Getting the economy back on track
By Staff
Johnny Mack Morrow
Well there seems to be no mistake about it, the economy has hit a rough patch. Most economists say were are now in a recession with fuel price shocks, the problems with sub-prime mortgages, and the credit crunch slowing economic activity across the country.
Over the past months, we've seen the signs of problems in the economy pretty starkly in Montgomery through lower revenue figures. As an example, state sales and income taxes are earmarked for schools. These are taxes most affected by the economy, and revenue is way down from last year.
Revenue is running so short for the education budget this year that the Legislative Fiscal Office estimates we may take in almost a half billion dollars less than what has been budgeted. In times past, that would mean we would declare proration, the ugly process of slashing school spending in the middle of the year, to make sure the budget is balanced. This year we won't have to.
For the past several years when times have been good we've saved money in the state's education rainy day accounts, and we are currently using these reserves to hold off proration. The governor recently used $175 million of the fund, and it is possible he will use all $440 million in the reserve if trends continue.
We are dealing with the new economic reality by looking to tighten the education budget for next year. The governor's budget is looking to cut at least $400 million from current spending, or a little more than 7 percent of all education spending. How we make those cuts is tough, especially when the education needs in our state are so great.
The school budget problem is one of the most important questions that need to be answered as we enter the second half of the legislative session. We are hoping that economic signs will improve so revenue will rebound.
One thing coming to get things moving again is the economic stimulus package passed by Congress last month.
This summer most of us will receive a tax rebate check of up to $600 for individuals and $1,200 for couples from the federal government, along with an additional $300 per child. Those who make less than the average worker get $300 for an individual and $600 for a couple. Those in the higher tax brackets are going to get less in their rebate.
The goal of this rebate is to stimulate spending to help get the economy moving again.
Recognizing this fact, the Legislature is stepping in to make sure that money going to families stays with families. A rebate like this is considered income for state tax purposes, and a check of $1200 would mean an average Alabamian would pay approximately $60 in income tax.
However, a bill sponsored by Rep. Terry Spicer, D-Elba, will exempt these rebates from the state income tax.
It recently passed out of committee, and it will be brought to the full House for a vote when the Legislature reconvenes.
While the income taxes from the rebate would generate more than $50 million for schools, we understand that the stimulus is there to help the economy first and foremost and should not be taxed.
Also, with state sales taxes going to schools, it is hoped that much of the rebate will be used in consumer spending, and therefore show up in increased education revenue.
The solution to the education funding crisis is for the economy to turn around. Let us hope that the stimulus kicks starts a recovery.
Let us hope that the national situation rights itself soon. And let us hope that schoolchildren don't pay the price.
Johnny Mack Morrow is a state representative for Franklin County. His column appears each Wednesday.
