2015 legislative update: Alabama House passes cigarette tax increase; business privilege tax measure stalls

The Alabama House voted by narrow margins Thursday to pass several bills to raise revenue for the General Fund (GF) budget that supports Medicaid, mental health care, public safety and other vital services. The House did not vote on the budget but is expected to consider it Friday.

The measures included a 25-cent-per-pack increase in the cigarette tax, two provider taxes dedicated to Medicaid, and tax increases on automobile titles and rentals. Together, these taxes would bring in an additional $107 million for GF services next year. The package falls short of the amount needed to address the GF shortfall without cuts. It’s also well short of the $300 million in new GF revenue that Alabama Arise and more than 200 other organizations have urged.

Rep. Connie Rowe, R-Jasper, who sponsored the cigarette tax bill, was particularly passionate in her call for new revenue. She recalled a time when, as Jasper’s police chief, she personally had to stop traffic on Interstate 22 because of an accident, while waiting for backup from a state trooper who had to serve five counties. “I’ve been in law enforcement for 25 years,” Rowe said. “We need district attorneys, judges and court clerks.”

Additional cuts may be ahead after inaction on business privilege tax bill

A potentially significant roadblock to passage of the GF budget emerged Thursday when the House failed to vote on a business privilege tax bill. The measure would cut taxes for tens of thousands of small businesses while increasing the tax for the largest corporations. The Alabama Farmers Federation opposed the bill, the Montgomery Advertiser reported Thursday.

The GF budget that won House committee approval Wednesday depends on a carefully balanced combination of tax increases and transfers from the Education Trust Fund (ETF) budget. Without the business privilege tax increase, the committee’s budget would be $22 million short, forcing lawmakers to approve a substitute revenue source or make additional cuts.

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

But many other state services would fare far worse under the proposed 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.

Bills would move revenues, expenses from education budget to General Fund

The House passed two bills Thursday to revise the Rolling Reserve Act, which imposes an artificial cap on ETF spending. One measure would free up education revenue for infrastructure improvements in local schools. The plan also would loan $50 million from the education budget to the GF budget, while protecting education in case of failure to repay the loan.

The other bill would transfer use tax revenue from the ETF to the GF starting in 2017, accompanied by a transfer of education budget obligations for traditional GF agencies. The use tax is equivalent to a sales tax on goods bought outside the state for use within Alabama. It is commonly discussed in the context of Internet sales and equipment purchases.

Many lawmakers strongly oppose shifting money from education to GF services. Alabama’s education funding is still well below its 2008 level, before the Great Recession, and its K-12 cuts and higher education cuts since then are among the nation’s worst.

The GF supports vital services like health care, child care, corrections and public safety in Alabama. The budget relies on a hodgepodge of revenues, most of which grow slowly even in good economic times. That leaves the GF with a structural deficit, meaning revenue growth is not strong enough to keep pace with ordinary cost growth. Without significant new revenue, Alabama will not have enough money to continue investing in vital services that make the state a better place to live and work.

By Carol Gundlach, policy analyst. Posted Sept. 10, 2015.

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