ATLANTA — House and Senate Republicans broke a budgetary logjam Wednesday afternoon by rushing a series of future tax cuts, paired with a new hospital tax and $90 million in state fee increases, through the Georgia General Assembly.
Georgians who are 65 and older eventually would see a complete phase-out of income taxes on retirement income. The small portion of property taxes Georgians pay to the state also would be phased out, and both changes would be made gradually over five years, starting Jan. 1.
But before that, the state would raise a series of licensing and inspection fees and implement a long-discussed 1.45 percent tax on hospital revenues.
Altogether, the changes would bring the state more money in the coming year. When paired with significant spending cuts, this would help balance the fiscal 2011 budget, which the Georgia House of Representatives also passed Wednesday after months of debate.
But as the years go by and the tax cuts take effect, there will be “a huge net tax cut,” according to House Ways and Means Chairman Larry O’Neal, R-Warner Robins. That’s particularly true because the hospital tax sunsets after three years.
All of this was pasted into House Bill 1055, which lays out a series of fee increases meant to make state licensing and inspection programs self-sustaining. In the end, Republicans who are worried about voting for a tax increase to balance the budget said they are pleased to vote for one big bill with the fees, hospital tax and two popular tax cuts, even if the cuts will take time to put into place.
This amalgamated bill passed the House 107-63, with Democrats complaining about the quick nature of the deal and the lack of debate on the tax cuts. Both cuts were introduced on the House floor Wednesday without going through the normal committee process, surprising many. But they had been discussed, though not passed, in previous years, and Republicans said they were fully vetted then.
The same bill passed the Senate 39-12, and Gov. Sonny Perdue’s office indicated he’s on board, too.
The House also finalized approval Wednesday for the governor’s plan to sell off some of the state’s loan portfolio to generate another quick cash infusion for the budget.
These loans are used to pay for local water and sewer projects, and the state has estimated it can sell about $575 million in debt that local governments owe the Georgia Environmental Facilities Authority fund and generate about $300 million for the budget.
With all of these agreements reached Wednesday, the state’s budget plan is just about done, and the Legislature is scheduled to wrap up the session April 29.
The tax cuts
The retiree tax cut primarily will benefit the seniors who are wealthy, because it won’t change the way salaries or other “active” income is taxed for senior citizens. Plus, current tax law already allows seniors up to $35,000 in non-taxable retirement income.
“Your Wal-Mart greeters will still pay income tax,” House Minority Leader DuBose Porter, D-Dublin, said before voting against the bill.
The new tax cut will kick in starting Jan. 1, 2012, and increase each year through 2016. Each year a bit more retirement income will be tax free, until all of it is in 2016.
The tax cut will total about $142 million by the time it’s fully implemented, according to an analysis done by the state auditor’s office in 2007, when the cut also was proposed.
The property tax cut eventually would save taxpayers $94.5 million a year, according to a similar analysis, handled by the state’s Fiscal Research Center this month. It would begin in 2012 and be fully implemented by 2016.
Property owners would still pay local property taxes to pay for schools and county government, as well as city government for incorporated residents. They wouldn’t pay the state its 0.25 mills, which amounts to $10 in taxes on a $100,000 home.
Republicans argued that these tax cuts — particularly the cut for senior citizens — will improve Georgia’s economy by drawing well-off retirees here and keeping Georgia’s retirees from moving to Florida, which doesn’t tax retirement income. Senate Majority Leader Chip Rogers called it “a welcome sign” for retirees.
“I think we can walk out of here today and be quite proud of our accomplishment,” said Rogers, R-Woodstock.
But Senate Minority Leader Robert Brown, D-Macon, call both tax cuts “lipstick on a pig.” He said there’s no guarantee they will even be implemented come 2012 and that, if they are, they’ll lead to new cuts to state programs. That could be particularly devastating to the state budget once federal stimulus money now being used to balance it runs out in 2012 and 2013, Brown said.
The hospital tax
The tax will raise an estimated $162 million or $216 million for the budget, depending on whether the net or gross figure is considered. That money will be used to draw down federal funding in a 3:1 ratio, making a huge impact on the state’s health-care programs for the poor.
Hospitals that provide the most free indigent care will make money from the tax, and wealthier hospitals will lose money, making it likely they’ll pass the new costs on to paying patients.
It’s not clear whether The Medical Center of Central Georgia, which has long said it carries a heavy load in free care for the area’s poor, will make money or lose money in the deal. An initial analysis showed them as a net donor, but the hospital tax has changed repeatedly since then.
Also, a break was put in for facilities with high-level trauma operations such as The Medical Center of Central Georgia has.
State Rep. Jim Cole, R-Forsyth, Perdue’s floor leader in the House, carried the hospital tax for the governor. Cole, R-Forsyth, said Wednesday he hadn’t seen an updated list of hospital winners and losers.
The budget
The fiscal 2011 budget that passed the House of Representatives on Wednesday totals $17.8 billion in state funds.
It is rife with cuts across all state departments, despite the new revenue from the hospital tax and fee increases built into the budget.
There are no mandatory employee furloughs in the budget, but there also are no guarantee that departments won’t implement furloughs to absorb their cuts. There are some layoffs but not the massive ones some legislators predicted earlier this year.
The budget now moves to the Senate, where changes likely will be made before anything is finalized. But with Wednesday’s series of agreements, the big pieces are in place.
Two budgets ago, in fiscal 2009, the budget included $21.16 billion in state funds. That’s $3.36 billion more than the 2011 plan approved Wednesday. But when the federal money that passes through state coffers is added in, the cuts are not as deep.
That’s partly due to federal stimulus money, most of which is set to run out by fiscal 2012. Including federal money, the state budget totals about $38.39 billion for fiscal 2011. It totaled $39.94 billion in 2009.
Republicans touted the new budget as a difficult plan but one that cuts the cost of government. Democrats said cuts to education and other programs were unnecessary, and they called for various new revenue plans. Those included an end to special interest tax breaks, many of which are meant to spur economic development.
To contact writer Travis Fain, call 361-2702.
