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‘Lost revenue’ could be used in prison fix

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Alabama fiscal leaders should soon know how much of the state’s federal COVID-19 relief funds can replace lost revenue, and potentially fund new prisons.

In the $2.1 billion fiscal recovery fund the state of Alabama will receive from the American Rescue Plan Act, a certain portion will be deemed replacement for revenue the state would have collected through normal business had there not been a pandemic.

The U.S. Treasury Department set up a formula for calculating that amount of projected revenue that includes looking at the previous three year’s revenue growth. Any drop in that growth in 2020 could be considered lost revenue.

“We’re going through the exercise now, the math to calculate that,” Kelly Butler, Alabama’s finance director, told Alabama Daily News.

The calculations are complicated, Butler said, because all state revenues have to be factored, not just those that flow to the education and General Fund budgets.

“Things like university tuition revenue count, so we had to reach out to all the public universities and ask them to send that to us,” Butler said. “This is the reason it's taking a while to get through the calculation.”

He didn’t give an estimate on the amount, but said a figure should be available soon and it would be significant.

The revenue replacement pot of money is of particular interest to many in Montgomery because it will have fewer restrictions on spending than the rest of that $2.1 billion recovery fund. How it’s spent will be up to Gov. Kay Ivey and lawmakers.

“The biggest thing about the lost revenue and why it's important to go through the exercise of calculating is its allowable uses," Butler said. "The strings attached on what you can use the money for mostly go away if it’s deemed to be lost revenue."

There are a few exceptions, he said. It can’t be used in pension funds or to cut taxes.

Earlier this year, Ivey’s plan to lease new prisons fell apart. Some lawmakers had become increasingly outspoken against that plan and its expected price tag of about $3 billion over 30 years. They suggested a bond issue and state-built and owned prisons. More recently legislative budget leads have said federal relief money, particularly the revenue replacement funds, should be used to build new or improve existing prisons.

“We see that as a source similar to General Fund money that we could have as a resource to use to attack this prison problem,” Sen. Greg Albritton, R-Range, said. He’s the Senate General Fund budget committee chairman.

He said he’s seen a few estimates on the lost revenue amount.

“No number has been small, we’re talking about potentially hundreds of millions of dollars,” Albritton said.

Albritton said that while leaders are still waiting for a final amount of COVID relief money that could be spent on prisons, plans to fix the crowded, failing sites are ongoing. He’s been in multiple meetings with ADOC and Ivey team members this summer. Another had been planned for Thursday.

Albritton said not to expect Ivey to call a special session on prisons until she’s guaranteed the votes to approve a construction and borrowing plan.

“I think it's clear that construction is part of the answer,” he said. “I think it's clear that renovation and purchase and use of existing facilities, all of those are going to have to be done, the timelines are pretty well known, the costs are fairly well known at this point. And so we have pieces of the puzzle already in hand.

“…But we’ve got to get the consensus on some of the specifics and we’ve got to get the legislation prepared.”

House General Fund budget committee chairman Rep. Steve Clouse, R-Ozark, has also been involved in recent prison plan conversations.

“We continue to talk about a bond issue, but any amount of money that we were able to use from this Rescue Plan money would help decrease the amount of payments that we would have to make over the next 30 years, so it would certainly be beneficial.”

Clouse said there is still a possibility of a special session on prisons and recovery fund allocations.

The Alabama Department of Corrections asked the U.S. Department of Treasury if new prisons are a potential use for relief funds.

“Gov. Ivey is certainly interested in that option if it is viable, and she continues to have good conversations with legislators on how we can move this forward and find solutions,” spokeswoman Gina Maiola said this week.

She also said "all options are on the table" when asked about a special session on prisons and relief money allocations.

Butler said his office has been involved in some of the prison infrastructure funding conversations, including the possibility of using revenue replacement funds.

“If it’s a way to help the prison problem without having to use state dollars, that’s not a bad thing,” Butler said.

The state has received half of its relief funds — the other half will come next year — and the next step is allocation by the Legislature, much like the regular state budgeting process. Separate from the $2.1 billion for the state in the Rescue Plan is a $192 million capital projects fund.

The state will have until December 2024 to obligate the relief funds and until December 2026 to spend them.

“We have time to take a breath and for better planning,” Butler said.

Albritton said for management and accountability, the revenue replacement money will likely be kept in a separate account.

“But it will be used as General Fund money, in my opinion,” Albritton said. He’s specific about the General Fund and said education entities in the state have received directly other COVID recovery funds. Those total more than $4 billion.

Meanwhile, most of the federally suggested uses for the relief money fall within the General Fund and most states only have one budget.

“The biggest factor that we have got to consider is not who is asking for the money —everyone is asking for it,” Albritton said. “The biggest thing is trying to figure out what is our best use long term for these temporary resources.”