Initial Thoughts on Budget and Tax Proposals

For the first time in several years there are no dramatic cuts in the governor’s proposed budget, although there still are some cuts. We appear to have hit the bottom and have begun the process to, at least, stabilize the state budget. In FY 2013, Gov. Nathan Deal includes funding to implement several recommendations from the Special Council on Criminal Justice Reform, as well as several important infrastructure projects.

Governor Deal’s proposed business tax cuts appear more responsible than many of the tax proposals floated earlier by various members of the General Assembly; however, we don’t know how they will be paid for and their value for future economic growth is questionable.

Department of Education
For the first time in many years the proposal fully funds the growth in the K-12 funding formula without any additional cuts in state funding. The proposal does not include funds to replace more than $1 billion in funding cuts over the past several years.  In addition, it does not account for $321 million in one-time grant funding provided in 2010 to local school systems in Georgia from the federal Education Jobs Act. Local school systems used these funds to reduce cuts to educational and related services during the FY 2011 and FY 2012 school years. With this grant funding no longer available and no state fundsto replace it, a significant gap in K-12 education funding occurs if local schools systems cannot replace these lost funds.

Board of Regents and Technical College System
The proposal does not fully fund the Board of Regents formula. It funds only 54 percent of growth and although it includes $76 million for enrollment growth, $35 million is cut from personal services and operating expenses.  It is a similar story in the Technical College budget. It funds nearly $16.8 million for enrollment growth, but cuts $2 million from operating expenses. It covers only 88 percent of growth.

Medicaid
Although the proposal adds $156 million to the Medicaid budget in both the FY 2012 Amended and FY 2013 budget, those funds make up for knowingly underfunding the Medicaid budget when the FY 2012 budget passed last session.  We expected additional funds, yet there still seems to be insufficient funds in the budget for enrollment growth in either the amended or FY 2013 budget, whichperhaps underfunds enrollment by as much as $90 million.

Tax Proposals
The governor’s tax proposals are narrowly focused on businesses. Although the proposal to exempt sales tax on energy for manufacturers has a strong policy argument, it is estimated to cost approximately $140 million.  The governor has not laid out a plan as to how that tax break will be paid for.  The governor proposed revising the various jobs tax credit programs without having any idea if the current program is effective or not.  If we are going to continue the questionable strategy of jobs tax credits as incentives we should at least require annual studies to verify the effectiveness of those incentives.  Hopefully Governor Deal will support legislation that revises the Tax Expenditure Report to require a cost-benefit analysis off all business and special interest tax breaks.

Additional Information
The Georgia Budget and Policy Institute will issue more detailed analysis of the governor’s budget on January 20th at the GBPI annual Policy Conference.  I hope to see you there. Register, it’s not too late.

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1 thought on “Initial Thoughts on Budget and Tax Proposals”

  1. One of the main things I learned from last year’s conference was that the main considerations a company looks at when deciding where to locate is infrstructure (transportation) and education with taxes coming in a distant 6th, and yet, cutting taxes for businesses always seems to be the primary ‘solution’ our governor and some legislators consider. It leads me to two conclusions. Either they have no clue what draws business to a state or they have other motives. Tax cuts will do nothing to grow businesses or encourage owners to hire people if there is not a consumer base to purchase the goods and services they make. If supply drove the markets, there would be no such thing as a sale. Once again, the legislators are preparing to consider tax reform and although they say that items such as a tax on groceries and other essentials are merely open for discussion, we know what they mean. This idea will further drive what’s left of the middle class, working poor, people on fixed incomes and the unemployed into further desperation by reducing their disposable income even more, ultimately negatively impacting businesses both large and small. The top earners can already purchase whatever they need so reducing their taxes really has minimal impact. Some things should NEVER be on the table and we should not be afraid to say so.

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