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November 26, 2014

Study: Alabama’s revenue projection process should be more open

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Posted: Tuesday, August 12, 2014 5:32 pm | Updated: 11:51 pm, Tue Aug 12, 2014.

MONTGOMERY — Alabama would have less infighting over budgetary matters if the first stage of the budget process were more transparent, according to a study by a Washington think tank.

The nonprofit Center on Budget and Policy Priorities, which researches fiscal policies that affect low-income people, released a study last week on best practices in projecting state revenues — the first step any state takes in the creation of a budget. The study gave Alabama low marks, largely because the process isn't as open as it is in other states.

"A lack of openness reduces trust," said Elizabeth McNichol, an analyst for the center and author of the report. "It's inefficient. You may not be getting the best bang for your buck because of the lack of input."

Before lawmakers can write a state budget, they first have to come to an agreement on just how much money the state will have in the coming year. It's a tricky proposition, because swings in the economy can affect what the state takes in from sales and income tax.

Center for Budget and Policy Priorities
http://www.cbpp.org/cms/index.cfm?fa=view&id=4086

According to the CBPP, 28 states project that revenue through a consensus budgeting process, in which legislative officials, the governor's office and outside experts come together to hash out an agreed-upon revenue estimate before the budget debate begins.

The center gave states even higher marks if they take public input at the revenue projection meetings, post the results online in an easy-to-obtain form and revisit the projections while writing the budget.

McNichol said Florida has adopted most of those practices, holding open hearings on the projections and arriving at a consensus approach.

    Jim Zingale, former director of the Florida Department of Revenue, said the process reduces finger-pointing when projections turn out to be wrong.

“It doesn’t necessarily make your projections more accurate, but it does take the politics out of it,” he said.

Alabama doesn't do it that way. While the state hires outside experts to project revenue, lawmakers start the year with two separate budget projections — one from the governor's office and one from legislative staff.

When the Legislature convened in January, lawmakers were presented with two sets of numbers for the $1.8 billion General Fund, the smaller of the state's two budgets. Financial analysts in the office of Gov. Robert Bentley predicted a rise in General Fund revenues, while legislative staff predicted a drop — a difference of roughly $100 million.

Revenue projections can be a touchy subject in Alabama, where state agencies are accustomed to proration, the local custom of slashing budgets in mid-year if revenues fall short.

Economist Keivan Deravi, one of the state's revenue forecasters, said Alabama did have a consensus-style process until a few years ago.

"We had that process, but we broke down that process," said Deravi, a professor at Auburn University at Montgomery.

Lawmakers in 2011 passed a "rolling reserve" bill that places a cap on the state's school spending, based on revenue growth over the past 15 years. The goal was to end proration in the $5.9 billion Education Trust Fund budget, one of the two budgets the state maintains.

Deravi said that with the cap in place in education, the state simply stopped using the consensus approach in either budget.

"Out of the fear of proration we've gone to the extreme on the other side," Deravi said.

Two of the state's budget forecasters, however, say the state does still have a consensus approach to forecasting, even if it doesn’t involve public hearings.

"We're basically doing what they're suggesting, only not in a formal process," said Norris Green, director of the Legislative Fiscal Office, which produces the Legislature's budget projection.

Green said his office does keep in touch with the governor's fiscal office during the projection process. Lawmakers do reconcile the two budget projections in the early days of the legislative session, typically choosing a middle amount between the two projections, he said.

When the two estimates differ, he said, it's often because the governor has a plan to release state funds through executive power, putting them into the General Fund.

"There are a lot of things the executive branch can control that are hard for us to estimate," he said.

Bill Newton, director of the governor's budget office, said the study was "an attempt to solve a problem that doesn't exist." He said consensus revenue projection was created to help states where the fight over revenue projections takes over the legislative session, sometimes preventing a legislature from passing a budget during its regular session.

That hasn't happened in Alabama, Newton said.

"I'm completely underwhelmed by this study," he said.

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