In 2015, the Alabama legislature made changes to the Rolling Reserve Act that are beginning to have an impact on the Education Appropriations process as the legislature works to finalize education spending plans for the FY17 fiscal year (begins October 1, 2016).
Originally, the Rolling Reserve Act (which was adopted in 2011 shortly after the Republicans gained control of the legislature) set a cap on education spending based on the prior 15 years average of actual education revenues plus 40% of any new revenue measures passed in the previous legislative session. This was a vast improvement over the previous method of estimating how much revenue might come in for the year and appropriating that amount.
Additionally, the original Rolling Reserve Act would put Excess Funds (actual revenues that exceeded the cap) into a Budget Stabilization Fund (until it reached 20% of the current year appropriations for education spending; approximately $1.2 billion) and then would begin rolling over into the Education Trust Fund Capital Fund (which could be utilized for education related capital projects).
The original Rolling Reserve Act was a fiscally responsible and prudent budgeting tool.
So of course, the legislature had to change it; which they did during the second special session in 2015. While everyone else was focused on trying to raise taxes to fund Medicaid through an agonizingly long legislative year, this bill changing the Rolling Reserve Act went practically unnoticed.
The new Rolling Reserve Act now sets a cap based on 14 of the 15 highest previously funded years, adds the amount for the Prepaid Affordable College Tuition (PACT) program and adds 100% of newly enacted revenue measures. The result is a much higher cap.
Additionally, the new Rolling Reserve Act changes the distribution of any Excess Funds. Now it only puts 1% of the prior year spending amount into the Budget Stabilization Fund (2% for FY15 only) up to 7.5% of the prior year expenditures (which would be approximately $450 million). The remaining amount is deposited into an Advancement & Technology Fund to be appropriated in the next fiscal year for school related repairs, deferred maintenance, technology and equipment (read…slush fund).
So what’s the impact of these changes?
In FY15 (ended September 30, 2015), Excess Revenues for education were $140.1 million. All of these funds would have been placed in the Budget Stabilization Fund pursuant to the original Rolling Reserve Act. However the new distribution resulted in $118.3 million going to the Budget Stabilization Fund and $21.8 million went to the Technology Fund.
We are currently in FY16, but the estimates are that there will be $195 million in Excess Funds based on a cap of $5.95 billion (the amount that was appropriated) and estimated revenue of $6.15 billion. The distribution, pursuant to the new Rolling Reserve Act will be $59.5 million to the Stabilization Fund and a whopping $135.5 million to be appropriated by the legislature for special projects in 2017.
As the legislature now considers the FY17 Education Appropriations, they are working off a cap of $6.43 billion (thanks to the new Rolling Reserve Act) while expected revenues are $6.33 billion. Since anticipated actual revenue is less than the cap, there is no expectation of putting any money into the savings account for FY17.
But….spending on education will now go up an incredible $382 million over the prior year (FY16).
Thanks to the new Rolling Reserve Act, we now have a new cap that is higher than expected revenue and no savings will be put away….in spite of having an increase in actual revenue of $186 million.
Fiscal responsibility and prudent budgeting have been tossed aside.
Who was the architect of the new Rolling Reserve Act?
Senator Trip Pittman (R- Montrose) sponsored it in the Senate and Representative Bill Poole (R- Tuscaloosa) sponsored it in the House. Interestingly, these were the chairmen of the Education Appropriation committees in both houses.
In the Senate, one republican member voted against the bill….Senator Bill Holtzclaw. Three other republicans “passed” on the vote….Senators Pittman, Scofield and Stutts. 22 Republicans voted for the measure.
In the House, the vote was 88-14. The only republican members voting against the measure were Representatives Harbison, Henry, Holmes (Mike), Jones, Moore (Barry), Wadsworth, Whorton (Issac) and Wharton (Ritchie).
Good thing the AEA is not as powerful as they once were….right?