Alabama Gov. Robert Bentley last week signed a bill implementing "People's Trust Act" and establishing a payment plan for repaying $438 million it will borrow from the Alabama Trust Fund to prop up the state's general fund budget.
The state's voters approved a constitutional amendment last September allowing the transfer of $146 million a year for three years from the Trust Fund, which was created to invest offshore oil and gas lease payments to produce income for the state budget. Dipping into the Trust Fund principal was designed to prevent severe across-the-board budget cuts.
Moody's Investors Service said the state's planned multi-year use of the funds signaled that Alabama's structural budget imbalance would make it difficult to repay the debt.
"Inability to adopt a plan to return to structurally balanced general fund operations could negatively affect the state's rating," said Moody's, which rates the state's general obligation bonds Aa1. Standard & Poor's places an AA rating on the bonds.
House Bill 94, sponsored by Rep. Jay Love, R-Montgomery, implements a schedule of annual, back-loaded payments to the Trust Fund, from $5 million in September 2014 to $437.4 million in 2026.
If the Legislature fails to make annual appropriations, HB 94 provides for automatic appropriations to be made that are not subject to across-the-board budget cuts if the governor is required to implement them due to fewer than anticipated revenues.
"This bill sets up an automatic repayment and guarantees the money will be paid back on schedule," said Sen. Bryan Taylor, R-Prattville, who sponsored a similar measure in the Senate.
"This bill will control spending from the general fund because the Legislature can't spend the money set aside each year for repayment," he said. "The money goes back to the people's trust fund."