BRADENTON, Fla. - As the Alabama Legislature resumed work on the 2016 state budget, Standard & Poor's warned that a structurally balanced plan is necessary to maintain the state's AA general obligation bond rating.
Gov. Robert Bentley called lawmakers to begin their second special session Tuesday, after failing to reach agreement on general fund spending last month in their first special session.
Bentley vetoed the GOP-passed budget that was approved during the regular session in June, saying that it would cut government services too deeply.
The 2016 budget is due by Oct. 1.
Legislators have disagreed with Bentley's proposals to adopt budget reform measures and raise $300 million in new revenue to bring structural balance to the general fund over the next few years.
Balancing the budget would be positive for the state given its reliance on one-time revenues over the past few fiscal years, Standard & Poor's said in a special comment Friday.
"In the long term, we believe it is important for Alabama to bring its revenues and expenditures into structural balance to maintain both a sound financial position and our current rating on the state," said analyst Eden Perry.
Alabama's state budget is divided into the general fund and the larger education trust fund, which already has been signed into law.
Each budget is supported by different taxes and fees, though state officials view the revenues supporting the ETF budget as less volatile.
Bentley has asked the Legislature in coming weeks to consider a series of measures aimed at stabilizing the general fund budget and increasing revenues.
The governor said he would push for redistribution of certain taxes distributed between the general fund and the ETF, as well as removing earmarks from certain taxes, and amending provisions governing the ETF's reserves.
Bentley is also asking lawmakers to increase revenues by amending business taxes, increasing cigarette taxes, and changing the formula that allows for individual income tax deductions.
"Over the last few months, I have met with House and Senate members to discuss options and ideas that would prevent devastating cuts to state services," Bentley said. "I look forward to working with lawmakers over the next few weeks to bring about real change in the way we fund state government moving forward."
If officials fail to pass a 2016 budget before the fiscal year begins, Alabama does not have a process for adopting a continuing resolution to fund government services.
However, provisions are in place to make upcoming debt service payments, S&P said.
"We understand that in the event an agreement is not made by Sept. 30, there will be significant financial repercussions throughout the state for the general government operations," Perry said. "In our view, given the state's 40-year history of passing budgets on time it is likely that the budget will be adopted."
S&P said it will continue to monitor the status of deliberations as Alabama works through its budget impasse during the special session.
Alabama's GO bonds are also rated AA-plus by Fitch Ratings and Aa1 by Moody's Investors Service. All ratings have stable outlooks.
