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.



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