Issue: Budgets

Running in place was the emerging theme this week as Alabama lawmakers advanced state budgets that would provide little additional money for education, Medicaid, mental health care and other essential services. Both the Education Trust Fund (ETF) and General Fund (GF) budgets await further action when the Legislature returns from spring break on April 4.

The House voted 72-28 Tuesday to pass a GF budget that would lean heavily on one-time money to prevent deep cuts to Medicaid, mental health care, corrections and other vital services. The next day, the Senate’s education budget committee approved an ETF budget that would provide essentially flat funding for K-12 and universities. The Senate debated the budget Thursday, adopting several changes, but postponed a final vote on it until April. However, senators did pass a plan Thursday to allow the construction of several new men’s prisons in Alabama.

Federal health care changes could send state Medicaid, ALL Kids costs soaring

As in past years, Medicaid funding is a major concern for both legislators and advocates in the GF debate. A one-time infusion of $105 million from the state’s BP oil spill settlement will help prevent massive Medicaid cuts in both 2017 and 2018, but it is not a long-term funding solution for the program that insures more than one in five Alabamians – mostly children, seniors, and people with disabilities.

The House budget would allocate $701.4 million from the GF to Medicaid, $42.2 million short of Bentley’s request. The agency could keep providing basic services at that funding level but would have to “evaluate” its ability to proceed with regional care organization (RCO) reforms that would emphasize preventive care, Medicaid spokeswoman Robin Rawls told the Montgomery Advertiser last week. Alabama would give up $747 million in promised federal funds if it fails to complete RCO reforms by October 2017.

The House’s $1.84 billion GF budget would set aside $97 million as a buffer against potential major changes to federal health care programs like Medicaid and ALL Kids, but that still might not be enough to avoid a special session later this year. U.S. House leaders have proposed a per capita (or per-person) cap on federal Medicaid funding, which accounts for about 70 percent of Alabama Medicaid’s support. That change could force coverage cuts and leave the state on the hook for cost increases in the event of a sudden disease outbreak.

The future of ALL Kids is another major question mark. Congress must reauthorize the Children’s Health Insurance Program (CHIP), which supports ALL Kids in Alabama, by Sept. 30. The state didn’t have to put up any of its own money in 2016 or 2017 to support the ALL Kids program, which insures children whose low- and moderate-income families don’t qualify for Medicaid. But if Congress reverts to an earlier CHIP formula, Alabama once again would have to pay a share of ALL Kids’ cost. Medicaid and the Department of Public Health would need an additional $91 million to meet such a requirement.

Most state agencies would receive flat funding under the House budget, making it increasingly difficult for Alabama to meet changing needs in the face of growing costs and population increases. The Department of Public Health, for example, asked for a $4.6 million increase (not including ALL Kids funding) to help boost preparations for potential widespread epidemics like the Zika virus, or more localized epidemics like last year’s tuberculosis epidemic in Perry County. But the House’s 2018 GF budget would provide public health with exactly the same amount it received in 2017.

Other level-funded services would include mental health care, corrections and the Department of Human Resources, which oversees crucial services like child protection, child care and food assistance. Collectively, these three agencies had asked for an additional $125.8 million for 2018. The House budget also would not give state employees a raise, a point of deep contention throughout Tuesday’s debate.

Regular shortfalls for services like Medicaid, mental health care and child care are a common refrain. The GF relies on a hodgepodge of revenue sources, most of which grow slowly even in good economic times. That leaves the GF with a structural deficit, meaning revenue growth is not strong enough to keep pace with ordinary cost growth. Read The Alabama Tax & Budget Handbook for more on how this deficit came to be and how Alabama can end it.

Increases for pre-K, juvenile probation officers in otherwise relatively flat education budget

As with the GF, funding increases in Alabama’s education budget next year would be the exception, not the rule. The Senate’s education budget committee Wednesday approved a $6.42 billion ETF budget that would boost state education support by only 1.4 percent next year. The K-12 Foundation Program would see a $14.5 million increase, allowing schools to hire about 150 new teachers in grades 4-6. Operating budgets for two-year colleges and universities would receive flat funding.

The ETF’s small increase would not be spread evenly across all educational services. K-12 schools would receive just 0.36 percent more. But debt service, primarily for university construction projects, would increase by more than $10 million – a 42 percent jump in one year. State-funded college scholarships for many Alabama veterans and their families are projected to cost $26.5 million more in 2018 than in 2017 – a 40 percent increase. SB 315, sponsored by Sen. Gerald Dial, R-Lineville, would tighten eligibility requirements for those scholarships in an effort to reduce the state’s future obligations.

Sen. Vivian Figures, D-Mobile, was one of several senators concerned about growing debt service costs because, she said, it was not immediately clear which projects had incurred those debts. “I’m sure none of us pay bills at home when we don’t know what they are,” Figures said.

Pre-K and juvenile probation officers are two major services that would receive more ETF money. Pre-K, which enjoys broad bipartisan support at the Legislature, would get an extra $15 million, a 23 percent increase. The state also would boost funding for juvenile probation officers by 19 percent, providing an additional $1.25 million from the ETF and an extra $500,000 from the GF.

Pared-down prison construction plan clears Alabama Senate

The budgets themselves weren’t the only major budgetary news at the Legislature this week. The Senate passed a major milestone in its two-year prison construction debate when it voted 23-11 Thursday for a plan that would fund construction of up to three new men’s prisons. The bill now awaits House action.

SB 302, sponsored by Sen. Cam Ward, R-Alabaster, would allow local jurisdictions, such as counties or regional associations of counties, to bid to build prisons. Successful bidders would be allowed to issue bonds to build two or three prisons to Department of Corrections (DOC) specifications and then lease the prisons back to the DOC for 30 years. The state would gain ownership of the prisons at the end of the lease period. The state would close all but three existing men’s prisons, leaving six total.

The bill would allow the state to borrow up to $325 million to build one new prison and renovate others, including Julia Tutwiler Prison for Women in Wetumpka, but only if localities agreed to build at least two new prisons. Those numbers are down sharply from Ward’s original plan, which would have let Alabama borrow $800 million to build four new prisons.

Ward estimated that the additional prison space would allow Alabama to reduce the population of each prison to less than 150 percent of capacity and reduce DOC operating and personnel costs. That would free up funds for lease payments to local governments, he said.

Sen. Linda Coleman-Madison, D-Birmingham, argued strongly during floor debate that the state needed to build a new women’s prison, as Ward’s original plan would have. “There are only 800 women in Tutwiler, and they’re not rioting or attacking guards,” she said, accusing the Legislature of ignoring the needs of incarcerated women. “The foundation is crumbling. Water is leaking. There is nowhere to sit other than your bed.”

Ward agreed that Tutwiler needed replacement or major renovations. But he said the cost savings from closing it wouldn’t be enough to pay the lease on a new prison.

The Southern Poverty Law Center also has criticized Ward’s bill, saying it would not solve problems with staffing, overcrowding and mental health care access in Alabama prisons. The bill is not a wholesale solution to the state’s corrections issues but is a step in the right direction, Ward told AL.com.

By Carol Gundlach, policy analyst, and Chris Sanders, communications director. Posted March 16, 2017.

The state budget hearings that ended Tuesday made one thing clear: There’s still no long-term answer to Alabama’s budget woes. The state once again likely will use one-time money next year to delay hard decisions about how to provide sustainable funding for vital services like Medicaid, child care and mental health care. And even though funding for K-12 and higher education will grow slightly in 2018, Alabama still hasn’t restored education support to where it was before the Great Recession.

Sen. Trip Pittman, R-Montrose, who chairs the Senate’s General Fund (GF) budget committee, said Alabama isn’t collecting enough money to support essential services in the long term. “We’re going to need more revenue if we’re going to live up to the responsibilities of our state,” Pittman said.

One-time money shields Medicaid from massive cuts – for now

GF revenues will be essentially flat in 2018, despite the growing costs of services like Medicaid and corrections, according to Legislative Fiscal Office (LFO) projections. The GF, which supports non-education services in Alabama, will have $1.94 billion available next year, LFO Deputy Director Kirk Fulford said. That’s about $4 million less than this year’s funding level.

Alabama’s funding problems would be much larger if Medicaid weren’t receiving a one-time infusion of $105 million in BP oil spill settlement money in 2018. With that money unavailable for 2019, the state’s budget picture will be bleak without significant new revenue to support health care and other services.

GF revenue may not have grown, but the costs of the services it supports have. GF agencies asked for nearly $140 million more than they received in 2017, Fulford said.

The largest request was from Medicaid, which asked for an additional $63.5 million (for a total of $869 million) from the GF to maintain current services and move forward with regional care organization (RCO) reforms designed to save money and keep patients healthier by focusing on preventive care. Alabama’s return on those state dollars is significant: Medicaid insures more than 1 million Alabamians – mostly children, seniors, and people with disabilities – and nearly 70 percent of its funding comes from the federal government.

Medicaid Commissioner Stephanie Azar warned lawmakers that if enough money isn’t available to complete RCO reforms by October 2017, the federal government will withdraw the Medicaid waiver that allows the changes to move forward. That would end the RCO reforms and cost Alabama nearly $750 million in promised federal funds.

Gov. Robert Bentley’s proposed $1.924 billion GF budget would provide $23 million more for Medicaid and level funding for most other services. Bentley also has requested $19 million to give state employees a 4 percent cost of living increase.

ALL Kids’ uncertain fate could force special session; DHR, courts, ALEA all request more funding

The future of ALL Kids is another major question mark for the GF. Congress must reauthorize the Children’s Health Insurance Program (CHIP), which supports ALL Kids in Alabama, by Sept. 30. The state didn’t have to put up any of its own money in 2016 or 2017 to support the ALL Kids program, which insures children whose low- and moderate-income families don’t qualify for Medicaid. But if Congress reverts to an earlier CHIP formula, Alabama once again would have to pay a share of ALL Kids’ cost. Medicaid and the Department of Public Health would need an additional $91 million to meet such a requirement, Fulford said. That could force the Legislature to return for a special session later this year.

Unmet GF needs extend far beyond health care. The state court system requested $106 million, a $9 million increase, citing a $3 million shortfall for juvenile probation officers and a $1.2 million shortfall for trial courts. Without the increase, the state would have to lay off juvenile probation officers, acting Chief Justice Lyn Stuart said. Sen. Vivian Figures, D-Mobile, raised serious concerns that such layoffs could lead to more juveniles falling into the adult corrections system.

The Department of Human Resources (DHR), which oversees crucial services like child protection, child care and the Supplemental Nutrition Assistance Program (SNAP), sought an additional $15.7 million, according to the LFO. The Alabama Law Enforcement Agency (ALEA), which oversees state troopers, requested an extra $37.4 million in GF money to continue current services, while the Department of Corrections asked for another $13.8 million. Bentley’s proposal to issue $800 million in bonds to build four new “mega-prisons” is likely to be a contentious topic at the Legislature this year.

‘We’ve got to start doing a better job of doing our job’

Many legislators expressed concerns about the Department of Mental Health, noting that it is at risk of federal court intervention. Rep. John Knight, D-Montgomery, made a passionate case for the state to invest more in community-based mental health care. “We’ve got to start doing a better job of doing our job,” Knight said.

Sen. Linda Coleman-Madison, D-Birmingham, said the state’s lack of investment in mental health care means many Alabamians who need treatment end up in the corrections system instead. Coleman-Madison emphasized that prisons cannot be treated as a substitute for mental health care. “Locking people up is not the answer,” she said. “We’re better than this.”

Regular shortfalls for services like Medicaid, mental health care and child care are a common refrain: The GF relies on a hodgepodge of revenue sources, most of which grow slowly even in good economic times. That leaves the GF with a structural deficit, meaning revenue growth is not strong enough to keep pace with ordinary cost growth. Read The Alabama Tax & Budget Handbook for more on how this deficit came to be and how Alabama can end it.

State Finance Director Clinton Carter pointed to declining revenue from Alabama’s oil and gas leases in the Gulf of Mexico as one of the causes for stagnant GF revenue. Since 2006, royalties from these leases, which flow into the Alabama Trust Fund (ATF), have dropped by more than $325 million. Because interest from the ATF helps support the GF, declining ATF revenues mean less money for GF services.

Carter did highlight some good news for the GF, though. Two years ago, the Legislature allowed “remote sellers” (online sellers that don’t have a physical presence in Alabama) to collect state and local sales taxes voluntarily on sales to Alabamians in exchange for keeping a small share of the revenue. The GF has received more than $50 million from these collections since 2016, Carter said.

But Carter said all the new revenue that has come into the GF since 2010 has gone to only two agencies: Medicaid and corrections. If those agencies are excluded from the calculation, funding for the remaining GF agencies has been essentially flat over this period.

Bentley seeks pre-K boost in slow-growing education budget

The funding picture is slightly better for the Education Trust Fund (ETF), which receives most of its support from sales taxes and income taxes that increase as the economy grows. Pre-K programs are a high priority in Bentley’s proposed ETF budget, which includes a $20 million (or 30 percent) increase for them. Bentley would direct $4.4 billion to K-12 education, $1.6 billion for higher education and $366.8 million for other expenses (such as rehabilitation services for children) supported by the ETF.

Nearly $6.42 billion will be available to fund education next year, Fulford said. That’s about $90 million (or 1.4 percent) more than was available in 2017. Challenges to the education budget include higher health insurance and retirement costs, Fulford said, as well as an open-ended commitment to cover higher education costs for spouses and children of deceased or disabled Alabama veterans.

By Carol Gundlach, policy analyst, and Chris Sanders, communications director. Posted Feb. 9, 2017.

Alabama Medicaid is safe – for now. State lawmakers wrapped up their special session last week with a sigh of relief after approving a one-time solution to stop deep Medicaid cuts. The Legislature agreed to use BP oil spill settlement money to address Medicaid’s $85 million shortfall for 2017 and to give the program another $105 million in 2018.

HB 36, sponsored by Rep. Steve Clouse, R-Ozark, will reverse the 30 percent Medicaid payment cuts to pediatricians and other primary care doctors that had begun in August. The bill will allow Alabama to move forward with the Medicaid regional care organization (RCO) reforms that will emphasize preventive care in an effort to save the state money and keep patients healthier. The measure also will prevent Medicaid from having to cut outpatient dialysis, prescription drugs and other services next year.

The House on Sept. 7 voted 87-9 to approve the conference committee’s version of the bill. Later that day, the Senate passed it 22-8. This Associated Press story has more about the plan.

“We’re relieved that the Legislature pulled Alabama back from the brink of devastating Medicaid cuts that would have hurt more than 1 million people – mostly children, seniors, and people with disabilities,” Arise executive director Kimble Forrister said. “And we’re pleased to see lawmakers take steps to help shore up Medicaid funding for the next two years. But vulnerable Alabamians’ access to health care shouldn’t be left up to stopgaps or one-time money.”

BP bill was a short-term answer to a long-term problem

The bottom line is that HB 36 is yet another temporary solution. Lawmakers uttered the phrase “kick the can down the road” many times while debating the plan, and with good reason. The bill represents another missed opportunity for the Legislature to meet Medicaid’s need for a permanent, stable source of revenue that can meet the needs of a growing population.

Fortunately, the bill includes some modest relief for the General Fund (GF) budget. Lawmakers freed up a projected $35.2 million a year on average through 2026 for Medicaid and other GF services. That is the result of using most of the BP settlement funds to repay the Alabama Trust Fund (ATF) for money borrowed to prevent GF cuts in recent years. (The ATF receives royalties from oil and gas drilling off Alabama’s shores.) The bill also gives the state longer to repay ATF money borrowed in 2013-15, extending that deadline from 2026 to 2033. Those moves should ease pressure on the GF budget over the next decade, but they are still nowhere close to an adequate solution to Alabama’s recurring GF shortfalls.

The GF supports vital services like health care, child care, corrections and public safety in Alabama. The budget relies on a hodgepodge of revenue sources, most of which grow slowly even in good economic times. That leaves the GF with a structural deficit, meaning revenue growth is not strong enough to keep pace with ordinary cost growth. Read The Alabama Tax & Budget Handbook for more on how this deficit came to be and how Alabama can end it.

The GF’s recurring shortfalls have dire implications for Medicaid, which is the backbone of Alabama’s health care system. Medicaid provides vital health coverage for more than one in five Alabamians – mostly children, seniors, and people with disabilities – and helps many rural hospitals and clinics keep their doors open.

“Medicaid is essential to the hospitals and clinics on which we all rely,” Forrister said. “Putting our state’s health care infrastructure at risk is no way to build a stronger Alabama. Neither is lurching from one crisis to another because of a repeated failure to solve the General Fund’s long-term shortfall.”

Alabama needs a lasting funding solution for Medicaid, and there is a strong economic and financial case that the solution should include Medicaid expansion. Closing the coverage gap for working adults and college students would mean a healthier, more productive workforce. It would mean thousands of new jobs across Alabama. And it would mean big savings for the state on mental health care and other services. Click here to read Arise’s fact sheet on how Medicaid expansion would benefit Alabama’s health, economy and budgets.

Lottery proposal dies, returns to life, then dies again

Alabama’s latest Medicaid funding crisis began in April when the Legislature enacted a GF budget that left Medicaid $85 million short of the amount needed to maintain current services. That move prompted public outcry and motivated the #IamMedicaid social media campaign that Alabama Children First launched with Arise’s support in April to help show the human faces behind the Medicaid debate. Responding to pressure from the public, advocates and health care providers, Gov. Robert Bentley called the Legislature into special session in August to consider two possible solutions to the Medicaid crisis.

Bentley’s proposed long-term answer was a state lottery with proceeds dedicated to Medicaid. (Arise takes no position for or against a state lottery, but no lottery plan would have generated revenue in time to stop the 2017 Medicaid cuts.) As a short-term measure until lottery revenue became available, Bentley proposed a bond issue against the state’s BP oil spill settlement, freeing up state dollars for Medicaid in 2017. Clouse, who chairs the House GF budget committee, had proposed a similar measure during the regular session.

The two plans met drastically different fates. By the slimmest of margins, the Senate passed a proposed constitutional amendment to establish a lottery. After a rollercoaster debate, dozens of proposed amendments and reconsideration of an initial vote against the plan, the House sent the lottery back to the Senate either to approve or refer to a conference committee. Instead, the Senate effectively voted to kill the lottery after passing one only a few days earlier. Disagreement over whether to allow casino-type games at dog tracks and other facilities led to a three-way deadlock among pro-lottery, anti-lottery and pro-casino senators, losing the lottery the supermajority of votes it needed for Senate passage.

Legislature passes BP bill to stop Medicaid cuts after touch-and-go debate

With the lottery dead, the Legislature’s only remaining option was to pass short-term funding for Medicaid during the final days of the special session. The result was a complicated bond issue guaranteed by proceeds from the BP oil spill settlement. By issuing bonds instead of accepting periodic payments from BP, Alabama could pay off state debts and create savings that would help fund Medicaid in 2017 and subsequent years.

The original House-passed bill would have given Medicaid an additional $70 million in 2017. Medicaid supporters in the Senate insisted on longer-term support and full Medicaid funding for 2017. Eventually, both chambers approved a conference committee report that provided Medicaid with the $85 million needed to avoid cuts in 2017, as well as $105 million in 2018.

In addition, the BP bill will support $120 million of road projects in Mobile and Baldwin counties and repay $400 million that the state borrowed in past years from the ATF. Legislators engaged in extensive and often heated debate over how much of the state’s BP settlement money should go to the coastal areas most deeply hurt by the 2010 oil spill. The debate broke largely along regional lines, with many north Alabama lawmakers arguing for more debt repayment and many south Alabama legislators seeking more investment in the Mobile area.

What’s next for Medicaid in Alabama?

Alabama Medicaid’s imminent funding crisis is over, but much work remains to ensure a strong future for our state’s health care system. Revenue from the BP bill should help Medicaid avoid further cuts in 2017 and will reduce the program’s projected shortfall in 2018. But when the Legislature returns in February, Medicaid funding for 2019 and beyond still will be uncertain.

Arise will continue to push for Medicaid expansion and permanent, adequate and stable tax revenue to help secure health coverage for children, seniors, people with disabilities, and working families across Alabama. “Closing the coverage gap for working people and college students would keep folks healthier, create thousands of jobs, and save the state millions of dollars on mental health care and other services,” Forrister said. “Expanding Medicaid would be a victory for Alabama’s economy, budgets and families.”

By Carol Gundlach, policy analyst, and Chris Sanders, communications director. Posted Sept. 15, 2016.