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Details of Governor Bob Riley’s tax plan

The following is an explanation of Gov. Bob Riley’s tax plan, as presented by the Governor’s office.

Accountability Reform

Expansion of the Alabama Reading Initiative – The nationally recognized Alabama Reading Initiative will be fully funded in grades K – 6. This includes funding for a reading specialist at every ARI school.

Expansion of the Alabama Math, Science and Technology Initiative – Currently, in North Alabama, the SDE is piloting the AMSTI, which provides teachers and students with intensive training in these key subject areas. Funding will be provided to take this initiative to scale.

College Scholarship Plan – The plan will provide scholarships to Alabama colleges and universities to all students meeting criteria related to class rank, ACT score, and grade point average. Such an incentive should improve student performance at the K – 12 level and increase opportunities for students who might not have the funds to pursue higher education.

Incentive Pay for Educators – Math, science and special education teachers would be given a $5000 bonus for agreeing to teach in hard-to-staff schools, including rural and high-poverty urban schools. Further, the state would launch a scholarship program to "grow its own" pool of qualified educators. Scholarships would be awarded in return for commitments to teach in hard-to-recruit areas. These scholarships would be available to promising high school students, college sophomores who are entering a teacher preparation program at an Alabama college of education, and current educators pursuing advanced degrees in those subject areas.

Empowering Principals – In an effort to elevate the position of principal to the professional position it deserves, current tenured principals will receive a bonus to give up tenure for a performance-based contract. Changes in the salary funding formula will begin increasing principal pay to the Southeastern average by Fiscal Year 2005. To encourage principals and teachers to work together as a team to boost student achievement, incentives will be offered to schools that meet or exceed academic performance standards.

Tenure Issues – New administrators, supervisors, principals, assistant principals, and financial managers will be hired on performance-based contracts and will not be eligible for tenure. Currently, the process for dismissal of tenured employees in lengthy and costly. The proposed system will be streamlined, fair, affordable and effective by abolishing the Alabama Tenure Commission and using arbitration in teacher dismissals.

Changes in PEEHIP (the health insurance program for teachers and state employees) – In order to control rising costs of health insurance, active employees will see an increase in their contribution level from a fixed payment to a percentage of cost. Contribution levels will increase incrementally in years when teachers and state employees receive a pay raise until levels reach the regional average. Co-pays will increase to save $25 million annually.

Fiscal Management – New laws will require all local school boards to hire a financial manager with demonstrated knowledge and skills and will require continuing education for these financial managers. An improved financial data system in the SDE will have the ability to "red flag" any problems long before they reach crisis levels, and financial audits will be required of all public school systems.

Flexibility – More spending decisions will be made at the local level to address needs of individual schools. There will be a substantial increase in money allocated to professional development for the Alabama Reading Initiative and to expand the Math, Science, and Technology Initiative.

New revenue generated by the Governor’s tax plan will not be earmarked. Instead, it will be divided between the General Fund and the Education Trust Fund based on budget projections and need.

Removal of non-education-related items from the Education Trust Fund will be addressed in a September session devoted to budget issues.

Automatic repayment of withdrawals from the rainy-day fund

Line-item budgeting to bring "sunshine" to every item appropriated in the budgets

"Pass through" pork, where legislators hide their special projects in the budgets of state departments, will be prohibited.

Tax Reform

Raising the annual income at which people start paying state income taxes from $4,600 for a family of four to $17,000 this year and to $20,000 over the next three years;

Increasing the homestead exemption from $40,000 to $50,000. A homeowner living in a $100,000 home would pay approximately $132 more per year in property taxes.

Ending the state income tax deduction for federal taxes paid;

Raising the state income tax rate from 5 percent to 6 percent for individual incomes over $75,000 and family incomes over $150,000. Under this new plan, a family of four earning $75,000 will pay almost $200 less in state income taxes.

Reducing the state property tax rate from 6.5 mills to 3.5 mills, but assessing property at 100 percent of its market value or current use value;

Adjustments in the following taxes – Personal income tax, corporate income tax, sales tax on autos, cigarette taxes, taxes on services, taxes on banks, taxes on insurance companies, taxes on utilities, and taxes on deeds and mortgages.