As more businesses close or cut back, as more people lose income, and as fewer of us go to the stores where we normally shop, state tax revenues are falling. That endangers funding for education, public health and other core services at a time when we need them most.
A state Senate committee Tuesday approved a smaller General Fund (GF) budget than the one Gov. Kay Ivey initially proposed. But that budget’s revenue assumptions may be too optimistic, and many lawmakers acknowledge they may need to revisit it this summer or fall as the pandemic’s financial toll becomes clearer. In the meantime, the ongoing public health emergency is compounding structural problems that have plagued Alabama for decades.
Alabama has two major revenue sources for public services that rise and fall with the economy. One is the income tax, which is earmarked (or dedicated) solely for K-12 teacher salaries. Sales and use taxes, which largely go toward education but also fund some other services, are the other. (Use taxes apply to online and mail-order purchases.) Most GF revenue sources grow slowly even in good times. The COVID-19 pandemic and its associated economic freefall are not the root cause of Alabama’s chronic underfunding of public services or the fundamental failures of its tax system. But this crisis is exposing and exacerbating those shortcomings. And it is illustrating the need for progressive tax changes that would equip our state to endure both this downturn and future recessions.
Alabama expects about $1.8 billion in federal relief as a result of the Coronavirus Aid, Relief and Economic Security (CARES) Act. This one-time relief could get the state through 2021 by a hair – if federal officials allow it. The U.S. Treasury is restricting the extent to which states can use these funds to plug budget shortfalls. Cumulative shortfalls in Alabama and other states from 2020-22 could top $650 billion, the Center on Budget and Policy Priorities estimates.
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by: carole gundlanch
may 2, 2020