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

Email this to someonePrint this pageShare on FacebookTweet about this on TwitterShare on Google+Share on LinkedIn