Alabama Senate Set to Vote Today on Budget: How the General Fund Budget will be Balanced
The FY2015 General Fund Budget was $1.8 billion. With FY2016 revenue projections showing a $200 million decrease, the Legislature has struggled through the 2015 Regular Session and two special sessions to cut or tax their way to a balanced budget. Here is a brief overview of what will likely be finalized today:
• Transfer of $80 million in Use Tax from Education Trust Fund to General Fund
› Currently, the Education Trust Fund receives 75% of Use Tax Revenues and the General Fund receives 25%. The Use Tax generated roughly $300 million in FY2014.
› The bill to transfer money sets the new distribution proportions at 47% to the Education Trust Fund and 53% to the General Fund, which equals $80 million for FY2016. This bill will become effective on October 1. It is a permanent redistribution, not a one-time transfer.
› The Use Tax is a growth tax, so through this transfer, the General Fund gains some much-needed growth as it otherwise relies on revenue streams that return static revenues.
• Cigarette tax increase of $.25 per pack (for a new rate of $.675 per pack) expected to generate $66 million per year to be earmarked for Medicaid. This bill passed by a vote of 21-13. Six Democrats and Seven Republicans opposed the measure.
› The Cigarette Tax currently generates about $100 million a year from taxing tobacco products.
› This revenue stream has declined every year for at least the past five years. It now currently accounts for 5.7% of total general fund receipts.
› This increase passed the House by a vote of 52-46 and the Senate by a vote of 21-13.
• Pharmacy Provider Tax
› Raises privilege tax on each prescription filled by $.15 with an increase in the Medicaid dispensing fee paid to participating pharmacies.
› According to LFO, this provider tax increase would raise $13 million. The State of Alabama would then pay out $5.8 million back to participating pharmacies, with a net to Medicaid of $8 million.
› Much of the debate surrounding the provider tax increase focused on the fact that providers were on board with this increase; and further, that they would not be able to pass these costs to consumers.
› This bill passed the House by a vote of 53-38 and the Senate by a vote of 19-13.
• Nursing Home Provider Tax
› Raising the provider tax on nursing homes by $401.28 per bed.
› For the bill to take effect, an appropriation of $685 million must be made to Medicaid in the FY2016 General Fund Budget.
› According to LFO, the state will receive a revenue increase of $10.4 million. It will then reimburse nursing homes $2.1 million, with a net to Medicaid of $8.3 million.
› This bill passed the House by a vote of 53-41 and the Senate by a vote of 20-11.
A Note on Provider Taxes:
• Alabama receives provider fees from hospitals, nursing homes, pharmacies, etc. That money is designated for the state’s Medicaid program. The federal government matches the money collected from providers to a certain percentage.
• Provider taxes have been viewed by many in Congress as a loophole that must be closed, as states are allowed to manipulate the Medicaid system to increase the federal match while actually decreasing state spending on Medicaid.
• The National Commission on Fiscal Responsibility and Reform, created by President Obama, recommended that the President restrict or prohibit Medicaid provider taxes calling them a “Medicaid tax gimmick.
• The free market American Enterprise Institute has called provider taxes “a distortionary but legal means by which a state can artificially inflate medical costs to extract additional Medicaid funding from the federal government.”
The Governor could receive the General Fund Budget as early as today. Roughly $166 million in new revenue will go to the General Fund as a result of these measures. Agencies such as Medicaid, Corrections, and Mental Health will be level-funded. Other agencies will see some cuts, as needed to balance the budget. These cuts will be sharply reduced from the across-the-board cuts proposed in the regular and first special session.