“You won’t see this in the state budget,” Thigpen said. “We’re not really part of either state budget.”
Thigpen is the assistant director of the Alabama Alcoholic Beverage Control Board, which runs a network of state-run liquor stores. Every year, ABC hands over its profits to the state, and legislators vote to give most of that money back to ABC to use in future operations. In the 2011 budget, the agency got $84 million back from the state. In 2012, they got only $70 million — with most of the remaining $14 million going to close gaps in the state budget.
In the grand scheme of things, the cut to ABC may not sound like much. But it represents something bigger — a fledgling effort to tap into a stream of state money that most Alabamians don’t even know about.
Lying mostly outside the bounds of the state’s two official budgets, there’s a thicket of taxes, fees, and windfalls that the state collects automatically and distributes with a rubber-stamp approval from the Legislature. None of this money is reflected in the budgets legislators are about to debate in Montgomery. But added together, these state funds amounted to $3.2 billion in 2012 — about 30 percent of the state’s total revenue, and more money than is found in the entire General Fund budget.
For almost a year, staff from Gov. Robert Bentley’s office have been hinting that they’d like to tap into that stream of money, freeing up cash that could be used to patch the holes in the General Fund.
There’s evidence that legislators are indeed chipping away at that “invisible” $3.2 billion. But progress is slow.
Two budgets — or three?
Unlike most states, Alabama runs two official budgets, not just one.
One budget is the General Fund, which is a budget as most people know the term. Legislators can spend the money in the General Fun — about $1.9 billion in 2012 — as they see fit, for the most part.
Then there’s the Education Trust Fund, a larger budget that consists largely of taxes and fees that are already earmarked for educational purposes. Legislators have a say in which educational programs get that money, which added up to $5.6 billion in 2012, but it can’t be used for anything but education.
But there’s a whole lot that doesn’t fall into either of those budgets. Labeled in some budget documents as Other State Funds, it’s the money generated by combination of penny-ante consumer fees, lawsuit windfalls and highly specific business taxes. All of it is earmarked by state law or amendment for specific agencies. Legislators can withhold some of that money, but when it’s released, there’s only one place it can go.
Norris Green, director of the Legislative Fiscal Office, says it’s not fair to call Other State Funds a third state budget. Budgets, he said, come with some power to choose where funds are allocated.
Much of the money in Other State Funds was allocated decades ago.
How we got here
Over the decades, the Legislature — or the voters themselves — have agreed again and again to raise taxes. Most aren’t the big taxes, like sales or income tax, but the little taxes. New license fees, for instance, or a slight bump-up to the sin tax on a cigarette.
Sometimes those taxes go right to the General Fund, where the Legislature can spend them at will. But usually, they’re earmarked — divided into bits, with little slivers going directly to state agencies.
For example, if you buy a 12-ounce beer sold in Alabama, the state charges a 5-cent excise tax. That’s just one tax on beer: per state law, you’ll also pay 4.875 cents in local excise tax, as well as the usual sales tax on your purchase.
But back to that nickel collected by the state. Under state law, 1.5 cents will go to the General Fund budget and 2 cents will go to the Education Trust Fund budget. Half a cent gets divided equally among the state’s wet counties.
And one cent goes directly to the Department of Human Resources.
That last penny is Other State Funds. And it’s been collected on every beer sold in Alabama since 1955 — when a penny beer tax was nothing to sneeze at.
Multiply that penny transaction by a few hundred billion and you have a pretty good image of the Other State Funds budget — a river of pennies, flowing through government fees and formulas like a thousand ping-pong balls bouncing through a hundred Rube Goldberg machines.
Admittedly, the Other State Funds pool isn’t all nickels and dimes. An annual infusion of tens of millions of dollars comes from tobacco companies, the result of a multi-state lawsuit against them. Power companies pay hundreds of thousands in kilowatt-hour taxes, large portions of which are earmarked.
But a lot of the money comes from the small things. When you get married, $3 of your marriage license fee goes to the Office of Prosecutorial Services, a statewide office that represents the interests of county district attorneys. If you and your spouse go into the contracting business, you’ll pay a 5 percent tax on your gross receipts, 85 percent of which will go to the Alabama Special Mental Health Fund, while 15 percent goes to the Human Resources Trust Fund. When you order a copy of your birth certificate, the $15 fee is split between the Children’s Trust Fund and the State Board of Health.
All this fuss
Every state has some sort of earmarking, experts say.
Green, the Legislative Fiscal Office director, said states earmark about 24 percent of their revenue, on average.
In Alabama, he said, it’s 84 percent.
That 84 percent includes the earmarks in the Education Trust Fund and all the $3.2 billion in the Other State Funds column. But Other State Funds alone — 30 percent of the $10.7 billion in state revenue — would outstrip the average state’s share of earmarked funds.
Keivan Deravi, the economist whose revenue estimates form the basis of the state’s budget, can’t see the sense in that.
“I’ve not seen another state that does things quite like this,” said Deravi, who teaches at Auburn University’s Montgomery campus. “I think we are probably the most earmarked state in the nation.”
The problem with earmarks, Deravi said, is they leave legislators with little room to adapt to changing circumstances. By most accounts, Alabama is in a funding crisis, facing revenue shortfalls that could lead to harsh funding cuts. But the Legislature, Deravi said, will spend its time debating how to spend only a fraction of state revenue.
“All this fuss and bother is over maybe 20 percent of the state’s total funds,” he said.
Deravi said Alabama got this way because voters simply didn’t trust the Legislature to spend their money. Rather than giving it to legislators to spend freely, voters preferred earmarks that would keep money flowing to their favorite causes forever.
But soon, Deravi said, Alabamians may have no choice but to swallow their doubts and hand over spending power to legislators.
“The baby boomers are getting older,” he said. “We’re going to have to find some way to pay for the services they need. I don’t see how we’re going to do it with our money tied up like this.”
Green, however, noted that the Other State Funds pool isn’t just a pot of money waiting for someone to take it.
“It’s not like this is a pile of cash that’s going unused,” he said. “There are agencies that depend on this money for their operations. There’s no low-hanging fruit here.”
Clearly, some agencies wouldn’t exist without the funds in this nearly-invisible budget. For example, the Department of Conservation and Natural Resources gets all but $256,000 of its $90 million budget from Other State Funds. Even in agencies where less than 50 percent of funding comes from Other State Funds, those funds shore up state services — and employ state workers.
State Sen. Del Marsh, R-Anniston, said “life would be easier” if the budget had fewer earmarks, or none.
Politically, he said, that can’t be done.
In a budget proposed last week, Gov. Robert Bentley tried to shift responsibility for children’s health care funding into the Education Trust fund budget, arguing that children’s health care is education-related. Legislators balked. For Marsh, it’s a sign that moving earmarked funds is hard.
“It’s tough to do politically, because people don’t want to let go of that money,” he said.
Shifting the pain
Bentley seems to also have his eye on those Other State Funds.
Early in 2011, then-Bentley budget director David Perry mentioned that the state might be able to dip into earmarked money to help fix holes in the General Fund. Among other changes, he said, Bentley would move $6 million from the Department of Conservation and Natural Resources, $10 million from the Alabama Beverage Commission and $10 million from the Department of Revenue into the General Fund.
The Legislature wound up taking $14 million from ABC. It was, arguably, the easiest money to get. Green said ABC is the only agency in the Other State Funds category that the Legislature can take funds from directly.
Thigpen said he expected to lose another $6 million to the General Fund in 2013.
The predicted cut to Conservation and Natural Resources also came to pass. Green said legislators passed a bill redirecting some park fees to the General Fund. Attempts to reach Conservation Department officials for comment last week were unsuccessful.
By looking closely at the wording of the state law, Green said, legislators managed to find a way to move around funds within the Other State Funds budget. The Department of Transportation is one of the biggest recipients of Other State Funds, collecting more than $400 million due largely to a gas tax. Because the wording of state law allows that money to be spent on traffic safety, Green said, Legislators were able to slide $60 million into the Department of Public Safety and the court system.
Jennifer Ardis, spokeswoman for the governor, said more changes are coming.
“We are looking at additional changes to certain revenues in the fund this year, but we are not ready to discuss any specifics,” she said via email.
For Deravi, any small-scale attempt to dip into earmarked funds is likely to be a waste of time. Overall revenue is down, he noted.
“You’re just shifting the pain around,” he said.
Deravi said the state has a “structural deficit.” In other words, there are built-in problems with the budget that will lead to funding gaps even in good times.
But the economist thinks he knows why legislators haven’t taken on the earmarked funds issue yet. With all this money bound up by law, he said, lawmakers are freed from having to make the hard calls.
“Nobody wants to make the tough decisions,” he said. “It’s too much work.”
Assistant Metro Editor Tim Lockette: 256-235-3560. On Twitter: @TLockette_Star
