The Journey Toward Better Budgeting. Public Affairs Research Council of Alabama February 5, 2016

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1 The Journey Toward Better Budgeting Public Affairs Research Council of Alabama February 5, 2016

2 Three Versions of The Budget Story The Way It s Supposed To Be The Way It Happens Now A Vision for A Better Budget

3 First, Some Background

4 Alabama has the lowest state and local tax revenue per capita in the U.S.

5 Additional money available to spend if our per capita taxes rates matched neighboring states

6 A Wobbly Three Legged Stool Property Tax Collections Rank No. 50 in the U.S. Individual Income Tax Collections Rank 37 th in the U.S. Sales Tax Rates Are Among the Highest in the U.S.

7 Spending Measures In 2013, Alabama ranked 42 th in per student state and local revenue per student.

10 Medicaid Medicaid insures half the state s children and pays for half of births. Alabama spends less per Medicaid enrollee, than all other states except for Georgia and Nevada. Alabama has among the strictest eligibility requirements and the most minimally allowed services offered. The handful of optional services Alabama Medicaid provides, like hospice care and in-home dialysis treatment, might end up cost the program more if eliminated.

11 Prisons Alabama has the third highest incarceration rate, after Louisiana and Oklahoma. Alabama has the most overcrowded prisons in the U.S., holding almost twice as many prisoners as they were designed to hold. At $46 a day, Alabama spends less per incarcerated inmate than any other state.

12 36,000 Number of State Employees Over Time 35,534 35,000 34,000 33,000 32,000 31,000 30,000 30,402 29,000 28,000 27,

13 $20 BILLION IN REVENUE Other, $2.5 Billion State Taxes, $9 Billion Federal Support, $8.5 Billion

14 Demands on Government The Education Trust Fund spending is projected to grow by 6.4 percent. However, there is pent-up demand for this additional spending. A total of $384 million in new money is expected to be available, but K-12 has asked for an additional $334 million. Teacher pay raises would cost $40 million per percent of increase. Higher Ed wants over $300 million to bring them back to 2008 levels. General Fund is projected to shrink this year but General Fund agencies say they need $235 million more just to continue current operations.

16 Implications Governments in Alabama have less to work with while attempting to provide a similar level of service as other states. Considering that, Alabama needs a very effective budgeting process, one that identifies priorities and goals, pushes for efficiency, and maximizes effectiveness.

17 We Don t.

18 First Story: How It is Supposed to Work

19 The Budget Management Act Calls For: (1) A continuing review and periodic revision of the program and financial goals and policies of the state. (2) A review of long-range program and financial plans that carry out established state goals and policies. (3) Produce a budget that is organized to focus on the implementation of policies and plans. (4) Evaluates alternatives to existing policies, plans, and procedures that offer potential for more efficient or effective state services. 5) Regular appraisal and reporting of program performance.

20 Agency Submits Budget Request to the Finance Director Includes: Goals and objectives of the agency. Proposed plans to implement goals and objectives. Requested budget needed to carry out plans. Listing of any legislation needed to carry out the plan. Evaluation of alternatives options in the plan.

21 Governor Joint Fiscal Committee State Agencies Finance Director Legislative Fiscal Office Budget Officer

23 Legislature considers

24 Performance Reporting The department of finance shall report quarterly to the governor and the legislature on the operations of each state agency/department. Reports describe the relationship of accomplishments and services delivered to the policy decisions and budget determinations made. The reports include cost, meaningful measures of effectiveness, list improvements made, and potential future improvements.

25 Continuous, Clear, Transparent Financial Reporting Section Monthly reports on condition of General Fund and Education Trust Fund. (a) The Alabama Department of Finance shall produce monthly financial reports. It is the intent of the Legislature that the monthly reports shall increase the transparency of state finances.

26 How it works now

27 Agencies submit budget requests Traditionally, agencies make really large requests. This year, agencies in the ETF and General Fund requested a total of $947 million more than is expected to be available. Usually, requests are based on increases over what was budgeted last year. These are not made in the context of what money might be available.

28 Governor devises budget and presents it The finance department and the governor s office work together and with the agencies to reconcile requests with reality. The budget includes a revenue forecast and makes the proposed expenditures fit within existing revenues or proposes new sources of revenue to make up for shortfalls. This is released during the first week of the Legislative session in concert with the governor s delivery of the State of the State address.

29 Legislature starts over Legislative Fiscal Office prepares revenue estimates. In the past, the Legislature was inclined to pick the highest estimate and go with that. Lately, they picked numbers in the middle of the two. The Legislature this year reinstituted budget hearings. Hearings for General Fund agencies were held in January, using supplemental information requested of the agencies using what was termed zero-based budgeting.

30 Governor Finance Director Budget Legislature State Officer Agencies Legislative Fiscal Office

31 Legislature Crafts a Budget Though the Constitution calls for the Budget to be the first order of business, the Legislature usually waits until the last minute. There is a lot of lobbying going on behind the scenes. The Legislature looks for revenue sources to tap to fill the gap. Waiting until the last minute creates a strategic advantage for the Legislature, which can override a gubernatorial veto with a majority vote.

32 Grappling with Earmarking Pros: Insures that the people s top priorities are protected. Earmarking is popular with the people. There are revenue sources that it makes sense to earmark. Some earmarks were created to guarantee a stable flow of income that can be used to match federal funds or be used for certain purposes.

33 Grappling with Earmarking Cons Limits flexibility in paying for priorities Creates confusion about how much money is actually available. Prevents the Legislature from understanding the true picture of agency operations. Creates a sense of ownership and entitlement. Makes the budget process a shell game.

34 Performance and Budget Management Reports Throughout the year Budget Management and Performance Reports are prepared quarterly by the agencies and submitted to the Finance Department, but there isn t much evidence anyone pays attention to them. Revenue and spending updates are published monthly, but they are just numerical reports, without a narrative explanation.

35 How we might tell a better story about budgeting

36 Get Real Agencies need to be more realistic in their budget requests. The governor and the Legislature should coordinate their information requests and hold joint hearings. Missions, goals, plans, and metrics become the basis for a continuous conversation about ways operate more efficiently and more effectively. They are included in quarterly performance reports and serve as the basis for discussion in the budget process.

37 The Governor s Budget Governor s Budget should be supplemented with basic narrative information about mission, goals and metrics and why cuts or increases are being proposed.

38 Forecasting Provide consistent, decipherable reporting on the performance of principal revenue streams and the condition of the ETF and General Fund. Add long-term forecasting and identify trends. Create a tax expenditure report.

39 Options to Consider Reconsideration the role of the Governor s role and/or Legislature s. Biennial budgeting? A session dedicated to budgeting. Resolve the perpetual General Fund problem.

State Budget: Priorities and Issues Ahead Methodist Healthcare Ministries of South Texas Mental Health Summit, June 25, 2012

State Budget: Priorities and Issues Ahead Methodist Healthcare Ministries of South Texas Mental Health Summit, June 25, 2012 Eva DeLuna Castro, Budget Analyst Outline 2012-13 Budget Overview Spending priorities;