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State budget: Way down in the hole

Hasty tax plan would leave shortfall

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"Last year's session was a train wreck," confided a metro Atlanta Republican lawmaker as he slipped out of the House chamber during a break last week at the state Capitol. "But this session is simply weird."

You can say that again. Perhaps more than in recent years, the modus operandi of the state House this session has been to throw bills against the wall – or, more precisely, against the Senate – to see what sticks. The latest example is Speaker Glenn Richardson's so-called tax reform bill, which would eliminate both the state property tax and ad valorem taxes on cars, as well as freeze property assessments for owner-occupied homes.

A day after the House approved the legislation in a near unanimous vote, Gov. Sonny Perdue stepped out of his office long enough to publicly trash the tax-relief bill in no uncertain terms as "irresponsible" and the product of pandering.

The central flaw with the bill, say Perdue and other critics, is that it would cost state government nearly $800 million a year in revenue – and yet it offers no hint for how to make up that shortfall. It would also force many Georgia cities and counties to jack up their tax rates and cause new homeowners to subsidize their neighbors' tax bills.

The irony of this situation – the weirdness, if you will – is that while the bill has Richardson's name on it and has come this far primarily because of his clout, it's an almost completely different piece of legislation from what he originally outlined last April at the state GOP convention. Sounding the trumpet of tax reform over the following months by speaking to seemingly every Elks Lodge and garden club in Georgia, Richardson advocated replacing property taxes with a statewide sales tax on groceries and services.

But, even before the session began, his Gotta Repeal Every Ad (valorem) Tax plan started to unravel. Cities and counties successfully pushed to keep local property taxes in place. Powerful industries lobbied to maintain sales tax exemptions for their services. And other lawmakers offered a menu of "me too" tax bills, some of which seemed more politically palatable than Richardson's radical overhaul.

Killing the state property tax was Perdue's suggestion, while the idea of freezing property assessments came out of the Senate. And Rep. Mark Burkhalter, R-Johns Creek, floated several failed bills to ax the car tax. Ironically, none of these initiatives would likely have gained any traction this session had it not been for the momentum of Richardson's tax-reform zeal.

It's as if the speaker went into the kitchen with a recipe, but during preparation every single ingredient was haphazardly replaced with something else. When Glenn's Special Tuna Casserole finally came out of the oven, it ended up looking, smelling and tasting like Mystery Meat Surprise.

Certainly, it's a mystery how the state would afford the tax cut represented by the bill. But, frankly, that uncertainty is nothing new; Georgia has operated that way for years, explains Alan Essig of the Georgia Budget and Policy Institute, a nonprofit group that analyzes the state's budget and tax policies.

Nearly every session, state lawmakers approve tax breaks for various industries and groups – from elderly veterans to peanut farmers – that altogether amount to between $50 million and $100 million a year. But state bean-counters have never been charged with keeping track of the cumulative effect on the state budget. The state doesn't even maintain a list of current exemptions, Essig says.

"When you start talking about tax reform, the first thing you should do is prepare a tax expenditure report to look at existing exemptions," he says. "What's their purpose? What's their impact? Do they work?"

But this time, the House has outdone itself. Eliminating the car tax and deleting the state property tax would blow a nearly $775 million hole in the state budget.

And, unlike Richardson's original GREAT plan, the House bill doesn't suggest how to fill the gap. Burkhalter has frequently shrugged off questions of lost revenue by suggesting that the state's economy will grow its way out of the shortfall.

"When taxpayers overpay to the government and government has sufficient money to address all the critical needs of the state, then government ought to refund money to taxpayers," he added at a press conference last week in which House leaders defended the tax cuts.

But the problem is, the state can't pay for all its residents' needs, says Essig.

"There's a total disconnect between tax reform and how we fund government services such as education, health care and transportation," Essig says. "Georgia is already ninth-lowest in state taxes. How low should we be? How many children do we want to be without health care? How do we maintain state roads and infrastructure? That's the discussion that should be taking place, but it's not."

Instead of debating the practicality of the tax cuts, Republican lawmakers have taken to sniping among each other. Earl Ehrhart, R-Powder Springs, who is House Rules chairman and Richardson's loyal lieutenant, blasted Perdue and Lt. Gov. Casey Cagle for opposition to a tax break, even – rather oddly – comparing Cagle to Barack Obama.

On the Peach Pundit website, where he's a frequent blogger, Ehrhart defended the bill: "When you cut taxes it stimulates the economy and creates more revenue, unfortunately to the government also. It worked for Reagan and it has worked every single time it has been tried. In Georgia, when we cut the grocery tax [by] some $400 million plus, the state revenue grew by $1.1 billion."

The difference, says Essig, is that the grocery tax was eliminated during a period of unprecedented economic growth, whereas many economists are now predicting a deep and prolonged national recession. In fact, just days before the House passed the tax bill, Perdue announced that a stalling economy meant he would be forced to trim another $65 million from his $21 billion state budget proposal.

"I think the governor and the Senate take the fiscal integrity of the state very seriously," Essig says. "I'm just glad that, unlike the federal government, Georgia can't get into deficit spending because the House would certainly vote for that."

Because the tax cuts are in the form of a resolution, the legislation would go straight onto the fall ballot, circumventing the governor's veto pen. But it may never get that far. Cagle and the Senate last year foiled a proposal by the House to parcel out $142 million in state money as pork, and they may yet put the kibosh on this scheme as well.

If that happens, look for the session to veer from simple weirdness into familiar train-wreck territory.

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