Less than six weeks before a statewide referendum, the industry in Alabama remains divided over a plan that could increase bank taxes by millions of dollars.
On Sept. 9 voters will go to the polls to cast their ballots on Gov. Bob. Riley's tax proposal package, which is valued at about $1.2 billion. Campaigns both for and against the referendum have received support from bankers.
"Alabama is facing a financial crisis, and as we've seen across the country from state to state, there's not always a clear consensus on how to address it," said Dan Bailey, the executive vice president of the Alabama Bankers Association.
Saddled with an estimated $675 million deficit, Alabama is one of several states that have attempted to close their budget gap by imposing tax hikes on banks and other businesses. Gov. Riley's package would be the largest overall tax increase in the state's history.
Two of the tax bills, which would go into effect Jan. 1, would affect banks directly.
One would actually lower the maximum privilege tax paid by financial institutions to the current $15,000 limit on other types of businesses, from $3 million. That measure would cut taxes on banks and thrifts by $8.4 million a year, to about $1.1 million, according to Kelly Butler, an analyst from the Alabama Legislative Fiscal Office.
Another would lower their excise tax from 6.5% to 6% but would also repeal their federal income tax deduction and eliminate sales tax credits. Those changes would add $19.7 million to the tax bill of banks and thrifts when the plan is fully phased in during fiscal 2007, Mr. Butler said.
In all the Legislature expects to raise more than $11 million a year in new taxes from financial institutions, excluding additional revenues from other measures in the package, such as a proposed bump in property taxes, according to statistics from Mr. Butler's office.
But the bankers' group, which has members on both sides and is officially neutral on the referendum, said the state may be underestimating the tax increase.
"Our cursory analysis indicated to us it would be significantly more than that," Mr. Bailey said. "Probably $20 million or more." Under the plan, he said, it will not be uncommon for the state's roughly 175 banks and thrifts to have their taxes raised by 70% or even 100%.
Members of the banking community who want the referendum passed said that it is necessary to ensuring Alabama's financial stability and the future of its education system.
"This is an opportunity to develop a long-term solution," said Bill O' Connor, the managing director of Campaign for Alabama, a major proponent of the package that has received considerable strategic and financial support from banks.
The extra funds would be used to "invest in those things we know will change outcomes," Mr. O'Connor said.
Still, even bankers supporting the referendum on raising taxes appear less than enthusiastic.
"I credit the government for trying to do something to break the morass the state's been in," said J. R. Jones, the chief executive of the $74 million-asset Escambia County Bank in Flomaton.
"On balance, there are probably more positives than negatives. I'll probably hold my nose and vote for it."
A vocal minority, meanwhile, says the tax plan's cost is far too high.
"The goals are very laudable," said Wallace D. Malone Jr., the chairman and CEO of the $51 billion-asset SouthTrust Corp. in Birmingham. "Just the magnitude of it is way out of line."
Mr. Malone also objected to the way the additional revenues would be allocated. A large portion would go into a newly created fund to be used for education and other purposes, but much of the money is not earmarked.
The plan has "zero accountability," he said.
Mr. Malone has changed his tune since discussion on the tax hike began some months ago.
In fact, a sizable part of the money raised by the pro-referendum side came from Mr. Malone. Before he found out how much the tax plan was intended to raise he pledged a quarter of a million dollars to help pass it, $25,000 of which had actually been donated in the name of SouthTrust.
Then he changed sides and donated $250,000 in South-Trust's name to the Tax Accountability Coalition, the organization opposed to the referendum, according to campaign disclosure reports filed with Alabama's secretary of state. The coalition has raised $1.8 million, a lot of it from farmer groups; that is nearly three times as much as the side in favor. Both camps have spent their funds on extensive advertising campaigns to appeal to voters.
SouthTrust, the largest bank holding company in Alabama, perhaps best represents the fissure within its banking community: Mr. Malone has been outspoken against the referendum, and vice president Ann McMillan sits on the Campaign for Alabama board.
Ms. McMillan would not be interviewed for this story, but a SouthTrust spokesman confirmed her board membership. He would not discuss the opposing positions of the company's CEO and its vice president.
Most polls indicate that the referendum will probably be defeated. Regardless of the outcome, the Alabama Legislature must pass a budget for the next fiscal year by Oct. 1.
