ATLANTA — Georgia officials talk about the eventual rebound in tax collections as if that will solve every problem.
However, gigantic financial challenges overshadow the state’s immediate-term recovery.
Georgia began to see its revenue swing broadly once food became exempt from the sales tax. When food was taxable, the state never saw revenues dip two years in a row since the Great Depression.
So when the most recent recession struck, state revenue plunged and has remained weak because of a greater reliance on employment-dependent income taxes and the sale of items that consumers can delay, such as automobiles, electronics and clothing.
Gov. Nathan Deal’s budget plans include a five-year projection showing a budget deficit of $319 million in fiscal year 2014 followed by a $131 million shortfall in fiscal 2015.
Deal, Speaker David Ralston and Lt. Gov. Casey Cagle have publicly blocked any proposal to tax food again.
Yet many state officials pepper their speeches with comments hopeful of the time in three or four years when the level of revenue finally returns to the pre-recession peak.
Such sentiment seems to ignore the staggering size of trends that predated the recession.
Here’s a look at some of them:
Demographics — The fastest-growing age groups are those younger than 18 and older than 65 – when people generally consume more taxes as students or patients than they pay. The working-age population is stagnant.
Former Gov. Sonny Perdue convinced the General Assembly to make Georgia a haven for retirees, drawing them by exempting virtually all of their income from taxes. Whispers in Capitol hallways predict lawmakers will reverse that exemption as a way to offset foregone revenue from exempting manufacturers’ energy from sales tax, but that is unlikely to significantly alter the demographic trajectory.
Health care — The aging population is a major factor in the endless escalation in medical costs. A newer factor is federal health reform’s expansion of eligibility for government insurance such as Medicaid.
The Department of Community Health, which runs Medicaid in Georgia, estimates the federal law will increase enrollment by 50 percent, or 700,000 people. That will add $2.5 billion to the state budget in 2019 and twice that in the following five years as federal subsidies phase out.
Add to that the $62 billion in the unfunded liability for the future cost of health care for retired state employees.
Infrastructure — The rapid population growth Georgia began experiencing in the 1960s led to a boom in infrastructure construction that continues despite the recession. Now the challenge is building new roads, bridges and schools while coming up with funds to maintain or replace those built at the start of the 50-year-old wave that are now deficient. At the same time, the gas tax that paid for so many of the original roads is drying up, thanks to better fuel efficiency.
Lawmakers thought they solved the transportation part of the puzzle when they set up a statewide sales-tax referendum. Its predicted defeat will send them back to the drawing board.
Education — Public-opinion polls and state leaders agree more needs to go into improving Georgia’s education. The chairmen of the House and Senate appropriations committees are part of a commission reviewing the formula for funding K-12 schools, and they’re finding at every turn that there isn’t enough money to do it from the current total.
House Appropriations Chairman Terry England reflected on the magnitude of all these challenges at a conference sponsored by the think tank Georgia Budget and Policy Institute.
“It does present quite a quandary for us on what we’re going to do,” said England, R-Auburn.
He said the Republicans who control government favor looking at the needs and setting the revenue to match it. Of course, when rank-and-file conservatives say that, they expect that a close examination will reveal less need than revenue, creating the opportunity for a tax cut.
But the pragmatic members of the GOP began to realize a few years ago that the opposite was more likely to be true — that objective analysis might show a need for greater revenue.
Yet they want to preserve Georgia’s status as a business-friendly, low-tax state so economic activity will grow to meet the rising revenue needs. That becomes more difficult as the rate of required spending exceeds the rate of economic growth. It’s proof that as the state matures, it begins to resemble other big states and less like the small, Southern state it used to be.
To try to preserve that low-tax balance while meeting growing revenue needs, legislative leaders appointed a commission two years ago to redesign the tax code. But then the same leaders balked at enacting the recommendations.
So the time bomb still ticks, and the eventual economic rebound isn’t likely to be sufficient to defuse it.