Back to the Basics on Taxes and Budgeting

With the Governor and Legislature still at odds over how to solve a $250 million shortfall in the state’s General Fund, we thought it would be useful to again call attention to two essential underlying problems that explain why we are in the current predicament. PARCA has written about both recently and, over the past two decades, frequently.

1. Alabama state and local governments collect less tax revenue per capita than any other state in the United States. Governments here have less to work with when trying to provide services equivalent to those offered in other states.

2. Alabama doesn’t budget, in a meaningful sense. In the absence of a budgeting system that prioritizes investments and measures results, the Governor and Legislature simply try to balance revenue with expenditures, resorting to borrowing and shuffling money between accounts in times of scarcity.

Starting last fall, PARCA wrote about the building budget crunch coming in the state General Fund. Our annual meeting featured promising plans to unpack our overcrowded prisons and reform the way Medicaid works in Alabama. The long-term intent of both of those reform efforts were to put in place more effective approaches that would save money in the long run. Both plans will fall apart under the no-new-revenue General Fund budgets that have been passed and vetoed thus far. Failure to address the prison problems could lead to federal takeover. The potential damage to Medicaid will have serious consequences for the entire health care system. This memo produced by state agency heads this spring gives a concise assessment of what the no-new-revenue budget would mean for the courts, mental health, public safety, state parks, environmental enforcement, and a host of other state services.

The governor has proposed a package of taxes that his office anticipates would raise $300 million more per year. If that package were to pass and the projected revenue were generated, Alabama would still rank 50th in per capita tax collections.