Is it a tax increase or the reversal of a decision based on estimates that turned out to be wrong?
That’s the question many Georgia citizens and legislators are asking about Gov. Sonny Perdue’s announcement last week that he was withholding the Homeowner Tax Relief Grant (HTRG) Credit as part of a plan to solve Georgia’s mounting budget crisis.
Created in 1999, the HTRG was implemented in increments and has reached an exemption of $8,000 in value on a home in which the owner resides. For most Georgians this represents a savings of $150-$250 per year. For the state budget, it represents a $428 million commitment.
When they send out tax notices, local governments credit homeowners with the exemption and then bill the state for reimbursement.
The HTRG is set up as an appropriation in the budget and is considered and funded on a year by year basis. It was approved and included in the $21.2 billion FY 2009 budget during this past legislative session.
Although the HTRG withholding was probably the most controversial part of Gov. Perdue’s plan to meet the expected budget shortfall for FY09, it certainly was not the only proposed cut.
Facing an expected shortfall of $1.6 billion during the fiscal year that started July 1, Gov. Perdue also directed a 6 percent across the board cut to all state departments with the exception of Medicaid and the Department of Education (DOE). Medicaid, which includes the Peachcare insurance program, will be cut 5 percent and the DOE 2 percent.
These cuts are substantial. For instance, the Board of Regents, who oversee our state’s colleges and universities, will be cut over $100 million, the Department of Human Resources over $90 million and the Department of Corrections over $60 million.
The reduction of 2 percent in the DOE budget will mostly eliminate an increase in funds approved by the legislature earlier this year.
Another key component of the plan is to defer pay raises for all non-education state employees that were set to go into effect Jan. 1. Since most teacher contracts for next year have already been signed, they will not be affected.
These proposed cuts and more are necessary because of the unexpected severe down turn in tax collections in Georgia. In June, the last month of FY08, state tax collections were down 9.4 percent, causing total revenue for the fiscal year to be down by 1.1 percent.
According to the state constitution, Georgia’s budget must be balanced and therefore Gov. Perdue was forced to use $600 million in reserves to make ends meet.
Although this leaves us with $900 million left in reserves, it is still not enough to make up the projected $1.6 billion budget shortfall for FY09, a figure that could grow even larger if the economy gets worse. In order to prepare for the worst case scenario, Gov. Perdue has ordered state agencies to come up with three sets of budget recommendations of cutting spending by 6 percent, another by 8 percent and a third by 10 percent for the legislature to consider in January when we return.
While Gov. Perdue’s plan has been mostly accepted by legislative leaders and should avert the need for a special session of the legislature, House leadership has expressed their desire to continue the HTRG credit and is currently exploring other options to offer the governor and Senate.
Because permanent elimination of the HTRG for this fiscal year must be done by an act of the legislature and therefore won’t be done, if at all, until January, this puts local governments in a quandary as to whether they include the credit in their tax bills.
Whatever happens, one thing is certain, with an extremely sluggish economy and no quick turnaround in site, the financial picture for our state is not a pretty one and difficult decisions lie ahead.