What's Wrong With Georgia?

While many other states are recovering, Georgia's unemployment rate has risen. Some blame the state's laissez-faire approach to policy.

GRIFFIN, Ga.—Throughout the economic downturn and subsequent recovery, there have been some usual suspects when it comes to the most pitiful state in monthly unemployment figures.

For awhile, Michigan took the prize for highest unemployment rate in the country, until Nevada knocked it off its perch in May of 2010. Nevada then held the title for most of the next three years, sometimes sharing the honor with California, until it ceded the top (more accurately, the bottom) spot to Rhode Island in December 2013.

But now, as the economy picks up steam, and consumer sentiment rises to its highest levels since 2007, a new state keeps appearing at the top of the unemployment list. Georgia, home to Fortune 500 heavyweights such as Home Depot, UPS, and Coca-Cola, had the highest unemployment rate in the nation in August, September, and October. With a November rate of 7.2 percent, the state was narrowly edged out by Mississippi’s 7.3 percent (December statistics won’t come out until mid-January).

This may seem surprising, since Georgia was named the best state to do business in both 2014 and 2013 by Site Selection magazine, largely because of its workforce-training program and low tax rates. Nathan Deal, the state’s GOP governor, handily won reelection in November against Jimmy Carter’s grandson by speaking about Georgia as a job magnet.

But those who follow the state’s economy say the state’s troubling economic figures are directly related to Georgia’s attempts to paint itself as a good state for corporations.

“This is what a state looks like when you have a hands-off, laissez-faire approach to the economy,” said Michael Wald, a former Bureau of Labor Statistics economist in Atlanta. “Georgia is basically a low-wage, low-tax, low-service state, that’s the approach they’ve been taking for a very long time.”

The nation's unemployment rate in November, by contrast, was 5.8 percent, which was also the November jobless rate of Georgia's neighbor and occasional rival, North Carolina.

The unemployment rate in Georgia has risen, while in other once-troubled states, it continues to fall. (Data from BLS)

Governor Deal has emphasized time and again that he believes it is the role of government to get out of the way and let the private sector stimulate the economy. Georgia was among the first states to cut back the duration of unemployment benefits available to its residents to 18 weeks from 26. The state has slashed $8.3 billion from public-school funding since 2003 and passed eligibility requirements for a state financial-aid program that caused a dramatic decline in the number of students in technical colleges (some of those requirements have since been rolled back).

The state also passed a sweeping tax-reform bill in 2012 that eliminated some sales taxes and broadened exemptions for the agricultural industry that small towns and counties say have wreaked havoc on their revenues. Some counties are seeing unemployment rates that indicate the recession is far from over, including Chattahoochee, with an unemployment rate of 14.4 percent and Telfair, with a jobless rate of 13.3 percent.

Areas surrounding Atlanta are faring better, with Fulton County, where Atlanta is located, posting an unemployment rate of 7.3 percent, and DeKalb seeing joblessness drop to 6.8 percent.

But even some areas not far from the city are still struggling. They include the town of Griffin, located in Spalding County, a one-time, textile- manufacturing hub where the unemployment rate in October was 9 percent. Now, workers are tearing down the old factories and shopping plazas along the road from Atlanta are empty, with no trace of the stores once located there.

Griffin residents such as Richard Joiner say they haven't seen much improvement in the economy. Joiner, 46, worked for two decades as a machine operator in the field of plastic extrusion. When he got laid off during the recession, he found a job packing ready-made salads, but then work there slowed down too. Joiner did what economists say workers like him need to do to get ahead in this economy—he went back to school for video and film production, aware that shows such as the Walking Dead were increasingly filming and producing in towns like his. But then the state changed the rules for unemployment benefits and Joiner lost his source of income, so he was forced to drop out of school and seek work.

Without any money or prospects, he was evicted from his apartment, so he was forced to move in with his mother. His grown children had to find somewhere else to live. He has no car, so he walks three miles to the Griffin Career Center to search for a job on the computers there.

Joiner still owes $13,000 in student loans, and hasn’t been able to find any sort of work.

“This may be a good place for companies, but not for people actually looking for work,” he told me, sitting in the waiting room of the Career Center. “Companies may come here for the tax breaks, but they’re not actually bringing jobs for the people who live here.”

What’s frustrating about Joiner’s situation is that he’s doing everything right—going back to school, trying a new industry, looking for work wherever he can find it. But without the resources that have long been in place for people like him, he’s struggling.

Many other students in Georgia have dropped out of school after changes to funding for higher education, according to the Georgia Budget and Policy Institute. Changes to the lottery-funded HOPE grant program in 2011 led to a decline of 38,000 students enrolled at the state’s technical schools, said Alan Essig, the institute’s director (John Oliver has recently explored the folly of using the state lotteries to pay for education). Even without scholarships, higher education in Georgia is getting more expensive. Tuition and fees at Georgia public universities have increased 67 percent since 2008; at technical colleges, they’ve increased 65 percent, according to the Georgia Budget and Policy Institute.

The decline in education funding may already be directly impacting the state's economy. In December, the state High Demand Career Initiative released a report finding that some employers, including Home Depot, weren't able to find enough high-skilled workers to fill available jobs. They were forced to hire out of state, the report found.

Only about 42 percent of Georgia's young adults have earned a college credential, although more than 60 percent of jobs in the state will require a college certificate or degree.

“It’s a misconception that these so-called business-friendly policies are closely related to stronger economic growth,” said Wesley Tharpe, an analyst with the Georgia Budget and Policy Institute. “A state’s economy depends on an educated workforce, transportation infrastructure, public safety, reliable street cleaning, and snow removal.”

Transportation is a problem in Georgia, too. The state ranks 49th in the nation in per capita transportation funding, and Atlanta’s commutes are famously terrible. The state could have borrowed funds for transportation improvements, said Wald, but instead decided in 2012 to ask voters to pass an increase in sales tax to fund transportation projects. It was defeated handily at the ballot box.

An abandoned mall in Griffin, Georgia (Alana Semuels)

Georgia isn’t the only state to find that lowering taxes in an effort to jumpstart the economy can backfire. Indeed, one of the biggest issues dividing Democrats and Republicans during the recession was whether the Keynesian approach of increasing government spending in a recession best stimulates the economy, or whether governments should get out of the way and allow businesses to do the work.

Kansas passed sweeping tax cuts in 2012, only to see protests over its low levels of education funding and a debt downgrade to boot. Ohio did away with its estate tax and scaled back income taxes, forcing many local governments to reduce services. Tax cuts heralded by Governor Scott Walker in Wisconsin have led to budget shortfalls that have even some Republican legislators worried.

“Sometimes ideological experiments bring unintended outcomes," Oklahoma Treasurer Ken Miller told the Wall Street Journal in June, about Kansas’s experiment.

In Georgia, those unintended outcomes have reverberated through small, rural towns that traditionally support conservative fiscal policies.

“We’re desperately awaiting recovery—we’re still not back to 2008 revenue levels,” said Chris Hobby, the city manager of Bainbridge, right on the Florida border. “We were climbing back towards those levels, and then in 2013, when these tax exemptions went into place, you can see our revenue just fall off the cliff.”

The exemptions he’s talking about were part of H.B. 386, passed by the state legislature in 2012. The law replaced an annual car tax with a one-time title tax, which is paid when a car is bought. It also eliminated sales tax on energy used in manufacturing, and expanded a program that allowed the agriculture industry to avoid paying sales tax on a variety of products.

Bainbridge has had to put aside repairs to a 60-year-old elementary school. The city employs just 141 people, as opposed to 185 in 2008 and collected fewer taxes last year than it did in 2010. It was forced to raise property taxes for the first time in 30 years, and has narrowed its focus to pothole repair rather than road repaving.

“I think the tax reform was made with all the best intentions,” Hobby said. “But it has really created a crisis in the rural parts of the state.”

Empty stores along South Hill Street in Griffin (Alana Semuels)

The story is the same in many other rural areas: Washington, Georgia, disbanded its police force earlier this year because of budget issues, and in June, Valdosta raised property taxes for the first time since 1992, after cutting 5 percent of its workforce and reducing spending on transportation.

“In many rural areas, this is going to prolong coming out of the recession,” said Amy Henderson, a spokeswoman for the Georgia Municipal Association, which calculated that some rural counties in the south had seen sales-tax decreases of more than 15 percent between 2012 and 2013.

To be sure, there are some positive pieces to the Georgia economy. The state has gained 93,900 jobs since the beginning of the year, not that many fewer than the 110,700 added by rival North Carolina, which has only a slightly smaller population. Industries such as retail, logistics, and hospitality are adding jobs at a rapid clip. And some of the movement in the unemployment rate can be attributed to the state's growing labor force. Georgia had 4.8 million people in its labor force in June, an all-time high, though that number has shrunk in recent months as some people gave up looking for work.

And many industries are still struggling. Georgia was hit hard by the housing bust: The state employs 30 percent fewer construction workers than it did during the peak and 20 percent fewer manufacturing workers than it did a decade ago. The state government continues to shed jobs: down 2,400 from a year ago, and down 14,700 from the peak in 2008.

So while some industries are adding positions, they aren’t growing quickly enough to make up for industries that have disappeared.

A few years back, I visited a company in Griffin that was going to benefit from a $50 billion pledge made by Walmart to buy more products manufactured in the United States. The company, 1888 Mills, had won a contract to supply their Georgia-made towels to 1,200 Walmart stores. But the factory the company showed me was mostly machines, with a few people to run them. The Walmart contract created only about 35 jobs, if that, at 1888 Mills. Even if manufacturing does come back to Georgia, and to Griffin, it won’t create many jobs.

The company illustrates the one-two punch Georgia is facing. The economy has lost industries, like manufacturing and construction that may never return the way they once were. But programs that could help retrain workers or send them back to school have been scaled back. Counties still figuring out how to make up for that lost tax revenue are facing even more revenue declines.

Candy Swopes in the Griffin Career Center (Alana Semuels)

Candy Swopes, 47, has wanted to go back to school for as long as she can remember. But things kept coming up. After she had her daughter, she found work for a company that manufactured audio equipment for cars. When the company moved to Mexico, though, she lost her job. She found work to pay the bills: as a housekeeper at a Super 8, packing boxes for Toys R Us, helping manufacture plastic wrap. But eventually her employer would tell her that things had slowed down and that they didn’t need her anymore.

She finally scraped together enough money to go back to school to study electrical technology, but then her financial aid ran out, so she went to a temp agency to find a job. Now, she’s trying to find enough money to complete her schooling and to send her 20-year-old daughter to culinary school.

Both have heard stories of people saddled by student-loan debt, and don't want to take out big loans. But Swopes still can’t find a steady job so they haven't come up with tuition money yet. She’s looking though.

“I told her, ‘You have to go to school, no ifs, ands or buts about it,’” Swopes told me in the quiet of the Griffin Career Center. “I don’t want her to struggle like I’m struggling.”

On Griffin’s main thoroughfare, others seem to be in a similar bind.

The street is dotted with bright signs advertising “Space for Lease.” Lori Bean, who owns a jam company, said sales in Georgia this year have been half of what they were last year.

“We’ve learned to live with it,” said Burt Crapo, the founder of Agape Computers, one of the businesses doing well in Griffin. But Crapo’s wife works for the county in community development, and hasn’t gotten a raise for years. Her health-insurance premiums are going up, and every now and then, she hears rumors about impending furloughs.

People in Griffin are still cautious about spending, said Tony Sharp, who owns a jewelry store in town, even though gas prices are low.

"There's not a single thing in here that people have to have," he said, gesturing along the long rows of jewelry in his store. "Things are better, but they're not exactly as they were."

Crapo knows it might be a long time before things get back to normal in Georgia. A few restaurants may be doing well on the street, but he knows too well that many others aren’t. Next to him, a framing store recently closed up shop. A handwritten sign lurks in the door, starting to fade: “Gone Out of Business."