Savannah Chamber

14 3 As the direct and indirect effects of restructuring and the real estate bubble faded, Georgia's sub-par pace of economic recovery caught up and soon outpaced that of the nation. We estimate that Georgia's job count rose by 2.7 percent in 2015 compared to 2 percent for the U.S. The projections for 2016 show 2.3 percent job growth in Georgia versus 1.4 percent for the U.S., or a positive differential of 0.9 percent. Public Sector Restructuring Of the three levels of government, Georgia's state government has made the most progress in adjusting its spending and staffing to match available revenue. The biggest remaining challenge is uncertainty about federal funding for mandated programs such Medicaid. Pension liabilities and retiree health care costs also are significant challenges. Local governments will struggle with reductions in federal and state funding; pension liabilities; and retiree health care costs, too. But some local governments have not fully reconciled their reduced ability to generate revenue with their spending and staffing levels because they are extremely dependent on property taxes for revenue. Although real estate prices are now climbing, assessed property values always lag market values—often by two to three years. Nonetheless, the headwind to Georgia's economy from restructuring local government is essentially gone. A new era of federal fiscal austerity is just beginning, however. The restructuring of the federal government is a headwind for Georgia's economy that will remain strong for at least a decade. Data for 2015 indicates that federal jobs account for 2.3 percent of Georgia's jobs, which is above the 1.9 percent national average. Georgia's above-average exposure to federal layoffs is due to the presence of many large military bases. Department of Defense jobs account for one job out of every 105 in Georgia versus one job out of every 275 nationally. Location quotients, which measure the relative importance of an industry to GDP, put the federal government's military impact in Georgia at nearly twice the U.S. average. The U.S. Army recently announced plan to cut 4,400 active-duty soldiers based in Georgia, including about 3,400 at Fort Benning and almost 1,000 at Fort Stewart. Additional civilian employees will be laid off, too, so the adverse multiplier effects of these direct job losses will be substantial. Federal Reserve Policy Federal Reserve actions to increase short-term policy interest rates will be a slightly stronger headwind for Georgia than for the nation as a whole. The shift in Federal Reserve policy from an extremely accommodative to a less accommodative stance will create slightly more economic drag in Georgia than in other states because Georgians carry relatively more debt and have relatively less savings. Also, interest-sensitive economic sectors (construction, real estate development, building materials manufacturing, and forestry) have a greater impact on Georgia's overall growth than on the nation's overall growth. Economic Development The increased number of large relocation and expansion projects announced in recent years will continue to be a tailwind to Georgia's economic growth in 2016 and beyond, primarily because it typically takes many years to complete a project. Examples of such projects include Baxter International's new facility that will add 1,500 biotechnology jobs; GM's IT-innovation center in Roswell that will bring 1,000 high-tech jobs; multiple floor covering manufacturers expansion plans that will bring up to 3,000 jobs, the 1,400 jobs at Caterpillar's new facility in Athens; and Ernst & Young's new global IT center in Alpharetta with 400 new high-tech jobs. Mercedes-Benz USA relocated its headquarters to Atlanta, creating at least 800 jobs; and Sage will establish its North American headquarters and innovation hub in Atlanta, creating 400 jobs. The U.S. automobile manufacturing industry is becoming increasingly concentrated in the Southeast. Moreover, Georgia is in the sweet spot in the middle of the Southern Auto Corridor with proximity to major assembly plants, major suppliers, interstates, ports, and rail. Georgia's major projects have included Kia's assembly plant in West Georgia and Mercedes' corporate headquarters in Atlanta. The new Volkswagen assembly plant just across the state line in Chattanooga and the recent announcement that Volvo will build an assembly plant in Charleston make Georgia an even more attractive place to site automobile parts suppliers. Legislation has made Georgia more competitive, but it must be very aggressive in closing the right deals. Georgia should target industries that expand the economic base and have good potential for long-term growth. It must invest strategically and grow clusters in areas ranging from biotechnology to advanced manufacturing. Of course, statutory incentives must remain competitive because these help to get Georgia short-listed by site selection professionals. Only then do those critical deal-closing incentives come into play.

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