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Alabama lawmakers pass cigarette tax, $80 million transfer from schools

The State House

The Alabama State House

Alabama lawmakers Tuesday passed a 25-cent-per-pack cigarette tax and agreed to move $80 million in education money to the state General Fund, part of a last-minute effort to fix the state's budget.

“We have to adequately fund those essential state government services, and we’ve done that tonight,” said Senate President Pro Tempore Del Marsh, R-Anniston.

Lawmakers have until Oct. 1 to pass a General Fund budget for 2016. At issue is a projected gap of $200 million or more in the next fiscal year. Lawmakers and Gov. Robert Bentley have been unable to agree on a plan that would close the gap through cuts, tax increases or a combination of both.

The tax-and-cut approach seemed to be in the works Tuesday. The Alabama Senate gave its approval to a cigarette tax that would raise at least $60 million for the General Fund, which pays for most state agencies except for schools. The bill heads to the governor's desk.

Major transfer

Legislators also approved a measure to permanently move a portion of the state’s use tax — projected to yield about $80 million next year — to the General Fund from the Education Trust Fund, the state's separate $6 billion budget for schools.

The use tax is essentially a sales tax on goods purchased out of state. Receipts from the tax tend to grow with the economy, while General Fund revenues have been flat since 2008.

Both measures sparked long debate in the House and Senate. Democrats opposed the $80 million transfer, saying it would hurt schools.

"We are taking money from a strapped Education Trust Fund and putting it in the General Fund," said Rep. Richard Lindsey, D-Centre.

Supporters of the transfer said it wouldn't hurt schools because of a 2011 law that set up a “rolling reserve fund” to insulate the Education Trust Fund from surges and dips in the economy. The law puts a cap on education spending, based on a 15-year average of past growth. And it moves any revenue above and beyond the cap into that rolling reserve fund.

The $80 million transfer comes with a companion bill that would alter the formula for the cap and the reserve fund. Supporters also claim to have already provided the Education Trust Fund with $50 million in new revenue through bills passed this year, to offset some of the transfer.

"If you look at how this muddles out, I'm very confident that we helped education and the General Fund budget," Poole said.

‘Cut the lights off’

The cigarette tax increase met with opposition from some in both parties.

"I philosophically tremendously disagree with the idea that we need to raise taxes on the people of Alabama," said Sen. Paul Bussman, R-Cullman, who debated the bill on the Senate floor with sponsor Sen. Gerald Dial, R-Lineville, for more than an hour.

Dial said the state needs money to keep state agencies running, and has little time to wait.

"We've got 15 days until we cut the lights off and go home," he said. "You can go by the prison on the way home and pick you up one. You can go to the nursing home and get two more."

Both the prison system and Medicaid — which pays for most nursing home patients — would get more money under the $1.77 budget that passed the House last week. But most agencies would see a cut. Senators were considering across-the-board cuts of 9 percent to most agencies earlier this week, but Marsh said that with passage of the revenue bills, 5 percent cuts would be more likely.

Senators on Tuesday also voted in favor of a $410-per-bed tax on nursing homes and a 15-cent tax on prescriptions. Supporters said the bill would allow the state to draw down additional Medicaid funds which ultimately go back to nursing home providers and pharmacists. At least one senator was skeptical.

"This is almost like manna from Heaven," said Sen. Bill Holtzclaw, R-Madison, who voted against the bill. "It's like free money."


Inclined to sign

Gov. Robert Bentley, who visited both Houses briefly Tuesday, said he was "inclined" to sign the budget if it came to him in the form in which it passed the House. Bentley, who asked for budgeting reform and $541 million in new taxes earlier this year, said the current slate of bills fit the basic outline of his plan.

"If we do those things, we're doing basically everything that I've asked them to do," Bentley said.

The budget is likely to come before the Senate for a vote today. Lawmakers had planned to complete a budget well before Oct. 1, to allow themselves time to override a Bentley veto if necessary.

Lawmakers in both parties predicted that the final budget would please no one. Dial said the cuts in the budget would make it "ugly's sister, not anybody anyone would want to go home with."

"No, darling," Sen. Vivian Figures, D-Mobile, shot back. "It's going to be an ugly brother because the sisters had nothing to do with this." There are no female Republicans in the Senate, and Figures said the majority party didn't consult with Democrats on the revenue bills.

The Senate reconvenes at 11 a.m. 


Capitol & statewide reporter Tim Lockette: 256-294-4193. On Twitter @TLockette_Star.