In two previous columns, we have looked at the close-by example of a separate education budget, the state of Alabama’s two-budget system.
Some believe a separate education budget would insure that budget is protected from the ups and downs of the economy and the effects on revenues.
Turns out, there are drawbacks to that system that remind us every area is affected by economic downturns.
Alabama dedicates or earmarks several revenue sources to its separate education budget: Beer tax, hydroelectric tax, income tax, sales tax, use tax, and utility tax. By comparison, Georgia basically only earmarks lottery funds for HOPE and pre-K and a portion of motor fuel taxes for roads and bridges, totaling about 12 percent of revenues.
Alabama’s system – points to consider
1. While there is a separate budget which includes education in Alabama, that budget also includes other agencies for funding from the same pot. Other agencies funded include: Department of Children Services (Georgia’s DFCS), Department of Commerce (workforce development programs) and a marketing campaign for technical education. The FY15 Education Budget Act states that only 69 percent of budget funds go to K-12 systems.
2. To smooth out the ups and downs of revenue collections, Alabama created a separate reserve for education in 2002, where shortfalls can be prevented by drawing down reserves. The problem is, according to the law that created the reserve, any borrowing must be paid back within six years. Since 2003, the state has borrowed $1.06 billion from the reserve and has had to pay back those loans — presently owing $128 million. But repaying the reserve only takes away funds for current education needs and amounts to borrowing from the future for present operating expenses.
3. When revenues for education fall short of planned expenditures, Alabama’s governor cannot transfer funds from other sources, but instead, prorated cuts are made to all school systems. These cuts have occurred six times in Alabama over the past 13 years. In 2009 the legislature authorized an 18 percent prorated cut to education but covered only 11 percent out of the reserve.
4. Alabama’s separate education system does not keep up with the growth of enrollment in fast-growing systems. In 2011, Alabama passed the Education Rolling Reserve Act (ERRA). It provides an appropriations cap based on a 15 year average growth rate in revenues. Therefore, despite any changes in student growth, spending on education cannot go over the cap set by the ERRA.
5. Georgia, in contrast, funds concurrently increases in enrollment based on twice-a-year student counts, insuring growing systems are receiving increased FTE funding for new students. Maybe that is not as important in Alabama since the state only grew 156,000 in population from 2008-2013, less than a third of Georgia’s 500,000 growth. So Georgia, only twice the population of Alabama, grew over three times as fast during the same period.
6. Georgia has a robust capital outlay program funding in FY15, $269.4 million for school construction, costing $26.3 million in debt service. Alabama appears to offer little to local systems, the last bond sale about $80 million in Alabama’s capital outlay expenditures for schools. Recently, it appears a minimal amount of the separate education budget in Alabama is used for bond service for new construction where Georgia’s debt service is in addition to appropriated education funding.
7. While Georgia requires of local systems a 5 mill share, Alabama mandates a minimum 10 percent local funding investment by local systems to match their state appropriation.
8. Alabama’s separate education does not seem to result in increased expenditures for education over Georgia’s. Both states appear to appropriate 37-38 percent of total state funds to K-12 systems.
The bottom line is that when revenues go down, something has to give. Either spending has to go down to meet revenue levels, taxes have to be raised or some type of borrowing is used to make up the difference. Any payback required will subtract from future available revenue.
Georgia has chosen to live within its means and reduce spending across the board to meet revenue losses brought on by the economy. This approach has served the state well and is one of the main reasons the state has maintained it AAA bond rating even through the recession, a rating Alabama does not enjoy.
I may be reached at
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E-mail at Jack.Hill@senate.ga.gov
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