2015 First Special Session- Wrap Up

trainwreck

 

The 2015 First Special Session is in the books. The main question now is “when will the next one be?” When is the next train wreck?

 

 

After 30 calendar days and eight grueling meeting days, the legislature was unable to come to a consensus on how to finalize a FY16 General Fund Appropriations bill. The Governor will now call them back at some point in the next few weeks to try yet again. The fiscal year begins October 1st, so time is running out.

Unless you live totally off the grid, you should be familiar with the issue. The General Fund appropriation for FY15 was $1.85 billion. Projected revenue available for FY16 appropriations is estimated to be $1.6 billion. The Governor desires at least $1.9 billion for FY16 state agency operations (down from the $2.3 billion he wanted in the General Session).

So he has proposed $300 million in tax increases.

The legislature would be happy with level funding.

In the time period that this has been going on, the Federal Government threw the state a bone and will pick up the cost of the insurance program for low income children (CHIPS) which costs approximately $50 million annually. Reducing the FY15 appropriation accordingly, the state needs roughly $1.8 billion to be on level footing for the coming year.

So now there is a $200 million difference between revenues and desired appropriations to achieve the level funding objective of the legislature. The Governor most likely would agree to that, but who knows?

Legislators are beginning to show the effects of the wear and tear of getting to the finish line. A few, especially those in the House of Representatives, are convinced that the sky will fall if additional revenue measures are not enacted.

The State of Alabama is a $28 billion machine. $200 million represents less than 1% of the total expenditures. Ok….sure…some of the $200 million is used to draw down federal matching funds. So, assuming a generous 4:1 match, let’s agree that a $200 million cut will actually be a $1 billion cut (this is a ridiculous assumption, but roll with it). Even with that, the state would be facing a whopping 3.5% cut.

3.5%. All this handwringing and gnashing of teeth, for 3.5% of the total state’s expenditures. Really?

The House of Representatives is floating a three prong approach to raise the $200 million. It includes raising the tobacco tax, changing the privilege tax on corporations and shifting some education dollars to the general fund. It is being characterized as fairly distributing the pain amongst individuals, businesses and education.

From all appearances, the Senate does not agree with that plan.

The Senate seems inclined to pass an appropriations bill that matches the expected revenues of $1.6 billion. They passed this bill in the Regular Session and they passed this bill in the First Special Session. There is no indication they will do anything differently in the Second Special Session.

The problem with the Senate’s strategy is that it makes the cuts arbitrarily; large cuts to smaller agencies (Ag & Industries, Forestry Commission) and smaller cuts to bigger agencies (Medicaid, Mental Health, Human Resources).

What they would really like is to be able to prioritize appropriations. Unfortunately, earmarks for revenues prevent that from happening.

In all of this frenzy over raising taxes during the 2015 General Session and the 2015 First Special Session, there has not been one single bill passed to reduce the size of government.

The appropriation’s bill passed by the Senate (which died in the House) did include provisions prohibiting new vehicle purchases and building construction for FY16…certainly a positive step in the right direction.

The House did pass a bill to remove $500 million in earmarks on statutorily imposed taxes only to see it die in Senate committee. Government agency lobbyists (including paid contract lobbyists…what in the world are we using state tax dollars to pay private lobbyists? That’s a topic for another day) came out of the woodwork to kill that plan. Ironically, this was the Governor’s bill and it was set out in the “call” of the Special Session. His own executive branch agencies killed his bill!

So where will all this go in the next few weeks?

The Governor most likely will call the legislature back to town near the end of September (some are predicting September 21st) in order to place more pressure on the members to get something done by October 1st.

And it most likely will be another train wreck.

Tax bills must originate in the House of Representatives. The House seems inclined to consider tax increases, but they set themselves up for angry constituents that believe enough money is being sent to Montgomery and they also become irritated knowing the Senate does not have to commit one way or the other prior to the House making its move.

And so you have the House mad at the Senate. The Governor is using his public pulpit to make the legislature look bad and so the legislators are unhappy with him. The legislature is making the Governor look bad and so he is mad at them.

Everyone is mad…and the train is coming down the track.

Stay tuned…..

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