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Senate Notes





May 22, 2015



Frequent readers of the column may remember back last September two columns that covered Alabama's separate education budget.  The columns explored the difficulties that earmarking funds can cause to limit the flexibility the state has to address shortfalls.  This is timely since as of May 19th this week, Alabama Governor Bentley was suggesting a real crisis with Alabama's budget and threatening a veto, stating to the Anniston Star "It would be better if we didn't have a budget."  Current budget negotiations stem around revenue shortfalls and making funding decisions with limited resources, in part situations that have risen from the separate budget.




Overall, Alabama allocates similar percentages of their budget to state operations as Georgia.  In each respective state's FY15, both Georgia and Alabama allocated nearly 15% of state funds to Medicaid programs. Education receiving the bulk of funding, over 50% (around 52% in Alabama, 54% in Georgia), and Corrections, 4.3% in Alabama and 6% in Georgia were other major categories.  Although despite having similar allocations, Alabama draws only around 17% of their state funds from State General funds, putting significant pressure on the General fund to pay for Medicaid. In Alabama fiscal year 2015 the total state funds budget was $1.64 billion, which received a bulk of the state's general funds at $685.1 million or 37.25% overall.   




Unlike Georgia, the Alabama fiscal year begins October 1 and runs through September 30, and the legislature is still hammering out the state spending plan.  On May 19th, the Alabama House of Representatives passed the upcoming FY16 operating budget, including $204 million or 11% in reductions from the current FY15 enacted budget.  Approved reductions include 5% reductions to the Alabama Medicaid Agency, Department of Mental Health and Department of Corrections, 9% reduction to the Department of Senior Services, and an average 14% reduction to Judicial branch spending.  Following the House passage, Wednesday, off-duty state troopers went to the House to express their concerns for Alabama Law Enforcement, including the proposed cuts which could lay-off 100 troopers and about two-thirds of support personnel. The key difference between the Governor's and House version, to be now considered by the Senate, hinges on revenue mix, with the Governor proposing to raise $541 million in new revenue to support the General Fund budget gap.  While all of the options appear drastic, the debate is more complex than just top line revenues.  According to the Alabama Department of Revenue Monthly Abstracts, as of April 2015, total revenues were 4.96% this fiscal year to date above their FY14 equivalents, surely a healthy pace, however comments from the Governor and the legislature indicate that the problem is tied to the revenue sources supporting much of state government outside of education.   


As of FY14, the separate Education Fund's revenue sources are 60% income tax, 28% sales tax, and a few other taxes that support the K-12 and higher education budgets.  These revenues are more sustainable and mirror the growth with the economy.  As economic conditions have improved, the revenues have been more able to keep pace with demand.  The state's general fund revenue, however, is less sustainable and more static, creating situations that relied on one-time fixes or budget cuts to shrink operations that depended on those sources for appropriations.  These sources range from Insurance Taxes (15.7%) to others, all less than 10% of total - court costs, cigarette taxes, alcoholic beverages and property taxes.  Alabama also relied on borrowing from their Rainy Day Fund, something the Governor and others are not keen to do again this year.




As was previously mentioned, Alabama's total revenues according to their Department of Revenue Monthly Abstract through April 2015 are at a healthy 4.96% fiscal year to date net above their FY14 equivalents. Their 12 month trailing growth rate, something that helps draw better trends and comparisons to other states and their overall economic momentum, is around 4.3%. 


For comparison, Georgia's 12 month trailing growth rate was 7.2% through April 2015. Other states in the southeast 12 month trailing growth rates through April were Tennessee at 5.9%, Texas at 5.1%, North Carolina at 2.4% and Louisiana at 0.3%. Other southeastern states through March 2015 were Florida at 4.2%, South Carolina at 4.5% and Mississippi at 3.1%.


So, while revenues are growing, the needs are growing faster - but Georgia is presently standing tall over the other states in the region.



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