Budding interest in changing the way we budget in Alabama?

Budget discussion, State Board of Education, Nov. 12

With the General Fund facing an acute shortfall and the education budget still struggling to recover to pre-Great Recession levels, there are beginning to be conversations about new approaches to budgeting.

At a recent State Board of Education meeting, State School Superintendent Tommy Bice told board members he was in discussion with the governor’s office and representatives of the legislative leadership about formulating a budget request that was strategic and deliberate rather than “shooting the moon.”

That would be unusual. This is the season when state agencies draw up their budget requests and submit them to the governor’s office, an annual ritual that bears some resemblance to making up lists for Santa Claus. Budget requests are typically an expression of wishes or needs, without regard to what Santa can realistically deliver, and without a clear link to achievable, measurable goals.

But in this case, the State Board of Education does have goals and will have a system of measuring progress toward those goals. The current wish list is well beyond currently available resources but it does step back from an immediate demand for a full restoration of pre-Recession spending levels.

In his presentation to the Board, Bice described conversations with the governor’s office and the Legislature under which the parties would pursue a three-year plan to fully fund the Foundation Program, the mechanism the state uses to distribute most of its support to local school systems.  He also listed items requested by the State Department that would support the goals of Plan 2020, the state’s plan to raise the quantity and quality of graduates from Alabama K-12 schools. State Board Member Mary Scott Hunter said she was encouraged in her conversations with legislators who’d said they wanted to pursue an education budget built on planning and goals.

“I think it highlights the need to be deliberate and strategic,” Hunter said, “and to be working with our colleagues across the street.”

Still, there is a wide gulf between the money available and the Department’s aspirations for K-12 schools.

Under the current controls on education spending growth, the Department of Education estimates that K-12 education could have an additional $35-40 million to spend in 2016.

But the department’s draft budget request, envisions asking for an additional $228 million for K-12 education in 2016.

The largest portion of that request is $175 million to begin the process of restoring full-funding for the Foundation Program. The Foundation Program is supposed to provide enough for an adequate and equitable education at schools across the state. Since the budget problems developed, various components of the Foundation Program — operating support, technology, textbooks, professional development, classroom and library supplies, and transportation — have been cut or zeroed out. The $175 million portion of the request also includes a one percent pay increase for employees and the first installment of a plan to restore 1,066 teaching positions lost to budget reductions.

Beyond that money for local systems, the State Department is proposing an increase of $51 million in various state-level initiatives that support the strategic priorities of Plan 2020.

Those include:

  1. $10 million to pay for the new suite of assessments that measure student and school academic progress.
  2. $5.1 million to expand the Alabama Math and Science Initiative.
  3. $5 million to meet the demand for distance learning and to establish a virtual high school.
  4. $5 million for an initiative to recruit new teachers into the profession and for creating alternative routes for career advancement other than moving into administration.
  5. $5 million for expanding the network of Family Resource Centers to better connect schools and students to community resources.
  6. $5 million for further Career Tech expansion.
  7. $5 million for a competitive grant pool to support innovation in schools.
  8. $4.8 million increase needed to support systems’ assessment of learning needs in special populations of students.
  9. $3.8 million for a system of online, formative assessments provided to school systems.
  10. $1 million to complete the planned expansion of Advanced Placement courses.
  11. $1 million to establish a competitive grant program to help schools pay for arts education with an emphasis on those systems that currently can’t afford it.



2014 Education Trust Fund Performance


While the looming shortfall in Alabama’s ailing General Fund has received much attention, the state’s Education Trust Fund (ETF) isn’t exactly enjoying robust growth, according the recently published year-end report on receipts to the fund.

The ETF, which pays for public K-12 and higher education plus an assortment of other smaller agencies, grew just 2.1 percent over 2013. And revenue from Alabama’s income tax was practically flat in FY 2014 as compared to 2013.

The income tax provided 60 percent of the Education Trust Fund’s $5.8 billion in revenue in 2014. Sales and use taxes provided another 32 percent. A public utility tax provided 7 percent of the total. A handful of other taxes made up the remaining 3 percent.

Since it contains the income tax and most proceeds from the state sales tax, the ETF tends to grow with the economy. For example, sales tax receipts to the Education Trust Fund increased by 5 percent.

However, that number is somewhat inflated. In 2013, lawmakers sent $52 million straight to K-12 schools rather than depositing it in the Education Trust Fund first. This year, that $52 million drops into the ETF, creating the appearance of extra growth. Growth in sales tax collections were more like 2 percent.

According to analysts, this year’s income tax receipts, at least as they compare to 2013, are also skewed. Income tax collections jumped more than expected in 2013, thanks to some selling of stocks and the end of 2012. Those moves, made in anticipation of higher tax rates, produced a one-time jump in revenues in 2013. Looking at wage income alone, taxes collected through withholding increased about 2 percent in 2014 over 2013. But thanks to the inflated 2013 number, overall income receipts to the General Fund increased just 0.8 percent.

During the current fiscal year, the state is anticipated to make its final repayment of the $437 million borrowed for education from the Rainy Day Fund during the economic downtown. The state still owes $92 million that is due by Sept. 15, 2015.

All in all, the Education Trust Fund has still not recovered enough to provide the level of funding for schools it provided in 2008, before the Great Recession. The final repayment and a pickup in job growth in recent months should allow for some improvement in the 2016 budget year.


A Look at 2014's Anemic General Fund Performance

The final tallies are in for fiscal year 2014 collections to the state’s General Fund. The results are, as usual, lackluster.

Collections from the assortment of taxes that feed the Fund grew by just 1.03 percent over 2013.

That’s pretty typical performance for the General Fund, and that anemic growth is the root cause of an impending problem the new Legislature will face when it convenes next year.

The General Fund supports the operation of the state’s non-education agencies. The cost to operate General Fund agencies exceeds the revenue available. The shortfall in 2016 is expected to be over $200 million.

According to the Legislative Fiscal Office, from FY 2008 to FY 2013, the Legislature has used over $1 billion of “intermittent” or temporary revenues used in balancing the General Fund.

Beyond that, the State has borrowed $599 million from the Alabama Trust Fund since 2010 to support the General Fund budget. And the law requires that this borrowing must be repaid.

For a more extensive discussion of the General Fund’s situation, see the PARCA’s October update on Alabama’s Ailing General Fund.

At the end of each month, the state publishes a report that tracks the revenue received by the General Fund from its various sources. The report generated at the end of September, the end of the fiscal year, allows you to compare yearend totals to those in the previous years. Results of a PARCA analysis of that report are presented in the table below. Below the table is a discussion of some of the major taxes and some notes on quirks you might detect in the data.

Notes on top sources of receipts

The table lists the amount from each tax that is credited to the General Fund. In many cases, that is not the total amount collected from the tax or fee. For many of the taxes and fees, the General Fund receives only a portion of the tax collected with the rest going to other state or local government accounts.

Insurance company licenses and premium tax: 16 percent of receipts in 2014, up 4 percent from 2013. These are taxes collected on the activities of insurance companies. This tax saw some growth this year. However, in both 2013 and 2014, these receipts have been supplemented by extra payments from the insurance guarantee fund, a pool that holds funds to be used in the event of insurance company failures. That extra support, which amounted to $12 million in 2014, isn’t expected to recur in 2015 or in the next couple of years.

Subtotal of sales, use, and lease taxes: 16 percent of the total for 2014, up 7 percent over 2013. This is a category of receipts PARCA created by combining sales, use, and lease taxes. This is by no means total state sales tax collections because most sales taxes are deposited in the Education Trust Fund. However, some components of sales and use taxes have been assigned to the General Fund. Individual taxes that make up this subtotal are listed individually as well. A couple of points on those: The large percentage increase in the remote sales tax (a tax on sales over the Internet) is explained by the fact that the 2013 figure is not a full year’s collection. In other words, the increase is not a huge jump in the overall collections. Instead, the 2014 total represents a full year’s collections. Also, lease tax receipts were boosted as a result of an audit that caused a taxpayer to shift payments into that category.

Alabama Trust Fund: 15 percent of receipts in 2014, down 4 percent over 2013. This revenue comes from the Alabama Trust Fund, the account that holds royalties from the oil and gas production. As in 2013, there was extra money coming from the Trust Fund, $146 million extra in 2014. That same borrowing will recur in 2015, but won’t be available going forward. Consequently, Trust Fund receipts will account for a smaller share of General Fund revenue in subsequent years. Additionally, that borrowing, plus an earlier instance of borrowing from the fund, will have to be repaid in the coming years.

Ad valorem tax: 9 percent of General Fund receipts in 2014, up 3 percent in 2014. These receipts come from 2.5 mills of the 6.5 mill state property tax.

Cigarette tax: 6 percent of General Fund receipts in 2014, down almost 3 percent in 2014. These are taxes on cigarettes, and the decline is part of a continuing downward trend in collections thanks to declining smoking rates.

ABC board taxes and profits: 5 percent of General Fund in 2014, down 5 percent. These taxes include a portion of the various taxes on alcoholic beverages, plus the profits from ABC board stores and licenses.  The main reason for the decline is that the previous year’s total was inflated thanks to extra distribution in 2013.

Oil and gas production tax: 5 percent of the General Fund in 2014, down 2.3 percent from 2013. This is a tax on the oil and gas that is produced in the state. This source of revenue has been gradually declining, primarily due to the aging of Gulf Coast gas wells.

Corporation tax: 4 percent of the General Fund in 2014, up 48 percent in 2014. This is the replacement tax for Alabama’s old franchise tax, which was ruled unconstitutional in 1999. The large increase is partially attributable to decline in the portion of this tax that has been used to pay corporations refunds on the franchise tax.

Court costs: 4 percent of the General Fund in 2014, down 7 percent. Charges collected by the courts continued to decline in 2014.

Cellular phone taxes: 3 percent of the General Fund in 2014, down 14 percent over 2013. Revenue from taxes on cellular phone calling plans dropped. Analysts say this is attributable to changes in the way cell phone service is structured and how it is taxed. Pre-paid cellular service taxed by sales tax and more customers are moving away from service plan to the pre-paid minutes. Also, the state cannot tax data service. As cellular plans charge less for voice phone service and more for data, the proceeds from this tax decline.

Alabama’s Corrections Conundrum


The Alabama Department of Corrections has jurisdiction over more than 32,000 individuals who’ve been convicted of a crime and are serving sentences in prisons, work release centers, supervised reentry programs, and community-based corrections programs.

That’s more than double the number of convicts the system had in its charge in 1990, but over that same period, Alabama has added little to the designed capacity of its prisons.

As a consequence, Alabama prisons hold almost twice the number of prisoners they were designed to accommodate. According to the most recent comparative figures, Alabama has the highest level of prison over-crowding in the U.S.

Alabama’s Department of Corrections depends on the state’s cash-strapped General Fund for 83 percent of its budget.

Due to the increasing costs of housing an ever greater number of prisoners, corrections spending has more than doubled since 1995, now accounting for 22 percent of General Fund appropriations, or $384 million in the 2015 budget, trailing only Medicaid as a cost to the General Fund.

Alabama Department of Corrections 1995 2015
Cost to the General Fund $145,579,511 $394,281,304
Percent of General Fund spending 17% 22%
Percent increase in spending since 1995 171%


State officials are expecting a shortfall of $200 million in the General Fund for 2016, which means Alabama doesn’t have the wherewithal to begin building its way out of prison over-crowding. Corrections officials estimate they’d need a minimum of $420 million to add 6,000 new prison beds and $92 million more annually to operate the added space.

The prison problem also has acute aspects needing attention. Prison officials have declared a state of emergency in response to Department of Justice findings on conditions at Julia Tutwiler Prison for Women, including overcrowding, understaffing, and sexual abuse of prisoners by system employees. The Justice Department concluded conditions there constituted a violation of the U.S. Constitution’s prohibition against cruel and unusual punishment.

In the face of this array of problems, the Legislature earlier this year created a bipartisan Prison Reform Task Force, composed of state and local leaders drawn from all three branches of government. The creation of the Task Force was endorsed by the Governor, leaders of both Houses of the Legislature, and the Chief Justice of the Supreme Court. The Task Force is charged with finding solutions for the prison-overcrowding problem while at the same time protecting public safety.

With funding support from the U.S. Department of Justice and the Pew Charitable Trusts, the Task Force is employing the technical assistance of the Council of State Governments Justice Center (CSG Justice Center). The CSG Justice Center, a nonpartisan, nonprofit organization, has helped guide 18 states through similar exercises in corrections system reform. It began work in Alabama in the spring, presented preliminary findings in June, and updated the Task Force on September 30.

The approach advocated by the CSG Justice Center is known as Justice Reinvestment. States that have been through the Justice Reinvestment process (North Carolina and Texas among them) have been able to decrease prison populations, increase successful reentry from prison, and at the same time experience drops in crime. Strategies employed included restructuring sentencing, improving treatment and diversion options, and employing more effective practices in probation and parole supervision.

The Justice Reinvestment approach assumes that money saved by reducing the prison population can be shifted to pay for improved practices elsewhere.

Bottom 10 States in Corrections Spending per State Prisoner,* 2011
Mississippi $14,481
Louisiana $14,820
Alabama $16,477
South Carolina $19,405
Oklahoma $19,877
Texas $21,043
Nevada $21,160
Tennessee $21,196
Indiana $21,406
Arizona $21,631
Median State Spending per prisoner $36,853


This will be particularly difficult in Alabama. It would take a significant decline in prison population to achieve any savings in Alabama, considering the current level of overcrowding and understaffing in the prison system.

Cutting prison costs under existing circumstances seems unlikely. Alabama spends about $43 a day per inmate to clothe, feed, house, and supervise its prisoners, about $15,308 per year, per inmate in the prison system. Alabama prisons are staffed at 58 percent of authorized levels, at a ratio of 12 prisoners per correctional officer.

Reform efforts depend on an enhanced system of community supervision as an alternative to prison. However, in Alabama, the Board of Pardons and Paroles, which administers probation and parole supervision, has seen a significant erosion of its budget. The ratio of probation and parole officers to offenders is 1 to 192, far in excess of levels recommended for a successful system of supervision.

U.S. Census Bureau data indicate that Alabama spends less on corrections, probation and parole than any state other than Mississippi and Louisiana.

Other agencies involved, including the courts and the Alabama Department of Mental Health, which also depend significantly on the General Fund, have seen erosion in their financial support as well.

To save money in the long run, Alabama may very well have to find more money to spend in the short term.

The Task Force hopes to have legislative recommendations ready for the 2015 session.

How we got here

Alabama’s prison problem has been long in the making, and our state is by no means alone in its struggles.

Most states have seen their prison populations swell in recent decades. However, Alabama is among the top states in the number of people it locks up as a percentage of its population.

Alabama’s incarceration rate ranks fourth in the United States, and the U.S. leads all other countries in the rate at which it jails its citizens.

U.S. imprisonment rates have surged since the 1970s. Several factors have contributed, including legislation requiring longer sentences and the passage of habitual offender laws, which enhanced sentences for repeat offenders. Lawmakers also responded to the proliferation of drugs and drug-related crimes by enacting long sentences for those offenses.

Incarceration Rates: Top 10 U.S. States Prisoners per 100,000 residents
Louisiana 847
Mississippi 692
Oklahoma 659
Alabama 647
Texas 602
Arizona 586
Arkansas 578
Georgia 533
Florida 524
Missouri 521


Efforts to move people with mental illness out of prolonged confinement in state mental hospitals may also have also played a role. Several studies have shown that close to 20 percent of the prison population suffers from serious mental illness. And once in the criminal Justice system, the mentally ill have a harder time getting out.



Data suggest that a focus on incarceration may not be the most cost- effective approach to improving public safety. Alabama, with one of the highest incarceration rates in the country, continues to experience higher than average levels of crime. According to figures presented to the Prison Reform Task Force by the CSG Justice Center, Alabama in 2012 ranked 8th among U.S. states in total crime, 14th in violent crime, and 7th in property crime. The Public Safety Performance Project of the Pew Charitable Trusts recently pointed out that between 1994 and 2012, the top five states where incarceration rates declined the most also saw significant drops in crime.

Signs of progress

In its most recent report to the Task Force, the CSG Justice Center presented findings indicating some relief in the upward pressure on Alabama’s prison population. The total number of people under the jurisdiction of the Alabama Department of Corrections declined slightly in 2013, and so far in 2014 that trend seems to be continuing.

Facts on Criminal Justice Supervision in Alabama
ADOC Jurisdictional Population, June 2014 32,235
ADOC In-House Population 25,020
ADOC In-House Designed capacity 13,318
Occupancy rate 188%
Individuals on Probation 54,288
Individuals on Parole 9,873
Individuals on Probation and Parole 364
Total on Probation and Parole 64,525
Total individuals under the supervision of Dept. of Corrections and Board of Pardons and Paroles 96,760
Ratio of Inmates to Correctional Officers 12 to 1
Ratio of Individuals on Probation/Parole to Supervising Officers 192 to 1
Spending per prisoner per year $15,308
Cost Per Day
Prison $43
Supervised Release Program $17
Community corrections $10
Cost per day probation/parole $1.70


Declining crime rates resulted in 10,000 fewer arrests in 2013 compared to 2009. Felony convictions have declined during the same period, including a 34 percent drop in felony sentences for robbery and a 33 percent drop in convictions for felony possession of a controlled substance. The number of prison sentences for drug and property crimes declined by 24 percent from 2011 to 2014, with the sharper decline coming after October 2013.

That’s when new presumptive sentencing guidelines went into effect. The guidelines establish uniform parameters in sentencing for non-violent offenders and promote community supervision for non-violent offenders in appropriate cases. The CSG Justice Center data indicate that under the guidelines there has been an acceleration in the number of offenders diverted from prison and toward probation and community corrections.

These latest changes to sentencing are only the most recent. Alabama has been working for more than a decade to relieve pressure on prisons. Drug courts have been established in 66 of Alabama’s 67 counties and mental health courts operate in some jurisdictions.

Despite these measures to decrease in in-flow, the prison population has remained stubbornly high. The number of people being released from prison has dropped. CSG is in the process of determining why the rate of approvals for parole rates is declining when there appears to be a backlog of inmates eligible for parole.

Breaking the cycle

Alabama’s approach to probation and parole and other forms of community supervision may end up being a central focus of the Prison Reform Task Force.

A robust system for improving the success rate of those on probation or parole can result in long-term savings by decreasing returns to prison, while at the same time increasing public safety. In Alabama in 2013, 40 percent of all admissions to ADOC custody had violated the terms of probation or parole.

A growing body of research suggests that recidivism rates can be reduced by careful assessment of individuals admitted to probation and parole, to determine their likelihood of reoffending. Using such assessments, intense supervision and treatment can be given to those at the greatest risk of re-offending. Research also suggests that a Parole and Probation program must have a swift, consistent, and cost-effective system for dealing with violations to parole, using a graduated range of sanctions and incentives. According to CSG Justice Center research, no such system exists in Alabama.

At its current level of support, the Board of Pardons and Paroles employs one parole officer for every 192 individuals under supervision. The American Probation and Parole Association has developed recommended staffing levels, which vary according to the type of offender being supervised: a ratio of one officer working with 20 individuals deemed to be at a high risk of reoffending; one officer for 50 medium risk individuals; and one officer for every 200 low risk individuals.

Probation and parole are very cost-effective when employed correctly. In Alabama, 64,525 individuals are under the supervision or the Board of Pardons and Paroles. That amounts to about $1.70 per day, per supervised individual. Even if the Board were staffed at twice the level of today, which would more nearly approximate the recommended staffing ratio, the cost would be $3.40 per day, less than a tenth of the cost per day in Alabama’s prisons.

However, even as the system is putting more emphasis on community supervision, General Fund support for the Board of Pardons and Paroles has declined significantly in recent years. That decline in General Fund support has been only partially offset by an increase in the fees required of those under supervision, from $30 a month to $40.


A New Prescription for Medicaid

Any attempt to address the perennial shortfalls faced by the state’s General Fund account has to start with attention to Medicaid, the program that pays for the healthcare and long-term care of the poor and disabled.

Total spending on Medicaid in Alabama is budgeted to reach $6.1 billion in 2015, with about 30 percent of funding coming from state sources and 70 percent from the federal government.

Medicaid’s draw on the state’s General Fund account has nearly quadrupled over the past 20 years, rising to $685 million for 2015. That’s 37 percent of the $1.8 billion Fund, the largest General Fund expenditure. Back in 1995, Medicaid accounted for just 16 percent of the General Fund, around $140 million. Medicaid costs have risen because of rising medical costs and a rise in the number of people covered (due to population growth, changing demographics and expansions in coverage). In 1995, around 600,000 people were covered by Medicaid; today more than 1 million Alabamians qualify.

The steep rise in the cost of Medicaid has been one of the central problems in balancing the General Fund budget, which in 2016 is expected to face a $200 million gap between expenditures and anticipated revenues.

In October 2012, recognizing that health costs were rising at an unsustainable rate, the Governor convened a Medicaid Advisory Commission and charged it with finding a way to curb the Medicaid Agency’s growth trajectory while also improving the quality and types of care provided to Medicaid beneficiaries.

Growing out of the Commission’s work is a strategy to move most Medicaid beneficiaries from the existing fee-for-service system, under which providers bill Medicaid for services rendered, into a delivery system in which Regional Care Organizations (RCOs) will coordinate medical benefits and be paid on a capitated, per-enrollee basis, bearing the risk of managing costs within the established caps.

To accomplish this, the state has been divided into five regions. Within each region, RCOs will be established. RCOs will consist of a coalition of hospitals, doctors, other care providers and community representatives. These RCOs will receive a capped amount of money based on the number of enrollees they are assigned to serve. With that money, the RCOs will pay for the care of their enrollees. Through a variety of mechanisms, the RCOs will attempt to encourage better health outcomes and more cost-effective medical practices, thus, decreasing medical expenses. It is hoped that this new approach, by replacing the traditional fee-for-service model, will contain and make more predictable for the state the cost of Medicaid for the portion of the Medicaid population covered by the changes.

By capping Medicaid spending to a set level of expenditure per enrollee, the agency estimates the new delivery system will reduce future increases in state funding by between $40 million and $85 million per year compared to the current fee-for-service arrangements. Considering state and federal spending together, estimates are that the approach could save between $750 million and $1.08 billion over five years compared to expected expenditures under fee-for-service. The new system is expected to be operating by 2016.


Overview of the Medicaid Program

Alabama’s Medicaid Program pays medical providers (doctors, hospitals, nursing homes, pharmacies, etc.) for the care of the poor and disabled. The program is a key component of Alabama’s health care sector. As of July 2014, the total number of individuals eligible for Medicaid was 1,041,588, or about 23 percent of the state’s population. Medicaid provides health care services to 43 percent of Alabama’s children and accounts for more than half of the births in the State.

In addition to state general fund sources, Medicaid is funded by an assortment of taxes on providers, intergovernmental transfers, certified expenditures that meet requirements for matching Medicaid dollars, and miscellaneous other revenues.


Medicaid enrollees are the unduplicated number of individuals who qualified for full or partial Medicaid coverage in each month of the fiscal year. Annual average is the arithmetic average of the twelve months. Average cost per enrollee is calculated by dividing total local, state, and federal expenditures by the number of enrollees.

Changing Medicaid from a fee-based to a managed care approach

The Governor’s Medicaid Commission brought together representatives from state agencies, State Senators and Representatives, insurance companies, consumer advocates, medical providers, and professional organizations representing hospitals, physicians, pharmacies, nurses, primary and rural health clinics, hospices, and nursing homes.

Based on the Commission’s recommendations, the Alabama Legislature passed legislation in May 2013, outlining a reform plan for Alabama Medicaid. In April 2014, the Alabama Legislature amended the RCO legislation to make some changes to the structure and operation of the RCOs. In May of 1014, the Medicaid Agency applied for a waiver from the federal Medicaid Agency seeking permission to implement the new delivery system. The federal Centers for Medicare & Medicaid Services has acknowledged receipt of the state’s application and is considering it.

Under the reforms, Medicaid reimbursement for the services included in the waiver will no longer be based on recipients’ use of medical services; instead, the health care of recipients will be paid for, coordinated and managed by Regional Care Organizations. The RCOs will be financed through a capitated model in which the RCOs receive a set payment from Medicaid based on the number of enrollees the RCO covers. The RCOs will operate within five regions that reflect existing medical referral patterns and care provider systems.

clip_image008Click on the map to Explore additional information on caseloads and statistics.

Under the current system, the state reimburses providers on the basis of utilization and volume, rather than value and quality. The state’s only tools for constraining costs have been to limit who is eligible, what it pays providers for services, and what services beneficiaries receive. Many of these decisions are constrained by federal law and rules.

The new system creates a limit to Medicaid expenditures for each region. As of October 2014, 12 organizations have applied to be certified as RCOs.

About two-thirds of Alabama’s Medicaid population will initially be covered by the RCOs. Included populations include Medicaid enrollees who are aged, blind and disabled, those in the breast and cervical cancer treatment program, those covered by Medicaid for Low Income Families, and those covered under SOBRA, the Medicaid program for children and pregnant women.

Not covered by the RCOs at this point are nursing home and institutional care recipients, foster children, recipients qualified for both Medicare and Medicaid, hospice patients, the mentally retarded, recipients of family planning services, and children in the custody of the Department of Youth Services. Dental services will also fall outside the RCO system and will continue to be provided on a fee for service basis.

The RCOs are designed to replicate the successes achieved by four existing primary care networks (PCN) established by the Alabama Medicaid Agency that are currently providing a level of managed care in 21 counties. The PCN model includes the assignment of each Medicaid beneficiary to a medical or health home. According to the Agency, that program has shown reductions in emergency department utilization, hospital admissions, and total cost, as well as increases in medical compliance and delivery system efficiency.

Generically, the RCOs are known as “accountable care organizations.” A recent article in Governing Magazine describes how these organizations operate: “At a basic level, an ACO gives doctors, hospitals, and clinics the responsibility to provide care for a group of patients within a specified budget. If health-care providers better coordinate care to provide good quality for less money, they can share in the savings.”

The new approach provides a financial incentive to keep clients healthy. By providing consistent and coordinated care for Medicaid beneficiaries, many of whom have chronic conditions like asthma or mental illness, RCOs have the potential to increase health outcomes and reduce unnecessary emergency room visits and hospitalizations.

Currently, some, but not all of Medicaid’s most costly care recipients, will be covered under the new system. The aged, blind, and disabled make up 31 percent of the Medicaid population, but account for 66 percent of program spending. About 17 percent of those covered under the new RCO system would fall into this most expensive category. Those in nursing home care won’t be part of the current reform effort. The Medicaid Agency is exploring further reforms that would reach the rest of its beneficiaries.

According to the Medicaid Agency’s waiver application, “the anticipated growth of the aged, blind, and disabled population in the current system threatens the State’s ability to maintain even a modest benefit package and eligibility criteria for Medicaid beneficiaries, and highlights the necessity for Medicaid reform in Alabama.”

Approaches similar to the one Alabama is trying have shown promise elsewhere. The New York Times recently reported on the reduction of costs in the Rio Grande Valley in Texas. Based on an analysis of patient data, providers in the Rio Grande Valley Accountable Care Organization (ACO) in McAllen, Texas offered quick follow-ups from hospital visits, provided cell phones for patients who had trouble communicating with their doctors, and visited patients at home who could not get to offices. By focusing on high-risk patients, and shifting to preventative care for many others, the ACO was able to reduce costs and improve a variety of health indicators, such as the number of patients in control of diabetes and those receiving vaccinations.

Alabama hopes to have similar success in improving care and decreasing costs.

pdf version of med speding

Critical Dates for Implementing Medicaid Reforms in Alabama as Required by Law:

  • October 1, 2013 Medicaid establishes RCO regions (Complete)
  • October 1, 2014 Governing boards for each region approved (Awaiting Announcement)
  • April 1, 2015 RCOs must prove their ability to establish an adequate network
  • October 1, 2015 RCOs must meet solvency requirements
  • October 1, 2016 RCOs must demonstrate ability to provide services under a risk contract (RCOs start bearing risk) no later than this date

Alabama’s Ailing General Fund

When the new legislature convenes in 2015, it will face an old problem: a shortfall in the state’s $1.8 billion General Fund account. This time, state leaders are expecting as much as a $200 million gap between revenues available for fiscal 2016 and the appropriations needed to maintain services. Any such imbalance between revenues and expenditures must be eliminated when the Fund’s budget is adopted next spring.

This is a persistent problem.

For example, in Fiscal Year 2013 General Fund expenditures totaled over $1.7 billion, but the Fund’s continuing revenue sources brought in less than $1.5 billion, leaving a gap of $245 million that had to be supported in extraordinary ways.

On the revenue side, the FY 2013 gap was closed by enacting a law transferring $77 million of use tax revenue formerly earmarked to the Education Trust Fund, adopting temporary measures to produce another $23 million, and borrowing $146 million from the Alabama Trust Fund that will have to be repaid in later years.

These kinds of revenue strategies have been used repeatedly in recent years. For instance, in 2001 a number of sales-type taxes were transferred from the Education Trust Fund to the General Fund. The Legislative Fiscal Office counted over $1 billion of “intermittent” or temporary revenues used in balancing the General Fund from FY 2008 to FY 2013. And since FY 2010 the State has borrowed $599 million from the Alabama Trust Fund to support the General Fund budget. These borrowings must be repaid, and repayment schedules run to FY 2026.

On the spending side, the FY 2013 General Fund budget had to accommodate Medicaid and the Department of Corrections, which accounted for 56 percent of General Fund outlays. Ten years earlier, these two programs had required only 36 percent of the Fund’s expenditures.

corrections medicaid double whammy

The growth of Medicaid and Corrections has led to the crowding-out of other services that historically have been supported by the General Fund. A good example is support for the Unified Judicial System (UJS), which includes the state’s trial courts. Historically the UJS has received about 10 percent of General Fund appropriations, but by FY 2013 the percentage of the General Fund supporting the courts had been cut in half, to 5 percent.

The UJS is also a good example of how the Legislature has tried to cope with the General Fund cash shortage. In an attempt to make up for cuts from the General Fund, the Legislature increased fees charged to those who come before the courts. However, collection rates for court fees are low, in part no doubt due to the fact that the burden of paying the fees is high in some cases. This limits the effectiveness of the fee approach to increasing support for court operations.

What should be done?

There appears to be a growing consensus that something should be done to end the need for constant tinkering with the State’s General Fund. The solution is not likely to come from a top-down approach that focuses only on the total amount of the Fund’s revenues or expenditures. Rather, the General Fund must be analyzed in terms of what the state wishes to accomplish through the services that the General Fund supports.

The General Fund is an accounting entity that in most cases provides only some of the support for the programs to which it contributes. Establishing control over the General Fund’s finances requires an evaluation of the goals, strategies, and cost-effectiveness of the agencies themselves, and then providing them with stable support to achieve their purposes. Otherwise, there is no bottom line to determine what is an adequate level of General Fund revenue, and no way to measure the cost-effectiveness of General Fund spending. The General Fund can be structured to do its part only after this evaluation is done.

Alabama’s Budget Management Act calls for building the state’s budget in this way, from the bottom up. However, the Smart Budgeting System intended to implement this law was allowed to lapse a few years ago. Most other states have continued to work on tightening the connection between funding and results. Long-term, returning to the principles in the Budget Management Act is a must. Alabama’s state government cannot be successful without systematically measuring what is being accomplished with the tax dollars invested.

In the short term, the governor and the Legislature have launched efforts to think more strategically about our approach to managing the two largest and fastest-growing components of the General Fund, Medicaid and Corrections. In the Fall 2014 PARCA Quarterly, we describe those efforts.

gen fund pie

While Alabama incomes lag behind other states, so do the prices we pay

Earlier this year, the U.S. Bureau of Economic Analysis released a new way of looking at income and prices across the United States.

Income levels vary from state to state; but so do prices paid by consumers. Consequently, an individual’s standard of living depends not only on the income he or she earns, but on the local cost of living.

Here in Alabama we’ve long known that our personal per capita income, $35,926 in 2012, trails the national average for per capita income, $43,735 in 2012. Alabama’s per capita income ranked No. 43 among U.S. states (District of Columbia also included). However, the impact of that lower income is partially offset by the lower prices we pay, according the BEA.

BEA calculates what are called “regional price parities” (RPPs), which are price levels expressed as a percentage of the overall national price level. BEA uses U.S. Census Bureau and other survey data to determine the average prices paid by consumers for a mix of goods and services consumed in each region.

When looking at the results, Alabama’s big advantage over higher-priced states is the price of housing. BEA calculated that rents in Alabama are 63 percent of the national average, a level that is equal to West Virginia’s price of housing and lower than all other states except Arkansas and Mississippi.

In contrast, housing costs in Hawaii are 159 percent of the national average. Hawaii is followed by the District of Columbia (157 percent), California (147 percent), Alaska (142 percent), New Jersey (136 percent), and New York (135 percent)

Prices also vary within the state. According to BEA calculations, prices in Huntsville’s Metropolitan Statistical Area are closest to the national average while those in smaller metros like Dothan, Anniston, Gadsden, and Florence are relatively lower.  Again, housing prices play the major role.


Table 1. Local Prices Expressed as a Percentage of National Price

MSA All items Rents
Huntsville 91% 73%
Birmingham-Hoover 90% 71%
Montgomery 90% 71%
Daphne-Fairhope-Foley 89% (NA)
Tuscaloosa 89% 68%
Mobile 88% 64%
Auburn-Opelika 87% 77%
Decatur 87% 56%
Dothan 85% 56%
Anniston-Oxford-Jacksonville 85% 53%
Gadsden 85% 51%
Florence-Muscle Shoals 85% 50%


Using Regional Prices Parities and also adjusting for inflation since 2008, BEA recalculated personal income levels across the states. With the adjustments for cost of living, Alabama’s rank for per capita income rose to No. 36.

Table 2. Comparison of Per Capita income : US States

Making the same adjustment on income figures within the state of Alabama produces real per capita income levels for the state’s Metropolitan Statistical Areas listed in Table 3. The Table also lists real per capita income in U.S. Metropolitan Areas and for those areas outside of MSAs for comparison.


Table 3. Per Capita Income Adjusted for Local Cost of Living

MSA Real Per Capita Personal Income
Birmingham-Hoover  $44,038
Huntsville  $43,243
Daphne-Fairhope-Foley  $41,103
Dothan  $39,975
Montgomery  $39,916
Tuscaloosa  $37,335
Florence-Muscle Shoals  $37,331
Anniston-Oxford-Jacksonville  $36,782
Gadsden  $36,647
Decatur  $36,162
Mobile  $35,256
Auburn-Opelika  $32,992
United States (Nonmetropolitan Portion) $38,125
United States (Metropolitan Portion) $45,188

The Potential Economic Impact of Raising the High School Graduation Rate

Raising Alabama’s high school graduation rate to 90 percent would produce an economic impact to the state’s economy similar to landing an industrial mega-project, and that impact would be repeated each year the 90 percent rate is maintained, according to a new report released Saturday by the Business Education Alliance.


The report, authored by the Public Affairs Research Council with economic modeling performed by Auburn University at Montgomery Economics Professor Keivan Deravi, was commissioned by the BEA to quantify the potential benefits of the state’s education improvement plan, Plan 2020.

Presented Aug. 2 to the governor, legislators and business leaders assembled at the Business Council of Alabama’s annual governmental affairs conference at the Grand Hotel in Point Clear, the report models the impact of raising the graduation rate from the current 80 percent rate to Plan 2020’s goal of reaching 90 percent by 2020. (Presentation Slideshow, available here).

“Economic models prepared for this report predict that if we reach the goal by 2020, the state’s economic output will be $430 million greater that year than if our graduation rate were to remain at its current level,” the report finds. “Each year we sustain the 90 percent graduation rate, each class of graduates would be 5,643 larger, with 3,564 of them going into the workforce, resulting in a net addition of 1,167 more people employed. Each class graduating at 90 percent would collectively earn $68 million more than a class graduating at the 80 percent rate.”

On top of the direct impact from the new graduates, the increased employment and earnings would produce a multiplier effect, further stimulating the state’s economy.

Deravi describes the potential impact as a “permanent upward structural shock to the State’s economic resources.”

“As such, it will, continuously and exponentially, add to economic prosperity of the State’s economy,” Deravi said.

imageIf Plan 2020 succeeds in its aim of producing graduates who are better prepared for college and careers, the impact will be even greater. Those more highly-qualified graduates would be more likely to finish college, further raising the educational credentials of Alabama’s 21st Century workforce.

PARCA Executive Director Jim Williams describes Plan 2020 as a strategic opportunity akin to the one Alabama seized when it landed Mercedes.

“It’s a far more ambitious improvement plan than anything I have seen in my 26 years at PARCA,” Williams said.

While the marquee goal of Plan 2020 has been widely discussed, what is less well understood is that the Plan is much more than an announcement an ambitious goal.

Plan 2020 contains a host of specific strategies for improving Alabama’s educational offerings from the earliest years of a child’s life, straight through to focused planning for college and career.

It’s important for the state’s political, business, civic, and educational leadership to understand the comprehensive and interdependent mechanics of the plan. For Plan 2020’s goals to be realized, it will need a unified commitment to see it through to full implementation.

The report attempts to describe the breadth of the activity encompassed by Plan 2020. The Plan calls on the schools:

1. Start Early: by expanding Alabama’s First Class Pre-K program so that students enter school with a strong foundation.

2. Set High Expectations: by adopting new nationally-competitive educational standards which call on Alabama students to learn at the level expected of students in other states. Plan 2020 includes a more rigorous system of assessments that should provide a clearer picture of whether students are truly reaching the level of preparation needed for college and career readiness. The higher standards and more rigorous assessments are backed up by a new accountability system which will provide a better picture of which schools are getting the job done and which need to improve.

3. Break down barriers to learning: schools across the state are adopting a concerted approach for identifying and addressing factors that often lead to school failure. These include economic and educational disparities, attendance, academic and discipline problems.

4. Seek continuous improvement in teaching and leading: educators are being called on to teach students to a higher level and thus need support and resources to continuously improve their abilities to deliver in the classroom. The Plan calls for higher standards for teacher preparation programs, new productively-structured evaluations for educators, and mechanisms for recruiting the best and the brightest into the teaching field.

5. Equip Every Student with a Plan for Success and a Pathway to Prosperity: Plan 2020 seeks to better connect classroom learning to its applicability in the wider world. It includes initiatives to get students thinking earlier and more clearly about their future plans and mechanisms for engaging business with the education so that what’s taught in school prepares students for the demands of the modern workplace.

Government Services Go Digital: Alabama Making Improvements

New technologies provide opportunities for people to conduct business and allow governments to provide services in more efficient ways as well. Online banking and e-commerce websites have become more prevalent, raising expectations for how similar transactions should be done by state and local governments. What is becoming clear is that the technology alone is not a solution. Applying and using new technologies requires us to rethink the way we do business and how we deliver services to the public. So, how does Alabama compare with other states in our region when it comes to online services?

Alabama Graded in 50 State Report Card on Digital Services

The Center for Digital Government has released its review of state government websites in State of the Portal: A Review of the 50 States’ Online Offerings, 2013. The report scored state websites on eight broad areas that include:

· Adaptive Leadership

· Enterprise Information and Communication Technology

· Public Safety

· Health and Human Services

· Commerce, Labor and Tax

· Finance and Administration

· Energy and Transportation

· Open Governance

Among the 73 specific functional items included, Alabama state government provided 58 (66%), which earned the state a grade of “C.” However,Alabama ranks ahead of several Southeastern states including North Carolina and Georgia when it comes to the level of transactions using online government services. According to performance data in Governing’s Innovation Nation,  Alabama processed 7.7 million transactions, or 1.64 transactions per capita, through 165 online services.













States take different approaches to providing online services. In some states, the state government and government agencies design, manage and pay for the provision of online services. Other states charge fees to the users of online services. Often, that means the online service is developed and managed in partnership with an external partner.

Alabama’s tends to use the second approach, charging user fees for online services, with those services being designed and managed through partnership between the state and an external partner. The charts above and below, not only compare per capita transactions but also identify the approach the states use: either state-supported and state-run services or user fee-supported services developed with external partners.  According to the data, the states that make use of  user fees and external partnerships tends have higher rates of utilization in the Southeast. This more open management structure, in contrast to a the state designing and managing its services by itself,  allows for more input and flexibility with design. Alabama appears to be on the right track with this approach.














Alabama is continuing to work on improvements. Among Alabama’s e-government priorities were adding vital records services, consolidating inmate banking applications, and making kiosks available to citizens for additional services. The Center noted that Alabama had received some recent recognition as well. It ranked  first in the Center for Digital Government’s 2012 Best of the Web award program and Juggle.com listed Alabama.gov as a Top Government Website. The report also notes that. “Alabama’s portal is a leader in presenting various social media platforms and options to citizens. Visitors can scroll over “Share and Follow” — and gain immediate access to the state’s Facebook, Twitter, YouTube and Flickr pages while also being connected to a comprehensive list of all state leader and agency social media accounts.” Despite these achievements, Alabama received a “C” overall. States getting an “A” included Utah and Michigan, while California, Minnesota, Ohio, Pennsylvania, Tennessee, and West Virginia were rated as “A-” in the Center’s report card.

Some of the report’s general findings are shown below (annotated with reference to Alabama).

– 100 percent of states offer some combination of online business and personal tax filing.
– 92 percent of states give automobile owners an online option for renewing license plates. (Alabama does not; this is a county function in Alabama.)
– 94 percent of states offer online business registration services, a growing number of which take an all-agency one-stop approach to collecting information one time and using it many times to meet previously  discrete licensing or registration requirements. (Alabama does multi-agency services.)
– 90 percent of states let residents make online requests for copies of birth, death, marriage, divorce and adoption certificates. (Alabama does.)
– 98 percent of states send important notifications via text message to users who sign up. (Alabama does not.)
– 70 percent of states accept payments for fines online. (Alabama does.)
– 60 percent offer interactive customer service online, including 24/7 live chat in a significant number of states. (Alabama does not.)
– 56 percent offer a mobile site for smartphone users. (Alabama does.)

The one area where Alabama missed the most opportunities was in a section called “Crowdsourcing” that allowed users to provide customer satisfaction, feedback and ideas, market research (such as a five-second test for usability), mobile apps, maps and data visualization. Other key areas for improvement were online driver’s license renewals and temporary license plates.

Planning is Key

In a recent article by Governing, entitled “Why Do Some Governments Struggle to Make Online Services Viable?” poor planning is cited as the main obstacle to making online services viable. The author, Tom Newcombe, notes that

“…some recent audits have revealed that many states and localities (along with the federal government) continue to struggle with how to build an online service that lets citizens and businesses transact with government in a simple and effective manner, and they lack a strategic plan for developing new services. The result can be confusion for many who want to interact with government online and lost opportunities for governments that are looking for new ways to deliver services at the lowest cost possible.

Strategic planning is a process that helps public officials determine the future direction for a department, agency or entire government. In practice in the public sector since the 1960s, strategic planning differs from other types of plans because it allows senior management to assess where their organization is now, what its future will be and how to get there by setting goals and objectives. As the use of information technology has surged in the face of a declining workforce, cities and states are starting to recognize the importance of including future online services in the strategic planning process. But the practice is far from universal.”

Improving State Government: Technology Officer and Planning

Governor Bentley’s Commission on Improving State Government, chaired by Lt. Gov. Kay Ivey, has provided people with a means of providing suggestions for improving government. The Commission on Improving State Government developed a number of recommendations related to using online technology to save money and improve services. Included among other recommendations were the establishment of a state technology officer and a plan for implementing modern financial and business management systems and administrative processes.  For example, among the Commission’s recommendations was to

“…implement an employee portal (portal) for all state employees to provide online access to payroll/ leave data and W-2s. Implement a pay card for employees not on direct deposit and stop printing paper payroll warrants and direct deposit advices.”

Together with an online time and attendance program, the cost savings for implementing was estimated at over $1.8 million annually. As these recommendations are implemented, Alabama will be competitive with other states in offering efficient, customer-focused services to the public.

Spreading the Message to Cities, Counties, and Changing the Way We Do Business

One of the most eagerly awaited improvements in local government was the implementation of a new car tag and registration system in Jefferson County. Several media outlets covered the long lines at the Jefferson County Courthouse, where people frequently spent hours trying to get their vehicles registered. New software has allowed the lines to be shortened and administrators report that morale among county employees has improved.

Despite losing the occupational tax and seeing dramatically declining revenues, the county was able to leverage technology to adapt to the new fiscal reality. This is one example of how cities and counties can take advantage of new ways to do business. Other ways to be more efficient are on the horizon, as digital signatures and even e-notary services are spreading.

Facilitated by a series of federal laws, some states have adopted electronic notarization. While most still require the physical presence of the parties, the ability to make the notarization available online saves time and expense in transferring documents. In all, 18 states have some sort of provision for e-notarization. The Commonwealth of Virginia is the only state known to allow signers to be in another location at the time. As better security technologies become available, that practice may spread as well.

Remembering That Not Everyone is Online: The Digital Divide is Still Alive

One of the most important things to remember is that despite great improvements in the availability of online services in both the private and public sector, there are still many people who are not online and many of those people have the greatest need for assistance. In 2013, The Pew Research Internet Project found that 15% of American adults do not use the internet at all, and another 9% of adults use the internet but not at home. Population groups that are significantly more likely to rely on internet access outside the home include blacks and Hispanics, as well as adults at lower levels of income and education.

The so-called ‘digital divide’ remains a problem for many, but the problem, like the technology, has shifted. The wide availability of smart phones has changed the profile of how people are connected. In another report, Pew found that while seven in ten American adults have a high-speed broadband connection at home, another one in ten Americans do not have broadband but do own a smartphone. Services optimized for delivery and interaction with smart phones will continue to be an ongoing endeavor for the foreseeable future. With all the changes in technology, one of the emerging issues is security and safety in the digital world.

Courthouse Fires Eliminated, but Firewalls are Still Needed

In Alabama, there have been at least 52 fires at county courthouses, with some burning multiple times. The latest fire was in Marengo County in 1965 (See map from the University of Alabama here.). In the past the ability to locate important legal documents was sometimes hampered by fires or floods. Other hazards await digital records including issues related to privacy and security. That problem is expected to grow along with the ease that online services provide. Electronic tampering with records, intercepting communications, and malicious destruction of databases and other catastrophes, such as solar storms, pose serious threats to providing many of the services that make new technologies convenient. As these technologies are more widely adopted, vulnerabilities are likely to be exposed and exploited.

The way we think about budgeting and planning for services will need to change as well. It is clear that users are willing to take advantage of the convenience and ease of online service, even when there is a marginal fee involved. Flexibility in governance, with input from outside the state government is crucial for designing functional, efficient systems. The infrastructure of vaults and locked doors of the past will not be sufficient as business hours extent to 24 hours a day, seven days a week. New technologies will require the ability to adapt, retrain, reschedule, and revise rules and procedures designed for using other technologies. Investments in technologies will also require special skills, like the ability to assess the risks of adopting new equipment and software.

Unlike the bricks and mortar investments of the past, which lasted for 30 years or more, new technologies have much shorter shelf-lives and may be obsolete much sooner. Capital budgets that assume the old infrastructure need to be questioned as well as building designs that assume large stores of paper copies or expose equipment to heat or humidity. Wherever new technologies are adopted, the knowledge and skills required to maintain, secure, and support those technologies will change as well. Planners will also need to think about what that means for the government workforce of the future.

SAIL-ing to academic gains

Summer Adventures in Learning, the Birmingham-centered collaborative of summer learning programs, has expanded to 30 sites this summer offering academically-enriched summer recreational camps, primarily to low-income children.

Children from low-income families often re-enter school in the fall having given up academic progress they’ve made during the school year. SAIL aims to counter this phenomenon, known as the “summer slide,” by providing learning opportunities along with summer fun. The most successful of these programs have seen children make two to three months of academic gain rather than the typical two to three months of slippage that low-income students typically experience.

SAIL was launched in 2012 with the support of six funding foundations and organizations. In 2014, ten funders have provided a total of $675,000 enrichment grants, an increase from the $500,000 provided in 2013. The programs are being offered throughout the Birmingham region, spreading out as far as Jasper and Pinson to the north and Alabaster to the south.

PARCA is assisting in the administration of testing for the students before they begin the programs and as they complete them. The results are used to identify the success of particular models and approaches and flag areas needing improvement. Since early June, 1,344 students have taken STAR assessments for Renaissance Learning, a testing program widely used in public schools. Testing has been conducted at computer labs at multiple Birmingham City and Jefferson County Schools and with the assistance of computer resources from the Woodlawn Innovation Network and Blue Cross Blue Shield. Testing will be performed again at the end of the camps, which typically last five to six weeks.

SAIL funding organizations include the Alabama Power Foundation, the Belk Foundation, the Joseph S Bruno Foundation, the Caring Foundation (Blue Cross and Blue Shield), the Community Foundation of Greater Birmingham, the Daniel Foundation of Alabama, the Mike & Gillian Goodrich Foundation, the Independent Presbyterian Church Foundation, the Junior League of Birmingham, and the United Way of Central Birmingham. The supporters meet throughout the year with the summer camps and instructional providers to examine the generated data, to learn from each other, to devise quality standards, and to exchange cost-effective solutions to common problems.