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The Legislature Tackles Difficult State Budgets for 2015comment (0)

January 23, 2014

By Jim Williams

The 2014 legislative session is now underway. Without a doubt, the most difficult task facing lawmakers will be to develop sound, balanced state budgets for the fiscal year that begins next Oct. 1 and runs through Sept. 30, 2015.

Alabama is unique in having two big budgets for investing the money provided by state taxpayers. The bigger of the two is the Education Trust Fund (ETF), which draws its revenue mainly from state income and sales taxes. These are the state’s major taxes in terms of size and growth potential.   

ETF spending is capped by a formula based on historical revenue collections. The Legislative Fiscal Office estimates that about $5.9 billion will be available for the 2015 fiscal year. This is about $134 million more than spending programmed for the current year, but it remains almost $800 million below the peak year of 2008, before the Great Recession.  

If this money is allocated in the same way as in the current fiscal year, about 70 percent will go for K–12 education, 6 percent will go to the state’s two-year colleges and state universities will get 19 percent, with 5 percent going to other agencies.  

There are a number of claims on the new ETF money, including increases for employee insurance, the prepaid college tuition program and repayment of money borrowed from the education rainy day fund, as well as a proposed pay raise for educators. These items total more than $134 million.

The budgetary problems of the ETF pale beside those of the State General Fund (SGF), which finances all state services other than education. This fund draws money from a number of sources, and 16 percent of the revenue is called “intermittent” by the Legislative Fiscal Office.

As a result, the SGF lacks growth potential, even though it finances a number of significant services. It is expected to provide $1.7 billion in revenues for the 2015 fiscal year. This is $83 million less than the current year’s appropriations.

The largest SGF agencies are Medicaid, which provides health care for low-income women, children, the elderly and others; and Corrections, which manages state prisons. They require well over half the money in the SGF, and both are seeking major increases. Third largest is the judicial system, which for the last few years has been funded in part with transferred highway money. The SGF also must repay, over time, $598 million borrowed from state trust funds.  

Maintaining viable services within the limits of the state’s current revenues will be an extraordinary feat.

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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