I do not have a satisfactory conclusion. I realized that for myself, since I itemized in 2023, but do not plan to itemize in 2024, I can disregard the 1099-G for 2024, per box 2 instructions in https://www.irs.gov/pub/irs-pdf/i1099g.pdf.
It isn't helpful to report it as a state grant (as the above response proposed), because it's not. It's a state tax credit reported in box 2, and that means the rules for SALT deductions can impact how much of it is actually taxable.
I haven't tackled the state return yet, per Amy's input above, so that may change my understanding.
