House speaker warns against chasing “phantom” funds in state budget

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In recent weeks, proposals to tackle state budget reform have floated through the Statehouse as lawmakers explore options to correct Alabama’s fiscal woes.

The argument, according to Sen. Gerald Dial who wrote the most recent reform bill, is that the state has enough money to pay its expenses if only lawmakers weren’t bound by earmark provisions and the walled-off nature of the education and general fund budgets.

Dial explained the situation just before the Senate finance and taxation committee voted on Senate Bill 502.

“I’ve heard it said that one of the problems we’ve got in this state is that we’ve got earmarking,” Dial said. “We’ve got almost $3 billion in Heritage Trust Fund. Just think what we could do [with that money]. Without earmarks, there’s enough funding in this state to fund government for more than five or 10 years.”

That’s an issue House Speaker Mike Hubbard seems willing to explore. This week, Hubbard announced a new Commission on Earmarking and Budget Reform to study the state budget process, including earmarking, appropriations, spending oversight, and the fact that Alabama is one of only three states with two separate budgets.

That commission’s findings won’t be available to lawmakers until the 2016 legislative session. Meanwhile, Hubbard is raising concerns about pursuing “phantom” money when considering proposals to unify the state budget. In a recent radio interview, Hubbard explained his position on efforts to pull the reported $300 million to $400 million surplus in education funding to ease pressure on the general fund.

Unifying the budget “doesn’t create more money in the immediate term,” Hubbard said. “And the only way that is going to fix anything is if we were spending too much money on education. I don’t think we’re spending too much money on education. We have put some measures in place […] — the Rolling Reserve Act — that forced this Legislature and future Legislatures to have the discipline to not spend every amount of money that we think we’re going to have.”

In a presentation to lawmakers in March, the Legislative Fiscal Office projected a $287 million surplus in the Education Trust Fund and a $290 million shortfall in the General Fund. Some have questioned whether the practice of claiming tax revenue for the Education Trust Fund – then creating a barrier between the education and General Fund – is the root cause of the state’s current budget shortfall.

Senate Bill 502 would create a single state budget and remove earmarks within the budget so that lawmakers and agencies could prioritize expenses. Several lawmakers, including Sens. Cam Ward and Rodger Smitherman, have raised concerns that a unified budget would allow Medicaid and corrections expenses — currently walled-off in the Alabama General Fund — to eat through funding for public schools.

According to Hubbard, those concerns are valid because the surplus isn’t there.

“That’s just money we created that we’re not going to appropriate,” he said. “If you take that and move it over, that violates the principle that we were saying: that we’re not going to be like the Democrats and spend more money than we have.

“That so-called surplus? It’s phantom money,” Hubbard said. “This is money that is projected that we will have. It’s not sitting in a bank somewhere, this is money we think is going to come in between now and the end of the next fiscal year.”

As lawmakers prepare for a possible Special Session,  Hubbard cautioned against relying on an education surplus for long-term budget planning.

“There’s some in our House who think we ought to do that — particularly the new guys who just came in. […] Anything above the cap, we said we would spend on nonrecurring capital expenses or one-time expenses because we don’t know whether it’s going to be there the next year or not. To get the General Fund dependent on that money is doing nothing to solve the long-term problem.”

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