Since 2008, the federal response to the Great Recession has resulted in a deficit that has become the focal point of Republicans and tea partyers alike.
Far less talked about has been our state government’s response to the downturn — and the borrowing of $635 million from the federal government to cover unemployment benefits for hundreds of thousands of jobless Georgians.
The bill is about to come due. Almost certainly, the result will be a hike in payroll taxes for businesses across the state, or a reduction in benefits for the hard-hit unemployed. Or both.
Other states, like California and North Carolina, owe far more. But Georgia’s case is special because of what was squandered. First by Democrats, then by Republicans.
In 1999, the state’s Unemployment Trust Fund — fueled by record growth — had squirreled away an astounding $2 billion for hard times. Far more than any recession required, thought the new governor, Democrat Roy Barnes.
He proposed and passed what he called the largest business tax cut in state history — a four-year payroll tax holiday that spared businesses $1 billion. (The tax hike applied only to state payroll taxes. Businesses also pay federal payroll taxes that roll into a separate fund.)
All was good until 9/11 and a 2001 shutdown of the American sky. Unemployment zoomed in airline-friendly metro Atlanta. The payroll tax holiday continued, which meant money gushed out of the trust fund — and none flowed in.
By the time the holiday and Barnes’ tenure expired in 2003, the trust fund was down by nearly two-thirds, to $703 million, according to a report released this week by the Georgia Budget and Policy Institute.
“If it wasn’t for that tax holiday, we’d be sitting great. That’s what got us. You don’t use an insurance fund for a tax holiday,” said Labor Commissioner Mark Butler, a Republican elected for the first time to the post last November.
There is truth in Butler’s assessment. But the story is not complete. If Democrats frittered away rainy-day money for political gain, Republicans were prodigal with time. For the same reason.
The problem with tax holidays is that ending them — and repairing the damage — can be characterized as a tax increase. Triggers built into state law, to raise the restored state payroll tax by as much as 100 percent to rebuild the trust fund, were suppressed time after time by the Legislature.
When Michael Thurmond, then the labor commissioner, warned of underfunding, newly empowered Senate Republicans inserted a provision that would let Thurmond — on his own — raise the state payroll tax by as much as 35 percent.
Let the Democrat do it, was the thinking. But Thurmond faced re-election, too — which GOP lawmakers knew very well. He would order occasional increases, but only small ones.
The Legislature, at Gov. Sonny Perdue’s behest, issued its last suppression of payroll tax hikes in 2009, with the “Georgia Works Job Creation and Protection Act.” Among the many lawmakers who voted for it was Butler, then a House member from Carrollton.
Payroll tax rates were set in place through the end of this year.
Georgia began borrowing in December 2009, attracting the attention of Fran Millar, R-Dunwoody, then a rank-and-file House member. He is now in the state Senate.
“What bothered me is we in the Legislature weren’t really made aware of this at all,” Millar said this week. “I don’t have a problem with us borrowing it, but this is the kind of obligation we need to be made aware of it. And we were not, when it was all said and done.”
He and other senators want a solution spelled out.
First, let it be said that unemployment checks offered by Georgia are rather Spartan — these are not the extended benefits generated by the federal government. They last an average of 15 weeks — time enough to arrange the move back into your parent’s house. Payments are about $269 a week.
Secondly, it must be noted that, when the federal government borrows from you, the terms that it sets for itself are quite generous. But when a state borrows from the federal government, it is another matter entirely.
Georgia owes $24 million in interest by Oct. 1. A spokesman for Gov. Nathan Deal says sources for the cash have been identified.
The principal of the loan is due by Nov. 10. By then the state will have borrowed well beyond $700 million.
President Barack Obama has proposed suspension of interest payments for states, and forgiveness of portions of the loans issued. But state officials worry about strings attached to the deal.
“We are looking at bonding the entire amount,” said Butler, the current labor commissioner. Attorney General Sam Olens is now examining whether that would be legal. Butler said the borrowed money could be paid back in five years.
In the meantime, Butler said he is recommending to state lawmakers that they allow increases in payroll taxes — the ones avoided for so long — to go into effect, as current law provides. If the state doesn’t permit a moderate increase in the payroll tax on businesses to address the debt, then the federal government will impose a very large one.
“The tax holiday they gave back then, businesses are going to have to pay for now,” Butler said.
- By Jim Galloway, Political Insider