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2015 legislative update: 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:
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.
Bentley tax plan opens overdue conversation about Alabama's future
ACPP executive director Kimble Forrister issued the following statement Friday, Feb. 27, 2015, in response to Gov. Robert Bentley's announcement of a plan to raise $700 million in revenue for Alabama's General Fund:
"The governor's proposal begins a conversation that's long overdue in Alabama: how to provide adequate funding for the common good. Medicaid, mental health care, public safety and other services make our state a better, healthier place to live and work. But funding for these essential services has been cut to the bone. We can't afford to risk even deeper cuts that could reverse decades of progress and do real harm to our most vulnerable neighbors.
"Importantly, the governor's plan would fund vital services without raising taxes on food and clothing. Alabama shouldn't tax low-income families deeper into poverty. We hope lawmakers keep that principle in mind as they seek a lasting cure for our ailing General Fund.
"All Alabamians deserve an opportunity to get ahead in life. By investing in the public services that provide the backbone for economic growth, we can build a strong, thriving state for everyone."
Alabama outpaces other Southern states in health coverage enrollment gains
The number of people enrolling in Marketplace health coverage is growing more quickly in Alabama than in most other Southern states, according to the Alabama Enrollment Coalition's analysis of new enrollment data. The coalition consists of ACPP, Enroll Alabama and other organizations working to help Alabamians obtain health insurance under the Affordable Care Act.
Alabama has increased its health insurance enrollments under the ACA from nearly 98,000 in 2014 to nearly 138,000 through Jan. 23, 2015, with several weeks of open enrollment left. The boost of more than 40,000 enrollees marks an increase of 40.9 percent over the first year of open enrollment. The average increase among states using the federal Marketplace is 33 percent.
"Alabama's enrollment surge shows that affordable health coverage is available, and Alabamians are seizing the opportunity," ACPP policy director Jim Carnes said. "As the Feb. 15 enrollment deadline approaches, we urge anyone who needs insurance to learn about the financial assistance available and sign up for a plan that works for them."
New ACA enrollment figures are great news for Alabamians
ACPP policy director Jim Carnes issued the following statement Wednesday, Jan. 14, 2015, in response to new U.S. Department of Health and Human Services data showing that more than 126,000 Alabamians have selected or been re-enrolled in health coverage plans through the Health Insurance Marketplace created under the Affordable Care Act (ACA):
"The latest ACA enrollment numbers are great news for Alabama on two counts. First, they show that most Alabamians who enrolled in Marketplace coverage last year are paying their premiums and keeping their health insurance. And second, they show that more than 30,000 additional Alabamians already have gotten covered this year, with another month left to enroll.
"Affordable coverage is available, and Alabamians are seizing the opportunity. We're eager to see even more progress as open enrollment for 2015 coverage continues through Feb. 15."
Study on Alabama’s tax system: The less you make, the bigger share you pay
Low- and middle-income Alabamians pay more than twice as much in taxes as a share of their income compared to the state's wealthiest residents, according to a study released Wednesday by the Institute on Taxation and Economic Policy (ITEP), a nonprofit research organization based in Washington, D.C. The study, Who Pays?, analyzes tax systems in all 50 states.
Every state's tax system is regressive, meaning the lower one's income, the higher one's tax rate. Alabama's tax system is the nation's 12th most regressive, ITEP finds. The Alabamians who earn the least – less than $17,000 a year – pay 10 percent of their income in state and local taxes. By contrast, the top 1 percent of Alabama earners – those who make $392,000 or more – pay an average of just 3.8 percent of their income in state and local taxes.
"Alabama's upside-down taxes hold our state back and drive low-income families deeper into poverty," ACPP policy director Jim Carnes said. "Our leaders could help right the ship by repealing the state grocery tax and ending tax breaks that favor wealthy people who could easily afford to pay more. It would help modernize our state's tax system, and it would help Alabama raise enough money for crucial services like education and health care."
Medicaid RCOs will lead to a healthier Alabama
ACPP policy director Jim Carnes issued the following statement Thursday, Dec. 18, 2014, in response to Gov. Robert Bentley's announcement of the Alabama Medicaid Agency's new regional care organization (RCO) plan:
"Today marks the beginning of a new era for health care in Alabama. By emphasizing preventive and primary care and giving communities a stronger role in health care decision-making, Medicaid’s RCO model is creating a new roadmap to a healthier Alabama and a more stable state budget.
"The governor's announcement highlights how vital Alabama Medicaid is to the health care system on which we all depend. We thank Gov. Robert Bentley, State Health Officer Dr. Don Williamson and Acting Medicaid Commissioner Stephanie Azar for their leadership in the state's Medicaid transformation. And we congratulate the six RCOs for successfully completing the first phase of this historic effort."