Originally created 02/11/02

Georgia economy resists recession



ATLANTA - Every time Gov. Roy Barnes gives a speech to the General Assembly, it's a geography lesson.

In two budget addresses to lawmakers last month, and again in his State of the State message last week, he painted a stark picture of the drastic measures other states are being forced to take to cope with the recession, walking his audience through them one by one.

Kansas and Minnesota are raising taxes. Florida is freezing teacher hiring and delaying a planned tax cut. Virginia can't afford pay raises for teachers or state employees. And Tennessee is using tobacco-settlement money to plug a shortfall.

Yet Georgia's governor is cutting property taxes for the fourth year in a row, to the tune of almost $350 million. Although Mr. Barnes is freezing some vacant positions, he is not laying people off. Instead, he is proposing a 3.5 percent raise for teachers next year and a 2.5 percent increase for state workers.

The governor's relative largesse isn't the result of any immunity from the economic forces buffeting other states, which began to be felt as early as 2000 and accelerated in the wake of the Sept. 11 terrorist attacks.

The numbers show otherwise: Georgia lost about 88,000 jobs last year, according to the state Department of Labor, more than any other state except New York.

"It is not because we are an island of prosperity amid these other states," Mr. Barnes said Thursday during a speech to the Georgia Press Association.

GEORGIA HAS SOME built-in advantages that have helped shield its fiscal health. The state relies on a broad range of revenue sources, including individual and corporate income taxes, sales taxes and various fees.

In the Southeast, two of the states that have run into the greatest difficulties, Tennessee and Florida, don't have an income tax.

Tennessee gets 60 percent of its revenue from sales taxes, leaving the state particularly vulnerable when the recession hit, said Brian Miller, the executive director of Tennesseans for Fair Taxation, a group pushing for a state income tax.

Although there's a lag between the start of an economic downturn and falling personal income tax revenues, sales taxes go down immediately because people stop spending, Mr. Miller said.

Florida, too, relies heavily on sales taxes. Historically, that hasn't been a problem because of the Sunshine State's $50 billion tourism industry. But tourist spending has fallen dramatically since last year's terrorist hijackings.

With such volatility in state revenues, some legislative leaders are pushing to overhaul Florida's tax structure.

Senate Majority Leader Jim King, R-Jacksonville, is supporting a proposal to broaden the state's sales tax to cover a wider variety of goods and services.

Republican Gov. Jeb Bush came out against the plan last week, however, and it faces stiff opposition from lobbyists for manufacturers, who enjoy sales-tax exemptions on many of the materials that go into their products.

BESIDES GEORGIA'S ability to spread out its revenue collections between both sales and income taxes, the state also features a streamlined method of revenue forecasting that has worked to its advantage.

Among Southeastern states, only Georgia and Arkansas give the authority to set revenue estimates solely to the governor.

Following an example set during the 1990s by then-Gov. Zell Miller, Mr. Barnes has used that power to make conservative projections. Thus far, he's been rewarded at the end of each fiscal year with the surplus when the actual revenues come in higher.

"Surplus is a misnomer," said Sen. George Hooks, D-Americus, the chairman of the Senate Appropriations Committee. "It's a planned surplus."

Other governors don't get the chance to build up planned surpluses because they don't have full control over revenue forecasting.

South Carolina has a history of relying on boards and commissions instead of "direct gubernatorial administration" to make major decisions, said Blease Graham, of the University of South Carolina, an expert on politics in his state.

Revenue forecasting is handled by the state's Board of Economic Advisers, which makes it both a more cumbersome and a more politicized process, he said.

"The governor can make a pitch for (a revenue estimate)," Mr. Graham said. "But he immediately subjects himself to partisan attack."

REVENUE PROJECTING is even more political in Mississippi because the Legislature gets directly involved.

"They play a sort of game," said Sujit CanagaRetna, a fiscal policy expert for the Southern Legislative Conference and the author of a recent report on how the recession is affecting state budgets in the region. "The governor wants an estimate that he feels is pretty realistic. The Legislature, in order to fund more programs, tends to go with a higher estimate, and it touches off a rancorous debate."

Contrast that with Georgia, where the biggest disagreement between the governor and legislative Republicans is how much of the surplus to dedicate to tax cuts.

In past years, GOP lawmakers have pushed legislation that would require refunding most of the state's surplus to the taxpayers.

But Rep. Terry Coleman, the chairman of the House Appropriations Committee, said such a scheme gambles that the recession will be short-lived. He warned that using up the surplus now could lead to layoffs or even a tax increase next year if the downturn continues.

"The governor's making a calculated move to use the surplus now and roll the rainy-day fund forward to 2003, so we can gradually acclimate to the recession as it develops," said Mr. Coleman, D-Eastman.

"This year, the governor's going to be able to fund a small pay raise for state employees and teachers, be able to continue the property tax cut and still carry on state government."

Reach Dave Williams at (404) 589-8424 or mnews@mindspring.com.