2016 legislative update: Same old song: Alabama faces another shortfall for vital services, but lawmakers aren't eager to raise revenue to prevent cuts

Groundhog Day, the first day of the Alabama Legislature’s 2016 regular session, left advocates for human services feeling a powerful sense of déjà vu. A mere five months ago, the Legislature managed, with small tax increases and large transfers from the Education Trust Fund (ETF) budget, to pass a 2016 General Fund (GF) budget that barely maintained Medicaid, mental health care, corrections and other essential services.

It took lawmakers three tries to pass this year’s GF budget, and many advocates hoped the grueling experience would lead legislators to sober consideration of Alabama’s very real need for sustainable new revenue for the perenially cash-strapped GF. Unfortunately, that doesn’t seem to be the case for many of them.

The Legislature began consideration of the 2017 budgets this week with no indication that it will seriously consider significant new revenue measures like closing income tax loopholes or raising the cigarette tax. Instead, key legislators told the media that they saw “no appetite” for tax increases, and said any further ETF transfers were “off the table.”

Those stances are in sharp contrast to the shortfalls and unmet needs for health care, public safety and other vital services in Alabama. In pre-session budget hearings, agency leaders asked the GF budget committees for an additional $235 million just to maintain current services. The GF has a structural deficit, with normal cost growth regularly outpacing the sluggish growth of its revenue sources.

Medicaid alone needs an additional $157 million to avoid cuts and complete the shift to a new regional care organization (RCO) model designed to save money and keep patients healthier, Commissioner Stephanie Azar told lawmakers last month. Medicaid provides health coverage for one in five Alabamians – mostly low-income children, seniors, and people with disabilities.

Bentley’s plan: Move money from education to General Fund

Gov. Robert Bentley sent his proposed budgets to the Legislature on Feb. 3, as required by the state constitution. But unlike last year, he offered no recommendations for new revenue. Instead, Bentley proposed to move $181 million of use tax revenue from the education budget to the GF and to replace that money with a one-time transfer of money from the ETF Budget Stabilization Fund and the ETF Advancement and Technology Fund.

Senate President Pro Tem Del Marsh, R-Anniston, told AL.com this week that he would be “very surprised” to see lawmakers move ETF money to the GF again this year.

The Budget Stabilization Fund originally was created as a savings account to help the ETF avoid proration in years when revenues were low. The Advancement and Technology Fund was created just last year so schools would have money available for one-time expenses like buildings, buses and textbooks. Without a transfer, about $195 million will be available in these two accounts at the end of 2016, according to Legislative Fiscal Office estimates.

While use taxes would continue to bolster the GF in future years, the ETF revenue loss would only be replaced in 2017 if lawmakers pass a bill sponsored by Sen. Paul Sanford, R-Huntsville. SB 129 would spend 90 percent of the money in these two accounts in one year and leave the ETF without a source to replace lost revenues from the use tax (essentially a sales tax on out-of-state purchases) in future years.

Medicaid, public health would come up short in governor’s budget

Bentley’s budget is a starting point for the GF debate, but if history is any guide, it will not be the final product. With the help of the ETF transfer, Bentley’s proposed budget includes:

  • A $100 million GF increase for Medicaid, which is well short of the $157 million that the agency says it needs to prevent cuts and fully fund the RCO reforms.
  • A 12.6 percent, or $4.5 million, cut to the Department of Public Health in a year when the agency also will run out of the surplus federal matching money that allowed it to balance its budget this year.
  • A $5 million GF increase for the Department of Human Resources. Meanwhile, DHR could face a loss of as much as $150 million of dedicated funds under SB 15, an un-earmarking bill sponsored by Sen. Cam Ward, R-Alabaster. The bill does not specify that the money would be reallocated to DHR through the GF.
  • A $900,000 (less than 1 percent) budget increase for courts, which have suffered for years with staff shortages and lengthy trial delays.
  • Level funding for the Department of Mental Health, which has yet to recover from years of cuts and also could face a significant loss of earmarked dollars under SB 15.
  • A 5 percent, or $300,000, GF decrease for the Department of Youth Services, an agency that almost has been eliminated from the GF in prior years.
  • A 4.6 percent, or $18.2 million, increase for Alabama’s overcrowded prison system, which operates at nearly twice its designed capacity. In his State of the State address Tuesday, Bentley proposed issuing bonds to fund the construction of four new prisons over the next three years. Those new buildings would replace dilapidated facilities like the Julia Tutwiler Prison for Women.

Bentley’s total proposed GF budget is only 5 percent larger than last year’s, even with the transfer from the ETF. This anemic growth would do little to make up for a 15 percent cut to the GF since 2008, and a nearly 20 percent ETF cut in that time. Alabama’s state K-12 cuts have been the nation’s second worst since the Great Recession, while its higher education cuts have been the fourth worst.

By Carol Gundlach, policy analyst. Posted Feb. 4, 2016.

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