Office of the Governor State Capitol Montgomery, Alabama, 36130

1
Laying the Foundation for Greatness Governor Bob
Rileys Plan to Invest in Alabamas Future May
2003
Office of the Governor ? State Capitol ?
Montgomery, Alabama, 36130 ?
2
Where We Are Now

• Governor Riley has inherited a fiscal crisis
  unprecedented since the Depression
• Previous administrations have refused to confront
  the problems of our state in a fundamental and
  comprehensive manner
• We are facing a 675 million shortfall that will
  result in devastating cuts in essential state
  services
• Governor Riley is committed to protecting our
  seniors, creating higher paying jobs, and making
  Alabama a leader in education

3
Governor Riley is Cutting Waste and Abuse

• Governor Riley has already implemented reforms
  that save taxpayers over 230 million, including
• Executive Order to ban all pass through pork
• 5 reduction in State personnel costs
• Cut Governors staff by 30
• Reformed state vehicle and state travel policy
• Freeze on merit raises for state employees
• Medicaid Drug Reform
• and he will continue to find ways to save money
• Many of these savings cannot be realized
  immediately
• Because of excessive earmarking, much of this
  needed money cannot be redirected to the proper
  funds
• But the problems cant be solved through cuts
  alone

4
Consequences of Doing Nothing

• Slash services by 675 million and compound
  Alabamas current problems
• 60 Senior Service Centers would be closed,
  eliminating 800,000 meals for the elderly
• Thousands of teachers would be laid off
• 50,000 child support cases would be affected,
  causing a loss of 50,000,000 in annual child
  support payments
• State Trooper routine patrol and response
  manpower would be reduced by 1/3

Governor Riley has the courage to deal with the
problem
5
Governor Rileys Conditions for Reform

• Any tax proposal must also include significant
  accountability reforms no accountability, no
  new taxes
• Any tax proposal must be fair to all Alabamians
• Alabamas tax burden must remain equal to or
  below that of our sister southern states

6
Governor Rileys Plan

• Comprehensive accountability and tax reform
• Mandates significant accountability reform
• Raises the necessary revenue to fundamentally
  change Alabama
• Makes Alabamas tax system fair reduces the
  unfair burden on Alabamas poorest citizens
• Ensures that tax dollars are spent responsibly
  and strong accountability measures are in place
• Provides full funding for innovative programs
  such as college scholarships and the Alabama
  Reading Initiative

7
Accountability Reform Overview

• Un-Earmark all new tax revenue
• Increase the contribution of teachers and State
  employees for health insurance
• Prohibit all pass-through pork

8
Accountability Reform Un-Earmarking

• Establishes the Alabama Excellence Fund as a
  separate fund within the State Treasury
• Provides that all new tax revenue be deposited in
  the Alabama Excellence Fund for targeted
  investment

9
Accountability Reform Public Employee Health
Insurance

• Provides that state employees share in the cost
  of health insurance premiums
• Requires that employees meet the regional average
  for contributions
• Provides that the changes be phased-in over time
• Allows discounted rates for employees living
  below a family income equal to twice the federal
  poverty level
• Reduces state contributions for employees who
  retire with less than 25 years of service

10
Accountability ReformPass Through Pork

• Restores accountability to the appropriations
  process
• Prohibits public funds from being passed secretly
  from one entity to another

11
Education Reform Overview

• Provides incentive pay for outstanding teachers
  and principals
• Reforms tenure for teachers and administrators
• Establishes strict accountability standards for
  fiscal management of local school systems
• Reforms Foundation Program to allow more
  flexibility at the local level

12
Education ReformIncentive Pay

• Rewards teachers who agree to teach in
  underserved areas or hard to staff subject areas
• Provides scholarships to students who agree to be
  certified in underserved subject matter, or who
  agree to teach in underserved areas

13
Education Reform Tenure

• Fair Dismissal and Tenure
• Streamlines the process outlined in the Fair
  Dismissal Act for public school employees
  contesting terminations, transfers and
  suspensions
• Abolishes Tenure Commission and institutes
  arbitration system
• Removes tenure for administrators, supervisors,
  and financial personnel

14
Education ReformFiscal Management

• Addresses financial problems before they occur
• Requires State Superintendent of Education to
  hire a Chief Education Financial Officer
• Requires State Superintendent to educate and test
  local superintendents on fiscal management
• Modifies appointment and removal procedure for
  local school systems custodian of funds to
  ensure competency
• Requires local boards of education to adopt
  fiscal management policies
• Provides for comprehensive financial and business
  reporting
• Requires financial audits of all public school
  systems
• Empowers State Superintendent and Chief Financial
  Officer to prevent further deterioration of
  failing schools

15
Education ReformLocal Flexibility

• Foundation Program
• Increases the minimum number of school days to
  reach the regional average
• Provides flexibility for local school boards and
  superintendents in making decisions to serve the
  best interests of the school system

16
Education Reform Classroom Investment

• Fully fund the Alabama Reading Initiative to
  ensure that every child in Alabama can succeed
• Expand the Alabama Math and Science Initiative
• Provide every Alabama school with distance
  learning capabilities

17
Education ReformCollege Scholarships

• Merit-based scholarship program will allow
  hard-working Alabama students to earn a full
  tuition scholarship to any public college,
  university, junior college or technical college
  in the State of Alabama by meeting high academic
  standards
• Eligibility will be based on residence and
  academic achievement

18
Tax Reform Overview

• Personal Income Tax
• Ad Valorem Tax
• Corporate Income Tax
• Insurance Premiums Tax

• Mortgage and Deed Record Tax
• Intangibles Tax
• Sales and Excise Taxes
• Utility Taxes

19
Tax Reform Personal Income Tax

• Fairness
• Raise the filing threshold for a family of 4 from
  4,600 to 20,000
• 17,000 level next year, phased in to reach
  20,000 in 3 years
• Deductions
• Eliminate federal income tax deduction
• Allow deductions for mortgage interest,
  charitable contributions, and medical expenses
• Rate Structure
• 5 rate on all income below 75,000
• 6 rate above 75,000 for individuals, 150,000
  for families
• Most taxpayers will receive an income tax cut
  under this plan

20
Tax Reform Personal Income Tax

• Personal Income Tax Examples
• A single mother with 3 children and 35,000 of
  income will receive a tax cut of up to 600
• A married couple with 2 children and 70,000 of
  income can receive a tax cut of up to 150
• A married couple with 2 children and 150,000 of
  income could pay an additional 940 in state
  income taxes
• Calculations based on election of standard
  deduction

21
Tax Reform Property Tax

• Proposed Changes
• Assess all property at 100 of market value or
  current use value for state portion of tax
• Reduce tax rate on state portion from 6.5 mills
  (.65) to 3.5 mills (.35)
• Increase business property from 20 to 22 local
  assessment ratio
• Create one business class of assessment by
  capping Class 1 property at current levels and
  equalizing with Class 2 property over time

22
Tax Reform Property Tax

• Current Use
• Current Use is designed to protect landowners by
  valuing the land based on how it is currently
  being used as opposed to its highest possible
  market value
• Assessed values for homes have kept pace with
  changes in the housing market
• The farmland values have not been updated since
  1982, and the timberland values have been updated
  just once since 1982
• Update current use value schedule of farms and
  timberland to more accurately reflect true
  agricultural value

23
Tax Reform Property Tax

• Protections
• Increase homestead exemption from 4,000 to
  50,000 of assessed value
• Establish farmstead exemption to exempt the first
  200 acres of farmland or timberland from state
  property taxes for owners who live on the land
  and elect current use
• Changes will be phased in over 4 years
• Property taxes in Alabama will still be below the
  Southeastern average and lower than every state
  around us
• Alabamians over the age of 65 will be completely
  exempt from state property taxes on their homes

24
Tax Reform Property Tax

• Property Tax Examples,
• at Full Implementation (2007)
• The owner of a 100,000 home would only pay an
  additional 11 a month (average home 85,000)
• The owner of a 200 acre farm would only pay an
  additional 8 a month (average farm 190 acres)
• The owner of 200 acres in timberland would only
  pay an additional 5 a month (average tract of
  timberland 80 acres)
• Current state and local property tax rates for
  average timber and farm land is approximately
  1.25 per acre

25
Tax Reform Corporate Income Tax

• Corporate Income Tax
• Raise effective rate from 4.2 to 6
• Effective tax rate will be at the Southeastern
  average
• Banks
• Banks will no longer be able to claim a credit
  for sales taxes paid
• Banks will be subject to the same rules as other
  corporations under the Business Privilege Tax

26
Tax Reform Sales Taxes

• Sales Tax
• Increase sales tax rate on cars from 2 to 2.5
• Increase lease tax rate on cars from 1.5 to 3
• Include repair and installation services in the
  sales tax base
• Increase the state cigarette tax from 16.5 cents
  a pack to 31 cents a pack

27
Tax Reform Insurance Premiums

• Reduce the Business Privilege Tax Credit
• Eliminate the Examination Expense Credit
• Reduce the home office and real estate investment
  credits.

28
Tax Reform Other

• Mortgage and Deed Record Tax
• Increase mortgage fees from 1 mill to 2 mills
• Increase deed recording fees from 1.5 mills to 3
  mills
• Intangibles Tax
• Establish 1 mill tax on stocks and bonds
• Exempt retirement and college savings plans
• Exempt the first 200,000 of holdings for joint
  returns
• Cap intangible tax at 5,000 per year (A taxpayer
  would have to have more than 5 million in
  holdings to reach this cap)

29
Tax Reform Conclusion

• Governor Rileys plan achieves fairness while
  remaining below the regional average in total tax
  burden
• This package allows Alabama to fully fund the
  programs necessary to provide our children with a
  world-class education and still have the lowest
  property taxes of any surrounding state

30
Failure Is Not An Option

• If we take no action
• Medicaid budget slashed, jeopardizing 450,000
  Alabamians (10 of the states population)
• Corrections Dept already severely underfunded
  would be forced to release thousands of prisoners
  and lay off hundreds of employees
• As many as 25 of our poorest school systems could
  go bankrupt, affecting 100,000 students
• Drug coverage for 11,000 mentally ill Alabama
  citizens will almost certainly lost
• MOST IMPORTANTLY, we lose the opportunity to lay
  the foundation for greatness

31
Laying the Foundation for Greatness Governor Bob
Rileys Plan to Invest in Alabamas Future May
2003
Office of the Governor ? State Capitol ?
Montgomery, Alabama, 36130 ?