AFA Bandwagon Rolls into Andalusia

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On a hot and steamy night, the Alabama Forestry Association hosted its Andalusia Area Regional Reception at the “Point A Lodge” owned andmanaged byour good friends and partners at PowerSouth.

Excellent food was provided for the event by the local favorite, David’s Catfish House davids catfish

And the event was sseagdponsored by Southeast Alabama Gas District and First South Farm Credit.

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Turnout for the event was good and offered old friends an opportunity to become reaquainted and allowed the AFA staff to express its appreciation to our members.  AFA Board members Tripp Winters (Coastal- AFA Longleaf District Director- shown below) and Jeff Ledbetter (Rayonier- and current AFA President) were present as well.

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There were several prospective members in attendance and we hope that they will have determined that being a part of AFA is important to their timberland ownership.DSC_0901

 

 

Rick Jones (Dixon Land Company- AFA members) is shown here enjoying the reception.

 

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Also, we were pleased to be joined by Representative Mike Jones. Representative Jones is a rising star in the Alabama Legislature and is gaining a reputation for his wisdom and calm steady temperament.  A great friend to the timber industry, Representative Jones was the sponsor in the House of Representatives for the Alabama Forestry Association’s proposed legislation that would have prohibited the use of state funds for the construction of state buildings that use a green building standard that discriminates against wood that is certified by SFI and Tree Farm.

 

 

Private Property Rights vs. Public Use- The Ongoing Debate

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“I hear the train a comin’, It’s rolling round the bend
And I ain’t seen the sunshine since I don’t know when” – Johnny Cash

Tunnel Springs, Monroe County, Alabama

On December 10, 2013, the Monroe County Commission approved a resolution authorizing the county to purchase a 7 mile strip of abandoned railway property from Pioneer Railcorp. The property, which is more than 80 acres, was appraised for $142,000 and the purchase price was $89,000. The Monroeville/Monroe Economic Development Authority secured a grant from the Alabama Department of Economic and Community Affairs for 80% of the purchase price and the remainder was provided by a private trust contribution. At the meeting, Glen Haab, MMEDA’s Executive Director said a recreational trail will be built on the property.

On April 8, 2014, the Commission indicated that it was applying for an additional $500,000 grant from ADECA to continue work on the project that was characterized as a “biking/walking” trail along the abandoned railroad in the Tunnel Springs community.
Probate Judge (and presiding officer of the Commission) Greg Norris said the county would be required to provide a 20% match ($100,000) and the matching funds would come from “private funds.” The funds would be used to construct an asphalt trail along the right of way. The trail will reach the mouth of the railroad tunnel, but not enter the tunnel at this time. When complete, the project will continue through the tunnel and on to Beatrice.

On April 24, 2014, The Monroe Journal reports that the Commission was honored earlier this month by the Alabama Trails Commission for its exemplary work on the proposed Tunnel Springs Rail Trail in North Monroe County. Commission Chairman Greg Norris was quoted “We are excited about the Tunnel Springs Rail Trail and the outdoor recreational impact it will have on Monroe County and Southwest Alabama.”

The Journal article states that “the project will offer runners, walkers and bicyclists access to scenic and historic areas that have been inaccessible for years. One of the most unique landmarks associated with this project is the rail tunnel, which is only accessible by the proposed trail and provides an enormous opportunity for the historic preservation of this unique asset.” The article goes further, “this tunnel along with three wooden trestles and numerous fields, forest lands and streams is geared to draw outdoor recreational enthusiasts from across Alabama and the southeastern United States.” (Emphasis added)

Unfortunately, these “numerous fields, forest lands and streams” are not part of the project footprint. In fact they are owned by private landowners that are not enthusiastic about having their property invaded by the public.

On July 3, 2014, the Monroe Journal reports that Judge Norris called a press conference to announce that the Commission has been awarded a $400,000 grant to complete the first phase of a walking/biking trail at Tunnel Springs. The grant requires a 20% match of $80,000 through the Federal Transportation Alternatives Program (TAP Grant). Norris stated that private funds, not taxpayer money, will cover the $80,000 match.

The Alabama Trails Commission was established by Act 2010-585 during the 2010 Regular Session of the Alabama Legislature. HB376 was sponsored by then Representative (now Senator) Cam Ward and directs that the Commission be established within ADECA. The Recreational Trails Program (RTP) is funded by the U.S. Department of Transportation and provides funding assistance to federal agencies, states and local governments for the development and improvement of recreational areas such as walking, jogging, cycling, skating, backpacking, horseback riding and off-highway vehicle trails.

The federal Transportation Equity Act for the 21st Century established a vehicle for distributing financial assistance to the states for the purpose of providing and maintaining recreational trails. Section 1112(c)(2) of the Act requires that each state establish “a recreational trail advisory board on which both motorized and non-motorized trail users are represented…”

According to the ADECA website, “the purpose of the Alabama Trails Commission is to make Alabama a nationally recognized destination for hiking, biking, running, horseback riding, motorized off-highway vehicles and water sports by residents and visitors alike. It employs a ground-up, statewide coordinated approach fostering vigorous participation by local, regional, state and federal agencies, stakeholders, higher education centers and non-profit organizations. The ultimate framework would link trails with people; people with their communities; and explorers of all ages with Alabama’s wild places.”

The “Rails to Trails” program has not been without controversy. In March, 2014, the Wall Street Journal reported that the United States Supreme Court sided with landowners in Wyoming. During America’s westward expansion in the 19th century, Congress gave public land to private railroads to spur development of a transcontinental transportation network. In 1996, a railroad in Wyoming became abandoned and tore out the tracks. The U.S. Forest Service then sought to use the rights of way- which passed through a national forest and 31 parcels of private land- for public trails. All but one property owner acquiesced to the plan; Marvin Brandt, whose 83 acre property was the largest, and one associated with his family since his father began working at a local sawmill in 1939.

The government argued that when the railroad ended operations, some property rights reverted to the government, like using the right of way for a trail. The Court, relying on a 1942 case, rejected the government’s argument stating that Congress only granted the right of easement and nothing more. The Justice Department is now defending more than 90 lawsuits challenging Rails-to-Trails projects involving 10,000 properties in 30 states, amounting to aggregate claims in the hundreds of millions of dollars.

The Monroe County project is different in that the railroad held a “fee simple” ownership of the property as opposed to an easement. Therefore, it appears that the railroad has the right to transfer its ownership interest to the county (note: this issue is still not completely determined at this time).

There are several unanswered questions-

First, is the proposed trail limited to the 7 mile purchase from Tunnel Springs to Beatrice?

Second, where will the $80,000 match, supposedly from private sources, come from?

Third, what is the total project cost for the 7 mile stretch? According to the Monroe Journal report, the grant appears to fund only “Phase One” which extends from the Tunnel Springs community to the mouth of the historic tunnel. Where will the additional funds come from that will be needed to address the other “phases” of the project?

Fourth, what is the County going to do to address issues that adjacent property owners have with the project. By its own admission, the County intends for this project to provide unique access to “numerous fields, forest lands and streams and is geared to draw outdoor recreational enthusiasts.” Heretofore, this has been private property. Does the county expect that this project will somehow not interfere with these landowners right to quiet enjoyment of their property?

Stay tuned….we will continue to monitor events in Monroe County. Not only does this issue affect our landowner members in this particular instance but also because the Rails-to-Trails program could have similar impact in other parts of the State.

 

AFA’s Annual Meeting to include Hancock’s CEO Christensen

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We are excited to confirm today that Daniel P. “Dan” Christensen has committed to participate in the AFA Annual Meeting to be held September 7-9th at the Perdido Beach Resort in Orange Beach, Alabama.  Mr. Christensen will be participating in the “State of the Union” panel scheduled for Monday morning, September 8th.  Joining Dan on the panel is John Luke, Chairman of MeadWestVaco.  Other panelists will be announced soon.

In his capacity as CEO of Hancock Natural Resource Group, Dan has overall responsibility for the Hancock Timber Resource Group, Hancock Agricultural Investment Group and Hancock Renewable Energy Group business units.

Dan is a board member of Hancock Natural Resource Group, and a Chairman of its Natural Resource Investment Committee, Chairman and President of John Hancock Timber Resource Corporation, Chairman and CEO of Hancock Forest Management, and Hancock Forest Management New Zealand and Chairman of Hancock Natural Resource Group Australasia. Dan is also Chairman of Hancock Victorian Plantations, Hancock Queensland Plantations, Tiaki Plantations Company, Taumata Plantations Limited, Tasman Bay Forest, Hancock Timberland VII, Hancock Timberland VIII, Hancock Timberland IX, Hancock Timberland X and Hancock Timberland XI, Comox Timber Ltd, and CEO of Red River Timberlands Company. Dan also serves on the Board of National Alliance of Forest Owners (NAFO) and the Board of the Sustainable Forestry Initiative Inc. (SFI).

Hancock Timber Resource Group was founded in 1985 and is based in Boston, Massachusetts, USA, where they develop and manage globally diversified timberland portfolios for public and corporate pension plans, high net-worth individuals, and foundations and endowments. As of December 2013, assets under management totaled $11.5 billion. These assets are located in the United States, Canada, Australia, New Zealand, and Brazil.

 

They are the world’s largest timberland investment manager for institutional investors, serving both domestic and non-US clients and maintains regional asset management offices in Charlotte, North Carolina; Vancouver, Washington; Sydney, Australia; and Rotorua, New Zealand.
Hancock Natural Resource Group, Inc. is a registered investment adviser and wholly owned subsidiary of Manulife Financial Corporation.

AFA’s ForestPAC Endorsements Need Your Vote on June 3rd

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Next Tuesday, June 3rd, Alabama voters will return to the polls to participate in the primary elections for Congress, Statewide offices and the Legislature.  Let us emphasize again; Elections Have Consequences!

AFA encourages our members and friends to show up and vote next Tuesday.  This is our opportunity to elect principled hard working members to our government that can assist in bringing about the reforms necessary to put our State on a course towards fiscal responsibility, accountability and transparency.

Here is the list of ForestPAC endorsed candidates for the June 3rd primaries:

Congress
• U.S. House District 3- Mike Rogers
• U.S. House District 5- Mo Brooks
• U.S. House District 7- Terri Sewell

Statewide Races
• Governor- Robert Bentley
• Lt. Governor- Kay Ivey

Alabama Senate
• District 2- Bill Holtzclaw
• District 4- Paul Bussman
• District 7- Paul Sanford
• District 8- Steve Livingston
• District 11- Jerry Fielding
• District 12- Del Marsh
• District 13- Gerald Dial
• District 21- Gerald Allen
• District 27- Tom Whatley
• District 31- Jimmy Holley

Alabama House of Representatives
• District 5- Dan Williams
• District 9- Ed Henry
• District 12- Mac Buttram
• District 13- Bill Roberts
• District 14- Richard Baughn
• District 16- Kyle South
• District 26- Kerry Rich
• District 30- Mack Butler
• District 35- Steve Dean
• District 38- Randy Price
• District 42- Kurt Wallace
• District 46- Steve French
• District 47- Jack Williams
• District 61- Alan Harper
• District 64- Harry Shiver
• District 71- Artis (A.J.) McCampbell
• District 79- Mike Hubbard
• District 80- Lesley Vance
• District 90- Charles Newton
• District 91- Barry Moore
• District 99- James Buskey
• District 101- Chris Pringle
• District 102- Jack Williams

MeadWestVaco Chairman, John A. Luke, Jr., to Participate in AFA Annual Meeting

index Planning for AFA’s Annual Meeting is off to a great start with the confirmation today that John A. Luke, Jr., the Chairman and Chief Executive Officer of MeadWestvaco, will participate on one of the scheduled CEO panels.

The Annual Meeting, scheduled for September 7-9, 2014 at Orange Beach’s Perdido Beach Resort, is anticipated to be an exciting event with hopefully record setting attendance.

Mr. Luke joined WestVaco in 1979. In 1983, he was elected treasurer, and in 1986 he was elected vice president. Between 1987 and 1989, as a senior vice president, his responsibilities expanded to include the corporate marketing function and the international sales organization. In 1989, he became a member of the board of directors. He was elected executive vice president in 1990, president and chief executive officer in 1992 and chairman in 1996. He was elected chairman of MeadWestvaco in November 2002.

From 1971 through 1974, Mr. Luke served as an officer with the U.S. Air Force in Southeast Asia during the Vietnam conflict. He is a graduate of Lawrence University and the Wharton School at the University of Pennsylvania. He is a member of the Board of Directors and past Chairman of the National Association of Manufacturers and the American Forest & Paper Association.

MeadWestvaco Corporation is a global packaging company providing innovative solutions to the world’s most admired brands in the healthcare, beauty and personal care, food, beverage, home and garden, tobacco and agricultural industries. The company also produces specialty chemicals for the automotive, energy and infrastructure industries and maximizes the value of its development land holdings. MWV’s network of 125 facilities and 16,000 employees spans North America, South America, Europe and Asia. The company has been recognized for financial performance and environmental stewardship with a place on the Dow Jones Sustainability World Index since 2004.

Sign up for the Annual Meeting is scheduled to be available on June 1st, so mark your calendars and check back soon to get registered!

Legislative Session Wrap Up

The 2014 regular session of the Alabama Legislature is in the books and the time for the Governor to “pocket veto” legislation has expired.

So, what were some of the primary accomplishments this session?

Of most importance, the appropriations bills for the General Fund agencies (HB235 – Act 14-284) and the Education Fund (SB184 – Act 14-456) were passed and the Governor has signed them into law.  More on the details of the budgets will be coming later.  With the Governor’s signature, the need for a special session is diminished.

Several bills dealing with restrictions on public assistance were enacted into law that; (1) requires drug testing (for recipients with previous drug issues), (2) prohibits use of public funds for alcohol, tobacco, gambling, and other non-essential items, (3) requires prospective recipients to show that they have applied for three jobs prior to receiving assistance and clarifies that a prospective recipient does not qualify for assistance if they left prior employment voluntarily or without good cause, and (4) makes the fraudulent use of public assistance a crime (for both the recipient and potentially the provider).

A bill (HB9- Act 14-399) was passed creating the Fair Ballot Commission whose purpose will be to provide the public with a fair and accurate explanation of statewide ballot measures.  Sixty days prior to a vote, the Commission shall publish a Ballot Statement that shall include a plain language summary of the statewide ballot measure, the legal or constitutional authority of its passage, the effect of the statewide ballot measure if it is passed, including its cost and source of funding and the effect of the statewide ballot measure if it is defeated.

A constitutional amendment setting up a vote on the Sports Person’s Bill of Rights was adopted ((HB322- Act 14-286) that clarifies that the people of the state have the right to hunt, fish and harvest wildlife subject to reasonable regulations that promote conservation and management of fish and wildlife and preserves the future of hunting and fishing.  It further states that hunting and fishing by the public is the preferred means of managing and controlling wildlife.

An unemployment compensation bill (HB109- Act 14-436) deals with definition of an “employing unit” and would require ownership of at lease 65% of the business located in the State of Alabama to be responsible for providing unemployment compensation.

The “Revolving Door” bill (SB36- Act 14-440) was passed precluding public officials from lobbying their respective former legislative bodies for a period of two years after leaving public office.  A legislative body includes the Alabama Legislature, county commissions and city councils.

A referendum allowing a 7.5% increase in property taxes will be on the ballot soon in Macon County.  The bill (SB468- Act 14-310) was a local bill and the proceeds from the increase will go to fund the Little Texas Volunteer Fire Department.  If this measure prevails at the ballot box, we will most likely see similar initiatives in other areas of the state.  We will provide commentary on local bills that raise taxes at a later date.

What were some measures that did not pass?

Consolidation bills that promoted efficiencies in state government operations were introduced that did not get enacted.  These included merging the Alabama Forestry Commission into a newly named Department of Agriculture, Forestry and Industries, merging Pardons and Paroles and eliminating the Alcohol Beverage Control Board and reorganizing the Alabama Legislative offices.  We anticipate all these efforts to be renewed next year.

A bill promoting transparency in state government by removing the Examiner’s of Public Accounts from under the Alabama Legislature and placing its audit function in the office of the State Auditor had passed the House but died in the Senate.

The Rolling Reserve Act- Part II- It’s Working Just Fine

This article is the second of a three part series evaluating the Rolling Reserve Act and its importance to the fiscally responsible management of the state’s education appropriation process…..

As mentioned in Part I (see:  www.alaforestrygovtaffairs.org/the-rolling-reserve-act-part-i-whats-the-big-deal/), the Rolling Reserve Act is an integral part of the state’s budgeting process for education appropriations.  Let’s now take a look at what has happened since its inception.

Taking a look back….

The ETF appropriations for FY2009 exceeded actual revenues and thus the Governor had to declare proration.  The ETF Rainy Day Account was drawn down completely with a transfer of $437.4 million.  This transfer triggered a constitutionally mandated repayment date of June 2015 (3/4 of the way through the FY15 budget cycle).

Prior to FY14 (starting October 1, 2013), the state had repaid $274.8 million, leaving a balance of $162.6 million.  Where did the repaid amount come from?

First, FY12 (the first budget cycle for the new leadership) resulted in actual revenues exceeding appropriations which allowed for the transfer of $14.4 million.  Second, in FY13 (the first budget cycle with the Rolling Reserve requirements) there was a total repayment of $260.4 million which came as a result of the Rolling Reserve Act where actual revenues ($5,703,241,423) exceeded the capped expenditure level ($5,442,852,452) resulting in the surplus being transferred for repayment.

So good, we have paid back $274.8 million, but we still owe the balance of $162.6 million which has to be paid by June 2015 (more on the significance of that date in a second).  So where will the rest come from?

For FY14 (concluding September 30, 2014), the cap was set at $6,014,101,843.  As the FY14 appropriations bill was being developed, the Legislative Fiscal Office (LFO) estimated that revenues would be $5,730,396,233, which is less than the cap.  The estimated revenues figure is what the legislature passed as an appropriated amount, not the cap. Because actual revenues were estimated to be below the cap, the Rolling Reserve Act did not come into play.  As deliberations began on the FY15 appropriation bill, LFO modified its previous FY14 estimates and now estimates that actual receipts will be $5,831,500,000 which would leave a surplus of $101,103,767 over what was appropriated.  The FY14 appropriations bill includes an absolute appropriation of $35 million for repayment.  Combining the surplus and absolute appropriation would be $136,103,767.  Right? 

Nope.  Hold the phone…since this is all occurring below the cap, the Rolling Reserve Act doesn’t kick in and so this surplus is not required to go to payback the Rainy Day Fund and now is available for conditional appropriations that were in the FY14 appropriation bill. 

Taking a look at those conditionals, there were two joint first priority conditionals that total $66 million ($65 for Rainy Day payback and $1 million for the Insurance Information and Research Center).  So reducing the surplus by that amount leaves approximately $36 million for second priority conditionals.  Looking again at the FY14 appropriation bill, there are 19 joint second priority conditionals totaling $31.8 million, which would then leave approximately $4.2 million in surplus available for the third priority conditional.  The only third priority conditional is a $150 million repayment of the Rainy Day Fund.

So in reality, what we can be sure of from the FY14 fiscal year, as far as paying back the Rainy Day Fund, is the $35 million appropriation.  If LFO’s revised estimates are indeed correct, then another $65 million (the first priority conditional) and possibly another $4.2 million (the third priority conditional) could materialize.

Assuming that LFO is close to being correct (actual indications at this point in time indicate the LFO might be overestimating the FY14 revenues), it would appear that there might be $100 million in payback from FY14’s budget cycle ($35 million absolute and $65 million conditional).  This would then leave $62 million that needs to be paid back as an absolute appropriation in the FY15 appropriation bill. 

There is currently a heated debate between the Governor’s office, the Senate and the House of Representatives as to what the Rainy Day Fund repayment appropriation should be in the FY15 appropriations bill.  The Governor and the House makes the assumption that LFO’s revised FY14 revenue estimates are lower than what will actually materialize.  They project that the FY14 repayment will be $135 million and thus they only include $27 million, as an absolute appropriation, in the recommendation for the FY15 appropriations bill. 

The Senate, however, has taken a more conservative and fiscally responsible route and includes $62 million, fearing that the economic projections made by LFO will not materialize for FY14.

An important date to keep in mind for FY15 is June, 2015.  This is the date that the constitution mandates that the ETF Rainy Day Fund be fully replenished.  The surplus available in FY15 due to the Rolling Reserve Act will not be available for repayment until the close of the fiscal year, therefore will not be available in June.  Thus, whatever amount chosen for repayment, the payment must occur as an absolute appropriation in the FY15 appropriation bill.

Regardless, the clear conclusion to be drawn from all this analysis is that the Rolling Reserve Act is working as intended.  Because of its requirements, arguably over $260 million was available for repayment that might not have occurred if the Legislature were to have had flexibility to spend it as it desired (can you say, teacher pay raise in an election year?).

Taking a look forward….

LFO has estimated for FY15 that revenues will exceed the cap by $157 million.  Assuming this is indeed the case, this will be money that will be transferred into the new Education Trust Fund Stabilization Fund (because the Rainy Day Account would have been fully repaid), which is limited to 20% of the prior year’s ETF appropriation (20% of this year’s ETF would be an amount of $1,146,079,247) which would make it about 12% full.  If that occurs, the Rolling Reserve Act will have created funds available in excess of $600 million for preparation for proration in the future.  If the Rolling Reserve Act creates similar surpluses over the next 8-10 years, the ETF Stabilization Fund will be completely full and that combined with the ETF Rainy Day fund would mean the state would have over $1.5 billion in reserves for the ETF to avoid proration in the event of another economic downturn.

Now that’s what I call being fiscally responsible and planning for the future.

Thank you Republican Legislative Leadership and thank you Rolling Reserve Act.

 

 

The Rolling Reserve Act- Part I- What’s the Big Deal?

This article is the first of a three part series evaluating the Rolling Reserve Act and its importance to the fiscally responsible management of the state’s education appropriation process…..

The three most fiscally responsible measures adopted by Alabama’s leaders over the course of the state’s history are the balanced budget requirement imbedded in our 1901 constitution, the formation in 1982 of the Alabama Trust Fund as a repository for oil and gas revenues derived from offshore royalties and lease payments, and the Rolling Reserve Act.

In Alabama, the state spends approximately $24 billion annually (that includes federal dollars that are directed through state agencies).  Two major appropriations bills address approximately $8 billion of these expenditures.  The Education Trust Fund (ETF) appropriations bill for FY2015 (begins October 1, 2014 and concludes September 30, 2015) is anticipated to be $5,899,655,878.  Revenue to offset these expenditures principally comes from the state’s income tax (60.8% in FY13), sales tax (27.2% in FY13) and utility taxes (6.8% in FY13).  Revenues for FY2015 are expected to be $6,057,000,000, leaving approximately $157 million in excess over expected expenditures. 

So why wouldn’t the ETF appropriations bill spend all of the available revenues?

The reason is the Rolling Reserve Act.  This Act was passed in the 2011 Regular Legislative Session.  Note the date.  2011 was the first regular legislative session after the change in control of the leadership of the legislature.  The elections in 2010 resulted in the Republican Party taking control of both the Senate and House of Representatives for the first time in 136 years.

Before I get into the Rolling Reserve Act, a discussion on proration is needed.

Proration is a nasty word in state governance.  Proration occurs when the Legislature passes an appropriations bill that exceeds actual revenues.  When it becomes apparent that this will occur, the Governor “prorates” the remaining appropriations for the rest of the fiscal year in order to balance with the actual revenues that come in.  Thus, every state department affected has to cut its spending by a certain percentage.  Each department affected has to cut the same amount.  In some instances, the ETF Appropriations and the GF Appropriations are both “prorated” but at different percentages because they are affected by different appropriation bills.  Interestingly, the ETF proration, when it occurs, does not affect teacher’s salaries, as they have annual contracts.  The other state personnel funded through the GF proration do not have this same protection.  So, when proration occurs in the ETF, the shortfall must be addressed through non-salary expenses.  When proration occurs in the GF, it’s not uncommon to see employees furloughed in order to meet the shortfall.

Prior to the change in leadership, the ETF had experienced proration in each of the previous four years.  Since the change, there has not been a need for proration.

Over time, the Legislature has adopted several methods to try to lessen the impact of proration.  In a special session in 2008, the legislature passed Amendment 803 to Alabama’s Constitution that set up the Education Trust Fund Rainy Day Account and the General Fund Rainy Day Account within the Alabama Trust Fund.  For the Education Trust Fund Rainy Day Account the amount is limited to 6.5% of the prior year ETF appropriations and must be paid back in six years.  For the General Fund Rainy Day Account the amount is limited to 10% of the prior year GF appropriations and must be paid back in ten years.

In 2009, to address proration, the legislature drained both rainy day accounts in the amounts of $437 million for the ETF and $181 million for the GF.  More on the dynamics of why that occurred later, but regardless, it happened and the new legislative leadership was left holding the responsibility of figuring a way to repay the funds.

Back to the Rolling Reserve Act…so the new leadership comes into office with the desire to stop proration and the need to pay for past indiscretions.  Their solution was to take one small bite at a time.  The first bite was to address the ETF.  They developed legislation that would require the state to set a “cap” for spending based on a prior 15 year “rolling” average of actual revenue income to the ETF (the aforementioned taxes).  This cap would be the maximum amount the legislature could appropriate to the ETF regardless of whether “anticipated” revenues indicated the potential to spend more.

If actual revenues did indeed surpass the cap, the surplus would be used to first repay the borrowed $437 million from the ETF Rainy Day Account, second to fund an additional anti-proration fund called the Education Trust Fund Stabilization Fund (limited to 20% of the current fiscal year’s ETF appropriation) and then finally into Education Trust Fund Capital Fund, which would be used to construct buildings for public education.

The first year that the “cap” went into effect was FY2013 (beginning October 1, 2012 and concluding September 30, 2013).  So, at this point, the Rolling Reserve Act has affected one complete fiscal year (FY13) and part of another (FY14, concludes September 30, 2014).  The legislature is now working on fiscal year appropriations for FY2015.

Since taking over leadership, the Republican majority has addressed three budget cycles (FY12, FY13 and FY14) and to date, no proration has occurred.  That’s a big deal.  The Rolling Reserve Act is a key component to the big deal.