Alabama commission looks at further grocery tax cuts, potential revenue replacement
Alabama commission looks at further grocery tax cuts, potential revenue replacement by Jemma Stephenson, Alabama Reflector November 15, 2023 Members of a state commission looking at the impact of grocery tax repeal looked at the recent cut to the tax, the potential for slower education budget growth, and alternate revenues. Alabama in September cut the state’s 4% tax on groceries to 3%, the first reduction in the tax since it was first implemented in 1939. Prior to the cut, Alabama was one of only three states that fully taxed groceries, driving some local levies as high as 10%. Cuts to the tax have been a long-term goal of anti-poverty groups, which said the tax affected food security and the ability of low-income Alabamians to feed children, as well as conservatives in favor of cutting taxes. “It impacts lower income Alabamians more harshly than it impacts higher income Alabamians,” said commission member Akiesha Anderson, policy and advocacy director of Alabama Arise. The bill froze but did not reduce local taxes on groceries. If the Education Trust Fund (ETF) budget, where proceeds from the tax go, grows by 3.5% next year, the state tax will be cut to 2%. “We’re all excited about that possibility coming sooner rather than later,” said Sen. Andrew Jones, R-Centre. Kirk Fulford, deputy director of the fiscal division of the legislative services agency, said Tuesday that “later” seemed more likely. The director told the committee that he was not predicting growth in the ETF for Fiscal Year 2024. “Just based on the first month, I mean, we’re in negative growth,” said Fulford after the meeting. Publicly available information on the Education Trust Fund shows that income tax returns were lower in October than they were last October, the biggest drop in the Education Trust Fund. The Education Trust Fund is around $74.4 million lower than it was this time last year. About $54.7 million of that decrease is from income tax. Fulford said to reporters after the meeting that there are four parts to the income tax. He said withholding, or taxes withheld from a paycheck, has kept up with Alabama’s low unemployment. “The other components are what, first of all, jumped way up and then last year came right back down,” he said to reporters after the meeting. Fulford said over email before the meeting that October 2022 receipts last year were up by $65 million, so this year could be a return to normalcy after several years of drastic increases. Fulford said cutting local grocery taxes could affect local governments, who sometimes levy higher taxes on groceries than the state. “So there would be a bigger dollar figure impact at the local level if you eliminated all the groceries,” he said. House Ways and Means Education Committee chair Danny Garrett, R-Trussville, said in October that he did not expect to cut the tax further in the next legislative session, which begins in February. Commissioners brought up a number of different ways that revenues could be potentially restored to the Education Trust Fund. Anderson said she thinks that more tax dollars for education means better education. Alabama spends less on average than the national average on per pupil spending. According to the U.S. Census data released in May, Alabama spent $10,683 per student in fiscal year 2021, compared to a national average of $14,347. One idea was taxing services after first being brought up by Anderson. “I will point out that you are absolutely right; the economy and the world that we’re living in as a service economy, the state of Alabama, local governments don’t generally tax services on a broad scale, that may very well be something to look at to consider to investigate,” said Fulford. Fulford and Rosemary Elebash, state director for the National Federation of Independent Businesses, said that it had been discussed in the 1990s and later under former Gov. Bob Riley, who was in office from 2003 to 2011. Elebash said there were concerns about that also being a regressive tax. “They went so far as to tax haircuts, vet services, and people are unhappy when you start taxing their dogs and cats,” said Elebash about a previous attempt. Anderson asked if there had been any thought about taxing professional services, such as attorneys, that might avoid the regressive structure. Fulford said that there had been an occupational tax issue in Jefferson County that led to multiple lawsuits. “But there certainly has been an issue,” he said. The Joint Study Commission was formed to study the grocery tax and will file a report in 2026 after annual meetings. “Not to procrastinate, of course, but we got some time to get our homework done,” said Jones. Alabama Reflector is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Alabama Reflector maintains editorial independence. Follow Alabama Reflector on Facebook and Twitter.
ADEM has authorized water and sewage projects in 63 of the 67 counties
On Tuesday, the Joint Legislative Committee on American Rescue Plan Act State Funds met in Montgomery for oversight hearings on the progress of spending the first billion dollars of federal funds for COVID relief. Much of that money is being spent on water and sewer projects. Lance LeFleur is the Director of the Alabama Department of Environmental Management (ADEM). ADEM has been tasked with awarding those funds to water and sewer utilities. LeFleur said water projects have been approved for 63 of the 67 counties, and those other four counties have projects that will be in the next round of projects. LeFleur said that ADEM has $1.6 billion in funding available through 2026 and $3 billion in requests. “We have approximately $1.4 billion in projects that do not have a source of funding at this time,” LeFleur told Legislators. “We do have a website: Alabamawaterprojects.com.” “We have 600 systems in the state,” LeFleur explained. “Some systems have submitted multiple projects. Many of these are combination water and sewer systems.” LeFleur said that ADEM is considering every single project. All of the funding came through principal forgiveness or it came through a grant. “Under ARPA, the most dire needs were provided by grants,” LeFleur explained. State Sen. Greg Albritton chairs the oversight committee. “This is a lot of construction. Is there a contractor available to do all of this?” Albritton asked. “The simple answer is no,” LeFleur answered. “There are supply chain problems. We were faster at getting these awards out than any other state.” “In this process, it is important that we have proper oversight,” LeFleur explained. “We require a professional engineer to do the plant analysis, and then we check on the professional engineer to make sure that he did things right. Our engineers are very experienced. We make sure that the engineering on the front end is done properly. On the financial system, we require that each of these systems have an audit. We have to know the true financial picture of each of these systems. We have made the commitments at a very rapid pace compared to the rest of the nation. It is in the hands of the individual systems to get the final engineering done.” Lafleur continued, “We are not going to put any system in financial distress, but if they have the resources to contribute, it is important that they do that so we can get the most out of this money.” LeFleur said that for the poorest systems whose rates were already as high as their neighbors, the state would pick up 100% of the cost. If the system can afford matching dollars, ADEM requires them to provide those funds. Part of this financial evaluation of the systems is to examine the water and sewer rates charged by the systems. “They have to have rates that are consistent with the systems around them,” LeFleur said. “We have some systems that have not raised rates in a generation.” “Payment will only be made until after we have certified and made sure that the payments have been made,” LeFleur explained. “The funds will cover the costs of the engineers and the audits. We know that some systems have not had the funds to do audits in several years.” State Sen. Chris Elliott expressed his displeasure with how these awards are being prioritized. “My concern is and has been and continues to be that in the fastest growing county in the state that sees 8000 new people a year that represents 48% of the population growth in the entire state, that (State Senate) district received no funding, received zero projects – that is not acceptable,” Elliott said. LeFleur responded, “We do have one project in your county. Is that your district?” “That is not in my district. That is in the chairman’s district,” Elliott said. “And your problem with that is?” Chairman Albritton said. “Past growth is available for funding future growth is not available for funds,” LeFleur said. “Their systems (in Baldwin County) have the ability to fund growth.” “We have sewage overflows into Mobile Bay on a regular basis. We have sewage overflows in rivers and streams on a regular basis,” Elliott said. “Not allocating any resources into my district is very shortsighted.” Elliott threatened to filibuster future Senate meetings if his concerns are not addressed. Kirk Fulford is the head of the fiscal division of Alabama’s Legislative Services Agency (LSA). “Alabama was appropriated $2.12 billion,” Fulford said. Just over half of that money has been appropriated, Fulford explained. The Legislature will appropriate the second tranche of that money after it returns on March 7 for the 2023 Regular Legislative Session. Fulford said the Legislature had appropriated $222 million for water and sewer projects. The state has spent $400 million on two mega prisons under construction in Elmore and Escambia Counties. $80 million was spent on relief of Alabama hospitals, and another $80 million went to the state’s nursing homes. $51 million has been appropriated for broadband infrastructure projects. The state also qualified for additional dollars under ARPA and the CARES Act. “You used $277 million for broadband infrastructure thus far,” Fulford told legislators. The Alabama Department of Economic and Community Affairs (ADECA) is tasked with awarding those funds. Most of the ARPA funds have to be spent by December 31, 2026, or must be returned to the federal treasury. To connect with the author of this story or to comment, email brandonmreporter@gmail.com.
State legislature discusses use of American Rescue Plan funds
On Tuesday, the Joint Legislative Committee met to review state officials’ progress in spending the first billion dollars from the American Rescue Plan Act (ARPA) money. The state received this funding from the federal government to fight the COVID-19 global pandemic and make the state more resilient against future pandemics. State Sen. Greg Albritton presided over the meeting at the Statehouse across the street from Alabama’s historic Capitol Building. “This is not dealing with the General Fund or the Education Fund,” Sen. Albritton said. “It is not even dealing with ARPA 2 money. This is the Oversight Committee for the ARPA 1 money.” Kirk Fulford is the director of the Alabama Legislative Services Agency (LSA) fiscal division. “There were three tranches of federal money,” Fulford explained. “The first tranche was CARES Act which has mostly been appropriated. This is a total of several bills, not just the three.” “The funds must be spent by December 31, 2026,” Fulford said. “Alabama was appropriated $2.12 billion.” Fulford explained that Counties and cities of 50,000 people or more had already gotten their own money directly from the federal government. Smaller cities had to go through a grant program administered by the state. The state’s first tranche of money arrived in June 2021—the second in July 2022. The law requires the money to be split. “We treated this money separate and apart from either of our budgets due to the reporting requirements in how this money is utilized,” Fulford explained. Fulford explained that the Legislature had appropriated $225 million for water and sewer projects and $51 billion for broadband. $536 million of the money replaced lost state revenues due to the global pandemic. That money had fewer federal restrictions on how that could be spent. The state spent $400 million to build new prisons in Elmore and Escambia Counties. There will be no revenue replacement in the second tranche. Fulford explained that the state would have to stay within the specific guidelines outlined by the treasury with all of the second tranche of money. That money has not been appropriated yet. “You used $277 million for broadband infrastructure thus far,” Fulford said. “It doesn’t look like we are going to have any revenue replacement money going forward. Of the $953 billion appropriated to states, $223 billion was for lost revenue replacement.” Former State Rep. Bill Poole is now the state finance director. “We will be tightly bound to the ARPA guidance, unlike Round 1,” Poole said. “We have encountered many folks come to us and say that this state used their ARPA funds to fund this project or that,” Poole said. “That usually comes out of their Revenue Replacement funds.” Poole said the state does not qualify for any more Revenue Replacement funds, so there are fewer options for the tranche two money. “Quarterly reports are due every quarter,” to the federal government. Poole said, “That has been a substantial ordeal, and it will continue to be going forward. The federal reporting requirements are extremely complex.” In addition to the $400 million for prison construction money, the state Legislature has appropriated $80 million for hospitals and nursing homes. In 2022, the Legislature made an additional appropriation of $80 million for hospitals and nursing homes. “Those funds have been distributed,” Poole explained. “Alabama is eligible for $192 million for capital projects,” Poole said. “We were very pleased to see those (the state’s plans) approved by the Treasury. We hope to direct a substantial portion of the funds, if not all, to broadband.” “The state of Alabama has received no negative audit findings on ARPA funds,” Poole added. “The administrative costs have been held below one percent.” “Local governments and cities are receiving notices of audits in terms of CARES Act funds,” Poole announced. “If you don’t have a clear report, you are going to get an audit finding. You need to be able to show a positive outcome from the funding.” To connect with the author of this story or to comment, email brandonmreporter@gmail.com.
Kay Ivey meets with legislative budget chairs
Gov. Kay Ivey met with legislative leaders on Wednesday to discuss the 2024 budgets and potential 2023 supplemental appropriations. “Today, we had our first meeting of the new term with our legislative budget chairs,” said Gov. Ivey. “How we budget will affect Alabamians for decades to come, and this group of leaders is committed to ensuring we will continue taking a fiscally conservative approach to our budgets.” Republicans have commanding control of Alabama state government, so all of the legislative leaders at Wednesday’s meeting were members of the GOP. They include new Speaker of the House Nathaniel Ledbetter, new Chairman of the House Ways and Means General Fund Committee Rex Reynolds, Chairman of the House Ways and Means Education Committee Danny Garrett, Ivey’s Director of Legislative Affairs Drew Harrell, State Finance Director Bill Poole, State Senate Finance and Taxation General Fund Committee Chairman Greg Albritton, State Finance and Taxation Education Committee Chairman Arthur Orr, and Senate Pro Tem. Greg Reed. Legislative Service Agency Fiscal Division Director Kirk Fulford, the Pro Tem.’s chief of staff Derek Trotter, and other staff members were also present. “Yesterday the Leadership of the House and Senate, and the Budget Chairman’s met with Governor Ivey, Director Poole and staff,” Reynolds said on social media. “The Governor engaged the meeting with direct questions related to our economy, our workforce, and the services the state provides to Alabamians.” The big-budget question hanging over the coming legislative session is what to do with the budget surplus. The state had over a billion dollar surplus left over from fiscal year 2022, which ended on September 30 that rolled into fiscal year 2022. Alabama has an arcane budgeting system where education goes into one budget – the education trust fund budget (ETF) for education spending and the state general fund (SGF) for non-education-related expenditures. Last year, the ETF for FY2023 passed by the Legislature was $8.26 billion – $589 million more than FY2022. The SGF for FY2023 passed was $2.74 billion – $53 million more than FY2022. Both are all-time records. The state’s reserve funds are already flush with funds from four straight years of conservative budgeting. With wages rising and the number of workers employed at an all-time high, the state is likely to take in more than the $11 billion the Legislature expected in FY2023 – the current budget year. The Legislature has some hard choices to make when the 2023 regular legislative session begins on March 7. They likely will have significant surplus funds left over for supplemental appropriations in FY2023 – they had over a billion dollars in supplementals in FY2022. Leaders could increase state spending, rebate surplus dollars to the taxpayers in one-time checks, or lower taxes in FY2024. Orr said that the Legislature may rebate up to $500 million back to taxpayers later this year. Another major issue facing the budget committees is what to do with all the American Rescue Plan Act (ARPA) money that the state is getting from the federal government – albeit with many federal strings attached. The second $one billion of that money has to be appropriated. The Governor will formally make her FY2024 budget requests on Tuesday, March 7, when she makes her state of the state address to a joint session of the Alabama Legislature at the historic 1859 Alabama Capitol Building. To connect with the author of this story, or to comment, email brandonmreporter@gmail.com.
Justin Bogie: Excuses are easy — Meaningful policy change takes bold leadership
As summer turns to fall, the drumbeat for the Alabama Legislature to enact meaningful tax reform legislation has picked up its pace. But there is still no action — only discussion of temporary relief and the same old excuses as to why long-term reforms will be challenging to pursue. While major policy reforms are rarely easy, it should not be this hard. The state is likely to begin 2023 with a more than $2 billion revenue surplus, building on last year’s then-record $1.5 billion surplus. When Alabama’s government has more revenues than at any point in history, providing long-term relief to citizens should be a no-brainer. But despite having a Republican super-majority legislature and Republicans elected to all state-wide offices, Alabama continues to fall further behind other states when it comes to tax reform. Citizens are paying the price. Part of the problem is a lack of strong leadership. In August, Governor Kay Ivey’s spokeswoman, Gina Maiola said, “Right now, Alabamians and Americans alike are feeling the pinch, though, and Gov. Ivey wants to be able to help Alabamians in whatever ways we can.” I am glad that Gov. Ivey recognizes that Alabamians are feeling the pinch of inflation, but where is the action? She alone has the power to call legislators to Montgomery for a special session. Ivey could do that within days, but it seems apparent that there is unlikely to be any real movement on tax reform until at least next March, when the 2023 regular session begins. Meanwhile, 32 other states have enacted tax relief legislation this year. Missouri is currently in the midst of a special session, called by Gov. Mike Parson, aimed at passing $700 million in permanent tax cuts. That is what we need in Alabama. Instead, we are getting more excuses. Just last week, General Fund budget committee chairman State Sen. Greg Albritton (R-Atmore) said, “While y’all are focusing on how flush it appears that we are, I’m looking at what the problems are and how we’re going to resolve them.” First, the state does not appear flush with cash. It is flush with cash. In the past two years, it has collected more taxes from Alabamians than ever before. Instead of using that cash to take less money from citizens in the coming years, Albritton suggested that the best way “to help people in the long run in perpetuity is to take that money and put it into a trust account much like the Alabama Trust Fund (ATF),” and then use that fund for education. Alabama already has numerous trust funds and budget savings accounts that are intended to ease the impacts of an economic downturn. The state could draw more than $850 million from the ATF alone in 2023, if necessary. The state has not touched the account, which has a total balance of more than $3.35 billion, since 2012. Even during the onset of the COVID-19 pandemic, the reserve funds remained untapped. It was a rainy day for many Alabamians, but not for the government. The state does not need another savings account. The idea of establishing one shows how out of touch lawmakers are with Alabamians. When a recession hits, the government should not be protected at the expense of citizens. It should at the least be sharing in the pain. Another argument made against tax reform is that Alabama’s current stretch of strong economic growth will not last, and the record high surpluses are because of conservative budgeting. Legislative fiscal officer Kirk Fulford recently said, “You were conservative in both of those budgets, and because of that, and because of the enhanced federal money that came into the states, you are going to wind up with ending balances in both budgets that are far and above greater than any you’ve had in quite a while.” I am sorry, but would most Alabamians describe increasing spending at a faster pace than California or New York as remotely conservative? I do not think so. In April, Gov. Ivey praised the Legislature for sending her the “sixth consecutive balanced budget” she has signed as governor. It is easy to balance a budget when you are taxing citizens more than ever. A balanced budget in and of itself is not a sign of conservatism or fiscal responsibility. In Alabama’s recent history it represents the historic expansion of government. More taxes from you have kept the budget balanced. There is also the argument that inflationary pressures may prevent the state from being able to afford to provide long-term tax relief. In August, Representative Steve Clouse (R-Ozark) said, “We want to see if maybe the budget we passed and goes into October is adequate enough on the inflationary pressures hitting right now.” Again, shouldn’t the pain being felt by Alabamians outweigh any hardships felt by the state government? Moreover, the inflation argument makes little sense. Inflation was 8.3 percent when the two state budgets were enacted in April. At the end of August, it was still 8.3 percent. If the Legislature really did pass conservative budgets just five months ago, inflation should already be accounted for. The bottom line remains that Alabama’s state government has more of your taxpayer dollars flowing into it than ever. Instead of looking for excuses to not provide relief to citizens, it is time for bold leadership and action. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Justin Bogie: Bold tax reform should be at the top of Alabama lawmakers’ agenda
“Alabama budgets are in great shape.” That was the message last week from the Alabama Legislative Services Agency’s deputy director Kirk Fulford to a joint meeting of the legislative budget committees in Montgomery. If you are in favor of growing Alabama’s state government to new heights, then I suppose that is true. But if you, who, like so many Alabamians, elected a Republican supermajority to serve in Montgomery on the promises of fiscal responsibility and limited government, the current state budget projections are far from great. Last year was “historic” for state government. The state ended 2021 with a $1.5 billion revenue surplus. It also passed the largest budgets ever. But that may be just the start. Despite ongoing inflationary pressures and arguments over whether or not the country is in the midst of a recession, the state is poised to carry a multi-billion dollar surplus into 2023. What will lawmakers do with their unprecedented revenue surplus? They can continue the status quo and grow government to new heights, or they can finally make the right kind of history and provide large-scale tax relief to the people of Alabama and its job creators. The choice should be simple. Fulford told legislators that “we are well above what we need” for the 2023 budgets. He said that the state’s revenue streams could experience negative growth next year and still be able to pay for the budgets passed last session. If the country does settle into a recession, the state has at least a billion dollars in reserves available to weather an economic downturn. Alabama’s government will almost certainly enter 2023 with more cash on hand than ever before. If tax relief is not on top of the legislature’s agenda during the 2023 session, then when will it ever be? Unfortunately, we are already hearing the often used refrains for why real tax relief may be hard to pursue. Fulford expressed his concerns over the “sugar high” the economy is still experiencing from the influx of federal dollars during the pandemic and inflation is increasing the costs of state agencies. I do not question the accuracy of those concerns, but they are not new. We have heard these same warnings over the past two years, yet the legislature still enacted three budgets that increased spending by 35% through 2022. The risks were not enough to stop the spending spree. You’re also likely to hear that Alabama already passed the largest tax cut in state history, $160 million, during the 2022 regular session. Some $85 million of that “cut” was from not taxing one-time COVID-19 relief payments made to individuals. Meanwhile, our neighbors in Georgia enacted up to $2 billion in tax cuts last session while also cutting spending. Florida is reducing the tax burden of citizens by $800 million. Mississippi cut income taxes by $500 million, eliminating the lowest bracket. There is no reason that Alabama cannot enact tax cuts of similar magnitudes. The next question you are likely to hear from lawmakers is if we cut taxes, how do we replace the lost revenue? When you have a multi-billion dollar surplus, you do not need to replace the revenue. You just need to stop expanding government. What taxes should be on the chopping block in 2023? It does not really matter so long as they are significant enough to balance Alabama’s budgets, meaning that revenues realign with actual spending and state government only takes enough money from citizens to maintain the current level of government. There should never be a large end-of-year surplus. There are numerous options available to achieve that goal. Eliminating the sales tax on groceries, long supported by the Alabama Policy Institute (API), would save Alabamians over $500 million annually. Reducing individual and corporate income taxes will help mitigate the impacts of a recession by providing the state’s workforce with an incentive to work and giving businesses the capital needed to continue to invest in Alabama and its people. Other pro-business proposals include eliminating the state’s business privilege tax and increasing the exemption for personal property. Rebates alone are not enough. They should be combined with other tax-reducing measures. And while hundreds of millions are a start, lawmakers should think much bolder. An extended sales tax holiday, which API has advocated for since 2020, would provide temporary inflation relief to Alabamians and encourage residents to shop at local businesses. Similarly, a gas tax holiday would provide additional relief from near-record prices. The exact road to tax relief is less important, so long as the legislature finally acknowledges that state revenues belong to the people, not the government. Justin Bogie is the Senior Director of Fiscal Policy for the Alabama Policy Institute.
Alabama prison plan heads to final vote in Legislature
Alabama lawmakers on Thursday continued to advance a $1.3 billion prison construction plan that would be partly funded with pandemic economic relief dollars, saying they are comfortable that the expenditure is allowed. The Senate Finance and Taxation Committee approved the construction plan and related financial bills, including using $400 million of the state’s $2.1 billion from the American Rescue Plan to pay for part of the construction. The approval put the bills in line for a final vote Friday in the Alabama Senate. Republican Sen. Greg Albritton said the $400 million for prisons is a necessary expenditure and represents a fraction of the billions in pandemic relief dollars that have come into the state, payments ranging from stimulus and unemployment for individuals to grants for government. “Alabama’s need on the prison matter is acute, and it’s necessary,” Albritton said. Democratic Sen. Linda Coleman-Madison said she believed some of the money should go to the “self-contained petri dish” that prisons are but questioned whether the state had done enough for health care services. “I’m concerned right now about hospitals closing, especially in rural areas. When hospitals close in rural areas, that’s a long distance for people to travel and a loss of lives, possibly,” Coleman-Madison said. The $400 million comes from a segment of the American Rescue Plan funds that provides money to replace revenue lost during the pandemic. The Treasury Department said the money can be used for infrastructure and to strengthen support for vital public services. “Now without saying, ‘Yes, Alabama, you can build a prison,’ I think that pretty clearly says, ‘Yes, Alabama, you can build a prison,’” Kirk Fulford, deputy director of the Legislative Services Agency, told lawmakers during a presentation. The proposal calls for at least three new prisons — one with at least 4,000 beds in Elmore County that would have enhanced space for medical and mental health care needs, another with at least 4,000 beds in Escambia County, and a women’s prison — as well as renovations to existing facilities. Six existing prisons would eventually close, a prospect that has brought objections from some lawmakers. Sen. Democratic Sen. Billy Beasley of Clayton said his district has three prisons, all recruited to provide jobs in the isolated rural area. “If I lose my facilities, then it’s going to be a devastating blow to the economy of Clayton and Clio and Barbour County, for that matter — and Bullock County,” Beasley said. Beasley also unsuccessfully tried to decrease the maximum number of inmates the prisons would house, questioning the feasibility of safely running and staffing two 4,000-bed prisons. The committee tabled the proposed amendment. “I think it’s in the best interest of the correctional officers. I think it’s in the best interest of the inmates,” Beasley said of having smaller prisons. To pay for construction, the state would also borrow $785 million through a bond issue and tap $150 million in general fund dollars. Republished with the permission of the Associated Press.
