Committee breakthrough: Alabama House panel OKs General Fund budget, tax increases

An Alabama House budget committee Wednesday approved a set of tax increases worth approximately $130 million – and a General Fund (GF) budget that would cut $55 million from many core state services. The full House is set to consider the budget and many revenue measures Thursday.

The total revenue package falls far short of the amount needed to address the GF shortfall without cuts. Tax measures that cleared the House’s GF budget committee include:

  • a cigarette tax increase of 25 cents per pack;
  • an increase in the business privilege tax for large corporations, accompanied by a tax cut for small businesses; and
  • tax increases on automobile rentals and titles.

The House’s education budget committee Wednesday approved a one-time transfer of about $50 million from the Education Trust Fund (ETF) to the GF. The transfer would have to be repaid by 2018 and would come from revenues above next year’s ETF spending cap under the Rolling Reserve Act. The committee also OK’d a plan to shift some use tax revenues from the ETF to the GF starting in 2017.

Winners and losers under proposed GF budget

There were clear winners and losers in the GF committee’s budget. Major reforms of Medicaid and criminal justice system would receive the funds needed to move forward. Other major services – including courts, mental health and the Department of Human Resources (DHR) – would be funded at their 2015 GF levels.

Many other state services would fare far worse under the committee’s GF budget. The Department of Senior Services would be cut by $2.4 million, with most of that money coming from home-based services for seniors who otherwise might have to enter nursing homes. The Department of Youth Services would be cut by nearly 75 percent, and the Department of Archives and History by almost a fourth.

Before the second special session began this week, Alabama Arise requested public hearings on all revenue and budget bills. Representatives of Arise, Voices for Alabama’s Children, the Children First Foundation and several state agencies testified before the House committee Wednesday in favor of new GF revenue.

Arise state coordinator Kimble Forrister told lawmakers that more than 200 advocacy groups, churches, hospitals and other organizations had signed an open letter to the Legislaturecalling for $300 million in new tax revenue to prevent drastic cuts to health care, child care, public safety and other vital services. “Our most vulnerable people depend on General Fund agencies to help them take care of their families,” Forrister said.

Forrister testified in favor of the business privilege tax changes. He also told lawmakers that failing to increase the price of a pack of cigarettes by at least 10 percent may not result in reduced smoking and improved health benefits for Alabama.

Senate committee doesn’t approve combined reporting bill

Not all tax proposals made it out of committee Wednesday. The Senate’s ETF budget committee did not approve a bill to required “combined reporting” on state corporate income tax returns.

The bill’s sponsor – Sen. Linda Coleman, D-Birmingham – urged her fellow committee members to consider the consequences of “nickeling and diming” the average Alabamian while enabling many large corporations and businesses to do business in Alabama while paying few or no taxes here. Closing corporate tax loopholes could bring an additional $30 million to the ETF each year, Coleman estimated.

Sens. Jim McClendon, R-Springville, and Jabo Waggoner, R-Vestavia Hills, were among committee members who said they were concerned about combined reporting’s potential impact on businesses and industrial recruitment.

Combined reporting would treat corporations and their subsidiaries as one entity for tax purposes. Most states have adopted such laws, and “combined reporting states are well-represented among the most economically successful states in the country,” the Center on Budget and Policy Priorities found.

By Carol Gundlach and M.J. Ellington, policy analysts. Posted Sept. 9, 2015.