Dr. Spencer D. Stone

A little bit on Education Finance in Alabama

After my hiatus of last week, I am happy to be back and writing.  I thought that I should start this week with a recap of how education finances work in Alabama.  The following information comes from two wonderful professors who I had the privilege to study under at The University of Alabama – Dr. Brenda Mendiola and Dr. Philip Westbrook.  This article is part of a 50 state recap of the year’s educational finance news and includes subjects such as changes to the funding formulas and changes in funding sources.

FUNDING PRIORITIES FOR P-12 AND/OR HIGHER EDUCATION

Alabama’s Education Trust Fund (ETF), one of two state budgets, continued to increase as revenue dedicated to public education spending demonstrated slow but steady growth. Alabama earmarks revenue directly to the ETF rather than allow discretion to the legislature to decide how to distribute revenue amongst other state expenditures. Alabama has operated with two state budgets – one for education (the Education Trust Fund) and one for everything else (the General Fund) – since the 1940s. Alabama citizens have a long history of distrust of the state legislature in part because the 1901 Alabama Constitution, which is commonly believed to be the longest constitution in the world and is amended almost on an annual basis, was designed to prohibit local control or “home rule” by counties and municipalities. Citizens have traditionally only approved tax increases that are earmarked, or directly linked, to a specific expenditure. While education in Alabama is funded at a much lower level than in the majority of other states, it has fared much better in generating public support in Alabama than prisons, roads, mental health, Medicare, and many other government services funded through the General Budget. Those who defend the two state budget anomaly are quick to point out that education would be in a much more difficult predicament without having its own earmarked stream of dedicated revenue. Each year the pressure on the state legislature to do more with limited resources provides a challenge as the two state budgets are passed.

PRESSING STATE ISSUES AFFECTING P-12 AND/OR HIGHER EDUCATION FUNDING

Two issues greatly impacting P-12 and higher education funding in Alabama are insurance and retirement funding for employees. Alabama provides the Public Education Employee’s Health Insurance Plan (PEEHIP) that covers all employees of P-12, community colleges, certain four-year colleges, and all education retirees. As in most of the country, health care costs are increasing due to a variety of factors including increased expenses for pharmaceuticals and health care services, increased utilization of health care, and longer life expectancies. PEEHIP consumes a large portion of the ETF and consistently grows at a rate faster than ETF revenue. In 2008 the cost of PEEHIP coverage was $936 million but has grown to almost $1.5 billion in 2017 – an increase of over 50%.1 In 2017, the legislature allocated $800 per month per employee to fund PEEHIP. This is in addition to the premiums and copays of participants. In 2017 the PEEHIP Board, which is responsible for establishing premiums and ensuring the financial solvency of the plan, implemented “spousal surcharge” of $100 per month to include a spouse on a family plan. This was a painful hit on the pocketbooks of employees since it was, essentially, a $1,200 annual rate increase on family policy premiums for those with a spouse. Education employees earning under $75,000 per year were granted a 4% pay increase – the first one for many since the 2008 financial recession. The premium increase left many with a decline in take-home pay even after the raise. The Alabama Education Association (AEA) attempted to block the increase by filing a lawsuit against the PEEHIP Board arguing that the board had violated the state’s Open Meetings Act. The trial judge granted summary judgement to AEA and instructed that the $100 per month spousal surcharge be refunded to PEEHIP members. However, the PEEHIP board, which is composed of 15 members including 12 elected by PEEHIP participants, is currently appealing the case to the Alabama Supreme Court. The Court has put a hold on returning the premiums until the time they review the district court ruling. The PEEHIP board argues that the increase is necessary to keep the PEEHIP solvent.2

Participation in Alabama’s Teachers’ Retirement System, whose name is misleading because it is the state-managed retirement system for all public education employees, is mandatory for all public education employees. Employees are required by state law to contribute 7.5% of their income to the plan, and the legislature determines the state contributions to the plan based on actuary recommendations to keep the plan soundly funded. Starting in 2017-2018, employers will contribute 12.24% to the plan, an increase of 0.23% from the prior year.

EXCLUSIVE TO P-12: FORCES DIVERTING FUNDS FROM TRADITIONAL PUBLIC SCHOOL DISTRICTS

Alabama has been very slow to enact charter school legislation, with the first charter school legislation not passed until 2015. With 137 local school districts operating in the state, there has been an increased interest in small municipalities breaking off from larger districts to form their own school districts. The first charter school opened in Mobile in 2017, and additional charters have been approved but yet to open, including a unique public charter school scheduled to open in August 2018 in affiliation with The University of West Alabama, a public university located in Sumter County, a rural county in the Black Belt Region. Sumter County has 1,600 students enrolled in the largely low income and almost entirely black public school district. However, more than 900 students attend private schools, and the majority of these students are white. Critics have noted the irony of the timing in that the largest private school in Sumter County, Sumter Academy – which was established in 1970 and one of many Christian Academies established following the federal desegregation orders in the years after Brown v. Board of Education – announced it will be closing its doors.3

THE NUMBERS

  • • Total State spending budgeted for P-12 for 2017-2018 is $4,236,644,744, for an increase of $28,429,765, which is a much smaller increase than the prior year.
  • • Average Daily Membership continued to decrease during 2017 to 734,118, from 734,870 the prior year.
  • • The 2018 ETF budget is $6,417,000,027, which is an increase of $90,000,027, or about 1.5% from the prior year. The K-12 portion of the ETF budget is approximately 69%, which is consistent with the prior year.4 
Footnotes & References
Footnotes
References>
  1. http://www.rsa-al.gov/uploads/files/Advisor_June_16_web.pdf.
  2. http://www.al.com/news/index.ssf/2017/09/alabama_supreme_court_puts_hol.html.
  3. http://www.al.com/news/index.ssf/2017/06/alabama_commission_approves_tw.html
  4. https://www.alsde.edu/Documents/ETF%20FY%202018%20Conf%20Cmte.pdf.

Westbrook, P., & Mendiola, B. (2018). Alabama. Journal Of Education Finance, (3), 220.

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