.”

State’s Medicaid rolls face big cuts with end to pandemic-related funding

The money is running out for special federal emergency funding that extended health coverage through Medicaid during the coronavirus pandemic.

That means hundreds of thousands of Georgians could lose coverage later this year.

During the pandemic, Medicaid enrollees have not been required to reapply each year for their health coverage. Over nearly three years, that helped add more than 500,000 people to Georgia’s Medicaid rolls.

But Congress will cease funding the extra coverage on April 1, forcing Georgia and other states to ensure the program only serves those who still qualify.

In Georgia, Medicaid mostly insures children in poor families, as well as some older and disabled adults. New moms with low incomes can also receive insurance for one year.

Georgia caseworkers at the state Department of Human Services will have until June 2024 to reexamine all 2.7 million people on the state’s rolls to make sure they still qualify.

Those who could be affected include mothers who have crossed the one-year threshold and others who have now exceeded limits on earnings.

“This is going to be a huge undertaking,” said Caylee Noggle, commissioner of the state Department of Community Health, which oversees Medicaid.

Noggle said Medicaid rolls grew by 25% while reapplications were suspended. Until the pandemic hit, expectations were that enrollment would grow by just 5%.

The state is asking for $5.7 million to pay a management consultant to guide the process of determining who still qualifies for coverage. An additional $3 million is being sought to help fund 300 new caseworkers.

Loeffler report examines GOP’s successes in midterms

Former U.S. Sen. Kelly Loeffler put out a report analyzing Republican wins in the 2022 midterms, and here’s one of the key reasons it gave for those successes: former U.S. Sen. Kelly Loeffler.

The 30-page after-action report credited a year-round effort to register and mobilize voters through two groups she formed: Greater Georgia and Citizens for a Greater Georgia.

The nonprofit Greater Georgia was launched in 2021 to register voters. Then came Citizens for a Greater Georgia, a leadership committee whose mission was to elect Republicans to the state Senate by building a ground game emphasizing text messaging, polling and door knocking.

Loeffler, a contender for richest member of the U.S. Senate before she lost a 2021 runoff to Democrat Raphael Warnock, also contributed millions of dollars to Republicans.

“What we proved was that there is a formula that we can use for building the ground game and voter mobilization with not a lot of resources, and we can deliver results,” Loeffler said earlier this month during an interview in her Buckhead office.

The report said the Loeffler groups were successful in reaching out to female and Hispanic voters, and it stressed that Republicans need to step up their focus on minority communities as the state grows more diverse.

It also looked at their focus on 339,000 GOP voters who cast ballots in November 2020 but did not return to the polls for the January 2021 U.S. Senate runoffs, handing both Georgia seats to the Democrats.

The report calls them “disenfranchised conservatives.”

Loeffler said it was the voters themselves who supplied the tag “disenfranchised” because they felt their votes in 2020 did not properly count, a false allegation Donald Trump has made repeatedly in trying to deny his defeat in that year’s presidential election.

Loeffler and David Perdue, both Georgia U.S. senators at the time, helped feed that denialism when they called on Republican Secretary of State Brad Raffensperger to resign for “failures” in his oversight of the 2020 election without providing any evidence.

Her groups set out to inform those “disenfranchised voters” about Senate Bill 202, the overhaul of the state’s election laws that Republicans pushed through the General Assembly in 2021 in response to Trump’s false allegations of voter fraud.

“We wanted to make sure people understood the work that the General Assembly had done on Senate Bill 202, that some of the concerns were addressed,” Loeffler said. “And that turned out to be important.”

The report says that 142,000 of those “disenfranchised voters,” about 4 in 10, cast ballots in 2022.

Another factor in the the GOP successes, the report said, was the presence of Gov. Brian Kemp — the man who made Loeffler a senator — at the top of the ticket.

Credit: Markus Schreiber

Credit: Markus Schreiber

Swanky Swiss gathering gives Kemp chance to promote Georgia economy

Gov. Brian Kemp went to Switzerland this past week to tell some of the world’s biggest and wealthiest players that Georgia’s economy is “rocking and rolling.”

The governor took part in the World Economic Forum, an annual gathering of billionaire financiers, corporate bigwigs and heads of state in the Swiss town of Davos.

It wasn’t a typical setting for Kemp who, ahead of the trip, described himself as a “Georgia redneck going to Davos.”

But Kemp was well-known to many there.

“We saw you a lot on TV all over the world over the last election,” Norwegian diplomat Borge Brende, the leader of the forum and moderator of Kemp’s panel, said in introducing the governor.

Kemp was hardly the only U.S. political figure there. Other participants on his panel included Democratic Gov. J.B. Pritzker of Illinois, Democratic U.S. Sens. Chris Coons of Delaware and Joe Manchin of West Virginia, and independent U.S. Sen. Kyrsten Sinema of Arizona.

The governor offered some advice to the senators about immigration as a new round of debates approaches on how to overhaul the current system.

“While we’re waiting on that, just secure the border,” Kemp said, invoking concerns about illegal drugs and violent crime. “I think there would be broad bipartisan support in the meantime, while you are working on these things, to secure the dang border.”

A big draw for Kemp was the opportunities the forum presented as an economic development mission. His office set up meetings with European, Japanese and South Korean decision-makers, and he also gathered with dozens of top-level executives, such as Visa CEO Al Kelly, Hyundai COO Jose Munoz and Cisco CEO Chuck Robbins.

“One thing you can count on,” Kemp said during the panel discussion, “is the stability and a great economy and a great business environment in the state of Georgia. We’re going to keep rocking and rolling.”

Political expedience

  • Jones ordered to pay damages and legal fees: A federal judge ordered former state Rep. Vernon Jones to pay $45,652 in damages and legal fees to a man he blocked on his Facebook page. Tomas Miko filed a lawsuit against Jones alleging that the then-legislator deleted comments Miko made in March 2020 opposing immigration legislation Jones had sponsored. Jones, who ran for governor last year, never responded to the lawsuit or tried to defend it. U.S. District Judge Steven Grimberg ruled last year that public figures are engaging in “viewpoint discrimination” when they block constituents on social media to prevent them from expressing contrary views.
  • Legislator fined: The State Election Board fined state Rep. Roger Bruce, D-Atlanta, $250 after he handed out water to voters in line while wearing a T-shirt bearing his name. Bruce agreed to the fine to settle the case, but he said he did not break the law. The election was in 2020, before the General Assembly approved a ban on distributing food and beverages to people waiting to vote. Bruce was fined for being within 150 feet of a polling station. He said he never asked anyone to vote for him. He didn’t need to — he was running unopposed.
  • Seeking end to runoffs: The Georgia NAACP put ranked-choice voting on its 2023 legislative wish list as a means for eliminating runoffs as part of the state’s election system. Under ranked-choice voting, voters could indicate their second choice of candidates, who would receive their votes if their first choice did not finish among the top two.

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