Early look at Alabama's finances not encouraging

MONTGOMERY - The first look at next year's Alabama government finances, especially the public school fund, doesn't look too rosy for legislators who will start budget work in January.

The National Conference of State Legislatures stated in its annual report that economic conditions will make it "difficult or impossible" for lawmakers to craft a 2009 Alabama education budget without program cuts. The financial information used in the report is based on figures supplied by the legislative fiscal office.

The report blamed nonexistent growth in education tax receipts, the lack of a carry-forward balance, possible depletion of the statutory education budget proration account, and increasing state health insurance and state employee retirement costs.

State Finance Director Jim Main cautioned that the conference's report is based on the first month of economic projections and tax receipts. Those numbers come from October's performance, which is the first month of the 2007-08 budget year.

Still, early signs point to possible use of the state's $400 million education statutory savings account to forestall proration, or cuts, in this fiscal year. "At some time, we probably will have to" use it, Main said last week.

If the account is depleted to prop up this year's $4.1 billion education budget, other measures will have to be taken, including cutting spending. Salaries cannot be prorated.

Main said he isn't yet willing to say what the choices are because it's too early and the proration prevention account may contain enough money to stave off or limit cuts.

One thing taxpayers can count on from the fiscally conservative Alabama Legislature is there won't be a general tax increase.

"I don't see additional taxes being levied," said state Rep. Richard Lindsey, D-Centre, chairman of the House Education Appropriations Committee.

"There are so many obstacles to raising taxes, and we don't need to try to raise them unless it's as a last resort," said Sen. Bobby Denton, D-Muscle Shoals, vice chairman of the Senate Finance and Taxation Education Committee. "We've had bleaker conditions before."

Main said that after only two months into the fiscal year, "we do not have a good feel for where we are going," but he's preparing budget numbers for legislators when they start hearings in advance of the Feb. 5 legislative session.

Gov. Bob Riley uses finance office numbers to formulate budgets he'll submit to the Legislature in the 2008 session. The Legislature uses its Legislative Fiscal Office to cross-check and modify the governor's budgets. The two offices are often close in projections.

"We are conservative in our estimates and the Legislative Fiscal Office is a little more aggressive, so generally we meet in the middle," Main said.

One thing is for sure, though. "Budgets will be challenging<0x00A0>and fiscally responsible," Main said.

Legislators will have produced two state spending plans by the scheduled May 19 end of the legislative session. The budgets they ultimately approve will be for the fiscal year that begins Oct. 1, 2008.

The General Fund, which covers non-education government spending, is $1.8 billion this fiscal year. Its outlook isn't as bad as the education fund, according to the National Conference of State Legislatures.

Including federal money, Alabama's state government spends about $20 billion annually.

Lindsey said he hopes the area of the economy that affects major tax sources used to prop up the education fund will get back on track in the next year or 18 months.

"There's no doubt that the economy has slowed nationwide as well as in Alabama," he said. "And I tend to agree that we are going to be looking at a very tight situation with the education budget in this next year, according to numbers we're seeing nationwide."

Education tax receipts in October and November were about $17 million behind the same two months in 2006. All state tax receipts were about the same for the first two months of this fiscal year, compared to the same period last year. The projected growth, however, hasn't shown up yet.

Legislative Fiscal Office Director Joyce Bigbee said this fiscal year's budgets were based on an 8 percent growth in revenue, but that may have to be pared to 6.5 percent. The education fund's largest sources of revenue are sales and income taxes.

Lindsey said the House and Senate had the forethought to appropriate money to the statutory proration prevention account. A second account, which was created by constitutional amendment, contains about $210 million.

"We have $600 million in our savings accounts, so it is an established account for those kinds of things we're talking about," Main said. "It can prove very helpful in getting through this year and next fiscal year."

Dana Beyerle can be reached at (334) 264-6605 or dtb123@aol.com.