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The state’s tax caps mean governments have to turn to charges to keep running. It may not be sustainable.
When Alabama needs to pay for services, it turns to fees and general charges, or fines and fees in the criminal justice system.
Legislators passed almost 60 bills during this spring’s legislative session directing how local governments may raise revenues or spend money. Many generated money for counties, from fundraising events and lodging taxes to vehicle registration and court filing fees. Most passed as local bills, which generally go through the Alabama Legislature with little notice or debate.
The legislation is necessary because the state’s constitution gives local governments little autonomy and few other avenues for raising revenues.
By one estimate, local Alabama governments generate more than twice as much revenue from fees and charges as they do from property taxes. Fees are often key to keeping public services, like sheriff’s offices, ambulance services and fire rescue teams running.
But funding government through fines and fees can wreak havoc on the budgets of local governments who are forced to come up with creative ways to generate money in a piecemeal fashion. Administrative costs can lower revenues from fees. In some cases, the money can be difficult to collect, and doesn’t cover the full cost of services governments need to provide.
And the fees fall heaviest on those least able to pay.
“Because of our upside-down tax system, a lot of our government agencies, and especially the ones that have a lot of interaction with the public, like the Department of Corrections and the court systems, disproportionately interact with low-income folks,” said Mike Nicholson, senior policy analyst for Alabama Arise. “When we have these structures that are underpinned by fee systems, what they are really doing is asking low-income folks to support these systems that, a lot of times, oppress them. They are almost paying for their own oppression system in a lot of cases.”
An Alabama Reflector analysis of more than 300 bills introduced in the 2023 legislative session found that:
- Counties received the majority of fees, with 32 addressing those governments.
- Sheriffs had 13 bills for funding. Limestone, for example, used a booking fee, a fingerprinting fee, a fee for background checks, and fees to serve documents within Alabama and out of state. To fund its sheriff’s office, Lamar County imposed two fees related to serving papers; a fee charged for feeding inmates and another for fingerprinting.
- County commissions also received funding, though many said they were simply the conduit for transferring the money to different departments to use the funding.
- Legislators authorized lodging taxes for three counties, Elmore, Henry and Tallapoosa, allowing them to charge between 4% and 15.5% on top of the rate that people pay for hotels and other accommodations.
- Several approved fees will fall hard on people in the criminal justice system. The city of Northport received permission to enact a $100 warrant recall fee, charged for avoiding jail time for failure to appear in court. Cullman County received permission to impose court costs for criminal cases ranging from $5-$100 to fund a school resource officer. Coffee and Pike counties got permission to set fees for diversion programs — meant to allow people to avoid criminal charges — to between $150 to $2,100, depending on the crime. The city of Tuscaloosa received permission to redistribute the money it collects from pretrial diversion to other programs.
- Two bills allow sheriffs in two counties, Winston and Autauga, to host fundraising events to generate revenues.
- None of the new fees will offset the entire cost of the services they fund.
“The way it is in Alabama, our Constitution makes it so difficult to raise revenue that this array of local bills is, at its core, fundamental evidence of how difficult it is to raise revenue in Alabama,” said Sonny Brasfield, the executive director of the Association of County Commissions of Alabama (ACCA). “What you have in every county is trying to find some pathway to generate revenue that is politically tolerable in that county.”
A Heavy Reliance on Fees
Governments throughout the country rely on charges to raise revenue. The practice gained steam in the 1980s, said Aravind Boddupalli, a research associate at the Urban-Brookings Tax Policy Center, who works on projects related to federal, state and local tax and budget issues. It was partly a response to some states’ limits on taxing power.
According to the Urban Institute, property taxes represent about 30% of the share of total local general revenues. That is, by far, the largest amount in terms of taxes. Only 5% of local government revenue in the U.S. is from general sales taxes, while another 2% is from individual income taxes.
All major sources of revenue have increased for state and local governments, but charges have increased the most on a percentage basis, increasing by 337%.
“What I broadly see is that states in the South rely less so on income taxes as a share of their revenue total than states in the Northeast for example, or even states in the West or Midwest,” Boddupalli said.
In New Hampshire for example, its share of property taxes is slightly more than $3,000 per capita for 2021. In Massachusetts, the property tax per person was about $2,800 per person in 2021. New Hampshire gets about $379 per person when it comes to fees. Massachusetts charges each person about $493 in fees.
In Alabama, the state received $567 per person in property taxes and $1,346 in fees per individual in 2021, according to data compiled by the Urban Institute. For the United States as a whole, property taxes are $1,837 while general fees charged per person was $982.
Even in the South, Alabama’s dependence on fees stands out. Louisiana, for example, collects about $970 per person in property taxes, and almost the same amount, $981 per person, in fees. In Mississippi, the state gets about $1,200 per person in property taxes and the same amount in fees. Only North Carolina ($1,459 per person) collects more in fees.
“Alabama stands out a little in this regard,” Boddupalli said. “Alabama relies more than the U.S. combined on charges as share of its general revenue. So more of Alabama’s budget relies on these non-tax revenue sources than other states.”
Some paid their registration fee begrudgingly.
“This was almost $200, so you do the math on that,” said Shannon Barker, who lives in Lincoln and renewed his vehicle registration at the end of August. “It is something that has to be done. You don’t have any choice. You can do a lot more with $200 than buying this. All you are doing is paying for a sticker.”
Barker didn’t realize the fee for registering his vehicle had increased, and that the money would go to the sheriff’s office.
“They got to get it somehow,” Barker said.
One reason for Alabama’s reliance on charges, as well as fines and fees, is the state’s constitution. Designed in 1901 to disenfranchise Black Alabamians and poor whites, it also tightened restrictive property tax caps even further.
“The Alabama Constitution of 1901 was drafted primarily by the most influential people, who were large landowners and large industries, who did not want to pay property taxes on large land holdings,” said Thomas Spencer, senior research associate with the Public Affairs Research Council of Alabama.
The constitution also gives state government an almost exclusive right to tax. There is little home rule. Counties cannot enact their own tax rules without permission from state representatives and senators.
Income tax collections are limited by a 1933 amendment that set the top tax rate and threshold for a married couple at 5% of $6,000. While a progressive measure for its time, inflation gradually made it regressive. According to PARCA, in 2020 Alabama was 16th from the bottom in terms of state income tax collections in 2020. Of those that collected the least, seven states did not collect any income taxes.
Local governments can collect sales taxes, and most do. PARCA estimates Alabama collects $1,834 per person in sales taxes annually for 2020, the puts 28th in terms of rankings when compared to other states. The top state, Hawaii, is the highest at $3,814 per person for 2020.
After exhausting most of the traditional taxing methods, municipalities and counties are forced to petition the state legislature for any funding possible to pay for their operations.
Fees are politically palatable. One justification is that fees and charges mainly affect people who use the service that saves everyone else from the burden.
“The reason that they do this is because, if not, they will have to fund it with a tax increase,” said Bob Wood, a professor of finance at the University of South Alabama. “And, of course, legislators don’t like tax increases because voters don’t like tax increases. It is a way around raising taxes. That is the bottom line. You never hear that.”
Peter Jones, an associate professor in the Department of Political Science at the University of Alabama at Birmingham, said this state has traditionally disliked broad-based tax systems. However, the public’s demand for services provided by the government has increased.
Cities Versus Counties
While all local governments rely on charges, fines and fees to some extent, counties are particularly dependent on them.
Cities in Alabama generally have more power to legislate than counties, in part because they form voluntarily. Property owners and citizens agree to be annexed into a city’s borders and to be subject to a city’s laws. That legal theory offers cities broader administrative powers in terms of raising revenues to fund its coffers.
Counties do not have such powers.
“Counties can only exercise the exact powers that the legislature has given them,” Brasfield said. “And the power to tax has been the one thing that the Legislature has been very, very stingy with over the years.”
The Alabama Constitution prohibits county governments from levying more than 5 mills of property taxes. If a county wants to increase property taxes above that limit, it requires an amendment to the Alabama Constitution, a process that involves going through the state legislature and approval by voters in an election.
In addition, constitutional amendments passed in the 1970s severely limited how much property could be assessed for tax purposes, further cutting property tax revenue. Homes and agricultural land are assessed at 10% of their appraised value. Businesses property is assessed at 20% of its appraised value and utilities at 30% of appraised value.
This makes it difficult to raise revenue in rural counties where the property is primarily farm, forest, and homes. In addition, the “Lid Bill” caps the total amount of property taxes that can be collected on a property to 1% of its appraised value in the case of homes and agricultural land, according to Spencer.
The only way to lift these caps would be amending the state constitution. A broad proposal to reform Alabama’s tax methods was defeated in 2003.
That leaves fees.
“If you are trying to secure revenue-raising ideas, you operate like a guy trying to fix a car,” Brasfield said. “You try to diagnose what change will allow the car to run. And you keep trying ideas until the car cranks.”
Vehicle registration and court filing fees were two of the most popular ways to raise money in the 2023 regular session. Vehicle registration fees were included in three bills; court filing fees went into three more.
Both target captive audiences.
“I don’t know if there is anywhere in this state that you can exist without a vehicle,” said Susan Pace Hamill, a professor at the University of Alabama School of Law and expert on the state's tax system. “We don’t have a public transportation system that is worth speaking of. Outside of a few places, which aren’t huge compared to other places, Birmingham is not Atlanta for example, this is a very rural state. Vehicles are a reality.”
Court fees are inescapable for those in the criminal justice system, and many of those individuals are economically disadvantaged.
“If you have to go to court, you have to go to court,” Hamill said. “Not as many people have to go to court as have vehicles, but if you have to go, you have to go.”
HB 362, sponsored by Rep. Ben Robbins, R-Sylacauga, authorized the Coosa County Commission to levy a $15 fee on top of the existing county vehicle registration fee.
“It was to create an ambulance service for the county,” Robbins said. “Currently, residents do not have ambulatory service. And so, we are creating an ambulance service for the county, and the county commission requested, based on budgeting, what it would need to operate.”
The ambulance service will cost $300,000. Coosa County Administrator Amy Gilliland said the state mandated the service.
“We don’t have one. We only have two volunteer fire departments trying to cover this whole county,” Gilliland said. “Volunteers can’t always get all over the county. This is 24 hours a day, 365 days a year.”
The full impact of that fee on residents is not clear. The county has a $25 base fee, but oftentimes registration fees amount to hundreds of dollars because of specific taxes that are levied depending on where they live.
Both parties are sensitive about the potential consequences it has for residents, and neither Robbins nor the county are willing to take the credit for the idea of using a vehicle registration fee to pay for the service.
“In working with our legislators, our representatives, and our senators, that was their suggestion,” Gilliland said. “And they said that would be the best for us to do.”
Robbins said the county commission analyzed the issue and came up with the idea for increasing vehicle registration fees to pay for the service.
“The county commission made the decision, because of the poverty in Coosa County, and some of the lack of health insurance and reimbursed routes, based upon the data they needed as a revenue source,” Robbins said. “This was their decision on how to come up with the most reliable revenue source in a rural county, which was motor vehicle registration.”
Impact and Fairness
All governments, whether it be at federal, state or local level, must spend some money to collect the money they are owed.
“For those broad-based taxes, it tends to be proportional so that the more money you are spending to collect tends to reflect getting more money back,” Jones said. “With user fees, those are not set at a rate but at a price, and so you are collecting $32.55 per hunting license and if the cost of collecting that money goes up, you are getting fewer dollars for the provision of the public good.”
Fees, or charges, can be effective and pragmatic in some instances.
“The person using it, or the person benefiting from whatever it is, is the one actually paying for it,” Wood said. “That is what the legislators and the other politicians use to justify them.”
Jones said fees preventing access without payment, like tolls on public roadways or park entrance costs, tend to be the most efficient.
Among the least efficient are fines and fees.
“Fines and fees associated with the criminal justice system are often the least efficient in that they are the hardest to collect,” Jones said. “They are different for a couple of reasons. Obviously, people who pay fines, fees and forfeitures, those are not voluntary transactions. You are not buying a postage stamp.”
LaWanda Bush, 42 years old, was cited for speeding in the city of Northport. She had to go to the city's municipal court to take care of the situation. The actual fine for speeding is between $20 or $40 depending on how fast over the posted limit a person is driving. But fees tack on another $162. For Bush, this meant she had to pay more than $200.
“They set up a payment plan,” she said.
Then there is the social justice cost.
“Technically, they are regressive taxes,” Jones said of fees. “They take up more of a person’s income.”
Many local governments use a local tax system that collects a greater share of revenues from those who make the least, according to a report from the Institute on Taxation and Economic Policy published in 2018. The report states the lowest 20% of income earners face a local and state tax rate that is at least 50% more than the top one percent of households.
Using fees to pay for government disproportionately negatively affects those on the lower end of the income spectrum because they pay a greater share of their income to pay the fee than Alabama residents who are wealthier.
“The only way the state is going to truly be able to have public policy that approaches some level of reasonableness that will not only be more fair to the most vulnerable, but also help perpetuate more economic growth,” Hamill said. “All of these things that we have been talking about do not help the state economically grow. If you don’t believe me, look at where we economically stand compared to other states.”
And it's not clear that fees can handle the rising costs of services.
“I think you will see more of this going forward as the cost of law enforcement has increased,” Brasfield said. “There are plenty of counties where law enforcement, and operation of the jail, is more than half of the county general fund.”
Broad-based taxes are generally more flexible, allowing them to be directed to a host of programs and services. Relying on fees can make it difficult to govern. Revenues from income like camp fees can be volatile. If, for some reason, fewer households visit a camp site, then the fees will decline accordingly. And fees often go to specific purposes, making local governments less nimble. A camp fee may be limited to camp maintenance.
“It does constrain the government in terms of what it can provide and the quality in which they can provide it,” Jones said.
Brasfield also said these mechanisms are not sustainable in the long run and are a poor way for subsidizing the cost of operating the government.
“Every county is different,” Brasfield said. “Is this the best way to fund the operation of the government? I would say no, it is not.”
How We Analyzed the Bills
Analyzing the local government legislation that passed took weeks and began by reviewing the records the Alabama Reflector had compiled as bills moved through the legislature. Every week during the session, the Reflector published a summary of the legislation that both the House and Senate considered. The Reflector then used Alison, the state’s legislative website, to search for bills using different keywords related to taxation, fines, and fees.
Any legislation that collected any revenue or could be an additional expenditure was considered for review. Some dealt directly with generating revenues through local legislation through vehicle registration fees or dues related to filing documents with the court or serving papers.
Others were less direct and more distantly related, such as technical revisions that were made to a revenue source, or legislation with the potential for affecting expenses, such as increasing the number of days that the board of registrars meets, or consolidating voting centers to reduce cost.
Those bills were then compiled into a spreadsheet that outlined different features of the bills, from the bill number identifying the specific legislation and its sponsor, to the taxing authority and the agency receiving the funding. Specifics of the legislation were also included, such as the fee structure, its purpose and where the legislation ended during the legislative process.
At the end of the search, the Reflector aggregated almost 300 bills meeting those criteria. Of those, the Reflector focused on those that passed during the 2023 regular legislative session, and those bills that, in some fashion, affected the public by generating revenues or cost measures.
Legislation was then filtered even further, concentrating on those bills that generated fees at the state, county, or municipal level. In the end, the Reflector was left with more than 60 pieces of legislation to consider for its analysis.
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