By Adam G. Kirk, published on July 27, 2011, in Business in Savannah.
In May, Governor Nathan Deal signed an $18.3 billion state budget adopted by Georgia lawmakers for the 2012 fiscal year. Although the budget offers a slight increase in spending over previous fiscal year, it cuts spending by state agencies by an average of 7 percent.
The budget was finalized quickly after lawmakers shied away from a major tax overhaul that would have benefitted businesses statewide. House Bill 388 would have reduced the state’s personal income tax rate from 6% to 4.6% in 2012 and again in 2013 to 4.55%, while doing away with many deductions and adding sales taxes. New sales tax increases would have included auto repair labor, private sale of cars, groceries, cigarettes and possibly gasoline, and a 7% communications tax on telephones, satellite and cable television and other communications services.
However, shifting tax revenue projections from the Georgia State University Fiscal Research Center, contributed to House Speaker David Ralson’s decision to shelve the plan at the end of the 2011 regular session of the General Assembly in April.
Georgia lawmakers continue to weather a sharply negative trend in nationwide state tax revenues. State tax revenues nationwide fell by more than $14 billion from 2009 to 2010, or about a 2 percent drop. Falling revenues helped contribute to state budget problems in 2009 as well, when revenues fell by about 8.5 percent from 2008 levels. All major sources of state revenue including sales taxes, individual income taxes, and corporate income taxes fell in 2010. Corporate income taxes dropped sharply, falling 6.7 percent in 2010.
State legislators also wrestled with a billion dollar shortfall resulting from the loss of federal stimulus dollars and faced an unexpected $275 million deficit from the health insurance program for state employees. Georgia politicians had to make some tough choices, in light of the state’s deep recession and critical shortfalls in revenue.
Ultimately, the budget for fiscal year 2012, which officially went into effect on July 1, cut state agency funding by seven percent. In addition, Georgia’s 35 state colleges and universities are experiencing a significant decrease in funding in 2012, despite increasing enrollment. Governor Deal is trying to balance the state’s HOPE scholarship fund, which is largely funded by declining lottery revenues, by increasing academic requirements and lowering scholarship awards to current and future students.
The final 2012 budget includes $675 million in bond projects, but the governor vetoed five building projects the General Assembly approved for the University of Georgia and cut six proposed building projects at various Peach State technical colleges. He also axed a bill removing the $200 million cap on revenue bonds issued by the Georgia World Congress Center Authority and vetoed a bill that would have loosened planning requirements the state imposes on local governments.
On the bright side, tax revenue has been on the rise in the Peach State, leading to positive projections that extra revenue will help fill Georgia’s “rainy day” reserve fund. In June of 2011, Georgia’s net revenue rose $87.5 million, or 6.2 percent, as compared to net revenues in June 2010. The state finished the last fiscal year with net revenue increases in every month.
Individual income tax collections for June 2011 increased $55 million or 7.5 percent, up from $728 million in June 2010 to $783 million in June 2011. Sales and Use Tax reported an increase in net collections of $45 million or 11.4 percent, up from $394 million in June 2010 to $439 million in June 2011.
These numbers are encouraging by any measure. Hopefully when the General Assembly re-convenes in January, Georgia’s elected officials will revisit the issue of tax reform for 2012.
Adam Kirk is the Hiring Partner at HunterMaclean and practices in the areas of taxation, corporate and real estate law. He can be reached at email@example.com or 912-236-0261.