Kay Ivey: 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 Mac McCutcheon and President Pro Tem Del 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. ••• Kay Ivey is the lieutenant governor of Alabama. Elected in 2010, she was the first Republican woman to hold the office in Alabama’s history.
Members of Alabama’s Joint Task Force for Budget Reform announced
Monrovia-Republican and newly elected Speaker of the Alabama House Mac McCutcheon along with Anniston-Republican and Senate President Pro Tempore Del Marsh on Friday announced the members of the Joint Task Force for Budget Reform. Created by HJR62, during the most recent special session, the task force is comprised of lawmakers focused on identifying long-term budget reforms. Leading the task force is Trussville-Republican Rep. Danny Garrett and Prattville-Republican Sen. Clyde Chambliss, who will serve as co-chairs of the committee. Additionally, the following individuals have been appointed to serve n the bipartisan task force: Sen. Greg Albritton (R-Range) Sen. Linda Coleman-Madison (D- Birmingham) Sen. Bill Hightower (R-Mobile) Sen. Bill Holtzclaw (R-Madison) Sen. Bobby Singleton (D-Greensboro) Sen. Phil Williams (R-Rainbow City) Rep. Anthony Daniels (R-Huntsville) Rep. Allen Farley (R –McCalla) Rep. John Knight (D- Montgomery) Rep. Chris Pringle (R-Mobile) Rep. Kyle South (R-Fayette) Rep. Rich Wingo (R-Tuscaloosa) As laid out in HJR62, the 14-member panel will consider several potential areas of reform including: un-earmarking, biennial budgeting, tax credits, deductions and exemptions, and performance reviews or a “zero-based budgeting” approach to assessing state agencies. “Our number one priority is addressing Alabama’s long-term budget challenges, and I believe this task force can bring forth the bold, innovative solutions we need to move forward,” McCutcheon said. “Working together with the Senate, I’m confident we can bring long-overdue reforms to the budgeting process and maximize the return on investment for Alabama’s taxpayers.” Marsh emphasized his eagerness to begin the process of looking at long-term budget solutions. “Alabama earmarks approximately 90% of every dollar that comes into the state. This earmarking cripples the Legislature’s ability to allocate money in the budget where it is most needed,” Marsh said. “I look forward to working with the members of this task force as we continue to reform and streamline state government to make it more efficient and accountable to the taxpayers.” Garrett, who regularly works with issues involving complex and strategic financial matters in his private sector employment, said he wants state government to adopt a more business-minded approach to the way it budgets. “As a CFO, I want this group to approach our work much like we would an analysis of any company or corporation, with a thorough look into each and every dollar so that we can identify any waste or mismanagement that exists and eliminate it,” Garrett said. “We have important work ahead of us, and I look forward to working alongside my colleagues to put forth commonsense solutions.” Chambliss emphasized the timeliness of the group’s work. “We are approaching fiscal problems in the next few years that will be tougher than those we have faced in the recent past. I want to stop reacting to issues on a yearly basis and be proactive about our financial future,” Chambliss said. “We need to make a plan that will work for years to come. These changes sometimes take several years to yield results so we must study, research, and act – soon.” In accordance with HJR62, the task force must meet before Sept. 30, 2016 and is required to hold monthly meetings thereafter. The group will report its findings, conclusions and recommendations to the full Alabama Legislature by the fifth day of the 2017 regular session.
Phil Williams: It’s time for fundamental budget reform
A few nights ago I watched in tense disbelief as a man jumped from an airplane at 25,000 feet without a parachute! As an Army Paratrooper, I never exited a plane without both a main chute and a reserve. This man jumped from almost five miles high into a net without either. It was an incredible feat of skill and daring with no chance of a do-over. The jumper had to get it right the first time. Let me use that as an analogy to discuss the coming special session of the Alabama Legislature: we need to come in the door of the Statehouse and stick the landing. Let’s nail the net the first time. Our state is one of only three in the nation that bears the self-imposed load of having two budgets (Education and General). Every year we find ourselves in the throes of an annual political Kabuki dance called budget negotiations that usually involve the tense discussions of surplus funds in the Education budget versus shortfalls in the General Fund. By law, nearly all of the growth revenues that go up with a good economy benefit only the Education budget, while generally flat revenues go to the General Fund. Too often, the General Fund is like Oliver Twist, an orphan child forced to beg for more or go hungry. Yet, I recognize the valid concern that if the budgets were combined, the two runaway expenditures in the General Fund (Medicaid and Corrections) could eat education alive. It does not need to be this way. Each budget is vital to our state’s interests. Public education is the backbone of our economy and a vital link between Alabamians being free of dependency on the state and able to thrive in the workforce. Likewise, the General Fund supports vital services like State Troopers, Mental Health, Medicaid, Prisons, the National Guard, and thousands of state employees. Neither budget can survive in a state that does not care for both. I recently met with the leadership of both the House and the Senate to propose what I simply call “the Two-Step Plan”. This plan combines fiscal reform with the potential for increased revenues gained by a lottery. And the entire plan engages the people of this great state by giving them the final say in the form of a vote. To be clear, I have never been a fan of lotteries. I don’t think it is wise stewardship to see games of chance as an all-encompassing solution to our budget woes. But if a solid lottery bill came before me that was tightly governed, expressly disallowed the expansion of casino gaming, benefited the General Fund, and was voted on by the people, then I would not work against it. I am a fiscal hawk, and firmly believe that we must fix the broken manner in which revenues are distributed within our multi-budget structure. The Two-Step plan proposes to pass separate but linked pieces of legislation. The first is a version of what was proposed by my colleague Senator Paul Sanford during the 2015 Regular Session that establishes one fund into which all revenues are deposited. From that fund the revenues would be allocated to the two budgets, 76% to the Education Trust Fund and 24% to the General Fund. The second bill would be a lottery whose revenues are collected and deposited into the same fund and divided in a like manner. Each of the two bills must first pass the Legislature, and then both must also pass a majority vote of the people. If one bill fails, they both fail. Those who want fiscal reform must engage the lottery issue, and those who advocate for a lottery must accept long-term budget reform. In the end, the people of this State will decide the ultimate outcome. Budget analysts have indicated that enactment of the Two-Step Plan could see a net increase of over $200 million to the General Fund and almost $100 million to the Education Trust Fund. At that point, discussions of moving revenues between the budgets would be unnecessary. Likewise, any concerns that purists have of a future consolidation of the two budgets would also be over. As the Chair of the Senate Committee on Fiscal Responsibility, I believe that this plan is very doable. It allows everyone to have a say in the process, achieves true budget reform, and ends the lottery debate forever. If this budget plan fails at the polls, then the people will have spoken, and we will return to austerity measures and face the inevitable debate of future taxes. This proposal is bold, audacious, and its time has come. The special session is upon us. Let’s stick the landing! ••• Phil Williams represents Etowah, Cherokee, Dekalb and St. Clair counties in the Alabama Senate. Follow him on Twitter for the latest legislative updates: @SenPhilWilliams.
