Budgeting to the revenue forecast with no planned method for building reserves has led to a pattern of unsustainable appropriation levels.  Budgets were adopted between FY2004 and FY2008 that approved increased spending by 56% (an average of about 12% per annum) as budgeted spending was increased by a total of $2.4 billion, rising from $4.3 billion to a budget of $6.7 billion.  Real revenue growth over the previous 15 years from 2008 had averaged only 5.2% and yet budgets were adopted during this 5-year period expecting to maintain revenue growth at more than double this rate.

 An effective and reliable budgeting process must be one that:

 

• Provides sustainable growth and spending for the Education Trust Fund
• Significantly reduces the frequency of proration by building internal reserves to meet future revenue shortfalls,
• Provides stability and reduces uncertainty for local school systems and our state institutions for higher education,
• Creates a capital reserve to address the future needs for technology and the construction/renovation of schools,
• Reduces the volatility of the revenue stream by using the historical growth rates of actual revenues received.  

For the third year I will introduce the Education Trust Fund Rolling Reserve Act for adoption by the Alabama Legislature.  Nothing could be made clearer after a review of the history of public education in Alabama than that the legislature must adopt a responsible method of budgeting moving forward.   Using the Rolling Reserve Budget Method we can:

1)     Provide a ceiling for appropriations that is based on a sustainable 15-year average annual growth rate.  The spending ceiling is also increased for periods of healthy revenue growth.  40% of any revenues above the historical growth rate can be appropriated into the budget. 

 

2)     Service the debt owed to the Constitutional Rainy Day Fund as a first priority when revenues exceed the budget cap.  Currently, $437 million is owed in repayment to the Alabama Trust Fund from education borrowing.

 

3)     Create a planned system of building reserves (savings) through the Budget Stabilization Fund.  These reserves can only be used when actual revenues fall below expectations.  Reserves are available only for the purposes of maintaining spending at a level no less than the previous year or to prevent proration.  The reserves are capped so that no more than 20% (equivalent of 2.4 months of appropriations) are reserved from spending.

 

4)     Provide for an ETF Capital Fund.  These funds may be used only for construction, reconstruction, alteration and improvements of buildings and other facilities for public education purposes, including site acquisition, equipment and technology or indebtedness incurred for any of these purposes.

 

The historic 2010 general election, of which your club played a major role, provided super majorities of Republicans in both the House and Senate.  With the support of Governor Bentley and that of my Republican colleagues, I am confident in the future for responsible budgeting for public education in Alabama.