Hurricane Season has begun and there is a Low Pressure System forming over the Statehouse

hurricaneJune 1st marked the official start of Hurricane Season and the first dark clouds are forming in Montgomery over 11 South Union Street, the home of the Alabama Statehouse.

 

The Alabama legislature finished up its 2015 Regular Session without passing a General Fund appropriation bill for the FY16 operations of the non-education agencies of state government. Therefore, a special session looms sometime during the summer months; exactly when it will occur, will be up to the Governor.

If the currently forming low pressure system grows to a full blown storm, the first named storm of the season might be Tropical Storm Ainsworth, named for Representative Will Ainsworth (R-Guntersville).

Representative Ainsworth introduced legislation during the Regular Session that would “un-earmark” all statutorily earmarked taxes.

Why is that important?

Before we get into that, let’s put some perspective on the General Fund Appropriations bill.

For FY16 (October 1, 2015 through September 30, 2016), the state is expecting approximately $1.64 billion in recurring revenue for General fund operations. The current year appropriation (FY15) was $1.84 billion. So there is a “perceived” shortfall of $200 million.

During the Regular Session, the legislature passed a $1.64 billion General Fund Appropriations bill, but the Governor vetoed it. The Governor wants to not only provide level funding, but also wants to expand the appropriations to enhance Medicaid and Corrections spending and also retire debts. In order to accomplish this, he has proposed $541 million in new taxes to cover the difference, much greater than the “perceived” shortfall.

The state has two primary appropriations bills, the Education Fund Appropriations and the General Fund Appropriations (all non-education related agencies). The two appropriation bills are offset by revenues that are generated through taxes, fees, etc.

The Education Fund Appropriations are offset principally by income taxes ($3.7 billion estimated for FY16) and sales taxes ($1.78 billion). These two taxes are considered “growth” taxes. The income tax revenue is directed to education through a provision in the Alabama Constitution. The sales tax revenue is directed to education through a statutory law. These “directives” are also referred to as “earmarks.” Therefore, the funding for education is “earmarked.”

The General Fund Appropriations are offset by over 40 various taxes that are not “earmarked” for any specific purpose. As mentioned previously, these taxes and fees add up to $1.64 billion. These revenue sources have had little to no growth in recent times.

And that’s a problem, because expenses in the General Fund agencies continue to grow. Especially Medicaid and Corrections.

Now back to Tropical Storm Ainsworth.

ainsworth2Representative Ainsworth plans to continue to push for “un-earmarking” the statutorily “earmarked” taxes. He maintains that this would give the legislature the flexibility to address priorities and to allow the entire government to benefit from future growth taxes.

The income tax will not be affected with his proposal, as it is protected in the Constitution and would require a Constitutional Amendment and a vote of the people. The main one that would be affected is the sales tax.

The education community is going nuts over this idea.

Why is that? Because they are concerned that if you remove the earmark to education, the legislature might be tempted to swipe some of that revenue and use it for General Fund purposes. In other words, they argue that “money from kid’s education will be used to fund prisoners.” Hard to disagree with that.

However Representative Ainsworth is not advocating providing less funding to education. He is thinking about the future years. If the current “growth” tax revenue (income and sales) is “locked-in” for education purposes, then so is the future growth that comes with those taxes.

He believes that the future “growth” should be shared with the General Fund agencies, and that future growth will dramatically assist in reducing the year-to-year struggle to find revenue to offset growing needs in the General Fund appropriations.

Historically, going back to 1960, Representative Ainsworth maintains that the income tax revenue has only gone down, compared to the prior year, three times; 1982 (1.82%), 2002 (1.5%) and 2009 (7.54%). Sales tax revenue has only gone down two times; 2001 (1.11%) and 2009 (9.86%).

By the way, the FY16 education appropriations bill funded education at one of the highest levels in the state’s history; $6.0 billion as opposed to the all-time high of $6.7 billion in 2008 (prior to the recession and the beneficiary of federal stimulus dollars).

But the education community is adamantly opposed to this (as are other state agencies that have earmarked revenues) and will put up a tremendous fight to oppose his legislation.

Thus the looming tropical storm. Stay tuned….

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