You Know it is Going to be a Bad Day When…

Print This Post Print This Post

You know it is going to be a bad day when you get a call from your Cardiologist telling you he needs to speak with you urgently, and you know it is going to be a really bad day when you walk into your office only to find a film crew from 60 Minutes waiting on you but just how bad a day is it when the Acting State Finance Director opens his presentation to the Joint Budget Hearings by showing a copy of the very first budget adopted by the State of Alabama on the very first day Alabama attained statehood showing that going back 197 years Alabama has a history of budget shortfalls?

Bill Newton, Acting State Finance Director opened his presentation showing that Alabama’s first budget showed anticipated income of approximately $22,111 and anticipated expenses of $32,331. The anticipated shortfall was about 31.6%. Newton used that illustration to try to show that we have improved through the years and that the proposed General Fund budget for FY 2017 will be only about 10% short. In the Governor’s proposed budget, (a spreadsheet showing the highlights is attached) the Governor based his recommendations on expected tax revenue plus a transfer of $181 million from the Education Trust Fund Budget Stabilization Fund. That transfer is highly unlikely to happen this year considering that the General Fund for FY 2016 was balanced on the back of transfers from the Education funds. Leadership in both the House and the Senate have expressed doubts the transfer will be successful. Additionally, state agencies have requested $351.925 million more than what the Governor has recommended. With Medicaid and Corrections, consuming approximately 60% of the General Fund the fight for remaining funding will be fierce.

In the Education Trust Fund, the budget situation will be far easier to work through. The big question will be what the split between K-12 and higher education will be. For years, there was a traditional split of 2/3 to 1/3. In the past few years, it has moved to a 73%-27% split with higher education seeing its portion decline. One key initiative of Governor Bentley is to continue increasing the funding for a First Class Pre-K program. This program has received almost universal support in the Legislature and the same is expected again this year. A spreadsheet detailing the Governor’s recommendations on the Education Trust Fund Budget is also attached. For background of revenue projections copies of the presentations from the Legislative Fiscal Office and the State Finance Department/Executive Budget Office are also attached.

The first week of the 2016 Regular Session was largely without controversy. The expected challenge to Speaker Mike Hubbard did not materialize and love broke out in both the House and the Senate. There were a number of different suggestions by Members about the Legislative Schedule for the Session ranging from going until the final day allowed by law, May 16, to an accelerated schedule completing the Session before the scheduled start of Speaker Hubbard’s upcoming trial, March 28. If the May 16 date holds, there also was speculation that the Legislature would take an extended Spring break of 2 – 3 weeks so that the Legislature would not be meeting during the trial. That would potentially cause a huge backup of legislation and a mad scramble to pass Bills once the Legislature returned. On the other hand, if the Session ends before March 28 it is highly possible that the Legislature would not use the full 30 Legislative days allowed by law. If that scenario plays out many Bills that have been worked on for months could be left in the lurch.

It does appear that there will be a strong push to move both the General Fund and Education Budgets very early in the Session. One Member of Leadership expressed his understanding that the goal was to have the budgets out of their respective House of Origin before March 1 and in the Governor’s hand by March 21. Among the more controversial proposals that will come before the Legislature this year are three separate proposed Constitutional Amendments that would allow the creation of a state lottery, a proposed increase in the gasoline and diesel fuel taxes and an attempt to repeal the Common Core Standards in the public schools. There is also a proposal to restructure significantly the teacher tenure laws.

The Governor was firm in his resolve that unlike last year his office would not be pushing for any new taxes. He did, as mentioned earlier, count on being able to transfer money from the Education funds to the General Fund. He also expressed plans for a massive bond issue to construct four new, state-of-the-art prisons to replace existing older facilities. The debt service supposedly would be paid for by operational savings from the new facilities as opposed to the older properties.

Overall, it was an uneventful week in the Alabama Legislature. The plans were for the Legislature to meet for three days next week. Have a great weekend and please let us know if you have any questions.

The Alabama House will reconvene at 1:00pm on Tuesday, February 9, 2016
The Alabama Senate will reconvene at 2:00pm on Tuesday, February 9, 2016

The views and opinions contained in this report do not necessarily reflect the views or opinions of the clients of Public Strategies, LLC.