Lawmakers say Riley would reduce burden on two-thirds of state
residents, while seeking increase from those earning more than
$83,000 a year

05/16/03

MONTGOMERY -- Gov. Bob Riley's estimated $1.2 billion tax plan will reduce state income taxes for 65 percent of Alabama taxpayers, according to lawmakers who met Thursday with the Republican governor.

The remaining 35 percent of filers -- for a family of four, those earning more than $83,000 per year -- will pay more.

Combined with other revenue measures, including previously reported property tax increases on some state residents, the changes, Riley says, will solve Alabama's $600 million budget shortfall and end a chronic cycle of underfunded state services.

Riley and Finance Director Drayton Nabers, the state's top financial official, spent much of Thursday briefing small groups of legislators. Some lawmakers said the meetings were designed to avoid violating the state's sunshine law.

The administration has yet to release any specific bills, leaving many legislators frustrated, with a special session to consider a plan just days away.

"I told the governor many times he would be in a much better position had he allowed legislators to take bills home with them before coming back in session," said House Speaker Seth Hammett, D-Andalusia.

Riley again dodged questions Thursday from reporters about details of the package, repeating only his promise that it would be "comprehensive" and bring fairness to a system that now favors the wealthy.

A complete version of the package -- set to include 10 tax bills and 13 accountability or reform bills, according to leading lawmakers -- will be presented to legislators Monday at noon, Hammett said.

Riley will address Alabamians on Monday at 6 p.m. in a televised broadcast.

Late Thursday afternoon, Riley staffers dropped a letter into lawmakers' State House mailboxes, thanking them for their "patience and understanding as we prepare for an extraordinary session."

The four-page letter explained that Riley wants to appear before legislative budget committees Tuesday to testify on behalf of his plan. No votes would be taken in committee, Riley wrote, until Wednesday, allowing lawmakers more time to review the bills.

Hammett said Nabers would take questions from lawmakers Monday afternoon in the House chamber. The speaker said the bills would be divided evenly between Republican and Democratic sponsors.

Despite their frustration about not having the bills yet, some lawmakers emerged from closed-door meetings with Riley saying they were impressed.

"The governor really sold us on this plan, and I think it can pass quickly," said Rep. John Rogers, a Birmingham Democrat who has agreed to sponsor part of the package.

"He got a big ovation in the meeting I was in," Rogers added.

The governor also met during the afternoon with a group of senators, who, before the meeting, were deadlocked over whether to recess the regular session, thus allowing for the governor's special session.

Senators agreed afterward to recess the regular session, avoiding the possibility that the special session would not start Monday. The special session is set to end by June 6, allowing one statewide referendum for an up-or-down vote on Riley's plan in early September.

Legislators would then convene to pass budgets, either based on additional revenue should voters approve the plan or on cuts should the measure fail. The current $600 million shortfall is more than 10 percent of the state's two primary budgets.

Without new money, state agency heads have forecast, among other things, massive layoffs of teachers, state troopers and other employees; the closing of mental health facilities and state trooper posts; and the suspension of Medicaid coverage for thousands of Alabamians.

Under Riley's plan, according to lawmakers, the state's essentially flat personal income tax rate of 5 percent would be divided into three brackets taxes at 4, 5 and 6 percent.

A family of four would not begin to pay income tax until reaching $17,000 in income. That would be raised to $20,000 over the next three years. Currently, the threshold is $4,600, the lowest in the nation.

The plan would eliminate the federal income tax deduction, raising about $430 million. But it would raise standard deductions and exemptions on state returns. Lawmakers said they did not know whether Riley is considering an end to deductions for Social Security and Medicare taxes.

Lawmakers were not clear at which point the 5 percent tax bracket would begin. The top bracket, 6 percent, would apply to individuals with $75,000 income or joint filers with $150,000 income or more.

With the changes in deductions and exemptions, a family of four with $83,000 would pay roughly the same state income tax it pays now. All filers below that mark would get a break. All filers above would see an increase.

Lawmakers confirmed previous reports of major property tax changes, which, like the income tax, would give some residents breaks, while increasing levies for others.

Currently, property is divided into four categories and taxed at a rate of 6.5 mills by the state. A mill is one-tenth of a cent, equivalent to $1 in taxes for every $1,000 of assessed property value.

Home and timber owners pay the 6.5-mill rate on 10 percent of their property's assessed value; automobile and boat owners pay on 15 percent; commercial property owners pay on 20 percent; utility companies pay on 30 percent.

Under Riley's plan, lawmakers said, all property would be taxed at 100 percent of the assessed value, but the millage rate would be lowered to 3 or 3.5 mills, and the homestead exemption, granted for a taxpayer's primary residence, would be increased to $50,000. Currently, the exemption varies from $2,000 to $4,000. The farmstead exemption would also increase.

The changes would not apply to any local property tax rates and rules.

The proposals would leave a homeowner with a house valued at $50,000 or less without any state property tax, as the homestead exemption would reduce the taxable value of the home to zero. Right now, the owner of a $50,000 home, assuming a $4,000 homestead exemption, pays $6.50.

Considering the $50,000 homestead exemption, each additional $1,000 in value above $50,000 would amount to $3.50 in state property tax.

For example, the owner of a $75,000 home would pay the 3.5-mill rate on $25,000 after the exemption. The total state property tax bill would be $87.50. Today, that homeowner pays $22.75.

A $100,000 home would command $175 in state taxes under the plan lawmakers described. That homeowner now pays $39 to the state.

Current use taxes on land would increase, though remaining the lowest in the nation.

Among other proposals legislators and lobbyists have said they expect to see:

Moving banks from an excise tax to the 6.5 percent corporate income tax rate.

Raising the cigarette tax from 16.5 cents a pack to about 30 cents a pack.

Raising sales tax on automobile sales from 2 percent to 3 percent.

Asking teachers and state employees to pay higher premiums and usage fees for health insurance.

Increasing the minimum retirement ages and length of service for new teachers and state employees, and ending tenure for new assistant principals.

Requiring that all new revenue be pooled in one account for the Legislature to appropriate, as opposed to the existing system of "earmarking" or legally predetermining how most tax money is spent.

Requiring fired teachers to use binding arbitration rather than the court system for reinstatement proceedings.

Allowing local school systems greater budgeting flexibility and the freedom to offer incentive pay to teachers in understaffed subject areas.

(Capital Bureau Reporter Sallie Owen contributed to this report.)