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

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 budget 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.

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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.

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Alabama once again ranks last in per capita state and local tax collections, according to new data released by the U.S. Census Bureau. Alabama has consistently maintained its No. 50 ranking since the early 1990s.

As a result, Alabama state and local governments have less to spend than governments in other states when providing services to the public. This lack of revenue is an underlying factor in the state’s recurring budget problems. The Governor and Legislature struggle to find enough money to adequately support the functions of state government. In the past several years, the government has made cuts to programs, borrowed from the state savings account, and applied one-time sources of money to balance the budget.

In 2015, the Legislature couldn’t agree on a General Fund budget until September, putting in place a budget just before October, the beginning of the 2016 fiscal year. Again, agencies’ budgets were cut, funds were shuffled between accounts, and modest tax increases were passed to balance a bare bones budget. The most recent comparative data available from the Census is from 2013, so the effects of the tax changes made in 2015 won’t show up for several years. However, the minor changes are unlikely to affect Alabama’s No. 50 ranking.

Low taxes per capita don’t necessarily mean low tax burdens for everyone. A mix of different taxes make up total tax collections, and each state structures its taxes differently. There are three principal types of state and local taxes: property, income, and sales. A tax system that is balanced among these three sources promotes fairness and stability. Alabama’s tax system is not balanced. Alabama has the lowest property tax collections in the country. To make up the difference, Alabama relies more heavily on sales taxes.

The rules governing how taxes are applied also makes a difference in who pays them. In Alabama, property taxes are structured in a way that benefits homeowners, and owners of land in use for agriculture or timber. Commercial and utility property owners pay more than those protected classes.

Meanwhile, Alabama’s average combined state and local sales tax rates are 4th highest in the country, according to the Tax Foundation. Those taxes fall most heavily on low-income Alabamians since they spend a greater share of income on goods that are taxed. Many states attempt to lighten the burden by exempting groceries from the sales tax or giving an income tax rebate to low-income families. According to the Center for Budget and Policy Priorities, only two states, Alabama and Mississippi, allow the full weight of the sales tax to apply to groceries.

Concerning the income tax, most states employ measures to minimize the income tax that low-income households have to pay. Alabama, by contrast, begins taxing income at one of the lowest thresholds in the U.S. Alabama is one of only three states that allows taxpayers to fully deduct federal income tax paid, when calculating their tax bill. That tax break provides a larger benefit for more affluent families, who pay more in federal taxes.

Here’s how Alabama tax revenues per capita rank in the various categories of taxation.

Alabama has low tax collections per capita for two reasons: low tax rates and a relatively small tax base. One way to measure a state’s tax base is to look at gross domestic product, the value of all goods and services produced in a state. Alabama ranks 45th among U.S. states on GDP per capita. In the Southeast, Louisiana, North Carolina, Georgia, Tennessee, Kentucky, and Florida have higher per capita GDP than Alabama. Arkansas, South Carolina, and Mississippi have lower per capita GDP. Alabama applies low tax rates to a smaller taxable base to produce the lowest taxes per capita, not only in the region, but also in the nation at large.

In the interactive presentation below, Alabama’s tax collections are compared to other Southeastern states. In general, these states have similar demographics and similar attitudes toward taxes and the size of government. Using the geography menu, you can change the comparison states.

Like many cities, Mobile, Ala., didn’t even know how many blighted properties it had. Instagram offered a cheap and simple way to start figuring that out.

Mobile’s use of social media tools to combat urban blight is featured in a recent post on Governing Magazine’s States and Localities blog. Read about the work of Mobile’s innovation team, which was made possible by a three-year $1.65 million grant from Bloomberg Philanthropies.

Source: How Mobile, Alabama, Used Instagram to Address Blight

Despite the healthy economy, the state’s General Fund posted its usual sputtering performance in 2015, according to the state’s year-end revenue collection reports.

The General Fund, which supports the non-education functions of state government, received about $1.8 billion in 2015, up from approximately $1.7 billion in 2014. However, that total includes a $105 million transfer from a business tax escrow account. Without that one-time transfer, General Fund revenue collections would have been up just 1.4 percent over 2014. And in both 2014 and 2015, the General Fund was supplemented with $146 million in borrowing from the Alabama Trust Fund.

Neither the $146 million nor the $105 million will be available for 2016. That’s the scenario that set the stage for the Legislature’s protracted struggle to pass a budget for 2016. Anticipating that $251 million hole, the Legislature balanced the 2016 General Fund budget by cutting state agencies, adding some new revenue by raising the cigarette tax, and shifting more of the use tax from the Education Trust Fund to the General Fund.

Those measures will allow the General Fund to sputter along another year, but they won’t solve the long-term problem: The General Fund’s hodgepodge of taxes don’t grow at the same rate as the economy. As the cost of those non-education services rises, the General Fund doesn’t keep pace.

The chart below lists the revenue sources that supply the General Fund and compares performance in 2015 to collections in 2014. A discussion of major fluctuations follows the chart.

Abandoned Property: Each year, financial institutions and businesses that lose contact with the customers turn millions of dollars over to the Alabama Treasurer’s Office. The State Treasury attempt to return the assets — cash, stocks, bonds, insurance benefits and even valuables from safe deposit boxes — to the rightful owners. Currently, the state has about $420 million in unclaimed assets, each year some small portion of that is released to the General Fund. The distribution was higher in 2015 than in 2014, but according to state financial officials the $20 million increase in the 2015 distribution was due to the normal variation.

Corporation Tax: The big jump in the revenue from this tax comes from a one-time distribution of $105 million from an escrow account. Money was being held in that escrow account to pay back companies that paid a now-defunct franchise tax. That tax was ruled unconstitutional, and the money has been gradually paid back from this escrow account set up to pay the claims. That payback process is now over, and the remaining money was deposited into the General Fund in 2015.

Use Tax: The use tax is the sales tax as applied to goods purchased from another state. Traditionally, sales and use taxes have gone to the Education Trust Fund, but in recent years the Legislature has shifted some of the use tax into the General Fund, adding a growth tax to the General Fund. The “Use Tax Remote” is the use tax on sales made across state lines over the Internet. That portion of the use tax has been growing at a healthy pace. For 2016, even more of the use tax will be shifted from the Education Trust Fund to the General Fund. The Legislature estimates that the change will add another $80 million to the General Fund.

Cigarette Tax: Revenue from the tax on cigarettes continued a multi-year decline corresponding to declining smoking rates. The 1 percent drop would have been steeper if not for a rush to stock up on cigarettes in September. Cigarette packs purchased in September weren’t subject to the 25 cents per pack increase that went into effect Oct. 1. The Legislature estimates the higher tax on cigarettes will generate $66 million in additional revenue in 2016.

Oil and Gas Production Tax: In 2015, revenue from this tax on the value of sales of gas and oil produced in the state declined by $30 million due to falling prices of oil and natural gas.

Alabama Trust Fund: Revenue from the Alabama Trust Fund declined. This distribution is based on the size of the state oil and gas trust fund. Since the state has been drawing $146 million a year out of the fund for the past three years to pay for operations, the regular distribution is shrinking, despite positive returns on investments. In 2016, the borrowing ends but the long term effect of the withdrawals will be felt for years to come.

Cellular Phone Tax: This tax on cellular phone minutes continues to drop since cell phone companies have been shifting customers to data plans, which are not subject to the tax.

Looking at other sources, higher revenue from alcoholic beverage sales drove up profits from the state’s Alcoholic Beverage Control Board. Revenue coming from the interest on state deposits was down as interest rates continue to be low. However, banks showed signs of better profits, leading to an increase in collections of the Financial Institutions Excise Tax.

With the passage of the state’s general fund budget last week, PARCA Senior Research Associate Tom Spencer took a moment to sit down with WBHM’s Andrew Yeager to provide an overview of the budget and how some of the key departments will be affected.

“Medicaid, prisons, and education had strategic plans in place,” said Spencer. He says that allows lawmakers to make budgeting decisions for those parts of state government within an existing framework. That kind of planning doesn’t happen with other general fund agencies. With cuts to many agencies starting at 6 percent and no strategic plans in place, it’s hard to know the effects it will have on those agencies.

“We spent a lot of time [in the special session] with proposals coming from left and right about what to close and what to eliminate,” said Spencer. “They weren’t really based, in a lot of cases, on good solid information or well-thought-out plans.”

PARCA has recommended for years that the state adopt a system called performance-based budgeting. Performance based budgeting differs from other budgeting methods by focusing on policy goals and results rather than money spent.

“Figure out where you are, set a goal of where you want to go, identify the strategies that will get you to where you want to go, show what kind of investments need to be made, and pursue that. Measure your results, discard things that aren’t working and adopt different strategies,” Spencer said.

“State and local taxes are the lowest per capita in the United States of America. We have to run more efficiently than anybody else if we want to provide the same level of services. If we’re not asking tough questions and paying close attention to the bottom line, we’re not going to get good results.”

 Click here to listen to the full interview.

With the Governor and Legislature still at odds over how to solve a $250 million shortfall in the state’s General Fund, we thought it would be useful to again call attention to two essential underlying problems that explain why we are in the current predicament. PARCA has written about both recently and, over the past two decades, frequently.

1. Alabama state and local governments collect less tax revenue per capita than any other state in the United States. Governments here have less to work with when trying to provide services equivalent to those offered in other states.

2. Alabama doesn’t budget, in a meaningful sense. In the absence of a budgeting system that prioritizes investments and measures results, the Governor and Legislature simply try to balance revenue with expenditures, resorting to borrowing and shuffling money between accounts in times of scarcity.

Starting last fall, PARCA wrote about the building budget crunch coming in the state General Fund. Our annual meeting featured promising plans to unpack our overcrowded prisons and reform the way Medicaid works in Alabama. The long-term intent of both of those reform efforts were to put in place more effective approaches that would save money in the long run. Both plans will fall apart under the no-new-revenue General Fund budgets that have been passed and vetoed thus far. Failure to address the prison problems could lead to federal takeover. The potential damage to Medicaid will have serious consequences for the entire health care system. This memo produced by state agency heads this spring gives a concise assessment of what the no-new-revenue budget would mean for the courts, mental health, public safety, state parks, environmental enforcement, and a host of other state services.

The governor has proposed a package of taxes that his office anticipates would raise $300 million more per year. If that package were to pass and the projected revenue were generated, Alabama would still rank 50th in per capita tax collections.

Speaking before a sell-out crowd of more than 400 at the Harbert Center on Friday, Feb. 13, Gov. Robert Bentley said he will propose bold solutions in the face of a steep budget shortfall.

In his luncheon address, Bentley said that during his first term he had held the line on spending, shrunk the state workforce, and encouraged efficiency and reform. While efforts along those lines will continue in his second term, Bentley has concluded that additional tax revenue is needed for the state to balance its budgets. The state faces a shortfall in the general fund budget of more than $250 million. The state’s spending on education is still below its pre-recession levels.

Bentley’s remarks followed a morning of presentations on major areas of state spending: Corrections, Medicaid, and education. In each of those areas, leaders have examined the current situation, set goals for improvement, and devised strategies to pursue those goals.

In all three cases, investments in reforms should avert higher costs in the future and produce better outcomes for citizens.  PARCA Executive Director Jim Williams said the careful analysis and goal-oriented thinking in these departments should be an inspiration to the rest of state government. It points toward a better approach to management and budgeting, which is vitally important in a state that collects less tax revenue per capita than any other.

The morning featured the following presentations:

State Sen. Cam Ward and Alabama Sentencing Commission Executive Director Bennet Wright spoke on solutions to the state’s prison overcrowding problem. Wright outlined proposed changes to sentencing, prisons, and community supervision.

Alabama State Health Officer Don Williamson explained plans to move more beneficiaries of the Alabama Medicaid System away from fee-for-service system into managed care.

Care Network of East Alabama Executive Director Kim Eason and Chronic Care Coordinator Julie Wells explained how a pilot version of Medicaid’s new approach is working to improve patient outcomes and decrease use of costly hospital care.

And finally, Alabama State Superintendent of Schools Tommy Bice presented an update on the progress of Plan 2020. The high school graduation rate is climbing, but schools have serious challenges ahead in closing the achievement gap between low income students and their middle class peers and in making sure high school graduates are ready for college and career.  Some of those challenges are illustrated in graphics from Jim Williams’ presentation, on Producing College and Career Ready Graduates.

According to a new poll of public opinion commissioned by the Public Affairs Research Council of Alabama, state residents would be willing to pay more in taxes to avoid budget cuts in key areas like education, health care, and public safety. However, the public remains distrustful of government’s ability to spend tax dollars wisely.

The results serve as a backdrop to PARCA’s annual meeting, Feb. 13 at the Harbert Center in Birmingham. The meeting will focus on initiatives by leaders in those key areas to improve public trust through goal-oriented planning, targeted investment, and the transparent tracking and reporting of results.  The poll results are also relevant to lawmakers as they consider how to close a budget shortfall and improve budgeting practices.

The survey of almost 600 Alabamians was conducted between January 5 and January 21. Each year, The Public Affairs Research Council of Alabama commissions a survey of public opinion to gauge Alabamian’s attitudes toward government and the issues facing the state. 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. Text of the questions and results of the survey can be accessed here. You can find the survey results presented graphically here.

The PARCA poll found strong support for increased spending on a variety of educational priorities. It also found public support for more investment in rehabilitation of prisoners in the interest of cutting down on criminal recidivism. Also, a majority of those polled said they support expanding Medicaid to cover more low-income individuals, including childless adults.

One of the most striking things about poll results is that, on a host of issues, there is broadly-based public consensus, a set of shared opinions that  cut across demographic and partisan lines. The one exception to that in this year’s poll, Medicaid expansion, is discussed below.

The poll results contrast with the perception that voters are deeply divided along ideological lines. This year’s results are similar to the findings of PARCA polls in previous years, which have consistently found widely shared priorities.

This year’s poll finds that among the four top areas of state expenditure — education, health care, public safety and highways —  Alabamians rank education spending are the state’s most important area of investment. Health care comes in second. Public safety comes in third, with highways ranked fourth.

A strong majority of respondents said they’d be willing to pay more in taxes to avoid cuts in public education (63 percent) and health care (57 percent). A majority said they would be willing to pay more in taxes to avoid cuts in public safety.

Focusing on education, the poll found that 79 percent of Alabamians believe that the level of funding in schools does make a difference in the quality of education provided. And 67 percent believe that too little is being spent on public education in Alabama. However, 63 percent of those polled said they thought that the money that currently goes to education is not being spent properly. Some of that sentiment may reflect Alabamian’s general distrust of government. However, in past PARCA surveys, further questioning on this subject revealed that some of that perception of improper spending stems from factors linked to inadequate spending. For instance, respondents pointed to old and tattered textbooks or parents having to pay for classroom supplies as evidence that money in education was not being properly spent. Strong majorities of those polled believed that more money should be spent in schools in a variety of categories and that the state should play a role in equalizing funding for school systems that lack resources.

Turning to corrections, the poll indicates the public believes we should be doing a better job of rehabilitating prisoners than we are currently doing. As the state grapples with a prison overcrowding problem, public support for increased investment in rehabilitation and treatment is stronger than support for simply building more prison space.

On Medicaid, there was almost universal agreement (95 percent of those polled) that the state should provide a medical safety net for low-income children, pregnant mothers, and seniors. A majority of those polled said they supported expanding Medicaid by taking advantage of federal incentives to help pay for the extension of health coverage to low-income adults, who are currently not covered.

However, it should be noted that this was the one question in the survey that produced a division along party lines.   Nearly 76 percent of those identifying themselves as Democrats favored expansion, and expansion was supported by 53 percent of those who classified themselves as either independents or as having no partisan affiliation.  However, among Republicans, 54 percent supported keeping Alabama Medicaid as it currently is, rather than expanding it.