Lawmakers gathered at the Capitol on Monday morning for their first briefing on budget projections for the 2015 fiscal year, which begins in October. The annual meeting sets the stage for budget debates in the legislative session, which begins Tuesday.
The news was grim for at least one of Alabama's two state budgets. Officials expect the Education Trust Fund, which pays for K-12 schools and colleges, will have about $5.9 billion to spend in 2015, up $134 million from the current year.
But the smaller General Fund, which pays for all other functions of government, is expected to bring in $1.7 billion.
That's $47 million less than the $1.75 billion actually budgeted for 2014, and $83 million short of what the state expects to take in and spend after funding "conditional appropriations" — added expenditures that the Legislature agrees to spend if revenues are above projections.
While the General Fund is expected to shrink in 2015, its biggest single expense — Medicaid — is expected to need more money. Acting finance director Bill Newton said more than 1 million Alabamians now are enrolled in Medicaid, a joint state-and-federal health care program for people in poverty.
"I expect that funding for that agency will dominate our deliberations on the budget for 2015," Newton said.
Cost of health care & prisons
The growth of Medicaid, which has seen a rise in enrollment since the recession, has fueled fierce budget debates in recent years, even when the General Fund grew. Alabama has spent $615 million per year on the program for the past two years, though the Medicaid Agency's administrators say the program needs far more.
The Medicaid system will “succeed ... in being flat broke” in 2014, said state health officer Don Williamson. Williamson said the agency needs $700 million in the 2015 budget, an $85 million increase.
The partisan debate over Medicaid began even before the first budget hearing was over. Rep. Patricia Todd, D-Birmingham, asked budget officials what the cost would be if the state expanded eligibility for Medicaid under the Affordable Care Act. Under the act, the federal government would pick up the state's tab for Medicaid expansion for the first three years; Democrats maintain the expansion would increase state revenues by pouring more federal money into Alabama's economy.
"So we would have had more money in the General Fund if we'd expanded Medicaid," Todd said.
Republicans countered that the Affordable Care Act has already added to Medicaid’s cost, through something known as the "woodwork effect." Medicaid officials have long expected that as people inquired about health insurance under the Affordable Care Act, some would find they're already eligible for Medicaid and would enroll.
"We're going to have an unfunded liability even without the expansion," said Rep. Greg Wren, R-Montgomery.
Williamson, the state health officer, said state officials had expected the number of people on Medicaid to decline once the economy began to improve. Instead, Medicaid rolls have grown even as the employment rate declined.
The increase began before the Affordable Care Act enrollment website came online, but Williamson said the growing Medicaid numbers could be the result of some unforeseen effect of Obamacare. Or it could be due to large numbers of people going to work in jobs without health insurance, with wages low enough to make them eligible for Medicaid.
“We talked to our actuaries about this, and the consensus was that it is happening in other states,” he said. “So we think it has something to do with the jobs that are being created.”
The state’s prison system also asked for a budget increase, requesting $42 million more than the $396 million the Department of Corrections got last year.
The state’s prisons are overcrowded — Prison Commissioner Kim Thomas said they’ve been at 190 percent of their build capacity for the past three years — and lawmakers have openly speculated that the state is risking a lawsuit as a result. Inmates at three state prisons staged a strike earlier this month, and posted YouTube videos that aired their complaints about prison conditions.
The budget increase requested by Thomas includes $4 million to pay for locks and doors, $5 million to hire 100 new officers and $16 million for staff raises to help retain the guards the prison currently has.
Thomas said his department has begun hiring retired corrections officers to bolster the prison staff.
“That enables each warden to bring back seasoned, experienced people with a marginal cost,” he said.
Lawmakers also heard from Chief Justice Roy Moore, who said cuts to the judicial system have created delays in the court system.
“Look at the condition of the judicial branch,” he said. “It affects the prison system. It affects everything.”
The state’s costs for both prisons and Medicaid have grown substantially over the years, putting the squeeze on other agencies that get their money from the General Fund. In 2012, voters approved an amendment to take $437 million from a state trust fund to help cover the growing cost of both. According to budget figures released Monday, the transfer from that trust fund is now the largest single revenue source for the General Fund.
The rest of the General Fund's money comes from a patchwork of other taxes, including insurance taxes, court costs and tobacco taxes. For some time, the state's budget planners have lamented that those revenue sources don’t produce steady growth.
"The General Fund doesn't grow," said Norris Green, director of the Legislative Fiscal Office. "It just kind of hangs around."
Republican lawmakers and Gov. Robert Bentley have touted their efforts to save the state money by trimming the state payroll — and budget figures show that the state now has around 4,700 fewer non-education employees than it did in 2008. But state officials also say the decline in current employees may be hurting the state's ability to fund its obligations to current retirees.
Schools fund grows
News was better for the Education Trust Fund, which is funded by income and sales taxes. Budget officials predicted the state would have $5.9 billion to spend in 2015, about $134 million more than in the current year.
However, Alabama has until mid-2015 to pay off a $437 million loan to the ETF from the state's Rainy Day Fund. The state has $162 million left to pay, but it's not clear how much of that will have to be paid in 2015. That’s because the state won’t know, until later this year, how much money is available in 2014 to pay the loan down.
"That's important, because whatever's not paid back is going to come out of the $134 million (in 2015)," Green said.
The 30-day legislative session officially begins Tuesday.
Capitol & statewide reporter Tim Lockette: 256-294-4193. On Twitter @TLockette_Star.