BRADENTON, Fla. — Moody's Investors Service said Monday that the Sept. 18 decision by Alabama voters to enable the state to draw funds from an endowment to prop up the 2013 budget is a credit negative.
The statewide ballot approved a constitutional amendment allowing state officials to transfer $146 million a year for three years from the Alabama Trust Fund.
The Trust Fund was created in 1985 to invest oil and gas revenues from lease payments from offshore oil and gas producers. It produces income for the two components that comprise the state budget - the general fund and the Education Trust Fund.
The special referendum ballot language said the transfers from the Alabama Trust Fund would "prevent the mass release of prisoners from Alabama prisons" and "protect critical health services to Alabama children, elderly, and mothers."
If the amendment had not passed, Gov. Robert Bentley would have been forced to make severe across-the-board budget cuts, a requirement that Alabama calls "proration."
"The general fund…needs this temporary funding bridge from the Alabama Trust Fund to maintain essential services as we continue to streamline and right-size government," Bentley said after the election. "I pledge to the people of this state that the funds transferred to help support critical state services will be paid back."
Moody's analyst Ted Hampton said the planned reimbursement of the Trust Fund, though not required by the amendment, could be difficult.
"The state's planned multi-year use of those funds signals that its structural budget imbalance will make it difficult to implement the intended repayment," Hampton said. "Inability to adopt a plan to return to structurally balanced general fund operations could negatively affect the state's rating."
Moody's rates the state's general obligation bonds Aa1 with a stable outlook while Standard & Poor's rates the bonds AA with a stable outlook.
Alabama had about $1 billion of outstanding GO bonds, including principal and interest, through 2036, according to the state's 2011 comprehensive annual financial report.
Hampton also said that a trend of liquidating investments in the Alabama Trust Fund to subsidize the state's general fund has lowered the value of the fund's invested assets and its ability to generate income.
The Trust Fund has returned an average of about 5% over the past five years, and its interest and dividend income is one of the largest revenue sources for the state's general fund.
"However, this income source has waned in recent years, falling to $84 million in fiscal 2011 from a peak of $113 million in fiscal 2007," Hampton said.
Invested assets have been depleted by about $600 million by prior-year borrowings from rainy day accounts that the state carved out of the Trust Fund for the general fund and the Education Trust Fund.
In 2009, the state drew $437.4 million from Alabama Trust Fund for the education budget that is required to be repaid in six years. The state's general fund owes about $162 million, which must be repaid within 10 years.
Hampton said another reason for declining assets in the Trust Fund in recent years was an amendment approved in 2000 that allowed the state to transfer 75% of its realized and unrealized gains on investments other than bonds.
Bentley, who took office in January 2011, said his administration has already cut $675 million in expenses and increased efficiency, and that his ultimate goal is to identify $1 billion in savings by the end of his first term.
After the election, Bentley said that stronger sources of revenue for the general fund have been identified without raising taxes, though he was not specific about what he intends to propose.