Over the past month, there has been increased discussion amongst Alabama lawmakers about what state government should do with the historic $2 billion revenue surplus it amassed heading into fiscal year 2023. So far, the two main proposals have been using a fraction of the surplus to provide a one-time tax rebate to Alabamians or providing a rebate in combination with some form of targeted tax relief.
Much of the surplus would go back into government and not be used to provide generational tax relief to all citizens.
However, during a recent radio appearance on “The Jeff Poor Show,” Alabama state Sen. Garlan Gudger (R-Cullman) floated a different way to use the surplus. Gudger said that a portion of the record surplus should be used to pay off existing state debt and the remainder to “create a savings account.”
Unfortunately, the focus of Alabama lawmakers still seems to be on protecting government rather than bettering the lives of those who state government is bound to serve.
Gudger’s idea of using part of the surplus to pay off existing state debt has merit. It would save the state and Alabama taxpayers money in the long run. He should also be given credit for saying that it should not be spent on new or expanded government programs.
However, the notion that the state should use much of the surplus to create yet another “rainy day” account makes little sense. The state already has multiple rainy-day accounts that are brimming with cash. Even during the height of the COVID-19 pandemic, government had no need to use the funds. They have remained untouched since 2012.
Why would the state choose to store more money away to protect government from the threat of an economic turndown instead of helping citizens who are already struggling through one?
Senator Gudger went on to say that he thinks a savings account is “the right thing to do as you have a surplus, just like you’d do in your home.”
Certainly, if you have no savings and suddenly find yourself with a nearly 10 percent budget surplus, a smart thing to do would be to save some so that you can prepare your family for the unexpected. But that is vastly different from the situation that the state of Alabama finds itself in. It already has a massive amount of cash on reserve that will be able to weather all but a historically prolonged economic turndown.
Take the state’s two major reserve accounts as an example. Both the Education Trust Fund (ETF) and State General Fund (SGF) have rainy-day accounts that are funded by the Alabama Trust Fund, which receives revenues from the sale of offshore oil and gas drilling rights and the resulting royalties from production. As of June 2022, the Alabama Trust Fund had a balance of $3.35 billion.
Under the Alabama Constitution, up to 6.5% of the ETF’s prior year appropriation and up to 10% of the SGF’s prior year appropriation can be transferred into the rainy-day accounts if state government experiences a revenue shortfall. That translates into more than $850 million in reserves that would be accessible to the state in 2023. This amounts to an interest-free loan that state government can give to itself. Funds borrowed would have to be paid back over six to 10 years depending on the account.
In addition to the rainy-day accounts, both the ETF and SGF have additional reserve funds that can be accessed in the event of a revenue shortfall. In 2023, the state could temporarily borrow around $675 million from the ETF Budget Stabilization fund and at least $100 million from the SGF Budget Reserve Fund. Amounts borrowed from these funds must be paid back within 30 days of the end of the fiscal year in which they were borrowed.
All told, the state already has more than $1.5 billion in reserves, plus the $2 billion surplus, that it could access during 2023. That amount could be used to take fewer taxes from citizens and pay down existing debts, as well as leave the state well-prepared if an economic slowdown does occur.
I agree with Senator Gudger that the state should not be spending the $2 billion revenue surplus financed by citizens to grow government. But the idea of creating another savings account for the sole purpose of protecting government is similar. It assumes that government should never have to face any hardship.
At the very least, lawmakers want to ensure that they can continue spending your money at the current pace without even the threat of having to tighten government’s belt. Meanwhile, Alabama citizens are struggling with the very real impacts of inflation and rising prices on almost all essential items.
Government’s purpose is not to grow and protect government. It should be about providing essential services to citizens that the private sector cannot or will not provide. It should be about ensuring Alabamians’ individual freedoms and liberties so that they can prosper and strive for their version of the American Dream. Government should get out of the way and let that happen with as little interference as possible.
With the state sitting on more money than at any point in its history, why aren’t lawmakers committed to taking fewer taxes and providing permanent relief to Alabamians? They should be.
This article was published by the Alabama Policy Institute.
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