How has Georgia responded to the Great Recession compared to other states? The latest data from the Census Bureau tells us some things we knew and some things some might find surprising.
Everyone likes rankings, but it’s very important to make sure state-to-state comparisons are fair. Some states are very decentralized, with local government accounting for a large portion of all government spending, while state government plays a larger role in other states.
State spending on K-12 education, for example, ranges from 31 percent in Nevada to 85 percent in Hawaii. For this reason, it is important when comparing states to examine state plus local spending. In addition, comparing spending as a percentage of personal income (rather than spending per capita) accounts for cost of living differences.
Georgia is commonly characterized as an extremely low spending and low tax state. An apples-to-apples comparison ranks Georgia 38th in taxes and 34th in spending — below the national average, but above roughly one quarter of the states. This Census Bureau data is from 2009, two years after the recession officially began in 2007.
A deeper analysis highlights areas where Georgia is high or low relative to other states. In terms of revenue, insurance premium taxes (6th), alcoholic beverage taxes (8th), higher education charges (43rd), motor fuel taxes (43rd), motor vehicle licenses (49th) and tobacco taxes (43rd) stand out.
On the spending side, K-12 education (8th), K-12 construction (5th), correctional institutions (13th), education scholarships (8th), highways (47th) and interest on debt (49th) are notable.
These comparisons indicate where we might be able to shift resources from areas of overspending to meet critical needs in other areas.
For example, Georgia clearly has a need for additional investment in transportation. Georgia’s motor fuel taxes are $70 lower per person than North Carolina and Florida. Based on Georgia’s 2009 population of 9.6 million, increasing Georgia’s motor fuel taxes up to the level of North Carolina or Florida would raise more than $670 million annually.
At the same time, if Georgia reduced its capital spending on school construction to the Southeastern average it would save $84 per person, or more than $800 million annually. Since school construction is primarily funded at the local level, this would provide an opportunity for a substantial property tax cut.
Georgia began an effort last year to make its criminal justice system more effective and efficient. If these criminal justice reforms are successful in getting corrections spending down to the Southeastern average, it would save more than $300 million annually.
There is room for improvement even in areas where we are ranked near the national average. Consider personal income taxes (26th) and property taxes (28th). The average Georgian is paying $361 more income tax and $154 more property tax than the Southeastern average. Both of these taxes are harmful to economic growth – something to remember as hundreds of thousands of Georgians remain unemployed.
Economists predict state revenues will not return to pre-recession levels for several more years. Just like a family that cuts back on going out to eat in order to save money to buy necessities, Georgia must make tough decisions based on its existing revenues.
The good news is an objective look at our spending indicates opportunities to make our state more competitive by prioritizing spending at both the state and local level.
For more information, go to http://www.georgiapolicy.org/pub/Agenda2012/fiscaloverview.pdf.
[Kelly McCutchen is president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians.]
