Truth Rating: 5 of 5
Would HB159 “eliminate the protection of the state income tax as the primary source of school funding?”
Truth Rating: 3 of 5
(Note: This fact check has been updated to include response from Goodyear, in reference to the future of its Gadsden tire plant.)
THE CLAIM: The Alabama House of Representatives recently passed two bills, HB159 and HB160, that aim to offer tax incentives to businesses. The Alabama Education Association has opposed the bills, saying that both would hurt education funding. In the Feb. 20 issue of its weekly newsletter, the AEA states that HB159 would “eliminate the protection of state income tax as the primary source of school funding” and “break the dedication of state income taxes for education.” The AEA claims HB 160 would allow some corporations to keep the state income taxes of their workers. “Workers will see the deduction on their pay stub," the newsletter said, “But won’t know the company is keeping it.”
SUMMARY: It’s true that HB 160, as passed by the House, would allow some employers to hang on to income tax funds withheld from new employees’ paychecks. The governor would be able to choose which companies qualify for the tax break, which theoretically would allow the state’s chief executive to divert state income tax revenue, which now go almost entirely to education. But it takes a complicated argument to claim, as AEA does, that the companion bill, HB159, would end the earmarking of income taxes for education.
ANALYSIS: Alabama’s school system is funded largely though income tax. When income tax is collected, the state scoops a small amount off the top for the State Soldiers Relief Fund and other purposes, and puts the bulk of the money into the Education Trust Fund. That money is set aside by law for payment of teachers’ salaries.
The AEA claims that HB159, which passed the Legislature last week, would effectively end the set-aside of income tax for school purposes.
“It would un-earmark this tax for the Education Trust Fund,” said David Stout, spokesman for the organization.
In recent months, Gov. Robert Bentley has given multiple indications that he’d like to free up Education Trust Fund money for other purposes – most recently in his State of the State address, in which he argued that medical care for young people could be funded through the ETF.
The AEA’s publicity on HB159 builds on that storyline. The organization calls the bill a “raid on the ETF.” In an interview with The Star, Stout claimed the bill would give the governor “unlimited power” to spend ETF funds.
But income tax is mentioned nowhere in HB 159, nor is the Education Trust Fund. The bill proposes an amendment to allow “an incentive program which the state may use for the purpose of creating and retaining jobs.” There’s no mention, in HB159, of what the job-creation effort would look like.
However, the sponsor of HB159, Rep. Barry Mask, R-Wetumpka, is also the sponsor of HB160, a bill that lays out incentives for businesses.
HR 160 would allow businesses to keep anywhere between 1 percent and 90 percent of the state income taxes withheld from new employees, if those companies are approved for the tax incentive. The governor would decide which companies qualify for the tax incentive, picking those companies from a list selected by the Alabama Development Office, the Industrial Development Authority and the state’s finance director.
The amount of withholding money the companies could keep would vary, depending on the company’s size and location. The governor would get to determine how long the incentive would last, with an upper limit of 20 years.
So the AEA is correct in claiming that HB160 would allow employers to do state tax withholding from some workers’ paychecks, then pocket some of that withheld money.
It’s not clear how much that incentive would cost the Education Trust Fund. The bill’s text states that it is supposed to be “revenue neutral,” meaning that any revenues lost to tax incentives would be made up by some other revenue. No alternate revenue source is identified in the bill.
Stout said the bill could cost the ETF $300 million or more in revenue.
“The governor has the authority to decide, so it could cost $50 million, or $200 million or $500 million,” he said.
Proponents of the bill say the loss in income tax revenue would be made up by the increase in property taxes from new projects and sales taxes from newly-employed workers. They also note that the bill was amended at the last minute to apply only to new workers – meaning the ETF wouldn’t lose money it already has.
“A lot of what you’re hearing from AEA is half the truth,” said Rep. K. L. Brown, R-Jacksonville, who voted for the bill.
Brown sent The Star a set of talking points for supporters of HB160. Among the talking points were three revenue projections purportedly based on existing Alabama businesses. All of those projections predicted the revenues generated by the incentive would greatly exceed the loss in income tax revenue.
One of those projections was for an unnamed business in Gadsden with 1,656 employees making $28 per hour. “Without HB159/160, all 1,656 Alabamians employed at this location could find themselves without a job,” the document states.
In Gadsden, according to accounts in The Gadsden Times, HB159 has been known as the “Goodyear bill,” and local union representatives expressed support for it as a way to convince the company to upgrade its tire plant in town.
In an email sent Thursday, Goodyear spokesman Scott Baughman said "we can't speculate" on "what might happen if the proposed legislation passed or didn't pass." Baughman also forwarded a brief official statement from Goodyear in support of the bills.
Despite the dueling projections, a fiscal note from the Legislative Fiscal Office – the Legislature’s non-partisan budget office – says that the fiscal impact of the bill can’t be predicted, because no one knows what companies would receive the withholding incentive and for how long.
That fiscal note also states that due to constitutional prohibitions on spending income tax revenue outside the ETF, a constitutional amendment would be required to make the tax withholding incentive a reality.
HB159 apparently is that amendment, even though the bill does not explicitly address income taxes. But any income taxes diverted from education under the bill would come from new jobs at some businesses, while pre-existing income tax would apparently still be earmarked for education.
Both bills may look very different once they travel through the Senate, which has yet to approve either measure. Senate President Pro Tem Del Marsh, R-Anniston, told The Star Wednesday that the bill “has some flaws that need to be corrected.” He said legislators want a clearer picture of how the bill would affect overall revenues.
“We’re still trying to find a good formula,” he said.
Contact Tim Lockette at 256-235-3560.