Ala. House leadership introduces combination of $100+ million tax hike and budget cuts

MONTGOMERY, Ala. — Alabama House Speaker Mike Hubbard (R-Auburn) and Ways and Means General Fund Committee chairman Steve Clouse (R-Ozark) announced Tuesday their proposal to balance the beleaguered general fund budget—a mixture of cuts, reforms, and new tax revenues.

“Even before the session began, House Republicans strongly believed it was important to offer a reasonable solution to the budget shortfall that embraced conservative, cost-cutting principles while avoiding widespread taxes on the citizens we represent,” Speaker Hubbard said. “Our budget problems did not appear overnight, and they will not magically disappear with the snap of a finger, but this plan begins to provide a fair-and-balanced, long-term solution.”

The plan was approved by a majority of House Republican Caucus members Tuesday.

“This plan works to revolve our budget shortfall by continuing to right-size state government and implementing the same kind of cost-cutting measures that any public sector business in the same financial situation would utilize,” Clouse said. “And because the few taxes that it contains are pinpointed rather than broad-based, the average Alabamian will not feel any adverse effects once this plan is implemented.”

Gov. Bentley said upon hearing about the plan that he was pleased to see legislative leadership backing revenue increases, but does not think it will be enough.

“I applaud the House GOP Caucus for agreeing with me that tax increases are needed to address the revenue shortfall in the General Fund,” he said. “However, their proposal raises only a portion of the needed revenues for state agencies to operate on October 1. I am looking at all of the details of the plan and will continue to work with the Legislature on our budget crisis. The General Fund needs $541 million in new revenue by the start of FY2016.”

Included in the budget bill are the following proposals
(Editor’s note: the following descriptions were provided by the Speaker’s office)

-Consolidation of Alabama Historical Commission into Departments of Archives and Conservation – $1.1M in savings This bill will consolidate properties owned by the Alabama Historical Commission into the Department of Conservation and Natural Resources and AHC’s administrative duties would fall to the Department of Archives and History.

-Transfer 100% of Use Tax receipts from Education Trust Fund to General Fund – $50M transfer to GF – The biggest problem with the General Fund year after year is that it lacks growth revenue. By moving all of the use tax into the General Fund, the General Fund will finally have a source of revenue that will grow with the economy. In return, the General Fund will assume responsibility for funding state programs that were moved into the Education Trust Fund in previous years. A bill adjusting the taxes on motor oil and another that eliminates the zero withholding option are expected to help replenish funds transferred from the ETF.

-Suspension of state employee longevity bonus – $5.2M in savings Traditionally Alabama’s state government has provide its employees with an annual bonus based solely upon years of service. This bill would suspend those payments for one year.

-Cigarette tax increase of .25 per pack – $60M in new revenue This bill would raise the state’s cigarette tax by .25 per pack which will keep Alabama’s prices competitive with those of sister southeastern states. While not specifically earmarked, it would help Alabama to recoup costs associated with treating Medicaid recipients suffering from tobacco-related illnesses.

-Business Privilege Tax Reform – $39M in new revenue This bill would provide a $100 yearly tax cut to Alabama’s small businesses while requiring Alabama’s largest corporations to pay an additional $7,000 annually.

-Holiday Furlough Requirement – $3.2M in savings Alabama state employees currently enjoy 13 paid state holidays per year, plus additional days at the discretion of the Governor. This bill would cap paid state holidays at 13 and require two of them to be treated as mandatory furlough days for non-essential employees.

-Automobile title fee increase from $15 to $25 – $14M in new revenue Alabama’s fee for titling automobiles has not been increased since 1986 despite the fact that average new car price has risen by nearly $22,000 in that time. This bill would adjust the fee from $15 to just $25.

-State Property Management Consolidation – $1.3M in savings Currently, Alabama state agencies independently manage the real property assigned to them. This bill would consolidate that management into the Department of Finance and realize savings by eliminating duplicative responsibilities.

-Expanding Sales Tax to Certain Out-of-State Residents purchasing cars in Alabama – $1M in new revenue Currently, Alabama does not charge sales tax on automobiles purchased within the state by out-of-state residents and then driven out-of-state. This bill would remove that exemption for out-of-state residents unless their home state allows an Alabama resident to purchase an automobile without paying tax to that state.

-Department of Insurance fee adjustment for brokers, adjustors, and others – $4.5M in new revenue This bill would increase the fee paid by brokers, adjustors, and other industry workers to the Alabama Department of Insurance. It would be the first adjustment to occur in 20 years.

-Transferring coin-operated amusement machines from sales tax to business license – $1M in new revenue Alabama currently charges owners of coin-operated amusement machines using a sales tax model. This bill would require them to purchase a business license for each machine in lieu of paying sales tax.

-Auto-rental tax adjustment from 1.5% to 2% – $6M in new revenue Currently, the leasing or renting of automobiles in the state is taxed at 1.5%, compared to 2% for the purchase of automobiles. When the automobile sales tax was increased to 2% in 1988 the rental tax was inadvertently left off. This bill established parity between the leasing/rental rate to the tax rate for automobile sales.

-Federally-Qualified Health Care Center Assessment Fees – $3.5M in new revenue. This assessment has been agreed upon by these health care providers within the state as an effective and low-cost way of drawing down additional Medicaid dollars. This assessment is similar to existing assessments on hospitals and nursing homes in Alabama.

Reps. Hubbard and Clouse say the proposal would reap roughly $200 million available for the 2016 Fiscal Year budget, which begins in October of this year.