alabama's working families and the broken promise of economic ...

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Recap of Capital Credit ProgramNOTICES OF PROJECTSINTENT PLACED IN SERVICE1995-2003 529 1992004 86 302005 50 382006 72 23TOTAL 737 290JOBS CREATEDESTIMATEDACTUAL62,932 23,6008,131 4,2864,517 4,1468,665 1,94684,245 33,978PROJECT COSTSESTIMATEDACTUAL$13,657,044,288 $6,415,081,249$987,822,512 $1,110,081,384$576,335,638 $1,186,330,744$1,564,558,941 $372,327,657$16,785,761,379 $9,083,821,034Data based on Notices of Intent and Notices of Projects in Service Received in Reporting YearAlabama provides an educational tax credit of 20percent to employers who provide or sponsor aprogram that enhances basic education skills ofemployees up to and including the 12 th grade level.While this tax credit represents the state’s recognitionof the importance of basic skill acquisition,it is impossible to determine the utilization of thiscredit and its impact on Alabama’s workers. Theinitial legislation creating the tax credit does notrequire any type of reporting mechanism for thiscredit, and efforts to determine utilization fromboth the Alabama Department of Revenue and theAlabama College System were unsuccessful.With this array of business incentives, who benefits?CAPITAL CREDITS CLAIMED1995-2003 $48,759,7972004 $45,025,2402005 $34,324,9812006 $41,631,715TOTAL $169,741,733Data based on Income Tax Capital Credits Claimed in Reporting YearSource: Alabama Department ofRevenue, Capital Credit AnnualReort Summary, March 15, 2007these gains, Alabama’s median household incomedeclined during this same period.Evaluating the impact of industrial incentivesIt’s obvious that Alabama’s incentives and creditsare producing results. Between 2002 and 2005,annual earnings in the state increased from $54.3billion to $62.4 billion. 56 During that same period,Alabama’s unemployment rate fell from 5.1 percentto 3.6 percent. 57 The number of working Alabamiansincreased by more than 83,000. 58 Yet despiteEnterprise ZonesAlabama provides additional tax credits and exemptionsto 27 economically depressed, largely rural areas designatedas Enterprise Zones. Qualifying entities can apply atax credit of up to $2,500 per new permanent employeeagainst the income tax liability and/or the business privilegetax liability of the operation. Alternatively, theexemption can be applied to the operation’s income, salesand use tax, as well as its business privilege tax liability.It is difficult to evaluate the impact of these incentiveson low-income workers in Alabama. Citingconfidentiality laws, the Alabama Department ofRevenue reports only aggregate information ontax credits sought, capital investments and creditsclaimed (see chart above).Available data do point to one trend that may besignificant. We know that in 2001, twentythreecounties met the criteria as “favoredgeographic area,” offering reduced requirementsfor eligibility for the capital tax credit.Favored geographic areas are determinedeach year on the basis of three criteria: percentchange in population over the mostrecent five-year period; personal per capitaincome in the most recent calendar year;and the average percentage employed overthe past 12 months. 59 In 2006, seventeenof the original 23 counties had not shownsufficient improvement and still were consideredto be “favored geographic areas.” 6030 Bridging the Gap
Again, because of confidentiality rules related toincome tax records, no information is available regardingthe impact of Alabama Enterprise Zones or theutilization of the education tax credit.Our neighboring state of Mississippi has taken adifferent approach in its primary business assistanceprogram, Advantage Jobs, which targets thecreation of full-time jobs with wage standards andhealth coverage. Depending upon the specific typeof industry, qualifying companies must meet wagerequirements ranging from the average annualwage for the state or county to 150 percent of theaverage state wage. 61 Requirements such as this,though not specifically aimed at low-income workers,might prove effective in improving earningcapacity among Alabama’s low-income workers.While training and education are important componentsof a strategy to move working families towardself-sufficiency, a comprehensive economic developmentstrategy that targets the creation of good-payingjobs with benefits for all workers is necessary to achievethis goal. Alabama’s successes thus far have not reachedthe lower rungs of our economic ladder, and opportunitiesare available to help the state bridge this gap.POLICY AGENDABridging the gap with employment opportunitiesAlabama’s system of incentives and tax creditsrequires little more of companies than to create adefined number of jobs. The state can make greatprogress in improving the economic security of itslow-income working families by requiring the qualifyingcompanies to meet specific goals in wages,benefits and targeted recruitment. Implementinga structure, similar to that used in Mississippi,that would require qualifying industries to paywages that meet or exceed the average annual salarywould prevent the current situation of “wagestagnation,” where minimum wage requirementsbecome outdated over time.[ Alabama should modify its tax credit statutesto require that qualifying industries provide anaverage hourly wage that is equivalent to theprevailing average annual wage in the state.[ The exception to the minimum wage requirementin Alabama’s tax credit statutes forprocessors of agricultural food products shouldbe eliminated.[ Alabama should modify its tax credit statutesto require qualifying industries to target a certainpercentage of newly created jobs towardlow-income workers. The credits could increaseaccording to the percentage of low-incomeworkers hired beyond the targeted level.[ Alabama’s tax credit statutes should require,at a minimum, that qualifying industriesprovide health insurance benefits for theiremployees.[ Alabama’s workforce development incentivesconsist of job-specific training for the benefitof new and expanding industries. The stateshould modify its policies to provide transferrableskill training that is targeted towardlow-income workers. Reporting systems shouldbe developed that provide objective data on theoutcomes of such targeted training efforts.Alabama does not provide sufficient information fortaxpayers and policymakers to assess whether theeffects of the state’s industrial incentive and tax creditprograms justify their significant costs. The followingsteps should be implemented to enhance the ability ofresidents to assess economic development strategies.[ Alabama should adopt a measure requiringan annual tax expenditure report to providecitizens clear information on costs associatedwith economic development activities.[ Alabama should provide an annual reportreflecting the total amount expended for economicdevelopment incentives and tax creditsby county to allow policymakers to adjustthese programs to impact communities ofgreatest need.[ Alabama should report annually the maximumcredit for which each qualifying industryis eligible.Alabama’s Working Families 31
Page 8 and 9: 6 Bridging the Gap
Page 11 and 12: Chapter 3 examines the state’s ec
Page 13 and 14: CHAPTER 1Alabama’s Low-IncomeWork
Page 16: For most of this decade, Alabama’
Page 19 and 20: CHAPTER 2The Education and Training
Page 22 and 23: level for the state, and ultimately
Page 24 and 25: programs, while responsive to emplo
Page 26 and 27: POLICY AGENDABridging the education
Page 30 and 31: Occupations with Highest Projected
Page 36 and 37: PER CAPITA SPENDINGIN WORK SUPPORT
Page 38 and 39: national standards, this is far les
Page 40 and 41: Endnotes1 Information provided by L
Page 42: Photography CreditsCover images: Va

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