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The Serious Challenge to Georgia’s Low-Tax Economic Strategy

Mike Klein

Georgia built its economic strategy over the past couple decades around being a good place to raise a family with low taxes and a business friendly environment.  But others are getting pretty good at using similar strategies and Georgia should feel none too comfortable with its tenth place national ranking in an economic strategies and performance report this week from the American Legislative Exchange Council.

“Georgia is still among the better states.  Certainly you are not in the crisis category,” ALEC economist Jonathan Williams said during a telephone interview.  “However, it does have some issues in terms of mediocrity.”  Georgia’s 6% state personal income tax rate is about in the middle of all states, but it is positioned alongside Tennessee and Florida that do not collect income tax.  “That does not help your marketing,” Williams said.

The fifth edition of  “Rich States, Poor States” is a robust work co-authored by three conservative economists — Arthur Laffer who is often described as the father of supply side economics, Wall Street Journal editorial board economist Stephen Moore and Williams who directs the ALEC state fiscal reform and tax policy initiatives. The annual report compares state strategies in 15 tax, regulatory and labor law categories.

Southern states earned half of the top 16 spots with Virginia highest at third.  There is a cluster of southern power at ten through 16 with Georgia, Arkansas, Tennessee, Florida, Oklahoma, Mississippi and Texas consecutively.  Georgia ranked well in several soft categories but ALEC said the state is very much middle-of-pack in several high profile tax categories and Georgia has a ten-year trend in three important categories that you would not want to emphasize in a marketing plan.

The ALEC study released Wednesday placed Georgia first nationally (often tied with others) in categories like not imposing estate and inheritance taxes, requiring that employers pay only the lowest federal minimum wage of $7.25 per hour, being a right-to-work state and the amount of personal tax burden for each $1,000 of personal income.

Georgia ranked lower in total sales tax burden (36th), average workers’ compensation costs (27th), top personal income tax rate (25th), personal income tax progressivity (24th), total property tax burden (23rd), public employees per 10,000 population (21st), and top corporate income tax rate (15th).  Tax law reforms passed by this year’s legislature that include the elimination of sales taxes paid on energy used in manufacturing and extending sales tax to more online purchases would not be considered until next year’s sixth edition of “Rich States, Poor States.

Arthur Laffer

“There are lots of things that affect states besides their own economic policies,” Laffer said during ALEC’s national conference call.  “What happens to neighboring states, what happens to the U.S., oil prices and all sorts of other stuff happens.  What we’re trying to look at here is how these state and local governments are doing and how they influence growth.”

The ALEC study includes a ten-year backward-looking measurement of domestic migration, non-farm payroll and personal income per capita.   Isolating those three categories, ALEC ranked Georgia 33rd nationally during the decade that ended in 2010.   Georgia ranked fifth nationally with strong population growth of 552,000 that earned the state one new congressional seat.  But growth spiked in 2006 at some 120,000 new Georgians, then it quickly declined during the recession and there was almost no net growth during 2010.

The ten-year trend showed a 2.3% reduction in Georgia non-farm payroll employment; that placed the state 34th nationally.  Texas non-farm payroll grew 11.5% during ten years, best in the south.  Virginia grew 4.5%, Oklahoma 3.5%, Florida 2.9% and Arkansas 1.1%.  North Carolina dropped nine-tenths of 1 percent followed by declines in Louisiana 1.3%, South Carolina 2.6%, Alabama 3.2%, Tennessee 3.8%, and Mississippi 5.4%.

Georgia personal income per capita grew 23% during the past decade and that was 48thnationally.  Other southern states grew more;  Louisiana by 58%, Arkansas 45.3%, Mississippi 45.1%, Oklahoma 44.4%, Virginia 39.4%, Alabama 39%, Texas 34%, Tennessee 32.2%, Florida 31.6%, South Carolina 30%, and North Carolina 25.7%.

Georgia non-farm payroll employment and personal income per capita numbers are frustrating because the state markets itself as a good place to grow intellectual equity companies in the high-tech, health and science sectors and to establish new manufacturing such as KIA in West Point and Caterpillar coming to the Athens area.

ALEC likes to highlight “Cheerful News from the States.”  During Wednesday’s national conference call Laffer said bipartisan political leaders in his new home state of Tennessee have agreed to abolish estate and gift taxes.  Nine states including Tennessee charge no state income tax.  ALEC named Oklahoma, Kansas and Missouri among states that are studying how to abolish their personal income taxes.  A 2010 state special council on tax reform recommended reducing the Georgia state income tax but the idea has not been able to move forward.

“Rich States, Poor States” also has its own Facebook page.

(Mike Klein is Editor at the Georgia Public Policy Foundation)

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April 11, 2012 Posted by | Uncategorized | , , , , , | Leave a comment

Is Charter Schools Commission Case Headed Back to Supreme Court?

Mike Klein

We should know very soon whether the Georgia Supreme Court will be asked to reconsider its historic charter schools commission decision, even though one source said the likelihood that the Court would reverse itself is “an astronomical possibility,” as in, place really low bets.

Thursday could be a pivotal date. Representatives from commission charter schools affected by Monday’s Supreme Court decision have been asked to attend a meeting with Attorney General’s Office and State Board of Education staff.  Then in the evening one of the charter commission schools will go before the Gwinnett County Board of Education to request a local charter.

The Supreme Court ruled on Monday that the 2008 General Assembly overstepped its bounds with a law that gave a new state commission the power to authorize charter schools, in many instances, after those same schools were denied charters by local boards of education.  The Court majority said in 4-3 split decision that it would not allow the state to create K-12 “special schools” that compete with local board of education schools for students and funds.

Several sources who are familiar with options being discussed since Monday said a decision to request Supreme Court reconsideration is near the top of the list because the motion must be filed no later than Tuesday, May 31. There would be no new oral arguments and the Supreme Court could issue a confirmation or reversal of its first decision at any time.

Speaking on background, sources said strategies are being broken down into short-term and long-term priorities.  Short term priorities include making certain that commission school professional staffs are paid through the end of this school year and then examining options that would enable schools to operate next year.

There is growing support for a short-term option that would transfer existing and newly authorized charter commission schools to direct supervision by the State Board of Education. This would change their funding models – always a dicey and critical component of any change — but it could prove to become the best option to prevent shutdowns. The downside is another possible legal challenge.

Three persons who are familiar with ongoing conversations said federal Race to the Top dollars might be an option to replace local funds that would be lost if the state board assumes control.   Estimates vary, but that shift could require $30 million to $50 million. Race to the Top dollars have already been designated for STEM education programs, per Governor Nathan Deal.

Another short-term option could create one of the most interesting public relations scenarios.  At least two charter commission schools will request charters from local boards of education that originally rejected them. Ivy Prep Academy will ask the Gwinnett Board of Education for a charter on Thursday evening.   Ivy received a state commission charter after it was  rejected by Gwinnett.  Cherokee Charter Academy will do the same in Cherokee County, where it was also initially turned down.

Georgia charter schools draw students from an extremely wide geographic footprint.  That creates unique funding challenges.  For example, Ivy Prep Academy could receive a Gwinnett local charter but local funding associated with that charter would only follow students who are county residents.  The Gwinnett board cannot take any action that would ensure Ivy Prep is paid to educate students who live in other counties. That would require some sort of additional financial fix.

The problem becomes potentially more extreme when you consider charter commission online learning schools. Georgia Cyber Academy expects to enroll at least 8,500 online students this fall. GCA pupils come from nearly every county in Georgia. The Academy needs a financial model that ensures consistent funding.  It cannot piecemeal money county-by-county.  Georgia Cyber was originally under state board supervision and that might become its best current option again.

Looking toward long-term solutions, sources agreed their best option rests with a constitutional amendment that voters would be asked to approve in November 2012.  Amendment language could take many forms but, essentially, it would ask Georgia voters to approve creation of a commission that could authorize state charter schools and designate funding.  Perhaps that would end discussions about what is a special school, and what is a special student.

(Mike Klein is Editor at the Georgia Public Policy Foundation)

May 18, 2011 Posted by | Uncategorized | , , , , , , , , | Leave a comment