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Governor Offers Way to Fund his Tax Break Proposals

Montgomery – Gov. Bob Riley says he has an answer for legislators who have been asking how he is going to pay to his proposed tax breaks for families and for small businesses that supply health insurance to their workers.

"We're going to introduce legislation that will let us collect revenues that have historically been brought into the state," Riley said.

Riley told The Associated Press the state can recoup the lost revenue by rewriting a law concerning corporate income tax collections that Montgomery County Circuit Judge Tracy McCooey ruled unconstitutional last year. State officials have said the ruling could cost the state $30 million to $50 million a year.

McCooey had thrown out a 2001 law concerning the way the state collects some taxes from some corporations. Riley said he will ask the Legislature to rewrite the law to remove the judge's objections.

Riley said rewriting the tax law will allow the state to collect an extra about $24 million a year, about what the governor's tax break bills would cost in the first year.

Riley said he is not proposing a tax hike.

"We're just doing what's been done for decades in collecting corporate taxes," Riley said.

He said the bill will specify that the additional revenue be used to pay for the proposed tax breaks.

Riley is asking the Legislature to raise the threshold at which working Alabamians start paying the state income tax by raising personal exemptions, dependent exemptions and standard deductions. For a family of four, the threshold would go from $12,600 to $15,000.

Riley is also bringing back legislation to aid small businesses that offer health insurance to employees. His plan would allow businesses with fewer than 25 employees to deduct from their state income tax twice the amount they pay for employees' health insurance.

Riley's plan to pay for the tax breaks was included in the governor's proposed education budget. The governor delivered that spending plan along with his proposed General Fund budget to the Legislature Wednesday afternoon.

The General Fund budget was $1.9 billion, up from the $1.8 budget for the current year, despite earlier projections that the budget would have to be reduced. The governor's proposed education budget was $6.3 billion, down from $6.7 billion for the current year, a result of slow growth in tax revenues.

State Finance Director Jim Main explained Wednesday that the education budget returns funding for most education agencies to the level they received in 2007, except it increases spending by $10 million each for programs to improve student proficiency in reading and math and science and for a distance learning program. The budget also increases funding by $20 million for the governor's plan to expand the size of the state pre-kindergarten program.

"Those programs have been super effective," Main said in explaining why funding for those programs was increased in the governor's budget proposal.

Under Riley's proposed budgets, no state government employees or education workers would lose their jobs, Main said.

Early projections had shown the General Fund budget might be reduced by as much as $230 million, but Main said the budget is actually expected to grow thanks to several new revenue sources, including $63 million from the settlement of a lawsuit with Exxon-Mobil.

The General Fund budget provides level funding for most state agencies and includes funds for a 3 percent pay raise for state employees. The budget provides an additional almost $150 million for the state Medicaid agency and about a $14 million increase for the Department of Corrections.

The proposed budget does not provide any money for a 10 percent pay raise for corrections officers that was requested by Corrections Commissioner Richard Allen.

(Copyright 2008 by The Associated Press. All Rights Reserved.)

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