Georgia lawmakers scrutinize tax incentives during legislative off-season

Billions of dollars in tax incentives are under scrutiny in Georgia this legislative offseason.

In the three months since the state legislature adjourned for 2023, the General Assembly's Joint Tax Credit Review Panel has met three times in the city of Rome to evaluate the effectiveness of wide-ranging tax incentives that have helped fuel the rapid growth of some of the state's largest industries.

State House Speaker Jon Burns, R-Newington, who long lobbied for the bipartisan and bicameral committee's creation, announced its formation in March alongside Lt. Gov.Burt Jones, vowing to provide a "thorough review" of the growing number of tax credits the state has issued, with an eye on suggesting possible adjustments to the legislature in the 2024 session.

Georgia House of Representatives

"It is incumbent on us to ensure our tax credits continue to provide good value while keeping the tax burden on all Georgians as low as possible," he said, adding the eleven-member body would be "very deliberate" in its work.

Since, lawmakers have quizzed business leaders from the state's largest industries and leading employers, who happen also to be some of the biggest beneficiaries of the program, as well as representatives of major trade associations.

Clay Jones, vice president of the Georgia Association of Manufacturers, a trade group representing manufacturers in the state, addressed the committee at its latest meeting on Sept. 20.

He told The Bond Buyer that some of Georgia's industries have come to rely on the performance-based tax incentive program to remain competitive in attracting new investments.

While many factors make Georgia appealing to businesses seeking to expand, including cheap land, non-union labor, and a low corporate tax rate, Jones said tax incentives "contribute significantly" to a pro-business environment over the last decade.

Those incentives include a job tax credit ranging from $1,250 to $4,000 per year for 5 years for every new job created, a credit for companies paying wages above the state standard, investment tax credits, and support for R&D among others.

When taken together it means the state lost out on billions of dollars of tax revenue over the years, but Jones said if Georgia were to make its provisions less competitive, it could push investments elsewhere.

In fiscal 2023, businesses invested more than $24 billion in facility expansions and new locations, according to year-end financial reports from the Georgia Department of Economic Development, with a more than 131% increase in investments year-over-year.

Georgia is one of several states in the U.S. Southeast that have inked major development deals with electric vehicle producers, seeking to attract the growing industry as it expands rapidly in North America.

Its major projects with Hyundai, Kia, and now Rivian have all benefited from tax incentives and the manufacturers' association believes "the current system is, by and large, fairly constructed and very successful" and "the product of many years of visionary leadership in our state," Jones said.

"We believe we can even do better by improving some of the credits and exemptions, but certainly oppose any actions that would discourage manufacturers from investing in Georgia," he said.

Missy Kendrick, president of the Rome Floyd Development Authority, who also addressed the committee at its most recent meeting told The Bond Buyer that the success businesses have seen in the last few years "shines a spotlight on economic development."

Statutory incentives were "an everyday part of our economic development work in Rome and Floyd County" and important to local development and many times the only available incentives to an existing industry hoping to expand, she said.

"We work with new and existing industries daily and sharing the availability of the job tax credit or the investment tax credit is an essential part of our conversations," she said. "We have quite a few 'less developed census tracts' which provide greater incentives to attract investment in these underdeveloped areas. "

Loss of capital investment aside, changes to the tax incentives could be detrimental to future economic development as local economies rely on "a multiplier effect" to boost job creation, she added. 

"This means that many more jobs are created in a community due to services provided to these businesses and industries because the money from their payroll and suppliers circulate in the community," she said.

Lawmakers also heard from opponents, including Nick Stark, director at the American Legislative Exchange Council, a right-leaning policy institute comprised of both private and public sector members, who said the state should keep mind the effect those decisions could have locally when working to encouraging economic growth.

"Typically, that's done through lower tax burdens that generate more economic activity," he said. "Government shouldn't be picking winners and losers."

By the numbers Georgia's film industry was the largest beneficiary of the state's development tax incentives, seeing $1.3 billion in breaks in fiscal 2023 from a tax credit that was passed in 2005, modified in 2008, and today can provide up to a 30% income tax break for production houses working in the state through a tradable credit issued by the Department of Economic Development.

Uniquely, total credits that can be issued annually are not capped by the state.

Andrew Capezzuto, the Department of Economic Development's chief administrative officer, defended the credit — of which the state has issued $4 billion since 2009 — to the committee in June, saying taxpayers had seen a return on the lost dollars through a direct economic impact from the industry that topped $4.4 billion last year.

While proponents like Capezzuto, Kendrick and Jones say lost tax revenues are a small price to pay for attracting and retaining major employers, nay-sayers point to state reports on the film industry in particular when arguing the opposite.

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The state auditor's office said in a July update to a report issued in 2020 looking at the film credits impact in 2016 that reporting industry incentives have been "incomplete and inaccurate" and its economic impact, including jobs creation, has been overstated "even before considering the cost of the credit."

The program also lacked oversight.

"Despite granting more credits than any other state, Georgia requires companies to provide less documentation for the credit than any other 31 other states with a film tax incentive," it said.

While the Department of Economic Development has worked to enhance controls and oversights since that initial report in 2020, officials said in their recent update that in 2016 88% of credits went to production companies with no permanent locations in Georgia and 53% of wages used toward the credit paid to nonresidents, adding 65% of other states with a film incentive required or incentivized hiring residents over nonresidents, the report added.

Over the remainder of the offseason, the panel will work to produce a report with recommendations for changes before the start of the General Assembly's 2024 session. 

Jones said the manufacturers' association will remain involved in the process, adding he had confidence "in our state's leadership and their understanding of the importance of manufacturing investment in Georgia."

Kendrick said she believed the results "will keep our tax policies strong in support of economic development."

 A representative from Gov. Brian Kemp's office didn't have comment on the panel's work.