For the past two legislative sessions, Rep. Greg Canfield (R-Vestavia) has introduced a budget reform measure entitled the Rolling Reserve Budget Act. The proposal would cap education spending based on a rolling 15-year average growth rate. The state currently bases the education budget on a projection of Education Trust Fund revenues. Extreme revenue fluctuations make forecasting revenues difficult. For example, actual revenues in 1982 were down 3.4 percent from projections, while revenues in 1983 were 13.7 percent higher than projected. In order to deal with the extreme variations, Canfield’s bill would average the growth rate of Education Trust Fund revenues for the last 15 years and cap the state’s education budget at that amount. Any surplus revenue would go into a savings account (Budget Stabilization Fund) to cover years where there is a shortfall.
When the Budget Stabilization Fund reaches an amount equal to 20 percent of the current budget, funds would roll into a capital fund for education and the PEEHIP and Pension (TRS) Liability Funds. As of September 30, 2007, the unfunded liability for PEEHIP was 12.6 billion and 5.2 billion for TRS. This 17.8 billion is a threat to Alabama’s future financial stability.
Rep. Canfield had the Legislative Fiscal Office model a rolling reserve budget for FY1996-FY2009. Under the rolling reserve model, the state could have avoided the 3 years of actual proration and prevented the state’s borrowing from the Constitutional Rainy Day Fund in FY2009. The model allowed a sustainable increase in education spending while setting aside reserves to prevent proration.
Given the revenue projections for 2011 and the continued economic uncertainty, the state is going to have to find ways to cut back spending. The next Governor and Legislature face tough challenges where the state’s budget is concerned. Passing the Rolling Reserve Budget Act is one way to make those hard times a little less challenging in the future.
Your action is the key to passing the Rolling Reserve Budget Act. Here’s how you can help:
1. Ask your legislator to co-sponsor the Rolling Reserve Budget Act and work to get it passed. You can find your legislator’s contact information here.
2. Write op-eds or letters to the editor: Many Alabamians are not familiar with the Rolling Reserve Budget Act. You can help get the word out by writing your local paper and/or weekly papers in your area.