The Alabama Legislature began its budget hearings this week for the General Fund and the Education Trust Fund Budgets.

These hearings are conducted annually as the Governor and the Legislature plan their preparations for their respective budgets to be submitted to the House and Senate.

The members of the legislature heard from Henry Mabry, the Director of Finance for the Governor's office, and Joyce Bigbee, the Director of the Legislative Fiscal Office.

They spent their time reviewing the current budget expenditures and revenues and then projected in those same areas for the new fiscal year which will be the budgets we adopt in the forthcoming regular legislative session.

It is evident that many challenges lie before us regarding both the Education Trust Fund and the General Fund.

Revenue growth is expected to be lower in this fiscal year, and again in FY2002, than it was in the past fiscal year.

Since our economy is seemingly quite good, this prediction at first appears to be inconsistent with the economic news we see daily .

However, there are a number of factors which drive the Alabama budgets that are not necessarily part of a regular economic picture.

Alabama earmarks approximately 84% of its revenue for designated purposes.

All states earmark revenue to some extent, but no other state earmarks to the degree that Alabama does.

Earmarking can be very general or very specific.

For example, almost all state sales taxes are earmarked to the Education Trust Fund for educational purposes, while almost all income taxes are specifically designated for public school teachers' salaries.

The Alabama Constitution earmarks some taxes while others are statutorily earmarked.

Income taxes, gasoline taxes and three mills of the state ad valorem taxes are examples of constitutionally earmarked revenue.

In some cases, the rate and/or base of the tax also are

set in the Constitution.

Although purchasing of goods by the general public during the last fiscal year was stronger than the year before, much of the purchases made were through internet sales.

Alabama collects no sales tax on internet sales, therefore, this has a negative implication for receipts earmarked for the Education Trust Fund.

The national economy slowed down in the last quarter of 2000 and has not picked up during the first month of the new year.

It is, therefore, anticipated that revenue growth will be lower in this new budget year than either of the past three years.

An additional factor is the settlement of two major lawsuits by the state during the past fiscal year which will be paid beginning in the budget year that we are working on now.

One of the lawsuits involved the Mental Health Department and the other the State Highway Department.

Expenditures related to the departments affected by these lawsuits could cost over $100 million in the upcoming two budget years.

Other factors affecting the budgets for this fiscal year include significant growth in the prison population, which will force the state to provide additional resources for corrections, and the continued pressure from growing healthcare costs.

One bright note is the fact that the General Fund had a balance of $14 million at the end of the most recent fiscal year; that can be used in the funding of state services for the new budget.

It is not an easy task to put together a workable and acceptable budget, but this is one of the primary responsibilities of the legislature that will be given a priority upon convening on February 7.

Let me know if I can be of service to you in any way.

Remember "I'll go with you or I'll go for you" to help you solve any problem related to state government.