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Deficits In U.S. States Have Alabama’s Governor Risking Career

Deficits In U.S. States Have Alabama’s Governor Risking Career

By Margaret Newkirk, Bloomberg News (TNS)

MONTGOMERY, Ala. — Alabama Governor Robert Bentley is taking on fellow Republicans as he seeks to mend a $700 million hole in the state’s frayed $1.8 billion general fund with a tax increase.

The state party is urging lawmakers to defy him. Republicans distanced themselves in speeches and newspaper columns. One state senator who’s a former U.S. Marine paid for a billboard in Huntsville.

“Governor Bentley wants to raise your taxes,” it reads. “I will not let that happen. Semper Fi. Senator Bill Holtzclaw.”

Bentley, 72, joins at least eight Republican governors gambling their careers by bucking anti-tax orthodoxy as the party enjoys its greatest power over state capitals in almost a century. The blowback provides a lesson in the difficulty for Republican chief executives of running states when fiscal reality collides with decades of anti-tax rhetoric.

In Georgia, two-term Republican Nathan Deal is prodding lawmakers to raise funds for infrastructure. Louisiana’s Bobby Jindal, a potential 2016 Republican presidential contender, last week proposed rolling back more than $500 million of tax credits to avert steep cuts to universities and other programs.

“Some states are feeling they’re out of options,” said Norton Francis, who follows state issues at the Tax Policy Center in Washington. “The extent that they’re proposing these increases that they feel are necessary to protect the fiscal situation of the state is pretty remarkable, given the uphill battle they have.”

Aversion to taxes runs deep in Alabama, which enshrined a Tea Party-like distrust of government in its constitution more than a century ago. It ties the state’s hands on how much to tax, what to tax and how to spend the money taxes bring in.

Bentley is a reluctant agent of change.

“No one likes to pay taxes,” Bentley told reporters in Montgomery on Friday, when he released detailed plans for the first time. “No one wants to pay more tax. I don’t like it any more than you do, but we have failed to address the challenges that lie before us.”

A dermatologist, Sunday-school teacher and signer of activist Grover Norquist’s pledge to levy no new taxes, Bentley spent eight years in the Legislature before winning the governor’s office in 2010 with a longshot campaign.

He took office in 2011 as Republicans held majorities in the Senate and House of Representatives for the first time in 136 years. A Birmingham News columnist in February said Bentley’s first four years were “mostly irrelevant” as he was pushed aside by legislative leaders. Two months into his second term, that has begun to change.

Bentley proposed raising $541 million in additional revenue through taxes on cigarettes, car sales, and insurance premiums and utilities, among other steps. He also wants to use $187 million earmarked for other funds to close the deficit in the year beginning in July.

“There is nothing more conservative than getting our fiscal house in order,” Bentley said.

Alabama’s state and local government taxes per resident are the lowest in the U.S., according to the Public Affairs Research Council of Alabama. It also has the 12th-worst tax structure in terms of disproportionate impact on the poor, according to Meg Wiehe, state policy director for the Institute on Taxation and Economic Policy in Washington.

Alabama collects sales taxes on food. In 2010, its property levies were the nation’s lowest, according to the Tax Foundation. And it’s one of only three states that allow citizens to deduct all of their federal income tax, no matter how much they earn.

The system has roots in the Reconstruction era after the Civil War. Concerned that newly empowered blacks would foist higher taxes on richer whites, Alabama’s leaders wrote rate caps and spending rules into the constitution.

Changes to income-tax rates have to be approved by a vote of the people. All but 9 percent of the revenue Alabama collects is earmarked for specific purposes, Bentley said. While income taxes dedicated to education have surged since the end of the recession, the hodgepodge of more than 40 levies that feed the general fund hasn’t kept up.

“During the past several fiscal years, the general fund has relied on significant support from non-recurring revenues, including drawing down reserves,” according to a Standard & Poor’s report in July.

The fund pays for most services outside education. That includes the prison system, which has half the guards and almost twice the inmates it’s built to hold. Parole officers supervise 195 ex-convicts each. Judges have been sending people to prison because they know the probation system can’t handle them, said Eddie Cook, the assistant director of the Alabama Board of Pardons and Paroles.

The Highway Patrol has less than half the troopers it should, according to a University of Alabama study. Wait times at the motor-vehicles department are infamous.

“Just try to renew your license in Birmingham,” said Carol Gundlach, policy analyst with Arise Citizens Policy Project, a Montgomery-based nonprofit that advocates for the poor. “You need to bring a sack lunch.”

The last governor to try to change the system was Bob Riley, a Republican former congressman. He led a campaign to overhaul it 12 years ago, putting a constitutional amendment on the ballot that raised money and moved toward equalizing the impacts on rich and poor.

Every major interest group in the state supported him, except the powerful Alabama Farmers Federation and the Christian Coalition. His radio ads featured beloved football coaches. Voters rejected the amendment by 68 percent.

Senate President Del Marsh said Bentley’s record as a budget-cutter may help him sell the plan. Bentley said his administration has saved $1.2 billion a year.

“We have a case to make that Riley didn’t,” said Marsh, who has said he will at least look at Bentley’s plan. “Maybe we can lay it all out there and ask them, ‘Do you want to fix this once and for all?'”

Some Republicans aren’t persuaded. Alabama state House Speaker Mike Hubbard said there’s more room to cut.

“We will avoid any solutions that might slow Alabama’s ongoing economic growth,” Hubbard said.

Holtzclaw, who put up the protest billboard, may be the first to see the impact of a cash-starved state. The transportation department halted road projects in his district after the sign went up.

Bentley was unapologetic. He told reporters Friday it was “irresponsible” to criticize a plan that hadn’t been announced. He said the projects will eventually be restarted.

When, he wouldn’t say.
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With assistance from Mark Niquette in Columbus, Ohio.

Governor Robert Bentley, AEMA Director Art Faulkner and FCO Mike Byrne discuss tornado recovery (Alabama EMA via Flickr)

Tax Increases Much-Regretted Necessity For Republican Governors

Tax Increases Much-Regretted Necessity For Republican Governors

By Mark Niquette, Bloomberg News (TNS)

WASHINGTON — Republican governors meeting in Washington this weekend said financial conditions in their states have deteriorated so much that they must raise taxes, even if it means crossing their own party.

In the face of a historical antipathy deepened by the Tea Party movement, chief executives in Alabama, Nevada and Michigan among other states are proposing increases this year to address shortfalls or to spend more on faltering schools and infrastructure. They advocate higher levies on businesses, tobacco, alcohol and gasoline, in some cases casting the increases as user fees.

The governors are at a crossroads. They are choosing between the path of Governor Sam Brownback in Kansas, who has refused to change course even after tax cuts provoked furious opposition, and that of Alabama’s Robert Bentley, who has said the state’s perennially precarious budget has reached the breaking point.

“I don’t want to raise taxes, but I also know that we need to pay our debts,” Bentley said in an interview. “We don’t have any choice.”

Governors in about ten states, many led by Republicans, are proposing increases this year, said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers in Washington. Several plans involve raising fuel taxes to pay for crumbling roads and bridges, while Republicans including John Kasich in Ohio and Maine’s Paul LePage want higher sales or other levies to offset income-tax cuts. The burden of such taxes falls more heavily on the poor, who spend a larger proportion of their income.

In Nevada, two-term Republican Governor Brian Sandoval has proposed $1.1 billion in new or continued business, tobacco and other taxes to pay for education and initiatives such as expanding full-day kindergarten.

He said he has no choice with a shortfall caused by declining mining and gambling revenue, as well as a need to spend more on an education system that has the worst high-school graduation rate in the U.S.

His proposal has drawn opposition from Republican officials such as Treasurer Dan Schwartz, who said voters rejected two similar proposals in November and that Sandoval has “divorced” himself from state Republicans.

Sandoval said there are Republicans who support his plan, and that business leaders want better-educated workers.

“I knew going in that I was going to receive criticism,” Sandoval said in an interview. “That’s why it’s important for me to explain the ‘why,’ and the ‘why’ is to improve education in Nevada.”

Alabama’s Bentley, a two-term Republican, said he spent four years cutting spending, improving efficiency and making government smaller. Now, more revenue is needed to deliver services and deal with a long-building budget deficit of about $265 million that could reach $700 million by the fiscal year that begins in October.

Bentley said that while he’s still formulating his plan, it won’t involve gambling revenue and will include multiple taxes that the Republican-controlled legislature can approve.

Alabama has a history of opposing tax increases and rejected former Republican Governor Bob Riley’s $1.2 billion plan in 2003. Bentley said he expects backlash this time as well.

“But we’re going to do it with boldness, and this is something that we must do,” he said.

States are feeling pressure to pay for projects and services cut or delayed during the recession that ended in June 2009 and the sluggish recovery, said Michael Leachman, director of state fiscal research for the Center on Budget and Policy Priorities in Washington, which analyzes how fiscal decisions affect the poor.

“Governors of both political parties are faced with those neglected investments,” Leachman said.

The prospects for enacting the proposals are unclear, especially after Republicans extended control of legislatures to 31 states in last year’s elections and now have majorities in a record 69 of 99 chambers.

In Ohio, Republican lawmakers have said that while they welcome Kasich’s plan to cut income taxes, they oppose “tax shifting” to do it.

An exception may be efforts to raise fuel taxes to pay for infrastructure. The purchasing power of levies that haven’t increased in years has declined, roads and bridges are visibly deteriorating, federal funding is uncertain and the political climate may be more forgiving thanks to cheaper gasoline.

More than a dozen states, many with Republican governors, appear poised to increase transportation revenue this year, said Sean Slone, program manager for transportation policy at the Council of State Governments in Lexington, Kentucky.

Republican Governor Terry Branstad in Iowa said he’s not raising taxes. Rather, he’s backing a higher “user fee” to address a $215 million shortfall in annual transportation funding without borrowing, he said.

“I’m an anti-tax person as well,” Branstad said. “People who get the benefits of the roads should pay for it.”

Other Republicans at the National Governors Association meeting held the traditional ground that raising taxes shouldn’t be an option.

“This economy is in a delicate state, and the last thing it needs is higher taxes,” said Indiana Gov. Mike Pence, a potential presidential candidate in 2016.

The White House ambitions of Republican governors including Chris Christie in New Jersey and Scott Walker in Wisconsin may make raising taxes a gamble no matter what the state’s financial condition.

Christie has put a Democrat in charge of transportation spending and said he was open to all options for replenishing a road fund that has gone dry. He didn’t mention the crisis in a speech last week that railed against taxes.

Walker has ignored proposals from his transportation secretary to raise taxes and fees in favor of borrowing $1.3 billion. He also has said he will skip more than $100 million in debt payments to address a $283 million deficit after tax cuts.

In Kansas, Brownback is slowing his push to eliminate the income levy and calling for higher tobacco and liquor taxes because the state faces a $280 million shortfall after previous tax cuts produced greater revenue losses than anticipated. Still, he has said that the state will stay the course.

Connecticut Governor Dannel Malloy, a Democrat, raised taxes to help close a $3.6 billion deficit after taking office in January 2011 and was criticized by Christie and other Republicans for doing so.

Malloy said that while he chafed at the barbs, he’s not celebrating now that some Republicans are in position of having to raise levies.

“In a super-politicized environment — and certainly we have suffered in one of those during this post Great Recession period — some people thought it would never happen to them,” Malloy said in an interview. “They were wrong.”
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With assistance from Terrence Dopp in Washington.

Photo: Governor Beshear via Flickr