Responding to Gas Prices Governor Takes Two Steps Forward and One Step Backward with Public--or is it
One Step Forward and Two Steps Backward?


In the aftermath of Hurricanes Katrina and Rita, Governor Sonny Perdue has wisely perceived the public?s frustration over high gasoline prices and made strong policy decisions to help Georgia families and school systems cope.  On one hand, in what has been widely regarded as a political win, Perdue called for a temporary suspension in the state?s sales tax on gasoline.  On the other, last Friday, Perdue announced that he was recommending that all of the state?s school districts take a ?snow day? on September 26th and 27th, in order to conserve fuel.   The school holiday, in sharp contrast to the tax holiday, has many Georgians miffed and upset.  Political insiders are unsure what effect all of this will have on the 2006 election, if any.  

Perdue Calls Special Session to Temporarily Roll Back Gas Tax

In an effort to mitigate the spike in Georgia?s gasoline prices that the state has seen since Hurricane Katrina, Governor Perdue ordered a temporary suspension in the state?s gasoline sales tax. The 15 cents per gallon suspension lasted from September 3 through September 30 and is expected to have cost the state $75 million in lost revenue.

Strong Political Move
Perdue?s quick decision making was highlighted in the local and national press. While most of the state?s political leaders publicly supported Perdue?s proposal, some Democrats criticized the Governor for calling the five-day special session to ostensibly ratify his executive order. Democratic Attorney General Thurbert Baker advised Perdue that the legislature could have retroactively authorized the tax rebate when they were scheduled to meet in January and save the state the estimated $180,000 it costs to recall the General Assembly.

When the House convened to debate the tax suspension, Democrats lead by the Minority Leader Dubose Porter (D-Dublin) attempted to get political mileage out of Perdue?s decision to recall the legislature. All indications are that Porter?s strategy has been lost on a public that has expressed support for the 15-cent price drop.

Most political observers note that Perdue?s decision was made to bolster the general public?s support ahead of the 2006 elections. After rumors of fuel shortages caused spiked gas prices and real shortages, the Governor sought ways to massage the public?s disquiet into a political victory. He is hoping that the tax suspension and getting tough with price gougers will be remembered by voters at the polls.

Economics
It remained unclear if Perdue?s $.15 tax suspension is actually reflected in the prices consumers are paying at the pumps. Perdue?s Executive Order and the General Assembly?s legislation impose strict penalties on stations that engage in price gouging as well as those stations that do not pass along to consumers the tax suspension savings. However, many economists have argued that basic principles such as supply and demand are far better at setting the gas prices than policies based on political expediency. The Wall Street Journal?s editorial page, typically pro-Republican, criticized Perdue?s anti-price gouging plan, and argued that it violated the principles of the free market. The Journal indicated that Georgia?s tinkering with market forces could spell much greater trouble for consumers down the road.
Cathy Cox?s Campaign Looks to Be In Tight with Attorneys

On June 30, Secretary of State Cathy Cox disclosed her contributions for the 2006 Governor?s race.  In total she collected $2.1 million from 2009 individuals and companies.  In all, about $706,000, or about 33% of her total came from attorneys and law firms.  It appears that the legal community is allying with Cox and demonstrating their support by contributing significant sums of money.  Meanwhile, several individuals with close ties to the business community are also supporting Cox.  Political observers notice a confrontation between these two groups as they compete to become Cox?s base of support and ultimately curry favor with the candidate.
AIG Agency Auto and Porsche Cars North America Lend A Helping Hand to National Highway Safety Leaders

On Saturday, August 27, 2005, AIG Agency Auto and Porsche Cars North America teamed up to help sponsor a welcoming dinner for the 23 member Executive Committee of the Governors? Highway Safety Association (GHSA) in advance of the organization?s Annual Meeting in Norfolk, Virginia. Several members of the Virginia Transportation Safety Board joined with the state highway safety leaders at the Harbor Club in downtown Norfolk to welcome them to the Commonwealth.

Chris Greene, General Counsel of AIG Agency Auto, praised the group for their hard work and determination to improve highway safety and save lives. Colonel James Champagne, Executive Director of the Louisiana Highway Safety Commission and the Chair of the GHSA, praised the group?s corporate hosts saying, "We applaud AIG and Porsche for being good corporate citizens. Public-private partnerships are key to our success as an organization and to our nation?s overall efforts to save lives."

The evening was highlighted by a salute to Vince Burgess, Vice-Chair of GHSA, who is set to retire at the end of the year. As one of his last official duties, Burgess who serves as Deputy Commissioner of the Virginia Department of Motor Vehicles, performed as the host for the entire Annual Meeting. The Executive Committee honored Burgess with a special plaque and a rousing standing ovation.
DOT Board Election

On Tuesday, September 6, state legislators who represent voters in the Fourth Congressional District (DeKalb and Gwinnett Counties) elected Robert L. Brown to fill the vacancy on the State Transportation Board.  The Board makes important policy and spending decisions on highway construction and other transportation projects.

Brown received 16 of the 23 votes cast on the first round of balloting, giving him a quick victory over the other three candidates.  Brown is a native of Dublin, Georgia and has lived in DeKalb County for the past 30 years.  
Commission Meets to Study Plan to Offer Health Insurance of Last Resort

Meeting at the state capitol on Monday, September 12, 2005, the Commission on the Georgia Health Insurance Risk Pool conducted its first public hearing.  The Commission was created by the passage of H.B. 320, sponsored by Representative Ron Forester.  H.B. 320 had, in its original form, called for the creation of a state supported health insurance program of last resort for Georgians who have difficulty obtaining insurance any other way.  Rather that instituting the program, H.B. 320 was altered to provide for a study Commission that is due to make a report to the Governor by the end of the year.  The seven-member panel includes two members of the Senate, two members of the House of Representatives, two private sector representatives and is headed by Commission Chair Richard Novack, a former Blue Cross Blue Shield executive.  

Senate Insurance and Labor Committee Chairman Ralph Hudgens made it clear that although the committee is working to suggest the best mechanism for funding and organizing a high risk pool, its creation is by no means certain.  

All four legislative representatives on the commission are Republicans and they seemed particularly concerned with funding issues.  Senator Chip Rogers reminded the Commission that the state ?doesn?t have money laying around,? likely indicating his belief that any monies given to the pool from the state?s general fund should be limited. House Insurance Committee Chairman Tom Knox was interested in learning more about how the pool could be set up under Georgia?s existing captive laws that would help insulate the state from huge outlays of money.      

As the commission moves forward it appears that they will have to wrestle with several key questions.  First, the members will have to decide on the program?s scope of coverage.  Commission members seem particularly interested in understanding if the pool should provide coverage for health maintenance along with insurance for catastrophic events.  Second, the commission will have to decide how much they can expect program participants to pay for the coverage before it becomes cost prohibitive.  Physician selection and the role of managed care will likely also be a part of the commission?s recommendations.  
Republican Legislative Leadership Studies Cap on State Spending

Conservative lawmakers held a hearing on Tuesday, September 13th, to explore the passage of the Georgia Fiscal Responsibility Act, a proposed piece of legislation that would limit state spending. Although no specifics have been announced, it is likely that the measure would cap state budget spending at the rate of inflation along with population growth.

Colorado implemented similar restrictions on spending in 1992.  Under that state?s restrictions school spending became an issue and Colorado voters ultimately amended the measure to allow for more education growth.  Similar concerns about education will certainly arise in Georgia.  Even without spending limits, many observers have noted the current strain on Georgia?s public school and University System after years of cuts that have resulted in larger class sizes, aging infrastructure and ailing student performance.      
A Closer Look at Some of the HOPE Scholarship?s Unintended Consequences

Georgia?s popular HOPE Scholarship program has helped nearly 900,000 Georgia students pay for higher education and awarded $2.7 billion in aid. Begun in 1993 and funded by the state lottery, it has grown into one the largest entitlement programs ever in Georgia. HOPE covers 100% of tuition and fees as well as a portion of a student?s book purchases at the state?s public universities. To qualify a student must have graduated from high school with a ?B? average and must be a Georgia resident. Originally there was a family income cap of $60,000, which was later raised to $100,000 and then eliminated. HOPE was intended to increase college enrollment, especially among those who would not otherwise have gone to college, keep the best students in the state and reward academic achievement.

With respect to academic achievement, there have been some unintended consequences. University of Georgia Economists Christopher Cornwell, Kyung Hee Lee and David Mustard revealed in recent research that HOPE scholars on average reduce the number of credit hours they take in order to maintain their ?B? average in college and continue to qualify. The research implies that between 1993 and 1997, freshmen with HOPE scholarships completed over 3,100 fewer courses than they would have completed without HOPE. HOPE scholars are also more likely to drop courses when they are doing poorly and to take courses in the summer when grading is more lenient.

HOPE has not increased college enrollment as expected. The 1990 Census counted 29 percent of 18- to 24-year-old Georgians in college. Currently, that figure is 28 percent, according to the Board of Regents. Furthermore, black student enrollment in Georgia colleges and universities has not jumped as promised by HOPE founders.

Critics have argued that Georgia?s lottery players, disproportionately low-income, poorly educated minorities, are funding the education of children from higher income families. According to the U.S. Census Bureau, the 20 zip codes with the most HOPE recipients had household incomes that were 72 percent higher (median $70,846) than the 20 zip codes with the most lottery winners (median $36,000). Those in the wealthier zip codes received two and half times as many HOPE scholarships.

According to Cornwell, et al., ninety percent of HOPE scholars would have gone to college even without the award. Minority advocates want some of that aid money reapportioned to those who could not go to college without it. They also note that reinstating the income cap might reduce the amount of aid awarded, making HOPE financially solvent in the long run, while also increasing diversity.

Because diversity is an important component of education, some reformers advocate that students be allowed to attend out-of-state colleges with the same $3,000 HOPE award allowed for in-state private colleges. This would provide students with more opportunities to diversify their learning experiences and their peers.

Additionally, Georgia taxpayers might see some relief on the strain on the state budget if students are not penalized for leaving the state.  Roughly 75 percent of a student?s entire educational expenses are paid by state tax dollars, while only approximately 25 percent comes from the student in the form of tuition and fees (or, if they qualify, through HOPE funds).  Therefore encouraging students to leave the state may have a positive impact on their educational development, provide slots for other students and ultimately prevent the state budget from going upside down.  

A more fundamental approach to increasing educational opportunities in general and college enrollment in particular would be to increase high school graduation rates. Georgia?s graduation rate, around 64 percent, is one of the nation?s lowest. To educate the best and the brightest of Georgia?s students, policy makers have to ask themselves if the HOPE scholarship and the state?s public universities are keeping up ? upgrading their technology, faculty and facilities. The answer will have enormous consequences for Georgia?s future.

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