Experts: Local tax increases underline need for constitutional reform
From Today's Anniston Star
By Dan Whisenhunt
Staff Writer

11-23-2008

This month, the Calhoun County Commission and Oxford City Council each increased sales taxes by one cent to raise more money for schools in hard times.

The state's constitution gave them few options.

Alabama's 1901 Constitution, which limits local taxing authority, reared its head again, constitutional reform advocates say.

The massive document keeps its levers of power housed in Montgomery. Efforts to write a new constitution, a smaller simpler document that would allow more local control within cities and counties, have failed over the past century.

Consequently, the problem of getting enough money to the schools persists. The state education budget gets much of its revenue from income and sales tax receipts. But because of the faltering economy, the Alabama Department of Education was unable to make payroll in October and November. Meanwhile, local school systems are staring down proration — mid-year cuts in state funding.

"Under the state constitution, any increase in property tax has to go to a vote of the people," said Chris Sanders, a policy analyst for the advocacy group Alabama Arise. "In a lot of other states, if the county commission sees there's a shortfall coming, they'll make whatever adjustment in the property tax they need to cover it, but in Alabama that can't happen."

In Georgia, school boards can raise property taxes to meet their needs, Jacksonville School Superintendent Eric Mackey said.

"They give their local school boards taxing authority," he said. "In a lot of states they do."

Reformers say funding problems for schools will exist until Alabama replaces its main governing document. But the chairman of the Calhoun County Commission and the mayor of Oxford have different views on whether constitutional reform is the answer.

A big book

According to Alabama Citizens for Constitutional Reform, Alabama's constitution is the longest in the world, with more than 800 amendments.

These amendments amount to separate constitutions for each county, ACCR Chairwoman Lenora Pate said. Cities and counties are permitted to do no more than authorize sales tax increases, which are considered regressive because they hurt the poor more than the wealthy.

"It is because of our constitution that it does not clearly authorize counties to do purely local matters," Pate said. "In other states, if a county wanted to authorize funding for its school system, it would be able to authorize a specific tax … They wouldn't always be relying on the sales tax, which is so regressive. That's why we have high regressive sales taxes because that's an area where authorities have ability to authorize those taxes."

Additionally, the constitution locks in a tax system that ACCR and Alabama Arise call unfair. It also has its roots in racism, written with the purpose of taking the vote away from blacks and poor whites in favor of special interests in Montgomery.

"Quite frankly, I think it's a spiritual stronghold at the root of all of our racism, poverty and dysfunction, but it's a civil stranglehold because it strangles local government from being able to govern efficiently," Pate said.

Sanders said the constitution's limitations create an imbalance in tax revenue that forces the state to rely on unreliable taxes, like sales and income taxes, which are susceptible to swings in the economy. When those receipts dip, public schools are directly affected.

"What we look at in Alabama is because it's so difficult to do anything with property taxes, time and time again the governments go back to sales taxes, which is the most regressive of taxes," Sanders said. "It hits low-income people harder than any other tax. You end up with a system over time that becomes increasingly unbalanced."

Watching the neighbors

Matt Gardner, executive director of the Washington, D.C.-based Institute on Taxation and Economic Policy, spends time measuring the fairness and sustainability of taxes around the country.

"Most states are starting from a point where they're allowing local governments to levy property taxes in a fairly unfettered way," Gardner said. "Alabama has among the lowest property taxes of anyone in the nation. Most states are coming from a different starting place where they start out with higher property taxes and the question becomes do you want to leave this a purely locally funded source or supplement with state funding?"

He said the tax structure here presents only two solutions for local governments: Give them more power or have the state kick in more money.

Gardner said Indiana provides a model for a state that's doing more to help. After 50 years of high property taxes, the state raised sales taxes to reduce the cost to landowners.

While not ideal from a fairness standpoint, it was a sign the state is willing to do more.

"Michigan 15 years ago did the same thing, where they recognized local property taxes generating unequal outcomes," he said.

Gardner wondered why state lawmakers could not find a way to make Alabama's tax system more sustainable in light of continuing budget shortfalls. Putting the burden on local governments to generate revenue widens the gap between poor counties, cities and school districts with little or no tax base and rich ones, he said.

In Mountain Brook, for example, the system's 2006-2007 report card indicates it collected $32.5 million in local revenue; Piedmont City Schools collected $1.7 million.

"At the end of the day, the question of how to fund education locally is tied up closely to the question of how you make the state's tax systems overall fair, and the solutions to both may be the same," Gardner said.

Fair is fair?

Oxford Mayor Leon Smith agreed the state's property taxes are "probably low." The city passed its one-cent sales tax earlier this month. The tax is expected to bring in $5.2 million annually for Oxford's schools.

"I think they're getting higher and higher every year, and we have no say over that at all, and the school gets so much of that," Smith said. "That's really what the school ought to have is a (property) tax if you want to know the truth."

But Smith calls constitutional reform a "hypothetical" question. He doesn't think it will happen.

"Sales tax is the fairest tax you can get," Smith said. "That gets everybody."

Calhoun County Commission Chairman Eli Henderson will bend anyone's ear about the need for constitutional reform. He promoted the county-wide one-cent tax that was approved on Nov. 13. It will generate $12 million for the county's five school systems. But Henderson said he wishes the county could've done something else.

"Every state around us has gambling," he said. "… Why not have legalized gambling in Calhoun County so we can have electronic bingo? We can have bingo and let all those proceeds be directed towards education. Why can't you do the same thing locally?"

Because, Henderson said, it requires an act of the Legislature.

"We used to say, 'Thank God for Mississippi,' because they would always be on bottom, but through the years, they were not road-blocked through that 1901 constitution like we were," Henderson said.

A stable stream

Alabama's dependence on sales taxes makes it vulnerable to a bad economy. Jacksonville Superintendent Mackey and Oxford City School's chief financial officer Robby Jordan don't think their systems will see their new sources of funding similarly strained because they are based on the same thing.

Both men say the state budget is based on projected growth, which leads to shortfalls.

"If the city grows, we grow," Jordan said. "If the city suffers, we suffer. We can live with that."

Mackey said given the choice between a guaranteed appropriation from the city of Jacksonville for schools or a sales tax levy, he'd pick the sales tax.

"As the natural cost of goods goes up, then your income naturally goes up, too," Mackey said. "As inflation goes up, so does your return on a tax. So you have a built-in guaranteed inflation adjustor."

Those in favor of reform are hopeful the Legislature will give Alabama voters the opportunity to choose whether to rewrite the constitution. Pate said she believes people should have the choice of whether to give more taxing authority to their local government to address local school funding issues.

"The Legislature has no problem sending us 35 constitutional amendments when we don't have a clue what we're voting on but have yet to pass a bill to allow people to vote on the simple question of whether you want a constitutional convention," she said.

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