After months of discussions, debates, and trial balloons, Governor Bob Riley (R) finally released on Monday, May 19th his proposed plan for overcoming the more than $600 million deficit the State of Alabama is facing in the coming fiscal year. The proposal includes massive tax increases that would raise an estimated $1.2 billion. In addition, the Governor has proposed legislation that would provide for additional accountability in State government, particularly in education, and has called for the establishment or enhancement of some state education programs.
The plan must not only be passed by the Alabama Legislature, but it must also be approved by voters across the state this fall. Both will be difficult hurdles to overcome as within hours of the announcement of the proposed package, television ads in opposition to "Billion Dollar Bob's" tax increases hit the airwaves across the state.
Specifically, Governor Riley's proposed tax legislation would include the following:
- Elimination of the state income tax deduction for federal income taxes paid.
- Raising Alabama's threshold for paying income tax from $4,600 for a family of four to $17,000 next year and to $20,000 in three years.
- Raising the state income tax rate from 5% to 6% for individual incomes over $75,000 and family incomes above $150,000.
- Reducing the state property tax rate from 6.5 mills to 3.5 mills, but start assessing property at 100% of its market value or current use value, as opposed to the current 10% used for home and agriculture property, 20% used on business property, and 30% used on utility property.
- Retaining the 10% assessment rate for farm and agricultural property for local property tax purposes, but create one class of business and utility property set at 22% for local property taxes.
- Updating current use values on agricultural land.
- Increasing the homestead exemption from $40,000 to $50,000.
- Exempting the first 200 acres of agricultural property from state property taxes if the owners live on the land and elect current use.
- Increasing the state sales tax on cars from 2% to 2.5%.
- Increasing the lease tax on cars from 1.5% to 3%.
- Imposing sales taxes on repair and installation services.
- Increasing the state cigarette tax from 16.5 cents a pack to 31 cents.
- Increasing deed recording taxes from 1 mill to 2 mills.
- Increasing mortgage fees from 1.5 mills to 3 mills.
- Establishing a 1 mill tax on stocks and bonds, with certain exemptions. The tax would be capped at $5,000 per year.
- Making banks subject to the same rules as other corporations under the business privilege tax.
- Eliminating banks' ability to claim a tax credit for sales taxes paid.
- Raising insurance premium taxes by reducing the business privilege tax credit, eliminating the examination expense credit, and reducing the home office and real estate investment credits.
With regard to government and education reform and the establishment or enhancement of certain programs, Governor Riley has proposed the following:
- Provision of college scholarships to qualifying Alabama students.
- An end to earmarking of new revenue for a specific purpose, thus allowing the Legislature some leeway in distributing tax dollars from year-to-year.
- State employees and public education employees to pay more for their health insurance.
- Legislators no longer allowed to use the "pass-through pork" process currently used to hide funding for pet projects in their districts.
- Financial incentives to be created for teachers who teach in underserved areas of the state and in difficult subject areas. Also provide college scholarships to students willing to teach in those difficult subject areas following graduation.
- Abolish the state tenure commission and use arbitration in teacher dismissals.
- Remove tenure for school administrators, supervisors, and financial personnel.
- Local school superintendents to be tested on fiscal management.
- Require financial audits of all public school systems.
- Increase the school year by five days.
- Make funding available for the Alabama Reading Initiative so that it is available to all students statewide.
- Expand the Alabama Math and Science Initiative.
- Provide every school with distance learning capabilities.