In The Weeds with State Finance Director Kelly Butler

In The Weeds with State Finance Director Kelly Butler

Intro by TODD STACY, interview by CAROLINE BECK, Alabama Daily News

This week we dove into the CARES Act and specifically how much federal money the state is receiving, where it is going and how it is being spent.

To catch you up, in March Congress passed and the president signed the Coronavirus Aid, Relief, and Economic Security Act. It provided $2 trillion dollars in payments from the treasury aimed toward propping up the nation as we headed into the breach of the pandemic. About $560 billion went to individuals and families in the form of stimulus checks, about $500 billion went to stabilize corporations and institutions to keep the economy from crumbling, about $377 billion went to small businesses as part of the popular Paycheck Protection Program. About $153 billion went to public health efforts, about $70 billion went to prop up government programs and services, and about $340 billion went to state and local governments. 

Alabama’s share of that money is $3.7 billion. That’s a lot of money when you consider our General Fund budget in 2021 is about $2.4 billion. 

As taxpayers, it is important to ask where all that money is going and how it is being spent. This past week, Alabama Daily News reporters Caroline Beck and Mary Sell did just that. Caroline filed through all the numbers to report exactly where funds are going and then went to the very top to interview Finance Director Kelly Butler about it. More on that in a minute. Mary dug specifically into Alabama’s colleges and universities, which are getting $275 million in all. I encourage you to go read both stories if you haven’t already. 

Now, CARES Act money has gotten a lot of attention recently because of the high profile fight between Gov. Kay Ivey and the Legislature over the Coronavirus Relief Fund. If you’re listening to this, I’m confident you know what happened, so I won’t rehash. But in the end, that $1.9 billion fund was appropriated to various state agencies with the Legislature holding back some in reserve. 

The other half, or roughly $1.8 billion, was allocated directly to state agencies, institutions or health care providers. According to Mr. Butler, there were already existing grant programs in place so there was no need to go through the Legislature. 

About $449 million went to health care providers, which include hospitals, nursing homes, clinics and other facilities. Hospitals are quick to point out that they only got about a third of those funds and their revenue losses totaled more than $740 million for March and April. $217 million went to K-12 education; $191 million went to Rural Health Care providers; $115 million went to laboratories for CDC-led disease prevention and enhanced detection; $132 million went to transportation grants; $64 million for child care grants; $54 million for airport; $48 million for the Governor’s emergency education relief fund, $37 million for Community Development and Service Grants through ADECA, $20 million to public housing; $16 million to low-income energy assistance; and $13 million to Head Start. 

And don’t forget the $1.9 billion the state has to dole out through the Coronavirus Relief Fund. 

All this money passing through from the federal government keeps state accountants busy, particularly at the Department of Finance. That’s the agency most responsible for processing applications, measuring the need versus the federal guidelines and being accountable for how the money is spent. 

Leading that agency is  Butler. One lobbyist recently told me Butler just became the most popular person in town and the guy to know for all those who are seeking out coronavirus. So when Caroline said she was going to interview him, I said why not do it In the Weeds?

For those that don’t know, the Finance Director is one of the most powerful positions in state government. It certainly is the highest ranking Cabinet member beyond Chief of Staff, and getting a Finance Director you can trust is exceedingly important for governors. In the past, the job has often gone to political types. Several finance directors have used the publicity and influence of the job to ascend to other positions or run for office. 

So when Clinton Carter left the job in 2018, most contenders being talked about were political types – lawmakers, lobbyists, CEOs or even retired officials. But that’s not the route Ivey went in appointing Butler. He’s not a politician. He is a career state employee who worked his way up through the ranks of multiple state agencies to eventually earn the top job. I’m not saying that has never happened, but it is rare. And it gives him the valuable knowledge of the ins and outs of the budget process while also understanding the bureaucratic tricks some less experienced finance directors might not catch. 

I’m not saying all political finance directors are bad. Sometimes you need the outsider to come in and shake things up. But sometimes you also need a guy who has been on the inside a while, especially when you’re trying to steady the ship of state while some unforeseen troubled waters are ahead. And that’s where we are. 

Caroline sat down with Butler to talk about his experience these last two years and to run through the range of questions about all this money the state is getting. Listen close as sometimes he says a lot in very few words. 

Here’s Kelly Butler In the Weeds.

Caroline Beck:  Thank you, Mr. Butler for joining us on our In The Weeds podcast. We really appreciate you taking the time to dive deep into what Alabama’s finances are right now because it’s an important topic and it’s on a lot of people’s minds. So it’s really great to have you.

Kelly Butler: Thank you Caroline. It’s good to be with you today.

CB: Well, before we kind of get into the nitty gritty details and all of the numbers, I just wanted to talk about what your experience has been like in the finance department since you’re about to be going on two years now in this role, how has it been? I know it’s been an interesting two years.

KB: It’s been quite a ride, yeah. So when Gov. Ivey first asked me to become finance director after the previous finance director left to take another job, I was of course, excited. I have been in state government for nearly 35 years now, at the time about 33 years, in various roles all in the financial arena. So, you know, for me, it was kind of the combination of a long career of trying to be in state finances. And really, I tell this to people that we newly hired is a, in my opinion, a good example of if you come in and work hard, and do what you need to do, then there are opportunities, right? I started out as an accounting clerk with the Department of Revenue in 1985, and here I am finance director. I never would have thought that would have happened. So that was the beginning. And then, you know, times, financial times were very good. All the way up until COVID-19. So I was very fortunate to be finance director during a very good budget years. Lots of accomplishments financially, being able to fund a lot of things that were a big help to the people of Alabama. And then in February, March of this year COVID-19 came along and it was really, very rapid change in finances from really, really good times to some serious downturns and so, over that two years, I’ve seen the very, very best to finances and some of the low points so yeah, summarize it like that.

CB: I was wondering if you could touch on briefly, or explain what is the state of Alabama’s finances right now. I know, I think you said back in April that we could be seeing as much as like a $1 billion tax revenue drop off because of COVID-19. Is that still how you’re seeing it right now? Or is there an updated number you can give?

KB: That’s still our estimate and that estimate, it was for the state general fund and the Education Trust Fund combined. And as you may know, most of the growth taxes, income tax and sales tax, most of that goes to the Education Trust Fund budget. So the bulk of that decline would be in that budget, we think. Out of that number, maybe 700 million or so over the two year budget period, because our fiscal year ends on September 30 and we start a new budget year, so that estimate was for the two budget years, about a billion dollars. And that’s still where we are. We’ve had two months of collections now. Since the stay at home orders and the shutdowns were put in place. And it’s a bit complicated, Caroline, because the federal government and the state government both gave people an extension of time, to pay their income taxes, which are normally due on April 15, was moved to July 15. So, if we just look at the raw revenue reports, there’s a bit of distortion, because some of it is a timing difference that will correct when we get the July payments in. So, in summary, we’re still using the billion-dollar estimate. And we’re optimistic that it won’t be worse than that. We’ve seen revenues decline but not as great as you might have anticipated.

CB: When do you think that we might see the full effect of what COVID-19 has done to state revenues? Will that be like next year? How far down the line do you think we would see that?

KB: I think it all depends on how long this lasts. And, you know, the one thing about the virus that I’ve learned is it’s unpredictable. Right? All of us are still learning about this virus and how it transmits and how long it will last. So I’m not going to represent that I know the answer to that. And I think that really depends, is a determining factor on when we’ll see the end of this. But I think we’ll be dealing with it for quite a while.

CB: Let’s kind of dive into the relief funding then that’s come to Alabama. I know that there’s around $3.3 billion that’s come from CARES Act funding, possibly other relief funds as well. Can you give right now what the total grand number is of what relief funds have come down to Alabama or are in the process of coming?

KB: So most of that money the state has actually drawn down because the bulk of it was granted out and immediately available to the state. That doesn’t mean we’ve allocated it all out or spent it by any means. The biggest chunk of that is the Coronavirus Relief Fund (CRF), which has been most mostly in the news. And it’s the other than the coronavirus relief fund the rest of those funds, which are a broad array of things that went directly to healthcare providers, there were arts funding and I won’t go into all of them, but those were the additions of federal funds to already existing programs. So in other words, there was already an arts grant program, and they just added more money to it. So those funds were able to get allocated out more quickly because the apparatus behind those grant processes was already in place. So it was a sort of a supplement. In some of those cases, some of those funds went directly to medical providers didn’t even come through the state. So it’s it’s a hodgepodge. But the Coronavirus Relief Fund is the state and local relief money. In some ways, it has been mislabeled as grant money that can be used for any purpose. In my opinion, it’s absolutely not that. The federal law of the CARES Act and the regulations issued by Treasury put strict limits on what you can use that money for. And those are basically expenditures related to COVID-19 that you had not previously budget, and that you incur between March 1, 2020, and December 30, 2020. There’s a definite time period. All of those limitations make it more difficult for the state and local governments to actually get that money all spent by December 30. That fund, Coronavirus Relief Fund for Alabama was, in counting the localities, was about $1.9 billion. $115 million of that was sent by Treasury directly to Jefferson County because the CARES Act had a provision that any locality, either county or city with a population of 500,000 people or more could apply directly to the Treasury and Jefferson County did that and got their allocation directly. So that left the state and the rest of the local governments with about $1.8 billion. We drew down that money in early April and have had to wait on the legislative process to work out and ended up with Senate Bill 161, which appropriated that money into various, what we’re calling buckets. That can be used for specific purposes and there’s about 10 of those. And I think you’re familiar with those but there’s a bucket for state government, local government healthcare.

CB: Yeah, I was going to ask about those specific buckets. Can you explain what’s the process been like getting those pockets of money out to them?  Is it there right now or is that still an ongoing process?

KB: It’s definitely ongoing and the bill was passed on May 18, finally, and signed by the governor. So we’ve had about less than three weeks so far to get it all allocated or working on that and it is ongoing. What we have done so far is for local governments, they had a $250 million dollar bucket. And we have worked with the County Commission Association and the League of Municipalities to work with them on allocations to the counties and cities of budget targets for them for each county and each municipality, and we’ve sent documents and forms and guidance out to the local governments on May 28. So that they can start claiming reimbursements. It all has to be done on a reimbursement basis because of the Treasury guidance, so the counties and cities are able to start asking for reimbursements now. Yesterday we sent guidance to all the state agencies in a similar manner to the counties and cities and so they can as of yesterday, start requesting reimbursement. We’re working on the other buckets and haven’t really made announcements and not really ready to do that yet. But every single day, we’re working on this and one goal we have is to get this money out as quickly as possible to the recipients because we think that’s important.

CB: The process for the local governments and municipalities. What will happen to those funds if the city or county can’t meet the qualifications to get those refunds? How would that work out exactly?

KB: So we have pretty strict limitations on what can be reimbursed, but there are opportunities for them, so anything related to responding to the virus. So for example, if they’ve bought equipment for their personnel or their government operations, PPE, that would definitely be reimbursable. The guidance also lets us reimburse for salaries paid direct frontline workers, law enforcement, healthcare workers, if they are employed by a town or city. They can pay to reimburse themselves for the amount spent on cleaning and sanitation and those are just a few examples and the letter we sent out details more of those things and that letter is available on the Comptroller’s website, if anybody’s interested in those kinds of details. To your question, if we don’t use all the money, then ultimately it goes back to the federal government, whether it’s county city money or any of those buckets, the Treasury CARES Act and the guidance clearly indicates that whatever we are unable to use has to be returned to the federal government. Of course, we don’t want to do that. We’re wanting to be able to use the money but we have to use it in accordance With the guidance, that’s the trick.

CB: And I wanted to talk about the difficulties of using up the money before the deadline approaches. I know, for the $1.8 billion there were allocations for, like, electronics things that would go towards those kinds of initiatives. And so I’m curious of how that money can be spent within the short timeframe if it’s going to call for a lot of different organizations to come in and requires lots of different parties just to be working together is, is there a concern or are there specific pots of money that you’re concerned about getting spent before the time period is up?

KB: Certainly there’s sort of global concern with the December 30 date. It’s always on top of mind when we’re working on this. But any one of those buckets, I don’t think I have a particular greater concern about one over the other. With one caveat there, there’s a small bucket for reimbursing the general fund for $5 million. Obviously, that one’s pretty easy, but you know, the ones that people are more interested in the education technology, the state government, local government, all three of those will be harder to get all the money out but we’re going to try.

CB: Kind of looking at the bigger picture, too, with all of the money that’s been given to Alabama. So besides the $1.8 billion, all of the other money you say has already been allocated to state agencies or it’s already been in the process of basically, they’re using it right now. Is that right?

KB: In general terms, that’s correct. That money comes from a specific federal agency straight to that state agency. So I’ll just use the arts money as an example, the National Arts agency sends that money straight to our Council on the Arts, which has already announced a grant program and actually already distributed some of the money out to the various arts organization. So that’s very, that’s an example of how that process will work for most of those non-CRF moneys. The money from HHS that goes directly to medical providers, HHS has been periodically announcing the release of those moneys and that’s a little bit different from the arts money because that money does not come to a state agency before it goes to the hospitals and nursing homes or doctors. It goes straight to those medical providers. So I don’t want to say that they’re all the same, but they’re all different from this CRF. That’s the distinction. The CRF is just a different animal.

CB: And for the HHS funds in going towards the medical providers, Is there like a formula that’s given out to them or is it on a needs basis? Or do you know how that money gets divided up?

KB: They’ve done different trenches or different parts of that in different ways. So one of the first ways they did it was hospitals got an allocation based on their Medicare reimbursements. They’ve announced a nursing home program that gave a flat amount to each nursing home and then an amount per resident. So they’re not all the same, but each time they announce it, they have had a formula or method behind it.

CB: Is there anyone in charge of looking after this money and seeing how It’s actually getting spent in each agency or is there some kind of process to basically keep track of how the money’s getting spent?

KB: There is. It’s a non-centralized effort for the entire CARES Act at this moment. So the agencies that get those specific grants are the agency responsible for answering to the federal government and reporting and doing all that. On the CRF the finance department was given the responsibility of administering that. So we would be the ultimate agency responsible for administering that and part of that is anytime you get federal funds, the Federal auditors will come and ask you, you know, how have you spent this and have you complied and of course, we have to be ready for that. And that’s one reason we have to have all the documentation that we asked people to provide because that day is coming and we need to be ready.

CB: And when is that day coming?

KB: You’re never quite sure. It’s usually two to three years after the money comes.

CB: So ultimately your department will know basically how all these agencies have been spending this money by whenever this is over?

KB: Yes, we will. And the stick that the federal government has is if you are found to have spent it outside the bounds of the guidance in the law, you have to repay it. And that’s why we’re very careful about getting the money out on the front end because there is that penalty.

CB: So for that pot of money, not the Coronavirus Relief Fund. Is there any deadline for how those moneys are spent or can it just be used anyway?

KB: You’re talking about the non-coronavirus fund? Yeah. There are deadlines. I don’t have them all memorized. There’s a governor’s emergency education Relief Fund, that we had to make an application by June 1, which we did. And now we have to submit a plan by 45 days after that. So that’s just an example. All of them have grant deadlines and grant reporting requirements. I think it’s a fair statement to say that all of them have some sort of reporting requirement or deadlines.

CB: I also wanted to touch on I think you’ve already kind of touched on a little bit, but I just want to make sure I asked, what would you say has been the biggest challenge of organizing these funds and making sure everyone gets the needed money they need and is spending it in the correct places. What would you say is maybe the biggest challenge right now to tackle?

KB: It’s a good question. There are challenges. If I had to pick one, I would say it’s the ongoing and continuing dialogue with US Treasury about what’s allowed and what’s not allowed. I don’t mean that to be picking on them. But as an example, we sent out the letter to the counties and cities on May 28, which I think was Thursday and on Friday, we got new guidance, just as an example. It’s an ever-changing thing and when I’ve talked to people in counties or city government, I always try to tell them, look, you know, this is what we know today, but it could change tomorrow, and we’re going to let you know if it changes. That’s just the nature of federal funds, and particularly when they’re trying to do this in this seven or eight-month window that they created, March through December.

CB: Okay. And I wanted to ask about what kind of guidance you’ve been getting from them. Are you like in constant contact with the US Treasury? Or how is that kind of guidance been for you so far?

KB: So we, I won’t tell you that I’ve been in constant contact, but we work through the National Governors Association, National Conference of state legislators, these national groups that help states. We have people who participate in that and submit our questions and then the national group takes all of that and then takes it to Treasury. Treasury does not necessarily answer every question. Which I wouldn’t do either if I was in their position. But we hope to read it all and then you just have to make decisions. It’s a bit, in my opinion, it’s a bit of a risk-reward kind of analysis if you think about it that way. The risk being, you might have to pay it back, which we’ve already talked about, you have to balance that with filling a need. And as I’ve told some people, I’m probably more likely to take a risk on $100,000, then I would be to take a risk on 10 million. Right? So I think that’s how you work through it and how you ultimately just have to make a decision Caroline and go with it.

CB: I’m also curious, I don’t know if you could tell me this. But what do you know, in relation to all the other states in the nation and what they’re relief funding has been looking like, do you know where Alabama is and how much we have gotten compared to other states? And maybe also, if I can narrow it down to like our sister states, southern states, do you have any kind of idea of like what our funding looks like compared to theirs?

KB: I don’t know all of that. I do know that except for the coronavirus relief fund a lot of these other funds were done on either a population basis or a number of provider basis. And so, based on that, generally speaking, it is in proportion to the population a lot of times. The Coronavirus Relief Fund is a little different because Congress put a floor in there, a billion and a quarter, every state got at least a billion and a quarter. Which leveled it out a lot. Typically, California, Florida and New York, get the most money because they have the most people. The CRF is different and states like Alabama got more than we would have gotten had they done it on a population basis. So that’s about what I know about that. And some of the larger states have been vocal about they didn’t get enough.

CB: Right. Do you think Alabama has gotten an adequate enough amount to handle the problems that it has? Or do you hope to see more in the future?

KB: Well, I think certainly we’re thankful for what we’ve gotten and we will use it to the best of our ability. One thing they have not done for us or any other state or local government is let us use this money to replace some of this shortfall in revenue that you and I talked about earlier. We absolutely are not allowed to do that with this money. It would certainly be helpful to states and local governments if we could use some federal relief for that. One argument I make is the best way for states and local governments to respond to these kinds of events is to ensure that the services that are provided in their budgets continue because many of the services are provided even more in times like this, when you think about things like the unemployment at the Department of Labor and Medicaid and HR and mental health, you can go on down the line. That’s what’s funded in that in our state budgets and so the best way for them to help state and local government is to keep those budgets going.

CB: Okay. And kind of as a final question or maybe like a wrap-up question, what do you hope to make the Alabama public understand when it comes to the relief funds for Alabama? Do you think there are any misconceptions out there about how Alabama can use them or how they’re dealing with it right now or anything you think should be cleared up?

KB: Yeah, I think the one, I won’t call it a misconception, but the one thing that people don’t quite understand is the fact that we just cannot make straight out grant programs and when we can’t help counties if they are losing their lodgings tax or revenue replacement. There’s a perception out there that we can use that for that purpose. And we get those questions a lot. So I would remind everybody of the strict limitations that the federal government has put on this and there are things that we would like to do to help counties and cities and individuals that the law just doesn’t let us do that.

CB: Well, this has been very informative, and very helpful. So thank you for taking the time to talk with us about this and it’s really great to have this information. I’m sure people really value knowing this.

KB: Thank you. I appreciate it.