Alabama state budget (2008-2009)

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State Information

Alabama faced a $784 million budget gap for fiscal year 2009; however, 2009 estimates revealed that the deficit was closer to $1.1 billion, or 12.7 percent of the general fund.[1][2] In an effort to address the budget gap, Gov. Bob Riley implemented a 24 day furlough for state employees and a variety of budget cuts, including a 12.5 percent cut of state education funds. Riley used $218 million - half of the $437 million Rainy Day Fund - to soften the cuts to 9 percent.[3] Because of a drop in state tax collections in December, the governor cut budgeted trust fund spending to $5.82 billion. However, in light of federal stimulus money, the governor said that layoffs might be able to be avoided in 2010. In the following months, Gov. Riley announced that he would be presenting a revised FY 2010 spending plan, which would include the use of federal stimulus dollars. For example, spending from the Education Trust Fund, the main source of state money for public schools and colleges, plus the extra federal money, would total roughly $6.1 billion in Riley's revised budget.[4]

However, despite the widening budget deficit and state unemployment rate, Gov. Riley said:

"It used to be said that when the nation caught a cold, Alabama caught pneumonia. But not anymore. In a time of economic trouble and uncertainty for our nation, all of us can be thankful we live in Alabama because Alabama continues to be one of America's leaders in economic development."[5]

Impact of budget woes

See also: State budget crisis, 2009-2010
  • In light of the budget deficit, Gov. Bob Riley cut 12.5 percent of state education funds. Riley used $218 million — half of the $437 million Rainy Day Fund — to soften the cuts to 9 percent. The prorated education budget cost Cullman County, for example, $5.25 million in funding per year, and Cullman City Schools $1.12 million in funding per year.[3]
  • Alabama’s unemployment rate jumped to 7.8 percent in January 2009 compared to the U.S. rate of 7.6 percent, according to the Alabama Department of Industrial Relations. The state lost a total of approximately 40,700 jobs in January. In December, the state’s revised unemployment rate was 6.5 percent. Shelby County had the state’s lowest unemployment rate for the month at 5.5 percent; however, the December rate was 4.4 percent for the county. Wilcox County had the highest unemployment rate at 19.5 percent, followed by Chambers County with 17.9 percent and Dallas County with 17.3 percent.[6]
  • On March 11, 2009 Alabama's Personnel Board approved rules that would allow financially strapped state agencies to furlough employees for up to 24 days a year to reduce payroll costs.[7]
  • Jefferson County planned to cut department budgets by 10 percent because, according to county officials, the county received 10 percent less in revenue than originally projected. In addition, the county planned to mandate an additional 33 percent cut of all budgets by April 1, 2009. This cut was connected to the loss of money from the county occupational tax that was ruled unconstitutional several months prior.[8]
  • The Baldwin County Public School Board voted unanimously March 19, 2009 to close the Baldwin County Alternative School in Fairhope, effective at the end of the school year. “Because of a shortfall in sales tax revenue in Alabama, Baldwin school officials are cutting $23 million from the budget this year and bracing for a $24 million deficit on top of that in September,” Baldwin County Public Schools communications director Terry Wilhite said.[9]

Budget background

See also: Alabama state budget

Alabama's fiscal year begins October 1 and ends September 30 of the following year. Each year the state's agencies submit budget requests along with expenditures, an estimated condition of funds and a planning summary. All agencies must submit their requests by December 1 to the governor. On December 8 the revenue projections for the following fiscal year are finalized. At the beginning of each regular legislative session, the governor submits a two-part budget proposal for lawmakers to consider. The budget process according to Alabama law requires the legislature to create a balanced budget. Once both the House and the Senate pass the various appropriation bills, they are signed by the governor or otherwise become law.[10] Alabama has two state budgets - the General Fund, which funds everything that is not education related, and the Education Trust Fund, which funds all education functions of the state.[11] Almost half of all the money the state takes in every year comes from taxes and fees that individuals and businesses pay. However, two out of every five dollars Alabama takes in come from Washington and are geared towards highways, education and health care.[12]

  • State income tax makes up 54 percent of the Education Trust Fund.[13]
  • The FY 2008 Education Trust Fund totaled $6.7 billion compared to the FY 2006 budget of $5.4 billion.[14]
  • The FY 2008 General Fund budget totaled $1.8 billion compared to the FY 2006 budget of $1.6 billion.[15]

Budget figures

The following table provides a history of Alabama's expenditures and gross domestic product (GDP).

Fiscal year Expenditures (billions) GDP (billions)
2000 $25.3[16] $114.6[16]
2001 $26.9[16] $118.7[16]
2002 $28.5[16] $123.8[16]
2003 $29.9[16] $130.2[16]
2004 $31.3[16] $141.5[16]
2005 $33.2[16] $150.5[16]
2006 $35.2[16] $158.6[16]
2007 $37.4[16] $165.8[16]
2008 $39.6[16] $173.4[16]
2009 $42.1*[16] $181.3*[16]

Ideas about why the crisis occurred

  • Foreclosure filings across Alabama dropped 22 percent in February 2009 from January and remained at almost the same level as 2008. Research firm RealtyTrac said default notices, auction sale notices and bank repossessions totaled 713 in January. That equaled one foreclosure filing for every 2,997 Alabama households, lower than the U.S. rate of one in 440 households. U.S. filings jumped 6 percent in February from the previous month and 30 percent from the prior year, RealtyTrac said.[17]
  • Unlike the majority of cities in Alabama, the city of Tuscumbia saw an 8.2 percent increase in January 2009 sales tax revenue and was above budget for the year. During January, 52 percent of 100 surveyed state-wide retailers reported a sales decrease in January compared with 2008, down from 60 percent of 109 retailers who reported decreased November and December 2008 sales.[18]
  • In an effort to recoup lost revenue, Alabama offered tax amnesty to individuals and businesses that hadn't paid what they were supposed to. The program began February 1, 2009 and ended May 15, 2009. The last time Alabama tried a tax amnesty was 1984, when it collected $3 million; however, state officials said that they expected to collect more than $3 billion. In Oklahoma, the state recently collected $115 million and in Virginia, $98 million.[19][20]
  • Alabama allows taxpayers to write off all capital gains losses on stock during a single calendar year. It puts a $3,000 cap on such losses. If losses exceed that amount, they may be deducted on future tax reports. In 2001 taxpayers who deducted all capital gains losses had "a significant effect" on state income tax revenue, said state Rep. Richard Lindsey, who chaired the House Education Appropriations committee. Lindsey said he was watching the matter closely because the state income tax makes up to 54 percent of the Education Trust Fund.[13]

Proposed actions

Governor Bob Riley

The budgets passed in 2008 cut spending by hundreds of millions of dollars. However, for 2009 the governor implemented a freeze on new government hires, employee pay raises and new vehicle purchases. He also directed state agencies to find even deeper savings.[5] The education budget that Gov. Bob Riley proposed called for a 5.5 percent reduction, almost $350 million, for FY 2009, and the proposed FY 2010 budget was estimated to cut an additional $700 million.[13] Despite the budget cuts Gov. Riley said that he did not plan to raise taxes. "Higher taxes would only make a tough situation even more difficult for the people of Alabama. We are here to ease their burdens - not add to them," he said in his 2009 State of the State address.[5]

In an attempt to motivate the economy Riley proposed a Back-to-Work Tax Credit of $500 to encourage companies to hire unemployed workers and a Targeted Job Creation Tax Credit that would provide a $1,500 incentive over three years for each new job created in counties with the highest unemployment levels. In addition, Gov. Riley called for a reform of the state's ethics code. The overhaul required full disclosure of everything spent by lobbyists on elected officials.[5]

Republicans

In an effort to help ease the financial burden on Alabama residents, some lawmakers proposed eliminating a 4 percent grocery tax; however, Republican lawmakers opposed the plan, and in early March 2009, House Minority Leader Mike Hubbard called it the “Robin Hood” approach to tax reform. Republican legislators said that they were opposed to removing the tax if that meant higher taxes for other taxpayers. A Republican bill, sponsored by Sen. Scott Beason, would have taken the tax off groceries gradually without replacing the revenue or calling for higher taxes on higher income taxpayers.[21]

Democrats

Gov. Riley rejected $100 million in federal unemployment funds; however, Democratic lawmakers introduced a bill to challenge Gov. Riley's rejection of the funds. The Senate Business and Labor Committee passed the bill March 12, 2009 with seven Democrats voting for it and one Republican against it. The bill sought to expand Alabama's unemployment compensation program to cover workers who had only been in the work force a short time, those seeking part-time work rather than full-time jobs, people in job-training programs who had exhausted their normal benefits and workers who left their jobs because of domestic violence.[22] However, in terms of attempting to raise state revenue, Democrats proposed eliminating a 4 percent grocery tax and offsetting the revenue loss by removing a tax deduction on federal income taxes paid by higher income taxpayers. But not all Democrats favored the plan. Sen. Wendell Mitchell said, "I’m for taking the tax off the food, but not the income tax."[21]

Economic stimulus package

As of 2009, Alabama was expected to receive approximately $3 billion from the $787 billion economic stimulus package.[23] According to White House officials, the stimulus bill was estimated to create or save 51,000 jobs.[24]

Gov. Bob Riley announced that he rejected the unemployment funds. Of the $7 billion dedicated to unemployment benefits, Alabama was expected to receive $100 million; however, Riley and other governors said that they feared that the strings Congress attached would lead to higher business taxes.[25]

Gov. Riley was quoted by the Asscoiated Press saying:

"It's illogical for anyone to think government can expand benefits and no one has to pay for it."[26]

However, a bill was introduced in the Alabama legislature to challenge Gov. Riley's rejection of the funds.[27] Sen. Rodger Smitherman introduced the legislation in early March 2009 and was quoted by the Associated Press saying:

"There is no reason to believe our record unemployment will be this high four years from now when stimulus money ends, so our benefit costs should decrease, not increase."[26]

According to preliminary reports, Alabama was expected to receive:

  • $71.8 million in home weatherization funding for low-income families[28]
  • $55.5 million towards the state energy program[28]
  • $1 billion towards education[29]
  • $513.69 million towards improving highway infrastructure[30]

Error in ARRP

On November 16 and 17, 2009, many errors were found in the $747 billion plan that showed the plan set aside money for districts that did not exist. According to Recovery.gov, the plan showed its funds would go to 884 Congressional Districts, though there are only 435.[31][32]

The ARRP website created 4 phantom districts in Alabama.[33]

Budget transparency

On February 11, 2009, Governor Bob Riley signed an Executive Order to create a state spending database.[34] The order mandated that the site, to be operated by the state Department of Finance, be up by March 1, 2009. The site was launched and is now available to citizens.[35]

Government tools

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases
State database Searchability Grants Contracts Line item expenditures Dept./agency budgets Public employee salary
open.alabama.gov N
600px-Red x.png
N
600px-Red x.png
Y
600px-Yes check.png
Y
600px-Yes check.png
N
600px-Red x.png
N
600px-Red x.png

Support for creation of the databases

On February 11, 2009, Governor Bob Riley signed an Executive Order to create a state spending database.

Accounting

Created in 1947, The Department of Examiners of Public Accounts is responsible for auditing the books, accounts, and records of all state and county offices, officers, bureaus, boards, commissions, corporations, departments and agencies and reporting on expenditures, contracts or other audit findings found to be in violation of law.[36]

The Department of Examiners of Public Accounts is a part of the legislative branch of Alabama's state government. It is overseen by a 12-member legislative committee called the Legislative Committee on Public Accounts. Five members of the committee are from the House of Representatives and five members are from the Senate. The other two members are the Speaker of the House, who serves as the Vice-Chairman of the committee, and the Lieutenant Governor, who serves as the Chairman.[37]

The Department of Examiners of Public Accounts is headed by the Chief Examiner. The Chief Examiner is appointed or re-appointed every seven years by the Legislative Committee on Public Accounts.

The rules under which the Department operates are found in Title 41 of the Code of Alabama.[38]

See also

External links

Additional reading

References

  1. Business Week, "States That Can't Pay for Themselves," October 8,2008
  2. Center on Budget and Policy Priorities, "State budget troubles worsen," March 13,2009
  3. 3.0 3.1 Cullman Times, "What does the stimulus package mean for local schools," March 20,2009
  4. The Birmingham News, "Key votes on major issues to start Tuesday in the Alabama House as lawmakers tackle taxes, gambling, budgets, smoking and other topics," March 23,2009
  5. 5.0 5.1 5.2 5.3 Gov. Bob Riley, "The 2009 State of the State Address," February 3,2009
  6. Birmingham Business Journal, "Alabama unemployment rate jumps to 7.8 percent," March 11,2009
  7. Associated Press, "Furlough plan approved for Alabama state workers," March 11,2009 (dead link)
  8. MSNBC, "Jefferson County departments to cut 10 percent of budgets," March 12,2009 (dead link)
  9. Baldwin County NOW, "Alternative School to close doors," March 21,2009
  10. Alabama Department of Finance, "The Budget Process," accessed March 23,2009
  11. Political Parlor Blog, "Alabama Budget Process in a Nutshell," June 27,2007
  12. Alabama Arise, "Budget Basics: How Does State Spending Work?," July 22,2005
  13. 13.0 13.1 13.2 The Hunstville Times, "More budget woes," March 18,2009
  14. State of Alabama, "Education Trust Fund," accessed March 23,2009
  15. State of Alabama, "General Fund," accessed March 23,2009
  16. 16.00 16.01 16.02 16.03 16.04 16.05 16.06 16.07 16.08 16.09 16.10 16.11 16.12 16.13 16.14 16.15 16.16 16.17 16.18 16.19 U.S. Government Spending, "Alabama state and local spending," accessed March 20,2009
  17. The Birmingham News, "Alabama foreclosure filings slide in February," March 12,2009
  18. Times Daily, "Tax collections down slightly," March 5,2009 (dead link)
  19. Associated Press, "Alabama's tax amnesty program producing hundreds of calls; deadline on May 15," accessed March 22,2009
  20. The Huntsville Times, "Tax cheats 'fess up," March 21,2009
  21. 21.0 21.1 Troy Messenger, "Grocery tax bill still waiting to be heard," March 4,2009 (dead link)
  22. Associated Press, "Alabama senators vote to expand jobless benefits," March 12,2009 (dead link)
  23. State of Alabama, "Alabama Stimulus Recovery," accessed March 20,2009
  24. American Recovery and Reinvestment Act, "Estimated job effect," accessed March 20,2009
  25. USA Today, "Governors reject stimulus money for unemployment," March 15,2009
  26. 26.0 26.1 Associated Press, "Ala. senator seeks jobless money governor rejected," March 4,2009 (dead link)
  27. Wall Street Journal, "GOP Governors face fights on stimulus," March 11,2009
  28. 28.0 28.1 MSNBC, "Alabama Gets $127 Million For Weatherization And Energy Efficiency," March 12,2009 (dead link)
  29. Montgomery Advertiser, "Schools await final word on federal aid," March 22,2009
  30. Times Daily, "Stimulus funds set for roads," March 22,2009 (dead link)
  31. $6.4 Billion Stimulus goes to Phantom Districts, Watchdog.org, November 17, 2009
  32. Stimulus Creates Jobs in Non-Existent Congressional Districts, Watchdog.org, November 16, 2009
  33. Alabama, Watchdog.org, November 17, 2009
  34. AL.com, "Ala. governor signs order on state spending," February 11, 2009
  35. waaytv.com, "Governor Riley’s Executive Order Lifts Veil on State Spending," March 4, 2009
  36. State of Alabama Examiners of Public Accounts Examiners of Public Accounts
  37. State of Alabama Examiners of Public Accounts Examiners of Public Accounts
  38. Code Of Alabama