ALABAMA’S FUTURE CAN BE BRIGHT

(And not just in football)

A Report and Agenda from Reform Alabama 2013

HOW DID WE DO LAST YEAR?

Constitutional Reform

• First two Articles passed• Next three on schedule

Education Reform

• Only the accountability bill passed• (letter grade for all schools)• Failed on charter schools and digital learning

Campaign Finance Reform

• Bill did not pass but a new bill which incorporates most of the concepts should pass this year

Economic Development

• Governor’s #1 agenda item failed• Taxpayer’s Bill of Rights failed

Government Reorganization

No legislation, but Senator Marsh’s effort continues

SO, WHAT ABOUT THIS YEAR?

• We need to stay behind constitutional reform to keep it moving (I talk with Bob McCurley and Mike Waters regularly)

• We need to stay behind campaign finance reform to keep it moving (Ashley’s involvement)

• We need to follow up on implementation of education accountability bill (single letter grade)

But there are three big areas that will require a rethought/renewed effort

• #1. Economic Development

• #2. Education Reform

• #3. Government Reorganization

The Alabama Economy

• “The economic news is not good.” - Greg Canfield, Alabama Secretary of Commerce June 27, 2012 Economic Development Association of Alabama Summer Conference

• Alabama’s unemployment rate is down but only because 30-40,000 people have dropped out of the labor force

The Alabama Economy

• Alabama is only producing 1,000 jobs per month – must produce over 20,000 jobs a year to truly shrink unemployment Dr. Keivan Deravi, AUM June 25, 2012 EDAA Summer Conference

• Total Non-Farm payroll has increased by only 21,000 jobs or 1% over the last two years

The Alabama Economy

• The Alabama labor force has actually shrunk by 42,000 people during this time

-U. S. Bureau of Labor Statistics

• “But many Alabamians continue to need work. Combined, nearly 633,000 Alabamians are either unemployed or under employed . . . roughly one out of every four individuals in Alabama’s labor force.” - Al.com, Alex Walsh January 16, 2013

The Alabama Economy

• Known negative effects of long term unemployment

• The Shattered American Dream: Unemployed Workers Lose Ground, Hope and Faith in Their Futures, J. Golofsky, et al., Rutgers (December 2010)

• Alabama actually showed negative growth in its 2011 GDP - U. S. Bureau of Economic Analysis

The Alabama Economy

• Alabama’s economy is growing but at a slower rate than the slow national economy.Dr. Andrea Rauterkaus, UAB BBJ 2013 Forecast, January 9, 2013

• The Alabama economy was ranked the worst in the southeast in 2011 and 2012 -Federal Reserve Bank of Philadelphia

• “The number of jobs in Alabama has stabilized near Recession lows, Atlanta Fed says”

The Alabama Economy

• “Low incomes, lack of job growth put Alabama near bottom of new state-by-stay fiscal rankings”- Al.com, Alex Walsh November 13, 2012

• South Carolina beating Alabama on job growth - Al.com, Alex WalshNovember 20, 2012

The Alabama Economy

• “Russell Athletic Mill to start new year by laying off nearly half its workforce” - WSFA, January 7, 2013

• “Alabama loses more construction jobs in December” - Birmingham Business Journal, Ryan Poe, January 18, 2013

The Alabama Economy

• But, there is also some good news

• Manufacturing is improving, particularly automotive

• “It’s Official: Alabama Automakers Set Production Record in 2012,” Al.com, Dawn Kent, January 8, 2013

The Alabama Economy

• Tourism is making a comeback

• Airbus

• Philadelphia Fed thinks this year will be better for Alabama

The Alabama Economy

• Alabama’s economy will grow 1.9% in 2013, and add 12,000 jobs - Dr. Keivan Deravi, AUM BBJ 2013 Forecast, January 9, 2013

• Alabama’s economy will grow 1.7-1.9% in 2013 and add 18,500 jobs according to CBER - Birmingham Business Journal, Antrenise Cole, January 18, 2013

What we should focus on?

#1 Education, education, education (next section)

#2 Workforce Development (next section)

#3 Infrastructure Development

Action Item: New Funding Source for Roads and Bridges

#4 Economic Development – Accelerate

Alabama Strategic Plan January, 2012

The Alabama Economy

• “Recruitment, Retention, Renewal”

• Aerospace, automotive, agriculture, steel/metal, forestry, clericals, biosciences, IT, enabling technologies, distribution/ logistics, corporate operation

The Alabama Economy

• Action Item: Increased Funding for Department of Commerce and cash incentives

• Action Item: New statutory incentives

• Action Item: Taxpayer Bill of Rights

The Alabama Education System

The Alabama Education System

• 1499 Schools 132 Local school systems 741,057 Students 46,074 Teachers

• High school graduation rate: 72% (SREB average is 75%)

Alabama State Department of Education Quick Facts 2011-12

• Four year olds in state pre-school program: 4%

• While Alabama has made great strides on NAEP exam, particularly in reading, we still trail national averages in 4th and 8th grade reading and math

Alabama State Department of Education Quick Facts 2011-12

• 6-year college graduation rate: 47.5%

• College Remedial Education among Alabama public high school graduates: 35% 17.5% for 4 year colleges 50% for 2 year colleges. Most drop out after first year.

Alabama State Department of Education Quick Facts 2011-12

• A+ Education Partnership, The Case for an Education Investment Council in Alabama, August 2012

• The devastation of budget cut-backs: 2008-2013

What should we focus on?

• Action Item: Oppose taking money away from education to solve other budget issues

• Action Item: Oppose hurting teachers further with increased cost to them for benefits

• Action Item: Be creative and increase teacher compensation by 10% over time

What should we focus on?

• Action Item: Increase access to pre-school/increase ETF Funding over time

• Action Item: Insure 8th grade level proficiency before a child goes to high school

• Action Item: Increase graduation rate at high school level to 90% by 2020

What should we focus on?

• Action Item: Increase high school dual enrollment in technical programs to 50% of all high school students by increasing funding for same over time

• Action Item: Align curriculum and standards for college bound students to college level academics

What should we focus on?

• Action Item: Rethink funding to higher education: fund performance

• Action Item: Rethink school choice

The Alabama Budgets And The Need To Reorganize All Of State

Government

(All data from Legislative Fiscal Office, unless otherwise attributed)

Education Trust Fund (in billions)

FY ’08 FY ’09 FY ’10 FY ’11 FY ’12 FY ’13*

$6.7 $5.7 $5.2 $5.3 $5.6 $5.4

*(Actual projected revenue is 5.6 billion but Rolling Reserve Budget Act caps spending and the difference (@ $200 million) goes to pay down $437 million owed to the Rainy Day Account)

• Real spending is down $1.3 billion from FY ’08 high – 20% drop in revenue

• Assuming the current slow rate of economic recovery, it will be several years before ETF revenues climb back to FY ’08 levels.

• Meanwhile Pressure to raise education employee pay by 10% -- will cost $300 million

• Pension and health insurance costs go up• Difficult to rehire reduced personnel

The Alabama Education System

• Colleges and universities continue to raise tuition

• And economic development depends on significant upgrade of education

• So, as we seek to implement our education action items, we need to incrementally increase funding for them over time as the education budget repairs itself. PATIENCE.

The General Fund (in billions)

FY ’08 FY ’09 FY ’10 FY ’11 FY ’12 FY ’13

$1.8 $1.7 $1.5 $1.5 $1.9 $1.7

• While this appears to be only a $100 million decline from FY ’08, the FY ’12 and FY ’13 revenue numbers are artificially inflated by non-recurring revenues

• FY ’12: ATF and other one-time transfers - ………..$373 million

• FY ’13: More one time transfers, reallocation of 25% of the Use Tax ($68 million) and $146 million from the ATF as per recent constitutional amendment

The General Fund (in billions)

• General Fund revenues are not recovering from recession• Medicaid has doubled in cost to the General Fund in three

years and, in addition to prisons, now equals 55% of the General Fund, up from 35% ten years ago.

• No savings from Governor’s Medicaid Task Force before 2015 and in fact they have discovered they will need at least $30 million more for FY ’14 even with the second year of $147 million transfer from the ATF.

• Medicaid enrollment has grown from 750,000 to 900,000 people in just three years.- Anniston Star, January 7, 2013

• Not only will the money taken from the ATF not be paid back but Medicaid will continue to increase at a rate faster than the General Fund can grow. Medicaid and the prison system are on track to take up all General Fund revenue by the end of this decade.

• “You’re basically dealing with an impossible situation.” - Dr. Keivan Deravi - Anniston Star, January 7, 2013

Solutions

PUBLIC DOES NOT SUPPORT MORE TAXES.

• Action Item: Improve economy (reduces Medicaid enrollment)

• Action Item: Reform Medicaid – no, really reform it

• Action Item: Drive efficiencies through the other General Fund agencies

Solutions

• Public safety is underway but bigger savings will have to come from elimination of agencies, more consolidations, and greater administrative efficiency.

• This can be done. Senator Marsh’s process• Alternative to #1 and #2 is a gradual breakdown in

delivery of essential services, detrimental to the state.• Example: Mental Health (Reduced from $144

million in 2008 to $104 million this year, a 28% reduction)