State Plans to Begin Risky Income Tax Shift in 2024

House Bill 1437, signed into law by Gov. Kemp after a final version emerged during the last hours of Sine Die 2022, sets Georgia on course to adopt a flat personal income tax that primarily benefits the state’s highest earners at an annual cost of $2 billion when fully implemented. This session, legislators made positive changes to the original package through the passage of Senate Bill 56, which preserves and strengthens the standard deduction, rather than shifting to a new and less equitable filing system as the previous version called for.

Although the flat tax plan requires overall revenue growth of at least 3 percent to proceed without interruption through six steps to achieve full implementation by 2030, forgoing $2 billion in annual personal income tax revenues threatens the long-term stability of Georgia’s revenue system and places a continued burden on the state’s ability to meet the needs of its residents. Already, Georgia ranks last nationally—No. 50 out of 50—in the amount of general state revenues it raises per person (FY 2020).

Due in part to historic and systemic policies that have contributed to lower levels of income and wealth for Black Georgians and people of color, these tax changes would worsen racial inequities and expand the racial wealth gap. White Georgians (55 percent of tax filers) would see 66 percent of total benefits, and Asian Georgians (3.2 percent) would gain 4.6 percent of savings, while Black Georgians (32 percent) would see just 22 percent, and Hispanic Georgians (8 percent) benefit from 6 percent of the total tax cuts.

For Georgia families earning the median income or less, these pending tax changes would offer little to lift incomes or meaningfully increase economic opportunity. Rather, the changes may redirect resources from programs and services that could otherwise support working families, thus widening disparities across income, race and ethnicity. Unless further action is taken, the tax changes will become effective beginning on January 1, 2024, and are set to be implemented over a period of at least six years.

Costly Tax Plan Designed to Cut Taxes from the Top-Down, Centering Benefits on Top Earners

Gov. Kemp Sets New Precedent with $242 Million in Non-Binding Budget Disregards, $13.1 Million in Line-Item Vetoes

With Gov. Brian P. Kemp’s signature, Georgia’s FY 2024 budget became law ahead of the state’s next fiscal year, which begins on July 1, 2023. However, Gov. Kemp’s approval of the spending plan was accompanied by a wave of 134 non-binding orders to either fully or partially disregard budget language and appropriations comprising $242 million in state spending, along with nine line-item vetoes, which cut $13.1 million from the budget entirely. In effect, these actions will withhold tens of millions from the state’s ailing health care system and safety net, block $6.3 million in funding to the Department of Education to cover the cost of breakfast and lunch for reduce-pay students and slash a host of priorities championed by lawmakers across the aisle. Taken together, these actions are relatively unprecedented. Cumulatively, throughout the previous four years of Kemp’s governorship, from FY 2020 –2023, 49 non-binding disregards were issued on $85 million of state spending and nine line-item vetoes were issued on $3.2 million in allocations.

Under Georgia’s constitution, the governor is entrusted with authority to veto “any appropriation” through the line-item veto. Throughout Kemp’s governorship, rather than rely primarily on the line-item veto to modify appropriations legislation, the governor has traditionally employed “nonbinding disregards” and signing statements to provide additional instructions to relevant state agencies and, in some cases, to explain why funds will be withheld for provisions approved by the General Assembly. This blending of executive authority demonstrates the wide range of powers held by the state’s chief executive over state appropriations, which Gov. Kemp has expanded use of in recent years. Although described as non-binding, these orders have a similar effect to line-item vetoes in practice, while preserving the availability of state funds for other purposes or to be appropriated in subsequent amended appropriations plans.

Georgia law also enables the governor to require agencies to reserve appropriations for budget reductions and to withhold agency allotments to maintain spending within projected revenues, which the governor holds unilateral authority to set in establishing the state’s revenue estimate. In practice, this authority offers the state’s chief executive wide latitude to exercise control over funding allotted to state agencies.

Of approximately $255 million in non-binding budget disregards and line-item vetoes issued by Gov. Kemp, the lion’s share of these cuts will reduce funding for health and education programs and services. Several of these items only slightly modify the spending plan approved by the General Assembly, such as the $11 million allocated to annualize the cost of 513 NOW/COMP waiver program slots for individuals with intellectual and developmental disabilities. In this case, the governor instructed the Department of Behavioral Health and Developmental Disabilities to simply utilize funding for direct waiver expenses only, while removing the possibility of covering administrative overhead with these funds. In most cases, however, funds are withheld entirely from the programs and services approved by the General Assembly. Unless instructions state otherwise, appropriations will not be made to agencies for budget items that were disregarded, and the General Assembly will have the opportunity to reengage on these measures when the legislature convenes for its next session.

Georgia’s 2024 Education Budget Private School Vouchers Drain Rural Georgia

The state budget for K-12 public schools is $11.9 billion in FY 2024, an increase of $1.2 billion from FY 2023. Seventy-two percent of the additional dollars ($840 million) reflect an increase in the State Health Benefit Plan for certified school employees. The employer costs for non-certified employees, including bus drivers, paraprofessionals and custodians, will also increase. The state stopped paying the employer portion of health insurance for these positions in 2012. Individual districts pay this cost today. The budget also includes $290 million to provide a $2,000 raise for certified employees starting September 1, 2023 and $27 million to provide schools with the funds to hire one school counselor for every 450 full-time equivalent students. Rapid inflation in the past year has highlighted a longstanding problem in the state’s allocation for education funding: cost-of-living increases are not built into the state formula. Periodic raises, for one, have not kept up with the consumer price index, leaving schools to make up the difference with local property tax collection. School districts vary greatly in the amount of local taxes that can be collected, leaving a system of haves and have-nots. Without additional state investment, districts with lower property wealth will not be able to offer the opportunities students deserve.

Alongside K-12 public schools, Georgia’s Child Care Services and PreKindergarten programs provide critical support to families and their children. In FY 2024, $62.5 million was allocated for Child Care Services, which included a pay boost for state workers. The Pre-K program’s budget was $444 million, with legislators missing a critical opportunity to tap over $1 billion in unrestricted lottery reserves to boost Pre-K assistant teachers’ base pay—even with the $2,000 pay raise in the current budget, Georgia Pre-K providers are only reimbursed $20,190 for each of these professional’s salaries. Lottery reserves fund Georgia’s Pre-K, HOPE and student loan programs.

The budget for the University System of Georgia is $3.1 billion, despite sustaining a significant budget cut of $66 million dollars spread across all 26 institutions. The budget for the Technical College System of Georgia includes programs like adult education, workforce development and a $2,000 cost-ofliving increase for eligible staff, totaling $444 million. The lottery funds support higher education programs such as College Completion grants and the HOPE Scholarship. There are currently $1.1 billion in unrestricted reserves and $1.9 billion in total education lottery reserves. To appropriately utilize lottery funds, in the 2023 Legislative Session, lawmakers proposed House Resolution 281 to study lottery revenues and reserves to serve the needs of students in Georgia who are marginalized and cannot afford rising college costs.

This year, the Qualified Education Expense Tax Credit (QEETC)—a voucher that the Georgia Department of Audits and Accounts found lacks transparency and oversight—will divert $120 million from the state’s budget. This program provides a tax credit to those donating to pass-through organizations that pay private school tuition for parents who apply. Georgians have no assurances of how students perform once they enter this program, as these schools are not held to state standards or tested to measure performance.

The QEETC is one of two state vouchers that funnel public funds to private schools—institutions that can reject students by income, ability, language proficiency, sexual orientation or religion. A review of the county-by-county QEETC usage shows that a few wealthier counties are benefiting from a program that the entire state subsidizes. Thirty-one percent of the voucher dollars last year were funneled to just two counties: Fulton and DeKalb.

> $15,000,000 $1,000,000–$15,000,000 $100,000–$1,000,000 $50,000–$100,000 < $50,000

Inflation Swallows Recent Teacher Salary Increases

This year, lawmakers passed a $290 million increase to the state salary schedule for certified teachers and certified employees in Georgia public schools. The base salary for FY 2024 is $41,092 for 10 months of employment.

Governor Kemp has made teacher pay raises a primary education policy goal and successfully led the General Assembly in allocating raises of $3,000 in FY 2020, $2,000 in FY23 and $2,000 for this next year’s budget. These additions are welcome to a profession that saw stagnant state funding in the years following the Great Recession. The cost of living has increased at a rate that, even with the pay increases, the buying power of the teacher base salary is thousands of dollars less than it was 15 years ago. If salaries kept pace with inflation, teachers paid the base salary in 2023 would have made $7,700 more annually—$385 more per pay period.

Teacher shortages—in rural schools or those serving more students in poverty, as well as for specific positions such as special education—will only increase if districts do not have the funding to ensure competitive wages. Further, any attempts to recruit more teachers of color, a must-have to address the needs of Georgia’s students, will fall flat while public school employees incur a financial penalty for entering the classroom.

Teacher Base Salaries Continue to Lag Growing Cost of Living

Pupil Transportation Funding Continues to Ignore Cost of Living

The K-12 budget includes a grant specifically to address student transportation needs—school buses, drivers, monitors, etc.—funded at $149 million for FY 2024. Lawmakers added $4.7 million to provide transportation personnel a 5.1 percent salary increase. This year’s budget does not include any additional money for school bus replacement but did include $188 million for this purpose in the amended fiscal year (AFY) 2022 budget with instructions for it to be used for the next three years.

Even with the raise and AFY 22 infusion included, the state spent less per student in FY 2023 ($117.33) than FY 2002 ($120.73), over two decades prior, not even counting the impact of inflation. Over this 22-year span, the cost of labor, fuel and vehicles have increased—a trend especially stark in FY 2022. School districts, which are required to provide school bus services to students by state law, must find additional funding in other areas. When the state does not adequately fund pupil transportation, the result is longer school routes, safety concerns due to older buses and less money for the classroom.

State

for Pupil Transportation Does Not Address

Note: A constant dollar is an adjusted value of currency based on purchasing power, used to recognize impact of inflation.

Source: Georgia State Salary Schedule FY10-FY24; CPI-adjusted FY10 dollars.

Note 1: FY 2022 is the most recent data available of actual costs for student transportation. Note 2: FY 2022, 23 and 24 state funding each include one-third of the AFY 2022 bus replacement funding, per language in AFY 22 appropriations bill.

Source: Georgia’s 2023 Fiscal Year Budget (HB 911), signed by the governor.

Child Care Gained Little Ground Over the Past Decade

The Department of Early Care and Learning (DECAL) administers Child Care Services, the Pre-Kindergarten Program, Nutrition Services and Quality Initiatives. State resources only support the Pre-K program and Child Care Services. The FY 2024 budget includes $506 million for the agency.

For FY 2024, the legislature and the governor approved about $62.5 million for Child Care Services, up from $61.4 million in FY 2023. Child Care Services includes the Childcare and Parent Services (CAPS) program, the state’s child care subsidy and support to child care providers. The $1.1 million in additional funds to Child Care Services includes a $2,000 pay increase for state workers in the division and an adjustment for the state match to draw down all available federal funding. Georgia has never adequately funded the CAPS program, even though the poverty rate for children five and under has been at least 20 percent since 2011. Funding for Child Care Services has only increased by about 13 percent over the past decade while child care costs have grown and workers are leaving the profession for higher wages elsewhere.

State Investment in Child Care Has Increased by Only 13 Percent

Since FY 2014

$5.5 million increase for the Child Care and Parent Services (CAPS) program

Recent increases have been adjustments to the state's contribution to the federal-state match.*

Georgia does the bare minimum to draw down all available federal resources, and it is inadequate given the needs of families and child care providers. The growing costs add greater economic pressure on women, who are often the primary caregivers, even if they are working. Women of color tend to have lower incomes than their white counterparts and are less likely to be able to afford the high cost of child care. Only about 15 percent of eligible Georgia children receive child care subsidies. Moreover, before the additional federal funds provided during the pandemic, the state’s CAPS reimbursement rates to providers trailed market rates at the 75th percentile, which made it hard for many child care businesses to invest in their staff. The pandemic has only made the crisis more visible. Federal resources from COVID relief packages protected Georgia’s child care system from the greatest harm, but these resources will expire in fall of 2024, creating a massive decline in the overall resources for child care.

Weekly Costs of Infant Care at the 75th Percentile*

Note: The Federal Medical Assistance Percentages or FMAP determines the amount of federal matching funds for state spending on certain social services. When the federal contribution or FMAP declines, the state must contribute more in matching funds to maximize federal funds to the state.

Source: Governor’s Budget Reports and HB 19.

Note: The federal Administration for Children and Families Office of Child Care has established the 75th percentile child care market rate as a benchmark for determining equal access to child care services for those receiving child care subsidies.

Source: Department of Early Care and Learning. Georgia Child Care Market Rate Survey, 2013 and 2021.

Although the state cannot make up for the hundreds of millions Georgia received in federal relief payments for child care, it must offer more than modest bumps or flat spending. For example, the state can increase its funding to CAPS by $20 million to add more subsidized slots for children and increase resources to child care centers. Additionally, the state missed the opportunity this year to use the $6.6 billion budget surplus to support staff who work in child care and early learning facilities. Georgia should have, as it did last year with federal money, made additional $1,000 bonus payments to early childhood educators and staff who are not part of the state’s Pre-K Lottery program and did not receive a pay increase this year.