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Task Force to Look at Alabama’s $30 Billion in State and Federal Income and Spending

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Business Council of Alabama member Bradley Arant Boult Cummings LLP reported on this week’s Task Force on Budget Reform meeting in the State House. Bradley co-authors Joshua O. Blades and Dave Stewart said the meeting was well-attended.

The agenda included introductory remarks and a presentation from the Legislative Fiscal Office, which gave task force members a historical review of state budgets, a comparative budget analysis of other states, and Alabama’s fiscal outlook. Task force members were also given an opportunity to outline their goals for the group, which brought widely varied responses by many of its members.

The task force elected Rep. Danny Garrett, R-Trussville, and Sen. Clyde Chambliss, R-Prattville, as the group’s co-chairmen.

It’s likely that five subcommittees will be appointed to study major elements outlined in House Joint Resolution 62, which created the task force. The next meeting could take place at 1 p.m. on Oct. 26, but that may change due to scheduling conflicts.

Governor Robert Bentley applauded the Legislature for forming the group and asked members to take a close look at all elements of state budgets and to examine the effectiveness of the state’s tax incentive system. The governor offered assistance to the group, including services of his budget office, and Clinton Carter, who was recently appointed as Gov. Bentley’s finance director.

House Speaker Mac McCutcheon, R-Monrovia, said that he does not intend for the group to recommend particular pieces of legislation. Instead, he said he wants the task force to gather and analyze information in order to inform legislators of budget reform options.

Senate President Pro Tem Del Marsh, R-Anniston, said that no particular group is under attack by the Legislature or this task force. He said that he and many senators are interested in tax fairness, adding that the state should not be picking economic winners and losers.

Sen. Marsh also said that he was interested in examining how Alabama earmarks revenue. According to the Legislative Fiscal Office, Alabama earmarks 86 percent of its tax revenue, far more than any other state in the union.

LFO budget highlights:

  • Only two other states in the country (Michigan and Utah) have separate education and General Fund budgets
  • Alabama took in about $9.05 billion in FY 2015. (Alabama’s spending authorized for 2017 is $11.9 billion in state funds, including earmarked revenue and fees, and $17.79 billion in federal funds, for a total budget of $29.7 billion.)
  • In 2017, $6.33 billion was allocated to the Education Trust Fund and $1.85 billion was allocated to the General Fund. Other state funds were $3.75 billion.
  • The two taxes that bring in the most revenue are the income tax – $3.83 billion – and sales and use taxes – $2.46 billion – both of which are mostly allocated to the ETF budget.
  • In 2014, Alabama ranked 43rd nationally in state taxes collected per capita and 39th as a percentage of personal income. Alabama is second highest in tax collections of surrounding states in both categories.
  • Alabama earmarked 86 percent of state revenues in 2015. Adjoining states average 56 percent in earmarks. A 2008 study by the National Conference of State Legislatures showed that the national state earmark rate is 24 percent.
  • 58.32 percent of state revenue goes to the ETF and 14.38 percent goes to the General Fund. The remaining 27.3 percent is earmarked for other agencies such as Medicaid, the Department of Transportation, Department of Human Resources, Mental Health, Public Health, and local governments.
  • Medicaid funding increased $100 million over last year, from $685m in FY 2016 to $785m this fiscal year, which began Oct. 1. Next year, the agency projects it will need another $80 million, for a budget request of $865 million. Next fiscal year, $105 million of the Medicaid budget will be filled with one-time BP oil spill settlement funds, likely leaving a large hole in the budget for FY 2019.
  • If Medicaid is funded at $865 million in FY 2018, its budget will have increased by 26 percent over two years.
  • Medicaid and prisons represent around 60 percent of the General Fund budget.
  • While a federal judge has approved an agreement with the Department of Corrections over inadequate care for inmates with disabilities, there are still unresolved portions of the lawsuit related to medical and health care of prisoners. This is set for trial Oct. 17.
  • The Legislative Fiscal Office has contracted with GlassRatner to develop a method of evaluating the effectiveness of state programs.
  • The Department of Revenue entered into a contract for the review of several tax credits.

Subcommittees could be created to study biennial budgeting, state agency performance and program review, earmarking, tax credits, deductions, and exemptions, and tax relief.

Task Force members commented:

Sen. Bill Hightower, R-Mobile – Simplify the tax code because, in this competitive environment, Alabama is not winning. We should consider eliminating the income tax and provide relief for the less fortunate. Also wants to know if our tax credits and exemptions are working.

Sen. Greg Albritton, R-Range – Wants to look into Medicaid liens as a potential revenue source. Also wants to crosscheck Medicaid applicants to make sure they are truly eligible.

Sen. Linda Coleman-Madison, D-Birmngham – Wants businesses to pay their fair share and make sure we are capturing corporate dollars here in the state. Also wants to take a hard look at tax credits. Many have been in place for decades, and she is not sure if they are working the way they should.

Sen. Phil Williams, R-Rainbow City – Reminded the group that this is only a task force and does not carry the weight of law. Wants to look at earmarks and investigate if there should be separate budgets.

Rep. Rich Wingo, R-Tuscaloosa – Believes the state can operate more efficiently by eliminating waste and fraud. Should take a look at Alabama’s dual budget system and the possibility of eliminating the state income tax.

Sen. Bobby Singleton, D-Greensboro – Wants to expand Medicaid. Also is concerned about companies that get tax credits and then hire temporary workers who don’t have decent hours or benefits.

Rep. John Knight, D-Montgomery – Wants to look at broad issues and make Alabama more competitive.

 

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Joshua O. Blades is the Advisor for Government Affairs & Economic Development for Bradley Arant Boult Cummings LLP. Dave Stewart is Senior Advisor for Government Affairs & Economic Development for Bradley Arant Boult Cummings LLP.

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