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From Governing’s
Why was that? Well, as with some of the other Southern states, not being rich has its occasional advantages. The fiscal downfall began across the country with plummeting income from capital gains, interest and dividends, and there’s less of that in Georgia than in Massachusetts. In addition, Georgia taxes capital gains at its regular, essentially flat rate of 6 percent — not at the higher, graduated rates some other states do — so there was less to lose when returns turned sour.
What’s more, Georgia’s eligible income base is narrow. The first $15,000 of retirees’ pension income is exempt, so capital gains that fell under that threshold weren’t taxed during the boom — and thus weren’t lost to the state during the bust. A history of conservative budgeting also helped; ample reserves were maintained during the boom years, at a time when other governments were eagerly spending their surpluses down. Even with all those positives, the state still has had to deal with overall revenues that declined $686 million in 2002 and through last December were down for FY2003. Then-Governor Roy Barnes and his Office of Planning and Budget ordered 5 percent spending cuts to balance the budget last year, and more may lay ahead for 2004 under Republican Sonny Perdue, who defeated Barnes in November. But unlike other states that have already used up their easy fixes, Georgia still has a few in its pocket. The state’s cigarette tax is comparatively low at 12 cents a pack, and it hasn’t been raised in about three decades. The sales tax probably won’t go up — most residents already pay a combined rate of 7 percent, with 4 percent earmarked for the state and the rest going to the individual counties — but there’s plenty of room to add services to the base. And then there’s the $900 million rainy day fund, which may be touched but won’t come anywhere near being drained. Georgia’s budget cushion of recent years allowed Barnes to pursue one of the cornerstones of his administration: property tax cuts. He set out to increase the state’s homestead exemption from $2,000 to $20,000 over a period of eight years, ending in 2007. By the end of last year, the exemption was up to $10,000, requiring the state to hand over about $350 million to the counties, so they could issue rebates. As of now, the program is scheduled to continue, but that may depend on how much trouble the state has getting through its currently modest fiscal crunch. In addition to the statewide exemption, many counties have enacted their own homestead exemptions; some of these supercede the state plan, while others simply add on to it. The fiscal mechanism favored by the counties has been to freeze property taxes, then figure exemptions at the amount of each home’s increased market value. The constitutionality of this practice is being challenged in court. Meanwhile, other, smaller tax breaks have crept into the system in the past few years, eroding the sales tax base significantly. “We have passed numerous exemptions,” says A. Richard Royal, vice chairman of the Ways and Means Committee in the state House of Representatives. “We need to go back and look at that.” But looking at it won’t be easy. The state doesn’t prepare a tax expenditure report, which would show just how much all these credits, exemptions and other tax breaks cost the treasury. Professors at Georgia State University came up with a report of their own last year, and it estimated the revenue loss due to exemptions passed since 1986 to be $1.6 billion a year, against about $14 billion in annual collected revenues. Georgia is also losing $25 million in income taxes annually because of a 1995 law that allows many corporations settling or expanding there to pay taxes based on a higher allocation of the income based on sales within the state. The spending cuts enacted by the Barnes administration applied across the board to all agencies, even those that generate revenue. It might have been more sensible to make an exception and leave the Revenue Department’s budget intact, but it was not spared, and 5 percent was lopped off in both 2002 and 2003. Those cuts have made it difficult for the department to upgrade its technology, an important need as Georgia has neither an integrated tax information system nor a data warehouse to maximize efficiency in auditing. Although the state doesn’t offer stand-alone individual income filing on the Internet, taxpayers have been quick to take advantage of the other electronic options available. Last year about 1.5 million of the state’s 3.5 million returns came in through the federal-state filing program, and more than 600,000 other filers used 2-D barcoded returns, saving the department crucial resources. Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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t first glance, the fiscal numbers in Georgia don’t seem to add up. Most states — even the richer ones — plunged into recession and found themselves with gaping budget holes during the 2002 fiscal year. Georgia is one of the poorer states, but it ended the year in relatively good shape. Its personal income tax revenue declined by 6.3 percent, but that’s less than half of what Massachusetts was forced to deal with. When the year ended, Georgia actually had a modest surplus of $170 million.