A lot of numbers are being thrown around as folks try to explain what happened to education funding as a result of the passage of the General Fund budget in the recently-ended second special session.
When asked which numbers to believe, Othni Lathram, Interim Director of the Alabama Legislative Fiscal Office (LFO), cautioned, “There are things we know and things we don’t know.”
The LFO is responsible for determining the monetary impact of actions of the legislature. Their web site is full of helpful information on budgets and taxes. The LFO also prepares the budget spreadsheets that compare one year to the next.
What We Know
What we know is what changes the two laws, HB29 and HB30, enacted.
HB30 changed the percentage of the split of the Use tax to 47% for the Education Trust Fund (ETF) and 53% for the General Fund. Use tax is a sales tax on items purchased out of state.
That means the General Fund will get $80 million from the Use tax that previously would’ve gone to the ETF.
We also know that HB29 loosened restrictions on money tied up by the Rolling Reserve Act, theoretically allowing more money to be freed up for use by agencies funded by the ETF.
The law now allows the lowest yearly rate of change of the previous 15 years of ETF receipts to be dropped from the calculation. This is important given the low rates in FY09 through FY11.
In addition, HB29 changed the way that money that exceeds the cap can be used.
“We’re not going to store up as much as we would have under the old law,” Lathram said.
Under the old law, all money above the cap was required to be moved into the Budget Stabilization Fund (BSF) until the balance reached 20% of the previous year’s ETF appropriations.
Under the new law, only a percentage of money above the cap will be moved into the BSF and will continue only until the balance reaches 7.5% of the previous year’s ETF appropriations..
For FY15, an amount equal to two percent of FY14’s ETF appropriations will be moved to the BSF, and in years thereafter, the amount is lowered to one percent.
Any amounts remaining above the cap and not required to be placed into the BSF will be moved into a newly-renamed Advancement and Technology (A&TF) Fund.
Before the name change, money in the then-Capital Fund could only be used for building-related expenditures. The new law allows money in the A&TF to be used for:
- repairs and deferred maintenance for public education buildings,
- classroom instructional support,
- acquisition and/or purchase of educational technology and equipment.
Once the A&TF balance reaches $10 million, funds will be appropriated in a supplemental appropriations bill passed by the legislature.
A&TF monies will be split between higher education and K-12, with the split determined by the LFO.
When asked how the ETF fared overall, Lathram said, “Our projections are that for FY16, the excess above the cap is greater than what was transferred by the Use tax bill.”
The laws passed during the second special session, including HB29 and HB30, will not in any way affect the FY16 ETF budget, he added. The FY16 budget year begins October 1, 2015.
What We Don’t Know
What we don’t know is exactly how much receipts will exceed expenditures for FY15, which ended today. So while we know what the formula is, we don’t know what the amounts will be.
Those numbers suggest that around $115 million will be transferred into the BSF (2% of the FY14 ETF appropriations of $5.8 billion), leaving barely $3 million for the A&TF, well below the $10 million threshold needed to allow that money to be appropriated in FY17.
We also don’t know what the FY17 Rolling Reserve cap will be. The LFO must certify final numbers for FY15 before the FY17 cap can be calculated.
Lathram said those numbers will be released just prior to the start of the Regular Session, which is the deadline for furnishing the legislature with those numbers.
The 2016 Regular Session starts on February 2, 2016.
The Bottom Line
$80 million of revenue was moved out of the ETF via the Use tax transfer.
The adjustment to how the Rolling Reserve cap is calculated theoretically frees up more money to be appropriated through the ETF.
Lowering the amount required to be moved into the Budget Stabilization Fund theoretically allows more money to be transferred to the Advancement & Technology Fund.
The expansion of allowable uses of the Advancement & Technology Fund theoretically allows more money from that fund to flow to higher education and K-12.
The FY16 ETF budget will not be impacted by any of these changes.
The state legislature begins work on the FY17 budget when the regular session begins on February 2, 2016.