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State Weighs Budget Options

By Brandon Moseley
Alabama Political Reporter

On Friday, February 13, Alabama Governor Robert Bentley (R) shocked everyone who follows Alabama politics when he announced in a speech in Birmingham that he plans to spend the next four years of his second term raising taxes on the people of Alabama.

Gov. Bentley said that the State is facing a projected $265 shortfall in the general fund budget for the 2016 fiscal year beginning on October 1. On top of that Bentley said that Alabama owes the federal government $272 million because the people at Alabama Medicaid made some mistakes in the program. The State also owes the federal government $53 million on the CHIPs (Children Health Insurance Program) and need to spend another $40 or 50 million a year to prevent President Obama’s (D) Department of Justice or a federal judge from taking over the state’s vastly over crowded prison system.

The Governor also said that the State currently takes $187 million out of the education fund to prop up the General fund and takes $65 million from the Alabama Department of Transportation to prop up the courts and the Alabama Department of Public Safety. Bentley would like to restore those money’s to education and roads.

Gov. Bentley said, “I am not going to be a governor who pushes problems aside.” The governor acknowledged that these problems are not new. “We have been doing things in a dysfunctional way.” “The next four years we are going to raise taxes.” Gov. Bentley said, “We have to face the problems and we have to do it with boldness.” “I am going to present a plan to the legislature to do it. I am going to push for it.”

We have not seen the Governor’s plan yet, but a number of ideas to produce the necessary revenue have been circulating around Montgomery.

These include raising the State’s sales tax another 1 percent. This would raise an estimated $307 million. Supporters like sales taxes because everybody pays and they capture money from the underground economy. Critics claim that sales taxes his the poor the hardest because they spend all of their incomes, while the wealthy reinvest far larger proportions of what they make.

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Going after internet sales would raise an estimated $255 million, but only part of that money is currently earmarked for the general fund, where escalated Medicaid costs due to Obamacare and a sluggish economy making more Alabamians eligible for free healthcare has been eating up a larger and larger share of the state budget. Making more internet retailers collect the sales tax would also require congressional assistance, which could be difficult with the most Republican Congress since World War II

Raising taxes on tobacco, alcohol, and soft drinks are another option that has been discussed. Again that would be paying to grow State government on the backs of the people’s bad habits and would likely anger the beverage and tobacco lobbies, likely without raising nearly the amount of money that Bentley claims he needs.

The State could raise the tax on homeowners and property owners. Higher property taxes would generate up to another $500 million; but would have to be approved by the voters of Alabama. Will the public agree to pay more tribute to state government just for nicer prisons and so hospitals can profit off of Medicaid’s largesse?

While no one has proposed raising the income tax rate, many people in the administration have suggested stripping the people of their mortgage interest, charitable contribution, federal income tax, and/or personal exemption deductions. Those changes to the Alabama Tax code could make the State: $252 million, $174 million, $532 million, and $182 million respectively. Any of those changes would effectively mean that the people of Alabama pay higher income taxes; but the State income tax is earmarked for education, not the general fund where the State needs the money. To divert that money to the troubled general fund would likely require a vote of the people and no one we talked to believe that the people are eager to take home much smaller paychecks each week.

State Representative John Knight (D-Montgomery) has championed eliminating the federal payroll tax deduction for years; but he has wanted to do that in order to take the sales tax off of food without the state losing any revenue. Under our current understanding of the Bentley proposal the people would still pay the tax on their food; they just also would have less take home pay to spend at the grocery store; because Alabama took more of it.

Some in the legislature have suggested reducing what the state pays into the Retirement Systems of Alabama (RSA). This could potentially save as much as $550 million a year, but would likely mean that future state retirees would no longer have the guaranteed retirement benefits. That is much more complex than simply switching to 401ks or annuities and likely would come with some up front costs and likely would only apply to new hires, thus the benefit would likely be deferred into the future and would likely not help this year…..and it would be politically difficult in the long run.

Some have suggested selling the State’s liquor store business. That would likely generate a one time windfall of $75 million; but could actually result in lower income going forward; though removing those ABC store employees from the State retirement and health benefits could save the State money as well.

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Cutting the medical and dental deduction could generate another $42 million. Eliminating the personal deduction in lieu of itemizing could generate an estimated $182 million. Again most people would pay higher income taxes.

Some have proposed raising gas taxes by $200 to $300 million; but with improving fuel economy of newer vehicles those revenues are likely to decline over time.

The Governor has reportedly rejected any legalization of gambling; but a compact with the Poarch Creek Indians could generate an estimated $50 to $150 million a year and would be largely just an acceptance of the status quo.

Some have suggested legalizing slot machines or adding a State lottery; but critics dismiss that as just a tax on people who can’t do math and question whether the social costs of more gambling addicts isn’t more than the tax revenue generated.

The legislature will have to either implement some version of the soon to be revealed Bentley plan, adopt their own revenue plan, or cut the budget so that the State can live within its current revenues; like Gov. Riley and the then Democrat controlled legislature were force to do when the people of Alabama rejected their $ billion amendment one plan in 2003.

Brandon Moseley is a former reporter at the Alabama Political Reporter.

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