State tax incentives about to undergo closer scrutiny

by Dave Williams | Jun 9, 2023 | Capitol Beat News Service

ATLANTA – The General Assembly began getting serious about scrutinizing the state's large assortment of tax credits two years ago with the passage of legislation calling for independent cost-benefit audits of up to five tax credits each year.

Now, lawmakers are doubling down on that process with the formation of a committee of legislators that will begin meeting June 14 to examine every tax credit as well as tax exemption on the books in Georgia. The goal is determining which are giving taxpayers a good return in terms of economic development and job creation and which are simply wasting public dollars.

There will be no sacred cows, said state Sen. Chuck Hufstetler, R-Rome, co-chairman of the Joint Tax Credit Review Panel and chairman of the Senate Finance Committee, which has jurisdiction over tax legislation.

"I don't want to go in with any preconceived notions," he said.

That would include the hugely popular Georgia film tax credit the General Assembly enacted in 2008, which industry insiders credit for the Peach State's evolution into a movie and TV production magnet.

The credit grew from $669.4 million in 2016 to $961 million in 2019, a 44% increase, according to the Motion Picture Association. The tradeoff for that taxpayer investment was $4.4 billion in direct spending by the film industry in Georgia during the last fiscal year, up from a relatively paltry $93 million in 2007.

The film industry isn't the only business that has come calling since the state sweetened the tax credit pot, said Georgia Rep. Ron Stephens, R-Savannah, chairman of the House Economic Development and Tourism Committee. He also cited the $5.5 billion Hyundai "Metaplant" now under construction in Bryan County, the largest economic development project in state history, as an example of a project that wouldn't be happening without generous tax incentives.

"The single reason I can think we are the No-1 state to do business, especially in the last 10 to 15 years, has been these tax incentives we’ve put together," Stephens said. "I hope we don't kill the goose that laid the golden egg."

Entertainment lawyer Steve Weizenecker questioned the value of putting additional scrutiny on the film tax credit. He pointed to legislation the General Assembly passed three years ago requiring all film productions located in Georgia to undergo mandatory audits by the state Department of Revenue or third-party auditors selected by the state agency.

The bill also tightened rules governing how film companies transfer or sell unused tax credits to other businesses, a common practice for production groups that conduct part of their movie-making work outside Georgia.

"This is a successful program doing what it's intended to do," Weizenecker said.

Danny Kanso, senior budget analyst at the Georgia Budget and Policy Institute, a progressive-leaning think tank in Atlanta, welcomed the additional scrutiny the review panel is expected to give to the $9.5 billion to $10 billion a year in revenue the state foregoes every year because of tax incentives, including the film tax credit. For one thing, the state hasn't conducted such a review in more than a decade.

"What we’re most hopeful will come out of this is a realization that we need more transparency," Kanso said. "Georgia is one of the few states that does not have a formal process for analyzing these tax credits and exemptions. We don't know who the companies are, how many jobs are being created, the award amounts."

Kanso said the sheer number of tax credits on the books has raised concerns that the tax review panel will find it difficult to complete its work by the Dec. 1 timeline set by Gov. Brian Kemp and legislative leaders in creating the committee.

"That's a lot of work," Kanso said. "There's a bit of concern over how deep they’ll get with this analysis."

But Hufstetler said the panel will actually have more time than the legislative process usually allows to examine the various tax incentives and make recommendations to the full General Assembly. The 40-day legislative sessions are rushed and don't give lawmakers enough time to thoroughly study such a complex issue, he said.

"We can't just say we’re No.-1 to do business," he said. "We have to look at what everybody else is doing. … Every five years or so, we need to look at everything."