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What Alabamians Should Know for June 5^th Vote

By Gary Palmer
Tuesday, June 5^th Alabama voters will have an opportunity to vote on two amendments to the state constitution. These amendments deal with different issues but they have an important relationship to each other.

 Amendment 1 will authorize raising the cap on the amount of funds that the state can raise through bond issues for the purpose of economic development through the Capital Improvement Trust Fund.  Amendment 2 will establish a trust fund to cover Alabama’s $20 billion unfunded liability for state employee health benefits which will help ensure that Alabama maintains a high bond rating.

Currently, the state’s limit on issuing bonds is $350 million; if Amendment 1 is approved on June 5^th, the amount the state can raise through bonds will increase to $750 million.

Obviously, the immediate need for the increase is to cover part of the $811 million incentive package promised to German steelmaker ThyssenKrupp AG.  It should be noted that ThyssenKrupp chose Alabama over Louisiana even though Louisiana offered $1.7 to $2 billion including over $1 billion in cash incentives, according to The Times-Picayune.  The incentives offered to ThyssenKrupp exceed what the state has available under the current limits of the Capital Improvement Trust Fund. Consequently, approval of Amendment 1 is necessary to provide the additional funds.

 Of the additional $400 million that the state is asking the voters to approve, less than half, or $195 million, will go toward the ThyssenKrupp incentive package. The rest will be used to recruit as many as 30 other companies which are considering moving to Alabama or expanding their businesses here.

 Some legitimate questions have been raised over whether Alabama should offer incentives to lure companies. Some opponents of Amendment 1 argue that big incentive packages add too much to the state’s debt and that the state should emphasize our citizens’ excellent work ethic and the state’s low taxes to convince businesses to locate in this state. Others argue that government incentives interfere with the free market and put existing companies at a disadvantage.

These arguments, though based on sound principles, fail to take into account the reality of competition among states for these companies and the results of Alabama’s previous efforts to entice businesses to our state. As pointed out above, Louisiana offered twice as much in financial incentives as Alabama. Obviously, Alabama had something besides money that led ThyssenKrupp to build their new plant here instead of Louisiana, but those advantages alone without some incentives would not have been enough to convince the German steelmaker to locate their plant in Alabama.

And while ThyssenKrupp could create some competition problems for other steel makers already in north and central Alabama, having them located a few hundred miles away in Louisiana instead of a couple of hundred miles away near Mobile will make little difference. The fact is ThyssenKrupp was going to build a new plant in the Southeast. The only question was whether their plant would be in Alabama or in one of the other states in our region.

Moreover, many of the same arguments were made against the incentive package that was offered to Mercedes in 1993, but today no one would argue that Mercedes has not been a great investment for the state.

The other amendment on the ballot is one that every Alabama taxpayer should pay close attention to as well because failure to approve it could result in the downgrading of the state’s bond rating which makes raising money through bond issues more expensive. If approved by voters on June 5^th, Amendment 2 will establish a trust fund to cover Alabama’s $20 billion unfunded liability for state employee health benefits.

Alabama has established cushy retirement packages for state and education employees that include health insurance coverage that has grown into a $20 billion unfunded future liability on the taxpayers of Alabama.  This unfunded liability has never been reported on the state’s financial reports. That is about to change.

In 2004, the General Accounting Standards Board (GASB) issued a ruling requiring state and local governments to show their unfunded liabilities on their balance sheets.  This rule, GASB 45, which goes into effect for fiscal year 2007-08, is forcing state and local governments to report how much must be allocated each year to pay off their unfunded liabilities over a 30 year period. Ignoring the liability or failing to fully fund the annual required contribution to the amortization fund will result in state and local governments having their credit ratings downgraded which would make bond issues more expensive.

The problem of unfunded liabilities for public employee benefits is enormous. The total unfunded liability for state and local governments nationwide is estimated to be as high as $2 trillion dollars, just for non-pension liabilities. It should be noted that Alabama’s $20 billion dollar unfunded liability is just for health insurance benefits and does not include the state’s pension liabilities or the unfunded liabilities of city and county governments. 

Other states are moving to establish irrevocable trusts to amortize their unfunded liabilities. In addition to establishing a trust fund to ensure that the state can meet these obligations, Alabama should look for better ways to reduce the long term growth in unfunded benefit liabilities.

In the meantime, voters should approve Amendment 1 and Amendment 2 in order to maintain a high bond rating which will in turn help hold down the cost to the taxpayers of future bond issues including bonds for school construction and economic development as provided for in Amendment 1.

 Gary Palmer is  president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

May 31, 2007

Note:  This column is a copyrighted feature distributed free of charge by the Alabama Policy Institute.  Permission to reprint in whole or in part is hereby granted, provided that the author and API are properly cited.

Read this story about a Mobile teacher and comment about whether or not you believe gang activity is something that needs to be addressed in Alabama.  Are you seeing it in your communities?

Written by friend Nancy French.  Read by clicking here.

I truly have believed in you over the past years.  In fact, I’ve believed in you so much that I went what I consider above and beyond the call of duty during your campaigns.  I traveled out of state, away from my family, to make sure that I campaigned as much as I could.  I stood in rain and cold to pass out "Support the President" stickers at ballgames.  I’ve sent many, many emails rallying support.  I’ve put up an untold number of yard signs.  I’ve taken ridicule from family and some so called friends for backing you up over the years.  Spent my own money on postage and campaign buttons in support of you.  There are still very many things I agree with you on.  But Mr. President, you’ve hurt me, the party and our nation with your stance on immmigration.  I’ve tried desperately to understand your thinking and I simply cannot make my mind think in the direction your thoughts are going.  I’m concerned.  I’m terrified that your stance will not only cause problems now, but in years to come.  You’ve always been one who has looked to the past and seen the mistakes and learned from them.  Can you not see the mistakes of our beloved President Reagan on this issue?  Instead of trying to make us understand your stance, you’ve ridiculed those of us in the party who disagree with you.  Why Mr. President?  Help us understand or please, by all means, let us help you understand.

Sincerely,

Kelley Smith-Limestone Co. Alabama

Please read Peggy Noonan’s article here. 

Additional Comment:  Please click on the option to read reader’s responses at the end of Peggy’s article.  I hope the President will read those responses as well.