The Hen is Comin’ Home to Roost

hens

Seven Days.  The 2014 Fiscal Year ends in seven days, and guess what?  Alabama’s economy is not booming.  In fact, surprise…it’s stagnant.

In June, we posted that the State was not experiencing the dynamic growth in tax revenue anticipated by some of our public policy leaders.  At that time, we praised Senator Pittman for his foresight (even though he was on the losing end of the battle) in taking the prudently fiscally responsible approach towards the education appropriations process and paying back the ETF debt to the Alabama Trust Fund.  (See:  http://www.alaforestrygovtaffairs.org/senator-pittman-was-correct-stagnant-economic-growth-will-challenge-repayment-of-etf-rainy-day-fund/).

He suspected then what we now know to be the case.  The mainstream media is also now beginning to take note.  (see:  Mike Cason’s article on al.com).

According to Cason’s report, the state’s education related receipts are up 1.6% or $83 million over last year.  Though the article doesn’t provide much depth, it does raise the question of how the legislature will repay the remaining $162 million due the Alabama Trust Fund (the amount still owed from the $437 million borrowed in 2009) in June 2015.  Even though receipts are up over last year, where are they in comparison to what the legislature used to prepare their budget?

With the institution of the Rolling Reserve Act, most year’s appropriation level will be limited by the cap imposed by the Act.  For FY14, however, the legislature did not think revenues would reach the cap, so they limited themselves to an estimate of what those actual revenues would be.  So what was that number?  Cason reports that the receipts to the ETF were “about what the Legislature projected when it passed the budget in 2013.”

If that’s the case, then there is no excess receipts over expenditures.  Right?

The FY14 ETF appropriation includes a $35 million absolute appropriation and a $65 million conditional appropriation for repayment to the Alabama Trust Fund.  A conditional appropriation only kicks in when there are receipts in excess of revenues.  So, it looks like only $35 million will be paid towards the debt at the expiration of the fiscal year in seven days.

That will then leave $127.6 million to pay by June 2015.  FY15’s ETF appropriations bill includes another $35 million, so when that is paid, it will still leave $92.6 million to be paid.

As noted in previous posts, the June 2015 repayment date is the challenge.  The legislature will convene in March next year and one of the first items they need to focus on will be the passage of a supplemental appropriations bill to address this repayment requirement.  This will be money that will come out of the “cap” imposed by the Rolling Reserve Act and thus not available for FY16 educational expenditures.

Get ready for the usual suspects to scream bloody murder about this payment, the “cap” and the Rolling Reserve Act itself.  There will be enormous pressure to ignore the Act’s requirements.

All the more reason to pass a bill to make the Rolling Reserve Act a part of our constitution.  AFA will be advocating just that in the coming legislative session.

 

 

 

 

 

 

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