By Brandon Moseley
Alabama Political Reporter
Tuesday, May 16, 2017, the Alabama Joint Legislative Task Force on Budget Reform will meet on Tuesday morning at the Statehouse and vote on an interim report, which will be sent to Governor Kay Ivey (R) and the entire State Legislature.
Committee Co-Chair Senator Clyde Chambliss (R-Prattville) said in a statement, “The fourteen members of the budget task force have been working diligently over the past six months to craft a sustainable path forward for Alabama’s State budgets. This interim report recommends specific reforms on everything from tax credits and exemptions to un-earmarking. I am grateful that Governor Ivey has indicated broad support for many of the report’s recommendations.”
This is the fifth meeting of the committee, which was set up by the Legislature during a Special Session in September 2016.
According to the statement the committee is considering un-earmarking proposals, evaluating existing deductions and exemptions in the tax code, and formulating a plan of action for requiring all State departments to undergo more intensive performance reviews in the budgeting process.
State Representative Danny Garrett (R-Trussville) is the other Co-Chair. State Representatives: Anthony Daniels, Allen Farley, John Knight, Chris Pringle, Kyle South, and Rich Wingo also served on the Task Force along with State Senators Greg Albritton, Linda Coleman-Madison, Bill Hightower, Bill Holtzclaw, Bobby Singleton, and Phil Williams.
Governor Ivey (R) attended and participated in several of the meetings of the JTF as Lt. Governor. Governor Ivey stated that she “is eager to participate in the discussion and formulation of solutions in our quest to Steady the Ship of State. I will continue to work with the Joint Task Force and pledge the coordination and assistance of my office to accomplish this all-important task.”
The task force also met with State Finance Director Clinton Carter; Michael Gamble with the Revenue Department; Deputy Revenue Commissioner Joe Garrett; State Auditor Jim Zeigler; State Treasurer Young Boozer; Senator Arthur Orr, T Senator Trip Pittman; Representative Steve Clouse; Representative Bill Poole; American Legislative Exchange Council (ALEC) Vice President Jonathan Williams and Public Works LLC President Vice President Eric Schnurer.
While most people believe that Alabama State government is too large, the task force found that Alabama State government in relation to state gross domestic product has never exceeded five percent of GDP since 1975. According to the JTF, since the Great Recession State government has actually been less than four percent of Alabama’s GDP.
Also plummeting since the Great Recession has been the state tax burden as a percentage of household income. Pre-Great Recession the state was averaging about six percent. Since then it has dropped to about 5.2 percent….the forty year low.
Alabama is one of the few states to have two budgets; the Education Trust Fund (ETF) and the State General Fund (SGF). Since 2001 the ETF has soared from a low of ~$3.7 billion in 2001 to over $six billion today, although there was a significant dip following the Great Recession. ETF revenue however has grown from just under $1 billion in 2001 to approximately $1.5 billion.
The State has total revenues of $22 billion, of which $9 billion comes from the Federal government. While so-called growth revenues go to the ETF, since 2012 the rate of revenue growth in the two funds has actually been similar.
Alabama earmarks more than 90 percent of the funds appropriated in the two State budget, by far more than any other State. The average among the other 49 states is approximately 30 percent. About 50 percent of earmarks are statutory and can be modified by the legislature; however about 50 percent of the earmarks are constitutional and require a vote of the people for any change.
According to the JTF, each year, the State allows taxpayers to take advantage of approximately $4.5 billion of tax credits, exemptions, deductions, and preferential tax rates.
Over the last fifty years, State sales taxes as a percent of State revenue has declined from 37 percent to just 22 percent. Meanwhile state income tax collections as a percentage of state revenues have increased from 22 percent of revenues to 46 percent. Sales tax revenue has been averaging increases of just six percent per year; however income tax revenues have been increasing at a rate of eight percent per year.
The State owes $646 million in general revenue bonds and another $4,061 million in revenue bonds. The Alabama Trust Fund (which was raided in 2012) meanwhile has a balance of just $3 billion. The State has paid back $284 million of the $437 million that was raided in 2012. $184 million is still owed. Servicing the general obligation bonds is costing the State $71 million this year; but should soar to over $79 million a year beginning with the 2018 fiscal year and will remain that high for the next four years before dropping. Servicing the State’s outstanding revenue bonds is costing $435 million this year; but will climb to $468 million in the 2018 fiscal year before dropping.
The JTF Study Group on the Budget Process was Chaired by state Representative Kyle South (R-Fayette). The Study Group recommends that in order to improve the budget process the Legislature should: consider adjusting the budget year to better align with the State fiscal year and the public school calendar; work with the Executive Branch and citizens to formally define the role of State government; work with the Executive Branch and citizens to formally identify the essential services that should be provided by State government; establish spending priorities based upon the identified essential services of State government; replace the current incremental budget approach with an approach based upon priority spending and identified needs; he Legislature should consider TOTAL FUNDS RECEIVED by each agency from ALL SOURCES when determining annual amounts to be appropriated to each agency by the Legislature; require the Legislative Fiscal Office provide charts and graphs depicting funds received by both the ETF and SGF and each agency for a rolling 15-year period; and develop a formal process to understand and address unspent appropriations.
The JTF Study Group on Agency Review was chaired by Senator Phil Williams (R-Rainbow City). The Study Group recommended that the Legislature: require that annually, no later than the first day of each Legislative Session, each agency must submit the following information to the Legislative Fiscal Office: federal dollars received by each agency; detail of fund balances carried over by each agency; a detailed plan for use of carryover funds. The JTF Study Group on Agency Review also recommended that a standing committee be established to review all proposed carryovers of funds by an agency and that wherever possible, carryover dollars should only be used for capital items and not for operational expenses.
The Joint Task Force Study Group on Unearmarking was chaired by State Representative Allen Farley (R-McCalla). The Study Group found that the major reason why there is so much earmarking in Alabama is that the voters of Alabama do not trust the State legislature. “The Study Group recommends that the Legislature establish a standing committee to review earmarks as a matter of standard practice, with a mission to make specific recommendations for reducing the number of earmarks so that budgets can be better focused on needs and priorities. The Legislature should place first priority on addressing statutory earmarks.”
The JTF Study Group on Tax Credits, Exemptions, Deduction, and Tax Preference was chaired by State Senator Bill Holtzclaw (R-Madison). The Study Group actually recommended that the Legislature form yet another Joint Committee to review the Report on Alabama Expenditures in detail and make appropriate recommendations to the Legislature at the beginning of the 2018 session including whether or not the Committee should be made permanent. The Study Group also recommended that the Legislature adopt a Joint Rule that requires that all bills that contain a credit, exemption, deduction or preferential tax rate include a Sunset provision.
The JTF Study Group on Tax Relief was Co-Chaired by state Senator Bill Hightower (R-Mobile) and state Representative John Knight (D-Montgomery). The JTF Study Group recommended that future guiding principles for Alabama should include: simplicity; transparency; economic neutrality; equity and fairness; help maintain a healthy relationship between the state and local governments; competitiveness with other states reliability; spur greater economic growth and greater wealth creation while minimizing micro management and political favoritism. The Study Group also recommended: minimizing or eliminating special tax treatment, while at the same time lowering overall rates, across-the-board; place all credits, exemptions, and deductions on the budgetary side of the fiscal ledger; and giving each element visibility and subject existing credits, exemptions, deductions or preferential tax rates to rigorous reporting standards to ensure transparency, and conduct a critical analysis of whether these measures are creating tangible economic growth.