The 20-Year View
Inefficient tax breaks cost the state money that should be invested in its people. Georgia has a history of enacting new corporate tax exemptions and credits each year, and once in the tax code, exemptions and credits have typically remained there without further evaluation. Since 2004, GBPI has expressed concerns about this practice and advocated for change. There have been incremental wins along the way, such as sunset provisions added to new credits. Due to GBPI’s advocacy, during the 2021-2022 session, the state enacted legislation that allows the chairs of the General Assembly’s tax-writing committees to request individual analyses on a limited number of tax expenditures. Senate Bill 366, enacted in the FY 2024 Legislative Session, tweaked this process and now requires at least 12 economic analyses annually. This is positive movement, but there is still much work to do. Georgia ranks worst among the 50 states in disclosing information about tax credit programs and other economic development incentives.
Budget Trends
The $36.1 billion state budget signed into law by Gov. Kemp for FY 2025 took effect July 1, 2024. The budget represents an 11% year-over-year increase from the original FY 2024 budget that Gov. Kemp signed last year. Given that Georgia’s reserve accounts continue to overflow, Georgia can do more to address ongoing needs from health care to public education. The state government remains understaffed in critical areas, with Georgia’s full-time state workforce having shed approximately 4,400 employees over the past five years, a decline of over 7%. The state also continues to struggle with a high employee turnover rate of 21%, which has remained above 20% for the past five years.
The state responded to the 2020 pandemic-induced downturn by cutting spending and thinning its workforce. The strong fiscal response at the federal level helped to create an economic surge, which was reflected in higher-than-expected FY 2021 through 2024 state tax collections. These dueling responses produced a cycle in which state revenue collections continued to significantly outpace spending, adding to already historic levels of unobligated reserves.
Entering fiscal year 2025, Georgia has a clear opportunity to respond to long-standing needs. The level of unused resources currently available underscores that state leaders have chosen to maintain increasingly large reserves rather than addressing gaps in state government. However, state leaders have shifted their posture—with AFY 2024 marking the first time Gov. Kemp has allocated reserves for non-emergency spending.
Georgia’s Reserves Continue to Grow
The $16.9 billion in state general fund reserves ($11.6 billion undesignated) remains the most pressing unanswered fiscal question facing lawmakers. Even as the state has moved spending closer in proximity to revenue collections in AFY 2024 and FY 2025, undesignated reserves remain at unprecedented levels.
With up to $2 billion made available, the AFY 2024 budget is the first non-emergency spend-down of the state’s undesignated reserves in recent history. However, because the funds are authorized as part of a conservative overall estimate for state tax revenues, the bulk—if not all—of the $2 billion in reserve funds will likely be remitted back to the state’s undesignated surplus account at the end of the fiscal year.
State Savings Account Remains Full; Georgia Holds Record Reserves
The Revenue Shortfall Reserve (RSR), Georgia’s rainy-day fund, provides stability in economic downturns. The fund is like a savings account to pay expenses and maintain services when revenues decline unexpectedly. Money is not appropriated into the RSR; the balance grows at the end of each fiscal year if there is surplus state revenue (up to 15% of prior year revenue). The governor is also authorized to release for appropriation any amount over the minimum balance required, 4% of prior year revenues, in case of a fiscal emergency or as part of the annual state budget. Since the end of FY 2021, Georgia’s Revenue Shortfall Reserve has remained at its maximum level, with consistently conservative revenue estimates issued by Gov. Kemp also resulting in an additional unobligated surplus.
Georgia finished FY 2021 with approximately $3.8 billion in unspent revenue, filling its rainy-day fund to 15% for the first time ($4.3 billion) and designating the remaining $2.3 billion as ‘undesignated surplus.’ After FY 2022, $6.7 billion in unspent revenues were distributed to grow the state’s RSR to $5.2 billion and increase the amount in undesignated surplus accounts to nearly $7 billion. In 2023, Georgia generated revenues of more than $4.1 billion above what the state spent, which increased the amount held in unobligated reserves to $10.9 billion and elevated overall state reserves to $16.3 billion. State revenue numbers released in July 2024 show that Georgia ended FY 2024 with $16.9 billion in reserves.
Over $11 Billion in Forgone Revenue Collections in FY 2025
Georgia offers a wide array of tax credits, deductions and other tax breaks, also known as tax expenditures, that give preferential treatment to certain taxpayers and corporations to achieve policy goals. Fifty-four of these tax breaks will cost the state $11.4 billion in lost revenue in the 2025 fiscal year. Several of Georgia’s largest tax breaks deliver outsized gains to select groups or industries, such as manufacturing, film or insurance, with less benefit to Georgia’s people.
Georgia lacks a comprehensive review process to measure and compare the costs and benefits of all existing and proposed tax breaks, and instead evaluates tax breaks on a case-by-case basis while frontloading measures with sunset provisions that are soon to expire.
The costliest industry-specific tax break offered is Georgia’s Film Tax Credit, designed to attract film production by subsidizing as much as 30% of the costs. The Georgia Film Tax Credit ranks as the largest tax subsidy of its kind nationally at an annual cost of about $1 billion.
State Begins Flat Tax Implementation
House Bill 1437, signed into law by Gov. Kemp in 2022, includes personal and corporate income tax rate reductions that will primarily benefit the state’s highest earners. This year, legislators accelerated the enactment of HB 1437 and passed HB 1023 to tie the state’s corporate income tax rate to its personal income tax rate, established at 5.39%. The law requires overall revenue growth of at least 3% to proceed without interruption through four additional steps to achieve full implementation by 2030. However, the plan means forgoing over $2 billion in annual personal income tax revenues, which threatens the long-term stability of Georgia’s revenue system. Unless further action is taken, the state’s income tax rate will be reduced to 5.29% in January 2025 if state revenues meet the required 3% growth threshold.
