In the special session that starts on Tuesday, Governor Bentley and the legislature will continue to work to pass a General Fund (GF) budget before the start of the 2016 fiscal year on October 1st.
The challenges facing the GF budget are exploding costs associated with Medicaid, prisons, mental health, public safety and human resources, but Medicaid is the primary driver of costs. In 2004, Medicaid received a state appropriation of $200 million, which constituted 15% of the GF budget. By fiscal year 2015, Medicaid received $700 million, or 36% of the GF budget. For 2016, Medicaid has requested $750 million dollars. Unfortunately, because the federal government establishes Medicaid’s regulations there is little that Alabama can do to contain these cost increases.
While the costs for programs like Medicaid have risen, Alabama’s economy and the state’s tax revenues are still recovering from the worst economic downturn since the Great Depression, meaning fewer dollars are available to solve rising costs for all of state government including education.
In order to account for decreased education funding during the Great Recession, over the past few years the legislature made sound fiscal reforms that were difficult at the time but which have established a more secure foundation for education. Those reforms included changes to the Teacher Retirement System (TRS) and to the Public Education Employees Health Insurance Plan (PEEHIP), to stabilize and protect those programs. Further reforms included the elimination of the Deferred Option Benefit Plan (DROP) that had spiraled out of control. Classroom sizes were increased (we still have yet to return classroom sizes to their pre-recession ratios) and the legislature passed tenure reform, the Alabama Accountability Act, and a law expanding education choices for families by allowing the formation of charter schools.
The Republican majority has accomplished all these reforms while fully funding Education appropriations over the last five years without proration and paying $437 million of debt back to the Alabama Trust Fund. These reforms were only possible with the 2011 passage of a budget reform law referred to as the Rolling Reserve Act (RRA). The RRA forces the legislature to write responsible budgets based on historical data rather than estimates, and established a stabilization account as a firewall to ensure our classrooms will not be thrown back into the devastating cycle of proration if the economy slows.
Yet even with all these cost-saving reforms, funding for education is still $500 million less now than it was seven years ago at the start of the Great Recession.
So the solution to the General Fund deficit should not be to dip into an Education budget still on the mend.
To solve the underlying challenges in the GF budget, increased revenue coupled with structural reform is required. Options for additional revenue include a tax increase of $0.25 cents per pack of cigarettes, or perhaps reforming the business privilege tax to free small businesses from this expense while asking large and multi-state businesses to pay a little more. Other options could include a small tax on the purchase of soft drinks, an increase to the state sales tax, or removing or reducing the federal FICA deduction on individual tax returns.
Some legislators, opposed to additional revenue measures but also somehow opposed to GF budget cuts, want to divert money from the education to the GF budget. They talk of shifting more of the Use Tax (which collected approximately $225 million in 2014) from Education to the GF budget without any replacement. Some even propose combining the budgets or raiding the Education budget’s stabilization account and diverting its projected balance to the General Fund, ignoring the fact that the stabilization account exists to prevent budget proration in uncertain economic times like we currently face.
I hope my fellow legislators will oppose measures to raid education resources and thereby hinder essential on-going reforms. To divert almost a quarter billion dollars annually away from education avoids solving the underlying GF budget problems and will achieve nothing more than kicking the can down the road. Similarly, characterizing the projected, non-recurring funds in the Education budget’s stabilization account as a surplus is incorrect. Balancing the GF budget upon mere projections of non-recurring revenue is fiscally irresponsible and would have long-term negative consequences.
The Education budget is Alabama’s jobs budget. By that I mean the Education budget invests in our workforce and economy by funding Alabama’s nationally recognized Pre-K program, our K-12 schools, community and technical colleges, and universities and research institutions. These investments are the key to Alabama’s future prosperity and will ensure our citizens can continue to pursue the American dream of economic independence and political liberty.
Which legislators will stand with me and call for fiscally responsible solutions for the GF budget that do not involve the diversion of desperately needed education funds? The 21st-century economy will challenge us like never before and to succeed our children need the best education we can offer.
A budget challenge exists, but it is with the General Fund, not the Education budget, and the legislature and Governor Bentley need to solve the General Fund deficit without compromising our future.
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Senator Trip Pittman, a small business owner, represents District 32 (Baldwin County) in the Alabama Senate. He is Chairman of the Finance and Taxation Education Committee.