Kirk Fulford Deputy Director LegislativeServices Agency Fiscal - - PowerPoint PPT Presentation

Kirk Fulford Deputy Director

LegislativeServices Agency Fiscal Division

October 25, 2017

Presentation Overview

 History of Education Trust Fund (ETF) Proration  FY 2017 ETF Appropriations  Condition of the ETF for FY 2017  ETF Revenues and Trends

 FY 2017 Receipts by Source  Comparison of FY 2017 Major Sources to FY 2016  Income and Sales Tax Historical Growth  Recent Trends

 FY 2018 ETF Appropriations Cap  Appropriations from the ETF for FY 2018  Estimated Condition of the ETF for FY 2018

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Balanced Budget Required

 Amendment 26 to the Alabama Constitution provides that no

warrants shall be withdrawn on the state treasury unless sufficient revenues are available.

 In such instances, any expenditures from funds (ETF or

General Fund) which have insufficient revenues shall be prorated so that only available revenues are expended.

 Once proration is declared by the Governor, state

expenditures from those funds are reduced across the board by the percentage necessary to balance the budget.

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ETF Proration Since 1992

 FY 1992: 3.0%  FY 2001: 6.2%  FY 2003: 4.4% (Reduced to 0% after transfer of approximately $180

million from Rainy Day Account/PPA)

 FY 2008: 6.5% (Reduced to 0% after transfer of approximately $439

million from PPA)

 FY 2009: 18.0% (Reduced to 11% after transfer of approximately

$437 million from Rainy Day Account)

 FY 2010: 9.5%  FY 2011: 3.0%

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ETF Proration Since 1992

 ETF Rolling Reserve Act

 Passed in 2011 – effective beginning in FY 2013  Placed a cap on annual appropriations from the ETF tied

to the percentage growth in recurring revenues to the ETF over the last 15 years

 Also, created an additional reserve fund, the Budget

Stabilization Fund, to access only in the event of proration

 No ETF proration since the Rolling Reserve Act

became effective

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The Education Trust Fund FY 2017 Appropriations Cap

FY 2015 Net Recurring Revenues $6,129,399,073 PLUS: Average growth for the 14 highest years out of the last 15 (3.90%) $239,046,564 PACT appropriation for FY 2017 $63,622,000 FY 2017 ETF Appropriations Cap $6,432,067,637

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Section 29-9-3(d), as amended

 If the average of the estimated available revenue certified

by the Finance Director and the Legislative Fiscal Officer pursuant to Amendment 803 is less than the fiscal year appropriation cap, the Legislature shall appropriate no more than the lesser amount of the average of the estimated available revenue or the fiscal year appropriation cap.

 The average of the estimated available revenue was

$6,327,000,000 so this became the maximum amount that could be appropriated from the ETF in FY 2017, excluding the beginning balance

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Condition of the ETF

FY 2016 and FY 2017

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FY 2016 FY 2017 Difference Beginning balance 2,567,160 5,041,468 2,474,308 Regular Receipts 6,106,888,061 6,327,327,215 220,439,154 Gross Sales Tax Transfer - Prepaid Affordable College Tuition (PACT)

• 33,952,000

33,952,000 TOTAL RECEIPTS 6,072,936,061 6,327,327,215 254,391,154 TOTAL AVAILABLE (beginning balance plus total receipts) 6,075,503,221 6,332,368,683 256,865,462 TOTAL ETF EXPENDITURES 5,959,521,088 6,332,041,468 372,520,380 ENDING BALANCE BEFORE REVERSIONS AND ADJUSTMENTS 115,982,133 327,215

• 115,654,918

Reversions and Adjustments 5,041,468 6,592,090 1,550,622 DISTRIBUTION OF ENDING BALANCE BEFORE REVERSIONS AND ADJUSTMENTS Budget Stabilization Fund 59,595,211 Advancement and Technology Fund 56,386,922

Budget Stabilization Fund

 Established by the ETF Rolling Reserve Act  A portion of any revenues deposited into the ETF in excess

• f the fiscal year appropriation cap for the immediately

preceding fiscal year are transferred to the Budget Stabilization Fund

 For FY 2015, up to 2% of the previous year’s ETF appropriations

($118,305,984)

 Thereafter, up to 1% of the previous year’s ETF appropriations

($59,595,211 in FY 2016) until the fund reaches 7.5% of the previous year’s ETF appropriations

 Total current balance of approximately $178 million

 Amounts in the Budget Stabilization Fund may be

withdrawn only to prevent proration in the ETF

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Advancement and Technology Fund

 Also, established by the ETF Rolling Reserve Act  Any funds remaining after the transfer to the Budget Stabilization Fund are

transferred to the Advancement and Technology Fund

 For FY 2016, the transfer was $56,386,922  No transfer for FY 2017

 Funds must be appropriated through an independent supplemental

appropriation bill for:



repairs and deferred maintenance of facilities;



for classroom instructional support;



for insuring facilities;



for transportation; and



for the acquisition or purchase of educational technology and equipment

 The annual appropriation of these funds is divided between the public

schools and institutions of higher education in accordance with the percentage split between these two sectors of education

 The supplemental appropriation bill to appropriate these funds did not

pass during the 2017 Regular Session (SB 307)

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Education Trust Fund Revenue Sources - FY 2017

Sales Tax $1.8 B 28.63% Use Tax $158.5 M 2.51% Income Tax $3.9 B… Utility Tax $388.0 M 6.13% Other $70.1 M 1.21%

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Total Receipts: $6.33 billion

FY 2017 vs. FY 2016 ETF Receipts

FY 2017 FY 2016

Total Net Receipts - $6.327

Billion

Total Growth % - 4.19% Gross Income Tax:

 Total – $4.666 Billion  Individual - $4.206 Billion  Corporate - $460 Million

 Gross Sales Tax – $2.27 Billion  Simplified Sellers Use - $6.55

Million

 Use Tax - $158.5 Million  Utility Tax - $388.0 Million Total Net Receipts - $6.073

Billion

Total Growth % - .41% Gross Income Tax:

 Total – $4.489 Billion  Individual - $4.072 Billion  Corporate - $417 Million

 Gross Sales Tax – $2.23 Billion  Simplified Sellers Use -

$280,000

 Use Tax - $156.8 Million  Utility Tax - $376.6 Million

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• 10.00%
• 5.00%

0.00% 5.00% 10.00% 15.00% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

% Change in Total Individual Income Tax Gross Receipts Since 1992

FY 2009

• 7.94%

FY 2002

• 1.55%

FY 2010

• 3.24%

FY 2014

• .04%

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• 15.00%
• 10.00%
• 5.00%

0.00% 5.00% 10.00% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 FY 2001

• 1.11%

FY 2009

• 9.86%

% Change in Sales Tax Gross Receipts Since 1992

Growth in ETF Recurring Revenues Since FY 1997

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• 15%
• 10%
• 5%

0% 5% 10% 15% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ETF Income Sales

FY 2001

• 1.11%

FY 2002

• 1.55%

FY 2009

• 7.94%

FY 2009

• 9.86%

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Individual Income Tax Components

 Withholding

 Largest individual income tax component and generally

reflects the strength of the economy because it largely comes from current wages (represents 79% of gross collections)

 Estimated Payments

 Taxpayers that reasonably expect to owe $500 or more

make estimated tax payments on their income not subject to withholding tax. This income often comes from investments

 Payments with returns  S-Corporation

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FY 2017 Individual Income Tax

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Withholding, $3,314,080,975, 79%

Estimates, $284,541,328, 7% Returns, $447,324,870, 10% S-Corp, $160,842,548, 4%

Total Gross Collections - $4.21 Billion

% Change in Withholdings Since 1992

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• 4.00%
• 2.00%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Growth in Alabama Withholding Payments After Recent Recessions

2001 Recession Great Recession

 Short recession lasting only

eight months (March- November 2001)

 Economy contracted for two

quarters

 Period of time between end

• f this recession and Great

Recession ~ 6 fiscal years (2002 – 2007)

 Average growth in Alabama

withholding payments during that period ~ 5.2%

 The longest recession period

since the 1929 Depression (December 2007 through June 2009)

 Economy contracted in five

quarters, including two quarters by more than 5 percent

 Now the longest recovery period

between recessions since World War II

 Average growth in Alabama

withholding payments during this period ~ 2.9%

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Possible Reasons for Slow Wage Growth

 Change in Labor Force  Underemployment  Fewer number of people employed  Real wages staying ahead of inflation  Flat productivity

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Recent Trends

 September 2017 Alabama unemployment rate – 3.8%  Down from 4.2% in August 2017  Lowest rate since April 2007

 Total number of employed people in September 2017 still

below April 2007 level

 April 2007 – 2,087,466  September 2017 – 2,068,594

Source: Alabama Department of Labor

 Withholding growth averaging > 7% since April 2017

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• 15.00%
• 10.00%
• 5.00%

0.00% 5.00% 10.00% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 FY 2001

• 1.11%

FY 2009

• 9.86%

% Change in Sales Tax Gross Receipts Since 1992

Growth in E-Commerce Sales

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Growth in Service Expenditures

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ETF Rolling Reserve Act FY 2018 Cap

FY 2016 Net Recurring Revenues $6,106,888,061 PLUS: Average growth for the 14 highest years out

• f the last 15 (4.05%)

$247,328,966 PACT appropriation for FY 2017 $62,783,000 FY 2018 ETF Appropriations Cap $6,417,000,027 ETF Appropriations for FY 2017 $6,327,000,000 Spending Difference: FY 2018 vs. FY 2017 $90,000,027

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Appropriation of Education Trust Fund FY 2018

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All Other 5.78% K-12 Program 68.83% University Education 19.65% Community College Education 5.74%

Total ETF: $6.42 billion

The Split

K-12: 73.05% Higher Education: 26.95%

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Condition of the ETF

FY 2017 and FY 2018

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FY 2017 FY 2018 Difference Beginning Balance 5,041,468 6,592,090 1,550,622 Regular Receipts 6,327,327,215 6,514,000,000 186,672,785 TOTAL RECEIPTS 6,327,327,215 6,514,000,000 186,672,782 TOTAL AVAILABLE (beginning balance plus total receipts) 6,332,368,683 6,520,592,090 188,223,407 TOTAL ETF EXPENDITURES 6,332,041,468 6,419,162,629 87,121,161 ENDING BALANCE BEFORE REVERSIONS AND ADJUSTMENTS 327,215 101,429,461 101,103,137 Reversions and Adjustments* 6,592,090

• 6,592,090

*A portion of the reversions from FY 2017 were reappropriated to certain agencies

pursuant to language in Act 2017-353.

DISTRIBUTION OF ENDING BALANCE BEFORE REVERSIONS AND ADJUSTMENTS Budget Stabilization Fund 63,320,415 63,320,415 Advancement and Technology Fund 38,109,046 38,109,046

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Q&A