The Legislative Fiscal Office brought gloomy estimates of state finances to members of the Legislature at their December orientation meeting. The staff report suggests that in 2011, lawmakers will have to make large midyear cuts in the current state budgets, and they face big shortfalls in putting together next year’s spending plans.
About a third of the 140 legislative seats are occupied by new members, and the Legislature will have new leadership in both houses because of the change from a Democratic majority to a Republican majority. The combination of high legislative turnover, leadership changes and tough economic circumstances will make the next two years a critical time for state finances.
Alabama’s biggest budget covers public education from kindergarten through the university level. Its revenues come mainly from income taxes (55.6 percent) and various kinds of sales and use taxes (42.5 percent). These are the state’s best growth taxes in good times, and they rarely decline from year to year. However, because of the Great Recession, income taxes in 2009 fell by 7.9 percent and the general sales tax by 9.9 percent.
Expenditures in the state’s Education Trust Fund fell by $1.5 billion from 2008 to 2010, but much more remains to be cut. The legislative staff estimates that education appropriations for 2011 are almost $126 million too high. In 2012, temporary federal funds will disappear from the state budget ($298 million) and local school budgets (another $302 million). Within the next four years, the state must repay $437.5 million borrowed from a rainy-day account.
Alabama’s General Fund draws on a number of smaller revenue sources, and often depends on one-time money. About half of the expenditures from this fund go for medical assistance to the poor and elderly (Medicaid) and to the prison system (Department of Corrections). From 2008 to 2010, General Fund receipts fell by 21 percent and expenditures dropped by $326 million.
In this budget, more cutbacks are needed. The legislative staff estimates that appropriations for 2011 are almost $126 million too high. In addition, $235 million of temporary federal funds will disappear in 2012, along with $153 million of one-time state revenues. Within the next 10 years, the state must repay $161.6 million borrowed from a rainy-day account.
EDITOR’S NOTE — Jim Williams is executive director for the nonprofit, nonpartisan Public Affairs Research Council of Alabama. Jim may be contacted at jwwillia@samford.edu.
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