Alabama Legislature

Lawmakers Pitch Reserve Account for General Fund

Alabama State House

Recent growth in Alabama’s General Fund revenues has some lawmakers wanting to save for future lean years.

A bill filed Thursday in the Alabama Senate would create the General Fund Budget Reserve Fund.

“Although we are currently enjoying the benefits of the longest period of growth that I am aware of, we will have an economic downturn – we always do,” Sen. Clyde Chambliss, R-Prattville, said. He’s sponsoring the legislation.

“Creating a reserve and planning for a rainy day is just good public policy. When we save for a rainy day, we will be better prepared when tough times come.”

Senate Bill 129 would annually deposit 20% of the ending balance in the General Fund from the previous year into the new fund. At the end of 2019, that ending balance was about $271 million.

According to Chambliss’ bill, the money could be accessed only under certain events.

First, if the governor signaled that proration will occur — when budgets are cut mid-year because revenues fall short of expectations.

Second, if the fund exceeded $50 million, lawmakers could vote to access the money to:

  • Offset a reduction in estimated revenues;

  • Fund state employee pay raises or bonuses;

  • Provide funding for unanticipated obligations.

The bill caps the reserve fund at $100 million.

Five years ago, the state was about $260 million “in the hole” with the General Fund, and it took two special sessions to pass a budget, Rep. Steve Clouse, R-Ozark, said. Now, lawmakers are looking at nearly $400 million in additional money in 2021 over 2020. That’s a combination of new revenue and money saved from previous years.

Clouse, who chairs the House Ways and Means General Fund Committee, credits discipline, a good economy and new online sales tax revenue for the better budget situation this session.

“And now it’s our responsibility to make sure we don’t go out and spend everything we’ve got,” Clouse said.

He called the reserve fund a “mini rolling reserve.”

In the education budget, the Rolling Reserve Act caps the amount spent on education each year based on a 15-year history of revenue. The act was passed to avoid proration for schools and education agencies in lean revenue years.

Warnings That An Economic Slowdown Is Inevitable

This week, during presentations on the state’s current budget situation, lawmakers were given a warning from state budget analysts: A slowdown is coming, plan accordingly and don’t create large expenses for future years.

Senate Minority Leader Bobby Singleton, D-Greensboro, hadn’t seen the bill Thursday but was aware of discussions about it. He said he’s cautious because the General Fund has only recently had sufficient revenue in it.

“At the end of the day, we have things in the General Fund that have gone unfunded for years and years,” Singleton said. “I’m willing to look at it and if it makes fiscal sense, see where we go with it.”

Rep. Kyle South, R-Fayette, is the vice-chair of the House General Fund budget committee. He’s in favor of creating the reserve, “to a reasonable amount.”

“We can’t get carried away with it because we have some great needs in the state,” South said.

In 2021, Medicaid will need an additional money of nearly $100 million, some of that for the state’s match for the federal Children’s Health Insurance Program for low-income youth. The Alabama Department of Corrections is seeking an additional $42 million to get more employees and improve health care in its crowded prisons.

Meanwhile, lawmakers and Gov. Kay Ivey this session are focusing some attention and money on mental health services in the state.

South points out that the General Fund’s revenue sources don’t fluctuate as much as the Education Trust Fund. That budget’s biggest revenue streams are income and sales taxes, which fall when the economy dips. In the General Fund, the main sources of money are more steady.

“Overall, I’m not for building up a huge savings account,” South said. “If we’re building up a huge savings account, we’re taxing people too much.”

Sen. Cam Ward, R-Alabaster, is in favor of the bill.

“It’s been discussed for years, but we’ve never had enough growth to make it work,” Ward said. “Anytime we have a downtick in the economy, Medicaid costs go up, and we’re always going to have prisons and mental health (costs).”