Savannah Chamber

23 6 250 jobs. Brill Inc. closed its bakery in Tucker, costing DeKalb County 240 jobs. Georgia Pacific closed its lumber plant in Brunswick, costing Glynn County 120 jobs. Georgia Pacific also decided not to rebuild its Thomson facility that was declared a total loss due to a fire, costing the area about 100 jobs. At the time of this writing, layoffs and closures announced in 2019 were running well ahead of where they stood in 2018, which does not bode well for the 2020 economic outlook. Prospects for State and Local Government The late stage of the business cycle is a risky position for state government financing. The 2020 economic forecast anticipates either a sharp slowdown in the pace of GDP growth or a mild trade-shock recession. The State of Georgia is preparing for a substantial slowdown in revenue collections by cutting its budget for FY 2020 and FY 2021. The cuts are prudent given the baseline economic forecast and the heightened possibility of recession. The budget cuts will reduce state employment primarily by not filling vacant positions, but some layoffs are likely. Spending by state government therefore will not contribute to 2020 GDP growth, and will be a negative factor in terms of 2020 employment growth. In addition to short-term cyclical challenges, several long-term fiscal challenges loom for state government. These fiscal challenges – discussed below – will discourage state government from hiring additional workers in 2020 and beyond. The biggest long-term challenge for state government financing is uncertainty regarding federal funding for mandated programs, especially Medicaid. Mandatory spending on Medicaid is crowding out spending on K-12 education, higher education, and infrastructure, three spending areas essential to boosting – or even maintaining – Georgia's competitiveness, productivity, and culture for innovation. The second biggest long-term challenge is an antiquated tax structure that increasingly does not line up with the state's shifting economic structure. Consequently, when Georgia's economy expands state taxes do not generate as much revenue as a similar expansion would have generated in the past. This systemic slowdown in revenue growth is unlikely to go away without comprehensive tax reform. For example, Georgia's sales and use tax depends very heavily on the sales of goods and exempts many services. Increasingly, that is a problem because consumer spending is strongly trending away from taxable goods and towards tax-exempt services. In addition, goods-price inflation is, and will continue to be, much weaker than service- price inflation. Indeed, we have recently seen several straight years of deflation in goods prices. Overtime, legislated exemptions have also substantially eroded the sales and use tax base. Pension liabilities and state retiree health care costs are the third and fourth biggest long-term challenges to state government financing. These long-term fiscal challenges will exacerbate the effects of the next recession on the state's ability to sustain core deliverables ranging from public safety, to education, and infrastructure. In 2020, the fiscal situation facing most local governments will be better than the situation facing state government. Local government therefore will contribute to Georgia's economic growth. Local government employment and programs will expand more slowly in 2020 than in 2019, however. Similar to state government, local government will struggle with reductions in federal funding, pension liabilities, and retiree health care costs. Compared to state government, however, local governments depend very heavily on property taxes and fees for services and less heavily on sales taxes. Due to the recovery of the property markets, most local governments have fully reconciled their ability to generate revenue with their spending and staffing levels. In 2020, most will have the financial resources needed to sustain or increase programs. Real estate prices have risen off their recessionary lows and have fully recovered in many, but not all, markets. In 2020, real estate price increases will continue to exceed the overall rate of inflation, which bodes well for future increases in assessed property values. New home construction also will be on the upswing, which will lead to the expansion of property tax bases. Since, assessed property values tend to lag market values, local governments' property tax revenues should expand strongly in 2020. In addition, when the next recession comes, housing is unlikely to be its epicenter, suggesting that property values and in turn property tax revenues will be steadier sources of revenue for local governments than in the wake of the Great Recession. Federal Reserve Policy Federal Reserve actions to decrease short-term policy interest rates and increases the size of its balance sheet will provide slightly more stimulus for Georgia than for the nation as a whole. The 2019 pivot in Federal Reserve policy from a restrictive to an accommodative stance gives a slightly stronger economic push to Georgia than too many other states. That is because Georgians carry relatively more debt and have relatively less savings and there tend to benefit

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