State Budget Practice Report Cards and Budget Resource Guide
Alabama’s efforts to avoid deficit spending helped it win B averages for fiscal 2015 through 2019 in budget maneuvers, reserve funds, and transparency, but did not prevent the state from earning lower grades in two other categories.
Alabama is among a handful of states that use two separately financed budgets for operating expenditures, a practice established in 1927. Its general fund is relatively small, supporting programs such as Medicaid, public health, and courts, and receiving about 20 percent of state tax revenue from sources including levies on oil and gas production and on cigarettes. Income and sales taxes flow into an education fund, which is over three times the size of the general fund. When revenues fall short of estimates in either area, the governor must cut spending in affected funds.
Over the five years studied, Alabama’s use of budget maneuvers—or one-time revenue or expenditure decisions—was modest for the education and general funds. The state’s B average in the category resulted from revenue shifts in 2015–18, including $146 million borrowed in 2015 from the Alabama Trust Fund, which captures revenues from sales of offshore drilling rights and royalties on natural gas production.
The state’s education rainy day and budget stabilization funds and its General Fund Rainy Day Account have disbursement and replenishment policies. The combined reserve totaled $848 million in 2019, equivalent to 9.7 percent of combined general fund and education expenditures. Even with the cash cushion, Alabama averaged a B in reserve funds, missing an A because it does not connect funding policies with historical revenue volatility.
In budget forecasting, Alabama was one of only three states averaging a D-minus, the lowest possible grade. The governor and legislature do not use the consensus method to establish revenue estimates; projections for revenues or expenditures fail to extend beyond the current budget; and information to explain revenue forecasts is lacking in budget documents.
To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.
The report cards found here contain grades of the state's budgetary practices during the fiscal years of 2015 through 2019. Each state received marks in five critical categories, based on their adherence to best practices in several key budgeting indicators. The five categories covered methods used to achieve budgetary balance as well as how budgets and other financial information are disclosed to the public.
States received grades of A to D-minus (there are no “failed states”) for their procedures in estimating revenues and expenditures; their use of one-time actions to balance budgets; how they oversee and use rainy day funds and other fiscal reserves; the adequacy of their funding of public worker retirement and other postemployment benefits; and the quality of transparency of budget and related financial information. The grades are based on research conducted by public finance and budgeting professors and students at eight US schools of public administration or policy. The universities’ research efforts were augmented by Volcker Alliance staff, data consultants at Municipal Market Analytics, and special project consultants Katherine Barrett and Richard Greene.
State Budget Sources
State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses is a resource published by the Volcker Alliance designed to help public officials, policy advocates, journalists, academics, and concerned citizens fully understand the critical fiscal decisions that governors and legislators must make. The guide includes the links below to budgets for this state as well as legislative analyses of budget bills and treasurers’ or comptrollers’ monthly state cash-flow statements; capital spending plans; reports on public-worker pension funding and returns; and reports by local and national fiscal research organizations, bond rating firms, and associations of state fiscal and finance officials.