Legislators face tough session
Alabama legislators will face tough decisions when they convene in 2010, Speaker of the House Seth Hammett told local members of Civitan Friday.
Most of those decisions will relate to fallout from the national recession.
Alabama came into the recession late, Hammett said, “But when we got in it, we’re really in,” he said.
Formally, a recession is a downturn in the economy in which the gross domestic product (GDP) falls when compared to the previous month.
“This one started in December of 2007 to January of 2008 and continued until August of this year, or 20 consecutive months,” Hammett said.
“That’s the longest period of recession since the Great Depression,” he said.
The national economy marked eight-month recessions in 1990-91 and in 2000-2001, he said.
“Unemployment in the nation is 10.2 percent as of this morning,” he said, adding that when the recession began, Alabama’s unemployment was among the lowest in the nation
Hammett said economists say there are three kinds of recessions, including those in which the economy moves in a “u-shape,” falling, then slowly rising; a “v-shape,” in which the “bottom” doesn’t last long, and “l-shaped,” in which it falls and remains flat for a period of time.
“This one appears to me to be more l-shaped than u-shaped, he said.
While some national indicators show improvements, companies aren’t being quick to rehire the people they have laid off, he said.
“There are o real signs of the recession is over, no matter what the stock market is doing,” he said.
The downturn has had a “real impact” on state finances, he said.
As long as Alabama has tracked tax revenue, the sharpest decrease has been one-tenth of one percent,” he said. “This year our total state taxes are down 10 percent. These are really lean times.”
Because the legislature recognized that business runs in cycles and downturns would always be a part of the economy, they created a proration prevention fund.
Several years ago, voters also authorized the state to borrow from the Alabama Trust Fund, which is funded by oil and gas revenues, primarily from the Gulf.
From the proration prevention fund, the state was able to move $467 million to offset proration, while it borrowed $650 million against the $2.5 billion Alabama Trust Fund.
“No one expected a recession would last as long as this one has,” Hammett said.
Two years ago, the education budget was $6.7 billion. This year it will be $5.4 billion, or $1.3 billion less.
“The good news is that sales taxes appear to be improving as of the Oct. 1 fiscal year,” he said. “But it will take a while to grow our way back to where we were.”