Transcript short term

Budget Issues & Revenue Solutions:
CHOICES in a Challenging Economy
Alan Essig
Executive Director
Georgia Budget & Policy
Institute
April 16, 2009
Major Policy Issues Facing 2009
General Assembly

Budget
Transportation
Trauma:

Taxes

Four major big political issues, other than the budget; the other three were not dealt with. Transportation
and Trauma are directly linked to the budget.


shot, stabbed, or burned, you want to go to Grady… if you are south of I-20, you’re
prob. Going to die. The first hour of care is the diff between life or death (the Golden Hour). 100s of ppl are
dying b/c of a lack of Trauma network, all agree, but we do not have one b/c we cannot come to the terms
of raising fees to fund it. No one wants to raise the taxes. (ideological stubbornness). 60% that are crazy
right… will tell the constituent whatever it is they want to hear. The STATE has to have money, we just get
wishes, wants, and desires, but we cannot print our own money like FEDERAL.
Source:
Center on
Budget and
Policy
Priorities
Minnesota is doing well, northern states are doing better. Tax system needs
to be linked to the economic needs of the state. GA does an awful job with
it, AL is worse. NC and VA is better than ours. High tech triangle is better,
revenue is better linked to tax system. (Investments have paid off). GA has
a choice, we can be like AL and MS, or like NC and VA… a forward looking
southern state.
GEORGIA’S SHORT-TERM
REVENUE PROBLEM

FY 2009 Budget Deficit: $2.65 Billion (6.8% revenue
decline)


First 9 months of fiscal year revenues declined 8.0%.
March decline was 14.5%.

FY 2010 Budget Deficit: $3.3 Billion (3% revenue
decline)

The only states that are not dealing with a fiscal problem are the ones with their own natural resources.
GA is one of the worst, but we’re not CA; FY July 1-Fec. 2? Revenue shortfall reserve, (about 8% of
revenues RIGHT now… we will use 2-3 million dollars to finish the fiscal year… which may wipe out the
reserve funds. 09, 8-10% less that 08, 010, 3-4% less than 09
WHY IT MATTERS
SHORT TERM
1. Already low tax-and-spend state
2. Majority of funds go to a few priorities
Consequence – Not much fat to cut so we’re
cutting vital programs!!!
Myths: GA is a low tax, low spend state. We are very conservative. We don’t ask a lot, and we don’t
spend a lot. We tend to be in the bottom ten. Exception: education. We fall right in the middle
on edu. It is more complicated than $, we have to consider the value and quality of edu.
86%= edu. =Medicaid and PeachCare
Georgia Has Always Ranked LOW
49th
State Spending per Capita
43rd State & Local Own Source Revenues per Capita
(taxes, fees, etc.)
43rd State Tax Revenues per Capita
41st
State Revenue and State and Local
Revenue as a % of Income
Over 86% of Budget Spent on Education,
Healthcare, Criminal Justice, and Social
Services
Snapshot of State Spending
FY 2010
($18.6B)
Education
58.1%
Medicaid and PeachCare
8.9%
Health and Social Services (DHR)
10.0%
Criminal Justice (mostly Corrections)
9.1%
Transportation
3.8%
Debt Service
6.1%
All Other State Agencies
4.0%
FY 2010 Budget Cuts




$400 million cut to K-12 funding formula
and equalization grants.
$200 million cut to Board of Regents
funding formula.
Approximately $90 million in programmatic
cuts across the Department of Human
Resources.
Very difficult for GA GEN Assem. To increase taxes, but they do it without realizing it. EX: cut to
schools, local districts can cut own budgets, or raise local property taxes, the local systems are
almost forced to raise them. EX: Cut to Board of Regents= increasing tuition. HOPE mostly helps
middle and upper-class kids, therefore, the tuition increase effects low-income and poor.
WHY IT MATTERS
SHORT TERM
There is a structural problem in
GA, we will continue to be
cutting things if we do not
begin to fix this.
1. Already low tax and spend state
2. Majority of funds go to a few priorities
Consequence – Not much fat to cut. Instead, cutting
vital programs!!!
LONG TERM
1. Already declining tax base & new low base
2. Regular growth of services and need
Consequence – Long-term revenue problem.
Cuts will continue!!!
Chart 1
AS GEORGIANS INCOMES INCREASED, THE STATE TAXES COLLECTED
FROM GEORGIANS HAVE NOT KEPT PACE
State Revenues as Percent of Personal Income FY 1989 - FY 2010
6.5%
6.0%
5.5%
5.0%
4.5%
We pay about 6% of income to State taxes, it goes down during recession ’92; late 90s: sales tax off of food,
cut income tax, increase standard productions (90s was boom time, small ppl making a lot of money, paying
a lot of taxes). ’01: high tech bubble burst, new low, took about 5 years to get back to a point considered a
low. The fear now is that we will continue to stay low. Cutting taxes without corresponding cuts to services, =
billions of $ in deficit. Unless we have 10-15% revenue growth per year, we will be at a constant level of
5.5%= $1.5 Billion.
DISCONNECT: ppl do not understand what their taxes go to.. We are a nation born in tax rebellion. Taxes
must be paid to support our economy. PPL need to be educated.
4.0%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Georgia Facing Structural Deficit –
Use of One Time Funds to Balance
FY
2010 balanced with almost $400 million in
one-time reserve funds and over $1.35 billion in
federal stimulus funds.
FY
2011 fiscal plan calls for use of $1.1 billion
in federal stimulus funds.
We only cut agency budgets by $1.5 bil. DEFINITION: ONE TIME=one time. Reserve funds
and stimulus funds are one time revenues. If money is not earned and put into these base
budgets, we will see the effects in 2012 HUGE DEFICITS!!
Split it over two years… this avoiding new cuts, did not make up for the ones that have already
been cut.
Georgia Facing Structural Deficit –
Normal Budget Growth

Need approximately $1 billion in new revenues to
pay for the basic growth in government in FY 2011
and beyond.
Board of Ed & Board of Regents Growth
 Medicaid and PeachCare Growth
 Prisoner Growth and Aging of Prison Pop.
 New Debt Service
 Teacher and State Employee Salary Increases

The GA budget grows naturally. We are a fast growing state. X$/student. Two things will
increase in spending: 1=higher edu, 2=Medicaid and PeachCare. As ppl lose jobs, they
lose health ins. And go back to school. Every 1% salary increase is $200-300 mil! The
budget will increase about $1 bil/year… so if there is no productions, we will fall short, we
need 5% growth just to stay even.
Projected Deficits
•FY 2011 = $823 million
•FY 2012 = $1.9 billion
See worksheets: GA Faces Large Deficits in FYs 2011
and 2012.
FLAT TAX: everybody pays the same percent of taxes,
supposed to be “fair.” He thinks a progressive tax is “fair.”
On FED level, it is somewhat progressive, state is
actually regressive.
REVENUE SOLUTIONS FOR
OUR REVENUE PROBLEMS
SHORT-TERM:
BALANCED DEFICIT REDUCTION




Targeted and prioritized budget cuts
Strategic use of RSR
Federal assistance
Revenue enhancements
We can no longer live in “fantasy world”. The fed govt has been able to b/c they can decrease
taxes and just print more money. They have been making the easy decisions, give ppl more
money and more services. The state cannot do this! Our decisions need to be made based
on the facts. We are facing bill of dollars of deficits. We will have to either raise revenue or
cut services… we need to fully think about what those implications are.
2/3 cuts; 1/3 increase.
SHORT-TERM:
Revenue Enhancements
Economic Argument – “Basic economic theory suggests that direct
spending reductions will generate more adverse consequences for the
economy in the short run than either a tax increase or a transfer program
reduction.” -Joseph Stiglitz and Peter Orszag
Historical Argument – In response to recessions in the 1980s, 1990s, and
2000s, a majority of states raised revenues. (Source: NASBO)
Practical (and perhaps Moral) Argument – “The only
solution, if we want to preserve the priorities of
classroom instruction, healthcare and public safety, is to
raise new revenue.”
- Governor Steve Beshear, Kentucky
SHORT TERM:
Revenue Enhancements Options
Increase Cigarette Tax by $1 pack = $442 million (House Bill 39)
Other states – Kentucky governor signed a bill to double the cigarette tax on
Feb. 13. Mississippi, Kentucky, Virginia, South Carolina, Florida and Kansas currently
considering cigarette tax proposals.
Lower cap or implement income ceiling on various tax credits
and exemptions.
Other states – Connecticut, California, New Jersey,
Oregon, and Kansas have either scaled back tax breaks
or are considering proposals to do so.
GA ppl support increase in cig. Tax.
Teenagers are extremely price sensitive
in regards to starting smoking. The
higher $ of cig, the less likely it is that
teens would start, which would decrease
health care costs in 20-30 yrs.
Misguided Tax Policy

HB 261




Temporary 1.2% tax credit for purchase of home ($1,800
maximum credit).
Cost to State – Approximately $85 million
$75,000 per additional home sold
HB 481


Temporary $2,400 tax credit to hire unemployed worker.
•
•
Cost to State $850 million.
$265,000 per additional job created.
Decrease Capital Gains Tax by 50% ($400 million cost)
•
99% of benefit goes to top 20% income. 77% of benefit goes
to top 1% of income
STATE economist projected that both bills will have a marginal
impact on the economy, 261 will have additional cuts of $50 mil
in 010. 481 will cost state $400 mil. 2012 will add 1.2 bil to
deficit
REVENUE SOLUTIONS FOR
OUR REVENUE PROBLEMS
LONG TERM:
COMPREHENSIVE TAX REFORM




Solidify tax base to assure adequacy
Improve fairness of tax system
Modernize tax base for a 21st century economy
Increase accountability
SR 453
LONG TERM:
Tax Transparency and Accountability
Tax Expenditure Report –
Treat tax expenditures as we treat budget
expenditures.
Highlight
all tax breaks currently in law
(sales, income, property).
Estimate
Perform
39
lost revenue.
cost-benefit analysis.
states do this, but Georgia does not!
SB 206
REVENUE SOLUTIONS
Budget policy and
tax policy must be
linked. You get what
you pay for!!!
We need to be practical in our thinking. What to fund, how much, when. What do we
fix/not fix. Everything costs money. It is a huge problem that everyone is afraid to
discuss.
Gov. is really good fiscal steward of the State.
Policy Priority effects change. We need to judge things by outcomes, continue with
the things that work, and get rid of the things that do not. (Republicans are good at
this).
The efficiency argument: any $35 bil org. private sector vs state, stacks up. ReDirect
5% cuts, 3% adds (Theory) it turned into taking all cuts and giving almost no adds.
State agencies should focus on being as efficient as possible.
Contact Info
Alan Essig
100 Edgewood Ave
Suite 950
Atlanta, GA 30303
404.420.1324
[email protected]
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