Viewpoint: Not all hope for Georgia's economy is lost

In any business, a 35% drop in April 2020 revenues relative to April 2019 revenues would be cause for something very closely resembling complete and absolute panic. It’s completely understandable that Georgia state budget leaders are alarmed by seeing this movement in the April revenue collection numbers reported in May. However, beneath the top line number, there are some causes for tempered optimism.

The biggest loss leaders were corporate income tax (-71%) and individual income tax (-46%). Together, these form the bedrock of Georgia’s revenue collections, along with sales tax. That said, it is impossible to know how much of this represents taxpayers taking advantage of the extended filing deadlines and how much are actual underlying drops in income. One window into this is that individual withholding payments (which generally cannot be delayed) were actually up 1.6% year over year. Hence, a large component of the problem may be cashflow rather than a drop off the cliff on income tax revenues.

What about the other bedrock? Net sales tax collections were down 14% year over year. The drop is mostly the result of decreased consumer spending, but it is likely that the state is also playing catchup on revenue collections following a spike in online shopping. Many of the tools the Department of Revenue can use to chase online tax collections came into existence just this year with the passage of the marketplace facilitator legislation. The State is fortunate these tools arrived just in time, but will almost certainly need an adjustment period to collect the full revenues available. Here again, there’s some reason to be optimistic that these revenues may trend upward, provided that the efficiencies in collection stay ahead of drops in consumer spending.

In the “other revenues” category, the results are mixed. Revenues from anything related to travel — gas tax, car purchases, hotel fees — are dramatically lower. Hotel fee collections will almost certainly stay low and may create some strains on transportation spending as the fee is dedicated to transportation infrastructure funding. However, as people begin to move around and choose to stay in the relative safety of their cars to do it — as well as vacationing closer to home — automobile purchases and repairs, as well as gas consumption, may do relatively well at the expense of airlines and mass transit. Further, we are all clearly enjoying our time at home: tobacco, alcohol and lottery collections all saw considerable increases.

Looking at the broad economic picture, Georgia is better positioned for a recovery, relative to other states, than we were in the real estate and banking crash of the Great Recession. Our economy has diversified since then, with sectors such as agriculture, logistics, healthcare, professional services, financial technology, and film poised to lead.

Film, particularly, has enormous potential here. Consumers have spent two months binge watching on-demand, streamed programming while entertainment production has come to an astounding halt. International travel is shut down and New York and California are our biggest competitors for productions domestically. Here alone, there’s potential to fill a growing need with tens of thousands of unemployed Georgians if the state moves quickly on training and ensures the Georgia film credit remains legally strong.

Logistics and fintech, similarly, are areas of strength in the post-COVID economy. Though consumers may not be travelling as often, the loss is partially being made up by transporting products to consumers. Georgia is a world leader in innovative logistics and virtual transaction infrastructure. Additionally, our strengths as a right to work state in combination with affordable energy and a strong technical training system position us far ahead of other states as companies look to re-shore key component manufacturing to the U.S.

In short, it is hard to determine how much of the drop in revenue is owed to changes in consumer behavior versus economic carnage. While there is no doubt the economy is in disrepair, there’s reason for optimism in Georgia. If the State moves quickly on implementing world class testing and tracing, rapidly retrain workers for new fields, and repurpose assets to align with demand we have real potential to be a national leader in speed to recovery. Plus, when comparing this downturn to the last recession—where we were disproportionately punished for our success in development, homebuilding and banking—there’s a lot to like about where Georgia sits today relative to other states

 

By Brad Alexander – Partner at Impact Public Affairs in Atlanta, Ga.
https://www.bizjournals.com/atlanta/news/2020/05/22/viewpoint-not-all-hope-for-the-economy-is-lost.html

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