Four things to know about Alabama’s 2016 funding challenges

It’s the latest verse of a decades-old song: Alabama faces yet another funding shortfall next year for vital services like Medicaid, mental health care and corrections. Here are four things to know about the budget challenges facing the Legislature during the 2015 regular session that began Tuesday.

(1) Alabama’s revenues for the budgets that fund education, health care and other services still haven’t returned to pre-recession levels.

Alabama has two major state budgets: the Education Trust Fund (ETF), which pays for K-12 and higher education, and the General Fund (GF), which provides a major chunk of the support for vital non-education services, including Medicaid, mental health care, corrections and public safety. The picture that revenue officials painted for each on Tuesday was bleak.

Economic struggles during and after the Great Recession hammered both budgets, and neither has seen revenues return to pre-recession levels. GF receipts last year were down 15.5 percent since 2008, according to the Legislative Fiscal Office (LFO), and ETF appropriations this year are down 12.2 percent from their 2008 level. Alabama’s K-12 cuts since 2008 are the nation’s second worst, while our higher education cuts are the nation’s fifth worst. Alabama’s unemployment rate is improving, but revenues still aren’t growing nearly enough to undo the damage wrought by the Great Recession.

(2) The General Fund shortfall is persistent, and it’s not going away on its own.

The picture is especially bleak for the GF. Alabama’s education budget draws most of its money from state sales taxes and individual income taxes, which grow as the economy improves. But the GF relies on a hodgepodge of other revenue sources, most of which are slow to grow even during boom times.

That leaves the GF with a structural deficit, meaning revenue growth is not strong enough to keep pace with ordinary cost growth for vital services like Medicaid, mental health care and corrections. Without new GF revenue, these services continually will remain at risk of massive cuts.

(3) Alabama needs new revenue to avoid devastating cuts to vital services like Medicaid, mental health care and corrections.

How bad could the cuts for Medicaid, mental health care and other GF services get without new revenue? Perhaps most dramatically, failure to address the GF shortfall could spell disaster for Medicaid, which provides health coverage for one in five Alabamians and already has been cut to the bone of federally required coverage provisions. Even small further cuts could endanger lives.

GF cuts could mean even shorter staffing for the state’s overcrowded prison system, which operates at nearly twice its designed capacity. It also could mean fewer state troopers on the highways, more trial delays, longer lines to renew a driver’s license, or long waiting periods for many families seeking ALL Kids health coverage for their children.

Next year’s GF shortfall will be $264 million, according to Executive Budget Office (EBO) estimates. That would be a 14 percent drop in a perennially underfunded budget that already struggles to fund barebones service levels.

But the funding challenges don’t end there. EBO’s Bill Newton said Tuesday that Alabama also needs an additional:

  • $155 million to maintain current service levels for Medicaid and corrections,
  • $63.5 million to cover public safety costs that now are being covered by a transfer from the state’s road and bridge money,
  • $26 million to pay for expanded community corrections and other recommendations of the state’s Prison Reform Task Force, and
  • $32.5 million to begin repaying the $161.6 million that the state borrowed from the GF’s rainy day account and must restore by 2020. (So far, Alabama hasn’t repaid a dime.)

Add it all up and it comes to $541 million in new GF revenue needs. That’s the amount that Gov. Robert Bentley proposes to raise with a mix of tax increases and loophole closures. “We must break the cycle of budget shortfalls year after year after year,” Bentley said Tuesday night during his State of the State address. “We must have adequate means.”

(4) Taxing low-income Alabama families deeper into poverty is not the way to cure our funding woes.

Alabama’s tax system is upside down. Low- and middle-income families pay twice as much of their income in state and local taxes as the top 1 percent of earners do. It’s an imbalanced structure that makes it harder for low-income families to escape poverty and leaves them with less money for the consumer spending that fuels economic growth. The main driver of this upside-down tax system? High sales taxes, especially on groceries and other necessities that account for a big share of low-income families’ household budgets.

Significantly, Bentley’s plan would not increase taxes on food, clothing or over-the-counter drugs. Instead, the governor proposes to raise more than $400 million by increasing the state’s cigarette tax and sales tax on automobiles. Bentley’s proposal would boost the cigarette tax from 42.5 cents per pack to $1.25 per pack and would increase the state sales tax rate on automobiles (now 2 percent) to match the 4 percent rate that applies to other consumer goods.

The rest of the new revenue would come from a mix of business tax increases and loophole closures. (One proposal is for Alabama to adopt combined reporting, which would treat corporations and their subsidiaries as one corporation for tax purposes. You can learn more about combined reporting here.)

Strong investments in services like education, Medicaid and public safety promote economic growth and improve our state’s quality of life. By funding those investments without raising taxes on necessities like food and clothing, Alabama can give everyone a better opportunity to get ahead in life.

By Chris Sanders, communications director. Posted March 4, 2015.

Out of step: Alabama’s unusual state tax system

Taxes are the tools that Americans use to pay for education, public health, transportation and other elements of the common good. But in Alabama, the tax system is upside down, with low- and middle-income people paying twice the share of their income in state and local taxes that the top 1 percent pay.

This updated fact sheet looks at the different ways that states collect revenues to pay for public services and examines some of the differences that place Alabama’s tax system out of line with the way most other states do things.

Alabama Legislature passes ETF budget, goes home without approving bills on payday lending, execution drug secrecy

Alabama lawmakers passed a $5.9 billion Education Trust Fund (ETF) budget without a pay raise for K-12 teachers just before the 2014 regular session ended Thursday night. The House voted 54-45 to agree to the compromise budget that the Senate approved Tuesday. That leaves Gov. Robert Bentley, who urged the Legislature to approve a 2 percent raise for teachers next year, to decide whether to sign the ETF budget or veto it and order lawmakers to return for a special session. Check out AL.com’s report to learn more.

Many other proposals cleared one chamber but did not win final legislative approval before the regular session ended Thursday. Among the subjects of bills that lawmakers did not send to Bentley were:

  • Payday lending. HB 145 would have created a statewide database of payday loans. The bill, sponsored by Rep. Patricia Todd, D-Birmingham, would have made it easier to enforce a current state law that prohibits borrowers from taking out more than $500 in payday loans at any one time.
  • Death penalty drug secrecy. HB 379 would have kept the identities of people involved in carrying out state-sanctioned executions confidential. The bill, sponsored by Rep. Lynn Greer, R-Rogersville, also would have shielded the identities of companies that manufacture or supply death penalty drugs. Sen. Cam Ward, R-Alabaster, sought to amend the bill to allow disclosure of such information under certain circumstances.
  • HIV drug redistribution. HB 138 would have allowed pharmacists at or affiliated with HIV clinics to redistribute unused HIV medications originally prescribed for other patients. The bill, sponsored by Todd, would have set controls on handling and oversight of the drugs.
  • Accountability Act changes. HB 558 would have made it easier for wealthy Alabamians to contribute more money to groups that grant scholarships to help parents of children in “failing” schools pay for private school tuition under the Alabama Accountability Act. The bill, sponsored by Rep. Chad Fincher, R-Semmes, would have removed the act’s $7,500 annual cap on the tax credit that individuals or married couples can claim for contributions to such organizations. The bill would not have changed current law allowing Alabama to provide a total of no more than $25 million of scholarship credits annually.
  • Lifetime SNAP and TANF bans. SB 303 would have ended Alabama’s policy of forever barring people convicted of a felony drug offense from regaining eligibility for food assistance or cash welfare benefits. The bill, sponsored by Sen. Linda Coleman, D-Birmingham, would have allowed otherwise eligible people with a past felony drug conviction to receive benefits under the Supplemental Nutrition Assistance Program (SNAP) or the Temporary Assistance for Needy Families (TANF) program if they have completed their sentence or are complying with their probation terms.

Much discussion, no Senate passage of payday loan database, execution drug secrecy bills

The payday loan database bill reached the Senate floor twice Thursday afternoon. Senators initially delayed action on HB 145 after Sen. Bobby Singleton, D-Greensboro, expressed concern about the security of borrowers’ information in the database. About an hour later, the Senate returned to the measure and added three amendments to it.

One amendment, offered by Sen. Shadrack McGill, R-Woodville, would have doubled the bill’s payday loan cap from $500 to $1,000. Two other amendments came from Sens. Roger Bedford, D-Russellville, and Paul Sanford, R-Huntsville. Immediately after adopting the amendments, senators agreed to postpone action on HB 145, and the chamber did not take it up again before adjournment.

Senators debated the death penalty drug secrecy bill three separate times Thursday afternoon but ultimately did not vote on it. Ward tried to amend HB 379 to allow people injured while handling such drugs to sue, but the Senate did not accept that proposal. “No one in the state of Alabama should ever be granted absolute immunity for negligence or gross negligence they commit against somebody else,” Ward said while arguing for his amendment.

The failure to pass HB 379 could bring lethal injections to a halt in Alabama by making it impossible for the state to buy the drugs used in the process, Ward said. “By opposing this bill and killing this bill, what we’re doing is ensuring is this state will go back to the system of the electric chair,” he said. Alabama began using lethal injection in executions after the state retired “Yellow Mama,” the electric chair used from 1927 to 2002.

The three other bills listed above did not reach the House or Senate floor Thursday. The HIV drug redistribution bill, HB 138, passed 99-0 in the House last month and was on the Senate’s final special-order calendar Thursday, but senators adjourned with several measures still lined up ahead of it. Arise and other consumer advocates last year urged Bentley to support this policy change as his Medicaid Pharmacy Study Commission met to consider ways to reduce costs in the state’s Medicaid drug assistance programs.

By Chris Sanders, communications director. Posted April 3, 2014.

Alabama House committee votes to lift individuals’ scholarship credit cap under Accountability Act

An Alabama House committee Wednesday approved a bill to erase a size limit on the state income tax credit that an individual can claim for contributions to groups that grant scholarships under the Alabama Accountability Act. HB 558, sponsored by Rep. Chad Fincher, R-Semmes, moves to the House.

The Accountability Act, enacted last year, provides state income tax credits to help parents of children in “failing” schools pay for private school tuition or a transfer to a non-failing public school. The law also provides tax credits for contributions to scholarship programs to help those students’ parents cover remaining costs.

Fincher’s bill would remove the Accountability Act’s current $7,500 annual cap on the tax credit that individuals or married couples can claim for contributions to organizations that grant scholarships under the act. Alabama still could provide a total of no more than $25 million of scholarship credits annually. Individuals and corporations also still could claim credits only for contributions up to 50 percent of their state income tax liability.

Susan Kennedy of the Alabama Education Association questioned Wednesday whether the state should pass a bill whose tax benefits would flow largely to Alabamians with extremely high incomes. Among those speaking in favor of the bill were Toby Roth, who represents an online education corporation, and Sharon Lewis, principal of the Oakwood Adventist Academy in Huntsville. Lewis said the Accountability Act has given children educational opportunities they otherwise would not have had.

Another portion of HB 558 would allow owners of S corporations and Subchapter K entities to claim tax credits for their share of the companies’ scholarship contributions. The bill also would revise the Accountability Act’s definition of “failing” schools. Click here to read the Montgomery Advertiser’s report on the committee’s action for more details.

Lawmakers will return Thursday for the 24th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By M.J. Ellington, health policy analyst. Posted March 12, 2014.

Legacies of recession, chronic shortfalls linger in Alabama’s budgets

State support for education and other public services under the Education Trust Fund (ETF) and General Fund (GF) next year would not come close to its pre-recession level under the budgets that advanced in the Alabama Legislature on Wednesday. Both budgets are built on the assumption that the state will see no major revenue increases next year.

One-time teacher bonus, Alabama State funding cut in Senate committee’s ETF budget

Alabama would allocate $113.9 million, or 1.9 percent, less from the ETF next year under the $5.9 billion budget that won approval Wednesday in the Senate’s ETF budget committee. (By contrast, K-12 and higher education officials had requested $474 million more support next year.) If the budget becomes law, ETF funding in 2015 would be 18.5 percent less than it was in 2008, adjusted for inflation. The full Senate could consider the plan as soon as Thursday.

K-12 teachers would receive a one-time 1 percent bonus next year under the committee’s budget. Gov. Robert Bentley had recommended a 2 percent pay raise, but committee chairman Sen. Trip Pittman, R-Montrose, said he isn’t sure revenues will grow enough to sustain that pay increase. “You can’t spend optimism,” Pittman said. The committee rejected an attempt by Sen. Hank Sanders, D-Selma, to provide a 6 percent teacher raise.

K-12 schools and two-year colleges would receive slightly more ETF money next year under the committee’s budget, while universities would receive slightly less. The budget would include money to hire more middle school teachers and increase support for the Alabama Math, Science and Technology Initiative (AMSTI). Funding for the Alabama Reading Initiative would be flat.

Alabama State University (ASU) would lose about one-fourth, or $10.8 million, of its ETF support next year under the budget, accounting for almost the entire overall funding cut to universities. The budget would include $10 million for ASU as a “first-priority conditional,” meaning Bentley could release the money to the university if ETF revenue collections exceed budgeted spending next year.

Flat funding abounds for General Fund services

The House voted 80-20 Wednesday night to approve a GF budget that would be about the same size it was last year and is little different than the one that cleared a House committee last week. The $1.8 billion budget now goes to the Senate.

Medicaid, prisons, mental health care and other public services could struggle to maintain current services at the funding levels in the House’s GF budget. Overall GF support for those and other non-education services would be 8.3 percent lower next year than it was in 2008, adjusted for inflation, despite higher costs and population growth since then.

The House budget would cut GF support for Alabama’s prison system, which operates at nearly twice its designed capacity. Rep. Steve Clouse, R-Ozark, who chairs the House’s GF budget committee, said last week that he wants to work with House and Senate leaders to find more money for corrections.

Medicaid would see an 11.4 percent GF increase, though that amount still would fall short of what State Health Officer Don Williamson said the agency needs from the GF. Williamson said Medicaid could survive next year at the House’s proposed funding level by looking for more ways to trim costs in the prescription drug program and other areas.

Mental health services would receive the same amount of GF money next year, despite the increased demand for community-based mental health services following the closure of several state mental health hospitals. State courts, which have cut hundreds of jobs in recent years, would receive far less GF funding than they requested.

ALL Kids, which insures Alabama children whose low- and middle-income families do not qualify for Medicaid, would receive 28.3 percent more from the GF to help cover higher enrollment. A $13.9 million ETF boost for the Department of Human Resources (DHR) would help the agency offset an $11.8 million GF reduction. DHR provides child welfare, child support collection and elder abuse services. The agency also administers the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) program in Alabama.

Rep. Chris England, D-Tuscaloosa, said lawmakers have missed several opportunities to ease the burden on state budgets in recent years. Instead, England said, the Legislature has declined to increase the state cigarette tax, reform the state’s criminal sentencing system, or expand Medicaid eligibility under the Affordable Care Act.

The GF draws its revenues from a variety of sources that do not grow quickly enough to keep pace with cost increases. That leaves the budget with a structural deficit, meaning it often is strapped for cash even when the economy is doing well.

Rep. John Knight, D-Montgomery, said lawmakers eventually must solve Alabama’s perennial GF shortfalls. “At some point, we’re going to have to figure out how to say, ‘We’re going to do better,’” Knight said. “We can’t take care of the basic things we’re supposed to do.”

Time is getting shorter for the Legislature to finalize the budgets. Lawmakers will return Thursday for the 19th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Posted Feb. 26, 2014.

Dial grocery tax bill, landlord-tenant changes advance in Alabama Legislature

Many low-income Alabamians could pay more in sales taxes under a bill that cleared a state Senate committee Wednesday. The Senate’s education budget committee voted 6-2 to approve SB 287, sponsored by Sen. Gerald Dial, R-Lineville. The measure awaits consideration by the full Senate.

Dial’s bill gradually would end the state’s 4 percent sales tax on groceries and increase the sales tax on other items by 1 percentage point to replace the lost education revenue. By September 2017, the state sales tax on most consumer items would be 5 percent under the bill. That would drive the total state and local sales tax rate in Birmingham and Montgomery to 11 percent.

ACPP executive director Kimble Forrister testified against SB 287 last week, saying it would negate the grocery tax savings for many low-income Alabamians by increasing the cost of everything else they buy. “We’re basically replacing one regressive tax with another regressive tax,” Forrister told lawmakers.

Sen. Vivian Figures, D-Mobile, echoed Forrister’s concerns Wednesday. “Everybody knows sales taxes are regressive, and you’re putting it on the backs of people who can least afford it,” Figures said.

Sen. Hank Sanders, D-Selma, said he worried that Dial’s bill would increase taxes on low-income Alabamians who receive food assistance under the Supplemental Nutrition Assistance Program (SNAP). SNAP recipients do not owe sales taxes on food bought using SNAP benefits, Sanders said, so they would not realize any tax savings on that portion of their grocery bill. But SB 287 would raise the sales taxes they pay on other purchases like clothes and school supplies, he said.

“These people who are at the very bottom and the worst off are going to end up paying sales tax on these other items,” Sanders said.

Landlord-tenant law changes OK’d in House committee

Some deadlines in Alabama’s landlord-tenant law would become more favorable to property owners under a bill that won House committee approval Wednesday. HB 523, sponsored by Rep. Paul Beckman, R-Prattville, awaits consideration by the full House.

Beckman’s bill is identical to a Senate proposal – SB 291, sponsored by Senate President Pro Tem Del Marsh, R-Anniston – that cleared a Senate committee last week. The measures would nearly double, from 35 days to 60 days, the time in which landlords must refund a departing tenant’s security deposit or give notice of why they are keeping all or part of the deposit.

The bills also would require landlords to give tenants a seven-day written notice if they plan to terminate the lease over a violation that does not involve failure to pay rent. Current law requires a 14-day written notice in such a circumstance.

The House and Senate likely will meet into Wednesday night and then return Thursday for the 19th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Policy analyst Stephen Stetson contributed to this report. Posted Feb. 26, 2014.

Alabama Senate panel discusses plan to end state grocery tax, raise sales tax on other items

An Alabama Senate committee took no action Wednesday on a proposal to swap the state grocery tax for a higher sales tax on other items. The panel could vote next week on SB 287, sponsored by Sen. Gerald Dial, R-Lineville. Committee members heard public testimony on the bill Wednesday.

Dial’s bill would end the state’s 4 percent sales tax on groceries and increase the sales tax on other items by 1 percentage point to replace the lost education revenue. The bill would phase in the changes over four years and would not require a public vote.

By September 2017, the state sales tax on most consumer items would be 5 percent under the bill. Local sales taxes would be unaffected, but the combined state and local tax rate would rise to 11 percent in Birmingham and Montgomery. “It’s getting to be too big of a bite out of people’s wallets,” ACPP executive director Kimble Forrister told members of the Senate’s education budget committee.

SB 287 would negate many low-income Alabamians’ grocery tax savings by increasing the cost of everything else they buy, Forrister said. Items like clothes, toiletries and school supplies would be subject to a higher sales tax under the plan.

“We’re basically replacing one regressive tax with another regressive tax,” Forrister said. “The best way to approach a regressive tax is to balance it out with a progressive tax.”

Forrister commended Dial for drawing attention to Alabama’s status as one of only four states with no tax break on groceries. But a better way to replace the revenue from the grocery tax, Forrister said, is found in HB 130, sponsored by Rep. John Knight, D-Montgomery.

HB 130 would end the state grocery tax all at once and would repeal the state’s income tax deduction for federal income taxes (FIT). Only two other states offer a full FIT deduction, and the top 3 percent of Alabama taxpayers received more than half of its savings in 2011. Because the deduction is written into the state constitution, HB 130 would require voter approval.

Dial said HB 130 faces legislative opposition, including his own, and will not pass this year. SB 287 stands a better chance of becoming law, he said. “This is the only option out there to remove sales tax for food,” Dial said. “I know you can argue that shoes and clothes and toothpaste are a necessity, but not as much as food.”

‘It’s not going to help folks at the lower end’

SB 287 would boost combined receipts to the Education Trust Fund (ETF) and General Fund by $28 million a year, according to the Legislative Fiscal Office, but the bill would require the Legislature to re-examine its changes in 2018 to ensure they are revenue-neutral. Susan Kennedy of the Alabama Education Association urged Dial to remove that provision to avoid forcing future lawmakers to slash ETF funding. “Let the 2018 Legislature deal with that issue when it comes,” Kennedy said.

Sen. Hank Sanders, D-Selma, said Dial’s bill was “selective” in raising the state sales tax on many everyday consumer items but not on more expensive purchases like cars. “It’s not going to help folks at the lower end,” Sanders said. “If they miss ’em in the washer, they’re gonna get ’em in the ringer.”

Alabama’s tax system requires low- and middle-income families, on average, to pay twice the share of their incomes in state and local taxes that the richest Alabamians pay, according to the Institute on Taxation and Economic Policy. Sales taxes are the biggest driver of that gap, because low-income families must devote more of their household budget to food, clothes and other necessities subject to those taxes.

The Legislature will return Thursday for the 16th of 30 allowable meeting days during the 2014 regular session, which is expected to last until early April.

By Chris Sanders, communications director. Posted Feb. 19, 2014.

Earthquake on Goat Hill: How the Alabama Accountability Act passed and what it means

Alabama would provide income tax credits to help subsidize private or religious school tuition for parents of children zoned for “failing schools” beginning this fall if Gov. Robert Bentley signs the plan into law. The House and Senate approved the measure, known as the Alabama Accountability Act, mere hours after it was first introduced on Feb. 28, 2013. Bentley declared his intention to sign it, but a state trial court on March 6, 2013, issued a temporary restraining order to prevent the bill from going to him.

This paper by ACPP policy analyst Chris Sanders assesses the backdrop from which the Alabama Accountability Act emerged, summarizes its main provisions and considers its impact on the state’s public education infrastructure.

Ending the state grocery tax and protecting schools

Alabama’s tax system is upside down, and the state sales tax on groceries is one reason why. Alabama remains one of only two states — the other is Mississippi — with no tax break on groceries. Food costs consume a larger portion of the household budget for low-income families than for those who are better off, so the grocery tax hits low-income people especially hard. The grocery tax is part of why Alabama’s overall tax system requires low- and middle-income people to pay twice as big a share of their incomes in state and local taxes as the riches households pay.

A tax on survival: Grocery tax policies in America

Food takes a much bigger bite out of the household budget for low-income families than for richer ones, and sales taxes on groceries thus hit harder at lower incomes. In recognition of this fact, most states either have exempted groceries from state sales taxes entirely or have devised ways to help offset grocery taxes for low-income people. Alabama and Mississippi stand alone in offering no tax break break on groceries.

This fact sheet considers the effects of grocery taxes on low-income households and examines the ways that Alabama could reduce or eliminate its sales tax on groceries.