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Is Earmarking the Best Way to Control Our State’s Budget?comment (0)

January 12, 2012

By Jim Williams

Earmarking is a way of controlling government spending by predetermining how revenues can be used. The more earmarking there is, the less freedom lawmakers have in writing the budget each year.

Some level of earmarking in a state’s budget is a natural result of connections between revenue sources and spending. For example, motor fuel taxes are paid by those who use the roads, and normally they are set aside for transportation-related spending. Also fees typically fund the agency that collects them. On the other hand, broad-based taxes on income and sales ordinarily are considered to be general resources.    

No state uses earmarking more than Alabama. According to the Legislative Fiscal Office, lawmakers appropriated $10 billion of state funds in fiscal year 2011 and 84 percent was controlled in advance by some type of earmarking. As much as 29 percent was because of “natural” earmarking of revenue sources associated with specific kinds of spending, but 55 percent came from the earmarking of most income and sales tax revenue for education. The Legislature budgeted the remaining 16 percent of state funds with no strings attached.           

To complement the earmarking, the Legislature adopts two big budgets each year: one for education and the other for all other purposes. Both budgets are facing large spending reductions in the coming year. The most difficult situation is found in the General Fund budget, over which the Legislature has complete control. It is expected to have up to 25 percent less money than in the current year. This threatens the state’s ability to fund health care, prisons and public safety, among other programs.

One option that has been discussed tentatively is to combine the two budgets and unearmark some revenues now set aside for various purposes. This would give the Legislature more choices.  

No target list of earmarks has emerged, yet raising the issue highlights the fact that Alabama’s budget process does not connect state spending with results. While most other states are improving their ability to measure performance and use it in appropriating tax dollars, Alabama is not. Budget requests for next year contain no performance goals.

The truth is earmarking is a good practice only if a state has no other method of controlling spending.           

EDITOR’S NOTE — Jim Williams is executive director for the nonprofit, nonpartisan Public Affairs Research Council of Alabama. Jim may be contacted at jwwillia@samford.edu.

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