By Brad Alexander, partner, Georgia360
The recently concluded legislative session was the first for newly elected Georgia Governor Nathan Deal, and one of the more active in our state’s history. During the course of roughly three months, the legislature grappled with several high profile issues, including reservoir development, tax reform, immigration policy and saving the HOPE scholarship.
At the beginning of the session, Governor Deal and his team wisely decided to focus their attention on a very short list of high profile issues, resisting the temptation to scatter his political leverage around a dozen or more priorities. At the outset of the session, the Governor announced his three primary focus areas would be HOPE scholarship reform, water supply development and improving our state’s ability to close deals for new employers.
On the first front, the legislature quickly moved to protect the HOPE scholarship, which has been threatened by years of rising demand and increasingly flat revenues from the Georgia Lottery. The package, drafted by the Governor and largely unchanged by the legislature, ends the practice of providing free tuition for high achieving students. In its place is a set stipend that covers roughly 90 percent of current tuition. From a real estate standpoint, this has a very important impact: it “decouples” tuition from being dependent on HOPE revenues to increase. This means we may see a more market driven pricing system, with tuition rising for public schools and private schools becoming better situated competitively. Over time, this will change both the allocation of new facilities among schools, and the mechanisms they use to pay for them.
Water supply development was a key priority for the Governor and the Metro Atlanta Chamber of Commerce at the beginning of the session. The issue was primarily addressed in two ways. First, the Chamber worked closely with Governor Deal to pass a public-private reservoir development package. This new comprehensive bill will allow private developers to team with public water authorities and local governments to develop water supply reservoirs. Private participation can range from simple design-build contracts and operation agreements, to longer term water purchase deals and even shoreline development. Additionally, the Governor provided an aggressive level of state funding to support building new reservoirs, enhancing existing reservoirs and otherwise working to increase the state’s water supply.
In terms of closing deals, the Governor roughly tripled the size of the state’s deal closing fund in his annual budget for FY2012 (which begins in July). More than anything else, this is designed to signal to the site selection community that Georgia intends to be significantly more aggressive in its use of incentives to lure companies to relocate here. Structurally, these funds will be most useful for companies seeking to either locate headquarters operations in metro Atlanta, or larger scale manufacturing facilities around the state. The high average salaries for HQ and manufacturing employers tend to justify the most aggressive incentive packages. In either case, the increased focus on relocations will lead to some significant commercial and industrial deals over time.
On other issues, tax reform and immigration policy both captured significant public attention this year. Tax reform was an attempt to use a blue ribbon panel of policy experts to undertake a non-political rewrite of Georgia’s tax code. However, as often happens, the non-political recommendations became intensely political when they arrived at the state legislature. Most of the controversy revolved around the panel’s recommendation to shift more of the tax burden to consumption rather than income, in effect lowering income taxes and raising sales taxes. Ultimately, the plan was heavily debated, but pulled by leaders without a vote when it became apparent that more work was needed to find an alternative that would be both good policy and politically achievable. We can anticipate this issue continuing to linger, and will likely see a vote on a final deal within the next 12 months.
Immigration reform was also a flash point this year, as Georgia joined states across the country in attempting to address the issue – which the federal government has so far been largely unable to untangle – at the state level. The final immigration package primarily impacts businesses by requiring them to go to greater lengths to verify the identities of workers before employing them. Particularly for companies that use subcontractors heavily, a review of employment screening procedures makes sense in light of the new law.
Looking ahead, there is reason for optimism in terms of the public sector role in supporting real estate growth. Steadily rising state revenues continue to point toward positive developments in the size of the state’s vertical construction program. This is due largely to Georgia’s elected leadership choosing to dramatically reduce government spending during the recent downturn. Consequently, when revenues turn around, Georgia will be a state that has strong investing capacity, rather than one that is primarily serving debt created during a downturn. Additionally, if efforts to win transportation SPLOST votes around the state are successful in 2012, our aging transportation infrastructure may finally get the shot in the arm it needs to grow. And, an effort by the Georgia State Financing and Investment Commission to allow multi-year leases may – if put on the ballot by the legislature next year – open the door to more creative public-private partnerships in delivering educational, healthcare, and other public facilities. Finally, a planned expansion of the Savannah harbor and continued growth at Hartsfield should help drive moderate growth in logistics and other aligned sectors.
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