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 2

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Balanced Budget Required  Amendment 26 to the Alabama Constitution provides that no warrants shall be withdrawn on the state treasury unless sufficient revenues are available.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. 4

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% 5

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 6

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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 8

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 9

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Condition of the ETF FY 2016 and FY 2017 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 59,595,211 Budget Stabilization Fund 56,386,922 Advancement and Technology Fund 11

Budget Stabilization Fund  Established by the ETF Rolling Reserve Act  A portion of any revenues deposited into the ETF in excess of 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 12

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) 13

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Education Trust Fund Revenue Sources - FY 2017 Total Receipts: Use Tax $6.33 billion $158.5 M 2.51% Sales Tax $1.8 B 28.63% Other Income Tax $70.1 M $3.9 B … 1.21% Utility Tax $388.0 M 6.13% 15

FY 2017 vs. FY 2016 ETF Receipts FY 2017 FY 2016  Total Net Receipts - $6.327  Total Net Receipts - $6.073 Billion Billion  Total Growth % - 4.19%  Total Growth % - .41%  Gross Income Tax:  Gross Income Tax:  Total – $4.666 Billion  Total – $4.489 Billion  Individual - $4.206 Billion  Individual - $4.072 Billion  Corporate - $460 Million  Corporate - $417 Million  Gross Sales Tax – $2.27 Billion  Gross Sales Tax – $2.23 Billion  Simplified Sellers Use - $6.55  Simplified Sellers Use - Million $280,000  Use Tax - $158.5 Million  Use Tax - $156.8 Million  Utility Tax - $388.0 Million  Utility Tax - $376.6 Million 16

% Change in Total Individual Income Tax Gross Receipts Since 1992 15.00% 10.00% 5.00% 0.00% 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 FY 2002 2014 FY 2010 -1.55% -.04% -3.24% -5.00% FY 2009 -7.94% -10.00% 17

% Change in Sales Tax Gross Receipts Since 1992 10.00% 5.00% 0.00% 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% -5.00% -10.00% FY 2009 -9.86% -15.00% 18

Growth in ETF Recurring Revenues Since FY 1997 15% 10% 5% 0% -5% FY 2002 FY 2001 -1.55% -1.11% -10% FY 2009 FY 2009 -7.94% -9.86% -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 19

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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 21

FY 2017 Individual Income Tax Returns, S-Corp, $447,324,870, $160,842,548, 10% 4% Estimates, $284,541,328, 7% Total Gross Withholding, Collections - $3,314,080,975, $4.21 Billion 79% 22

% Change in Withholdings Since 1992 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 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 -2.00% -4.00% 23

Growth in Alabama Withholding Payments After Recent Recessions Great Recession 2001 Recession  Short recession lasting only  The longest recession period eight months (March- since the 1929 Depression November 2001) (December 2007 through June 2009)  Economy contracted for two quarters  Economy contracted in five quarters, including two quarters  Period of time between end by more than 5 percent of this recession and Great Recession ~ 6 fiscal years  Now the longest recovery period (2002 – 2007) between recessions since World War II  Average growth in Alabama withholding payments during  Average growth in Alabama that period ~ 5.2% withholding payments during this period ~ 2.9% 24

Possible Reasons for Slow Wage Growth  Change in Labor Force  Underemployment  Fewer number of people employed  Real wages staying ahead of inflation  Flat productivity 25

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 26

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% Change in Sales Tax Gross Receipts Since 1992 10.00% 5.00% 0.00% 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% -5.00% -10.00% FY 2009 -9.86% -15.00% 28

Growth in E-Commerce Sales 29

Growth in Service Expenditures 30