Savannah Chamber

21 6 Hitachi Automotive Systems Americas, Toyo Tire North America, VINTECH INDUSTRIES, Nisshinbo Automotive Manufacturing, Groupe PSA, SEWON America, and Fox Factory Holding Corp. Due to the build out of previously announced advanced manufacturing projects, Georgia will see increases in advanced manufacturing activity and employment in 2021. Advanced manufacturing projects announced in 2020 include Enchem, RWDC Industries, SK Innovation, GEDIA Automotive Group, and Zinus USA. Advanced manufacturing projects announced in 2019 include Boehringer Ingleheim, ZKTeco, Hitachi Automotive Systems America, Plethora, Elma Electronic, Union Agener, Rivacold, and Barco. Effective economic development policies, low electricity and natural gas prices, rising wages and production costs in China – and other overseas locations – are factors that support Georgia's manufacturing sector. Concerns about trade policies, product quality and management of the risks associated with increasingly complex – time-sensitive – supply chains also make manufacturing in Georgia more attractive than manufacturing overseas. Additional factors that will help Georgia attract manufacturers include a superior transportation, logistics, and distribution infrastructure, low costs of doing business relative to other highly developed economies, a favorable tax structure, highly ranked colleges & universities, excellent work-force training programs such as Quick Start, and very competitive economic development incentives. Prospects for State and Local Government Prior to the pandemic, the State of Georgia prepared for a substantial slowdown in revenue collections by cutting its budget for FY 2020 and FY 2021. At that time, the main threat was thought to be an escalation of the trade war. The cuts were timely and helped to reduce the fiscal impact of the COVID-19 crisis on the state's economy. Nonetheless, budget cuts reduced state government employment in 2020 and will do so again in 2021. The bottom line is that state government will not contribute to 2021 GDP or employment growth. In addition to short-term cyclical challenges created by the pandemic, several long-term fiscal challenges loom for state government. These fiscal challenges – discussed below – will discourage state government from hiring additional workers in 2021 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. Over time, that is a problem because consumer spending has been trending away from taxable goods and towards tax-exempt services. In addition, goods-price inflation generally has been much weaker than service-price inflation. Over time, 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 2021, the fiscal situation facing most local governments will be better than the situation facing state government. Local government in most jurisdictions therefore will add to Georgia's economic growth. Local government employment and programs will not expand much in 2021, however. Compared to state government, however, local governments depend very heavily on property taxes and fees for services and less heavily on sales and income taxes. Due to the strength of housing markets, most local governments will quickly reconcile their ability to generate revenue with their spending and staffing levels. In 2021, most will have the financial resources needed to sustain programs. Residential real estate prices probably will rise by about 3 percent in 2021. Assessed residential property values will increase even more than 3 percent because such values tend to lag market prices by a year or more. In 2020, there also was heavy spending for major home improvement projects (e.g., swimming pools) that will add to 2021 residential property tax digests. In addition, new home construction will be on the upswing in 2021, which will lead to the expansion of property tax bases. Less positively, commercial real estate prices will decline in 2021. The decline in commercial real estate prices could be steep in some markets. That does not bode well for future property tax digests, but due to the lag between market values and assessed values most of that negative impact will not be felt in 2021.

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