Gov. Nathan Deal, right, delivers his State of the State address to a joint session of the Georgia General Assembly in the House Chambers, as House Speaker David Ralston, looks on Tuesday, Jan. 10, 2012 in Atlanta. (AP Photo/John Bazemore)
ATLANTA — Gov. Nathan Deal wants to cut taxes to stimulate growth, but the $19.2 billion budget plan he presented Wednesday does not account for the tax cuts.
The Republican governor has proposed eliminating a state sales tax on the energy consumed by manufacturers and some farmers over three years and expand tax credits available to firms that create jobs. His administration estimates the tax break on energy alone would cost Georgia somewhere around $157 million. However, the budget plans presented by the governor do not include those reductions in tax revenue.
Officials in Deal’s administration said they will work with the General Assembly to implement the tax cuts. Legislators in Georgia meet for a 40-day session that started Monday.
“It’s Day 3,” said Chris Riley, Deal’s chief-of-staff. “There are 37 days left.”
Budget analysts said Deal’s administration should have accounted for the tax break. By definition, his budget is at least slightly out-of-balance.
“That’s a problem,” said Alan Essig, executive director of the nonpartisan Georgia Budget and Policy Institute. “Our position is that they should pay for it with another tax or get rid of less-priority, less-important exemptions for businesses.”
The drop in revenue caused by the tax cut would be small compared to Deal’s overall budget, which proposes some modest funding increases after state leaders hacked away at the budget during a bruising recession. Deal has asked lawmakers to spend an additional $255 million in state money for the fiscal year ending in June. That’s just over 1 percent of the previously approved budget of nearly $18.3 billion. For the coming fiscal year, Deal has proposed spending $19.2 billion.
By comparison, the loss of state income from eliminating the sales tax on energy amounts to less than 1 percent of the current budget after a three-year phase-in.
When speaking to business leaders Tuesday, Deal said other states have already eliminated that tax for manufacturers. He said getting rid of it in Georgia could attract jobs in a state with nearly 10 percent unemployment.
“In an age of much higher energy costs, this will impact a large component of manufacturers’ overall cost structure and vastly improve the competitive position of our producers,” Deal said.
The governor also proposed expanding a tax credit for small businesses so that it rewards companies that create 15 jobs, lowering the threshold from current level of 50 jobs. Deal’s administration has estimated the costs of this tax credit but his chief financial officer, Debbie Dlugolenski, said she could not recall the financial impact during a briefing with reporters.
Democratic lawmakers faulted Deal for the lack of financial projections.
“We are still wondering how we pay for it,” said Rep. Stacey Abrams, the Democratic leader in the House.
State Sen. Jack Hill, the GOP chairman of the Senate Appropriations Committee, said he believed Deal’s approach was reasonable.
“You’re a year away from anyone claiming it, so you can certainly in anticipation of that go ahead and announce it and go ahead and activate it,” he said.
Apart from tax cuts, the Republican governor has asked for $258 million in additional spending to cover growth in the state’s K-12 and higher education systems and spending more than $15 million to fund alternative courts and treatment centers for offenders suffering from drug addictions. Deal said his goal is to keep nonviolent addicts out of the expensive and overcrowded prison system if they agree to seek help. His spending proposals would repay money that the state borrowed from the Medicaid system to pay for its employee health care costs.
Deal is primarily relying on increased tax collections to provide the necessary funding for his new programs. His budget assumes that tax collections, which provide the bulk of the state’s money, will increase roughly 5 percent from this budget year to the following year. That may prove a conservative estimate, meaning state officials would have more cash on hand than Deal currently projects. Tax collections increased 7 percent between November and December, according to an analysis released by budget officials.