Ken Hare In Depth: Tax earmarking handcuffs Alabama elected offi - WSFA.com Montgomery Alabama news.

OPINION

Ken Hare In Depth: Tax earmarking handcuffs Alabama elected officials

MONTGOMERY, AL (WSFA) -

While most of the focus on Gov. Robert Bentley's budget proposals to the Alabama Legislature has been on tax increases, Bentley also is proposing that the Legislature "unearmark" some tax revenues that previously have been set aside for a specific purpose.

If Bentley's proposals were to pass -- and it's very unlikely that all of them will -- they would unearmark about $180 million in revenues from a variety of taxes while raising about $541 million for the troubled General Fund budget.

That would hardly put a dent in the percentage of its tax revenues that Alabama earmarks. But it is still significant, because it would reverse a trend that started decades ago toward Alabama earmarking an ever growing portion of its tax revenue for specific purposes.

That trend has brought Alabama to the point that 91 percent -- more than nine out of every 10 dollars the state collects in taxes -- goes for a specific purpose. That is by far the highest percentage of earmarking in the nation.

[A Legislator's Guide to Alabama Taxes (.pdf)]

When I asked state Finance Director Bill Newton recently if Alabama would remain the state with the highest percentage of its revenues earmarked if the governor's proposals pass, he said, "It's a certainty."

"This is not a major adjustment," Newton said. "Ninety-one percent of the state's revenue comes into the state treasury earmarked -- 9 percent is not. The governor's proposal changes that by 1 percent."

According to a report in 2013 by the Public Affairs Research Council of Alabama, the average state earmarks just 24 percent of its revenues. Michigan, the next closest state to Alabama, earmarks just 63 percent. About 45 states earmark less than half of their revenues.

Before going deeper into this issue, perhaps a primer on just what constitutes earmarking is in order.

First, what it is not. Readers may have run across the term "earmarks" to describe money that members of the U.S. Congress set aside in appropriation bills for pet projects, usually back in their home districts. In other words, "earmarks" in that sense at the congressional level is virtually synonymous with "pork."

But "earmarking" has a completely different, and much less negative, meaning when it comes to state budgeting. It simply means that revenues from certain taxes and fees are tied by law to a certain use.

Sometimes that link is in the state constitution, which in Alabama means that it can be changed only by a vote of the public. An example of constitutional earmarking in Alabama is the state's personal income tax, which is earmarked for salaries for public school teachers.

At other times earmarking is done by the Legislature in a statute, which means the Legislature can undo such earmarking without a public referendum. All of the unearmarking proposed by Bentley is statutory and would not require a public referendum.

Earmarking is not always bad. Sometimes earmarking makes a tax proposal more palatable to the public. For instance, linking the state income tax to teacher salaries might make it more appealing to the public.

Other linkages of revenues just seem to make sense. For instance, many states tie gasoline revenues to highway projects.

"State gas taxes seem to be earmarked most often," Newton said. "It seems a natural fit -- the more cars on the road, the more the roads wear out, the more they have to buy gas -- it's a fit."

But there can be a downside to earmarking.

For instance, the need for revenues often change. Governing magazine pointed to Louisiana as an example. There, a trust fund was set up that could be used only for nursing homes. But when the state tried to shift away from institutionalizing many of the elderly and toward increasing home and community care, it was delayed by the earmarking of such a large portion of its revenue.

Earmarking also can, over time, actually hurt a particular purpose. When several states got into the gambling business through lotteries, they earmarked those revenues for public education. But as gambling revenues leveled off or declined in those states over the years, legislators were reluctant to increase spending for public education from other sources. So some observers believe that earmarking gambling taxes for education actually hurt education over time in such states as California.

Even earmarking the gasoline tax for highways may be backfiring. As highway miles driven decrease and fuel efficiencies increase, the revenue for highways in many states is either declining or flat. But the cost of asphalt and concrete and labor are increasing with inflation, leaving many state transportation departments struggling.

In summary, some earmarked taxes make sense. But the more earmarking a state has, the more its elected officials are handcuffed in dealing with shifting budget priorities and fiscal crises.

That's especially true in Alabama, with nine of every 10 budget dollars earmarked.

Let me be perfectly clear: Even if Alabama unearmarked every tax dollar, it still would face a significant budget hole. That's because Alabama has the lowest taxes per capita in the nation, and one of the lowest overall tax rates. That is the crux of the problem. Earmarking only makes the problem harder for public officials to deal with because they lose much of their flexibility.

Bentley's budget proposal just tinkers at the edges of the earmarking issue. But at least it would be a start.

---

Ken Hare is a veteran newspaper editor and editorial writer who now writes a regular column for wsfa.com. Contact him at khare@wsfa.com.

Copyright 2015 WSFA 12 News. All rights reserved.


Powered by Frankly