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					ALABAMA BUDGET
CHALLENGES AND
   PROPOSALS
 Huntsville/Madison County
  Chamber of Commerce
      March 23, 2011
State Budget Overview
   Alabama is the only state in the country with two
    general operating budgets:
       Education Trust Fund - $5.5B in FY 2011:
           Roughly 2/3rd K-12, roughly 1/3rd Higher Education
       General Fund - $1.6B in FY 2011:
           Medicaid, Corrections, Courts, Public Safety, etc.
   Alabama earmarks more than 85% of its revenues:
       Highest in the country
   Alabama taxes per capita are among the lowest in
    the country
General Budget Challenges
   General economic downturn has hit Alabama hard,
    as it has every other state
   Decline in income and sales tax receipts has been the
    steepest since the Great Depression
   Both State budgets have been cut by about 20% over
    the past 2 years
   More to come in current year and next year (FY12)
   State has relied on one-time receipts for the past
    several fiscal years
Reliance on One-Time Revenues
   State has relied on one-time revenues for the past
    several fiscal years:
       Losing hundreds of millions of federal stimulus funds in
        each budget
       Local school systems, universities, and state agencies are
        losing hundreds of millions more that flowed outside of
        state budgets (e.g. Title I, IDEA, Highway funds)
       $1B in rainy day funds have been exhausted in last three
        years to limit cuts
   One-time revenues have allowed Alabama to delay
    tough decisions
                   Alabama Economy
                               Private sector workforce reductions began in late 2008, while the Public
                                sector has generally avoided large-scale employment reduction
                                                          Alabama Job Changes, Private Sector v. Public Sector
                                                                (Not Seasonally Adjusted, in thousands)
                                                                               * preliminary
                              30.0
                                                                                                                 Private
                                                                                                                 Public

                               0.0
Job Numbers, in thousands




                             (30.0)




                             (60.0)




                             (90.0)




                            (120.0)




                            (150.0)
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                                      2008         2009                                        2010
General Fund Budget Outlook
   Currently anticipating shortfall of over $100M on
    $1.6B budget in FY 2011:
       Will require 15% proration (mid-year cuts) to most State
        agencies in current fiscal year
   FY 2011 budget includes roughly $450 million in
    one-time revenues
   Difficult and painful decisions must be made in
    2011 and 2012
Education Trust Fund Outlook
   Governor declared 3% proration for FY 2011 due to
    estimated tax receipts running $160M below amount
    assumed when last year’s budget was passed
   5th time since 2000 and 18th time since 1950 that
    Education Budget has been prorated
   $300M in stimulus funds in FY 2011 education
    budget
Bentley Administration Budget Principles
   Strategic Allocation of Limited Resources
   Prioritize core mission of government and essential services
   Surgical approach; not across the board proportional cuts
   Invest in programs with proven track record of success:
       Alabama Reading Initiative
       Math/Science/Technology Initiative
       Pre-K
       Workforce Development / AIDT
   Short-term and long-term reform of employee benefits
   Challenges ahead will require fundamental restructuring of
    government:
       Governor’s Commission on Improving State Government
Bentley Administration Budget Principles
   Conservative, Responsible Budgeting:
     Cannot afford to continue to put our schools through
       proration
     Wreaks havoc mid-year in operations plans, with few
       options for making up shortfall, as most expenditures are
       already locked in
     Forces many systems to eliminate reserves and take out
       loans to get through the remainder of the school year
     Rep. Canfield’s Rolling Reserve Act was the first bill the
       pass the Legislature:
           Signed by Gov. Bentley
Bentley Budget Proposal: General Fund
   Cannot continue to fund all of the programs and projects we
    have funded in the past
   Zero-based budgeting process led Governor to propose
    eliminating 217 line items from General Fund Budget:
       Examples:
          Halls of Fame (Men’s, Women’s, Sports, Music, etc)
          Historical Sites
          Festivals (e.g., Cullman Oktoberfest)
          Pass-through grants to many local governments and nonprofits
          Non-state agencies such as Kidney Foundation and Child
           Advocacy Centers
Bentley Budget Proposal: General Fund
   Prioritization process led to different tiers of agencies
   Cumulative agency cuts FY11 and FY12 range from 5-45%:
       5% or less: Medicaid, Corrections, Pardons/Paroles, National Guard,
        Ethics Commission, Auditor
       10%-15% cumulative cuts:
           Public Safety
           Public Health
           Mental Health
           Human Resources
           Court System
       20% cumulative cuts: ADEM, ADO, Governor, Legislature, Attorney
        General, DAs
       45% cumulative cuts: ADECA, Agriculture, Forestry Commission,
        Labor, etc.
Bentley Budget Proposal: Education
   Protects ARI, AMSTI, AP, Distance Learning, Pre-K
   Increases funding for local school systems by $90M:
       Does not replace 100% of lost Federal funds
   No teacher layoffs with no increase in class size
   Increases University Operations & Maintenance funding by 5.3%:
     UAH increased by $2.2M, Alabama A&M by $1.6M
   Replaces $32M in one-time funds for K-12 transportation
   Increases workforce development funding by $5M
   Invests $10M in Higher Ed research fund
   Protects $515k of funding to Space Science Exhibit
   Protects Science in Motion program ($1.7M funding in 2012)
   Increased flexibility for local school systems
   Removes dozens of legislatively inserted earmarks
   Cuts funding for private schools and scholarships by 25%
Employee Benefit Reforms
   Where did the extra money come from?
   Increase employee retirement contribution rates from 5% to
    7.5% over 3 fiscal years:
       In 1970s, employer and employee rates were both around 5%
       Now, employee rate is still 5%, employer rate is 12.5%
   Repeal DROP
   Reduce funding for Employee and Teacher Health Insurance
    Plan by 5%:
       Allow health insurance boards to make changes to plan benefits and
        payment structure to make up difference
   Reduce holidays and allow furloughs for state agencies
What to Expect in the Legislature
   Efforts to find more money for local school systems
       Cut teacher pay by reducing contract days or shortening school year
        = $15M/day
       Efforts to increase class sizes by funding fewer teachers = $70M per
        1,000 teachers
   Efforts to insert many line items back into the budget
   Strong partnership between Governor and Legislative
    leaders overall
Questions

				
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posted:8/6/2011
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