State voters to decide 2 rainy day funds

Published 1:44 pm Sunday, October 5, 2008

MONTGOMERY – Former Gov. Fob James, who started Alabama’s $3.4 billion trust fund with revenue from offshore natural gas leases, plans to vote against Amendment One in the election Nov. 4 because he feels it breaks a commitment to protect the public’s savings.

The amendment would allow state officials to use as much as $625 million — or about one-fifth of the trust fund — to plug budget holes. But the money would have to be repaid in future years.

“It’s dead wrong and I hope it won’t happen,” James said.

Gov. Bob Riley plans to vote for the measure because without it, he fears Alabama will have to cut programs that are helping improve public schools.

“We can’t sacrifice all we have done, especially in the rural schools, so someone can make a political point,” he said.

Many current officials, including the state finance director and state school superintendent, are joining the governor in supporting Amendment One. They see the proposed constitutional amendment as a way to prevent budget cuts for public schools and state services.

“It’s a real, real important issue for this state’s future,” Superintendent of Education Joe Morton said.

Amendment One would expand an existing “rainy day fund” for the state education budget and create one for the General Fund budget that provides non-school services. Money for the rainy day funds would come from the Alabama Trust Fund, begun by James with the natural gas revenues.

When tax collections fall below expectations, the governor could avoid making budget cuts by taking money out of the rainy day fund — up to $437 million for the education budget and $188 million for the General Fund. But the money would have to be paid back within six years for the education rainy day fund and 10 years for the General Fund side.

Riley sees the vote Nov. 4 as critical because the economic slowdown is endangering this year’s education budget.

“Just as our schools are making more progress than ever before, they’re threatened with cuts to the very programs we know are working to make our schools better,” including pre-kindergarten, the Alabama Reading Initiative, and distance learning, Riley said.

“But we can save our schools from these cuts by voting yes on the rainy day amendment,” he said.

Mac McArthur, executive director of the Alabama State Employees Association, said his group is supporting Amendment One. “It allows you to smooth out budget spikes where services are not interrupted for the public,” he said.

The state loses nothing, he said, because the Legislature must repay all money taken from the trust fund.

Paul Hubbert, executive secretary of the Alabama Education Association, said the teachers’ group has not taken a position. He said using the rainy day fund to balance this year’s education budget means new tax dollars in future years will have to be spent on repaying the rainy day fund rather than on public education.

“Amendment One is not free money,” he said.

State Sen. Scott Beason, R-Gardendale, was a co-sponsor of the proposed constitutional amendment when the Legislature approved it in May, but he voted against it on final passage.

Beason said he changed his mind when the Legislature approved an education budget for the new school year that was bigger than anticipated tax collections. Beason said he realized legislators were banking on Amendment One passing to accommodate their overspending.

“You don’t budget using your emergency money,” he said.

That emergency money got its start in 1982 in Fob James’s first term as governor.

Alabama had received a $449 million windfall from oil companies paying to lease natural gas drilling sites along the Alabama coast. Some officials wanted to spend the money, but James got Alabama voters to approve a constitutional amendment locking up the money in a trust fund. Earnings on the trust fund flow into the state General Fund budget to finance state troopers, prisons, Medicaid and other programs.

In 1984, Alabama leased more drilling sites and got $347 million from oil companies. Then-Gov. George C. Wallace got voters to agree to put that money into a trust fund, too.

The two trust funds were combined into the Alabama Trust Fund, and it has continued to grow by receiving the majority of the state’s natural gas royalties from wells drilled in coastal waters. The trust fund has grown into a savings account that few states can match.

Republican gubernatorial candidate Tim James, one of the former governor’s sons, is opposing Amendment One. He compares it to parents letting a teenager spend his college savings account before turning 18.

His father said he promised the voters in 1982 that their money would be protected, and that’s why he’s opposing Amendment One.

“This is breaking a commitment,” Fob James said.

State officials got voters to change that commitment somewhat six years ago.

In 2002, Alabama voters approved a constitutional amendment to create a rainy day fund for the education budget using the trust fund as the source of money. It can provide up to $248 million.

The Legislature also created a separate, temporary rainy day fund using extra money from years when tax collections exceeded expectations. That rainy day fund reached $440 million, but the governor had to empty it when the national economic slowdown curtailed state tax collections and Alabama needed the savings to balance the school budget for the fiscal year that ended Tuesday.

With the turmoil on Wall Street and Alabama’s unemployment higher than a year ago, the state school superintendent is worried that the new education budget that started Wednesday will exceed the state’s tax collections again and the existing rainy day fund of $248 million won’t be enough to balance it. That’s why Morton wants to expand the rainy day fund for the education budget.

Jim Main, Riley’s state finance director, said the new General Fund budget may exceed tax collections by $100 million and cuts totaling about 5 percent may be necessary without the passage of Amendment One.

In Main’s view the math is simple. Those kind of cuts would likely lead to fewer state troopers, and when the number of state troopers goes down, the highway death toll goes up.

“I don’t want to cut services,” he said.