Campus skyline

What the Changing Face of Georgia Means for the State’s Fiscal Health

Posted On April 21, 2017
Categories FRC Blog, Highlights
Print Friendly

Georgia’s changing population and economy are creating new challenges and opportunities for the state, with potentially far-reaching implications. How Georgia responds to its aging population, projected increase in demand for health care, and shifting employment base will all affect the state’s fiscal health in the decades to come.

From 2000 to 2030, Georgia is projected to go from being the state with the sixth youngest population in the United States to one of the country’s top 10 oldest states. Primarily, Georgia’s aging 40- to 50-year-old segment, its largest age group by far, is expected to contribute to this change. In addition, Georgia is seen as a retirement-friendly state, potentially attracting more older residents than are leaving. As residents reach retirement age, they qualify for major tax incentives, make less taxable income and demand fewer taxable goods, decreasing the growth in state revenues. They typically also require more social and health services, such as Medicare, which increases the state’s expenditures and liabilities. As Georgia’s population ages, it is important that the state’s revenue sources adjust to mitigate effects of changes in demographics.

The future of health care also has significant implications for the state’s future fiscal well-being. Georgia rates below the national average on many health indicators, including life expectancy and self-reported health, and the state’s obesity rate is higher than average. Georgia’s infant mortality rate (7.0 per 1,000 live births) is higher than all neighboring states except Alabama. Georgia also lags the national average in health care utilization, with particularly low levels of use in the state’s rural counties. Some 1.8 million Georgia residents (about 13.9 percent of the population) are uninsured, the third highest uninsured rate in the country (Census: https://www.census.gov/content/dam/Census/library/publications/2016/demo/p60-257.pdf). Despite low utilization, health care accounts for 22 percent of the state’s budget. State budget liabilities, such as Medicaid and PeachCare, have continued to expand. Although the future of health care is a complex national issue, it has particularly big implications for Georgians.

Georgia’s underlying economy will determine the state’s ability to adapt financially to these changes and to pay for needed public goods and services. However, the last two recessions hit Georgia quite hard. In addition, the state’s economic base has changed substantially in recent decades, particularly the manufacturing and construction sectors. Manufacturing jobs fell by 30 percent between 1996 and 2014, and the construction sector lost more than 58,000 jobs between 2001 and 2011. It is still unclear whether these sectors will fully rebound or whether the state will follow the national trend toward a larger service sector. A service economy presents challenges to tax administrations because sales tax does not apply to most services.

Fortunately, the Great Recession is over, and the state is starting to see strong growth. In fiscal years (FY) 2013 and 2014, Georgia’s per capita gross domestic product (GDP) growth rate was above the national average. Most economic indicators also show positive signs for employment, wage and production growth.

Public finances have been slow to recover from the recession. In FY 2016, Georgia’s real per capita revenues were 9.9 percent below their 2001 peak, according to a recent state budget analysis by the Center for State and Local Finance. Georgia lags the U.S. average in generating per capita revenues and is behind every state in generating revenue from own sources (state income tax, sales tax, property tax, etc.). Local taxes per capita in Georgia are about on par with the U.S. average. However, in recent years Georgia’s state revenues have increased. The state’s real per capita expenditures have largely remained flat since the latest recession, decreasing slightly from 2007 levels. In FY 2016, education was the largest component of state fund appropriations (55%) followed by health care (22%) and corrections (8%). A major concern for the future of Georgia’s public finances is how much rising liabilities, such as Medicaid and pensions, will crowd out private investment.

It’s clear that Georgia’s fiscal health will face many challenges in the coming years. As a first step in planning for the future and overcoming these challenges, policymakers and other state leaders must strategically assess current fiscal characteristics and trends. A much more in-depth look at the trends, finances and economics that contribute the state’s fiscal outlook can be found by downloading Fiscal Research Center’s recent report, The Fiscal Architecture of Georgia.

— Wesley Jones and Rahul Pathak, graduate research assistants with the Fiscal Research Center and the Center for State and Local Finance