When the Alabama Legislature convenes in March, its major challenge will be how to balance the state’s two large budget accounts, which are the Education Trust Fund (ETF) and the General Fund. Neither budget is larger today than it was when state finances peaked in 2008. The state has fallen behind in its obligations. Improvement plans are being developed but where will the resources be found to cover them?
The General Fund is a major funding source for services other than education. It is budgeted to spend $1.8 billion in 2015, about the same as seven years ago. Regular income to the fund from its continuing sources is expected to total only $1.5 billion. “Intermittent” sources are counted on to provide the rest. For 2016 a funding gap of $250 million or more is forecast. Over the next 10 years, the fund must repay $600 million borrowed for short-term budget balance in the recent past.
The two largest General Fund expenditures are for Medicaid, which provides health care to the poor, and Corrections. Plans are being developed to reduce prison overcrowding and control Medicaid costs while improving health outcomes but in the short run, expenditure demands continue to rise. Other essential services have been squeezed as well. The courts for example have been forced to rely heavily on fees that have proven hard to collect. Money earmarked for highways and education has been transferred to cover some of the General Fund’s needs.
The ETF, the major funding source for the state’s education programs, draws its revenues mainly from the state’s growth-related taxes on income and sales. This has created a false impression that education is relatively well-funded, leading some to propose unearmarking as a budget solution. However, the ETF actually is budgeted to spend $800 million less this year than in 2008, a bigger reduction than the General Fund is experiencing.
Investing wisely
Formulas that fund the public schools have not been restored to their pre-recession levels. Meanwhile an ambitious plan to improve educational performance by 2020 can succeed only by investing wisely in programs that make a difference.
It seems clear that additional resources are needed to meet the state’s goals for educational improvement and cost-effectiveness in Medicaid and Corrections, as well as to cover General Fund obligations in other areas. Despite the Census Bureau’s recent data showing that Alabama continues to have the lowest taxes per capita in the United States, finding where to get the money will be hard work.
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