September 2016 Column: The Stage is Set for Budget Reform
The end of the 2016 fiscal year is rapidly approaching with the current fiscal year ending on the last day of September. After five legislative sessions, our budget challenges remain a high priority and our fiscal future is shaky.
The Alabama Legislature just completed the third Special Session in the last 12 months, along with two Regular Sessions, totaling five Legislative Sessions in the last 20 months. Based on statutory requirements, the Legislature has been obligated 300 calendar days during this period to conduct legislative business. On top of legislative duties while in session, Legislators have also been busy with budget and Medicaid hearings, as well as other obligations regarding their responsibilities as a Legislator. It is clear the Legislature has devoted a tremendous amount of time dealing with the General Fund Budget and the ever-increasing demands of Medicaid.
Over the past year, the Legislature has struggled to identify an additional $85 million to fully fund Medicaid at $785 million. When I took office in 2011, the Medicaid appropriation was $345 million. During the past five years, funding for Medicaid has continued to increase and is expected to reach $865 million for Fiscal Year 2018, which begins a year from now. Before I leave office as Lieutenant Governor, the General Fund appropriation for Medicaid will be approaching $1 billion. For more than a decade, funding for Medicaid has grown at a double digit pace while the General Fund overall has increased by a single digit each year. Using our current budget models, in five years Medicaid and Corrections will consume nearly 100% of the General Fund.
Recent Special Sessions called by the Governor have included requests for additional revenues as a result of increased taxes or revenue generated through a statewide lottery—most of the Governor’s proposals did not pass. However, one measure that did pass was an increased cigarette tax. As a result, the cigarette tax revenue is expected to have a substantial increase of $190 million this year.
Alabama has one of the most unique budget models in the country. The vast majority of Alabama’s revenues are committed (or earmarked), representing one of the highest levels in the country. For almost a decade, Alabama has operated state government on one-time and non-reoccurring money either from the federal government, the State’s Trust Fund or the State’s Rainy Day Fund. The most recent Special Session was no different with current obligations and road projects funded through one-time BP Settlement monies as a result of the 2010 Deep Water Horizon disaster. Many believe the reality of our situation will result in a fiscal “train wreck” in the near future. Current budgets, earmarked revenues and growing demands for Medicaid, Corrections, Mental Health and Human Resources are on an unavoidable path that will provide extremely limited funds for the remainder of state government.
On an optimistic note, Alabama continues to enjoy marginal economic growth with unemployment down to 5.4%, the lowest in nearly a decade. As more Alabama citizens enter the workforce, they and the businesses that employ them will contribute to our economy resulting in increased revenues to support our budgets.
There may be light at the end of the tunnel with the recent creation of the Joint Legislative Task Force on Budget Reform (HJR62) led by Speaker McCutcheon and President Pro Tem Marsh. The task force will begin evaluating and recommending budget reform proposals to be considered by the Legislature. I applaud Pro Tem Marsh and Speaker McCutcheon for providing the leadership to begin the process to consider budget reform. It is my understanding that the focus will be to determine how best to fund state government with existing revenues. Possible solutions include freeing up earmarked revenues and revaluating existing tax credits and deductions that will provide flexibility within our budgets and allow Legislators to prioritize and fund essential services of state government. Senator Clyde Chambliss and Representative Danny Garrett will lead the task force as co-chairs, along with Senator Greg Albritton, Senator Linda Coleman, Senator Bill Hightower, Senator Bobby Singleton, Senator Phil Williams, Rep. Anthony Daniels, Rep. Allen Farley, Rep. John Knight, Rep. Chris Pringle, Rep. Kyle South and Rep. Rich Wingo. The task force is expected to meet monthly prior to the upcoming Regular Session. The first meeting is set for Wednesday, September 28.
As we near the end of this fiscal year, the Alabama Department of Revenue is projecting we will collect a record amount of revenue exceeding $10 billion. Even with a record amount of revenue, our antiquated budget models continue to create major obstacles to fulfilling our needs. The challenges we face with our budgeting process will not go away unless we begin to look further than the year ahead and start to implement solutions that fundamentally change the way we prioritize our needs and budget our revenues. After marginal success in recent special sessions and our continued appetite to operate on one-time money, the stage is set for true budget reform. It will take bold leadership and courage by Legislators to make decisions that will have a long-term impact on the future of our State. Now that the stage is set, I am encouraged by the opportunity before us and am hopeful we may accomplish this task with the attention and hard work of the task force members.