State Budget: Not Out of the Woods Yet

On Sept. 18 Alabamians voted to supplement the state’s general fund operating budget by transferring $437 million from the Alabama Trust Fund (ATF) over the next three years. The general fund budget is smaller today than in 2008; it would have been unbalanced without money from the state’s “savings account,” forcing the governor to make significant reductions.  

This is a continuing problem.  The general fund received millions in federal subsidies from 2009–2011. It also received $162 million from the ATF in 2009, which the state must pay back over 10 years. Although the new transfers do not require repayment, state officials have publicly committed to doing so. This will mean taking $600 million from future general fund revenues to repay the ATF rather than provide services.

Clearly the state budget is not out of the woods yet. It needs  more revenue growth and better spending controls. 

The state’s general fund revenues always have been anemic, due in part to low taxes. Alabama has collected the lowest state and local tax revenues per capita in 23 of the past 25 years, and we earmark 84 percent of state taxes. Most high-growth taxes belong to the separate education budget. While the Legislature has moved some earmarked money to the general fund, doing more is controversial. 

Key Alabama officials have a “no new taxes” stance but support action by Congress so that states can collect existing taxes on Internet, mail order and telephone transactions with out-of-state companies. This might raise more than $200 million annually, half going to the state.

Medicaid consumes more than a third of the general fund budget. Federal rules hamper control of its costs and unfairly reduce funding to high-poverty states like Alabama. The presidential candidates want to change the program in very different ways, and states will have to make major decisions regardless of who wins. 

Alabama’s path out of the woods also must include a bigger commitment to setting goals and tracking performance within state agencies, and better control over processes like the use of technology that promise savings across agency lines.  Otherwise it’s likely that in the future state officials will again have to decide how to bail out the general fund budget.

EDITOR’S NOTE — Jim Williams is executive director for the nonprofit, nonpartisan Public Affairs Research Council of Alabama.