Short Term Budget Pain Can Still Lead To State’s Gain

This week’s Courier Herald column:

We’re almost two months into Georgia’s State of Emergency to address the issues brought to us by the Covid-19 virus.  Our crisis is now one of public health and one of economics.  As leaders attempt to simultaneously deal with both problem sets, it often appears we are still in search of answers.  We need to make sure we are asking the right questions.

The legislature will reconvene, likely in mid-June, to pass a budget for the fiscal year that begins on July 1st.  With income tax filing deadlines delayed until July and many businesses across the state closed and thus not collecting nor remitting sales taxes, it can be assumed that a large portion of the state’s $2.5 billion rainy day fund will be used just to pay the state’s bills through June.

There is hope that additional assistance will come from the federal government that will soften the blow to the state’s fiscal position.  The state’s budget must balance, however, and there is not a line item for “hope” in the state’s revenue projection.

Cuts are coming.  The current target is to fill a $4 Billion gap, or about 15% of the state’s current proposed spending plan.

The items for debate when the session began last January are no longer on the table. There will not be pay raises for teachers or other state employees.  There will not be income tax cuts. 

Fifteen percent reductions don’t leave sacred cows untouched.  There likely will be reductions in services.  Some positions will be cut. Furloughs should probably be expected.

There will be comparisons to the cuts that came during the great recession a decade ago. There will be pain, but there is also opportunity.  Now back to those questions that the state needs to be asking.

State leaders used the aftermath of the great recession to prioritize future spending as well as focus on rebuilding Georgia’s economy.  As conditions return to “normal”, Georgia needs to be positioned to be better, rather than the same.

During the last economic crisis, Georgia decided to focus on specific industries to diversity its economy.  The state found it was too reliant on banking and real estate as evidenced by one quarter of the state’s banks failing, as well as the extended slump in residential home values. Those decisions are still paying dividends.

Georgia chose to place a renewed focus on manufacturing, and followed several initiatives to reduce costs for manufacturers as well as focus on Georgia’s workforce to ensure potential employees are ready when employers need them.  

On Monday, SK innovations announced that it is going to start a second battery factory in Jackson County, on a site where they are nearing completion of their first US production facility.  The $1.5 Billion investment is projected to create 2,000 jobs and according to the SK Group’s Vice-Chairman, make Georgia “the center of the battery industry for electric vehicles in the world”.

Another industry has anchored south metro Atlanta since the last downturn, also with a mix of help from Georgia’s tax code and investment in education and training programs.  Georgia’s film business has grown from a cottage industry a decade ago to an international player, growing the number of Georgia based film crew members among the state’s employment ranks. 

The film industry became a life line to communities hard hit by airline layoffs in the wake of 911 and the bankruptcies that followed.  Competing performance audits have some lawmakers arguing against continuing tax credits given the state’s fiscal condition.  With the current condition of the airline industry, those same lawmakers may wish to consider the timing of creating additional unemployment in these same communities while virtually ensuring a negative return on the state’s investment in the entertainment industry to date.

During the last economic recovery, the state focused education and training programs on industries and career paths that were in high demand.  As Georgia considers across the board cuts, it should also take stock of which education investments create future taxpayers, and which ones seem to exist for the purpose of perpetuating bureaucracies and fiefdoms.

Georgia’s leaders have a lot of tough decisions ahead.  Rather than sensationalizing the short term pain, we should all remain focused on making sure the state’s overall plan is a path to better days ahead.

Recessions come and go.  State leaders need to ask themselves which budget items are relics of the past and should be cut, versus which appropriations put Georgia on the path for the quickest recovery, job creation, and economic expansion.


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