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Finance, Revenue officials suggest reforms for budget process

Chip Brownlee | The Trace

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By Chip Brownlee
Alabama Political Reporter

MONTGOMERY—Legislators are attempting to find a long-term fix for Alabama’s seemingly endless General Fund budgeting woes. But that long-term fix seems far in the distance.

Today, officials from the executive branch offered their input to the Legislative Task Force on Budget Reform, a joint committee of the Alabama Legislature tasked with finding that solution.

Newly appointed State Finance Director Clinton Carter posed several ideas to the joint committee, including reforming agency budget rollovers and implementing a “race to the bottom” budgeting concept.

Currently, State agencies are allowed to “roll over” their budget surpluses to the next year. The Legislature began allowing the rollovers to encourage agencies to conserve money that may be left over at the end of the State’s fiscal year.

“Having funds that are left over implies that a group might be over funded,” Carter said Wednesday. “[Agencies] might go out, in theory, and spend money on inefficient activities and things that aren’t necessary. You would sometimes see money spent on large-ticket items, automobiles, computers. The idea of budget rollover is designed to attack just that.”

The problem is that some groups can begin accumulating large sums of carryover funds, or “war chests” as Carter put it. In 2015 and 2016, ALEA carried over more than $30 million. The Alabama Department of Transportation carried over more than a billion dollars last year.

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Having the war chests isn’t necessarily a bad thing. Large carryovers can soften the blow of a budget cut and, in theory, could allow the Legislature to reappropriate funds to agencies with slimmer budgets. That is if they truly knew how much money agencies had in carryover.

Earlier this year, Sen. Phil Williams, R-Rainbow City, sent letters to State agencies and higher-ed institutions to request more information on their carryover budgets. He wanted to have that info for next year’s budget hearings. Some agencies complied, but others didn’t.

Carter, who was appointed by Gov. Robert Bentley earlier this fall, suggested the Reform Task Force look into reforming the budget carryover rules, perhaps to allow agencies to keep between 80 percent of surplus funding. The other 20 percent of the carry-over funds would be reclaimed for the General Fund.

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The split concept would have a minimal-enough impact on agencies’ carryovers to continue encouraging agencies to save money and discouraging spending on frivolous items, Carter said. But it would also allow a bump to the General Fund.

“An 80–20 split, with last year’s carryovers of about $50 million, would result in about a $10 million increase directly to one of the budgets that is most troubled or most hit,” Carter said.

The reform to budget carryovers was not Carter’s only suggestion. While speaking in front of the panel of representatives and senators, the new Finance Director also suggested encouraging, perhaps through legislation, a form of “race to the bottom” budgeting.

As things stand now, most agency budgets are slight modifications over the previous year’s budget. Some agencies get a bump; others get a cut. But for the most part, most agencies’ budgets are only a few percent’s difference from the last year’s.

However, when agencies come to the State’s Department of Finance to begin the budgeting process, many come with requests for budget increases of 30 or 40 percent. Carter said this makes it hard for the department to determine what an agency’s priority is.

To solve this issue, and save money for the General Fund, Carter suggested the Legislature encourage the race to the bottom approach, which would reward the agency with the slimmest request by granting that agency most or all of its request.

The agencies with larger budget increase requests wouldn’t receive as much, hopefully encouraging them to prioritize what they ask for from the General Fund.

Some Task Force members, including Sen. Bill Holtzclaw, R-Madison, seemed concerned that this approach could negatively affect some universities and agencies that are still attempting to catch up from the Great Recession’s budget cuts.

Carter was not the only official from the Executive Branch to present to the Task Force today. Michael Gamble and Joe Garrett, deputy commissioners from the Revenue Department, also proposed ideas to increase the State’s meager revenues.

Gamble said the State needs to modernize its Digital Goods taxes to catch up with the new digital economy, which is moving away from brick-and-mortar stores to online sales from companies like Amazon and others.

“The economy is moving,” Gamble said. “I used to go to the Blockbuster, and I paid rental taxes that went to the General Fund. Now, I sit at home and rent my movie online.”

Garrett, presenting before Gamble, said the changing economy has left the State’s taxes and revenues in bad shape, and for a state that heavily relies on sales taxes, that’s not good news. It has made the state rely heavily on its income taxes

Combined with extremely low property taxes, which are some of the lowest in the country, the decreasing sales tax revenue has made the state rely heavily on its income taxes.

In the 1960s, every dollar of income tax collected was matched by more than $2 of sales tax collected. Now, for every dollar of income tax, there are only 66 cents of sales tax collected. If the sales tax revenues had grown at a rate equal to income taxes, an additional $5.7 billion in revenue would be available for the General Fund.

“This trend is not going to stop,” Garrett said. “The sales tax base is not going to grow.”

The two officials said the State needs to catch up by beginning to tax the parts of the economies that have grown in recent years but have evaded taxation thus far, including online sales, which have only an optional sales tax now; online streaming; and the sharing economy, including Uber, Airbnb and others.

“We used to tax about two-thirds of the economy with our sales tax,” Garrett said. “Today, we only tax about one-third of our economy.”

Amazon began collecting an optional online 8-percent sales tax on Nov. 1 after choosing voluntarily to work with the state on the program. Thus far, revenue for the online sales taxes has exceeded $5 million.

The State is destined for another contentious Legislative Session in the spring that will see legislators, yet again, struggle to balance the General Fund as costs rise in the State’s Medicaid Agency and the Department of Corrections.

Revenues that provide money to the State General Fund remain stagnant despite the improving economy. For years, the Legislature has tried to balance the stagnant revenues with the growing costs but have avoided new taxes or other forms of revenue.

In 2015, the Legislature borrowed $80 million from the Education Trust Fund and increased some sin taxes to prop up the General Fund’s $200 million shortfall.

In September of this year, the Legislature used money from a settlement with BP over the 2011 Deepwater Horizon oil spill to prop up an $85 million shortfall in the Medicaid Agency by providing more than $120 over the next two years.

But that money is temporary, costs are increasing, and the Legislature has refused to pass any significant revenue increases. They will reconvene in February for their 2017 Regular Session.

Chip Brownlee is a former political reporter, online content manager and webmaster at the Alabama Political Reporter. He is now a reporter at The Trace, a non-profit newsroom covering guns in America.

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House passes General Fund Budget

Brandon Moseley

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By Brandon Moseley
Alabama Political Reporter

The Alabama House of Representatives passed the state General Fund Budget on Tuesday.

The General Fund Budget for the 2019 fiscal year is Senate Bill 178. It is sponsored by Sen. Trip Pittman, R-Montrose. State Rep. Steve Clouse, R-Ozark, carried the budget on the House floor. Clouse chairs the House Ways and Means General Fund Committee.

Clouse said, “Last year we monetized the BP settlement money and held over $97 million to this year.”

Clouse said that the state is still trying to come up with a solution to the federal lawsuit over the state prisons. The Governor’s Office has made some progress after she took over from Gov. Robert Bentley. The supplemental we just passed added $30 million to prisons.

The budget adds $50 million to the Department of Corrections.

Clouse said that the budget increased the money for prisons by $55,680,000 and includes $4.8 million to buy the privately-owned prison facility in Perry County.

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Clouse said that the budget raises funding for the judicial system and raises the appropriation for the Forensic Sciences to $11.7 million.

The House passed a committee substitute so the Senate is either going to have to concur with the changes made by the House or a conference committee will have to be appointed. Clouse told reporters that he hoped that it did not have to go to conference.

Clouse said that the budget had added $860,000 to hire more Juvenile Probation Officers. After talking to officials with the court system that was cut in half in the amendment. The amendment also includes some wording the arbiters in the court lawsuit think we need.

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The state General Fund Budget, SB178, passed 98-1.

Both budgets have now passed the Alabama House of Representatives.

The 2019 fiscal year begins on Oct. 1, 2018.

In addition to the SGF, the House also passed a supplemental appropriation for the current 2018 budget year. SB175 is also sponsored by Pittman and was carried by Clouse on the floor of the House.

SB175 includes $30 million in additional 2018 money for the Department of Corrections. The Departmental Emergency Fund, the Examiners of Public Accounts, the Insurance Department and Forensic Sciences received additional money.

Clouse said, “We knew dealing with the federal lawsuit was going to be expensive. We are adding $80 million to the Department of Corrections.”

State Representative Johnny Mack Morrow, R-Red Bay, said that state Department of Forensics was cut from $14 million to $9 million. “Why are we adding money for DA and courts if we don’t have money for forensics to provide evidence? if there is any agency in law enforcement or the court system that should be funded it is Forensics.”

The supplemental 2018 appropriation passed 80 to 1.

The House also passed SB203. It was sponsored by Pittman and was carried in the House by State Rep. Ken Johnson, R-Moulton. It raises securities and registration fees for agents and investment advisors. It increases the filing fees for certain management investment companies. Johnson said that those fees had not been adjusted since 2009.

The House also passed SB176, which is an annual appropriation for the Coalition Against Domestic Violence. The bill requires that the agency have an operations plan, audited financial statement, and quarterly and end of year reports. SB176 is sponsored by Pittman and was carried on the House floor by State Rep. Elaine Beech, D-Chatham.

The House passed Senate Bill 185 which gives state employees a cost of living increase in the 2019 budget beginning on October 1. It was sponsored by Sen. Clyde Chambliss, R-Prattville and was being carried on the House floor by state Rep. Dimitri Polizos, R-Montgomery.

Polizos said that this was the first raise for non-education state employees in nine years. It is a 3 percent raise.

SB185 passed 101-0.

Senate Bill 215 gives retired state employees a one time bonus check. SB215 is sponsored by Senator Gerald Dial, R-Lineville, and was carried on the House floor by state Rep. Kerry Rich, R-Guntersville.

Rich said that retired employees will get a bonus $1  for every month that they worked for the state. For employees who retired with 25 years of service that will be a $300 one time bonus. A 20-year retiree would get $240 and a 35-year employee would get $420.

SB215 passed the House 87-0.

The House passed Senate Bill 231, which is the appropriation bill increase amount to the Emergency Forest Fire and Insect and Disease Fund. SB231 is sponsored by Sen. Steve Livingston, R-Scottsboro, and was carried on the House floor by state Rep. Kyle South, R-Fayette.

State Rep. Elaine Beech, D-Chathom, said, “Thank you for bringing this bill my district is full of trees and you never know when a forest fire will hit.

SB231 passed 87-2.

The state of Alabama is unique among the states in that most of the money is earmarked for specific purposes allowing the Legislature little year-to-year flexibility in moving funds around.

The SGF includes appropriations for the Alabama Medicaid Agency, the courts, the Alabama Law Enforcement Agency, the Alabama Department of Corrections, mental health, and most state agencies that are no education related. The Alabama Department of Transportation gets their funding mostly from state fuel taxes.

The Legislature also gives ALEA a portion of the gas taxes. K-12 education, the two year college system, and all the universities get their state support from the education trust fund (ETF) budget. There are also billions of dollars in revenue that are earmarked for a variety of purposes that does not show up in the SGF or ETF budgets.

Examples of that include the Public Service Commission, which collects utility taxes from the industries that it regulates. The PSC is supported entirely by its own revenue streams and contributes $13 million to the SGF. The Secretary of State’s Office is entirely funded by its corporate filing and other fees and gets no SGF appropriation.

Clouse warned reporters that part of the reason this budget had so much money was due to the BP oil spill settlement that provided money for the 2018 budget and $97 million for the 2019 budget. Clouse said they elected to make a $13 million repayment to the Alabama Trust fund that was not due until 2020 but that is all that was held over for 2020.

Clouse predicted that the Legislature will have to make some hard decisions about revenue in next year’s session.

 

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Day Care bill delayed for second time on Senate floor, may be back Thursday

Sam Mattison

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By Samuel Mattison
Alabama Political Reporter

The day care bill, which would license certain day care centers in Alabama, was once again delayed on the state Senate floor after one lawmaker requested more information.

Its brief appearance Tuesday ended with state Sen. Gerald Dial, R-Lineville, saying a compromise had not yet been worked out with the bill’s detractors.

Alabama’s Senate has been hesitant to act on the legislation because of complaints of state Sen. Shay Shelnutt, R-Trussville, who has been an opponent of the bill since its introduction last year. The bill’s delay on Tuesday marks the second time its been taken off the Senate’s agenda.

The bill has had a rocky time in this year’s session, but the bill’s sponsor state Rep. Pebblin Warren, D-Tuskegee, said she is still confident about its passage out of the Legislature.

Warren, D-Tuskegee, filed the bill this session with the support of influential lawmakers including Gov. Kay Ivey, who told reporters last year that she though all day cares should be licensed.

Mainly sparked by the death of 5-year-old boy in the care of a unlicensed day care worker, the bill had great momentum coming into this year’ session.

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Despite the growing support from lawmakers, Religious groups had concerns that the bill would increase state-sponsored reach into religious day cares in churches and non-profit groups.

Spearheading the dissenters was Alabama Citizens Action Program, a conservative religious-based PAC.

Warren, proponents, and ALCAP announced a compromise to the bill while it was still in the Alabama House.

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Announced by ALCAP originally, the new bill was a weaker version in that it did not require that all day cares in the state be regulated. Instead, religious-based day cares would only need to be registered if they received federal funds. At a Senate committee meeting in February, Warren said a similar requirement was about to come from federal law in Congress.

The bill moved through the House in a overwhelming vote in favor of the proposal and passed unanimously out of a Senate committee a few weeks ago.

Warren, speaking to reporters after its passage from the House, said she was unsure if the bill would encounter resistance in the upper chamber.

It was the Senate that killed the daycare bill last year amid a cramped last day where senators took the bill off the floor. The bill may face similar complications this year, as lawmakers seem to be preparing to adjourn within a few weeks.

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Fantasy sports bill fails on Senate floor

Sam Mattison

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By Samuel Mattison
Alabama Political Reporter

Would-be Fantasy Sports players in Alabama will have to wait to legally play in the state following a Senate vote on Tuesday.

The Alabama Senate decisively killed a bill to exempt fantasy sports from the state’s prohibition on gambling.

Not even entertaining a debate on the Senate floor, the proposal was killed during a vote for the Budget Isolation Resolution, which is usually a formality vote preluding a debate.

Fantasy sports are contests where participants select players from real teams to compete on fantasy teams using the real-world players’ stats.

Since 2016, the practice has been illegal in Alabama following a legal decision by the Attorney General’s Office that categorized it as gambling.

The bill’s sponsor, state Sen. Paul Sanford, R-Huntsville, predicted the bill’s failure during a committee meeting two weeks ago, where the bill passed unanimously.

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Sen. Paul Sanford speaks to reporters after a Senate Committee meeting on Feb. 28, 2018. (Samuel Mattison/APR)

Speaking to reporter’s after the committee meeting, Sanford said the decision to file the bill was mainly a philosophical belief that the practice shouldn’t be illegal.

Sanford, a fantasy sports player before its ban, said that fantasy sports are a way to bring people closer together and not a means to win money. The Huntsville senator is not seeking re-election.

The bill’s failure in the Senate follows its trajectory last year too. A similar version of the bill, also sponsored by Sanford, failed in the Senate during the final days of the 2017 Legislative Session.

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Since Sanford is retiring, it is unclear if the bill will even come back next session, or if it will even have a Senate sponsor.

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House OKs bill to clarify consulting contracts by state legislators

Brandon Moseley

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By Brandon Moseley
Alabama Political Reporter

Tuesday, the Alabama House of Representatives passed a bill to try to clarify how legislators accept consulting contracts under Alabama’s 2010 ethics law. Some pundits have suggested that House Bill 387 is actually designed to weaken the existing ethics law.

Sponsor state Rep. Rich Wingo, R-Tuscaloosa, argues that the legislation is merely a clarification and is intended to prevent legislators from inadvertently crossing the line into illegality.

Wingo said that his bill would require legislators to notify the Alabama Ethics Commission that they have entered into a consulting agreement in an area outside of their normal scope of work.

State Rep. Paul Beckman, R-Prattville, said, “I have never understood why members of this body were allowed to take contracts as consultants or counselors.”

Wingo said, “Never do I use the word counselor in my bill; it is consulting.”

Beckman asked, “Are we going to be getting into an area where  every time we turn around we create a bureaucratic nightmare where we have to go get an opinion. These opinions whether it is orally or written don’t hold up in a court of law.” Beckman said, “We are serving the people here but we get this admonition that we can still be a consultant if we get an opinion.”

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Wingo said, “This does not apply to professions where a member is currently licensed.”

Beckman said, “I would like to see more opinions coming out of the Ethics Commission. Right now we have the Ethics Commission competing with the Attorney General’s office over who has more authority.”

State Rep. John Rogers, D-Birmingham, said,”This happened to a friend of mine. He just got out of prison. He was a state senator and had a written letter from the Ethics Commission which his lawyer read at trial and the jury convicted him anyway.”

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Rogers never named his friend, but reporters think he was talking about former state Sen. Edward Browning ‘E. B.’ McClain who spent over 22 years in the legislature until he was convicted on 47 counts of conspiracy, mail fraud, bribery, and money laundry in 2009.

A federal jury found that McClain and the Rev. Samuel Pettagrue were guilty in a scheme where McClain would secure public funds for Pettagrue’s community programs and then receive a kickback once the funds were in hand. McClain was sentenced to five years and ten months in prison. McClain was not prosecuted under the Alabama ethics law as the state has a much weaker ethics statute then. The current ethics law was passed in 2010.

Rogers said, “If they offer me a consulting contract for a field like aerospace engineering that I know nothing about they are trying to pay me off. If you can already be a consultant for something you know about why would you seek a consulting contract for something you don’t know about.

Rogers this is how they can pay you off for your vote.”

State Rep. Artis “A.J.” McCampbell said, “I don’t like making changes to things like this because we get into things called unintended consequences.”

McCampbell was reading from the bill and Wingo said, “You are reading from the original version it has completely changed.” “We worked tirelessly on this bill with the Ethics Commission this is not a fly by night bill.”

“If a member of the legislature enters into a contract to do a consulting contract outside of their normal field of work this bill requires that they consult with the Ethics Commission first,” Wingo said. “It is up to the member to notify the Ethics Commission not to the company or person offering them the money.”

State Representative Pebblin Warren, D-Tuskegee, said, “Everybody but legislators are allowed to do contract work up to $30,000.”

Rep. Wingo said, “This is not intended to be a roadblock.”

State Representative Arnold Mooney, R-Indian Springs, said, “The whole purpose of this is not to prevent members from doing work in your field.” “What you are doing is offering to protect me.”

State Representative John Knight, D-Montgomery, asked Wingo what the Alabama Attorney General said about this legislation.

Wingo replied, “I have not contacted the Attorney General.”

Knight responded, “Something from the Ethics Commission does not carry a lot of protection from the Attorney General. We have seen that in the past. I think the Attorney General and the Ethics Commission should be in agreement in the working on this.”

Wingo answered, “Maybe this is a first step.”

Rep. Laura Hall, D-Huntsville, asked, “Do we have anybody doing work outside of their regular scope of work?”

Wingo answered, “Yes I think so.”

Wingo said, “If we had had this bill four or five years ago maybe we could have been spared the embarrassment that this body experienced with the former Speaker.”

Wingo was referring to former Speaker of the House Mike Hubbard who was convicted of 12 counts of felony ethics violations in June 2016. Ironically, Hubbard is largely responsible for creating the ethics law that he was found guilty of violating 11 times in his relentless pursuit of outside contracts and personal wealth.

Unlike McClain, however, Hubbard has not yet served any of this sentence.

House Bill 387 passed 67-0 with 26 legislators abstaining.

The bill now moves to the Senate for its consideration.

(Original reporting by the Alabama Media Group’s Lisa Osborn in 2009 was consulted in this report.)

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