Bentley proposes $541 million tax increase

Ending one of the most talked-about mysteries in state political circles, Gov. Robert Bentley Friday said he will propose a revenue package that will include closing corporate tax loopholes, increasing taxes on automobiles and cigarettes and eliminating various business and utility tax credits.

Bentley said the proposal, aimed at fixing long-term issues in the state's General Fund, will raise approximately $541 million in new revenue, and would not affect most Alabamians.

"I am the doctor of 5 million people in this state, and these Alabamians expect government to operate properly, and the General Fund is not doing that," Bentley said.

The governor said he will also propose removing $187 million in earmarks in his State of the State address on Tuesday. The money will come from the Education Trust Fund, but Bentley says he had a plan to make it up that would bring "more money" into the system. The governor said he would not need a constitutional amendment to eliminate the earmarks, which should mean that provisions requiring income tax to pay for teachers' salaries will remain in place.

The Legislature will have the final say on the budget, and legislative leaders -- many of whom learned about the proposals as Bentley unveiled them -- were cautiously noncommittal.

"The House will review Gov. Bentley's plan and give it the consideration that it deserves," House Speaker Mike Hubbard, R-Auburn, said in a statement. "I am confident that our budget committee chairs, Rep. (Steve) Clouse, (R-Ozark) and Rep. (Bill) Poole (R-Tuscaloosa) will put together state spending plans that best serve the needs and interests of Alabama's citizens."

Senate President Pro Tem Del Marsh, R-Anniston, said in a statement he would "continue to evaluate the proposals."

The package is the first tax increase proposed by an Alabama governor since Bob Riley's ambitious Amendment 1 tax reform plan was defeated by voters in 2003. Bentley's proposals are not nearly as sweeping as the measures put on the ballot 12 years ago, but in targeting large businesses and big-ticket items, they appear to take a stab at equity.

"It is unfair for certain groups to pay taxes for certain goods and services while other groups are not taxed for goods and services," Bentley said. "Alabama families pay their debts. The state must pay our debts. This is the conservative approach."

Alabama Revenue Commissioner Julie Magee, who attended the press conference, said the package was the result of months of work on various methods to close the General Fund gap.

"We put proposals in front of him that would have been hard on working class folks," Magee said. "He said no."

Bentley also appears to be appealing to Democrats, whose support will be critical to passing any of his proposals. Democrats in the Legislature have for years advocating closing corporate tax loopholes and raising the state's cigarette tax as a way of addressing the problems in the budget. House Minority Leader Craig Ford, D-Gadsden, said Friday he was disappointed that the proposals did not include a statewide lottery -- which would need a constitutional amendment to pass -- but was pleased to see the loophole and cigarette tax proposals.

"We're willing to work with him," Ford said. "The problem's in his own party."

The state's General Fund budget faces a deficit of at least $250 million in fiscal year 2016, which begins on Oct. 1, and Bentley has said the long-term issues widen the hole to $700 million. The budget, which pays for most non-education programs in Alabama, currently gets its revenue from about three dozen revenue sources. Most of those post flat growth year over year, and have been increasingly inadequate to cover growing costs in the state's Medicaid and Corrections programs, which combined account for more than half the budget's spending. In recent years, lawmakers have scrambled to find one-time money to keep the General Fund solvent.

The administration has signaled a willingness to play hardball with opponents. On Thursday, Alabama Department of Transportation Director John Cooper canceled projects in Sen. Bill Holtzclaw's district, after the Republican from Madison purchased a billboard that said he would fight any tax increase proposals. Holtzclaw has called a press conference for Monday.

Bentley denied that he was trying to send a message with the Holtzclaw situation, and said the money for projects in Madison and Limestone counties would be restored, though he would not say when.

"We have serious problems in this state," he said. "For a state senator to be critical of solutions to a problem that truly exists before he has even seen any of the solutions is irresponsible."

The combined package proposed by the governor is $728 million. A spokeswoman for the governor said that above what the office sees as the General Fund's needs, the money includes about $25 million expected to be needed to implement a prison reform plan.

The Governor's Proposal

The governor's eight-point tax proposal:

Corporate income tax: Bentley proposes closing a loophole that he says allows 58 percent of all corporations doing business in Alabama to not pay any corporate income taxes. Estimated revenue increase: $20 million.

Financial Institution Excise Tax: Remove a credit for sales taxes paid by banks. Bentley said it was "not fair to the other institutions in Alabama who do not receive that same credit." Estimated revenue increase: $1 million.

Insurance Premium Tax: Eliminate state privilege, ad valorem and office facilities credits given to insurance companies. Estimated revenue increase: $25 million

Public Utilities License Tax: Eliminate an exemption for municipalities that provide services to their residents. Bentley called it an "unfair exemption." Estimate revenue increase: $47 million

Individual income tax: Eliminate a provision that allows workers to declare themselves exempt from withholding, which leads employers to not withhold tax. Estimated revenue increase: $12 million

Sales tax on automobiles: Increase two percent sales tax on automobile sales to four percent. Estimated revenue increase: $200 million.

Rental tax on automobiles: Increase automobile rental tax from 1.5 percent to four percent. Estimate revenue increase: $31 million.

Cigarette and tobacco tax: Increase the tax on tobacco from 42.5 cents a pack to $1.25 a pack, an 82.5 cent increase. Wholesalers' discount would remain the same, while taxes on other tobacco products would increase proportionately. "As a doctor, the dangers of cigarettes on my patients are deadly," Bentley said. "As a Governor, cigarettes pose a serious financial burden to the resources of state government."