New governor inherits huge financial problems

The Alabama Scene

Our new governor, Dr. Robert Bentley, took office this week with the daunting task of solving a leftover budget crises staring him directly in the face.
Gov. Bentley announced that the general fund and the education budget will be facing proration shortly. Bentley told education leaders that he is considering ordering across-the-board budget cuts soon after he takes office. “If we have to prorate the budgets it ought to be done now so it can be made up if revenues increase. I don’t want people to be under any illusion that things are great right now. They are not. We’ve spent every penny of every rainy day fund we have in education. We’ve basically spent every penny that we have had in the surplus we created for the general fund. In short we don’t have any money.”
The General Fund for non-education purposes is budgeted at $1.68 billion this fiscal year and the Education Trust Fund is budgeted to spend $5.5 billion.
The projected budget deficits are not the only problem for Alabama and other state governments. A new bill is coming due from the federal government, which will charge the states $1.3 billion in interest on the billions they have borrowed from Washington to pay unemployment benefits over the past several years.
The unemployment insurance system is in crisis due to a combination skyrocketing unemployment and – in some cases – poor planning, according to the investigative web site for journalists, ProPublica. A record 20 million Americans collected unemployment benefits last year; 30 states have run out of funds and have been forced to borrow from the Feds, raise taxes, or cut benefits. In many other states the situation is deteriorating rapidly.
Alabama is one of those 30 states with a bankrupt unemployment compensation fund and we owe the federal government $218 million in past due interest.  Here’s why there is a looming super crisis. Laid-off workers still get their unemployment pay when state funds default. States then borrow from the Feds. They’ve borrowed $30 billion already. That’ll go higher by mid-year, according to ProPublica, when another nine states run out of money.
Ultimately, the states have to pay the Feds back. Scott Pattison of the National Association of State Budget Officers says the states have only two choices: Raising the taxes on businesses to pay for the unemployment benefits, or lowering the available benefits.
The interest cost, which has been looming in plain sight but generally being ignored, represents only a sliver of the huge deficits most states will have to grapple with this year but it comes as states are already cutting services, laying off workers and raising taxes. It also portends a larger reckoning that many states will have to face before long: what to do about the borrowed funds federal officials say could rise to $80 billion.
When they borrowed the money, the states obviously hoped that the economy would turn around by the time the first interest payments came due, or that future Congresses might loosen the terms. But the economy did not turn around in time and the new Congress, dominated by Republicans determined to shrink the size of government, shows little appetite for increasing the federal deficit by bailing out the states.
Welcome aboard Dr. Bentley. We wish you well and hope you can solve some of the state’s problems, but it can’t be accomplished without new revenue and you’ve pledged no new taxes. Simply tightening belts won’t do the job. So where are you going to get the money?
Siegelman, Scrushy hearing approaches
A federal appeals court heard arguments Jan. 19 (by-the-way, that’s Robert E. Lee’s birthday) in the case against Don Siegelman and Richard Scrushy. The results weren’t known at presstime.
The 11th Circuit Court of Appeals scheduled oral arguments in Jacksonville, Fla. as the two are appealing their convictions. Siegelman and Scrushy were convicted of bribery and other charges in 2006. The 11th Circuit has turned down their appeals in the past, but the U.S. Supreme Court sent the case back because of recent rulings concerning federal bribery laws. Siegelman has been free on bond, but Scrushy is in prison, having finished a good portion of his sentence.

Bob Martin is editor and publisher of The Montgomery Independent. Email him at: bob@montgomeryindependent.com

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