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.