MONTGOMERY — It's a sunny afternoon at the Alabama State Capitol. Suddenly, a roiling cloud blots out the sun. The world turns blue and gray, as if seen through a sinister Instagram filter.
“Alabama's state budget is $200 million short,” the voiceover says. “What on earth are we going to do?”
You haven't seen an ad like that in this election year, and chances are you won't. But maybe you should.
Alabamians go to the polls Nov. 4 to choose a governor, a slew of statewide constitutional officers and all 140 members of the state Legislature. The winners will almost immediately have to face the state's most pressing budget problem.
With more than 1 million Alabamians on Medicaid and 32,000 people in correctional custody, the state’s bills for medical care and prisons continue to pile up. The $1.8 billion General Fund budget isn't growing. In fact, lawmakers already know that the state's coffers will shrink — some say by $150 million, some say by $180 million, some $200 million — when they sit down to write the next General Fund budget.
While most candidates are willing to say what they won't do to fill the budget gap, few legislators — or would-be legislators — are willing to commit themselves to any one solution to the problem.
"I tell you, there's going to have to be some kind of meeting of the minds on this," said Rep. Becky Nordgren, R-Gadsden. "But I'm not in agreement with raising anyone's taxes."
Maybe it's typical pre-election caution.
Or maybe they're stumped.
Lawmakers may not be able to look to other states for answers to its budget gap, because there may not be a state with a dilemma quite like ours.
"Alabama's fairly unique in this situation," said Mandy Rafool, an analyst for the National Conference of State Legislatures. "Most states don't approach their budget this way."
The situation: the state gets and spends about $11 billion in revenue every year, not counting federal money. About $3 billion of that money is earmarked for specific state agencies by law, and lawmakers don't have a say in where it goes. Another $6 billion or so goes into the Education Trust Fund budget, which pays for schools. Lawmakers can decide how to split that money between various schools, but it's hard to divert it to other agencies.
That leaves lawmakers with $1.8 billion they fully control — the General Fund. And it has to be spread to cover every non-school entity from the Historical Commission to the State Troopers.
There's not enough. In 2012, the General Fund came up short, and voters approved an amendment that allowed the state to take $437 million from a trust fund to cover the budget gap for three years. The money runs out in 2015 — leaving the state in the same sort of budget crisis it faced before the loan.
Almost every state saw a budget gap in the wake of the 2008 recession, Rafool said. Many of them dealt with the problem by temporarily raising taxes, to keep revenues up until the economy picked improved.
"We saw a lot of states temporarily raise the sales tax," Rafool said. "We also saw a focus on high-income earners."
That's no help for the General Fund. In Alabama, sales and income taxes go mostly to the education budget. The General Fund gets its money from a grab bag of other sources, from cigarette and alcohol taxes to fees for oil and gas drilling. Theoretically, it's possible that smoking and drilling would increase in a stronger economy. So far, they haven't. Not enough to cover the gap.
Old, new taxes
Of course, the march of technology can change anything. Even the humble cigarette.
"I've heard talk about taxing e-cigarettes," said Sen. Gerald Dial, R-Lineville. "I don't know if that's going to work. Most people, like me, are running on no new taxes."
Alabama charges a 43-cent tax for every pack of conventional smokes. But smokers are increasingly turning to electronic cigarettes, which aren't subject to the same tax. Dial isn't ready to endorse the e-cigarette tax, but he said that compared to a tax increase on traditional cigarettes, it might be easier to pass. Since e-cigarette is still a cigarette, lawmakers could argue that the tax is something smokers already owe.
The same argument is behind the Internet sales tax, the one tax proposal that many Republicans will defend. Congress is considering a bill that would allow states to collect sales tax on items people buy online. Lawmakers have already passed a bill that would send most of the state's Internet sales tax to the General Fund.
It's not a new tax, lawmakers claim. You already owe it, just like normal sales tax.
Sujit CanagaRetna, a fiscal policy manager for the Council of State Governments, is sympathetic to that view. Online sales and the shifting economic base have eroded state budgets over the years, he said.
"Our economy has moved from a manufacturing to a service-sector economy," he said. "State sales tax doesn't capture any of that activity."
Off the table
Still, CanagaRetna doesn't see a tax riding to the rescue in any state, in the current political climate.
"In most states that are facing budget problems, you'll see cutbacks," he said. "Raising revenue is off the table in most states."
Republican candidates such as Nordgren, Dial, and Sen. Del Marsh, R-Anniston, all cite budget cuts as their first option for dealing with the crisis. But those potential cuts do present a problem. The state has already done a lot of post-recession cutting — by Marsh's estimate, the state-employee workforce has shrunk by 12 percent in the last four years — and the effects are increasingly a topic of discussion in Goat Hill committee meetings. State officials say Alabama is short on prison guards and parole officers. State troopers are in short supply, and some counties report long lines at driver's license offices.
Marsh thinks the state should look first at what else it can cut.
"I'm going to make that hole smaller before I try to fill it," he said.
In a speech last month, Gov. Robert Bentley said that Marsh and other legislative leaders are coming up with a plan to solve the budget crisis. In that speech, Bentley also said he'd never opposed a vote on a lottery, but would want a cut of the money from any lottery to go to the General Fund.
Some local politicians support the idea — or, at least, they don't oppose it. Rep. K.L. Brown, R-Jacksonville, has said he wouldn't rule a lottery out. Marsh has, too.
"If there was a piece of lottery legislation, I would not stop it," Marsh said in a debate last week. "What I would not do is earmark it anywhere."
A taxing problem
An education lottery has been the rallying cry for Alabama Democrats for at least two decades. This year, for many Democrats, the message is a little different: establish a lottery for education only, and fight any effort to raid the Education Trust Fund for money to patch the General Fund.
"A lottery is something I'd be for giving the people a chance to vote on — an educational lottery," Marsh's opponent, Taylor Stewart, said in a debate last week. "I wouldn't be for combining the two budgets either."
Stewart and other Democrats have also proposed expansion of Medicaid under the Affordable Care Act as a solution to the state's budget woes. Citing a UAB study that shows a major economic boost from Medicaid expansion, Democrats say the expansion would also increase the state's tax revenue — though a lot of that is likely to be sales and income tax that goes to the school budget.
During the last budget crisis in 2012, Democrats proposed a hike in the cigarette tax. That effort went nowhere, but Stewart said he'd consider trying again.
"I wouldn't do it on my own," he said. "I would vote to allow the people to vote to raise those taxes. "
There's one option that gets some support from both parties: closing existing loopholes and tax breaks that reduce revenue on existing taxes. Ted Copland, Brown's Democratic opponent in House District 40, told The Star earlier this month that the state has relied too heavily on tax breaks to attract business.
"We need to understand that we have more to offer here than just tax incentives," he said.
Marsh has said he, too, is considering ending some tax breaks, though he's also said the state is considering an "incentive package" to attract new business as well.
CanagaRetna, of the Council for State Governments, said it's unlikely any state will seriously discuss budget solutions until later this year.
"Things are pretty quiet now," he said. "We'll see it pick up after the election."