MONTGOMERY — Alabama’s General Fund remains healthy, the Education Trust Fund is uncertain, for now, and top lawmakers have questions about how the state’s ambitious prison construction plans will impact future budgets.
Those were the top takeaways from Thursday’s budget discussions at the State House. Members of the Senate Ways and Means General Fund Committee met in Montgomery for a special hearing to get a better understanding of the state’s financial situation amid the ongoing coronavirus outbreak and receive an update on the Alabama Department of Corrections’ plan to build three new prisons in a contract-lease arrangement.
The contracts with two private companies are currently being negotiated by ADOC and the governor’s office without the involvement of the Legislature. State officials have previously put the cost at about $900 million, but some lawmakers Thursday used larger numbers.
More information, including updated costs and where the prisons will be located, will be available to lawmakers after contract negotiations are done later this year, said ADOC Commissioner Jeff Dunn.
Sen. Bobby Singleton, D-Greensboro asked about the terms of these prison leases and questioned the wisdom of spending so much on buildings the state will ultimately not own.
“We’re going to spend almost $2 billion, and we’re not going to own the building?” Singleton said.
Dunn said the current proposal calls for the state to lease the prisons from the private companies that build them for 30 years. Beyond that, “something would need to happen,” to include the possibility of the state taking over ownership, he said.
Dunn also told lawmakers that the department would be able to pay for the new prison leases with savings left over from closing current dilapidated prisons that require more staff and have higher maintenance expenses.
“It is not our intent to come to the Legislature and ask for a plus-up in our allocation to pay for these leases,” he said
Sen. Cam Ward, R-Alabaster, who has championed prison and criminal justice reforms in the Legislature for years, warned against thinking that new prisons would completely solve Alabama’s problems with inmate overcrowding and unsafe conditions. On the costs, Ward said he was worried about inflation creating problems down the road.
“I don’t worry about five years from now, I worry about 10 years from now,” Ward said. “There’s a lot of variables and the fundamental numbers are fine, it’s just the long term you have to worry about.”
Dunn said completion of the new prisons is two to three years away.
Finance Director Kelly Butler provided an update on the state’s efforts to allocate the $1.9 billion of CARES Act funding from the federal government. While much of that money has been assigned, little has been spent.
Senate President Pro Tem Del Marsh, R-Anniston, expressed frustration at the challenge the state faces to spend the federal relief money on time and within the rules, calling it “almost impossible.”
Butler said that while most of the state’s allocation hasn’t been spent, $816 million has been committed to various efforts, including:
• $668 million to reimburse the state agencies, local governments, the courts and the Department of Public Health for outbreak-related expenses;
• $100 million for the “Revive Alabama” grant fund to assist small businesses;
• $30 million for a college COVID-19 testing program through UAB; and
• $18 million for COVID-19 testing at nursing homes.
Butler also said that as the virus continues to impact the state, there will be more potential needs, including in the state’s unemployment compensation trust fund and to support hospitals treating COVID-19 patients.
“You could use up the money in a hurry,” Butler said.
Marsh continued to press the issue of using part of the state’s federal CARES Act funds to expand access to high speed broadband internet in rural areas. In passing the CARES Act, Congress put tight restrictions on how the funds could be used, including not allowing any expenses other than those directly related to the outbreak and not allowing any spending past Dec. 30.
Those provisions could complicate an ambitious broadband plan, but Marsh said the state should at least press the federal government to find out for sure.
“If we know these dollars can be used to expand broadband … then I think we should be putting on a full effort to get broadband to every corner of this state, so that if in this coming school year our kids have to go home for any reason, then they can continue to learn.”
Marsh said he had spoken with members of Alabama’s congressional delegation about potentially amending the CARES Act to be more flexible.
“I’m hopeful the federal government will give the state a longer period of time to use those dollars,” he said.
‘Healthy’ General Fund
Kirk Fulford, deputy director of the Legislative Services Agency, told lawmakers that the General Fund, which pays for non-education programs and services, is “healthy,” with revenues not dropping off significantly during the outbreak. One key reason is growth from the Simplified Sellers Use Tax, which taxes online purchases.
“When we were doing FY 2020 revenue estimates, we contemplated a growth rate of a little more 5%. Right now revenues are growing at 7.3%. We basically could have zero growth for the rest of the year between now and September, that three month period, and it could come in right on target with what our revenue estimates were,” Fulford said.
“That’s pretty phenomenal considering everything that’s been going on.”
Some state revenue streams are down in 2020, including court costs, lodging tax and oil and gas taxes. However, the more than $51 million growth from the online tax is more than enough to make up for those losses, Fulford said.
Gov. Kay Ivey originally proposed a 2021 General Fund budget of $2.56 billion, but after the virus outbreak hit, lawmakers pared it to $2.39 billion, still a record amount. Fulford told lawmakers that solid revenues should allow the state to meet those obligations, and even have some left in reserve.
For the Education Trust Fund, by far the largest of the two budgets, the prospects are uncertain. State income tax makes up a large portion of that fund, and Ivey delayed mandatory tax payments until July 15. Soon after that date, the state should have a better idea of where education funding stands.