Education Trust Fund projected to have $134 million growth; General Fund revenues down $83.3 million

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Lawmakers coming in on Tuesday will deal with an Education Trust Fund in decent shape, but a struggling General Fund.

Lawmakers coming in on Tuesday will deal with an Education Trust Fund in decent shape, but a struggling General Fund.

It’s becoming as predictable as the seasons: The state’s education budget appears to be in decent shape; the state’s General Fund is not.

The Legislative Fiscal Office estimates that the Education Trust Fund, which pays for most schools in the state, will grow about $134 million for the 2015 fiscal year, beginning Oct. 1,  due to ongoing growth in the state’s income tax revenues. That will likely fund some sort of cost-of-living adjustment for teachers, and provide extra money for other programs.

The General Fund, however, is another story. LFO director Norris Green told lawmakers at a budget presentation Monday morning that General Fund revenues are estimated to come in about $83.3 million below the current year’s estimates.  Budget makers have said the General Fund will be hurt by the loss of one-time tobacco settlement money that brought in $50 million to the current year’s budget.

Overall revenues into the Education Trust Fund are estimated to grow more than what will be available; however, a 2011 law called the Rolling Reserve Act caps the growth in the ETF year-to-year on a 15-year average, with excess money going to pay off debts; to savings accounts for proration or to capital funds.  Norris said there should be sizable payments to the ETF’s budget stabilization accounts in the coming years.  However, he only expected growth of $98 million in the ETF cap in 2016, based on current estimates.

“The days of having the big balances and $400 to $500 million in a year, the Rolling Reserve is not going to allow that to happen any more,” Norris said.

The LFO estimates the cost of a one percent education employee pay raise at between $34 and $38 million, meaning lawmakers could give up to a 3.5 percent pay raise for teachers and other school workers.  However, lawmakers must finish paying off a proration prevention account by July of this year, and legislative leaders have said they also are looking to provide funding for other education programs funded through the ETF.

The General Fund, which pays for most non-education programs in the state, continues to struggle with revenue sources that show poor growth, even in the best of times.  Green said revenues to the fund are 16.3 percent lower than the peak year of 2008, even as the expenses of programs, particularly Medicaid and Corrections, have continued to grow.  Lawmakers have to this point resisted the creation of new revenues to help shore up the fund; the budget’s single largest revenue source is a $145 million transfer of money from the Alabama Trust Fund; that money will vanish with the 2016 fiscal year.

Lawmakers have all but ruled out a cost-of-living adjustment for state employees, whose ranks have been thinned since 2011, due to attrition.  LFO estimates a one percent pay raise for state employees would cost $17.5 million, though the General Fund would only pay $4.5 million of that; most state agencies get funding from a number of sources, and can pay their employees from those sources.

The legislature’s General Fund budget chairs have expressed skepticism about the possibility of state employee pay raises, and those doubts continued following the presentations Monday morning.  House Ways and Means chair Steve Clouse, R-Ozark, said a conditional appropriation for state employees might be possible, but it depended on how much money would be requested by other agencies.

“It all comes down to how much Medicaid asks for,” he said.

Senate Finance and Taxation General Fund chair Arthur Orr, R-Decatur, was more blunt.

“There’s always a chance (of an employee pay raise), but it’s not likely,” he said.

– posted by Kala Kachmar and Brian Lyman

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