SECOND INTERIM

REPORT ON

BUDGET REFORM

Prepared by:

Joint Task Force on Budget Reform

January 2018
 Table of Contents

Why was the Joint Task Force (JTF) created? ............................................... 1

What is the problem? .................................................................................... 3

JTF Findings 2018 ........................................................................................ 19

JTF Recommendations................................................................................. 20

1: Improve the Budget Process ............................................................... 21

2: Use a Portion of Reversions to Establish Reserve Funds ................... 24

3: Review Tax Credits, Exemptions, Deductions, and Tax

Preferences on an Ongoing Basis ....................................................... 28

4: Review Earmarked State Revenues on an Ongoing Basis ................. 31

5: Long-Term Budget Reforms................................................................ 33

Appendices ................................................................................................... 34

Appendix A: Modification of Budget Language .................................... 35

Appendix B: Proposed Legislation .......................................................... 37

Appendix C: Proposed Budget Spreadsheet .......................................... 42

Appendix D: State Employees Comparison by State ............................. 49

 2018 REPORT ON BUDGET REFORM

Why was the Joint Task Force (JTF) created?

Year after year, session after session, the Alabama Legislature returns to Montgomery to answer
the same, age-old question: “What are we going to do to fill the hole in the General Fund Budget?”
Certainly, there have been times over the years that this was not the case, but for the most part
this question has been asked annually for decades.

Faced with tremendous growth in Medicaid, less than adequate funding in essential functions of
government, and the frustration of yet another approaching session to answer “the question”, the
Legislature passed a joint resolution in September of 2016 that created the Joint Task Force on
Budget Reform (JTF). The members of the JTF are as follows:

House Senate
Representative Danny Garrett (Co-Chair) Senator Clyde Chambliss (Co-Chair)
Representative Anthony Daniels Senator Greg Albritton
Representative Allen Farley Senator Linda Coleman-Madison
Representative John Knight Senator Bill Hightower
Representative Chris Pringle Senator Bill Holtzclaw
Representative Kyle South Senator Bobby Singleton
Representative Rich Wingo Senator Phil Williams

The JTF was created “to examine the structure and design of the state budgeting process and
make recommendations for long-term budget and tax system reforms. The task force shall
evaluate and recommend changes to state budgeting practices including, but not limited to” the
following five categories:

1) BUDGET PROCESS – how can the overall budget process be improved;

2) AGENCY REVIEW – what can be done to improve transparency and accountability of state
agencies;

3) EARMARKING – what steps should be implemented so that revenues can be better

appropriated based upon needs;

4) TAX CREDITS, EXEMPTIONS, DEDUCTIONS – what steps should be taken to ensure that
tax preferences are beneficial to the state and its citizens; and

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 5) TAX FAIRNESS – what measures should be implemented to reduce the tax burden on middle
and lower class citizens and improve the fairness of tax policy.

The JTF was initially tasked to present a report to the Legislature on the 5th Legislative Day
of the 2017 Regular Session. Due to the size of the task at hand, Study Groups were formed to
research, evaluate, and ultimately make recommendations. As the study progressed, however, it
became evident that the short time line between October of 2016 and the beginning of the
Session in February of 2017 was not enough time to properly research, evaluate, develop and vet
a comprehensive solution to our state’s fiscal woes. As a result, the JTF submitted an Initial Report
in which it was requested that the work of the JTF continue until the beginning of the 2018 Regular
Session. The Legislature agreed and adopted SJR 52 which extended the work of the JTF and
required that a report be submitted by the fifth legislative day of the 2018 Regular Session.

The JTF believes that, while this report does not provide a comprehensive solution to our
state’s fiscal woes, it does provide recommendations that will lead to the elimination of fraud,
waste and inefficiencies in state government. The recommendations presented in the following
sections will change current state budgeting practices by:

(1) requiring state entities to be more efficient with state resources and providing for a
reserve fund;

(2) requiring the ongoing review and evaluation of new and existing tax expenditures, to
include but not be limited to, reporting requirements and sunset review; and

(3) mandating legislative budget hearings two weeks prior to the beginning of the annual
legislative session and ensuring that members of the Legislature have access to certain
fiscal information submitted by state agencies; and

(4) requiring the ongoing review and evaluation of earmarked state revenues.

The recommendations presented herein are not to be taken as the final work, merely
changes that have been identified through the JTF’s initial work as policy changes that should be
implemented sooner rather than later.

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 What is the problem?
There are a multitude of opinions regarding the fiscal problem in the State of Alabama. These
opinions are formulated by background, experience, level of knowledge and many other factors
of each individual. This section will attempt to outline the problem from a fact-based perspective.
Certainly, to arrive at a comprehensive solution, we must know the good and the bad of where
we are currently, and where we want to go. Only after agreement of these positions can we
formulate a path to get from current reality to future prosperity.

A common thought is that state government in Alabama is too big, has grown too fast, and wastes
too much money. To determine the facts of this situation, one can look at other states of similar
size and compare Alabama to them, but if the other states are bloated then the comparison is
meaningless. So, a comparison was made of expenditures of state government in Alabama to
Gross Domestic Product in Alabama for the last 40 years.

Percentage of Alabama Expenditures to Alabama Gross

Domestic Product (GDP)
6.00%
AL Spending Compared to AL GDP

5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

YEAR

What was found was actually surprising to the JTF. State government has actually grown at roughly
the same rate as the private sector over the last 40 years. Including a few peaks in very prosperous
years, spending by state government has averaged 4.2% of Alabama GDP.

This method of analysis includes the effects of inflation on the business as well as the government
side of the equation; therefore, adjustments are not needed since they would simply cancel each
other out.

From discussion among the JTF, this was not the Legislative perception and certainly not the public
perception. A simple explanation could be that we see so much media regarding our bloated

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federal government, that we apply that same thought and logic to state government. As shown
in the previous chart, this perception is simply not accurate.

This is not to say that the JTF does not think that there is waste and inefficiencies in state
government, but these are more a function of the size of the entity than the type of the entity.
Most that have experience in large private entities will report the same waste and inefficiencies.
Public focus is not on the private entities, but state government deals with public dollars and it is
incumbent upon those that serve to spend those dollars in the most efficient and effective way
possible. That is our duty.

A second common perception is that we pay too much in taxes. Once again, using data from the
last 40 plus years the following chart shows the Alabama Tax burden per capita as a percentage
of Household Income.

As shown in the chart, Alabama’s average has been fairly consistent averaging around 6% from
the mid 70’s to the mid 2000’s. However, since 2008 the state tax burden has decreased to nearly
5%, well below the 40-year low.

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This decreasing tax burden per capita, coupled with the similar growth of state government
compared to the private sector, show that state government in Alabama is responding to public
sentiment to become more efficient and effective while also providing the services expected.

This begs the question: So why do we have budget shortfalls seemingly every year when the
Legislature returns to Montgomery? To answer this question, we must have a detailed
understanding of state finances.

Alabama is one of only three states that have two operating budgets. Funds used for educational
purposes are separated from all other funds. These funds make up the Education Trust Fund (ETF).
All other funds are appropriated through the State General Fund (SGF). The funds for Education
are distributed to the Education Trust Fund by state statute or the state Constitution. For a detailed
explanation of the Alabama Budgets, see the Legislative Fiscal Office presentation located on the
LFO website and entitled State Budget Process – Task Force. The report can be access directly via
the following web address:

http://lfo.state.al.us/PDFs/Presentations/STATE_BUDGET_PROCESS-Task_Force_9.28.16.pdf

It is commonly discussed that the SGF is approximately $1.8 billion and the ETF is approximately
$6 billion as shown in the chart below.

*For the purposes of this discussion, this chart and the two that follow show Revenue instead of
Appropriations. This is different from what is normally discussed. What is normally discussed are
“the budgets” (appropriations). As the JTF studied the budgeting process it became apparent that
it is critical that we must distinguish between revenue and budgeted funds.

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This is required because there are transfers from state agency to state agency that are “double
counted” in the budgeting process. This is different from a private business operating multiple
divisions because the Constitution requires that monies spent by an agency be appropriated to
that agency before they can be spent.

An example of this is that an agency may be appropriated money that is to be used for rent and
utilities for their office space and it happens that this agency is housed in a state-owned facility
that is managed by the Department of Finance. Rent is paid by the Agency to the Department of
Finance.

The Department of Finance is not able to spend the money on the facility for maintenance, repair,
utilities, etc. unless the legislature appropriates the money for them to spend. Therefore, this same
money is appropriated for both agencies.

Thus, the confusion: if you add all state appropriations together, you get a sum of approximately
$30 billion. However, if you add all revenues you net a sum of around $22 billion. Double counted
appropriations, appropriations that exceed revenue, and several other similar anomalies account
for this difference. Making decisions based on the sum of both budgets must be avoided because
of these differences. The decision-making process must be based on sound financial principles
and it is encouraged that the JTF studies this issue in more detail before preparing its Final Report
in the 2018 Regular Session.

A second category of funds that must be accounted for are federal funds. The state receives
approximately $9 billion in federal funds per year. These funds have been subtracted from the
totals in the charts as well so that Alabama Revenue is used to determine growth rates, trends,
and the future path of spending in the two funds.

The previous chart is an accurate depiction of portions of the two respective funds. However, to
get a complete picture of state revenue, one must consider all (Alabama Revenue) portions of
each fund.

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The red lines depict the two components of the SGF as well as the Total SGF. Likewise, the blue
lines depict the two components and the Total ETF.

As can be seen, the total SGF is actually much closer to the same size of the total ETF than is
typically discussed. Notice the “SGF (other)” line in the chart. These are the funds that are
earmarked to go directly to a specific purpose or entity. Alabama ranks the highest in the nation
with approximately 93% of our total revenue earmarked. Putting this into a personal perspective,
imagine that you only had discretion over 7% of your personal income – this is the situation that
the Legislature faces each year when trying to balance the budget.

The chart below shows only the SGF Total and the ETF Total. As can be seen from the chart, the
SGF and the ETF were approximately the same size in the early 2000’s. However, from 2003 to
2008, the growth in the ETF greatly outpaced the SGF. This is primarily due to the fact that during
economic expansion, the funds that are earmarked to the ETF grow faster than those that make
up the SGF.

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The work of the JTF over the summer of 2017 and leading up to the Regular Session of 2018 will
be to focus on the revenue and expenditures of the SGF and form a basis for determining priorities
for spending going forward.

To appropriately determine, assess and appropriate the annual State General Fund (SGF) and
Education Trust Fund (ETF) Budgets of the state of Alabama, the stakeholders– the taxpayers and
the executive and legislative branches of government need to clearly define:

 The ROLE of state government

 The ESSENTIAL SERVICES of state government
 The SPENDING PRIORITIES of state government

At present, there is no collective understanding or agreement of these items by the stakeholders.

The current “incremental budgeting” approach considering last year’s appropriations plus or
minus an incremental amount does not provide a clear picture of the actual spending by state
agencies. The legislature does not have in-depth access or knowledge of the total funds received
-- from all sources -- by state agencies.

Also, more than 90% of the funds appropriated in the two state budgets are earmarked. (To
compare, the average among the other 49 states is approximately 30%). Alabama earmarks more
funds than any state. Approximately 50% of earmarks are statutory and can be modified through

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passage of legislation. About 50% of the earmarks are constitutional and can only be modified by
a statewide vote of the citizens. In addition, most of the funding sources (i.e., taxes, fees, etc.) that
are earmarked to the ETF are “growth revenue”, meaning that the amount available increases over
time. To the contrary, most of the funding sources that feed the GF are comprised of flat or
declining revenue sources.

Each year, the state allows taxpayers to take advantage of approximately $4.5 billion of tax credits,
exemptions, deductions, and preferential tax rates. Many of these tax benefits were established
decades ago and have not been reviewed or modified since inception. In addition, some items
were granted under the premise that the benefit would result in economic development and/or
increased revenue for the state. The Legislature is at the beginning stages of evaluating the
ongoing effectiveness of these tax benefits and to determine if the tax preferences are beneficial
to the state’s revenue.

Finally, Alabama’s basic tax structure has not been modified or updated for decades, primarily
because of limitations imposed by the state Constitution. Although the breadth of Alabama’s tax
structure is wide, the state is heavily dependent upon sales taxes, which are extremely volatile. In
addition, many of Alabama’s surrounding states have fewer and lower taxes that rely upon more
stable and predictable sources of revenue. Alabama’s tax structure is generally not as attractive or
competitive as neighboring/competing states.

Perhaps the most telling of all the issues that contribute to the state’s fiscal problems is the erosion
of the tax base.

State sales tax revenue as a percentage of total revenue has been on the decline. In the1960s sales
tax revenue collections represented 37% of the total revenue collected. Currently, sales tax
revenue collections represent 22% of the total revenue collected.

Income tax revenue as a percentage of total revenue has increased. In the 1960s income tax
revenue collections represented 22% of the total revenue collected. Currently, income tax revenue
collections represent 46% of the total revenue collected.

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 Sales and Income Tax Percentage of Total Revenue

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1960 1970 1980 1990 2000 2010 2020

Sales Tax Percentage of Total Revenue Income Tax Percent of Revenue

Both sales tax and income tax have seen growth from the 1960s until now. However, income tax
has seen a more rapid growth pace. Sales tax has seen an average growth rate of 6% from the
1960s until now. Income tax has seen an average growth rate of 8% from the 1960s until now.

Sales Tax Growth

vs
Income Tax Growth

$5,000,000,000.00

$4,000,000,000.00

$3,000,000,000.00

$2,000,000,000.00

$1,000,000,000.00

$0.00
1960 1970 1980 1990 2000 2010 2020

Sales Tax Income Tax

Stated in different words, in the 1960’s approximately two-thirds of our economy was taxed. Now
approximately one-third of our economy is subject to state taxation. This shift in our tax base is
problematic for adequate, or even level funding of government.

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Additionally, even more modern taxes have seen significant swings due to the changes in our
society. Mobile telecommunications tax has been declining since 2009. The mobile
telecommunications tax peaked in 2009 with revenue of $108,783,708. In 2015, mobile
telecommunications tax revenues had fallen to $57,384,461.

Mobile Telecommunications Service Tax Revenue Decline

$120,000,000.00

$100,000,000.00

$80,000,000.00

$60,000,000.00

$40,000,000.00

$20,000,000.00

$-
1985 1990 1995 2000 2005 2010 2015 2020

Other examples of revenues with significant declines are interest revenue, oil and gas royalties,
inheritance tax, and court costs.

This shifting of tax base further highlights the need for prioritizing of expenditures by the
Legislature and the Executive branches of the State of Alabama.

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 JTF Report on Debt
The ability of the State of Alabama to incur debt is limited by Constitution and statute. The State
participates in the issuance of two types of Bond Debt:

 General Obligation Bonds; and

 Revenue Bonds

General Obligation Bonds are backed by the full faith and credit of the State and are repaid from
taxes and other general revenue sources. A Constitutional Amendment is required for General
Obligation Bond issues. In recent years, General Obligation Bonds have primarily been used for
economic development purposes. As of September 30, 2016, the total amount of General
Obligation Bonds outstanding was $646,315,000.

Revenue Bonds refer to bonds for which principal and interest payments are pledged from specific
tax revenues and (or) from revenues from the operation of a public enterprise such as the State
Port facility, building rental charges, and the State Farmer’s Market user charges. These bonds are
issued by public corporations that are established by Acts of the Alabama Legislature. Bonds
issued by these public corporations are obligations of the corporations that are held to be
separate and distinct entities from the State; therefore, these obligations do not legally constitute
debts of the State. In most instances, state officials such as the Governor, Lieutenant Governor,
Attorney General, State Treasurer and department heads of the benefiting departments serve as
members of these corporations. As of September 30, 2016, the total amount of Revenue Bonds
outstanding was $4,060,725,000.

Because of the strict legal limitations on State’s ability to issue debt, combined with a general
policy and practice of conservative financial management, the State has not issued debt for
ongoing operational costs. Rather, debt issues have been generally limited to capital projects such
as buildings, roads and bridges.

The Alabama Trust Fund is an account that was initially created in the 1980’s that was funded from
revenue derived from the sale of the State’s right to extract oil and natural gas from the Gulf of
Mexico. As of December 31, 2016, the Alabama Trust Fund had a balance of approximately $3.0
billion.

Upon creation of the Alabama Trust Fund, two Constitutional Amendments were passed which
established the Education Trust Fund Rainy Day Account and the General Fund Rainy Day Account.
From time to time, withdrawals have been made from each Rainy Day Account to shore up
shortfalls in the Education Trust Fund and the General Fund. Withdrawals from the ETF Rainy Day
Account are limited to 6.5% of the previous years’ budget and must be repaid over a period of 6
years. Withdrawals from the General Fund Rainy Account are limited to 10% of the prior years’

1/23/18 Page 12 of 50
budget and must be repaid over 10 years. As of today, both Rainy Day Accounts have been fully
repaid.

In 2012, as a result of a dire shortfall in the General Fund, a Constitutional Amendment was passed
which allowed for a 3 year transfer of $437 million from the Alabama Trust Fund to the GF. (The
Constitutional Amendment did not require the repayment of the transfer to the Alabama Trust
Fund). In 2013, the Legislature passed a statute requiring repayment to the Alabama Trust Fund
withdrawals beginning in 2014 and continuing through 2026. To date, approximately $253 million
has been repaid to the Alabama Trust Fund, leaving $184 million outstanding. Funds from the BP
Settlement were used to satisfy payments due through 2019. In 2020, the General Fund must
resume repayments to the Alabama Trust Fund at a rate of $13 million per year, with the final
payment in 2033.

Attached are schedules showing:

 Historical Principal Balances outstanding for General Obligation Bonds

 Historical Principal Balances outstanding for Revenue Bonds
 Scheduled Principal and Interest Due Dates for General Obligation Bonds
 Scheduled Principal and Interest Due Dates for Revenue Bonds
 Scheduled Principal and Interest Due Dates for Total Bonds

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1/23/18 Page 14 of 50
1/23/18 Page 15 of 50
 STATE OF ALABAMA BONDED INDEBTEDNESS
EXCLUDING REFUNDED BONDS

GENERAL OBLIGATION BONDS BY DUE DATE

Fiscal Annual Interest Annual Principal Total Annual

Year Payments Payments Payments

2016-2017 29,191,228 41,800,000 70,991,228

2017-2018 27,006,459 52,410,000 79,416,459
2018-2019 24,563,384 54,940,000 79,503,384
2019-2020 21,884,209 57,665,000 79,549,209
2020-2021 19,101,909 60,740,000 79,841,909
2021-2022 16,192,259 49,625,000 65,817,259
2022-2023 13,910,159 42,440,000 56,350,159
2023-2024 11,873,159 44,325,000 56,198,159
2024-2025 9,872,359 46,240,000 56,112,359
2025-2026 7,584,071 38,215,000 45,799,071
2026-2027 6,182,396 36,610,000 42,792,396
2027-2028 4,391,546 15,400,000 19,791,546
2028-2029 3,691,096 16,040,000 19,731,096
2029-2030 2,961,296 16,720,000 19,681,296
2030-2031 2,440,109 17,195,000 19,635,109
2031-2032 1,744,640 17,845,000 19,589,640
2032-2033 1,108,390 9,020,000 10,128,390
2033-2034 768,300 6,950,000 7,718,300
2034-2035 556,650 7,160,000 7,716,650
2035-2036 338,625 7,375,000 7,713,625
2036-2037 114,000 7,600,000 7,714,000
Total 205,476,244 646,315,000 851,791,244

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 REVENUE OBLIGATION BONDS BY DUE DATE

Fiscal Annual Interest Annual Principal Total Annual

Year Payments Payments Payments

2016-2017 165,803,130 269,215,488 435,018,618

2017-2018 163,166,355 300,060,488 463,226,843
2018-2019 150,115,903 317,665,488 467,781,391
2019-2020 136,263,940 249,660,488 385,924,428
2020-2021 125,782,841 259,155,488 384,938,329
2021-2022 115,088,336 226,650,488 341,738,824
2022-2023 105,747,246 224,655,488 330,402,734
2023-2024 96,478,570 217,280,488 313,759,058
2024-2025 87,568,418 209,030,488 296,598,906
2025-2026 76,821,287 211,230,488 288,051,775
2026-2027 66,825,309 207,125,317 273,950,626
2027-2028 57,337,218 181,120,000 238,457,218
2028-2029 52,074,770 116,400,000 168,474,770
2029-2030 46,842,259 132,460,000 179,302,259
2030-2031 41,879,469 135,965,000 177,844,469
2031-2032 35,660,247 142,570,000 178,230,247
2032-2033 29,667,194 117,875,000 147,542,194
2033-2034 24,686,875 98,195,000 122,881,875
2034-2035 20,516,488 171,390,000 191,906,488
2035-2036 12,710,263 175,555,000 188,265,263
2036-2037 4,708,625 13,120,000 17,828,625
2037-2038 4,127,875 13,705,000 17,832,875
2038-2039 3,486,500 14,345,000 17,831,500
2039-2040 2,814,750 15,015,000 17,829,750
2040-2041 2,064,000 15,770,000 17,834,000
2041-2042 1,275,500 16,550,000 17,825,500
2042-2043 448,000 4,370,000 4,818,000
2043-2044 229,500 4,590,000 4,819,500

Total 1,630,190,868 4,060,725,197 5,690,916,065

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 TOTAL BONDED INDEBTEDNESS BY DUE DATE

Fiscal Annual Interest Annual Principal Total Annual

Year Payments Payments Payments

2016-2017 194,994,358 311,015,488 506,009,846

2017-2018 190,172,814 352,470,488 542,643,302
2018-2019 174,679,287 372,605,488 547,284,775
2019-2020 158,148,149 307,325,488 465,473,637
2020-2021 144,884,750 319,895,488 464,780,238
2021-2022 131,280,595 276,275,488 407,556,083
2022-2023 119,657,405 267,095,488 386,752,893
2023-2024 108,351,729 261,605,488 369,957,217
2024-2025 97,440,777 255,270,488 352,711,265
2025-2026 84,405,358 249,445,488 333,850,846
2026-2027 73,007,705 243,735,317 316,743,022
2027-2028 61,728,764 196,520,000 258,248,764
2028-2029 55,765,866 132,440,000 188,205,866
2029-2030 49,803,555 149,180,000 198,983,555
2030-2031 44,319,578 153,160,000 197,479,578
2031-2032 37,404,887 160,415,000 197,819,887
2032-2033 30,775,584 126,895,000 157,670,584
2033-2034 25,455,175 105,145,000 130,600,175
2034-2035 21,073,138 178,550,000 199,623,138
2035-2036 13,048,888 182,930,000 195,978,888
2036-2037 4,822,625 20,720,000 25,542,625
2037-2038 4,127,875 13,705,000 17,832,875
2038-2039 3,486,500 14,345,000 17,831,500
2039-2040 2,814,750 15,015,000 17,829,750
2040-2041 2,064,000 15,770,000 17,834,000
2041-2042 1,275,500 16,550,000 17,825,500
2042-2043 448,000 4,370,000 4,818,000
2043-2044 229,500 4,590,000 4,819,500
Total 1,835,667,112 4,707,040,197 6,542,707,309

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 JTF Findings 2018

The Joint Task Force on Budget Reform finds the following based on the
charts and data shown:

1: State spending is not “out of control”. In fact, it has grown at

roughly the same rate as private spending and is currently well below
the 40-year average.

2: The Alabama tax burden is the lowest in the nation and has
decreased to much lower than the Alabama 40-year historic low.

3: The tax structure in Alabama is archaic and as time passes without

modification it creates additional fiscal challenges for our state.

4: Legislators must review all revenues and expenditures during the

appropriation process and make decisions based on the entire
financial picture. Earmarked funds, un-earmarked funds, and federal
funds must be considered during the budgeting process.

1/23/18 Page 19 of 50
 JTF
Recommendations

1: Improve the Budget Process

2: Use a Portion of Reversions to Establish Reserve Funds

3: Review Tax Credits, Exemptions, Deductions, and Tax

Preferences on an Ongoing Basis

4: Review Earmarked State Revenues on an Ongoing Basis

5: Long-Term Budget Reforms

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 1: Improve the Budget Process
The state budget process begins each year with the preparation and submission of
agency budget requests. The Department of Finance sends budget instructions to state agencies
and institutions in June or July of each year depending on the start date for the regular session
of the Legislature. These instructions include such information as the due date for budget
request, the forms to be used to complete the budget request, the information to be included
on each of form, definitions of expenditure categories, and information regarding the amounts
to include for employee benefits (i.e. retirement, health insurance and FICA).

Budget requests for state agencies and postsecondary institutions are due to the
Department of Finance (and a copy provided to the Legislative Services Agency Fiscal Division)
on or before the first day of the third month preceding each regular session of the Legislature,
usually in the month of November. Unless an extension is granted, if an agency or institution
fails to submit a budget request before this deadline, the Governor shall cause reasonable
estimates to be prepared. There is no direct penalty imposed on an agency that fails to submit a
budget request by the deadline.

The budget request is approved by the head of each agency and reflects estimated
revenues for the agency and expenditures for each program within the agency for the next fiscal
year. The current budget request forms reflect detailed receipt and expenditure information over
a three-year period including the fiscal year that just ended, the current fiscal year, and the
upcoming fiscal year (request). The number of pages required to be included in the budget
request is determined by the size of the agency or institution and the number of programs
operated. For example, the budget request for the Auditor’s Office for fiscal year 2019 contained
a total of 16 pages but the budget request for the Department of Public Health for fiscal year
2019 contained a total of 84 pages.

After receiving the agency budget requests, but not later than the first day of the second
month preceding each regular session, the Department of Finance (Executive Budget Office)
prepares a tentative budget for the Governor’s consideration. At least two weeks prior to the
start of each regular session, the Governor conducts executive budget hearings to allow agency
heads the opportunity to discuss their budget requests and answer any questions the Governor
or Finance Director may have. Based on estimates of available revenues, estimated expenditure
requirements submitted by the agencies, and information received at the budget hearings, the
Governor prepares a budget recommendation.

Pursuant to the provisions of Amendment 448 to the Constitution of Alabama of 1901,

the Governor’s budget recommendations must be transmitted to the Legislature for
consideration on or before the second legislative day of each regular session. The Executive

1/23/18 Page 21 of 50
Budget contains a budget message, summary of the state’s bonded indebtedness, summary of
recommended appropriations, and estimated state revenues. The document also includes the
detailed requested appropriations (a summary of the agency budget request) for each agency
and institution by classification of expenses and any appropriation and revenue bills necessary
to implement the recommendations.

Amendment 448 also provides that the paramount duty of the Legislature at any regular
session is to make basic appropriations for the budget period that will begin before the next
regular session. In addition, Section 72 of the Constitution of Alabama of 1901 provides that no
money shall be paid out of the treasury except upon appropriation by law. These constitutional
mandates make it imperative for the Legislature to have all of the information necessary to
make informed decisions regarding the appropriate allocation of state resources.

The JTF believes the current timeline and process used to enact budgets make it
difficult for members of the Legislature to be fully engaged in budget development and
that budget information provided to them does not provide them with a complete
understanding of the needs of agencies or the total amount of funds available to each
agency.

Members of the Legislature do not generally receive copies of agency budget

requests unless specifically requested from the Fiscal Division. As mentioned earlier, these
budget requests could contain many pages that would be difficult to comprehend if a
person is not extensively familiar with all of the various programs operated by an agency.
For that reason, the JTF does not believe that providing Legislators with actual budget
request documents would be beneficial. However, the JTF believes that the Fiscal Division
should provide Legislators with a summary of each agency’s budget request reflecting
amounts requested from the General Fund and/or Education Trust Fund as well as other
state and federal funds prior to the start of each regular session.

The Legislature generally conducts agency budget hearings separate and apart
from the hearings conducted by the Governor and Finance Director. In recent years,
legislative budget hearings have not begun until the day of or after the start of the
regular session. Due to the time constraints, these legislative budget hearings have
continuously focused only on major agencies and institutions rather than a broad group
of agencies. The JTF believes that legislative budget hearings would be more informative
and provide the opportunity to hear from additional agencies if conducted at least two
weeks prior to the start of each regular session.

1/23/18 Page 22 of 50
Recommendations:

1. Require the Fiscal Division to provide to the Legislature a list of agencies that did not
submit a budget request by the appropriate deadline unless the agency was granted
an extension. This list should be provided no later than two weeks following the deadline
along with any extenuating circumstances that may have contributed to the delay.
2. Require the Fiscal Division to provide to the members of the Legislature a summary of
all agency and institution budget requests by the end of November of each year. The
Fiscal Division should provide this information electronically in a spreadsheet format
reflecting the funding sources as General Fund and/or Education Trust Fund and other
earmarked funds (state and federal). The electronic format should also contain additional
historical funding information for each agency or institution accessed by link to the main
spreadsheet.
3. Require legislative budget hearings to be conducted at least two weeks prior to the
start of each regular session.
4. Require the budget tracking sheets prepared for the Legislature by the Fiscal Division
to include all funds rather than just General Fund or Education Trust Fund
appropriations (see Appendix C). This would provide the Legislature with a better
understanding of all funds available and appropriated to each agency.
5. Establish a standing committee on agency review to study carryover funds retained by
agencies and institutions each year and report to the Legislature prior to the start of
legislative budget hearings regarding any agency or institution determined to be using
this practice to build up excessive fund balances.

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 2: Use a Portion of Reversions to Establish Reserve Funds
The budgeting process used in Alabama is incremental budgeting, meaning that the
starting figure for each agency’s annual budget request is the amount budgeted for the agency
for the current fiscal year with incremental adjustments for the new requested budget period.
The requested increase or decrease in funding for the new budget period is based upon the
budgeted amounts from the current period.

In general, State General Fund and Education Trust Fund appropriations to an agency
which are not expended or obligated by the end of the fiscal year revert or go back to the fund
from which the appropriation was made. Federal funds appropriated to state agencies do not
revert to the federal government but are reverted to the state fund of the agency to be used for
the purpose for which the federal funds were provided.

Authorizing language included in the General Fund Appropriations Act allows state
agencies to have their unexpended and reverted appropriations for the previous fiscal year
reappropriated to them in the following fiscal year. This language has been included in the
General Fund Appropriations Act in each fiscal year since 2005 and applies to State General
Fund Appropriations as well as other funds appropriated to the agencies within the
appropriations act. Similar language was included in the Education Trust Fund Appropriations
Act from fiscal years 2009 through 2012, but no longer applies to appropriations made from the
Education Trust Fund due to the provisions of the Educations Trust Fund Rolling Reserve Act,
except when otherwise provided by law. The following language was included in the General
Fund Appropriations Act for fiscal year 2018 and authorizes the reappropriation of reverted
funds from fiscal year 2017 in fiscal year 2018:

“Section 3. Notwithstanding any other provisions of this act or any other act, any amount
from appropriations for the fiscal year ending September 30, 2017, to the various state agencies
in this act which were unexpended and reverted on September 30, 2017, are hereby
reappropriated to the respective offices for the fiscal year beginning October 1, 2017.”

Reappropriating reverted funds was thought to encourage agencies to be more efficient

with state resources by allowing them to retain unspent appropriations rather than returning the
funds at the end of a fiscal year; however, this practice has resulted in an increasing amount of
funding being appropriated to agencies without the scrutiny and review of the normal legislative
appropriation process. The following table reflects the reverted State General Fund
appropriations that have been reappropriated to state agencies for each of the seven fiscal years
from 2012 through 2018:

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 STATE GENERAL FUND REVERSIONS
FISCAL YEAR REAPPROPRIATED
2012 $37,569,737
2013 $35,975,611
2014 $31,026,980
2015 $37,088,945
1
2016 $61,113,962
2017 $48,549,920
2
2018 $57,275,157
1 Includes an additional $15 million in one-time reversion of CHIP funds.
2 Represents available reversions reappropriated as of October 31, 2017.

As you can see from the above table, the amount of State General Fund reversions
reappropriated increased by over $20 million in fiscal year 2018 when compared to fiscal year
2015 when a temporary funding source for the State General Fund providing over $145 million
per year expired. This temporary funding came in the form of additional transfers from the
Alabama Trust Fund in fiscal years 2013 through 2015 as authorized by Amendment 856 to the
Constitution of Alabama of 1901. This reduction in available State General Fund revenues
controlled much of the legislative debate about the General Fund budget for fiscal year 2016
and required very difficult decisions to be made by the Legislature during the regular session
and two special sessions in 2015 with regard to replacing some or all of the revenue and the
appropriate amount of budget cuts to implement on state agencies. And, because many of the
agencies that receive State General Fund appropriations had prior year reversions
reappropriated to them in fiscal year 2016, the impact of budget cuts was not felt equally across
all of state government.

The JTF believes that allowing some level of the reverted State General Fund
appropriations to be reappropriated to state agencies is critical to ensuring the efficient use of
state resources; however, reappropriating all of the unspent and reverted State General Fund
appropriations (now equal to approximately three percent (3%) of the current year’s budgeted
expenditures as of October 31, 2017) without strict scrutiny prevents the Legislature from
making decisions regarding the best use of those funds. Therefore, the JTF believes that the
amount of reverted State General Fund appropriations available for reappropriation to state
agencies should be reduced to seventy-five percent (75%) of the amount reverted.

Amendment 803 to the Constitution of Alabama of 1901 established a Rainy Day Account
for both the State General Fund and the Education Trust Fund within the Alabama Trust Fund.
The State General Fund Rainy Day Account has an available balance equal to ten percent (10%)
of prior year appropriations and the Education Trust Fund Rainy Day Account has an available

1/23/18 Page 25 of 50
balance equal to six and one-half percent (6.5%) of prior year appropriations. All previous
withdrawals from these two accounts have now been repaid so the available balances can be
accessed again, but only in the event of proration being declared in the respective budget. In
addition, the Education Trust Fund Rolling Reserve Act established a separate Budget
Stabilization Fund to receive a portion of any excess Education Trust Fund revenues above
appropriated amounts each fiscal year. As of the date of this report, the current balance in this
fund is approximately $178 million; however, this fund may also only be accessed in the event of
proration in the Education Trust Fund budget.

The Legislature makes an annual appropriation from the State General Fund to the
Departmental Emergency Fund pursuant to the provisions of Section 41-4-94, Code of Alabama
1975, from which the Department of Finance can allocate funds for purposes authorized by law
for which no appropriation was made or an insufficient appropriation was made. Language
contained in the current budget document requires the Director of Finance to notify the Chair of
the Senate Finance and Taxation-General Fund Committee and the Chair of the House Ways and
Means-General Fund Committee at least ten days prior to the release of any of this
appropriation to any state department or agency. The amount appropriated to this Fund for
fiscal year 2018 was $1,843,461.

The Legislature generally has no specific reserve funds that it can access to provide
funding for emergencies such as natural disasters or to address other unexpected one-
time expenses and/or unexpected reductions in revenues. The Legislature also does not
have access to any funds from which to specifically address critical one-time capital
improvements for state agencies. The JTF believes that establishing such reserve funds is
critical to improving the financial condition of the state.

Recommendations:

1. The JTF recommends that the reappropriation of unspent and reverted State General
Fund appropriations to state agencies and entities should be limited to seventy-five
percent (75%) of the amount reverted. This will continue to encourage agencies to be
efficient with state resources but will also allow the Legislature to direct the expenditure of
funds that are not eligible for reappropriation. Since state agencies have become
accustomed to receiving all of their unspent and reverted State General Fund appropriations
the following fiscal year, the JTF recommends that this provision should be phased-in over a
three-year period to minimize the impact on the operations of state agencies. Appendix A
provides language to include in the fiscal year 2019 General Fund appropriations act to
begin the process of implementing this recommendation. The language would be adjusted
in fiscal years 2020 and 2021 to allow the phase-in of this recommendation by adjusting the
allowable reappropriation amount.

1/23/18 Page 26 of 50
2. The JTF recommends that any unexpended and reverted State General Fund
appropriations from a prior fiscal year that become ineligible for reappropriation
pursuant to the above recommendation be set aside and used to establish a reserve
fund and a capital fund. The reserve fund could only be accessed through enactment of an
independent supplemental appropriation bill with regard to: 1) preparing or responding to
natural disasters or other emergencies; 2) providing additional funding in the event of an
unexpected dip in revenues below projections; and 3) addressing unexpected expenditures.
The capital fund could only be accessed through enactment of an independent
supplemental appropriation bill to provide funds to address critical one-time capital
improvements. Appendix B is draft legislation that will be introduced by the JTF in the 2018
Regular Session that will implement this recommendation.

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 3: Review Tax Credits, Exemptions, Deductions, and Tax
Preferences on an Ongoing Basis
Existing state tax structure results in the loss of approximately $4.5 billion in revenue to
state budgets in Alabama each year. Historically, there has been little focus on how these losses
of revenue affect the financing of state government or if the tax expenditures are achieving their
intended purpose. Therefore, the Legislature determined that a reporting of these credits,
deductions, exemptions and preferential tax rates was necessary and, by enactment of Act 2015-
237, required the Legislative Fiscal Office (now the Fiscal Division of the Legislative Services
Agency) to produce an annual REPORT ON ALABAMA TAX EXPENDITURES beginning with the
2017 Regular Session. The following information is taken from the Overview of the 2017 report:

“Tax expenditures are provisions of law that allow for special treatment of a source of
income or certain types of expenses that results in a reduction in the tax liability for a taxpayer
or group of taxpayers. In Alabama, these expenditures are established by statute and, in some
cases, the Constitution. In most cases, the tax benefits realized by the taxpayer or group of
taxpayers could be provided by direct appropriation; therefore, the provisions are referred to as
“expenditures”. Expenditures represent revenues that would have otherwise been generated if
not for the preferential treatment.

Tax expenditures are intended to achieve a policy objective or encourage some activity.
The value or cost of any tax expenditure can be thought of as the amount of money required to
provide the same level of support through direct appropriation rather than preferential tax
treatment. The benefits of tax expenditures are received by businesses and individual taxpayers
and are present in all of Alabama’s major taxes, including the individual income tax, corporate
income tax, and sales and use taxes.

The purpose of this report is to list the tax expenditures for major tax sources and, where
possible, provide an estimate of the value of the tax expenditures. This report does not include
an evaluation or recommendation regarding the various tax expenditures as to their
effectiveness in fulfilling the desired public policy objective”.

Pursuant to the provisions of Section 29-5A-46 (d), Code of Alabama 1975 (Act 2017-214),
the House Ways and Means-Education Committee and the Senate Finance and Taxation-
Education Committee shall conduct joint hearings on the tax expenditure report every even-
numbered year and may report to the Legislature findings and recommendations developed as
a result of the hearings. In addition, Act 2016-389 requires the head of an agency that
administers an economic tax incentive to submit a report to the Legislature beginning in the
2018 Regular Session regarding the success of the economic tax incentive in meeting the

1/23/18 Page 28 of 50
purpose for which it was enacted and whether the state receives a positive return on investment.
The Department of Revenue must establish a format for the reports and develop a four-year
schedule of the economic tax incentives to be reported. The House Ways and Means
Committees and the Senate Finance and Taxation Committees shall conduct hearings on these
reports every odd-numbered year and make recommendations to modify, discontinue, or take
no action with respect to each economic tax incentive.

The JTF believes the joint hearings and resulting recommendations contemplated
by both of these acts are an important first step to informing legislators of the impact
that various tax expenditures have on state budgets and the state economy. However, the
JTF also believes that a continuous and thorough ongoing review of the tax expenditures
should be implemented through a sunset review process that would subject all tax
expenditures to a periodic review. The JTF also believes that legislation creating any new
tax expenditures enacted after this report is submitted should be required to include:

a. a legislative declaration stating the intended purpose of the proposed tax

expenditure and require reporting of information necessary to measure
performance; and
b. a sunset date for the expenditure that is no more than five calendar years after
the enactment of the legislation.

A statement of intended purpose would allow legislators to know the outcome that was
intended from any newly enacted tax expenditure (i.e. targeted number of new jobs to be
created, amount of capital investment). This statement would provide the Legislature with
a set of benchmarks to use in determining how effective a new tax expenditure was in
achieving its goals when deciding whether to continue the expenditure when it is sunset.

Recommendations:

1. To require each existing and any newly enacted tax expenditure to be subject to sunset
review at least once every four years.
2. To require any legislation creating any new tax expenditures to include:
a. a statement of purpose clearly identifying the intended goal to be achieved by
providing the tax expenditure and require reporting of information necessary to
measure performance; and
b. a sunset date for the tax expenditure no longer than five calendar years following
enactment of the legislation authorizing the tax expenditure.
3. Establish a Joint Tax Expenditure Review Committee to:
a. review existing tax expenditures to identify the intended goal of providing the
tax expenditure; and

1/23/18 Page 29 of 50
 b. develop a four-year schedule for evaluating and reviewing tax expenditures to
ensure that each tax expenditure is sunset and evaluated at least once every four
years on the basis of accomplishing the intended goal.

1/23/18 Page 30 of 50
 4: Review Earmarked State Revenues on an Ongoing Basis

More than 90% of the revenue collected from Alabama taxpayers is earmarked, well
above the 30% earmarking average of other states. About 50% of the state’s budget earmarks
are statutory and 50% are constitutional. However, before further addressing Alabama’s high
earmarking percentage, it is important to understand some details behind the calculation of the
90% earmarking figure for Alabama.

Income taxes and sales taxes are the two largest revenue sources collected each year
from Alabama taxpayers and most of the revenues generated from both sources is earmarked
for the Education Trust Fund (ETF). Earmarking of these funds to the ETF skews the overall
earmarking percentage upward. However, once these funds are deposited into the ETF, they are
generally available to be appropriated at will (with some exceptions) within the ETF. Without
regard to the impact of the huge earmark to the ETF, however, Alabama’s earmarking
percentage is still higher than most states. A true, “apples to apples” earmark figure for Alabama
would be approximately 62% -- still well above the average for other states.

The JTF determined that Alabama’s high earmarking policies are at least partially a result
of the taxpayer citizens low trust of the Legislature. Most taxpayers in Alabama likely agree that
the practice of earmarking budget dollars is a problem for state budgets. However, in November
2016, approximately 72% of statewide voters supported a Constitutional Amendment to
earmark money for state parks.

However, the JTF noted an overwhelming trend of states moving to lower earmarks as a
percentage of total budget revenue. Florida, Georgia, Louisiana, South Carolina, and Texas are
just a few of the states that have trended toward a lowering of earmarks. From a common-sense
perspective, unearmarking dollars provides flexibility to better direct funds to needs and
priorities, which can positively impact a state’s quality of life measures.

The Legislature has no formal or institutionalized reviews, practices or processes in place

to evaluate or determine the continued effectiveness or feasibility of earmarks on an ongoing
basis. Therefore, the JTF believes that the Legislature should establish a process to
continuously review earmarks as a matter of standard practice.

Recommendation:

1. The JTF recommends that the Legislature create a standing committee to review
earmarks on an ongoing basis, with the mission to make specific recommendations
regarding reducing the number of earmarks so that budgets can be better focused on

1/23/18 Page 31 of 50
 needs and priorities. The Legislature should place first priority on addressing statutory
earmarks.

1/23/18 Page 32 of 50
 5: Long-Term Budget Reforms
The JTF feels that although time has not allowed for the full development of a
comprehensive solution for budget reform in Alabama, it is anticipated that continuation of the
JTF beyond the 2018 Regular Session would allow a comprehensive plan to solve the fiscal woes
of the state to be developed, vetted, and proposed for implementation. For this Report, the JTF
has identified several short-term recommendations that the JTF feels are timely solutions to some
of the problems identified by the JTF Study Groups in the 2017 Interim Report. However, the JTF
feels that with more time a comprehensive plan proposing recommendations for long-term
reforms can be developed.

Recommendation:

1. The JTF recommends that SJR 52 of the 2017 Regular Session (Act 2017-63) be
amended and readopted to allow the work of the Joint Task Force on Budget Reform
to continue beyond the fifth legislative day of the 2018 Regular Session to allow time
for a comprehensive plan to solve the fiscal woes of the state to be developed and
recommended for implementation.

1/23/18 Page 33 of 50
 Appendices

Appendix A: Modification of Budget Language

Appendix B: Proposed Legislation

Appendix C: Proposed Budget Spreadsheet

Appendix D: State Employees Comparison by State

1/23/18 Page 34 of 50
 Appendix A:

Modification of Budget Language

1/23/18 Page 35 of 50
 Appendix A

The JTF recommends that the following language be included in the General Fund
Appropriations Act for fiscal year 2019 in lieu of any other language regarding the
reappropriation of unexpended and reverted State General Fund appropriations:

“Section 3. Notwithstanding any other provisions of this act or any other act, ninety-two
percent (92%) of any General Fund appropriations for the fiscal year ending September
30, 2018, to the various state agencies in this act which were unexpended and reverted
on September 30, 2018, are hereby reappropriated to the respective offices for the fiscal
year beginning October 1, 2018. Any other appropriations for the fiscal year ending
September 30, 2018, to the various state agencies in this act which were unexpended
and reverted on September 30, 2018, are hereby reappropriated to the respective offices
for the fiscal year beginning October 1, 2018.”

The JTF recommends that the following language be included in the General Fund
Appropriations Act for fiscal year 2020 in lieu of any other language regarding the
reappropriation of unexpended and reverted State General Fund appropriations:

“Section 3. Notwithstanding any other provisions of this act or any other act, eighty-four
percent (84%) of any General Fund appropriations for the fiscal year ending September
30, 2019, to the various state agencies in this act which were unexpended and reverted
on September 30, 2019, are hereby reappropriated to the respective offices for the fiscal
year beginning October 1, 2019. Any other appropriations for the fiscal year ending
September 30, 2019, to the various state agencies in this act which were unexpended
and reverted on September 30, 2019, are hereby reappropriated to the respective offices
for the fiscal year beginning October 1, 2019.”

The JTF recommends that the following language be included in the General Fund
Appropriations Act for fiscal year 2021 in lieu of any other language regarding the
reappropriation of unexpended and reverted State General Fund appropriations:

“Section 3. Notwithstanding any other provisions of this act or any other act, seventy-five
percent (75%) of any General Fund appropriations for the fiscal year ending September
30, 2020, to the various state agencies in this act which were unexpended and reverted
on September 30, 2020, are hereby reappropriated to the respective offices for the fiscal
year beginning October 1, 2020. Any other appropriations for the fiscal year ending
September 30, 2020, to the various state agencies in this act which were unexpended
and reverted on September 30, 2020, are hereby reappropriated to the respective offices
for the fiscal year beginning October 1, 2020.”

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 Appendix B:

Proposed Legislation

1/23/18 Page 37 of 50
 Appendix B

1 189032-1 : n : 12/12/2017 : LSA-SS / jmb

8 SYNOPSIS: This bill would create the General Fund

9 Budget Reserve Fund and the General Fund Capital

10 Fund to receive twenty-five percent (25%) of

11 unspent and reverted General Fund appropriations at

12 the conclusion of a fiscal year; and provide for

13 the appropriation and use of the amounts deposited

14 into the funds.

15

16 A BILL

17 TO BE ENTITLED

18 AN ACT

19

20 To create the General Fund Budget Reserve Fund and

21 the General Fund Capital Fund within the State Treasury; to

22 transfer twenty-five percent (25%) of unspent and reverted

23 General Fund appropriations to the funds; to provide for the

24 appropriation of amounts deposited into the funds; and to

25 establish an effective date.

26 BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

1/23/18 Page 1 Page 38 of 50

1 Section 1. This act shall be known as the General

2 Fund Budget Reform Act.

3 Section 2. There is hereby created within the State

4 Treasury the General Fund Budget Reserve Fund and the General

5 Fund Capital Fund. Any monetary interest which accrues to the

6 General Fund Budget Reserve Fund and the General Fund Capital

7 Fund shall be retained in the funds from year to year and

8 shall be subject only to the provisions of this act.

9 (a) On or before November 15 of each fiscal year,

10 beginning with the fiscal year ending September 30, 2019,

11 seventy-five percent (75%) of unexpended and reverted General

12 Fund appropriations for the immediately preceding fiscal year

13 shall be reappropriated to the respective offices for the

14 current fiscal year. The actual percentage of unspent and

15 reverted General Fund appropriations reappropriated each

16 fiscal year shall be specified in the annual General Fund

17 Appropriations Act.

18 (b) The remaining twenty-five percent (25%) of the

19 unexpended and reverted General Fund appropriations shall be

20 transferred to the General Fund Budget Reserve Fund and the

21 General Fund Capital Fund created by this act. The transfers

22 to the General Fund Budget Reserve Fund and the General Fund

23 Capital Fund shall be as follows:

24 (1) First, to the General Fund Budget Reserve Fund

25 until the balance in the fund equals one and one-half percent

26 (1.5%) of the previous years appropriations from the State

27 General Fund.

1/23/18 Page 2 Page 39 of 50

1 (2) Funds in excess of those transferred pursuant to

2 subsection (1) shall be transferred to the General Fund

3 Capital Fund.

4 Section 3. Amounts in the General Fund Budget

5 Reserve Fund shall be appropriated by and through an

6 independent supplemental appropriation bill for the following

7 purposes: 1) to provide funding necessary to address natural

8 disasters or other emergencies for which federal aid is not

9 available; 2) to offset a reduction in estimated revenues to

10 fund the General Fund for the current fiscal year; or 3) for

11 unexpected one-time expenses. Not more than ten million

12 ($10,000,000) may be appropriated from the General Fund Budget

13 Reserve Fund annually to provide funding necessary to address

14 natural disasters or other emergencies for which federal aid

15 is not available. Amounts in the General Fund Budget Reserve

16 Fund shall be budgeted and allotted in accordance with

17 Sections 41-4-80 through 41-4-96 and Sections 41-19-1 through

18 41-19-12.

19 Section 4. Amounts in the General Fund Capital Fund

20 shall be appropriated by and through an independent

21 supplemental appropriation bill to provide funding for

22 critical one-time capital improvements. Amounts in the General

23 Fund Capital Fund shall be budgeted and allotted in accordance

24 with Sections 41-4-80 through 41-4-96 and Sections 41-19-1

25 through 41-19-12. Preference shall be given to capital

26 improvement projects that create efficiencies and cost savings

27 for state government.

1/23/18 Page 3 Page 40 of 50

1 Section 5. This act shall become effective for the

2 fiscal year beginning October 1, 2018 following its passage

3 and approval by the Governor, or its otherwise becoming law.

1/23/18 Page 4 Page 41 of 50

 Appendix C:

Proposed Budget Spreadsheet

1/23/18 Page 42 of 50
 Appendix C
FY 2018 BUDGETED APPROPRIATIONS (AS ENACTED)
EDUCATION STATE EARMARKED
TRUST FUND GENERAL FUND FUNDS TOTAL FUNDS
LEGISLATIVE:
EXAMINERS OF PUBLIC ACCOUNTS 6,266,034 5,707,712 892,134 12,865,880
LAW INSTITUTE, ALABAMA 650,000 152,421 35,000 837,421
LEGISLATIVE COUNCIL 1,600,000 1,600,000
LEGISLATIVE FISCAL OFFICE 1,750,000 1,421,838 3,171,838
LEGISLATIVE REFERENCE SERVICE 900,000 1,421,838 189,000 2,510,838
LEGISLATIVE SERVICES AGENCY
LEGISLATURE 2,848,863 19,188,091 22,036,954
OFFICE OF THE SPEAKER OF THE HOUSE OF
REPRESENTATIVES 1,235,605 1,235,605
OFFICE OF THE SENATE PRESIDENT PRO TEMPORE 964,762 964,762
TOTAL LEGISLATIVE 12,414,897 31,692,267 1,116,134 45,223,298

JUDICIAL:
CIVIL APPEALS, COURT OF 3,980,025 3,980,025
CRIMINAL APPEALS, COURT OF 4,056,757 4,056,757
JUDICIAL INQUIRY COMMISSION 457,817 457,817
JUDICIAL RETIREMENT FUND 2,588,572 2,588,572
SUPREME COURT 9,549,455 9,549,455
SUPREME COURT LIBRARY 702,990 702,990
UNIFIED JUDICIAL SYSTEM 98,928,822 76,854,164 175,782,986
TOTAL JUDICIAL - 120,264,438 76,854,164 197,118,602

EXECUTIVE:
ACCOUNTANCY, BOARD OF 1,678,203 1,678,203
ADJUSTMENT, BOARD OF 250,892 250,892
AGRICULTURAL AND CONSERVATION
DEVELOPMENT COMMISSION 225,833 225,833
AGRICULTURE AND INDUSTRIES, DEPARTMENT OF 11,333,501 38,524,424 49,857,925
ALABAMA TRUST FUND BOARD 8,265 8,265
ALCOHOLIC BEVERAGE CONTROL BOARD 82,704,105 82,704,105
AMERICAN LEGION SCHOLARSHIPS 112,500
ARCHITECTS, BOARD OF 516,000 516,000
ARCHIVES AND HISTORY, DEPARTMENT OF 5,573,705 1,664,750 533,500 7,771,955
ARTS, STATE COUNCIL ON THE 4,809,496 889,400 5,698,896
ASSISTED LIVING ADMINISTRATORS BOARD 106,400 106,400
ATHLETE AGENTS COMMISSION 51,623 51,623
ATHLETIC COMMISSION 205,500 205,500
ATHLETIC TRAINERS 84,000 84,000
ATTORNEY GENERAL, OFFICE OF THE 10,327,900 12,416,263 22,744,163
AUCTIONEERS, BOARD OF - 195,000 195,000
AUDITOR, STATE 762,575 762,575
BANKING DEPARTMENT 18,054,500 18,054,500
BAR ASSOCIATION 6,970,000 6,970,000
BUILDING RENOVATION FINANCE AUTHORITY,
ALABAMA 1,461,248 1,461,248
CHILD ABUSE AND NEGLECT PREVENTION, STATE
DEPARTMENT OF 1,077,148 78,418 3,585,000 4,740,566
CHILDREN'S SERVICES FACILITATION 547,800 547,800
CHIROPRACTIC EXAMINERS 504,000 504,000
CHOCTAWHATCHEE, PEA AND YELLOW RIVERS 10,000 10,000
CITIZENSHIP TRUST (AMERICAN VILLAGE)

1/23/18 Page 43 of 50
 FY 2018 BUDGETED APPROPRIATIONS (AS ENACTED)
EDUCATION STATE EARMARKED
TRUST FUND GENERAL FUND FUNDS TOTAL FUNDS
COMMERCE, DEPARTMENT OF 56,699,479 5,770,000 47,876,051 110,345,530
COMMUNITY COLLEGE SYSTEM 363,958,624 653,860,661 1,017,819,285
CONSERVATION AND NATURAL RESOURCES,
DEPARTMENT OF 188,975,785 188,975,785
CONSTRUCTION RECRUITMENT INSTITUTE 1,750,000 1,750,000
CONTRACTORS LICENSING BOARD 2,468,587 2,468,587
CORRECTIONS, DEPARTMENT OF 413,068,895 81,592,189 494,661,084
COSMETOLOGY BOARD 3,355,305 3,355,305
COUNSELING EXAMINERS 466,100 466,100
COURT REPORTING BOARD 200,000 200,000
CREDIT UNION EXAMINERS 2,045,000 2,045,000
CRIME VICTIMS COMPENSATION COMMISSION,
ALABAMA - for VOCAL (Victims of Crime and
Leniency) 89,775 3,439,237 3,529,012
DEBT SERVICE 32,511,876 35,152,979 15,263,347 82,928,202
DENTAL SCHOLARSHIP AWARDS BOARD 191,166 191,166
DIETETICS AND NUTRITION BOARD 150,000 150,000
DISTRICT ATTORNEYS 26,024,828 26,024,828
DRYCLEANING ENVIRONMENTAL BOARD 500,000 500,000
ECONOMIC AND COMMUNITY AFFAIRS, ALABAMA
DEPARTMENT OF 7,638,208 208,213,956 215,852,164
EDUCATION, DEPARTMENT OF EARLY CHILDHOOD 79,759,146 24,175,000 103,934,146
EDUCATION - K-12 LOCAL BOARDS 4,057,451,546 786,566,575 4,844,018,121
EDUCATION, STATE DEPARTMENT OF 207,899,719 1,407,209,851 1,615,109,570
EDUCATIONAL TELEVISION 8,257,250 928,096 9,185,346
ELECTRICAL CONTRACTORS 925,000 925,000
ELECTRONIC SECURITY 636,000 636,000
EMERGENCY MANAGEMENT AGENCY 2,737,176 59,946,111 62,683,287
EMPLOYEES' SUGGESTION INCENTIVE BOARD,
ALABAMA 9,500 9,500
ENGINEERS AND LAND SURVEYORS 1,751,004 1,751,004
ENVIRONMENTAL MANAGEMENT, DEPARTMENT
OF 575,000 153,440,253 154,015,253
ETHICS COMMISSION, ALABAMA 1,845,340 1,845,340
EXECUTIVE COMMISSION ON COMMUNITY
SERVICE GRANTS 6,500,000 6,500,000
FAMILY PRACTICE RURAL HEALTH BOARD 2,486,097 2,486,097
FINANCE, DEPARTMENT OF 4,132,917 184,475,677 188,608,594
FINANCE - TEACHERS' SICK LEAVE UPON DEATH 1,739,708 1,739,708
FINE ARTS, ALABAMA SCHOOL OF 7,527,188 730,000 8,257,188
FIREFIGHTERS PERSONNEL STANDARDS/TRAINING
COMMISSION 4,382,521 3,291,971 7,674,492
FLEXIBLE EMPLOYEES BENEFITS BOARD 1,767,623 1,767,623
FORENSIC SCIENCES, DEPARTMENT OF 9,683,798 17,986,822 27,670,620
FORESTERS REGISTRATION 200,000 200,000
FORESTRY COMMISSION, ALABAMA 7,558,044 13,414,582 20,972,626
FOREVER WILD BOARD 22,143,841 22,143,841
FOREVER WILD STEWARDSHIP 1,500,000 1,500,000
FUNERAL SERVICE BOARD 462,874 462,874
GEOLOGICAL SURVEY 500,000 3,173,079 3,101,708 6,774,787
GEOLOGISTS BOARD 75,000 75,000
GOVERNOR'S CONTINGENCY FUND 74,336 74,336
GOVERNOR'S MANSION AUTHORITY 135,092 360,000 495,092
GOVERNOR'S OFFICE 820,747 121,224 941,971
GOVERNOR'S OFFICE ON DISABILITY 150,000 150,000
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 FY 2018 BUDGETED APPROPRIATIONS (AS ENACTED)
EDUCATION STATE EARMARKED
TRUST FUND GENERAL FUND FUNDS TOTAL FUNDS
GOVERNOR'S OFFICE ON MINORITY AFFAIRS 200,000 200,000
GOVERNOR'S OFFICE OF VOLUNTEER SERVICE 350,000 350,000
HEALTH, DEPARTMENT OF PUBLIC 16,695,785 32,153,950 699,404,461 748,254,196
HEALTH PLANNING AGENCY, STATE 6,999 1,300,000 1,306,999
HEARING INSTRUMENT DEALERS 54,000 54,000
HEATING AND AC CONTRACTORS 1,500,000 1,500,000
HIGHER EDUCATION COMMISSION (ACHE) 28,700,694 2,096,000 30,796,694
HISTORICAL COMMISSION, ALABAMA 900,000 1,560,548 6,258,881 8,719,429
HOME BUILDERS LICENSURE BOARD 4,175,750 4,175,750
HOME MEDICAL EQUIPMENT SERVICES BOARD 400,000 400,000
HUMAN RESOURCES, DEPARTMENT OF 31,284,720 61,570,532 1,934,280,557 2,027,135,809
INDIAN AFFAIRS COMMISSION, ALABAMA 81,270 110,000 191,270
INFORMATION TECHNOLOGY, OFFICE OF 2,224,500 2,224,500
INSURANCE BOARD, STATE EMPLOYEES 8,231,768 8,231,768
INSURANCE DEPARTMENT 29,644,863 29,644,863
INTERIOR DESIGNERS BOARD 50,000 50,000
INTERPRETERS AND TRANSLITERATORS BOARD 50,000 50,000
LABOR, DEPARTMENT OF 808,909 106,667,104 107,476,013
LANDSCAPE ARCHITECTS BOARD 62,000 62,000
LAW ENFORCEMENT AGENCY, STATE 400,000 48,057,156 168,530,334 216,987,490
LIBRARY SERVICE, PUBLIC 7,917,737 3,097,396 11,015,133
LIEUTENANT GOVERNOR, OFFICE OF THE -
LP GAS BOARD 1,793,336 1,793,336
LIVESTOCK MARKET BOARD 3,358 3,358
MANUFACTURED HOUSING COMMISSION 3,642,362 3,642,362
MARINE ENVIRONMENTAL SCIENCES/DAUPHIN
ISLAND SEA LAB 4,505,262 17,924,650 22,429,912
MARRIAGE AND FAMILY THERAPY BOARD 100,000 100,000
MASSAGE THERAPY BOARD 225,000 225,000
MATH AND SCIENCE, ALABAMA HIGH SCHOOL OF 6,866,954 1,371,455 8,238,409
MEDICAID AGENCY, ALABAMA 701,133,407 6,552,207,308 7,253,340,715
MEDICAL SCHOLARSHIPS AWARDS BOARD 1,440,014 400,000 1,840,014
MENTAL HEALTH, DEPARTMENT OF 48,495,659 108,629,569 825,564,815 982,690,043
MILITARY DEPARTMENT 7,400,000 118,254,285 125,654,285
MUSIC HALL OF FAME 385,575 385,575
NURSING, BOARD OF 616,027 7,191,165 7,807,192
NURSING HOME ADMINISTRATORS 115,000 115,000
OCCUPATIONAL THERAPY BOARD 187,000 187,000
OIL AND GAS BOARD 2,285,180 754,071 3,039,251
ONSITE WASTEWATER BOARD 485,000 485,000
OPTOMETRIC SCHOLARSHIP AWARDS BOARD 135,000 135,000
PARDONS AND PAROLES, BOARD OF 45,915,752 13,100,000 59,015,752
PEACE OFFICERS' ANNUITY AND BENEFIT FUND
BOARD 695,000 695,000
PEACE OFFICERS' STANDARDS AND TRAINING 596,704 6,718,324 7,315,028
PERSONNEL DEPARTMENT 12,000,000 12,000,000
PHYSICAL FITNESS 1,424,096 12,983 1,437,079
PHYSICAL THERAPY BOARD 599,500 599,500
PLUMBERS AND GAS FITTERS BOARD 2,136,986 2,136,986
POLYGRAPH EXAMINERS BOARD 30,000 30,000
PRIVATE INVESTIGATION BOARD 125,000 125,000
PROSECUTION SERVICES, OFFICE OF 622,589 2,415,209 3,037,798
PROSTHETICS AND ORTHOTISTS BOARD 250,000 250,000
PSYCHOLOGY BOARD 466,825 466,825

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 FY 2018 BUDGETED APPROPRIATIONS (AS ENACTED)
EDUCATION STATE EARMARKED
TRUST FUND GENERAL FUND FUNDS TOTAL FUNDS
PUBLIC SERVICE COMMISSION 14,689,625 14,689,625
REAL ESTATE APPRAISERS 1,174,499 1,174,499
REHABILITATION SERVICES 42,584,760 138,972,527 181,557,287
RESPIRATORY THERAPY BOARD 350,000 350,000
REVENUE, DEPARTMENT OF 363,000 170,992,080 171,355,080
SECRETARY OF STATE 7,524,428 7,524,428
SECURITIES COMMISSION 10,615,382 10,615,382
SECURITY REGULATORY BOARD 450,000 450,000
SENIOR SERVICES, DEPARTMENT OF 28,208,072 111,233,799 139,441,871
SICKLE CELL OVERSIGHT AND REGULATORY
COMMISSION 1,354,701 1,354,701
SOCIAL WORK EXAMINERS 339,355 339,355
SOIL AND WATER CONSERVATION COMMITTEE,
STATE 2,433,219 2,543,000 4,976,219
SPACE SCIENCE EXHIBIT COMMISSION 1,055,000 31,462,000 32,517,000
SPEECH PATHOLOGY 299,545 299,545
SUPERCOMPUTER AUTHORITY 6,013,144 5,574,578 11,587,722
SURFACE MINING COMMISSION, ALABAMA 155,719 4,054,442 4,210,161
TAX TRIBUNAL 874,533 874,533
TENNESSEE-TOMBIGBEE WATERWAY
DEVELOPMENT AUTHORITY 89,775 89,775
TOURISM DEPARTMENT, ALABAMA 1,528,425 20,037,424 21,565,849
TRANSPORTATION DEPARTMENT 1,505,970,034 1,505,970,034
TREASURER, STATE 4,929,098 4,929,098
UNDERGROUND TANK MANAGEMENT BOARD 150,000 150,000
UNIVERSITY OF SOUTH ALABAMA
VETERANS' AFFAIRS, DEPARTMENT OF 94,042,163 1,263,142 78,108,902 173,414,207
VETERINARY MEDICAL EXAMINERS BOARD 642,750 642,750
WOMEN'S COMMISSION 18,000 18,000
YOUTH SERVICES, DEPARTMENT OF 54,781,764 5,704,537 41,366,143 101,852,444

TOTAL EXECUTIVE 5,191,597,353 1,594,924,846 16,752,605,113 23,539,014,812

COLLEGES AND UNIVERSITIES

ALABAMA A&M UNIVERSITY 38,263,569 121,124,348 159,387,917
ALABAMA A&M UNIVERSITY - MILES COLLEGE 365,225 365,225
ALABAMA STATE UNIVERSITY 42,946,136 98,085,927 141,032,063
ALABAMA, UNIVERSITY OF - SYSTEM 474,751,327 3,665,548,085 4,140,299,412
ATHENS STATE UNIVERSITY 12,421,764 44,079,858 56,501,622
AUBURN UNIVERSITY SYSTEM 254,405,482 998,299,849 1,252,705,331
JACKSONVILLE STATE UNIVERSITY 38,358,892 141,723,776 180,082,668
MONTEVALLO, UNIVERSITY OF 19,778,151 59,333,161 79,111,312
NORTH ALABAMA, UNIVERSITY OF 28,186,242 90,166,026 118,352,268
SOUTH ALABAMA, UNIVERSITY OF 107,284,718 267,822,540 375,107,258
TROY UNIVERSITY 49,303,360 191,825,972 241,129,332
WEST ALABAMA, UNIVERSITY OF 16,146,820 25,914,681 42,061,501

TOTAL COLLEGES AND UNIVERSITIES 1,082,211,686 - 5,703,924,223 6,786,135,909

OTHER:
ALABAMA INNOVATION FUND 2,420,133 2,420,133
DEAF AND BLIND, ALABAMA INSTITUTE FOR THE 53,754,246 30,544,504 84,298,750
TREASURY PACT PAYMENT 62,783,000 62,783,000
TOTAL OTHER 118,957,379 - 30,544,504 149,501,883

1/23/18 Page 46 of 50
 FY 2018 BUDGETED APPROPRIATIONS (AS ENACTED)
EDUCATION STATE EARMARKED
TRUST FUND GENERAL FUND FUNDS TOTAL FUNDS

SEPARATE BILLS:
STATE RELATED SCHOOLS:
TUSKEGEE UNIVERSITY 10,595,439 10,595,439

PRIVATE SCHOOLS:
LYMAN WARD 340,276 340,276
TALLADEGA COLLEGE 882,997 882,997

COALITION AGAINST DOMESTIC VIOLENCE 169,633 169,633 339,266

TOTAL SEPARATE BILLS 11,818,712 169,633 169,633 12,157,978

OTHER FUNCTIONS OF GOVERNMENT PAID

FROM THE GENERAL FUND:
ARREST OF ABSCONDING FELONS 24,735 24,735
AUTOMATIC APPEAL EXPENSE 33 33
COUNTY GOVERNMENT CAPITAL IMPROVEMENT 25,136,480 25,136,480
COURT ASSESSED COSTS NOT PROVIDED FOR 5,764,500 5,764,500
COURT COSTS - ACT 558, 1957 81 81
AUTOMATIC APPEAL EXPENSE CASES 15,630 15,630
DISTRIBUTION OF PUBLIC DOCUMENTS 165,975 165,975
ELECTION EXPENSES 8,646,239 8,646,239
EMERGENCY FUND, DEPARTMENTAL 1,843,461 1,843,461
FAIR TRIAL TAX TRANSFER (estimated) 50,000,000 50,000,000
FEEDING OF PRISONERS 8,977,500 8,977,500
FINANCE - CMIA, DEPARTMENT OF 10,000 10,000
FINANCE - FEMA, DEPARTMENT OF 5,287,908 5,287,908
FOREST FIRE FUND, EMERGENCY 170,100 170,100
GOVERNORS CONFERENCE, NATIONAL 146,850 146,850
GOVERNOR'S PROCLAMATION EXPENSES 236,250 236,250
GOVERNOR'S WIDOW RETIREMENT 6,048 6,048
LAW ENFORCEMENT AGENCY, ALABAMA -
EMERGENCY CODE 56,700 56,700
LAW ENFORCEMENT AGENCY, ALABAMA - SBI
COST OF EVIDENCE FUND 118,125 118,125
LAW ENFORCEMENT FUND 10,000 10,000
LAW ENFORCEMENT LEGAL DEFENSE 819 819
MILITARY - EMERGENCY ACTIVE DUTY PAY 500,000 500,000
MUNICIPAL GOVERNMENT CAPITAL IMPROVEMENT 25,136,480 25,136,480
PRINTING OF CODES AND SUPPLEMENTS -
SECRETARY OF STATE 250,000 250,000
PRINTING OF LEGISLATIVE ACTS AND JOURNALS 50,000 50,000
REGISTRATION OF VOTERS (FY 2017: Changed to
Registration of Voters - Voter Registrars) 4,255,000 4,255,000
REGISTRATION OF VOTERS - Photo Voter
Identification 904,000 904,000
REMOVAL OF PRISONERS 793,800 793,800

TOTAL OTHER 88,233,754 50,272,960 138,506,714

SUB-TOTAL 6,417,000,027 1,835,284,938 22,615,486,731 30,867,659,196

ADDITIONAL EXPENDITURES FROM STATE

GENERAL FUND:
SEIB - $930/month 9,600,000 9,600,000
1/23/18 Page 47 of 50
 FY 2018 BUDGETED APPROPRIATIONS (AS ENACTED)
EDUCATION STATE EARMARKED
TRUST FUND GENERAL FUND FUNDS TOTAL FUNDS
Governor's Revenue Sharing Interest 2,713 2,713
Senior Services, Department of - Medicaid Waiver 1,992,947 1,992,947
TOTAL ADDITIONAL EXPENDITURES FROM
STATE GENERAL FUND - 11,595,660 - 11,595,660

GRAND TOTAL 6,417,000,027 1,846,880,598 22,615,486,731 30,879,254,856

1/23/18 Page 48 of 50
 Appendix D:

State Employees Comparison

by State

1/23/18 Page 49 of 50
 Appendix D

LEGISLATIVE SERVICES AGENCY

Shonda Stallworth (334) 242-7950

Alabama State House
Senate Fiscal Officer sstallworth@lsa.state.al.us
11 South Union Street, Suite 620
Montgomery, Alabama 36130-3525

MEMORANDUM
To: Senator Clyde Chambliss
Representative Danny Garrett

From: Shonda Stallworth

Date: January 22, 2018

Re: Joint Task Force on Budget Reform – State Employee Comparison

Per your request, the table below shows the number of full-time classified employees in southeastern states as
of July 2010 and 2016. Excluded from the count are unclassified employees, higher education employees, K-
12 employees, medical hospital employees, and skilled and semi-skilled employees.

Per Capita - July 2010 Per Capita - July 2016

Population Per Population Per
# of (as of July 1, Capita - # of (as of July 1, Capita -
State Employees 2010) July 2010 State Employees 2016) July 2016
FL 85,558 18,801,310 455 FL 72,560 20,612,439 352
NC 69,511 9,535,483 729 NC 63,581 10,146,788 627
VA 50,277 8,001,024 628 VA 64,021 8,411,808 761
TN 35,689 6,346,105 562 TN 30,761 6,651,194 462
SC 50,213 4,625,364 1,086 SC 35,661 4,961,119 719
AL 30,975 4,779,736 648 AL 26,445 4,863,300 544
LA 37,256 4,533,372 822 LA 29,159 4,681,666 623
KY 28,756 4,339,367 663 KY 26,891 4,436,974 606
OK 25,518 3,751,351 680 OK 22,494 3,923,561 573
MS 29,268 2,967,297 986 MS 28,299 2,988,726 947
AR 28,507 2,915,918 978 AR 25,459 2,988,248 852
WV 19,457 1,852,994 1,050 WV 18,406 1,831,102 1,005
Avg. 40,915.42 773.93 Avg. 36,978.08 672.58
Sources: State of Alabama Personnel Department and U.S. Census Bureau, Population Division

If you have any questions or would like additional information, please contact our office.

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