Together We Can – Charting a Course to Cooperation for Greater Birmingham

PARCA’s latest report, commissioned by the Community Foundation of Greater Birmingham, focuses on the fragmentation of the Birmingham region, the challenges it causes, and potential solutions exemplified by other metro areas around the country.

With the clouds of Jefferson County’s bankruptcy lifting and downtown Birmingham showing impressive signs of revival, optimism about the region’s future is high.

Considering the positive signs, it’s important to ask whether the community is prepared and positioned to capitalize on its current momentum.

In recent decades, Birmingham and its metro area have underperformed in job and population growth in comparison to comparable cities. That begs the question: Why?

Nationally, a substantial body of research indicates that metro areas with more broad-based, cooperative governmental arrangements grow faster and generate greater prosperity than metro areas that are governmentally fragmented, divided into a multitude of independent municipalities.

The region’s central city of Birmingham is surrounded by more independent suburbs than any other southern city. This pattern of fragmentation has consequences. It leads to duplication, creates intra-regional competition, concentrates economic advantage and disadvantage, and diffuses resources and leadership. It makes it difficult to arrive at consensus, pursue priorities of regional importance, or deliver services that transcend municipal boundaries. In sum, it puts the metro area at a disadvantage.

Figure 1 compares job growth since 2000 in two groups of metropolitan areas. The seven cities on the left are fragmented like Birmingham: a diminished central city ringed by a multitude of suburbs.

 

Figure 1

The seven metros on the right have governmental structures that unite the region. In the more unified metros, job growth since 2000 ranges from 20 percent to 50 percent. In the fragmented metros, job growth ranges from 5 percent to -12 percent.

Average annual employment in Birmingham-Hoover MSA has increased by only 0.24 percent since 2000.

The same contrast emerges when comparing median income and poverty and unemployment rates: In cities where government is fragmented, growth is slower, and social and economic problems are more concentrated.

The negative effects of fragmentation weigh not only on the center city but also on the metropolitan area as a whole. The fortunes of the central city and its suburbs are interlocked.

Fragmentation is a long-term process, a deeply ingrained pattern of development that Birmingham shares with northern cities that have a similar industrial heritage. It is not easily undone. In no instance in the post-World War II era has there been a mass political consolidation that dissolved existing cities or school districts. However, cities across the country have developed alternative approaches that promote unity and increase cooperation within their metro areas.

In 2016, the Community Foundation of Greater Birmingham commissioned the Public Affairs Research Council of Alabama (PARCA) to conduct a study of the current structure of government in Greater Birmingham, with Jefferson County as its primary focus. The study was to examine Greater Birmingham’s historic development and its current state in comparison with other cities, to describe different options other cities have pursued to overcome fragmentation, and finally, to explore how those different options might work in the Birmingham context.

This resulting report was developed with advice and review from a Strategic Advisory Group convened by the Community Foundation. Members of the Strategic Advisory Group were selected to provide a range of perspectives representing the larger Jefferson County community.

Locally, a wide range of public officials from the central city, the suburbs, and the county were also consulted, as were leaders in business and civic groups.

KEY FINDINGS

Fragmentation has led to a decline in Birmingham’s prominence and its ability to lead the region.

In 1950, Birmingham was the 34th largest city in the U.S. According to the latest population estimates, the city has fallen out of the top 100. Though the latest estimates indicate the city may have halted its population decline, other Alabama cities where growth is strong may eventually displace Birmingham as Alabama’s largest city.

The population of the City of Birmingham now represents only 32 percent of Jefferson County’s population compared to 60 percent in 1950. The city still holds a position of regional leadership thanks to its ability to draw taxes from businesses and commuters who come into the city to work or shop. Over 90,000 people commute into the city each day, filling more than half of the jobs in the city. According to PARCA’s analysis, city residents contribute 33 percent of city taxes, non-residents contribute 28 percent, and businesses 39 percent.

However, Birmingham’s role as chief supporter of regional assets and projects is under increasing strain, as it struggles to meet not only that role but also the needs of economically distressed neighborhoods and residents.

Fragmentation is a drag on metropolitan growth.

The Birmingham-Hoover MSA is currently the 49th largest in the U.S., but its growth in employment and population is slow compared to peer MSAs. Growth is particularly lagging in its central county, Jefferson. Recent projections estimate Jefferson County will add only 8,967 new residents by 2040, a 1.4 percent increase over the current population.

Greater Birmingham has not developed a viable alternative for regional leadership.

While Jefferson County has positioned itself to better play a regional leadership role thanks to recent improvements in its finances and management, it still lacks an executive branch. Nearly half of the large counties in the U.S. are now headed by an elected CEO, creating a strong and capable executive branch charged with the management of the county government. Jefferson County is still governed by a five-member commission elected by district. Additionally, the 26-member Jefferson County Legislative Delegation exercises substantial control over local affairs.

Greater Birmingham needs a spirit of governmental innovation.

Across the country, local governments are innovating with form and function, finding new ways to collaborate, economize, and deliver better customer service. Greater Birmingham need not be bound to traditional ways of doing things.

INSIGHTS FROM OTHER CITIES

PARCA’s research identified four different approaches cities and metro areas take toward building and maintaining regional unity. Four cities representing the four different approaches were selected for study.

The four approaches are:

1. Functional Consolidation

Decreasing duplication and increasing efficiency through cooperative agreements between local governments.

Example Metro: Charlotte, North Carolina

2. Modernizing County Government

Structuring county government to provide regional leadership.

Example Metro: Pittsburgh, Pennsylvania

3. Cooperation Through Regional Entities

Using regional bodies to deliver services or coordinate strategy on a region-wide basis. These can be public or private, or a fusion of the two.

Example Metro: Denver, Colorado

4. Political Consolidation

Most often, the merger of the central city with the central county, creating an umbrella metro government to deliver regional level services.

Example Metro: Louisville, Kentucky

Once labeled “the most segregated city in America,” Birmingham is justly proud of its historic role in breaking down the walls of segregation that once legally separated blacks and whites.

The time is now right to re-examine the barriers to unity that were created in the past and develop a new approach that better meets the needs of all the people in the Birmingham metropolitan area—urban, suburban, and rural. No one approach rules out the others. In crafting an approach that meets its unique needs, Birmingham might borrow ideas from each.

This is not a new issue for the region, and greater Birmingham is not alone in having tried multiple times to resolve it.

Louisville and Nashville each failed twice before achieving governmental consolidation, and Charlotte created its intergovernmental cooperation strategy as an alternative to unachievable structural change. Pittsburgh took a first step to attack fragmentation by reforming county government, just as Denver did by creating special-purpose regional authorities with their own tax sources.

The question of community unity has been a recurring strain in Birmingham’s history. Greater Birmingham was catapulted to the status of major American city through a consolidation in the first decade of the 20th Century. Multiple votes from the 1940s through the 1960s presented city-suburban merger as an option but failed to garner adequate support. A different approach, the Metropolitan Area Project Strategies, was proposed in the late 1990s.

With the negative effects of fragmentation having become very clear, it is time for fresh ideas and new conversation about how Greater Birmingham can chart a new, more prosperous course. The public seems ready to engage in this conversation.

View the full report here and access additional components of the project here.

 


PARCA compares municipal finances in Alabama, gets mayors’ perspective

How Alabama Cities Finances Compare

How Alabama City Finances Compare is the ninth edition of PARCA’s study of Alabama city finances. This report provides basic information on municipal revenues, expenditures, and general fund balances from the most recent year available. The comparisons are in per capita amounts (dollars divided by resident population) so that cities of differing populations can be compared with one another. This edition of the report includes data on 22 cities, generally those having a population over 20,000.

The information provided can be valuable for city officials to use in benchmarking with their peers and for citizens to see how their municipality ranks financially among comparable cities within the state.

Municipal Executives Opinion Survey

In conjunction with the report on city finances, PARCA is also releasing the Municipal Executives Opinion Survey, a survey of 127 mayors and city executives from across Alabama. Responses indicate that these city leaders are generally optimistic about economic conditions and the stability of revenue sources in the coming year, although many expect increased HR costs, as well.

Despite the optimism, executives face challenges, too. There appear to be substantial demands for infrastructure improvements without a letup in expectations regarding public safety, human services, or government operations. Priorities for the coming year emphasize economic development and jobs, education, and building or repairing roads, sidewalks, and parks.

 


PARCA’s 2017 Public Opinion Survey Results are Here

Today, PARCA released the results of its annual public opinion survey. The poll of over 350 Alabama residents was conducted by Randolph Horn, Samford University, Professor of Political Science and Samford’s Director of Strategic and Applied Analysis. The survey addressed topics including state budget priorities, the quality of representation in state government, and in partnership with the Alabama Association of School Boards, questions about public education in Alabama.

Results from this year’s survey are consistent with previous years’ results in some important ways. Residents value state investments in education and healthcare. They believe education is inadequately funded. There is substantial evidence that respondents have limited faith in public officials. Support for earmarking revenues and keeping the education budget separate from the general fund may indicate concern that officials would misspend those resources if they were given more flexibility. Majorities think the state government does not care what they think or that they have no say in what the government does.

Public officials are in a difficult position. There is often a tension between the preferences of constituents in a district and the collective interest of a state or nation. Officials, seeing their colleagues defeated in primaries from the more extreme wing of their parties, may underestimated the scope they have when working to solve important public policy challenges. Similarly, officials may underestimate their capacity to educate their constituents on what it may take to address the problems confronting the state. Results of PARCA polls indicate many opportunities for officials to demonstrate responsiveness to public concerns and leadership in crafting public policy solutions.

Read the results and full analysis of this year’s survey here.


What is the Budget Reform Task Force Studying?

The Alabama Legislature’s Joint Legislative Task Force on Budget Reform met for a third time this week in Montgomery continuing its search for solutions to Alabama’s perennial problems with crafting budgets.

The bipartisan panel of state senators and representatives has now met three times and each time has made sure to clarify what they are and what they aren’t doing:

They are a task force studying the state’s long-running budget problems, looking for ways to improve the process. They hope to produce a report to the Legislature by the opening of its 2017 session.

They are not a legislative committee.

They are not drafting legislation.

The assurances haven’t prevented the Task Force meetings from drawing a nervous crowd. Budgets matter. Not just to government agencies, but also to non-governmental service providers, and to individuals and businesses that pay taxes and receive services.

Budgeting in Alabama has been extremely difficult in recent years due to a seemingly intractable mismatch between the level of revenue available and the amount of money agencies say they need to maintain services.

That mismatch has left the state lurching from budget crisis to budget crisis, resulting in multiple legislative special sessions.

While the solutions reached have kept the government functioning, they haven’t solved fundamental problems. As recently published year-end results for 2016 show, state finances are still under strain. The state continues to depend on non-recurring revenues to balance the budget. When that revenue disappears, the growth of expenses is likely to continue to outpace available revenue, leading to future budget crunches.

In an attempt to further understand these long-term problems and explore possible improvements, the Task Force started with the basics.

In September, the 14-member bipartisan panel of House and Senate members heard what amounted to a Budgeting 101 presentation from the Legislative Fiscal Office. The presentation explained:

1. Why we have two budgets (the General Fund and the Education Trust Fund)

2. How our tax revenues compare to other states

3. How our budget process works

4. How it compares to other states

5. Alternative approaches to budgeting other states use

6. Revenue and expenditure challenges on the horizon

7. Budget and management improvements already underway

The Task Force has formed five study groups, tasked with delving into five areas of interest:

1. Unearmarking: Alabama earmarks more of its tax revenue than any other state. When a tax is earmarked, the revenue generated from a tax can only be spent for a designated purpose. This complicates the Legislature’s job when attempting to balance its budget, limiting flexibility and interfering with the Legislature’s ability to determine whether those designated dollars are needed and being well-spent. Supporters of earmarking say the practice reflects the will of the people, assuring taxpayers that money is being spent according to the people’s priorities. Others are skeptical that eliminating earmarks is worth the effort because ultimately the problem isn’t earmarking; it’s a shortage of revenue.

2. Tax Credits/Deductions/Exemptions: This study group is tasked with studying the flip side of taxes: the multitude of tax credits, deductions, and exemptions that cut into total tax collections. This often ignored side of the tax ledger is coming in for closer examination with new reporting requirements which will require an accounting of how much these credits, deductions, and exemptions are costing and what the state is getting in return.

3. The Budgeting Process: Initially, this study group was tasked with studying biennial budgeting. Alabama adopts budgets each year, which is the practice in 30 states. The other 20 states adopt budgets that run for two years, a practice called biennial budgeting. Proponents say biennial budgeting creates a better climate for planning and would allow the Legislature to perform a more meaningful review of agency operations in the years when it was not struggling to pass a budget. Critics point to the difficulties that states face in predicting revenue from year to year. They also point to the fact that in biennial states, budgets are often revisited in the off-years, negating the expected gains in time and effort the biennial budgeting theoretically creates. At the Task Force’s November meeting, the chairman of this study group, Rep. Kyle South (R-Fayette), said his study group will not only study biennial budgeting but will also examine Alabama’s process for crafting budgets in a more general sense.

4. Agency review: This study group is seeking information from agencies to further clarify the financial position of state agencies. Because some agencies receive earmarked taxes and federal funding, legislators aren’t always clear on how budget cuts will affect an agency. At the November meeting, Phil Williams, (R-Gadsden), the study group’s chairman, presented preliminary information his office had gathered from state agencies. The agencies were asked to provide the total amount of federal funding received and the amount each agency had in reserve at the end of the budget year.

5. Tax Relief: This study group is tackling the question of whether Alabama’s current tax structure is fair, equitable, and well-designed to encourage the economic prosperity of citizens and businesses.

As the study groups generate information, PARCA will be exploring these issues as well.

At the Task Force’s October meeting, the panel heard presentations from the current chairmen of the House and Senate Budget committees about the problems they face in crafting budgets. While all welcomed the Task Force’s attention to budget matters, a good deal of skepticism was expressed about some of the approaches under review. Earmarking creates problems, the budget panel chairs acknowledged, but they expressed doubt that reform of earmarking would provide a significant change to the bottom line or would be politically feasible. While there was interest in the concept of biennial budgeting, some questioned whether, in practice, a shift to such a system would yield better results. All expressed interest in having better information on which to base budgeting decisions. They encouraged sustained attention by the Legislature and leadership from the governor’s office toward improving the budget process.

There is a lot of money at stake. In round numbers, Alabama government dispenses about $30 billion a year: about $12 billion from state sources and $18 billion from federal and other funds.

Figure 1 Source: Legislative Fiscal Office

Click here to print


Lackluster 2016 Receipts to General Fund and ETF

Both the accounts that pay for state government operations, the General Fund and the Education Trust Fund (ETF), ended the 2016 Fiscal Year basically flat when compared to the previous year, a sign that the state’s struggles to balance budgets will continue in the future.

What would have been a moderately healthy year of receipts to the Education Trust Fund was dragged down by a drop in corporate income tax collections and the shifting of some revenue into the General Fund to cover anticipated shortfalls in that account. The perpetually struggling General Fund was buoyed by that revenue shift from the ETF and by the increase of tax rates on cigarettes, but was weighed down by a drop of non-recurring revenue sources and lagging collections of taxes on oil and gas production.

For the Fiscal Year that ended Sept. 30, 2016, total receipts to the ETF were $6 billion, up only slightly from 2015. Final receipts to the General Fund, $1.8 billion, were down compared to 2015.

Those basically unchanged, bottom-line numbers from the previous year mask a titanic, behind-the-scenes struggle to balance state revenues with state spending, a struggle that is certain to continue.

Approaching Fiscal Year 2016, the scene for budget problems was set. In 2015 and for two years prior, the state propped up the General Fund, which pays for most of the state’s non-educational operations, with borrowing from the Oil and Gas Trust Fund. The Oil and Gas Trust Fund is in effect the state’s savings account.

The state borrowed approximately $146 million a year for three years. This was authorized by a constitutional amendment passed in 2012. The three years of borrowing was to give the Governor and the State Legislature time to come up with a sustainable solution for a long-running problem, a General Fund that doesn’t bring in enough revenue to support the state’s non-education agencies. The General Fund is fed by a collection of tax sources that don’t grow with the economy. As the expenses of state government grow, especially on big-ticket items like Corrections and Medicaid, the General Fund can’t keep up. The main taxes that grow with the economy – the sales tax and the income tax – are deposited in the Education Trust Fund.

After contentious debate and multiple special sessions in 2015, the Legislature increased the state cigarette tax by 25 cents a pack, which in the end yielded an additional $65 million for the General Fund. The Legislature also changed the allocation of the Use tax. The Use tax is similar to the sales tax and has historically been divided between the General Fund and the Education Trust Fund. The change in the Use tax allocation yielded an additional $100 million for the General Fund, but decreased the amount that the Education Trust Fund received in 2016. While that $165 million in new money for the General Fund would seem to make up for the anticipated hole in the General Fund, there were additional factors that hampered the performance of both the General Fund and the Education Trust Fund in 2016.

The General Fund

As mentioned above, the shift of Use tax revenue and the increase in the cigarette tax boosted the General Fund collections. Also helping the General Fund bottom line were payouts resulting from litigation over the BP oil spill lawsuit. Those settlements brought in an additional $70 million in 2016.

Also, there was some healthy growth in a few of the General Fund taxes that do grow with the economy. For example, proceeds from the tax on insurance premiums rose $10 million, an increase of 3.63 percent over 2015. Sales taxes on automobiles were up by almost $9 million, up 9.8 percent over 2015.

However, there were additional factors that weighed on the General Fund. In addition to the hole caused by the end of the borrowing from the Oil and Gas Trust Fund, the 2015 General Fund was padded by another one-time source of money. For years, the state has been in litigation over its former franchise tax, a tax that was declared unconstitutional. The state had set aside money in escrow to pay claims arising from that litigation. With those lawsuits finally winding down and in the face of 2015 budget difficulties, the state decided it was safe to release most of that money from the escrow account. That one-time revenue available in 2015 was not present in 2016. As a result, the 2016 General Fund received $115 million less from that source.

The General Fund’s problems for 2016 didn’t end there. General Fund tax receipts from oil and gas production saw a $25 million drop. That drop stems from low energy prices and declining production from the state’s oil and gas reserves. In the end, the General Fund collected $13 million less in 2016 than it did in 2015, a decline of -0.70 percent.

Entering 2017, the General Fund will have some cushion thanks to the Legislature’s decision this year to convert the long-term payout of the BP oil spill settlement to up-front cash. The move will result in $85 million in 2017 and $105 million in 2018 to support the Medicaid spending in the General Fund. But once this non-recurring infusion ends, the Legislature will face the difficulty of filling that hole.

Moves in recent years to shift additional growth taxes, like the Use tax, into the General Fund should increase the General Fund’s capacity to grow. The bump generated by the cigarette tax increase helped in 2016, but in the long-term, cigarette tax collections have been trending down as tobacco use decreases. It remains doubtful that General Fund revenue growth has the ability to keep up with the rising costs of the agencies it supports.

The Education Trust Fund

Meanwhile, on the Education Trust side of the ledger, what would have been a healthy growth year turned out to be anemic.

Individual income taxes were up $144 million, a respectable 3.68 percent. Sales tax collections climbed 4 percent, $87 million more than last year. Another bonus for the ETF was the end of the multi-year effort to pay off the ETF’s debt to its Rainy Day Fund. Having completed that repayment, The ETF got to keep an additional $57.5 million that in prior years was applied to that repayment.

But dig deeper and the ETF took some significant hits. The shift of the Use tax receipts to the General Fund decreased the amount of that tax flowing to the ETF. Though overall Use tax collections were up, the net amount sent to the Education Trust Fund fell by $66 million

The biggest hit to the ETF was a decline of $150 million in corporate income tax collections. That drop effectively wiped out the increase in individual income tax collections. Some of that drop was anticipated. The 2015 corporate income tax total was padded with about $90 million in one-time receipts, resulting from audit findings from past years. However, forecasters were surprised by the additional $60 million drop in corporate income taxes and are unsure what caused it. Since much of the decline happened in the latter part of the fiscal year, it may be due to a general decline in corporate profits during that time period. Revenue officials in other states saw similar declines.

Also down were utility tax collections, dropping $25 million, a fact that may be attributable to the warmer winter of 2015-2016.

When other incremental adjustments and smaller taxes are considered, the ETF in 2016 took in just 0.4 percent more than is in 2015.

Going into 2017, the Education Trust Fund should be poised for healthier growth. It will need it. The 2017 Budget, approved earlier this year, includes a 4 percent raise for teachers. In the meantime, the weakness in corporate income tax receipts bears watching.

No doubt, the Legislature will face fiscal challenges in the upcoming session.  PARCA will continue to follow these important issues.


Constitutional Amendments on the November Ballot

When Alabama voters go to the polls on November 8, they will be asked to consider adding 35 more amendments to the Alabama Constitution. PARCA has compiled a summary of each of the 14 amendments that will appear on the ballot statewide.

Alabama already has the nation’s longest constitution — about 12 times longer than the national average. Since its adoption in 1901, the Alabama Constitution has been amended 895 times.

In principle, constitutions are meant to lay out the fundamental powers of government and establish a statewide framework for its operation, leaving the state legislature and local legislative bodies the task of carrying out work within those limits. Alabama’s Constitution, by contrast, is minutely detailed with a multitude of amendments that create local exceptions that apply to individual jurisdictions, as well as provisions that apply statewide.

The problem stems from the constitution strictly limiting the powers of local governments. Almost immediately after its adoption, the constitution began to accumulate amendments, most of which created local exceptions to state constitutional principles. November’s ballot continues that practice. Of the 35 amendments proposed, 25 apply to a single jurisdiction. Of the total, 14 amendments will be voted on statewide. Of those, 10 will affect the state as a whole, and four pertain to an individual locality but are being voted on by voters throughout the state.

Of those local amendments being considered statewide, one is a proposal to raise the maximum age of the probate judge in Pickens County to 75. Voters statewide will also decide whether the citizens of Etowah County can create a personnel board for employees of its sheriff’s department.

Four statewide amendments, Amendments 3, 4, 5 and 6, make a modest effort to clean up some of the problems with the Constitution. These amendments are the result of the work of a nonpartisan commission chaired by former Governor Albert Brewer, PARCA’s founder and chairman emeritus.

In addition to PARCA’s summary, more information on the proposed amendments can be found on the Secretary of State’s website including summaries and explanations compiled by the state’s Fair Ballot Commission.

Read PARCA’s analysis of the proposed amendments.


First Meeting of Task Force on Budget Reform Wednesday

A newly formed Joint Legislative Task Force on Budget Reform meets for the first time this week in Montgomery: a group of House and Senate members tasked with studying and recommending changes to the state’s broken system for budgeting. That is the same issue PARCA examined at its 2016 Annual Meeting this February.

The Task Force meeting is scheduled for 2 p.m. Wednesday, at the State House, Room 200.

The Legislature is just coming off yet another special session, called this year by Governor Robert Bentley to stave off severe Medicaid service cuts that would have resulted from General Fund budget passed in the 2016 Regular Session.

In 2015, Bentley called the Legislature back twice to cope with the same problem: a persistent structural deficit in the General Fund. Since 2000, there have been 16 special sessions called by governors. While not all of those have been called to address budget issues, many have, including the past three special sessions.

The Joint Resolution creating the new Task Force acknowledges that the Legislature’s most recent temporary solution to its budget woes – using money from the BP Oil Spill Settlement to supplement state support for Medicaid for the next two years — doesn’t solve the essential problem. As the resolution put it: “The expenditures of state government within the General Fund are projected to continue growing at a level that will outpace available revenues.”

Why do we have this recurring problem?

1. Alabama is short on money. Alabama state and local governments collect less in taxes, per capita, than governments in any other state in the United States (PARCA Perspective, Dec. 2015).

2. Alabama’s General Fund is supported by taxes that don’t grow. Agency expenses rise, but the funds available to pay for them don’t keep up. (PARCA Perspective, Oct. 2015). In light of that, the Legislature applies one-time revenue sources to plug budget holes. And that guarantees the shortfall will recur when those one-time revenues are exhausted.

3. Alabama needs, but does not have, an effective budgeting process, one that identifies priorities and goals, pushes for efficiency, and maximizes effectiveness.

In the interest of improving budgeting in Alabama, the Task Force has been asked to examine the following questions:

1. Should we implement biennial budgeting — drafting budgets that cover two years, rather than one?

2. Should we require state entities to undergo greater performance and program reviews?

3. Should we unearmark funds in order to provide for greater legislative oversight and appropriating flexibility?

4. Should we review existing state tax credits and deductions and creating a policy to ensure that future tax credits effectively provide economic gain to the state?

5. Can we identify areas to provide tax relief to Alabama families without significantly impacting state budgets?

At PARCA’s 2016 Annual Meeting, we presented a summary of the current budget process, its problems, and potential solutions. To put Alabama’s budgeting process in a national context, the PARCA program featured William Glasgall the director of State and Local Programs for the Volcker Alliance. The nonpartisan Volker Alliance is working nationally to encourage greater truth and integrity in state government financial reporting and budgeting. Glasgall’s presentation identified national budgeting best practices, and compared Alabama’s, noting areas where the state compares favorably and where it needs work.

Based on research presented at the Annual Meeting, PARCA developed a series of basic recommendations for improving the budget process:

Recommendation #1:  Good fiscal decisions require clear, concise information. State government should present continuous, clear, and meaningful information on state revenues and expenditures.

These reports should be regular and timely and include a narrative explanation the numbers. Reports should:

1. Clearly identify one-time sources of revenue

2. Evaluate the cost of tax incentives and the benefits produced

3. Disclose debt costs and trends, including long-term forecasting of revenue and expenditure growth

Recommendation #2: The executive and legislative branches should reexamine and reconcile their budgeting process based on the requirements of the Alabama’s existing Budget and Management Act, making adjustments where improvement is needed.

1. The Governor’s budget should include strategic planning and explanation of budget choices, goals, and plans.

2. Agencies should make reasonable requests that include performance measures.

3. The Governor and Legislature should work toward agreement on:

– consolidating the information gathering process

– identifying relevant and meaningful expense data and performance measures to be tracked

– a budget process that encourages both cost reduction, innovation, and success in meeting state policy priorities

Recommendation #3:  Ultimately, revenues must match expenses. The State should recognize and address the chronic structural deficit in the General Fund.

Alabama’s habit of earmarking revenue limits transparency, flexibility, and better budget management. Reducing earmarking should be pursued. However, considering Alabama’s low per capita tax revenues, and low comparative spending on big-ticket items like education, prisons, and Medicaid, un-earmarking is unlikely to solve recurring financial problems. Along with improvements to the budget process, a stable, revenue source that will grow over time, along with expenses, should be added to the General Fund.

PARCA will provide updates on the work of the Budget Task Force throughout the fall.


PARCA Annual Meeting Additional Materials

PARCA’s Annual Meeting was held in Birmingham on Friday, February 5. Its focus was Alabama’s process for formulating budgets.

PARCA’s description of current budget issues can be accessed here.

The presentation made by William Glasgall of the Volcker Alliance describing budget issues in a national context can be found here.

If you want to look at Governor Robert Bentley’s Budget proposal for FY 2017, it can viewed or downloaded here.

For comparison, the links below provide a look at the budget documents from other states.

South Carolina

Virginia

Tennessee

Georgia’s Budget in Brief and links to other budget documents

Mississippi

 


Resources for Understanding Alabama's Budget Process

One resource for understanding budgets is the Budget Fact Book published by the Alabama’s Legislative Fiscal Office.

As February approaches, the Legislature is preparing to return to Montgomery for yet another tough session of struggling with Alabama’s budgets.

The Governor’s Office is in the process of crafting a proposed plan and budget. The Legislature has already begun its process of reviewing budget requests from state agencies.

PARCA’s annual meeting, to be held Friday, February 5 at the Harbert Center in Birmingham, will focus on Alabama’s budget process: how it works now and how it might be improved. The meeting agenda features William Glasgall of the Volcker Alliance, a national nonpartisan effort to rebuild trust in government and improve its effectiveness. Glasgall serves as the Program Director for the Alliance’s State and Local Accountability and Improvement programs, which has focused its research on ways to improve state budgeting and financial practices. Leaders from the Legislature’s budget committee will participate in a panel discussion of the budget process and the challenges the state will face. Gov. Robert Bentley will deliver the luncheon address.

In preparation, PARCA has compiled a sampling of resources available to those who want to better understand the budget process.

You can find an overview about how the various states pursue budgeting in Budget Processes of the States from the National Association of State Budget Officers. The publication explains terms like programs, performance, and zero-based budgeting, and compares states on the approaches they take. The Volcker Alliance’s website features several publications recommending improvements in the way states budget.

Closer to home, the basic law describing how Alabama’s budget process is supposed to work is the Budget Management Act.

For those of you who want to follow the blow-by-blow of the budgeting process during the coming session, here are some key links:

The Executive Budget Office

When the Governor publishes his budget in the coming weeks, it will be posted here as the executive budget, along with budgets from previous years. The Finance Department website also includes budget summary spreadsheets that offer comparisons of the governor’s proposed but with those of prior years.

After they are introduced, The Legislative Fiscal Office also publishes spreadsheets of the budgets under consideration.

Annually, the Fiscal Office also publishes and posts A Legislator’s Guide to Alabama Taxes, with detailed information about tax collections and descriptions of Alabama and also the annual Budget Fact Book, with information about each agency’s budget and performance measures.

For the super budget geeks:

You can find reports on state revenue and spending at Open.Alabama.gov.

In a different spot on the Web, the Department of Finance publishes Quarterly Budget Management Reports that detail year-to-date revenues and expenditures for each agency and Quarterly Performance Reports that are supposed to provide insight into how agencies are doing carrying out their various missions.

But a word of warning, the Budget Management Reports are detailed and dense. The pdf file that includes all spending and revenue by state agencies is 2,627 pages long.  The Quarterly Performance Reports for all state agencies are over 200 pages long, and the depth of information varies widely agency-by-agency.

 

 


PARCA Annual Survey of Public Opinion 2016

In January 2016, The Public Affairs Research Council of Alabama conducted its annual poll of public opinion. This is the 10th year of the survey. This year, the survey focuses on revenue and spending in state government. The survey touches on multiple topics: taxes, education, Medicaid, highways, public safety, courts, state parks, and others. The complete survey results are posted in presentation form above. Text of the questions and results are presented at the bottom of this post. Highlights are featured below. An in-depth audio-visual presentation of the of the results is also available here.

The survey of 466 Alabamians was conducted between January 4 and January 21. Randolph Horn, Samford University Professor of Political Science and Samford’s Director of Strategic and Applied Analysis, collaborated with PARCA on the design of the survey and directed the polling operation. The results were weighted to reflect the demographic makeup of the state.

Respondents ranked education as the most important investment the state makes followed by health care, public safety, and highways. All four areas are underfunded in Alabama, according to a majority of respondents.

 

In the areas of education and health care, majorities said they would be willing to pay more in taxes the avoid cuts or achieve adequate funding. In the areas of public safety and highways, less than a majority would be willing to pay more in taxes to avoid cuts or achieve adequacy.

A majority said the state needs more revenue to support state services.

 

Respondents perceive that state and local taxes fall more heavily on lower-income Alabamians than higher income range. A plurality of respondents say that lower-income residents pay too much in state and local taxes and a majority say that that those in the upper-income group pay too little.

 

Given options for how the state might increase tax revenue, the only option receiving majority support was to make the state income tax more progressive by increasing the percentage of income that high-income individuals pay in state income taxes.

 

Looking more closely at more targeted areas of state investment, a majority of respondents said state parks and state troopers are not adequately funded. Opinions were more mixed when it came to state courts and driver’s license offices.

But none of those areas received majority support when respondents were asked if they were willing to pay more in taxes to support them.

A majority of respondents support expanding Medicaid to cover more people. The same question was asked last year and received the same level of support.

On most questions, Alabamians, whether Democrat or Republican, black or white, are relatively united in opinion. However, the response to the Medicaid question does show a partisan divide with majorities of Democrats and independents supporting expansion while a majority of Republicans support maintaining the system as it is.

Strong majorities felt that officials in Montgomery did not care about their individual opinions. This is consistent finding over time.

That distrust of elected officials is perhaps reflected in respondents’ support for earmarking state revenue. Earmarking is defined as designating revenue raised from a particular source to be spent for a particular purpose. An example would be Alabama’s earmarking of income and sales tax revenue for public education.

 

When it comes to education spending in Alabama, respondents had particularly strong opinions: 69 percent said the education budget should be kept separate from the budgets funding other state services; 70 percent said too little is being spent on education; over 80 percent said the level of funding for schools makes a difference in educational quality; 86 percent said that the state should make up the difference if a community is too poor to support schools adequately.
In terms of what areas are most need of investment in education, respondents showed the strongest support for spending more on teacher’s salaries, with 71 percent supporting increasing teacher salaries. Increasing spending on technology infrastructure, hiring more classroom teachers, school security, classroom technology, and music and the arts all received majority support.

The full text of questions and results is included below.