Record revenues used to pay down obligations, pad reserve accounts

Record revenues used to pay down obligations, pad reserve accounts

By MARY SELL, Alabama Daily News

Alabama General Fund and education budget drafters are using recent record revenues to pay hundreds of millions of dollars in outstanding obligations and padding reserve accounts in both budgets.

“There was a very purposeful focus on both ensuring that our rainy day accounts are properly funded and paying down debts where possible, in light of concerns in anticipation of a potential economic downturn at some point in the near future,” Alabama Finance Director Bill Poole told Alabama Daily News.

The $2.7 billion General Fund was approved in the Alabama Senate Thursday in a 29-1 vote. It includes a 4% pay raise for state employees and a $17 million increase for the Department of Mental Health. It now goes to the House.

According to the Legislative Services Agency, across both budgets and some supplemental appropriations, those debt reduction and savings efforts include:

  • Repaying the last of the about $450 million borrowed from the Alabama Trust Fund to prop up the General Fund budget in fiscal 2013, 2014 and 2015. In this year and 2023, the remaining nearly $157 million will be paid back.
  • $30 million from the General Fund to the Corrections Institution Finance Authority to pay debt service on bonds for new prisons approved last year, if needed. If not needed for prison bonds, the $30 million would go toward eliminating that $129.9 million trust fund debt.
  • $24.7 million to the General Fund reserve account created in 2020. That deposit will put the account at its $100 million cap.
  • $111.1 million to fully fund the Education Trust Fund’s rolling reserve account created in 2011 to stop mid-year budget cuts.
  • $177.3 million in the ETF to pay off the remaining owed on the Prepaid Affordable College Tuition program. Without this expenditure, annual payments are needed until fiscal 2027.
  • $200 million in the EFT to pay off bond debt as it becomes due.

“The education rainy day fund for the first time in history will be fully funded,” Poole said. “By bringing it to full pool, funds that would have gone into the rainy day fund can now flow to education needs.”

Meanwhile, they free up future money to be spent on services, not debt.

“The General Fund and education budget are both taking significant steps to pay off balances owed,” Sen. Arthur Orr, R-Decatur, said. He chairs the Senate education budget committee and is also on the General Fund committee. Record revenues allow these expenditures without harming ongoing state services.

State leaders have celebrated in the last year above-average growth in both budgets while urging caution toward the future.

“We know this federal stimulus money at some point is going to dry up,” Poole said. “We’re applying lessons learned in the past and trying to anticipate that downturn.” 

Gov. Kay Ivey sent lawmakers a proposed $2.7 billion General Fund budget and a $8.3 billion education budget. Those are increases of about $300 million and $627 million, respectively.

“We’re paying back the people the money they graciously allowed us to borrow,” Sen. Albritton, R-Range, said Wednesday about the repayment to the Alabama Trust Fund. In 2012, Alabamians voted on a constitutional amendment to let the state borrow nearly half a billion dollars interest free from the trust fund. In 2013, lawmakers approved a repayment structure making allocations through fiscal 2026. Now, by the end of fiscal 2023, all the money will have been paid back, Albritton said.

That fund generates income to the benefit of the General Fund and Alabama Treasurer Young Boozer on Wednesday said it’s the state’s “greatest financial asset.”

The Alabama Trust Fund was created in 1985 to capture revenues from sales of offshore drilling rights and royalties from natural gas production. Some revenue from the trust fund feeds into the General Fund, which supports non-education state agencies. At the end of 2021, the trust was worth $3.9 billion, Boozer said.

“(Replenishing the trust) makes a huge difference and it will be put to work immediately,” Boozer said.

He also praised the allocation to PACT.

“It basically puts it in the position to fulfill the settlement that we argued to 10 years ago,” Boozer said. 

As of last year, the PACT Program had 10,870 active contracts. Students are projected to use the program through 2032, Boozer said, and should be confident in its stability.

“That’s a big deal,” he said.

Under the 2011 class action settlement agreement, PACT is required to pay tuition and qualified fees at the fall 2010 rates as certified by each respective Alabama public eligible educational institution.