NEW ISSUE - BOOK ENTRY ONLY RATINGS: See "Ratings" herein
In the opinion of Bond Counsel, under existing law and assuming the accuracy of certain representations by the
Authority and compliance by the Authority with certain covenants described herein under the caption "TAX
MATTERS", interest on the Bonds is excludable from gross income for federal income tax purposes and is not an
item of tax preference for purposes of the federal alternative minimum tax. For a more complete discussion of
other tax matters, see the discussion under the heading "TAX MATTERS" herein. In the opinion of Bond Counsel,
under existing law, interest on the Bonds is exempt from State of Alabama income taxation.
ALABAMA PUBLIC SCHOOL AND COLLEGE AUTHORITY
$80,065,000
Capital Improvement Pool Refunding Bonds
Series 2014-A
Dated: Date of Delivery Due: February 1, as shown on the inside cover hereof
FOR MATURITY SCHEDULE, INTEREST RATES, YIELDS
AND CUSIP NUMBERS, SEE INSIDE COVER
Interest on the above-referenced bonds (herein called, the "Bonds") will be payable on February 1 and August 1 in
each year, commencing August 1, 2014. The Bonds will be issued as fully registered bonds and, when issued, will
be fully registered in the name of and held by Cede & Co., as nominee for The Depository Trust Company, New
York, New York ("DTC"). DTC will act as securities depository for the Bonds. Purchases of beneficial interests in
the Bonds will be made in book-entry form, in denominations of $5,000 or any integral multiple thereof. Except as
herein described, purchasers will not receive certificates representing their beneficial interests in the Bonds. So
long as DTC or its nominee, Cede & Co., is the registered owner of the Bonds, payments of principal and interest
will be made directly to DTC or to such nominee, provided that the payment of the principal of the Bonds shall be
made only upon surrender of such Bonds at the office of the State Treasurer of the State of Alabama. Disbursement
of such payments to Direct Participants (as defined herein) is the responsibility of DTC, and disbursements of such
payments to the beneficial owners is the responsibility of Direct Participants and Indirect Participants (as defined
herein) of DTC, all as more fully described herein.
Certain of the Bonds are subject to optional redemption prior to maturity to the extent and on the terms described
herein.
The Bonds are special limited obligations of the Alabama Public School and College Authority (the "Authority")
payable, as to both principal and interest, solely out of certain revenues pledged to the payment of the Bonds,
subject and subordinate to the pledge thereof in favor of certain obligations incurred by the Authority, but prior and
superior to any pledge made in favor of obligations hereafter authorized. The Bonds do not constitute obligations
of the State of Alabama, and the full faith and credit of the State or any political subdivision thereof are not pledged
for payment of the principal of and interest due on the Bonds.
THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT
A SUMMARY OF THE BONDS. INVESTORS MUST READ THIS ENTIRE OFFICIAL STATEMENT TO
OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.
The Bonds are offered for delivery when, as and if issued, subject to the approving opinion of Bradley Arant Boult
Cummings LLP, Birmingham, Alabama, Bond Counsel to the Authority. It is expected that the Bonds in definitive
form will be available for delivery through DTC on or about May 28, 2014.
THE FRAZER LANIER COMPANY INCORPORATED
JOE JOLLY & CO., INC. MERCHANT CAPITAL, L.L.C. BENCHMARK SECURITIES, LLC
The date of this Official Statement is May 15, 2014.
ALABAMA PUBLIC SCHOOL AND COLLEGE AUTHORITY
$80,065,000
Capital Improvement Pool Refunding Bonds
Series 2014-A
Maturity
(February 1)
Principal
Amount
Interest
Rate
Yield
CUSIP
2015 $5,745,000 2.00% 0.200% 010609AA3
2016 5,895,000 3.00 0.420 010609AB1
2017 6,075,000 3.00 0.740 010609AC9
2018 6,290,000 4.00 1.080 010609AD7
2019 6,545,000 4.00 1.370 010609AE5
2020 6,850,000 5.00 1.700 010609AF2
2021 7,200,000 5.00 1.980 010609AG0
2022 7,570,000 5.00 2.180 010609AH8
2023 7,955,000 5.00 2.380 010609AJ4
2024 8,360,000 5.00 2.500 010609AK1
2025 8,795,000 5.00 2.610 010609AL9
2026 2,785,000 5.00 2.720 010609AM7
STATE OF ALABAMA
ALABAMA PUBLIC SCHOOL AND COLLEGE AUTHORITY
MEMBERS
Robert Bentley, President
Governor
Dr. Thomas R. Bice, Vice President
State Superintendent of Education
Bill Newton, Secretary
Acting State Director of Finance
STATE TREASURER
Young Boozer
BOND COUNSEL
Bradley Arant Boult Cummings LLP
Birmingham, Alabama
FINANCIAL ADVISOR
Rice Advisory, LLC
Montgomery, Alabama
i
No dealer, broker, salesman or other person has been authorized by the Authority or the Underwriters to
give any information or to make any representations with respect to the Authority or the Bonds, other than those
contained in this Official Statement, and, if given or made, such other information or representations must not be
relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer
to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person, in any
jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information
contained in this Official Statement has been provided by the Authority, the State of Alabama, and by other sources
which are believed to be reliable, but it is not guaranteed as to its accuracy or completeness by the Authority or the
Underwriters. This Official Statement is not to be construed as a contract or agreement between the Authority and
the purchasers or holders of the Bonds. The information and expression of opinions in this Official Statement are
subject to change without notice and neither the delivery of this Official Statement nor any sale of the Bonds shall,
under any circumstances, create any implication that there has been no change in the affairs of the Authority since
the date of this Official Statement.
TABLE OF CONTENTS
INTRODUCTION ......................................................................................................................................................... 1
DEFINITIONS OF CERTAIN TERMS ........................................................................................................................ 2
THE BONDS ................................................................................................................................................................. 4 General Provisions .................................................................................................................................................... 4 Method and Place of Payment .................................................................................................................................. 5 Registration and Exchange ....................................................................................................................................... 5 Purpose ..................................................................................................................................................................... 5 Sources and Uses of Funds ....................................................................................................................................... 6 Redemption Provisions ............................................................................................................................................. 6 Book-Entry Only System .......................................................................................................................................... 7
PLAN OF REFUNDING ............................................................................................................................................... 9 Establishment of Refunded Bonds Escrow Account ................................................................................................ 9
THE AUTHORITY; THE EDUCATION TRUST FUND; ROLLING RESERVE ACT; OUTSTANDING BONDS 9 General...................................................................................................................................................................... 9 The Authority.......................................................................................................................................................... 10 Education Trust Fund ............................................................................................................................................. 10 Rolling Reserve Act ................................................................................................................................................ 10 Outstanding Bonds .................................................................................................................................................. 11 Bonds Statutorily Authorized But Not Issued ......................................................................................................... 12 Supervision by Alabama Building Commission of Projects Funded With Proceeds of
Authority Bonds ................................................................................................................................................ 13
SOURCES OF PAYMENT OF THE BONDS ............................................................................................................ 13 Pledged Taxes ......................................................................................................................................................... 13 Additional Debt ...................................................................................................................................................... 14
CERTAIN SOURCES OF PAYMENT SUBJECT TO PRIOR PLEDGES................................................................ 14 Debt Service Requirements on Prior Lien Bonds ................................................................................................... 16
HISTORY OF THE UTILITY GROSS RECEIPTS TAX AND THE UTILITY SERVICE USE TAX .................... 19
HISTORY OF THE SALES AND USE TAXES ........................................................................................................ 20
SUMMARY OF PLEDGED REVENUES .................................................................................................................. 23
LITIGATION .............................................................................................................................................................. 23
RISK FACTORS ......................................................................................................................................................... 24 General.................................................................................................................................................................... 24
ii
State Legislative Action and Control ...................................................................................................................... 24 Sovereign Immunity ............................................................................................................................................... 24 Constitutional Reform ............................................................................................................................................ 25 Tax-Exempt Status of Bonds .................................................................................................................................. 25
LEGAL INVESTMENTS AND SECURITY FOR DEPOSIT ................................................................................... 25
TAX MATTERS ......................................................................................................................................................... 26 Opinion of Bond Counsel ....................................................................................................................................... 26 Certain Collateral Federal Tax Consequences ........................................................................................................ 26 Original Issue Premium .......................................................................................................................................... 26 No Mandatory Redemption Due to Event of Taxability ......................................................................................... 27
LEGAL MATTERS .................................................................................................................................................... 27
SOVEREIGN IMMUNITY ......................................................................................................................................... 27
CONTINUING DISCLOSURE ................................................................................................................................... 28 General.................................................................................................................................................................... 28 Compliance with Prior Undertakings ...................................................................................................................... 29
RATINGS .................................................................................................................................................................... 29
UNDERWRITING ...................................................................................................................................................... 29
FINANCIAL ADVISOR ............................................................................................................................................. 30
ADDITIONAL INFORMATION................................................................................................................................ 30
DISCLAIMERS AND OHER MISCELLANEOUS MATTERS................................................................................ 30
EXECUTION AND DELIVERY ................................................................................................................................ 31
Appendix A - Information About the State of Alabama
Appendix B - Proposed Form of Opinion of Bond Counsel
_______________________________
1
OFFICIAL STATEMENT
of
ALABAMA PUBLIC SCHOOL AND COLLEGE AUTHORITY
relating to its
$80,065,000
Capital Improvement Pool Refunding Bonds
Series 2014-A
INTRODUCTION
This Official Statement, which includes the cover page and the appendices hereto, is being distributed by
the Alabama Public School and College Authority (the "Authority"), a public corporation and instrumentality of the
State of Alabama (the "State"), organized pursuant to the provisions of Act No. 243 enacted at the 1965 First Special
Session of the Legislature, codified as Chapter 16 of Title 16 of the Code of Alabama 1975 (the "1965 Act"), to
furnish information about the Authority, the State and the issuance of the Authority's $80,065,000 Capital
Improvement Pool Refunding Bonds, Series 2014-A (the "Bonds"). The members of the Authority consist of the
Governor, the State Superintendent of Education and the State Director of Finance. Each term used herein but not
otherwise defined herein is used as defined in the Resolution hereinafter referred to.
The Bonds are being issued pursuant to the authorization contained in Act No. 98-373, enacted at the 1998
Regular Session of the Legislature (the "1998 Act"), and a bond resolution adopted by the Board of Directors of the
Authority at a meeting thereof held on May 15, 2014 (the "Resolution").
Proceeds of the Bonds will be used to (i) refund, on an advance basis, the Authority's $84,980,000 Capital
Improvement Bonds, Series 2005, dated February 1, 2005, and presently outstanding in the aggregate principal
amount of $55,075,000 (the “Series 2005 Bonds”) and $53,565,000 Capital Improvement Bonds, Series 2006, dated
March 16, 2006, and presently outstanding in the aggregate principal amount of $37,810,000 (the “Series 2006
Bonds”); and (ii) pay the costs of issuing the Bonds. See "THE BONDS – Sources and Uses of Funds" and "PLAN
OF REFUNDING" below. Proceeds of the Series 2005 Bonds and Series 2006 Bonds were used to make loans to
local boards of education in the State of Alabama in order to finance capital improvements approved by the
Authority and the State Superintendent of Education. Said loans were evidenced by obligations issued by such local
boards in favor of the Authority payable solely from and secured by pledges of such local boards’ respective
allocable shares of the funds distributed to local boards of education from the State of Alabama’s Public School
Fund for capital purposes pursuant to Section 16-13-234 of the Code of Alabama 1975, as amended (the "Capital
Outlay Funds").
Although the Authority expects that the Capital Outlay Funds pledged by participating local boards
of education will be approximately equal to and may be used for the payment of debt service on the Bonds,
such Capital Outlay Funds will not be pledged as security for the Bonds, and holders of the Bonds will have
no recourse against such Capital Outlay Funds or any of the local boards of education remitting the same. See "THE BONDS – Sources and Uses of Funds" and "PLAN OF REFUNDING" below.
The Bonds will not constitute general obligations of the Authority or a charge against the general credit or
taxing powers of the State of Alabama or any political subdivision thereof. The Bonds will be limited obligations of
the Authority payable solely from and secured by a pledge and assignment of the proceeds of certain taxes levied by
the State of Alabama as more fully described herein (the "Pledged Revenues") after deducting therefrom such
amounts of such proceeds as may be necessary to pay principal and interest on all obligations heretofore issued by
the Authority and presently outstanding (hereinafter defined as "Prior Lien Bonds"). See "CERTAIN SOURCES OF
PAYMENT SUBJECT TO PRIOR PLEDGES." The pledge of the Pledged Revenues in favor of the Bonds shall be
superior to the pledge thereof in favor of bonds or other obligations hereafter authorized to be issued by the
Authority.
Certain of the Bonds are subject to optional redemption prior to maturity at the times and under the
circumstances set forth herein. See "THE BONDS - Redemption Provisions" herein.
2
The Bonds are being offered in the denomination of $5,000 or any multiple thereof and may be transferred
and exchanged subject to certain terms and conditions set forth herein. The Authority has covenanted to the
Underwriters (hereinafter defined) to undertake certain continuing disclosure pursuant to Rule 15c2-12 of the
Securities and Exchange Commission in connection with the Bonds. See "CONTINUING DISCLOSURE."
DEFINITIONS OF CERTAIN TERMS
The following words, phrases and other terms evidently intended as the equivalent thereof shall, in the
absence of clear implication herein otherwise, have the following respective meanings:
"1965 Act" means Act No. 243 enacted at the 1965 First Special Session of the
Legislature, codified as Title 16, Chapter 16, Code of Alabama 1975, pursuant to which the
Authority was organized.
"1998 Act" means Act No. 98-373, enacted at the 1998 Regular Session of the
Legislature.
"Authority" means the Alabama Public School and College Authority, a public
corporation and instrumentality of the State, organized and existing under the provisions of the
1965 Act.
"Authorizing Act" means the 1998 Act.
"Authorized Denomination" means a denomination of $5,000 or any multiple thereof.
"Bondholder" means a Holder of any of the Bonds.
"Bond Register" means the register or registers for the registration and transfer of Bonds
maintained for the Authority at the office of the Paying Agent.
"Business Day" means any day other than (a) a Saturday, Sunday or legal holiday or (b)
a day on which the office of the State Treasurer is authorized to be closed.
"Capital Outlay Bonds" means those bonds issued by the Authority for the purpose of
financing grants for capital improvements for public schools and institutions of higher learning in
the State.
"Capital Outlay Funds" means the funds distributed to local boards of education from
the Public School Fund for capital purposes pursuant to Section 16-13-234, Code of Alabama,
1975.
"Code" means the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
"Debt Service" means the principal, premium (if any) and interest payable on the Bonds.
3
"Defaulted Interest" means any interest on any Bond which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date.
"Education Trust Fund" means the State's Education Trust Fund, formerly designated
as the Alabama Special Educational Trust Fund, the name of which was changed to the Education
Trust Fund, effective October 1, 1996, into which the Pledged Taxes, along with various other
taxes and revenues, are paid and from which the State appropriates money for the benefit of public
schools and higher education in Alabama.
"Holder", when used with respect to a Bond, means the person in whose name such
Bond is registered on the Bond Register pertaining to the Bonds.
"Interest Payment Date" means each February 1 and August 1, commencing August 1,
2014.
"Legislature" means the Legislature of the State of Alabama.
"Paying Agent" means the State Treasurer, in his capacity as paying agent for the Bonds.
"Pledged Revenues" means those portions of the receipts from the Pledged Taxes that
are, pursuant to the Authorizing Act and the Resolution, pledged for payment of the principal of,
and premium, if any, and interest on the Bonds.
"Pledged Taxes" means the Utility Gross Receipts Tax, the Utility Service Use Tax, the
Sales Tax and the Use Tax.
"Prior Lien Bonds" means any bonds heretofore issued by the Authority that are secured
by a pledge of the Pledged Revenues made prior to the pledge made in the Resolution.
"Public School Fund" means the fund held by the State into which the State's 3 mill
property tax is paid and from which the Capital Outlay Funds are apportioned and distributed.
"Redemption Price" means with respect to any Bond the principal amount thereof plus
the applicable premium if any payable upon redemption thereof pursuant to the provisions of the
Resolution.
"Refunded Bonds" means, collectively, the Series 2005 Bonds and the Series 2006
Bonds.
"Refunded Bonds Escrow Account" means that certain fund or account established in
the Refunded Bonds Escrow Agreement into which a portion of the proceeds from the sale of the
Bonds, together with other funds of the Authority derived from prepayments of certain loans
originated with the Refunded Bonds, will be deposited and used to redeem and retire the Refunded
Bonds.
"Refunded Bonds Escrow Agreement" means that certain Escrow Trust Agreement
dated the date of issuance of the Bonds by and among the Authority, the State Treasurer, and First
Commercial Bank, a division of Synovus Bank, a Georgia banking corporation, as trustee, as
4
established for the payment, when due, of all principal of, redemption premium, if any, and
interest on, the Refunded Bonds.
"Regular Record Date" means the 15th day (whether or not a Business Day) of the
month preceding an Interest Payment Date.
"Resolution" means the resolution adopted by the Authority on May 15, 2014, which
provides for the issuance of the Bonds.
"Sales Tax" means the excise tax levied by Division 1 of Article 1 of Chapter 23 of
Title 40 of the Code of Alabama 1975, with respect to the sale of tangible personal property in the
State.
"School Board Loan Bonds" means those bonds issued by the Authority for the purpose
of financing loans to local boards of education in the State.
"Series 2005 Bonds" means the Authority’s $84,980,000 initial principal amount Capital
Improvement Pool Bonds, Series 2005, dated February 1, 2005.
"Series 2006 Bonds" means the Authority’s $53,565,000 initial principal amount Capital
Improvement Bonds, dated March 16, 2006.
"State" means the State of Alabama.
"State Treasurer" means the person at any time lawfully serving as the State Treasurer
of the State.
"Use Tax" means the excise tax levied by Article 2 of Chapter 23 of Title 40 of the Code
of Alabama 1975, with respect to the storage, use or other consumption in the State of tangible
personal property.
"Utility Gross Receipts Tax" means the excise tax levied by Article 3 of Chapter 21 of
Title 40 of the Code of Alabama 1975, with respect to the furnishing of utility services in the State
by utilities.
"Utility Service Use Tax" means the excise tax levied by Article 4 of Chapter 21 of
Title 40 of the Code of Alabama 1975, with respect to the storage, use or other consumption of
utility services in the State.
THE BONDS
General Provisions
The Bonds will be dated the date of their delivery and will mature annually on February 1 in the amounts
and years set forth on the inside of the cover page hereof. The Bonds will bear interest at the applicable per annum
rates set forth on the inside of the cover page hereof. Bonds of the same maturity will bear interest at the same rate.
Interest on the Bonds shall be computed on the basis of a 360-day year with 12 months of 30 days each. Interest on
5
the Bonds will be payable on each February 1 and August 1, beginning August 1, 2014. The Bonds will be
numbered separately from R1 upward.
Method and Place of Payment
The Bonds will be issued in book-entry only form, as described below under "Book-Entry Only System"
and the method and place of payment will be as provided in the book-entry only system. The principal and interest
on the Bonds will be payable by the Paying Agent to Cede & Co., as described below. The provisions set forth in
this section below will apply in the event that the use of the book-entry only system for the Bonds is discontinued.
Payment of interest due on the Bonds on each Interest Payment Date will be made by warrant, check or
draft mailed on such Interest Payment Date to the persons who were registered Holders of the Bonds on the Regular
Record Date for such Interest Payment Date. Payment of the principal of (and premium, if any, on) the Bonds and
payment of accrued interest due upon redemption on any date other than an Interest Payment Date will be made only
upon surrender of the Bonds at the office of the Paying Agent in Montgomery, Alabama.
Registration and Exchange
The method for registration and exchange of the Bonds will be as provided in the book-entry only system.
The provisions set forth in this section below will apply in the event that the use of the book-entry only system for
the Bonds is discontinued.
The Bonds are transferable only on the bond register maintained at the office of the Paying Agent. Upon
surrender of a Bond to be transferred, properly endorsed, a new Bond of the same maturity will be issued to the
designated transferee.
The Bonds will be issued in denominations of $5,000 or any integral multiple thereof and, subject to the
provisions of the Resolution, may be exchanged for a like aggregate principal amount of Bonds, of the same
maturity and any authorized denomination, as requested by the holder surrendering the same. No service charge
shall be made for any transfer or exchange, but the Authority may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Purpose
The Bonds are being issued pursuant to the 1998 Act and the Resolution, and proceeds from the sale of the
Bonds shall be used: (i) to pay the cost of refunding and retiring, on an advance basis, the Refunded Bonds; and (ii)
to pay the costs of issuing the Bonds.
The Refunded Bonds were used to make loans to various local boards of education (collectively, the "Local
Boards") in the State in order to finance capital improvements approved by the Authority and the State
Superintendent of Education, the repayment of which such loans was evidenced by school warrants issued by the
Local Boards (collectively, the "Local Board Warrants") in favor of the Authority. Said Local Board Warrants are
payable solely from and secured by the Capital Outlay Funds. Although the Authority expects that the capital outlay
funds pledged by said local boards will be approximately equal to and may be used for payment of debt service on
the Bonds, such capital outlay funds will not be pledged as security for the Bonds and holders of the Bonds will
have no recourse against such capital outlay funds or any such local boards.
Additionally, in the Resolution certain officers of the Authority will be authorized to consent to and
approve on behalf of the Authority amendments to the Local Board Warrants for the purpose of reducing the debt
6
service requirements on such Local Board Warrants commensurate with the interest rate savings to be achieved as a
result of the refinancing of the Refunded Bonds as set forth herein.
Sources and Uses of Funds
The following table sets forth the Authority's estimate of the sources and uses of funds respecting the
Bonds:
Sources:
Principal Amount of Bonds $80,065,000.00
Plus Original Issue Premium 11,928,638.05
Total Sources 91,993,638.05
Uses:
Deposit to Refunded Bonds Escrow Account 91,480,196.22
Costs of issuance (including underwriting discount, legal fees,
and other costs and expenses) 513,441.83
Total Uses $91,993,638.05
Redemption Provisions
Optional Redemption. Those of the Bonds having stated maturities on February 1, 2025, and thereafter,
may be redeemed in whole or in part, and if in part those to be redeemed to be selected by the Authority at its
discretion, at the option of the Authority on any date on or or after February 1, 2024, at a redemption price equal to
100% of the principal amount redeemed plus accrued interest to the redemption date.
If less than all the Bonds are to be redeemed pursuant to the aforesaid optional redemption provisions, the
principal amount of Bonds of each maturity to be redeemed may be specified by the Authority by written notice to
the Paying Agent not less than 60 days before the date fixed for redemption (unless a shorter notice is acceptable to
the Paying Agent), or, in the absence of timely receipt by the Paying Agent of such notice, shall be selected by the
Paying Agent by lot or by such other method as the Paying Agent shall deem fair and appropriate in its sole
discretion; provided, however, that the principal amount of Bonds of each maturity to be redeemed must be in an
Authorized Denomination. If less than all Bonds with the same maturity are to be redeemed, the particular Bonds of
such maturity to be redeemed shall be selected by the Paying Agent by lot or by such other method as the Paying
Agent shall deem fair and appropriate and which may provide for the selection for redemption of portions (in
Authorized Denominations) of the principal of Bonds of such maturity of a denomination larger than the smallest
Authorized Denomination.
General Provisions. Any redemption of Bonds will be made upon not more than 60 nor less than 30 days’
notice by registered, first class or certified mail to the holders of Bonds to be redeemed at the address shown on the
register maintained on behalf of the Authority.
The Resolution provides that Bonds of a denomination larger than the smallest Authorized Denomination
($5,000) may be redeemed in part, and upon partial redemption, such Bonds shall be surrendered to the Paying
Agent in exchange for one or more new Bonds in authorized form for the unredeemed portion of principal.
7
Any Bond (or portion thereof) which is to be redeemed must be surrendered to the Paying Agent for
payment of the Redemption Price. Bonds (or portions thereof) duly called for redemption will cease to bear interest
after the redemption date, unless the Authority defaults in payment of the Redemption Price.
Book-Entry Only System
Portions of the following information concerning The Depository Trust Company ("DTC") and DTC's
book-entry system have been obtained from DTC. The Authority, the Paying Agent and the Underwriters make no
representation as to the accuracy of such information.
General. Initially, DTC will act as Securities Depository for the Bonds. The Bonds initially will be issued
solely in book-entry form to be held under DTC's book-entry system, registered in the name of Cede & Co. (DTC's
partnership nominee). Initially, one fully-registered Bond certificate for each maturity will be issued for the Bonds,
in the aggregate principal amount of Bonds of such maturity, and will be deposited with DTC.
DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues,
corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s
participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct
Participants of sales and other securities transactions in deposited securities, through electronic computerized book-
entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement
of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities
Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC
is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear
through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file
with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.
Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will
receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners
will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to
receive written confirmations providing details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their
ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.
To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the
name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such
other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts
such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
8
Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed,
DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds
unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures,
DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns
Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or
such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct
Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the
Paying Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Paying Agent, or the Authority, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and
dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of
DTC) is the responsibility of the Authority or the Paying Agent, disbursement of such payments to Direct
Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be
the responsibility of Direct and Indirect Participants.
In the event of the discontinuance of the book-entry system for the Bonds, Bond certificates will be printed
and delivered and the following provisions of the Ordinance will apply: (i) principal of the Bonds will be payable
upon surrender of the Bonds at the designated office of the Paying Agent; (ii) Bonds may be transferred or
exchanged for other Bonds of authorized denominations as set forth in the next succeeding paragraph; and (iii)
Bonds will be issued in denominations as described above under "THE BONDS."
THE AUTHORITY, THE PAYING AGENT AND THE UNDERWRITERS CANNOT AND DO NOT
GIVE ANY ASSURANCES THAT DTC, THE DIRECT PARTICIPANTS OR THE INDIRECT PARTICIPANTS
WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE BONDS (i) PAYMENTS OF PRINCIPAL OF
OR INTEREST AND PREMIUM, IF ANY, ON THE BONDS, (ii) CERTIFICATES REPRESENTING AN
OWNERSHIP INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN THE
BONDS, OR (iii) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS
THE REGISTERED OWNER OF THE BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR
THAT DTC, DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE
MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT "RULES" APPLICABLE TO DTC
ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE CURRENT
"PROCEDURES" OF DTC TO BE FOLLOWED IN DEALING WITH DIRECT PARTICIPANTS ARE ON FILE
WITH DTC.
NEITHER THE AUTHORITY, NOR THE PAYING AGENT, NOR THE UNDERWRITERS WILL HAVE
ANY RESPONSIBILITY OR OBLIGATION TO ANY DIRECT PARTICIPANT, INDIRECT PARTICIPANT OR
ANY BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO (i) THE BONDS; (ii) THE
ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT
PARTICIPANT; (iii) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT
PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL
OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (iv) THE DELIVERY BY DTC OR ANY
DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER
WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTION TO BE GIVEN TO
BONDHOLDERS; (v) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE
EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (vi) ANY CONSENT GIVEN OR OTHER
ACTION TAKEN BY DTC AS BONDHOLDER.
9
Discontinuance of Book-Entry Only System. DTC may discontinue providing its services as depository
with respect to the Bonds at any time by giving reasonable notice to the Authority or the Paying Agent. Under such
circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed
and delivered to the bondholders. The Authority may decide to discontinue use of the system of book-entry-only
transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and
delivered to the bondholders. The information in this section concerning DTC and DTC’s book-entry system has
been obtained from sources that Authority believes to be reliable, but the Authority takes no responsibility for the
accuracy thereof.
PLAN OF REFUNDING
Pursuant to the resolution adopted by the Board of Directors of the Authority on February 23, 2005,
respecting the issuance of the Series 2005 Bonds (the "Series 2005 Bonds Resolution"), those of the Series 2005
Bonds maturing after 2015 are subject to redemption prior to maturity, at the option of the Authority, on February 1,
2015, and on any date thereafter, at and for a redemption price equal to 100% of the principal amount thereof
redeemed plus accrued interest to the date fixed for redemption.
Pursuant to the resolution adopted by the Board of Directors of the Authority on March 2, 2006, respecting
the issuance of the Series 2006 Bonds (the "Series 2006 Bonds Resolution"), those of the Series 2006 Bonds
maturing after 2016 are subject to redemption prior to maturity, at the option of the Authority, on March 1, 2016,
and on any date thereafter, at and for a redemption price equal to 100% of the principal amount thereof redeemed
plus accrued interest to the date fixed for redemption.
Establishment of Refunded Bonds Escrow Account
Simultaneously with the issuance and delivery of the Bonds, the Authority will enter into an Escrow Trust
Agreement dated the date of issuance of the Bonds (the "Refunded Bonds Escrow Agreement") with the State
Treasurer and First Commercial Bank, a division of Synovus Bank, a Georgia banking corporation, as escrow trustee
(the "Trustee"), to provide for the payment, when due, of all principal of, redemption premium, if any, and interest
on the Refunded Bonds.
The Refunded Bonds Escrow Agreement and the Resolution will provide that the Authority shall pay to the
State Treasurer and deposit with the Trustee the sum of $91,480,196.22 from proceeds of the Bonds, together with
other funds of the Authority derived from prepayments of loans originated with proceeds of the Refunded Bonds, for
deposit into the Refunded Bonds Escrow Account created in the Refunded Bonds Escrow Agreement. The moneys
on deposit in the Refunded Bonds Escrow Account will be invested in certain permitted securities as provided in the
Authorizing Act and the Resolution, which will mature at such times and in such amounts as to provide funds
sufficient to pay maturing installments of: (i) the principal of and interest on those of the Series 2005 Bonds
maturing on or before February 1, 2015, and, on February 1, 2015, the redemption price of those of the Series 2005
Bonds scheduled to mature in 2016 and thereafter, and (ii) the principal of and interest on those of the Series 2006
Bonds maturing on or before March 1, 2016, and, on March 1, 2016, the redemption price of those of the Series
2006 Bonds scheduled to mature in 2017 and thereafter.
THE AUTHORITY; THE EDUCATION TRUST FUND; ROLLING RESERVE ACT; OUTSTANDING
BONDS
General
The discussion under this heading does not pertain specifically to the Bonds being offered by this Official
Statement, but rather is intended to provide information relevant to all outstanding bonds of the Authority. A careful
reading of the information contained under this heading will facilitate an understanding of the information
with respect to the Bonds presented in this Official Statement. Further information respecting the Authority is
presented elsewhere in this Official Statement and in the Comprehensive Annual Financial Report of the State of
10
Alabama for the fiscal year that ended September 30, 2013. This report may be obtained from the State website at
http://www.comptroller.alabama.gov.
The Authority
In 1959, the Legislature determined that additional funds were needed to finance construction of capital
improvements to public schools and institutions of higher education in the State and determined that it was
necessary to create a new financing mechanism to provide state-wide assistance to schools and institutions for
educational purposes. The Legislature authorized the creation of the Alabama Education Authority as a public
corporation with the power to issue bonds to provide funds to school boards and institutions of higher education for
capital improvements. With court approval, bonds were issued for those purposes.
In 1965, the State determined that a new public corporation should be created with expanded powers and
revenues to meet the increasing needs of public schools and institutions of higher education for capital improvement
funds. The Alabama Public School and College Authority was created, the directors being the Governor, the State
Superintendent of Education and the State Director of Finance.
Education Trust Fund
The State has maintained since at least 1959 a special fund generally referred to as the Education Trust
Fund in order to segregate and account for taxes and revenues earmarked and designated for educational purposes.
The Education Trust Fund is the largest operating fund of the State into which taxes and revenues of the State are
deposited. Amounts deposited to the Education Trust Fund are used for the support, maintenance and development
of public education in Alabama, debt service and capital improvements relating to educational facilities, and other
functions related to educating the State's citizens. Programs and agencies supported by the Education Trust Fund
include K-12 education, public library services, performing and fine arts, the State's education regulatory
departments, and two and four-year colleges and universities. Funding from the Education Trust Fund is also
provided to non-State agencies that provide educational services to the people of Alabama, including the arts,
disease counseling and education, and youth development. Ten tax sources are allocated to the Education Trust
Fund, the largest of which are the individual and corporate income taxes, sales taxes, utility taxes and use taxes. See
“APPENDIX A – Certain Information Regarding the State of Alabama – Receipts, Disbursements, Taxes and
Revenues – State Taxes and Other Major Sources of Revenues and Income” herein for further discussion.
Rolling Reserve Act
In March 2011, the Legislature passed and the Governor signed into law The Education Trust Fund Rolling
Reserve Act (Act No. 2011-003), which is designed to reduce the risk of proration in the State’s education budget.
Proration occurs when budgeted education spending must be cut mid-year due to lower-than-expected revenues.
The education budget process has historically been based on projecting the annual change in Education Trust Fund
revenues. The sources of revenue that fund the Education Trust Fund are highly sensitive to changes in the economy
and the range of total revenues varies widely from year to year. As a result, accurately projecting the Education
Trust Fund revenues each year in order to prepare a workable education spending budget has been difficult. The
inability to make accurate revenue projections has led to increased instances of proration in the education budget.
The Rolling Reserve Act caps the education spending budget using a growth rate equal to the rolling 15 year average
annual revenue growth rate as applied to actual revenues. Under the Rolling Reserve Act, Education Trust Fund
revenues over and above the budgeted amount are to be transferred to the Education Trust Fund Rainy Day Account
(the “Rainy Day Account”) until the Rainy Day Account has been reimbursed in full. The Rainy Day Account
currently gives the State the power to temporarily transfer money from the $2.88 billion Alabama Trust Fund to
prevent proration, but the money must be reimbursed within 6 years of its transfer. There is currently a shortfall of
$162.6 million in the Rainy Day Account that must be repaid. At the end of Fiscal Year 2013, $260.4 million was
repaid to the Education Trust Fund Rainy Day Account.
11
Once the Rainy Day Account has been fully repaid, any remaining revenues will be transferred to a new
savings account established by the Rolling Reserve Act, the Education Trust Fund Budget Stabilization Fund (the
“Budget Stabilization Fund”). Money in the Budget Stabilization Fund may be withdrawn only to prevent proration
in the Education Trust Fund. If the balance in the Budget Stabilization Fund reaches an amount equal to 20% of the
then-current year education budget, any funds above that amount will be transferred to another new fund created by
the Rolling Reserve Act, the Education Trust Fund Capital Fund (the “Capital Fund”). Money in the Capital Fund
may be used for construction or renovation to public education facilities in the State. The budget process required by
the Rolling Reserve Act was implemented beginning with the 2013 budget.
Outstanding Bonds
(a) Source of Payment and Lien Position. The outstanding bonds previously issued by the
Authority and the Bonds authorized by the Authorizing Act are not general obligations of the Authority, nor are they
obligations of the State or any political subdivision thereof. Such bonds are payable solely from, and are secured
solely by, an irrevocable pledge of the revenues from certain taxes. There are some differences in the sources of
payment among the several outstanding series of bonds of the Authority. The Bonds are payable solely out of the
net proceeds from the Pledged Taxes.
The bonds issued by the Authority are not issued as parity bonds but rather occupy a lien position as to
taxes and revenues pledged for payment of all bonds of the Authority in the order in which the bonds are issued. For
example, bonds issued by the Authority for the purpose of refunding previously issued bonds occupy a lien position
reflecting the date of the refunding issue.
(b) Categories of Bonds. The Authority is, under present law, authorized to issue three types of
bonds:
(i) Capital Outlay Bonds. The type of bonds most frequently issued by the
Authority are for capital improvements to public schools and institutions of higher education.
Those bonds ("Capital Outlay Bonds") are authorized to be issued from time to time pursuant to
authority granted to the Authority by separate acts of the Legislature for designated recipients and
designated amounts specified in the acts under which the bonds are authorized to be issued. The
proceeds of Capital Outlay Bonds constitute grants to the recipients.
(ii) School Board Loan Bonds. Pursuant to the 1998 Act, the Authority was
authorized to issue bonds ("School Board Loan Bonds") without express limit as to principal
amount to finance loans to local boards of education in the State. Prior to the enactment of the
1998 Act, local boards of education could not leverage capital funds from the State. This program
was intended to allow boards of education to finance larger capital projects up-front rather than
pay for capital improvements on a pay-as-you-go basis. The School Board Loan Bonds are
secured by the same taxes pledged for Capital Outlay Bonds, and it was anticipated lower
borrowing costs to the local boards of education would result from having the funds provided by
the Authority in lieu of local financing.
Each local board of education receiving a loan from proceeds of School Board Loan
Bonds is required to issue its warrant to the Authority at an interest rate agreed to by the Authority
and the local board of education and approved by the State Superintendent of Education. The
warrants issued to the Authority by the local boards of education are not general obligations of the
local boards of education but are payable solely from the distributions of Capital Outlay Funds
made to such local boards of education from the Public School Fund pursuant to Section
16-13-234, Code of Alabama of 1975, as amended. Each local board of education is required to
pay its pro rata share of the issuance expenses incurred in connection with the issuance by the
Authority of School Board Loan Bonds. The amounts received by the Authority from repayment
of loans made with proceeds of School Board Loan Bonds are not pledged to the payment of the
12
School Board Loan Bonds, although the Authority expects that the loan payments received from
the participating local boards of education will be approximately equal to and will be used to pay
debt service on the School Board Loan Bonds issued to fund such loans.
The School Board Loan Bonds are payable solely out of the revenues from the Pledged
Taxes. While the revenues from Pledged Taxes pledged to Capital Outlay Bonds are likewise
pledged to the School Board Loan Bonds, the Authority has not paid any debt service on the
School Board Loan Bonds from amounts prior to being deposited in the Education Trust Fund
since the inception of the program to the present. Instead, debt service on the School Board Loan
Bonds has been paid from amounts received by the Authority from repayment of loans made to
participating local boards of education. The Bonds offered by this Official Statement will be
School Board Loan Bonds. See Table I under “CERTAIN SOURCES OF PAYMENT SUBJECT
TO PRIOR PLEDGES” for a description of other School Board Loan Bonds that will be
outstanding when the Bonds are authorized.
(iii) 2010/2012 Act School Board Loan Bonds. Pursuant to Act No. 2010-551,
enacted at the 2010 Regular Session of the Legislature (the “2010 Authorizing Act”), and Act No.
2012-562 enacted at the 2012 Regular Session of the Legislature (the “2012 Authorizing Act”),
the Authority was authorized to issue bonds (“2010/2012 Act School Board Loan Bonds”) in the
aggregate principal amount of up to $175,000,000 for the renovation of existing school facilities
and construction of new school facilities of local boards of education in Madison County and other
areas of north Alabama particularly affected by the United States Department of Defense’s 2005
Base Realignment and Closure process (in connection with such renovation and construction, the
Authority is to make loans to such local boards of education). The 2010/2012 Act School Board
Loan Bonds are secured by the same taxes pledged for Capital Outlay Bonds and School Board
Loan Bonds.
Each local board of education receiving a loan from proceeds of 2010/2012 Act School Board Loan Bonds
is required to issue its warrant to the Authority at an interest rate agreed to by the Authority and the local board of
education and approved by the State Superintendent of Education and in a principal amount to provide payments
equal to fifty percent (50%) of the semi-annual debt service payments on the sum received by the local board of
education. In contrast, each local board of education receiving a loan from proceeds of School Board Loan Bonds
under the 1998 Authorizing Act is required to issue its warrant to the Authority in an amount to provide payments
equal to one hundred percent (100%) of the semi-annual debt service payments on the sum received by the local
board of education.
The warrants issued to the Authority by the local boards of education are not general obligations of the
local boards of education but are payable from funds available to such boards of education for debt service. The
amounts received by the Authority from repayment of loans made with proceeds of 2010/2012 Act School Board
Loan Bonds are not pledged to the payment of the 2010/2012 Act School Board Loan Bonds, although the Authority
expects that the loan payments received from the participating local boards of education will be equal to and will be
used to pay approximately fifty percent (50%) of the debt service on the 2010/2012 Act School Board Loan Bonds
issued to fund such loans.
Bonds Statutorily Authorized But Not Issued
Except as described below, following the issuance of the Bonds there will be no bonds statutorily
authorized but not issued by the Authority other than School Board Loan Bonds which, as stated above, are
authorized to be issued without express limit as to principal amount, and bonds issued to refund previously issued
bonds of the Authority. Under the 2010 Authorizing Act and the 2012 Authorizing Act, the Authority is authorized
to issue $2,290,000 in additional 2010/2012 Act School Board Loan Bonds. Following the issuance of the Bonds,
under Act No. 2012-560, enacted at the 2012 Regular Session of the Legislature (codified as Chapter 16B of Title 16
of the Code of Alabama 1975, as amended), the Authority will be authorized to issue $100,000,000 in additional
Capital Outlay Bonds for the purpose of paying the costs of acquiring and maintaining computer equipment,
software, and digital textbooks for public education purposes.
13
Supervision by Alabama Building Commission of
Projects Funded With Proceeds of Authority Bonds
All projects funded in whole or in part by the Authority require full plan review in accordance with the
requirements of statute by the Alabama Building Commission. If a series of School Board Loan Bonds fund a K-12
project, the plans must also be reviewed by the State School Architect, State Department of Education, in
accordance with their procedures, and approved by the State Superintendent of Education.
SOURCES OF PAYMENT OF THE BONDS
Pledged Taxes
The Bonds do not constitute obligations of the State or any political subdivision thereof, and the full faith
and credit of the State are not pledged for payment of the principal thereof or the interest thereon. The Bonds are
not general obligations of the Authority, nor does the Authority have any taxing power. The principal of and interest
on the Bonds are payable solely from, and are secured pro rata, one with the other, by an irrevocable pledge of the
following revenues, subject to the prior pledges thereof described in this Official Statement and in the order of
priorities described below:
(a) Utility Gross Receipts Tax. All of that portion of the receipts from the Utility
Gross Receipts Tax which are required to be deposited into the State Treasury to the credit of the
Education Trust Fund;
(b) Utility Service Use Tax. All of that portion of the receipts from the Utility
Service Use Tax which are required to be deposited into the State Treasury to the credit of the
Education Trust Fund;
(c) Sales Tax. All of that portion of the receipts from the Sales Tax which are
required to be paid into the State Treasury to the credit of the Education Trust Fund; and
(d) Use Tax. All of that portion of the receipts from the Use Tax which are
required to be paid into the State Treasury to the credit of the Education Trust Fund. Act No.
2012-599 enacted at the 2012 Regular Session of the Legislature effected the transfer of certain
use tax proceeds from the Education Trust Fund to the General Fund. See “HISTORY OF THE
SALES AND USE TAXES” herein.
The Utility Gross Receipts Tax, the Utility Service Use Tax, the Sales Tax and the Use Tax are hereinafter
collectively referred to as the "Pledged Taxes" and the portions of the revenues thereof described in paragraphs (a)
through (d) above as being deposited into the State Treasury to the credit of the Education Trust Fund and pledged
as security for the Bonds are hereinafter referred to as the "Pledged Revenues." So much of the Pledged Revenues
as may be necessary for such purpose is appropriated to provide for the payment of the principal of and interest on
the Bonds, in the following order of priorities:
(i) The Pledged Revenues derived from the levy of the Utility Gross Receipts Tax
and the Utility Service Use Tax after deducting therefrom amounts necessary to pay at their
respective maturities the principal of and interest on certain outstanding bonds of the Authority
that are secured by prior pledges thereof;
14
(ii) To the extent that the Pledged Revenues described in the preceding
subparagraph (i) are insufficient therefor, the Pledged Revenues derived from the levy of the Sales
Tax, after deducting therefrom amounts necessary to pay at their respective maturities the
principal of and interest on certain outstanding bonds of the Authority that are secured by prior
pledges thereof; and
(iii) To the extent that the Pledged Revenues described in the preceding
subparagraphs (i) and (ii) are insufficient therefor, the Pledged Revenues derived from the levy of
the Use Tax, after deducting therefrom amounts necessary to pay at their respective maturities the
principal of and interest on certain outstanding bonds of the Authority that are secured by prior
pledges thereof.
The Resolution irrevocably pledges for payment of the principal of and interest on the Bonds so much of
the Pledged Revenues as may be necessary for that purpose. See "CERTAIN SOURCES OF PAYMENT
SUBJECT TO PRIOR PLEDGES." The pledge so made is for the benefit of all Bonds, without preference of one
over another. The Resolution further provides that the lien on the Pledged Revenues securing the Bonds may be
defeased upon the deposit with the State Treasurer of moneys or Government Securities (as defined in the
Resolution), the principal of and interest on which will provide funds sufficient to pay when due the principal of and
interest due and to become due on the Bonds and certain related requirements.
Additional Debt
The Resolution and the Authorizing Act effectively provide that any pledge of the Pledged Revenues for
the payment of the principal of and interest due on any bonds, including refunding bonds, issued by the Authority
subsequent to the issuance of the Bonds will be subject and subordinate to the pledge of the Pledged Revenues made
by the Authority for the benefit of the Bonds. The Authority may issue obligations from time to time, without limit
as to amount, for any purposes for which the Authority may be authorized by the Legislature to incur indebtedness.
Such obligations may be secured by a lien on the Pledged Revenues, subject and subordinate to the lien securing the
Bonds. The Authority anticipates that it will issue additional subordinated bonds in an undetermined amount from
time to time in future years as and when authorized by the Legislature.
Neither the 1965 Act, the Authorizing Act nor the Resolution limits the ability of the Legislature to
authorize the issuance of other obligations secured by a lien on the Pledged Revenues subordinate to the lien
securing the Bonds.
CERTAIN SOURCES OF PAYMENT
SUBJECT TO PRIOR PLEDGES
The Education Trust Fund is a special fund which serves as a depository for revenues traditionally used for
educational purposes. The Education Trust Fund was established in 1927 by act of the Legislature. In addition to
the portions of the Pledged Revenues previously referred to as being payable into the Education Trust Fund, all or
part of the proceeds of numerous other taxes are required by law to be paid into the Education Trust Fund. The
Bonds are not, however, payable from, or secured by the pledge of, any moneys payable into the Education Trust
Fund other than the Pledged Revenues. The amount of taxes paid into the Education Trust Fund each year in excess
of the sums needed to meet the debt service requirements of the Authority's bonded indebtedness does not constitute
a sinking fund for the payment of principal of and interest on the outstanding bonded indebtedness of the Authority.
Any such excess is customarily appropriated and expended for educational purposes generally.
The appropriation and pledge of the Pledged Revenues as security for the Bonds are subject to prior
appropriations and pledges made for the benefit of previously issued bonds of the Authority (the "Prior Lien
Bonds").
15
The following table contains all Prior Lien Bonds that will be outstanding when the Bonds are issued and
the refunding plan is implemented. See “PLAN OF REFUNDING” herein. Certain of the Authority’s bonds have
been refunded but nevertheless are considered outstanding under the respective authorizing resolutions until their
redemption dates. The following table does not include such bonds, nor does it include the Series 2005 Bonds or the
Series 2006 Bonds (which will be considered outstanding under their respecting authorizing resolutions until their
redemption dates), because the payment of the principal of and interest on such obligations has been (and with
respect to the Refunded Bonds will be upon issuance of the Bonds) irrevocably provided for through the
establishment of an escrow fund.
TABLE I
Prior Lien Bonds
Bond Series
School
Board Loan
Bonds(1)
Capital
Outlay
Bonds(2)
2010/2012
Act School
Board Loan
Bonds(3)
Total
Final
Maturity
Lien
Position
Capital Improvement Bonds, Series 2007 $842,480,000 $842,480,000 2027 1
Capital Improvement Bonds, Series 2008-A $38,270,000 38,270,000 2028 2
Capital Improvement Refunding Bonds,
Series 2009-A
290,130,000
290,130,000
2024
3
Capital Improvement Pool Refunding
Bonds, Series 2009-B
101,740,000
101,740,000
2019
3
Capital Improvement Pool Bonds, Series
2009-C
30,350,000
30,350,000
2029
3
Capital Improvement Pool Qualified School
Construction Bonds, Series 2009-D (Tax
Credit Bonds)
145,880,000
145,880,000
2025
4
Capital Improvement Refunding Bonds,
Series 2010-A
109,775,000
109,775,000
2019
5
2010 Capital Improvement Pool QSCB
Direct Loan Bonds
154,727,000
154,727,000
2027
6
Capital Improvement Direct Loan Bonds,
Series 2010-C
50,070,000
50,070,000
2020
7
Taxable Capital Improvement Direct Loan
Bonds, Series 2010-D
12,795,000
12,795,000
2020
7
Capital Improvement Pool QZAB Bonds,
Series 2011-A
51,270,000
51,270,000
2026
8
Capital Improvement Pool Refunding
Bonds, Series 2011-B
18,130,000
18,130,000
2021
8
Pool Refunding Bonds, Series 2012-A 66,925,000 66,925,000 2024 9
Capital Improvement, Economic
Development and Training Refunding
Bonds Series 2012-B
85,435,000
85,435,000
2029
9
Tax-Exempt Capital Improvement Direct
Loan Bonds, Series 2012-C
5,225,000
5,225,000
2022
10
Taxable Capital Improvement Direct Loan
Bonds, Series 2012-D
24,995,000
24,995,000
2022
10
Capital Improvement Pool Bonds, Series
2013-A
119,085,000
119,085,000
2033
11
Capital Improvement Pool Bonds, Series
2013-B
53,625,000
53,625,000
2033
11
Capital Improvement Bonds, Series 2013-C 80,000,000 80,000,000 2033 12
Capital Improvement Pool Bonds, Series
2013-D
23,985,000
23,985,000
2033
12
(1) School Board Loan Bonds are expected to be paid from repayment of loans made to participating local boards of education; however, these
bonds are secured by the Pledged Revenues. See “THE AUTHORITY; THE EDUCATION TRUST FUND; ROLLING RESERVE ACT –
Outstanding Bonds”. (2) Capital Outlay Bonds are expected to be paid with Pledged Revenues. See “THE AUTHORITY; THE EDUCATION TRUST FUND;
ROLLING RESERVE ACT – Outstanding Bonds”. (3) 2010/2012 Act School Board Loan Bonds are expected to be paid, in part, from repayment of loans made to participating local boards of education; however, these bonds are secured by the Pledged Revenues.
16
When issued, and upon the deposit of the proceeds from the Bonds into the Refunded Bonds Escrow
Agreement as described in "THE BONDS - Purpose", and "PLAN OF REFUNDING" above, the Bonds will
effectively occupy a 14th
lien position respecting the Pledged Revenues. Because the establishment of an escrow
fund relating to the Series 2005 Bonds and the Series 2006 Bonds alone will not result in the legal defeasance of
such indebtedness, those bonds will remain legally secured by the Pledged Revenues in the first and second lien
position, respectively, until their respective redemption dates. In effect, however, payment of such refunded bonds
has been irrevocably provided for through the establishment of said escrow fund.
The actual debt service on the Prior Lien Bonds, less and except the Refunded Bonds and all other
outstanding obligations of the Authority for which an irrevocable escrow fund has been established for the payment
of all debt service (collectively, the “Refunded Prior Lien Bonds”) for each fiscal year is shown in Table III below.
The following Table II sets out the total principal amount of the Authority's bonded indebtedness
outstanding as of the end of each of the State's fiscal years ended September 30, 2004 through and including
September 30, 2013:
TABLE II
Total Outstanding Prior Principal Indebtedness
Payable Out of Pledged Revenues
Fiscal Year Ended
September 30
Outstanding Principal
Indebtedness
2004 $1,487,305,000
2005 1,499,645,000
2006 1,442,970,000
2007 1,355,205,000
2008 2,326,970,000
2009 2,253,340,000
2010 2,497,627,000
2011 2,543,322,000
2012 2,424,867,000
2013 2,304,892,000
Source: State of Alabama Comprehensive Annual Financial Reports and State of Alabama Department of Finance.
Debt Service Requirements on Prior Lien Bonds
The following table contains debt service requirements on Prior Lien Bonds that will be outstanding after
the Bonds are issued (but does not include debt service on any Refunded Prior Lien Bonds). Additionally, on March
1, 2013, the federal government implemented certain automatic spending cuts referenced informally as
“sequestration.” Pursuant to subsequent guidance issued by the Tax-Exempt Bond Office of the Internal Revenue
Service, the effects of sequestration reduced the interest subsidy payments due from the Secretary of the Treasury to
all issuers of certain direct-pay tax credit bonds, including Qualified School Construction Bonds and Qualified Zone
Academy Bonds, by 8.7% for the fiscal year ended September 30, 2013. The below debt service requirements for
the Prior Lien Bonds (specifically, the Series 2010 QSCBs and the Series 2011-A QZAB Bonds) shown below do
not reflect the impact of sequestration.
17
TABLE III
Debt Service Requirements on Prior Lien Bonds
(in thousands)
Fiscal Year
Ending
September 30
Series
2007
Bonds
Series
2008-A
Bonds
Series
2009
Bonds(1)
Series
2010
Bonds(2)
Series
2011
Bonds(3)
Series
2012
Bonds(4)
Series
2013
Bonds(5)
Total Debt
Service on
Outstanding
Bonds
2014 $83,659 $3,631 $110,120 $54,185 $3,475 $16,585 $15,575 $287,230
2015 83,435 3,631 110,174 31,002 3,475 21,522 17,522 270,761
2016 83,210 3,632 110,258 35,235 3,475 21,317 17,218 274,345
2017 82,659 3,629 110,276 35,280 3,475 23,222 17,202 275,743
2018 82,128 3,630 78,533 48,509 3,475 23,188 25,909 265,372
2019 81,612 3,628 72,440 56,396 8,440 23,232 25,892 271,640
2020 84,526 3,628 21,305 22,829 9,647 23,762 25,863 191,560
2021 83,861 3,625 21,310 22,952 9,651 23,500 25,834 190,734
2022 83,207 3,628 21,309 7,548 2,568 23,233 25,817 167,310
2023 79,145 3,629 21,306 7,548 2,568 15,873 25,794 155,863
2024 78,679 3,627 21,306 7,548 2,568 11,672 15,926 141,326
2025 78,209 3,628 13,217 7,548 2,568 2,028 19,190 126,388
2026 77,743 3,624 11,172 7,548 2,568 2,025 19,199 123,879
2027 77,478 3,615 2,900 7,548 - 2,029 19,204 112,774
2028 78,170 3,609 2,905 - - 2,029 19,217 105,930
2029 - - 2,903 - - 2,030 19,224 24,157
2030 - - - - - - 19,037 19,037
2031 - - - - - - 19,116 19,116
2032 - - - - - - 19,106 19,106
2033 - - - - - - 18,993 18,993
Total $1,217,721 $54,394 $731,437 $351,674 $57,953 $237,247 $410,838 $3,061,265
(1) Includes Series 2009-A Bonds, Series 2009-B Bonds, Series 2009-C Bonds, and Series 2009-D Bonds. The Series 2009-D Bonds are tax credit bonds with a stated maturity of $145,880,000 in 2025. The Authority is required to make sinking fund
deposits each year in the amount of $7,591,768 referable to such bonds (all of which have been made as scheduled). The
Authority has entered an investment agreement with Bayerische Landesbank (“BLB”) for the investment of such sinking fund
deposits, providing an investment return rate of 3.40% per annum. Debt service on Series 2009-D Bonds as shown above
includes the required annual sinking fund payments plus interest on the Series 2009-D Bonds, but does not include that portion
of the principal of the Series 2009-D Bonds expected to be paid from the investment agreement ($32,003,465). (2) Includes Series 2010-A Bonds, Series 2010-C Bonds, Series 2010-D Bonds, and Series 2010 QSCBs Bonds. The Series 2010
QSCBs are Qualified School Construction Bonds with a stated maturity of $154,727,000 in 2027. The Authority is required to
make sinking fund deposits each year in the amount of $6,895,316.91 to provide for payment of the principal of the Series 2010 QSCBs at maturity (all of which have been made as scheduled). The Authority has entered into an investment agreement with
BLB for the investment of the annual sinking fund deposits, providing an investment return rate of 3.334% per annum. The
Authority expects to receive an interest subsidy on the Series 2010 QSCBs from the United States Treasury. Debt service on Series 2010 QSCBs Bonds as shown above includes the required annual sinking fund payments plus interest payable net of the
interest subsidy the Authority expects to receive from the Treasury. The interest subsidy payments, as shown, have not been
prorated to reflect the impact of sequestration. (3) Includes Series 2011-A QZAB Bonds and Series 2011-B Bonds. The Series 2011-A QZAB Bonds are Qualified Zone
Academy Bonds with a stated maturity of $51,270,000 in 2026. The Authority is required to make sinking fund deposits each
year in the amount of $2,568,402.10 to provide for payment of the principal of the Series 2011-A QZABs at maturity. The Authority has entered into an investment agreement with Bayerische Landesbank for the investment of the annual sinking fund
deposits, providing an investment return rate of 3.92% per annum. The Authority expects to receive an interest subsidy on the
Series 2011-A QZABs from the United States Treasury. For purposes of this table, debt service on the Series 2011-A QZABs
includes the required annual sinking fund payments plus interest payable on the Series 2011-A QZABs net of the interest subsidy
the Authority expects to receive from the Treasury. The interest subsidy payments, as shown, have not been prorated to reflect the impact of sequestration. (4) Includes Pool Refunding Bonds, Series 2012-A, Capital Improvement, Economic Development and Training Refunding
Bonds, Series 2012-B, Tax-Exempt Capital Improvement Direct Loan Bonds, Series 2012-C, and Taxable Capital Improvement Direct Loan Bonds, Series 2012-D. (5) Includes Capital Improvement Pool Bonds, Series 2013-A and Capital Improvement Pool Bonds, Series 2013-B, 2013 Capital
Improvement Bonds, Series 2013-C, and Capital Improvement Pool Bonds, Series 2013-D.
18
Estimated Debt Service Requirements on the Bonds
The following table displays the estimated debt service requirements on the proposed Bonds.
TABLE IV
Fiscal Year Principal Interest Total
2014 - $ 606,051 $ 606,051
2015 $5,745,000 3,405,700 9,150,700
2016 5,895,000 3,259,825 9,154,825
2017 6,075,000 3,080,275 9,155,275
2018 6,290,000 2,863,350 9,153,350
2019 6,545,000 2,606,650 9,151,650
2020 6,850,000 2,304,500 9,154,500
2021 7,200,000 1,953,250 9,153,250
2022 7,570,000 1,584,000 9,154,000
2023 7,955,000 1,195,875 9,150,875
2024 8,360,000 788,000 9,148,000
2025 8,795,000 359,125 9,154,125
2026 2,785,000 69,625 2,854,625
Coverage of Total Debt Service
The following table displays the estimated coverage of annual debt service on all Prior Lien Bonds and the
Bonds (but excludes debt service on all Refunded Prior Lien Bonds).
TABLE V
Estimated Coverage of Total Debt Service
(in thousands)
Fiscal Year
Ending
September 30,
Debt Service on
Prior Lien
Bonds(1)
Estimated Debt
Service on the
Bonds
Estimated
Total Debt
Service
Estimated
Pledged
Revenues(2)
Estimated
Debt Service
Coverage
2014 $287,230 $ 606 $287,836 $2,148,145 7.46
2015 270,761 9,151 279,912 2,148,145 7.67
2016 274,345 9,155 283,500 2,148,145 7.58
2017 275,743 9,155 284,898 2,148,145 7.54
2018 265,372 9,153 274,525 2,148,145 7.82
2019 271,640 9,152 280,792 2,148,145 7.65
2020 191,560 9,155 200,714 2,148,145 10.70
2021 190,734 9,153 199,887 2,148,145 10.75
2022 167,310 9,154 176,464 2,148,145 12.17
2023 155,863 9,151 165,014 2,148,145 13.02
2024 141,326 9,148 150,474 2,148,145 14.28
2025 126,388 9,154 135,542 2,148,145 15.85
2026 123,879 2,855 126,734 2,148,145 16.95
2027 112,774 - 112,774 2,148,145 19.05
2028 105,930 - 105,930 2,148,145 20.28
2029 24,157 - 24,157 2,148,145 88.92
2030 19,037 - 19,037 2,148,145 112.84
2031 19,116 - 19,116 2,148,145 112.37
2032 19,106 - 19,106 2,148,145 112.43
2033 18,993 - 18,993 2,148,145 113.10
19
(1) From Table III. Does not include the Refunded Bond or any other outstanding Refunded Prior Lien Bonds. (2) Based upon fiscal year 2013 receipts as reflected in Table IX under the caption “SUMMARY OF PLEDGED REVENUES”. Does not include the
Refunded Bond and any other Refunded Prior Lien Bonds.
HISTORY OF THE UTILITY GROSS RECEIPTS TAX
AND THE UTILITY SERVICE USE TAX
The State levies the Utility Gross Receipts Tax on gross sales or gross receipts from utility services
furnished by a utility in the State regularly engaged in furnishing utility services to the public in the State. The tax is
levied even if the utility services are furnished by a municipal corporation or other governmental agency. For every
utility furnishing electricity, domestic water or natural gas, the current tax rate is 4% of the first $40,000 of monthly
gross sales or gross receipts, plus 3% of the next $20,000 of monthly gross sales or gross receipts, and 2% of all
monthly gross sales or gross receipts over $60,000. For every utility furnishing telegraph or telephone services, the
current tax rate is 6% of monthly gross sales or gross receipts. The Legislature has exempted from the Utility Gross
Receipts Tax and the Utility Service Use Tax certain utility services.
The State levies the Utilities Service Use Tax on the sales price of utilities services furnished by any utility
when stored, used or otherwise consumed in the State. The Utilities Service Use Tax is supplemental and
complementary to the Utility Gross Receipts Tax. The Utilities Service Use Tax is levied at the Utility Gross
Receipts Tax rates in those instances where the Utility Gross Receipts Tax would be levied if the utility services
stored, used or otherwise consumed in the State were being furnished by a utility subject to the Utility Gross
Receipts Tax in the State.
The Utility Gross Receipts Tax and the Utility Service Use Tax were first levied as of September 1, 1969,
with the tax rates being the same regardless of the type of utility service provided. In the original levy, a 4% tax rate
applied to the first $8,500 of monthly gross sales or gross receipts, a 3% tax rate applied to the next $11,500 of gross
sales or gross receipts, a 2% tax rate applied to the next $20,000 of gross sales or gross receipts, and a l% tax rate
applied to all monthly gross sales or gross receipts over $40,000. On July 1, 1971, the rate structure for the Utility
Gross Receipts Tax and Utility Service Use Tax was modified to provide for a levy of such taxes at the rate of 4%
of the first $40,000 of monthly gross sales or receipts, 3% of the next $20,000 of gross sales or gross receipts, and
2% of all monthly gross sales or gross receipts over $60,000, regardless of the type of utility service provided. On
October 1, 1992, a bifurcated rate structure of 6.7% of the first $60,000 of monthly gross sales or gross receipts, and
3.7% of all monthly gross sales or gross receipts over $60,000 became effective for utilities furnishing telegraph or
telephone services. On February 1, 2002, the levy was extended, as applied to telephone services, to include
interstate telephone service. On April 1, 2002, the rate structure was modified to provide for the current flat rate of
6% for utilities furnishing telegraph or telephone services.
The statutes under which the Utility Gross Receipts Tax is levied provide for the deposit of all receipts
from the imposition of the tax into the State Treasury to the credit of the Education Trust Fund, less expenses of
administration, and beginning in the fiscal year ended September 30, 1993, less an annual deposit of $14,600,000
into the State Treasury to the credit of the Special Mental Health Fund, with one fourth of such amount being
deposited each quarter. Effective October 1, 2002, utilities furnishing telegraph or telephone services are allowed to
retain and deduct .25% from the gross amount of tax billed by the utility. The statutes under which the Utility
Service Use Tax is levied provide for the deposit of all receipts from the imposition of the tax into the State Treasury
to the credit of the Education Trust Fund, less expenses of administration.
While over the past several years the State has experienced growth in annual receipts from portions of the
Utility Gross Receipts Tax and the Utility Service Use Tax paid into the Education Trust Fund, these receipts are
sensitive to many factors, including the national economic crisis and the stress and weakness experienced in the
State economy, the impact of weather on the cost of heating and cooling homes, fluctuating utility rates, the trend
towards energy conservation, federal tax credits for purchases of energy-efficient products, and the current trend
away from residential land line telephones. Receipts in the fiscal year ended September 30, 2010, were
approximately $10,900,000 above receipts for the fiscal year ended September 30, 2009. Receipts in the fiscal year
20
ended September 30, 2011 were approximately $27,700,000 below receipts for the fiscal year ended September 30,
2010. Receipts in the fiscal year ended September 30, 2012 were approximately $27,000,000 below receipts for the
fiscal year ended September 30, 2011. Receipts in the fiscal year ended September 30, 2013 were approximately
$18,200,000 above receipts for the fiscal year ended September 30, 2012.
The following table reflects the net receipts, as reported by the Finance Department, from the Utility
Gross Receipts Tax and the Utility Service Use Tax paid into the Education Trust Fund during the fiscal years indicated.
TABLE VI
Utility Gross Receipts Tax and
Utility Service Use Tax Receipts
Paid into the Education Trust Fund
Fiscal Year Ended
September 30,
Net Receipts(1)
2004 $325,844,204
2005 331,322,319
2006 376,871,893
2007 386,856,154
2008 411,878,603
2009 410,861,657
2010 421,752,418
2011 394,044,542
2012 367,021,428
2013 385,243,381
(1) See above description for an explanation of the volatility of receipts of the Utility Gross Receipts Tax and the Utility Service Use Tax.
Source: State Comptroller’s Office Comparison of Net Receipts Reports.
There is no assurance that (i) any growth experienced during prior years in the total receipts from the
Utility Gross Receipts Tax and the Utility Service Use Tax will occur in the future or that there will be any growth
in such receipts in the future, or (ii) there will not be decreases in such receipts in the future.
HISTORY OF THE SALES AND USE TAXES
The State levies the Sales Tax on retail sales of tangible personal property and admission fees. Generally,
the tax is levied at the rate of 4% of gross sales or gross receipts; however, a 3% tax rate is levied on sales of
vending machine food products, a 2% tax rate is levied on sales of motor vehicles, and a 1.5% tax rate is levied on
sales of agricultural, mining and manufacturing equipment. The Use Tax is supplemental and complementary to the
Sales Tax. The Use Tax is levied at the Sales Tax rates on the storage, use or consumption of tangible personal
property in the State in those instances where the Sales Tax would be levied if the seller were subject to the Sales
Tax in the State. The Legislature has exempted from the Sales Tax and Use Tax sales and uses of certain items of
tangible personal property.
The Sales Tax was first levied as of March 1, 1937, and the Use Tax was first levied as of March 1, 1939.
Originally, these taxes were levied at the general rate of 2%; however, a .5% tax rate was applied to sales and uses
of automotive vehicles. On October 1, 1951, the general tax rate was increased to 3%, and the tax rate imposed on
sales and uses of automotive vehicles was increased to 1%. On October 1, 1959, the tax rate imposed on sales and
uses of automotive vehicles was increased to 1.5%, and the same tax rate was made applicable to sales and uses of
mining and manufacturing equipment. On October 1, 1963, the general tax rate was increased to 4%. On October 1,
21
1966, a 1.5% tax rate was made applicable to sales and uses of agricultural equipment. On October 1, 1973, a 3%
tax rate was made applicable to sales of vending machine food products. On October 1, 1988, the tax rate imposed
on sales and uses of automotive vehicles was increased to 2%.
A monthly Sales Tax and Use Tax discount is available to licensed retailers that pay the tax before
delinquency; provided, however, that the maximum discount available to any license holder is $400 per month.
Effective June 1, 1996, the Sales Tax discount is 5% of the first $100 of taxes levied and 2% of taxes levied over
$100. From October 1, 1992 until May 31, 2001, the Use Tax discount was 3% of taxes levied and thereafter was
reduced to zero. While the reduction of the allowable deductions increased revenues, such increased revenues were
dedicated for purposes other than the Education Trust Fund.
The statutes under which the present Sales Tax is levied provide for distribution of the receipts from the
imposition of the tax for the following purposes: (a) for payment of expenses of administration; (b) for payment to
the several counties of moneys according to a fixed formula, the maximum aggregate amount to be paid out to all
the counties in any fiscal year being $378,000; (c) for payment to the State Department of Human Resources each
fiscal year of the sum of $1,322,000; (d) beginning October 1, 2002, for payment to the Department of Conservation
and Natural Resources each fiscal year of the sum of $5,000,000 of the increase in tax receipts due to the cap
imposed on license holder discounts, and the balance of the sum equal to the increase in tax receipts due to the cap
on license holder discounts to the credit of the State General Fund; (e) for payment to the State Department of
Human Resources each fiscal quarter of the sum equal to 5% of the value of food stamp benefits issued in the state
in excess of amounts paid by the recipients of same during the immediately preceding quarter, limited to the
amount of 1976-77 fiscal year "administrative costs, normal inflationary increases and mandated administration
requirements of the Legislature and the United States Department of Agriculture"; (f) for deposit into the State
Treasury to the credit of the State General Fund of 42% of the tax levied on sales of automotive vehicles, and 50%
of the tax levied on sales of motorboats not collected by the seller; and (g) for deposit into the State Treasury to the
credit of the Education Trust Fund of the remaining balance.
A recently enacted law will alter distribution of the receipts from the Sales Tax. As described more
particularly in APPENDIX A - “Certain Information Regarding the State of Alabama – Receipts, Disbursements,
Taxes and Revenues – Recent Legislative Enactments”, in March 2013, the Legislature passed and the Governor
signed into law the Alabama Accountability Act of 2013 (Act No. 2013-64), which, among other things, (1) allows
for flexibility contracts between the State Board of Education and local public school districts in order to enhance
innovation in Alabama public schools, (2) creates income tax credits for families with students in a failing school to
attend a nonpublic school or non-failing public school, and (3) creates income tax credits for taxpayers who donate
to a nonprofit organization that provides scholarships for students to attend a nonpublic school or non-failing public
school. The income tax credits for families with students in a failing school are refundable tax credits, which means
that, if the Alabama income taxes owed by the family are less than the total credit allowed under the act, the family
is entitled to a refund or rebate equal to the balance of the unused credit. The act provides that these refunds or
rebates are to be paid out of Sales Tax collections of the Education Trust Fund. The act has an effective date of
March 14, 2013, but it is expected that the act will first have a fiscal effect beginning with the State’s budget for the
fiscal year beginning October 1, 2013 and ending September 30, 2014. The estimated fiscal effect for that fiscal year
is $40,000,000.
The statutes under which the Use Tax is levied provide for distribution of the receipts from the imposition
of the tax for the following purposes: (a) for payment of expenses of administration; (b) for deposit into the State
Treasury to the credit of the State General Fund of 42% of the tax levied on uses of automotive vehicles, and 50% of
the tax levied on uses of motorboats not collected by the seller; and (c) (1) for deposit into the State Treasury to the
credit of the State General Fund, 75% of the remote use tax amounts (collected from out-of-state vendors who do
not have nexus in Alabama and from consumers on individual tax returns) and for deposit into the State Treasury to
the credit of the State Education Trust Fund, 25% of the remote use tax amounts and (2) for deposit into the State
Treasury to the credit of the State General Fund, 25% of the remaining amount and for deposit into the State
Treasury to the credit of the State Education Trust Fund, 75% of the remaining amount. The provisions stated in the
foregoing clause (c) were effected pursuant to Act No. 2012-599 enacted at the 2012 Regular Session of the
Legislature, before the adoption of which 100% of said amounts were deposited into the Education Trust Fund.
22
The State generally experienced growth in annual receipts from the Sales Tax and Use Tax paid into the
Education Trust Fund in the early part of the past decade. However, the national economic crisis that began in 2008
was reflected in retail sales in Alabama and resulted in an overall decrease in the amounts paid into the Education
Trust Fund for the fiscal years ended 2008 and 2009. That trend has improved in the past three fiscal years, but Sales
Tax and Use Tax receipts still have not recovered to the levels reached in 2007 and 2008 prior to the onset of the
economic crisis.
The following table reflects the net receipts from the Sales Tax paid into the Education Trust Fund and
available to pay debt service on bonds funded by these taxes during the fiscal years indicated.
TABLE VII
Sales Tax Receipts Paid
Into the Education Trust Fund
Fiscal Year Ended
September 30,
Net Receipts from Sales Tax
Paid into the Education Trust
Fund
2004 $1,422,716,833
2005 1,501,483,887
2006 1,611,508,358
2007 1,727,612,404
2008 1,711,075,440
2009 1,466,650,167
2010 1,566,189,792
2011 1,582,323,836
2012 1,652,038,181
2013 1,543,676,300
Source: State Comptroller’s Office Comparison of Net Receipts Reports.
There is no assurance that (i) any growth experienced during prior years in the total receipts from the Sales
Tax will occur in the future or that there will be any growth in such receipts in the future, or (ii) there will not be
decreases in such receipts in the future.
As stated above, pursuant to Act No. 2012-599, 25% of the Use Tax remaining after designated payments
will be deposited into the General Fund instead of the Education Trust Fund. The following table reflects (a) the net
receipts from the Use Tax paid into the Education Trust Fund and available to pay debt service on bonds funded by
these taxes during the fiscal years indicated prior to the adoption of Act No. 2012-599 and (b) the estimated net
receipts that would have been available to the Education Trust Fund if Act No. 2012-599 had been in effect during
such fiscal years.
TABLE VIII
Use Tax Receipts Paid
Into the Education Trust Fund
Fiscal Year Ended
September 30,
Net Receipts from Use Tax
Paid into the Education
Trust Fund
Estimate of Net Receipts
from Use Tax that
Would have Been Paid
into the Education Trust
Fund if Act No. 2012-
599 Had Been in Effect
2004 $193,528,712 $145,146,534
2005 220,352,865 165,264,649
2006 247,778,389 185,833,792
2007 257,348,080 193,011,060
23
2008 258,438,577 193,828,933
2009 237,459,416 178,094,562
2010 237,870,615 178,402,961
2011 256,998,715 192,749,036
2012 274,448,808 205,836,606
2013 219,225,495 219,225,495
Source: State Comptroller’s Office Comparison of Net Receipts Reports.
There is no assurance that (i) any growth experienced during prior years in the total receipts from the State
Tax and the Use Tax will occur in the future or that there will be any growth in such receipts in the future, or (ii)
there will not be decreases in such receipts in the future.
SUMMARY OF PLEDGED REVENUES
The following table reflects the total net receipts, as reported by the Finance Department, of the Pledged
Revenues paid into the Education Trust Fund during the fiscal years indicated.
TABLE IX
Pledged Revenue Receipts
Paid into the Education Trust Fund
Fiscal Year Ended
September 30,
Aggregate Net Receipts Paid Into
the Education Trust Fund(1)
2004 $1,893,707,571
2005 1,998,070,855
2006 2,174,214,043
2007 2,307,479,618
2008 2,316,782,976
2009 2,055,606,386
2010 2,166,345,171
2011 2,169,117,414
2012 2,224,896,215
2013 2,148,145,176
(1) Sum of net receipts reflected in Tables VI and VII and in Table VIII under the caption “Estimate of Net Receipts from Use Tax That Would
Have Been Paid into the Education Trust Fund If Act No. 2012-599 Had Been in Effect”.
LITIGATION
There is no litigation pending or, to the knowledge of the Authority, threatened to restrain or enjoin the
authorization, sale or delivery of the Bonds or adversely affecting the power of the Authority to apply the Pledged
Revenues to the payment of the Bonds. Appendix A includes descriptions of certain pending cases challenging the
application of certain taxes, but neither the State nor the Authority is a party to any legal proceeding challenging the
validity of the Pledged Taxes.
From time to time, the Authority is named as a defendant in lawsuits arising out of contractual disputes
relating to construction of projects financed with funds supplied by the Authority. Such lawsuits do not adversely
affect the ability of the Authority to issue the Bonds or to apply the Pledged Revenues to the payment thereof.
There are other pending lawsuits involving the State, unrelated to the Authority, the Bonds, or the Pledged
Revenues, an adverse decision in which may have a detrimental effect on the State's financial position or revenues.
See Appendix A "Certain Information Regarding the State of Alabama - Litigation".
24
RISK FACTORS
General
An investment in the Bonds involves certain risks which should be carefully considered by investors. The
sufficiency of the Pledged Revenues to pay debt service on the Bonds may be affected by events and conditions
relating to, among other things, population trends and political and economic developments in the State, the nature
and extent of which are not presently determinable. The sufficiency of Pledged Revenues to pay debt service on the
Bonds may also be affected by the ongoing economic recession being experienced nationwide, which is having an
adverse impact on many sectors of the State economy including employment, tax collections and other sources of
revenue for the State.
Each prospective investor should carefully examine his own financial condition in order to make a
judgment as to his ability to bear the risk of an investment in the Bonds.
Holders of the Bonds should be aware that their rights and the enforceability thereof may be subject to
bankruptcy, insolvency, reorganization, sovereign immunity, moratorium and other similar laws affecting creditors’
rights and the exercise of judicial discretion in appropriate cases.
The risk factors discussed herein should be considered in evaluating the Authority’s ability to make
payments of the principal of and interest due on the Bonds. This discussion of risk factors is not intended to be
exhaustive and should be read in conjunction with all other parts of this Official Statement, including, without
limitation, APPENDIX A hereto.
State Legislative Action and Control
The Authority is subject to the virtually plenary powers of the Legislature. The existing state laws that
effectively govern the appropriation, distribution and use of the Pledged Revenues may be amended at any regular
or special session of the Legislature. For example, as described more particularly in “HISTORY OF THE SALES
AND USE TAXES”, the Legislature recently has enacted laws that affect distribution of a portion of the Pledged
Revenues. While the Legislature is prohibited by the United States Constitution and the Constitution of Alabama of
1901 from enacting any law impairing the obligations of contracts, or destroying or impairing the remedy for their
enforcement, the Authority cannot predict whether any amendment to existing state laws, and which would
materially and adversely affect the receipt, appropriation, distribution, or use of any of the Pledged Revenues, would
be subject to and prohibited by such constitutional provisions.
Sovereign Immunity
Under the doctrine of sovereign immunity, a state of the United States of America cannot be sued by its
own citizens. Under the United States Constitution a state cannot be sued by citizens of another state of the United
States of America or by citizens or subjects of a foreign state. The doctrine of sovereign immunity applies to the
State, and the issuance of indebtedness by the State does not constitute express consent by the State to be sued by
the holders of such indebtedness. Section 14 of the Alabama Constitution provides that the State shall never be made
a defendant in any court of law or equity. The Supreme Court of Alabama has held that the immunity granted by
Section 14 cannot be waived by the Legislature or any State authority. This constitutional prohibition of suits against
the State extends to officers of the State acting in their official capacities, subject to certain limited exceptions, such
as actions to compel state officials to perform ministerial acts.
The Supreme Court of Alabama held in Wheeler v. George, 39 So. 3d 1061 (Ala. 2009), that the Alabama
Incentives Finance Authority, a public corporation of the State (the “AIFA”), is a State agency for purposes of State
immunity due to the character of the power delegated to the AIFA, the AIFA’s relationship to the State, and the
nature of the functions AIFA performs. It is unclear whether or not a court would treat the Authority as a State
agency for purposes of State immunity, but if so there can be no assurance that holders of the Bonds would have any
right of action against the Authority to enforce the obligations of the Authority under the Bonds in the event the
Authority fails to make timely payment of principal or interest on the Bonds. Certain officers of the Authority,
however, under existing law, are subject to mandamus in the event that they have Pledged Revenues available for
25
payment of debt service on the Bonds and do not apply such Pledged Revenues as and to the extent provided in the
Authorizing Act and the Resolution.
Constitutional Reform
The Authority cannot predict with certainty whether, during the term of the Bonds, any amendment to the
Constitution of Alabama of 1901, or a new constitution, would be enacted which would materially and adversely
affect the receipt, appropriation, distribution, or use of the Pledged Revenues.
Tax-Exempt Status of Bonds
It is expected that the Bonds will qualify as tax-exempt obligations for federal income tax purposes as of
the date of issuance. See “TAX MATTERS”. It is anticipated that Bond Counsel will render an opinion substantially
in the form attached hereto as APPENDIX C, which should be read in its entirety for a complete understanding of
the scope of the opinions and the conclusions expressed therein. A legal opinion expresses the professional judgment
of the attorney rendering the opinion as to the legal issues explicitly addressed therein. By rendering a legal opinion,
the opinion giver does not become an insurer or guarantor of that expression of professional judgment, of the
transaction opined upon, or of the future performance of parties to the transaction. Nor does the rendering of an
opinion guarantee the outcome of any legal dispute that may arise out of the transaction.
The tax status of the Bonds could be affected by post-issuance events. There are various requirements of
the Code that must be observed or satisfied after the issuance of the Bonds in order for the Bonds to qualify for, and
retain, tax-exempt status. These requirements include, without limitation, appropriate use of the proceeds of the
Bonds, use of the facilities financed by the Bonds, investment of bond proceeds, and the rebate of so-called excess
arbitrage earnings. Compliance with these requirements is the responsibility of the Authority.
The Internal Revenue Service conducts an audit program to examine compliance with the requirements
regarding tax-exempt status. Under current IRS procedures, in the initial stages of an audit with respect to the
Bonds, the Authority would be treated as the taxpayer, and the owners of the Bonds may have limited rights to
participate in the audit process. The initiation of an audit with respect to the Bonds could adversely affect the market
value and liquidity of the Bonds, even though no final determination about the tax-exempt status has been made. If
an audit results in a final determination that the Bonds do not qualify as tax-exempt obligations, such a
determination could be retroactive in effect to the date of issuance of the Bonds.
In addition to post-issuance compliance, a change in law after the date of issuance of the Bonds could affect
the tax-exempt status of the Bonds or the effect of investing in the Bonds. For example, the United States Congress
could eliminate or limit the exemption for interest on the Bonds, or it could reduce or eliminate the federal income
tax, or it could adopt a so-called flat tax. It cannot be predicted whether or in what form any such change in law may
be enacted or whether, if enacted, any such change in law would apply to the Bonds.
The Resolution does not require the Authority to redeem the Bonds and does not provide for the payment
of any additional interest or penalty if a determination is made that the Bonds do not comply with the existing
requirements of the Code or if a subsequent change in law adversely affects the tax-exempt status of the Bonds or
the effect of investing in the Bonds.
LEGAL INVESTMENTS AND SECURITY FOR DEPOSIT
The 1965 Act provides that: (1) the Bonds qualify in the State for the investment of fiduciary funds held by
any trustee, executor, administrator, guardian or one acting in any other fiduciary capacity except where the
document that is the source of authority or the court having jurisdiction over the fiduciary relationship provides
otherwise, and (2) the Bonds may be used by the holders thereof as security for the deposit of any funds of the State
or any political subdivision, instrumentality or agency of the State in any instance where security for the deposit may
be required by law.
26
TAX MATTERS
Opinion of Bond Counsel
In the opinion of Bond Counsel to the Authority, under the Internal Revenue Code of 1986, as
amended (the "Code"), as presently construed and administered, and assuming compliance by the Authority
with its covenants pertaining to certain requirements of federal tax law that are described herein and set forth
in the Resolution, the interest on the Bonds will be excludable from gross income of the recipients thereof for
federal income tax purposes pursuant to the provisions of Section 103(a) of the Code, and the interest on the
Bonds will not be an item of tax preference included in alternative minimum taxable income for the purpose of
computing the minimum tax imposed by Section 55 of the Code. Such interest, however , is included in the
adjusted current earnings of certain corporations for purposes of calculating the alternative minimum tax
imposed on such corporations.
Bond Counsel to the Authority is also of the opinion that, under existing statutes, the interest on the
Bonds is exempt from Alabama income taxation.
Bond Counsel to the Authority expresses no opinion regarding any other federal or any state tax
consequences with respect to the Bonds. Bond Counsel to the Authority renders its opinion under existing
statutes and court decisions as of the issue date and assumes no obligation to update its opinion after the issue
date to reflect any future action, fact or circumstance, or change in law or interpretation, or otherwise. Bond
Counsel to the Authority expresses no opinion on the effect of any action taken in reliance upon an opinion of
other counsel on the exclusion from gross income for federal income tax purposes of interest on the Bond s.
Certain Collateral Federal Tax Consequences
The following is a brief discussion of certain collateral federal income tax matters with respect to the
Bonds. It does not purport to deal with all aspects of federal taxation that may be relevant to a particular owner
of a Bond. Prospective investors, particularly those who may be subject to special rules, are advised to consult
their own tax advisors regarding the federal tax consequences of owning and disposing of the Bond s.
Prospective owners of the Bonds should be aware that the ownership of such obligations may result in
collateral federal income tax consequences to various categories of persons, such as corporations (including S
corporations and foreign corporations), financial institutions, property and casualty and life insurance
companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise
eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to
purchase or carry obligations the interest on which is not included in gross income for federal income tax
purposes. Interest on the Bonds may be taken into account in determining the tax liability of foreign
corporations subject to the branch profits tax imposed by Section 884 of the Code.
Original Issue Premium
The initial public offering price to be paid for certain of the Bonds (the "Original Issue Premium
Bonds") is greater than the principal amount thereof. Under existing law, any owner who has purchased an
Original Issue Premium Bond in the initial public offering of the Bonds is r equired to reduce his basis in such
Original Issue Premium Bond by the amount of premium allocable to periods during which he holds such
Original Issue Premium Bond, and the amount of premium allocable to each accrual period will be applied to
reduce the amount of interest received by the owner during each such period. All owners of Original Issue
Premium Bonds should consult their own tax advisors with respect to the determination for federal, state and
local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue
Premium Bond and with respect to the federal, state, local and foreign tax consequences of the purchase,
ownership, redemption, sale, gift or other disposition of such Original Issue Premium Bond .
27
No Mandatory Redemption Due to Event of Taxability
The Resolution does not provide for mandatory redemption of the Bonds or payment of any additional
interest or penalty if a determination is made that the Bonds do not comply with the existing requirement s of
the Code or if a subsequent change in law adversely affects the tax-exempt status of the Bonds or the economic
benefit of investing in the Bonds.
LEGAL MATTERS
Legal matters incident to the authorization and issuance of the Bonds are subject to the approving opinion
of Bradley Arant Boult Cummings LLP, Birmingham, Alabama, as Bond Counsel to the Authority, whose opinion
with respect to the Bonds is expected to be rendered substantially in the form of Appendix B hereto.
The various legal opinions to be delivered concurrently with the delivery of the Bonds express the
professional judgment of the attorneys rendering the opinions as to legal issues explicitly addressed therein. By
rendering the legal opinion, the authoring firm or attorney does not become an insurer or guarantor of that
expression of professional judgment, of the transaction opined upon, or the future performance of the parties to the
transaction, and the rendering of an opinion does not guarantee the outcome of any legal dispute that may arise out
of the transaction.
Although Bond Counsel assisted in the preparation of certain portions of this Official Statement and is of
the opinion that the statements made herein under the captions "THE BONDS"; "THE AUTHORITY; and "TAX
MATTERS" fairly summarize the matters therein referred to, Bond Counsel has not been requested to check or
verify, has not checked or verified and will express no opinion with respect to the adequacy, accuracy, completeness
or fairness of any other information contained in this Official Statement.
SOVEREIGN IMMUNITY
Under the doctrine of sovereign immunity a state of the United States of America cannot be sued by its own
citizens. Under the United States Constitution a state cannot be sued by citizens of another state of the United States
of America or by citizens or subjects of a foreign state. The doctrine of sovereign immunity applies to the State, and
the issuance of indebtedness by the State does not constitute express consent by the State to be sued by the holders
of such indebtedness. Section 14 of the Alabama Constitution provides that the State shall never be made a
defendant in any court of law or equity. The Supreme Court of Alabama has held that the immunity granted by
Section 14 cannot be waived by the Legislature or any State authority. This constitutional prohibition of suits
against the State extends to officers of the State acting in their official capacities, subject to certain limited
exceptions, such as actions to compel state officials to perform ministerial acts.
The Supreme Court of Alabama held in Wheeler v. George, 2009 Ala. LEXIS 168 (Ala. July 17, 2009), that
the Alabama Incentives Finance Authority, a public corporation of the State (the “AIFA”), is a State agency for
purposes of State immunity due to the character of the power delegated to the AIFA, the AIFA’s relationship to the
State, and the nature of the functions AIFA performs. It is unclear whether or not a court would treat the Authority
as a State agency for purposes of State immunity, but if so there can be no assurance that holders of the Bonds
would have any right of action against the Authority or any of its officers to enforce the obligations of the Authority
under the Bonds in the event the Authority fails to make timely payment of principal or interest on the Bonds.
Certain officers of the Authority, however, under existing law, are subject to mandamus in the event that they have
Pledged Revenues available for payment of debt service on the Bonds and do not apply such Pledged Revenues as
and to the extent provided in the Authorizing Acts and the Bond Resolutions.
28
CONTINUING DISCLOSURE
General
The Authority has covenanted in a written agreement (the “Agreement”) for the benefit of the holders of
the Bonds to provide the Municipal Securities Rulemaking Board (“MSRB”), using the Electronic Municipal
Markets Access System (“EMMA”) established by the MSRB (or such other system as may be subsequently
authorized by the MSRB), with (i) certain financial information and operating data relating to the Pledged Taxes on
an annual basis (the “Annual Financial Information”) within 180 days after the end of its fiscal year and (ii) in a
timely manner not in excess of 10 business days after the occurrence of the event, notice (each, a “Material Event
Notice”) of any of the following events with respect to the Bonds:
(1) principal and interest payment delinquencies;
(2) non-payment related defaults, if material;
(3) unscheduled draws on debt service reserves reflecting financial difficulties;
(4) unscheduled draws on credit enhancements reflecting financial difficulties;
(5) substitution of credit or liquidity providers, or their failure to perform;
(6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed
or final determinations of taxability, Notice of Proposed Issue (IRS Form 5701-
TEB), or other material notices or determinations with respect to the tax status
of the Bonds, or other material events affecting the tax status of the Bonds;
(7) modifications to rights of the holders of the Bonds, if material;
(8) Bond calls, if material, and tender offers;
(9) defeasances;
(10) release, substitution or sale of property securing repayment of the Bonds, if
material;
(11) rating changes;
(12) bankruptcy, insolvency, receivership or similar events affecting the Authority;
(13) the consummation of a merger, consolidation, or acquisition involving the
Authority or the sale of all or substantially all of the assets of the Authority,
other than in the ordinary course of business, the entry into a definitive
agreement to undertake such an action or the termination of a definitive
agreement relating to any such actions, other than pursuant to its terms, if
material: and
(14) appointment of a successor or additional paying agent or the change of name of
a paying agent, if material.
In addition, the Authority has covenanted to file with the MSRB in a timely manner notice of failure to
make a filing, on or before the date specified in the Agreement, of annual information required by the Agreement.
The Annual Financial Information will include (i) the receipts for the preceding fiscal year from each of the Pledged
Taxes and (ii) when and if available, audited financial statements of the State prepared in accordance with generally
accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United
States, as such standards may be modified from time to time under generally accepted accounting and auditing
29
standards applicable to the Authority. The Annual Financial Information and any Material Event Notices are
required to be filed through EMMA (or such other system as may be authorized by the MSRB).
The Authority shall never be subject to money damages for its failure to comply with its obligations to
provide the required information. The only remedy available to the holders of the Bonds for breach by the Authority
of its obligations to provide the required information shall be the remedy of specific performance or mandamus
against appropriate officials of the Authority. The failure by the Authority to provide the required information shall
not be an event of default with respect to the Bonds under the Resolution. No person (including, without limitation,
officers or employees of the Authority) other than the Authority shall have any liability or responsibility for
compliance by the Authority with its obligations to provide information.
The Paying Agent has not undertaken any responsibility with respect to any required reports, notices or
disclosures. The Authority retains the right to modify its obligations described above as long as such modification is
done in a manner consistent with Rule 15c2-l 2 of the Securities and Exchange Commission.
The Authority or its designated agent will covenant to deliver a final Official Statement pursuant to, and in
compliance with, Rule 15c2-12(b)(3).
Compliance with Prior Undertakings
Certain bonds issued by the Authority are insured by bond insurance companies. The ratings on those bond
insurance companies have been downgraded at various times over the past several years. Information about the
downgrades was publicly reported. The Authority may have not filed a notice under SEC Rule 15c2-12 with respect
to each such downgrade. Otherwise, the Authority has complied in all material respects with all continuing
disclosure agreements made by it in accordance with SEC Rule 15c2-12.
RATINGS
The following ratings have been assigned to the Bonds based on an assessment by each rating agency of the
Authority’s ability to make payments on the Bonds:
Rating Agency Rating Assigned
Moody’s Aa1
Standard & Poor’s AA
Fitch AA+
Any further explanation as to the significance of these ratings may be obtained only from the appropriate
rating agency. There is no assurance that any such rating will remain in effect for any given period of time or that
the rating will not be revised downward or withdrawn entirely by the rating agency furnishing the same, if, in its
judgment, the circumstances so warrant. Any such downward revision or withdrawal of a rating may have an
adverse effect on the market price of the Bonds. The above ratings are not recommendations to buy, sell or hold the
Bonds. Neither of the Authority, and neither the Underwriters or the Financial Advisor described below, has
undertaken any responsibility either to bring to the attention of the Bondholders any proposed revision, suspension
or withdrawal of a rating or to oppose any such revision, suspension or withdrawal.
UNDERWRITING
The Bonds are being purchased from the Authority by The Frazer Lanier Company Incorporated, Merchant
Capital, L.L.C., Joe Jolly & Company, Inc., and Benchmark Securities, LLC (the "Underwriters") at a price of
$91,713,410.55 (which price reflects the face amount of the Bonds, less an underwriting discount of $280,227.50,
plus original issue premium of $11,928,638.05). The Underwriters intend to offer the Bonds to the public at the
prices or yields stated on the inside cover page hereof. The Bonds may be sold and offered to certain dealers
(including dealers depositing such bonds into investment trusts) at prices lower than such public offering prices, and
such public offering prices may be changed from time to time by the Underwriters.
30
FINANCIAL ADVISOR
In connection with the issuance and sale of the Bonds, Rice Advisory LLC, Montgomery, Alabama, is
serving as Financial Advisor to the Authority. The Financial Advisor has assisted in the preparation of this Official
Statement and in other matters relating to the planning, structuring and issuance of the Bonds and provided other
advice to the Authority. The Financial Advisor is a financial advisory firm regularly engaged in the business of
providing financial and advisory services. The Financial Advisor will not participate in underwriting any of the
Bonds.
ADDITIONAL INFORMATION
For further information during the initial offering period with respect to the Bonds, contact the Acting State
Director of Finance, State of Alabama, State Capitol Complex, N-105, 600 Dexter Avenue, Montgomery, Alabama
36130, telephone: (334) 242-7160.
DISCLAIMERS AND OHER MISCELLANEOUS MATTERS
No dealer, broker, salesman or other person has been authorized by the Authority or the Underwriters to
give any information or to make any representations with respect to the Authority or the Bonds, other than those
contained in this Official Statement, and, if given or made, such other information or representations must not be
relied upon as having been authorized by any of the foregoing.
This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of the Bonds by any person, in any jurisdiction in which it is unlawful for such person to make
such offer, solicitation or sale.
This Official Statement is not to be construed as a contract or agreement between the Authority and the
purchasers or Holders of any of the Bonds.
All quotations from and summaries and explanations of provisions of laws and documents herein do not
purport to be complete, and reference is made to such laws and documents for full and complete statements of their
provisions.
The order and placement of material in this Official Statement, including its appendices, are not to be
deemed a determination of relevance, materiality or importance, and all material in this Official Statement, including
its appendices, must be considered in its entirety.
The information in this Official Statement has been obtained from sources which are considered
dependable and which are customarily relied upon in the preparation of similar official statements, but such
information is not guaranteed as to accuracy or completeness.
The delivery of this Official Statement at any time does not imply that any information herein is correct as
of any time subsequent to the date of this Official Statement.
All estimates and assumptions contained herein are believed to be reliable, but no representation is made
that such estimates or assumptions are correct or will be realized.
No person, including any broker, dealer or salesman, has been authorized to give any information or to
make any representation other than those contained in this Official Statement, and if given or made, such other
information or representations must not be relied upon as having been authorized by the Authority.
The Bonds will not be registered under the Securities Act of 1933, as amended, or any state securities laws
and will not be listed on any stock or other securities exchange, and neither the Securities and Exchange
31
Commission nor any federal, state, municipal or other governmental agency will pass upon the accuracy,
completeness or adequacy of this Official Statement. The Bond Resolutions have not been qualified under the Trust
Indenture Act of 1939, as amended.
Any information or expressions of opinion herein are subject to change without notice, and neither the
delivery of this Official Statement nor any sale hereunder shall under any circumstances create an implication that
there has been no change as to the affairs of the Authority since the date hereof.
Insofar as any statements are made in this Official Statement involving matters of opinion or estimates,
whether or not so expressly stated, they are set forth as such and not as representations of fact, and no representation
is made that any of the estimates will be realized.
Certain statements contained in this Official Statement including, without limitation, statements containing
the words “estimates,” “believes,” “anticipates,” “expects,” and words of similar import, constitute “forward-
looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Authority to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such factors include, among others,
population trends and political and economic developments that could adversely impact the collection of revenues.
Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking
statements. The Authority disclaims any obligation to update any such factors or to publicly announce the results of
any revision to any of the forward-looking statements contained herein to reflect future events or developments.
This Official Statement is being provided to prospective purchasers either in bound printed format or in
electronic format. This Official Statement may be relied upon only if it is in its bound printed format or as printed in
its entirety in such electronic format.
EXECUTION AND DELIVERY
The execution and delivery of this Official Statement have been duly authorized by the Authority.
ALABAMA PUBLIC SCHOOL AND
COLLEGE AUTHORITY
By: /s/ Bill Newton
Secretary
Dated: May15, 2014
Appendix A
APPENDIX A
INFORMATION ABOUT THE STATE OF ALABAMA
Appendix B
APPENDIX B
FORM OF OPINION OF BOND COUNSEL
B-1
APPENDIX B
(Proposed Form of Opinion of Bond Counsel)
Alabama Public School and College Authority
Montgomery, Alabama
$80,065,000
Capital Improvement Pool Refunding Bonds
Series 2014-A
Ladies and Gentlemen:
We have acted as bond counsel to the Alabama Public School and College Authority (herein called the
"Authority") in connection with the issuance of $80,065,000 Capital Improvement Pool Refunding Bonds, Series
2014-A (herein called the "Bonds") of the Authority. We have examined certified copies of proceedings and other
documents showing the organization under the laws of Alabama of the Authority, together with copies of
proceedings of the Authority and other documents submitted to us pertaining to the issuance and validity of the
Bonds. The statements hereinafter made and the opinions hereinafter expressed are based upon our examination of
the aforesaid proceedings and documents.
The documents submitted to us show as follows:
(a) The Authority is a public corporation organized under the laws of the State of
Alabama, including particularly Act No. 243 enacted at the 1965 First Special Session of the
Legislature of Alabama, codified as Chapter 16 of Title 16 of the Code of Alabama 1975, as
amended.
(b) The Bonds are being issued pursuant to the authorization contained in Act No.
98-373 enacted at the 1998 Regular Session of the Legislature of Alabama (herein called the
"1998 Act") and a resolution (herein called the "Resolution") duly adopted by the governing body
of the Authority.
(c) The State of Alabama (herein called the "State") levies or imposes, among other
taxes, the following:
(i) a utility gross receipts tax (herein called the "Utility Gross
Receipts Tax") on the gross sales to, or the gross receipts from, each person to
whom utility services are furnished by a person regularly engaged in furnishing
utility services to the public in the State;
(ii) a utility service use tax (herein called the "Utility Service Use
Tax") on the use in the State of utility services;
(iii) a sales tax (herein called the "Sales Tax") on retail sales of
tangible personal property and admission fees to places of amusement in the
State; and
(iv) a use tax (herein called the "Use Tax") on the use of tangible
personal property brought into the State.
Those portions of the revenues from the Utility Gross Receipts Tax, the Utility Service Use Tax, the Sales Tax and
the Use Tax that are required to be paid into the State Treasury of the State to the credit of the Alabama Education
Trust Fund, and that remain after the appropriation of certain portions thereof for other purposes, constitute the
B-2
revenues pledged and appropriated, to the extent needed for such purpose, for the payment of the principal of and
the interest and premium (if any) on the Bonds and are herein called the "Pledged Revenues."
(d) To provide for payment of the principal of and interest on the Bonds (as well as
other bonds of the Authority issued pursuant to authorization contained in the 1998 Act), there
has, pursuant to the 1998 Act (as modified by subsequent legislation), been irrevocably pledged
and appropriated so much as may be necessary for that purpose of the following, in the following
order:
(i) The Pledged Revenues from the Utility Gross Receipts Tax
and the Utility Service Use Tax, after deducting therefrom amounts necessary to
pay at their respective maturities the principal of and the interest on certain
outstanding bonds that are secured by prior pledges thereof;
(ii) To the extent the Pledged Revenues described in the preceding
subparagraph (i) are insufficient therefor, the Pledged Revenues from the Sales
Tax, after deducting therefrom amounts necessary to pay at their respective
maturities the principal of and the interest on certain outstanding bonds that are
secured by prior pledges thereof; and
(iii) To the extent the Pledged Revenues described in the preceding
subparagraphs (i) and (ii) are insufficient therefor, the Pledged Revenues from
the Use Tax, after deducting therefrom amounts necessary to pay at their
respective maturities the principal of and the interest on certain outstanding
bonds that are secured by prior pledges thereof.
Based upon our examination of the aforesaid proceedings and documents, we are of the following opinions:
the Authority has been duly organized as and is a validly existing public corporation pursuant to and under the laws
of the State and has corporate power to sell and issue the Bonds, to adopt the Resolution and to perform the
agreements on its part contained therein; the Bonds have been duly authorized, executed and delivered by the
Authority and are valid and binding special obligations of the Authority payable solely from the sources provided
therefor in the Resolution and the 1998 Act; the Resolution has been duly adopted by the governing body of the
Authority and constitutes a valid and binding obligation of the Authority; and, under the Resolution and the 1998
Act, the payment of the principal of and the interest and premium (if any) on the Bonds is secured, pro rata one with
the other, by a valid pledge of the Pledged Revenues, which pledge is subject to certain prior pledges of the Pledged
Revenues that secure the payment of certain other outstanding obligations of the Authority.
We are further of the opinion that under the Internal Revenue Code of 1986, as amended (herein called the
"Code"), as presently construed and administered, and assuming compliance by the Authority with its covenants
pertaining to certain requirements of federal tax law that are set forth in the Resolution, the interest on the Bonds
will be excludable from gross income of the recipients thereof for federal income tax purposes pursuant to the
provisions of Section 103(a) of the Code, and the interest on the Bonds will not be an item of tax preference
included in alternative minimum taxable income for the purpose of computing the minimum tax imposed by Section
55 of the Code. We note, however, that such interest is included in the adjusted current earnings of certain
corporations for purposes of calculating the alternative minimum tax imposed on such corporations. We express no
opinion with respect to the federal tax consequences to the recipients of the interest on the Bonds under any
provision of the Code not referred to above.
We are also of the opinion that the interest on the Bonds is, under existing statutes and regulations as
presently construed, exempt from Alabama income taxation.
The rights of the holders of the Bonds and the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and the exercise of judicial
discretion in appropriate cases.
B-3
We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement
relating to the Bonds. Further, we express no opinion regarding tax consequences arising with respect to the Bonds
other than as expressly set forth herein.
This opinion is given as of the date hereof and we assume no obligation to or update, revise or supplement
this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that
my hereafter occur.
Yours very truly,
APPENDIX A
CERTAIN INFORMATION REGARDING
THE STATE OF ALABAMA
* ***
A-i
TABLE OF CONTENTS
Page
GENERAL INFORMATION ................................................................................................................................... A-1 Comprehensive Annual Financial Report .............................................................................................................. A-1 Reporting Entity - CAFR ....................................................................................................................................... A-1 Budgetary Controls ................................................................................................................................................ A-1 Certain Financial Information ............................................................................................................................... A-2 Population .............................................................................................................................................................. A-2 Deepwater Horizon Oil Spill ................................................................................................................................. A-3 April 2011 Tornado Damage ................................................................................................................................. A-3
ECONOMY .............................................................................................................................................................. A-3 General .................................................................................................................................................................. A-3 Personal Income .................................................................................................................................................... A-4 Employment .......................................................................................................................................................... A-4 Real Gross Domestic Product (formerly Real Gross State Product) ..................................................................... A-7 Transportation ....................................................................................................................................................... A-8 Utilities .................................................................................................................................................................. A-9 Education ............................................................................................................................................................... A-9
GOVERNMENTAL ORGANIZATION AND SERVICES .................................................................................. A-10 Legislative Branch ............................................................................................................................................... A-10 Executive Branch................................................................................................................................................. A-11 Judicial Branch .................................................................................................................................................... A-12
INDEBTEDNESS .................................................................................................................................................. A-12 Limitations on Debt ............................................................................................................................................. A-12 General Obligation Debt ...................................................................................................................................... A-12 Limited Obligation Bonds of State Departments and Certain State Authorities.................................................. A-13 General Obligation Bonds Authorized but Unissued........................................................................................... A-17 Limited Obligation Bonds Authorized and Unissued .......................................................................................... A-17 Interest Rate Hedging Agreements ...................................................................................................................... A-18
MAJOR OPERATING FUNDS ............................................................................................................................. A-18 The General Fund ................................................................................................................................................ A-19 The Education Trust Fund ................................................................................................................................... A-19 The Public Road and Bridge Fund....................................................................................................................... A-21 Unemployment Compensation Trust Fund .......................................................................................................... A-22
THE BUDGETARY PROCESS AND FINANCIAL CONTROLS ....................................................................... A-23 The Budgetary Process ........................................................................................................................................ A-23 General Fund and Education Trust Fund Budgetary Status for Fiscal Years 2012 and 2013 .............................. A-23 Financial Controls ............................................................................................................................................... A-23
RECEIPTS, DISBURSEMENTS, TAXES AND REVENUES ............................................................................. A-26 State Taxes and Other Major Sources of Revenues and Income ......................................................................... A-29
STATE RETIREMENT PROGRAMS ................................................................................................................... A-37 General ................................................................................................................................................................ A-37 Benefits Provided ................................................................................................................................................ A-39 DROP Program .................................................................................................................................................... A-39 Annual Valuation and Unfunded Accrued Liability ............................................................................................ A-41
A-ii
Teachers’ Retirement System .............................................................................................................................. A-42 Employees’ Retirement System ........................................................................................................................... A-43 Judicial Retirement Fund ..................................................................................................................................... A-44 Total Unfunded Liability of System .................................................................................................................... A-45 Employer Contributions ...................................................................................................................................... A-46 Future Increases in Benefits ................................................................................................................................ A-47 Solvency Tests ..................................................................................................................................................... A-47 Other Post Employment Benefits ........................................................................................................................ A-50 Additional Information ........................................................................................................................................ A-54
LITIGATION ......................................................................................................................................................... A-55 Income Tax .......................................................................................................................................................... A-55 Sales and Use Tax ............................................................................................................................................... A-56 Franchise Tax ...................................................................................................................................................... A-57 Property Tax ........................................................................................................................................................ A-57 Tobacco Revenue ................................................................................................................................................ A-58
Table 1. Population ................................................................................................................................................... A-2 Table 2. Urban-Rural Population .............................................................................................................................. A-3 Table 3. Alabama Personal Income and Comparison of Alabama Per Capita Personal Income to the
Southeast and United States .......................................................................................................... A-4 Table 4. Civilian Labor Force Trends ....................................................................................................................... A-5 Table 5. State of Alabama Annual Average Nonagricultural Employment (in thousands) ...................................... A-6 Table 6. [Intentionally Left Blank] ........................................................................................................................... A-7 Table 7. Alabama’s Real Gross Domestic Product ................................................................................................... A-7 Table 8. Rates of Change in Real Gross Domestic Product Alabama and the United States ................................... A-8 Table 9. Port of Mobile Cargo Tonnage ................................................................................................................... A-8 Table 10. Educational Attainment for the Population 25 Years and Over .............................................................. A-10 Table 11. State of Alabama General Obligation Debt as of Close of Business on May 1, 2014 ............................ A-13 Table 12. Limited Obligation Bonds of State Departments and Certain State Authorities Outstanding ................ A-13 Table 13. Debt Service On All Bonds Outstanding as of Close of Business May 1, 2014
(1) .................................. A-16
Table 14. Debt Ratios ............................................................................................................................................. A-17 Table 15. Summary of Receipts and Disbursements (Cash Basis) General Fund .................................................. A-19 Table 16. Education Trust Fund Summary of Receipts and Disbursements (Cash Basis)...................................... A-20 Table 17. Public Road and Bridge Fund Summary of Receipts and Disbursements Fiscal Years Ending
September 30 .............................................................................................................................. A-22 Table 18. Condition of Funds General Fund and Education Trust Fund ................................................................ A-23 Table 19. History of General Fund and Education Trust Fund Proration 1963-2012 ............................................. A-25 Table 20. Schedule of Receipts and Disbursements (Cash Basis) Governmental Fund Types (State Treasury
Funds Only) ................................................................................................................................ A-27 Table 21. Summary of Revenues by Principal Sources (Cash Basis) Governmental Funds in State Treasury ....... A-28 Table 22. Assessed Valuation of Property Subject to Ad Valorem Taxation by Categories .................................. A-29 Table 23. Fund Balance of Assets in the Alabama Trust Fund ............................................................................... A-31 Table 24. Participating Employers by System ........................................................................................................ A-38 Table 25. Number of Active and Retired Members ................................................................................................ A-39 Table 26. Pension Assumption Method .................................................................................................................. A-41 Table 27. Historical Funded Status Teachers’ Retirement System ......................................................................... A-42 Table 28. History of Additions and Deductions Teachers’ Retirement System ..................................................... A-42 Table 29. Historical Funded Status Employees’ System ........................................................................................ A-43 Table 30. History of Additions and Deductions Employees’ Retirement System .................................................. A-43 Table 31. Unfunded Accrued Liability – Employees’ System ............................................................................... A-44 Table 32. Historical Funded Status Judicial Retirement Fund (includes non-State obligated portion) ................. A-44 Table 33. History of Additions and Deductions Judicial Retirement Fund ............................................................ A-45 Table 34. Pension Unfunded Actuarial Accrued Liability As of September 30, 2012 ........................................... A-45 Table 35. Employer Retirement Contributions ....................................................................................................... A-46
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Table 36. Pension Annual Required Contribution As of September 30, 2012 ....................................................... A-47 Table 37. Teachers’ Retirement System of Alabama Solvency Test ...................................................................... A-48 Table 38. Employees’ Retirement System of Alabama Solvency Test................................................................... A-49 Table 39. Judicial Retirement Fund Solvency Test ................................................................................................ A-50 Table 40. Number of Active and Retired Employees .............................................................................................. A-51 Table 41. OPEB Assumptions ................................................................................................................................ A-52 Table 42. Schedule of OPEB Funding Progress ..................................................................................................... A-53 Table 43. OPEB Unfunded Actuarial Accrued Liability ......................................................................................... A-54 Table 44. OPEB Annual Required Contribution .................................................................................................... A-54
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APPENDIX A
CERTAIN INFORMATION REGARDING THE
STATE OF ALABAMA
GENERAL INFORMATION
Comprehensive Annual Financial Report
The Comprehensive Annual Financial Report (“CAFR”) of the State of Alabama (the “State”) for the fiscal
year ended September 30, 2013, can be found online at http://www.comptroller.alabama.gov.
Reporting Entity - CAFR
The Comprehensive Annual Financial Report of the State of Alabama presents financial information on all
of State government as a single reporting entity. While State law allows many State organizations to operate largely
independent of the daily central control and scrutiny of the Department of Finance, State Auditor and State
Treasurer, this report combines the financial data of all State organizations in order to present a comprehensive
picture of State finances. The numerous departments, agencies, elected officials, boards, commissions, authorities,
colleges, universities and other organizational units of the State are included in this report in accordance with
standards established by the Governmental Accounting Standards Board. These standards make a distinction
between organizations that are considered to be part of the primary government of the State and those that are
component units. A component unit is defined as a legally separate corporate entity for which the State is
considered to be financially accountable. The criteria used to determine financial accountability include the
appointment of a majority of the governing board, the ability of the State to impose its will on the organization and
the potential for the organization to be a financial benefit or financial burden to the State.
The State is also considered financially accountable for any organization having an independently
appointed board if that organization is fiscally dependent on the State. An organization is fiscally dependent if it is
unable to adopt a budget, set rates or charges or issue bonded debt without the approval of the State. Component
units can be reported as if they are a part of the primary government (“blended presentation”) if they provide
services solely to the government, but most of the State’s component units do not and are therefore presented
separately (“discrete presentation”) in these financial statements. The largest of the blended component units
includes the Federal Aid Highway Finance Authority, State Parks Improvement Corporation and the Building
Renovation Finance Authority. The major discretely presented component units are the Alabama Public School and
College Authority, the Department of Mental Health, the Alabama Housing Finance Authority, the Alabama Water
Pollution Control Authority, the Public Education Employees’ Health Insurance Board, the State Employees’ Health
Insurance Board, the University of Alabama, Auburn University and the University of South Alabama. Reference is
made to the notes to the Comprehensive Annual Financial Report for a more complete description of the State’s
reporting entities.
Budgetary Controls
Budgetary control is exercised through the Executive Budget Office of the Department of Finance based on
the Appropriation Acts of the Alabama Legislature. Alabama’s annual appropriation acts (“Appropriation Acts”)
include legally adopted budgets for the General Fund, the Education Trust Fund, and other budgeted funds. The
Appropriation Acts identify the source of funding and the programmatic (functional) areas for which expenditures
are authorized. Both the Constitution of Alabama of 1901 and Alabama statutes require a balanced budget for
annual financial operations. In the event that revenue collections do not meet budget projections, the Governor is
required to prorate appropriations and restrict allotments to prevent an overdraft in any fiscal year for which
appropriations are made. Allotments of appropriations are made quarterly based on plans of operations submitted by
the departments and agencies. These appropriations and allotments are enforced by automated edits that prevent
allotments in excess of appropriations and expenditures in excess of allotments. Encumbrance accounting is utilized
as purchase orders are issued to insure that purchase orders plus expenditures do not exceed allotment balances.
Controls are further tightened at fiscal year end by verifying that the total of purchase orders plus expenditures plus
any obligations (accounts payable) incurred against fiscal year appropriations do not exceed allotments and
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remaining allotments do not exceed cash in the State Treasury. For further information on the budgetary process,
see “The Budgetary Process and Financial Controls – Financial Controls” below.
Certain Financial Information
The financial information contained in this Official Statement regarding the State is extracted from reports
prepared by the State Treasurer, the State Auditor and the State Department of Finance. Audits are made by the
State Auditor for the purpose of reconciling monthly the accounts of the State Comptroller (who is the disbursing
agent for the State) with those of the State Treasurer, and such audits are a major part of the State’s system of
financial controls. Additionally, the State Auditor audits all payments for legality. The Department of Examiners of
Public Accounts, an arm of the Alabama Legislature, examines and audits the books, accounts and records of all
State departments and agencies.
The fiscal year of the State extends from October 1 of a given calendar year to September 30 of the ensuing
year. All references to State financial information in this Official Statement (unless specifically noted to the
contrary) are to fiscal years of the State.
Alabama statutes mandate the use of the cash basis of accounting for budgetary purposes. Under the cash
basis, revenues and expenditures are recorded at the time cash is actually received or disbursed in accordance with
the Appropriation Acts. Unless otherwise noted, most of the tables in this report are on the cash basis.
Population
According to the estimates released by the U.S. Census Bureau, the State had a population of 4,833,722 in
2013. The population density of the State in 2010 (the most recent Census) was approximately 94.4 persons for
each of its 50,744 square miles of land area (as compared to 87.3 persons per square mile for the United States).
Table 1.
Population
Alabama United States
Year Population
Change Over
Preceding Period Population
Change Over
Preceding Period
1990 4,040,587 - 248,709,873 - 2000 4,447,100 10.1% 281,421,906 13.2% 2001 4,464,034 0.4 285,081,556 1.3 2002 4,472,420 0.2 287,803,914 1.0 2003 4,490,591 0.4 290,326,418 0.9 2004 4,512,190 0.5 293,045,739 0.9 2005 4,545,049 0.7 295,753,151 0.9 2006 4,597,688 1.2 298,593,212 1.0 2007 4,637,904 0.9 301,579,895 1.0 2008 4,677,464 0.9 304,374,846 0.9 2009 4,708,708 0.7 307,006,550 0.9 2010 4,779,736 1.5 308,745,538 0.6 2011 4,803,689 0.5 311,587,816 0.9 2012 4,822,023 0.4 313,914,040 0.7 2013 4,833,722 0.2 316,128,839 0.7
_____________________________
Note: 1990, 2000 and 2010 are Federal Decennial Consensus data; 2001 to 2009 and 2011 to 2013 are estimates.
Source: U.S. Census Bureau.
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Table 2.
Urban-Rural Population
Alabama United States
Year
Urban % of
Total Population
Rural % of
Total Population
Urban % of
Total Population
Rural % of
Total Population
1970 58.6 41.4 73.6 26.3 1980 60.0 40.0 73.7 26.3 1990 60.4 39.6 75.2 24.8 2000 55.4 44.6 79.0 21.0 2010 59.0 41.0 80.7 19.3
_____________________________
Source: U.S. Census Bureau
Deepwater Horizon Oil Spill
A massive oil spill in the Gulf of Mexico resulted from an explosion on April 20, 2010, on the Deepwater
Horizon drilling rig. The explosion also killed 11 platform workers and injured 17 others. The Deepwater Horizon
spill, which was contained on July 15, 2010, surpassed in volume the 1989 Exxon Valdez oil spill as the largest ever
in United States-controlled waters.
The oil spill affected the coasts of Louisiana, Mississippi, Alabama and the Florida panhandle, and it
resulted in environmental damage and losses to the fishing and tourism industries of the affected states in 2010. BP
created a $20 billion spill response fund to be used for natural resource damages, state and local response costs and
individual compensation, but not for fines and penalties. As of March 31, 2014, BP has paid out $12,905,418,547
for losses related to the oil spill. It is not anticipated, however, that the oil spill will have a materially adverse effect
on the financial condition of the State.
April 2011 Tornado Damage
On April 27, 2011, an unusually strong storm system swept through the Southeastern United States. The
storm system spawned 60 tornadoes in Alabama, affecting at least 43 of the State’s 67 counties and resulting in 240
fatalities, more than 2,200 injuries, and nearly 14,000 homes destroyed. Property damage in the State was extensive,
generating approximately 200,000 insurance claims totaling over $2.5 billion according to an economic impact
study completed by the University of Alabama Center for Business and Economic Research. Most of the damage
was to property not owned by the State. The State does not expect its cost of rebuilding or repairing, net of
insurance proceeds and federal emergency funds available, to be material.
ECONOMY
General
Despite the recent recession, Alabama has experienced a transition toward a more skilled, knowledge-based
economy over the last ten years. Given ongoing economic development initiatives, especially in Mobile,
Birmingham and Huntsville, the state has begun an economic shift to a more research and development oriented
economy. These initiatives include new and expanded industries, school construction, scientific, biotech and
military projects. Overall, this economic transition has led to a more diversified State economy.
The State’s economy, which suffered during the recession that started in 2008, stabilized during 2010 and
showed signs of a sluggish recovery in 2011. The Coincident Economic Activity Index for Alabama, an economic
measure that includes employment, the unemployment rate, average hours worked in manufacturing, and wages and
salaries is published by the Federal Reserve Bank of Philadelphia every month. The Index started declining in early
2008 and continued to decline through the end of 2009, dropping 7.8% between July 2008 and 2009. The Index has
been increasing since December 2009, but, as of February 2014, remains 5.1% lower than its peak in January 2008.
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Personal Income
The total personal income in the State in 2013 reflected an increase of 1.9% from 2012 as compared with
an increase nationwide of 2.8%. The per capita personal income in Alabama in 2013 reflected an increase of 1.6%
over 2012, while the nation’s per capita personal income increased by 1.8%.
Table 3.
Alabama Personal Income and Comparison of
Alabama Per Capita Personal Income to the Southeast and United States
(in thousands)
Alabama
Total Personal Per Capita Personal Income
Year Income(1) Alabama Southeast(2) United States
1980 $30,521 $ 7,825 $ 8,629 $10,091 1990 63,254 15,618 17,186 19,354 2000 107,151 24,067 27,047 30,319 2001 114,106 25,540 28,337 31,524 2002 117,131 26,145 28,801 31,798 2003 122,114 27,115 29,662 32,676 2004 130,762 28,861 31,255 34,300 2005 137,952 30,188 32,885 35,888 2006 146,304 31,606 34,829 38,127 2007 153,104 32,765 36,159 39,804 2008 159,009 33,701 36,825 40,873 2009 156,678 32,930 35,598 39,357 2010 162,228 33,905 36,324 40,163 2011 167,786 34,929 37,908 42,298 2012 173,236 35,926 39,137 43,735 2013 176,436 36,501 39,746 44,543
_____________________________
Note (1) In millions of dollars.
Note (2) Includes Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia.
Source: U.S. Department of Commerce, Bureau of Economic Analysis; March 25, 2014.
Employment
Prior to 2009, the State had experienced several consecutive years of strong employment growth during
which it experienced a net employment increase of over 100.000 jobs. In August of 2008, Alabama won the top
honor of "State of the Year" in Southern Business and Development's SB&D 100, for the fifth time in six years. The
SB&D 100, a ranking of economic development markets, is based on the number of successfully attained corporate
or industrial job-related and investment-related announcements that feature 200 or more jobs and/or $30 million in
investment. By the 2012 ranking, Alabama's economic development professionals earned the state an honorable
mention at 3rd place.
In November 2012, Site Selection magazine ranked Alabama's business climate among the top in the nation
in its annual survey of states. Site Selection named the Alabama Development Office (now the Alabama Department
of Commerce) the top state economic development agency in the United States for its success in attracting new
capital investment in 2006 and in the Top 5 in recent article.
Alabama was selected as the recipient of Area Development magazine's inaugural 2006 "Gold Shovel"
award. The magazine established the annual "Gold & Silver Shovel" awards to acknowledge those states that have
successfully secured investments, including actual groundbreaking or ribbon cutting ceremonies. States are rated on
weighted factors such as direct job creation, new jobs per capita, capital investment and the number of projects
creating high value-added jobs. Since then, Alabama has received the Silver Shovel Award six years in a row
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from2007 through 2012. Then in May 2013, Governor Robert Bentley announced that job creation success during
the past year had once again earned Alabama the nation's top "Gold Shovel" award from Area Development
magazine.
In addition to many other industrial projects, ThyssenKrupp, a German steel company, opened a $5 billion
plant near Mobile, employing approximately 1,417 workers in its carbon steel unit and another 837 at its stainless
steel unit with 450 onsite contractors. ThyssenKrupp recently sold a majority interest in the stainless facility to
Outokumpu, a global leader in stainless steel and high performance alloys and headquartered in Espoo, Finland.
ThyssenKrupp carbon steel plant, which is capable of producing 5 million tons of steel a year, has been sold to
ArcelorMittal (the world's largest steelmaker) and Nippon Steel & Sumitomo Metal Corp. Department of
Commerce officials recently met with the leadership of both Calvert facilities and are confident that the state will
see continuing growth from these operations.
In July, 2012, Airbus announced that it will build a $600-million aircraft assembly plant in Mobile. Airbus
expects to assemble 40 to 50 of the A320 family of airplanes at the Brookley Aeroplex. The company plans to
employ 3,000 people during the construction phase and provide up to 1,000 jobs in the assembly operation when it
reaches full capacity
For 2013, aviation and aerospace projects landed Commercial Jets Inc. in Dothan and Alabama Aircraft
Support (AAS) in Enterprise. Major expansions around the state included a Logistics Hub opened by Mercedes, a
500-job expansion, and a Children’s Place E-Commerce Fulfillment Center with 400 new jobs.
Alabama's automotive sector is seeing tremendous growth. The plants operated by Mercedes-Benz in
Tuscaloosa County, Honda in Talladega County and Hyundai in Montgomery each set their own output records last
year, for a combined 880,114 vehicles statewide. Each of these, plus the Toyota facility, in Huntsville, announced
expansions during 2012. Employment in Alabama suffered in the recent recession. Non-farm employment began to
decline in mid-2008, and the Alabama labor market lost over 139,200 non-farm jobs from 2007 through 2011,
despite employment growth in 20 II. This was in stark contrast: to the 60,800 jobs added in the state during 2006 and
2007 combined. During 2012, there was an increase of 11,300 jobs, but the year ended with a loss of 7,000 jobs in
December. This trend is also reflected in Alabama's unemployment rate. Unemployment in Alabama rose to a high
of 10.4% (seasonally adjusted) in December, 2009. This was up from a historic low of 3.4% in 2007. The
unemployment rate improved throughout most of 2010 to 2013 and, for an annual average of 9.0% in 2011. As of
December 2013, the seasonally adjusted unemployment rate in Alabama was 6.1%.
Finally, wages have shown a increase in most Alabama counties with Montgomery, Coffee, and Autauga
Counties leading the way with wage rate increases of 31.%, 25,9% and 17.3% respectively.
The following table depicts the overall level of employment in the State over the past several years.
Table 4.
Civilian Labor Force Trends
Alabama (in thousands) Unemployment Rates
Year Labor Force Employed Unemployed Alabama
East South
Central(1) United States
2001 2,135 2,035 100 4.7 5.0 4.7 2002 2,108 1,995 113 5.4 5.6 5.8 2003 2,104 1,990 114 5.4 5.9 6.0 2004 2,114 2,007 107 5.0 5.5 5.5 2005 2,133 2,052 81 3.8 5.6 5.1 2006 2,174 2,098 75 3.5 5.2 4.6 2007 2,184 2,109 75 3.4 4.9 4.6 2008 2,170 2,062 108 5.0 6.2 5.8
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2009 2,146 1,937 210 9.7 9.8 9.3 2010 2,179 1,978 200 9.2 9.7 9.6 2011 2,190 2,004 186 8.5 9.1 8.9 2012 2,163 2,009 153 7.1 7.8 8.1 2013 2,138 2,000 138 6.5 7.3 7.4
2014* 2,134 1,984 150 7.0 N/A N/A
______________________________
Note (1) Includes Alabama, Kentucky, Mississippi and Tennessee.
* 2014 data through March 2014.
Sources: U.S. Department of Labor, Bureau of Labor Statistics, Local Area Unemployment Statistics; Alabama Department of Labor.
The table below depicts the areas in which the State’s nonagricultural labor force is employed.
Table 5.
State of Alabama Annual Average Nonagricultural Employment
(in thousands)
2009 2010 2011 2012 2013(1) March 2014(2)
#
Emp.
% of
Total
#
Emp.
% of
Total
#
Emp.
% of
Total
#
Emp.
% of
Total
#
Emp.
% of
Total
#
Emp.
% of
Total
Total 1,886.5 -- 1,870.8 -- 1,866.5 -- 1,882.5 -- 1,884.9 -- 1,911.2 --
Mining and Logging 11.8 0.6% 12.0 0.6% 12.4 0.7% 12.0 0.6% N/A -- 12.0 0.6%
Construction 91.7 4.9 87.2 4.7 78.9 4.2 71.6 3.8 78.4 -- 78.5 4.0
Manufacturing 247.8 13.1 236.3 12.6 237.3 12.7 246.7 13.1 10.4 -- 249.7 13.1
Trade, Transportation & Utilities 365.8 19.4 361.4 19.3 364.3 19.5 373.0 19.8 368.2 -- 368.0 19.3
Information 25.1 1.3 24.0 1.3 23.3 1.2 21.1 1.1 N/A -- 22.0 1.1
Financial Activities 95.8 5.1 92.0 4.9 92.5 5.0 94.4 5.0 93.3 -- 95.2 5.0
Professional and Business Services 204.3 10.8 208.9 11.2 212.7 11.4 220.3 11.7 220.5 -- 219.8 11.5
Educational and Health Services 211.0 11.2 214.3 11.5 216.1 11.6 220.9 11.7 219.5 -- 224.6 11.8
Leisure and Hospitality 170.1 9.0 167.5 9.0 168.8 9.0 169.2 9.0 181.2 -- 181.9 9.5
Other Services 80.1 4.2 79.9 4.3 79.9 4.3 82.5 4.4 N/A -- 79.5 4.2
Government 384.0 20.4 387.2 20.7 380.4 20.4 370.8 19.7 369.3 -- 380.0 19.9
______________________________
Source: Bureau of Labor Statistics. (1) For 2013, Bureau of Labor Statistics did not report all subcategories of employment. Unreported items identified by “N/A”. For this reason “% of Total” for 2013 is not reported.
(2) Not seasonally adjusted. Last updated not later than April 30, 2014.
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The following table lists the largest industries in the State based on employment.
Table 6.
[Intentionally Left Blank]
Real Gross Domestic Product (formerly Real Gross State Product)
Real Gross Domestic Product (RGDP) is a comprehensive measure of economic performance for the State
of Alabama and is the State’s counterpart of the nation’s gross domestic product. Alabama’s RGDP is defined as
the total value of all final goods and services produced in the State in constant dollar terms. Hence, changes in
RGDP reflect changes in final output. From 2006 to 2012, the State’s RGDP increased 2.0%.
Table 7.
Alabama’s Real Gross Domestic Product
(in millions of chained 2005 dollars)*
2006 2007 2008 2009 2010 2011 2012
% Change,
2006 - 2012
Agriculture, Forestry, Fishing &
Hunting $2,291 $1,825 $1,936 $2,195 $1,888 $1,520 $1,365 -40.4%
Mining 2,379 2,434 2,274 2,487 2,098 1,799 1,524 -35.9
Utilities 3,949 4,158 4,347 3,874 4,110 3,912 4,651 17.8
Construction 7,418 7,192 7,162 6,443 6,578 5,904 6,460 -12.9
Manufacturing 27,536 27,218 25,902 22,162 22,930 23,083 26,751 -2.9
Wholesale Trade 9,015 9,317 9,240 7,995 8,123 8,249 8,386 -7.0
Retail Trade 12,240 12,377 11,924 11,478 12,535 12,613 12,333 1.0
Transportation and Warehousing 4,481 4,458 4,577 3,891 4,163 4,111 4,643 3.6
Information 4,593 4,293 4,402 4,130 4,090 4,210 4,225 -8.0
Finance and Insurance 8,346 8,284 8,593 8,559 9,237 9,803 9,696 16.2
Real Estate, Rental and Leasing 13,828 14,789 15,651 15,318 14,604 13,641 16,312 18.0
Services 33,775 34,459 35,388 34,559 35,879 36,372 35,766 5.9
Government 23,834 24,560 24,609 25,039 25,105 25,078 24,573 3.1
Total State Real GDP $153,681 $155,388 $155,870 $148,074 $151,480 $150,330 $156,685 2.0
______________________________
*Columns may not add due to elimination of de minimis categories. The use of chained dollars adjusts for inflation over time, with 2005 as the base year.
Source: United States Department of Commerce, Bureau of Economic Analysis, most recently revised as of June 6, 2013.
The following table compares the actual growth of the gross domestic product for the State to the actual
growth of the gross domestic product for the United States for the past ten years.
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Table 8.
Rates of Change in Real Gross Domestic Product
Alabama and the United States
Year
Alabama
Gross Product*
Annual
Percentage
Change
United States
Gross Product*
Annual
Percentage
Change
2001 $133.88 - $11,365.1 -
2002 137.09 2.4% 11,559.8 1.7%
2003 140.00 2.1 11,809.0 2.2
2004 146.90 4.9 12,199.5 3.3
2005 151.00 2.7 12,539.1 2.8
2006 153.68 1.8 12,875.8 2.7
2007 155.39 1.1 13,103.3 1.8
2008 155.87 0.3 13,016.8 -0.7
2009 148.07 -5.0 12,527.1 -3.8
2010 151.48 2.3 12,918.9 3.1
2011 150.33 -0.8 13,108.7 1.5
2012 156.69 4.2 13,593.2 3.7
_____________________________
*Billions of chained 2005 dollars. The use of chained dollars adjusts for inflation over time, with 2005 as the base year.
Source: United States Department of Commerce, Bureau of Economic Analysis, most recently revised as of June 6, 2013.
Transportation
Water Transportation. Alabama contains one of the largest networks of inland river systems in the nation.
From the northern section of the State down to the Gulf of Mexico flow the waters of four major rivers offering
barge transportation to industries and businesses that depend on the movement of large, heavy or bulky cargoes.
The Port of Mobile is ranked as the 12th
largest seaport in the nation in total throughput tonnage. During
the calendar years ended 2002 through 2012, the Port of Mobile handled the cargo tonnage shown in the following
table:
Table 9.
Port of Mobile Cargo Tonnage
2002-2012
(thousands of short tons)
Year
Approximate
Tonnage
2002 46,022
2003 50,214
2004 56,212
2005 57,665
2006 59,832
2007 64,494
2008 67,636
2009 52,219
2010 55,713
2011 55,552
2012 54,889
_____________________________
Source: U.S. Army Corps of Engineers, Waterborne Commerce of the United States, published February 8, 2013. Data for 2012 from U.S.
Army Corps of Engineers Navigation Data Center.
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The facilities of the Alabama State Port Authority (the “Port Authority”) (formerly known as the Alabama
State Docks Department) were first developed by the State during the 1920s and the earnings therefrom have
generally been reinvested into the development of the facilities, resulting in continued growth in cargo handling and
in net revenues derived from operations.
Under the direction of the Tennessee-Tombigbee Water Development Authority, a 234-mile waterway has
been constructed to connect the Tennessee River with the Tombigbee River and thereby connect the waterways of
mid-America with the Gulf of Mexico through the Port of Mobile.
To complement its river system, Alabama has built a system of 11 inland docks located throughout the
State which are owned by the Port Authority. At several locations, grain elevators have been constructed to provide
storage for Alabama agricultural products.
Railroads. Five Class I railroads and 20 Class III, or short line, railroads operate more than 3,700 miles of
track within Alabama, linking the State to the nation’s major markets. The main line railroads include Norfolk
Southern Corporation, Burlington Northern/Santa Fe Railway, CSX Transportation, Canadian National Railway
Company, and Kansas City Southern. Five Class I railroads and a Class III rail ferry service to Mexico serve the
Port of Mobile, four major railroads converge on the manufacturing and distribution center of Birmingham and two
lines serve the capital city of Montgomery. The railroad network serves 65 of Alabama’s 67 counties.
Airports. Seven major airports provide commercial passenger airline service in Alabama. Air cargo
service is provided by five airports, which have designated Foreign Trade Zones.
Highway System. Approximately 80,000 miles of all-weather state and local roads are anchored by 23,500
miles of federal highways. Five interstates and a network of four-lane divided highways link major Alabama cities
to national markets.
Utilities
Electrical generation service in Alabama is provided by Alabama Power Company, the Tennessee Valley
Authority, electric cooperatives and municipal electric systems, utilizing primarily coal, hydroelectric and nuclear
facilities.
Natural gas is supplied from several sources. Although an increasingly significant quantity is supplied
from the natural gas and crude oil fields of Alabama, the majority of the statewide gas requirements are provided
from out-of-state sources via interstate gas transmission lines. Transmission companies with gas lines into or
through Alabama include: Southern Natural Gas Company, Alabama-Tennessee Natural Gas Company, East
Tennessee Natural Gas Company, Texas Eastern Transmission Corporation, Tennessee Gas Transmission
Corporation, Transcontinental Gas Pipe Line Corporation, United Gas Pipe Line Company and Florida Gas
Transmission Company.
Gas distribution companies or gas districts distribute natural gas. The larger distribution companies include
Alabama Gas Corporation, the Mobile Gas Service Company and Huntsville Utilities.
Education
Alabama provides a mix of public and private educational opportunities. The State Board of Education
establishes policies and exercises general control over the public school system. The Board is composed of elected
representatives from eight districts plus the Governor as its president. The Board and the State Department of
Education oversee 1,496 public schools in Alabama serving more than 740,000 students. The State has
approximately 135 local school districts, each with its own local board and superintendent of education.
In 2013 (the most recent year available), Alabama’s state average score on the ACT college entrance exam
was 20.2. This compares with the national average score of 20.9. Public school students who took the SAT college
entrance exam scored above national averages in all three subject areas (reading, math, and writing).
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Alabama has moved from an assessment system that was based on multiple standards to a focused and linear system
whose primary function is ensuring the state produces graduates that are college and career ready. It includes the
following: Dynamic Indicators of Basic Early Literacy Skills Assessment (Grades K-2); the ACT Aspire (Grades 3-
8 and 10); The ACT Quality Core End of Course tests (Grades 9-12); the ACT plus Writing (Grade 11); and the
ACT WorkKeys (Grade 12). Alabama has also purchased a statewide license from Scantron that provides access to
Performance Series (online computer adaptive) and Achievement Series (online criterion referenced) tests for every
K-12 student in the state.
Historically, all students have had to pass the Alabama High School Graduation Exam in order to receive a
diploma. Students take a pre-graduation exam in the spring of the tenth grade as a checkpoint leading to the
Alabama High School Graduation Exam. A student must pass all five subject-area tests and has four opportunities,
if needed, to pass each subject area test before exiting school. The Alabama High School Graduation Exam will be
phased out, beginning with the graduating class of 2015 and replaced with end-of-course tests. In conjunction with
the move away from graduation exams, Alabama has moved to a more rigorous method of determining graduates,
the 4-Year Cohort Graduation Rate. The state’s Cohort Graduation Rate has increased from 72% in 2011 to 80% in
2013.
Increasing the graduation rate and ensuring that more graduates are college and career ready are two
primary foci of Plan 2020, Alabama’s strategic plan for educational improvement. For that to happen students must
have a plan for high school. Alabama requires that an online 4-year plan for all students be completed prior to the
spring of their 9th
grade year. The state has purchased a license for Kuder and provided access to that platform for
this purpose. Though the plan is required by the spring of the 9th
grade year, best practice suggests that they be
completed by the end of the 8th
grade year. The Kuder platform includes 3 career interest assessments, meant to be
given in the 6th
, 7th
, and 8th
grades, to assist in the development of the 4-year plans.
The following table indicates the level of education in Alabama as compared to the United States as a
whole.
Table 10.
Educational Attainment for the Population
25 Years and Over
2012 American Community Survey
Level of Education Alabama United States
High school graduate or higher 84.0% 86.4%
Bachelor’s degree or higher 23.3 24.1
_____________________________
Source: U.S. Census Bureau, American Fact Finder.
GOVERNMENTAL ORGANIZATION AND SERVICES
Under the Alabama Constitution, the powers of the State government are divided into three distinct
branches – the legislative, executive and judicial.
Legislative Branch
The legislative power is vested in the Alabama Legislature, which consists of the Senate and the House of
Representatives. The Senate consists of 35 members elected by popular vote from 35 senatorial districts, and the
House of Representatives consist of 105 members elected by popular vote from 105 house of representatives
districts. Legislative members are elected for four-year terms by general election and take office on the day after the
general election at which they are elected. An organizational session of the Legislature is held in January following
the general election and annual sessions commence in March of the first year, in February of the second and third
years and in January of the fourth year. Special sessions may be called by the Governor for the limited purpose of
enacting legislation on the subjects specified by the Governor in the call of such sessions, but the Legislature may,
by a vote of two-thirds of each house, also enact legislation at special sessions on matters not included in the
Governor’s call. A full-time staff, which is augmented by a part-time staff, assists the Legislature.
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The legislative branch also includes (i) a Legislative Council, whose purpose is to suggest research studies
to the Legislative Reference Service and to recommend legislation to the Legislature; (ii) the Legislative Fiscal
Office, whose purpose is to provide any committees or members of the Legislature with information needed in the
performance of their respective legislative duties; (iii) the Legislative Reference Service, whose purpose is to furnish
information, conduct research and draft legislation for members of the Legislature; and (iv) the Examiners of Public
Accounts, whose purpose is to examine and audit the books, accounts and records of all State and county offices,
officers, bureaus, boards, commissions, corporations, departments and agencies, including all State institutions of
higher education.
Executive Branch
The Alabama Constitution provides that the elected officers of the State shall be the Governor, Lieutenant
Governor, Attorney General, State Auditor, Secretary of State, State Treasurer and Commissioner of Agriculture and
Industries. The individuals now serving as such officers were elected at the general election in November 2010 and
will hold office until January 2015.
The supreme executive power of the State is vested in the Governor, who has the constitutional
responsibility for ensuring that the laws are faithfully executed, providing the Legislature with information on the
condition of the government, presenting the budget and recommending to the Legislature such measures as he may
deem expedient. The Governor is also empowered to convene special sessions of the Legislature and to veto bills,
but the Legislature may, in the manner provided by the Alabama Constitution, reconsider and reenact measures
vetoed by the Governor. Broad appointive and investigative powers are conferred upon the Governor by State
statute.
The Lieutenant Governor serves as president of the Senate and becomes Governor in case of the inability of
the Governor to exercise the powers and perform the duties of his office.
The Attorney General is the chief law enforcement officer of the State. His duties include providing legal
advice and representation for the State and its officers. The Attorney General represents the State before all federal
and State courts in all cases in which the State is a party and institutes proceedings to enforce the statutes, rules and
regulations of the State.
The State Auditor is responsible for post-auditing the accounts and records of the Department of Finance
and the State Treasurer. The State Auditor makes an annual report showing all receipts and disbursements and
conducts a continuous monthly audit of the State Treasurer’s Office, reconciling all accounts with the State
Comptroller’s records.
The Secretary of State is responsible for the custody and use of the Great Seal of the State, for certifying
and distributing public documents, and for performing other duties as prescribed by law.
The State Treasurer is responsible for the custody of all State funds and other funds deposited with the
State and for the payment of debt of the State and its agencies. The office of the State Treasurer is the State’s
central banking agency.
The Commissioner of Agriculture and Industries is responsible for regulatory control over certain products
and industries involving matters of food safety, weights and measures and pesticide application, as well matters
involving agriculture, livestock and poultry.
The Department of Finance is a statutory department established in 1939 to manage, control and supervise
all matters pertaining to fiscal affairs of the State and its departments, boards, bureaus, commissions, agencies,
offices and institutions. The Director of Finance, who is appointed by the Governor, manages the Department of
Finance. The Director of Finance acts as chief financial officer of the State and is directly responsible for the
following divisions of the Department of Finance: Executive Budget Office, Control and Accounts (Comptroller’s
Office), Debt Management and Capital Planning, Purchasing, Information Services, Indigent Defense Services,
Space Management, Smart Business Systems, Risk Management, Services, Legal, Personnel and Accounting &
Administration.
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The State Department of Revenue was created in 1939 and is responsible for supervising and controlling
the valuation, equalization, assessment and collection of certain taxes assigned to it for collection. The Governor
appoints the Commissioner of Revenue.
Judicial Branch
The judicial power of the State is vested in a unified judicial system consisting of a Supreme Court, a Court
of Criminal Appeals, a Court of Civil Appeals, trial courts of general jurisdiction known as circuit courts, trial courts
of limited jurisdiction known as district courts and such municipal courts as are provided for by law. Additional
judicial functions are performed by the State’s probate courts.
The Supreme Court exercises jurisdiction as the highest court of the State for appeals and consists of nine
Justices (the Chief Justice and eight Associate Justices). The Court of Criminal Appeals has exclusive appellate
jurisdiction of all appeals in criminal cases. The Court of Civil Appeals hears appeals from certain decisions of civil
trial courts. The circuit courts have exclusive jurisdiction in certain civil and criminal cases as provided by law, and
by de novo proceedings they exercise appellate jurisdiction of civil, criminal and juvenile cases which have first
been tried in district courts.
In addition to the State’s system of courts, there is a Judicial Inquiry Commission, which reviews
complaints received against judges, conducts field investigations and prosecutes cases before the Court of the
Judiciary.
INDEBTEDNESS
Limitations on Debt
Pursuant to Section 213 of the Constitution of Alabama of 1901, as amended by Amendment 26, which was
ratified by the electorate in 1933 (the “Constitutional Budget Amendment”), the State is constitutionally prohibited
from incurring debt, and the only method by which general obligation debt of the State can be incurred is by an
amendment to the Alabama Constitution. Although conventions proposed by the Legislature and approved by the
electorate may be called for the purpose of amending the Alabama Constitution, all amendments have historically
been adopted through a procedure which requires them to be proposed by a favorable vote of three-fifths of all the
members of each house of the Legislature and thereafter approved by a majority of the voters of the State voting in a
statewide election.
The Supreme Court of Alabama has held that the debt prohibition contained in the Constitutional Budget
Amendment does not apply to obligations incurred for current operating expenses payable during the current fiscal
year, debts incurred by separate public corporations functioning as instrumentalities of the State, or State debt
incurred to repel invasion or suppress insurrection. The State may also make temporary loans not exceeding
$300,000 to cover deficits in the State Treasury. Limited obligation debt may be authorized by the Legislature
without an amendment to the Alabama Constitution. The State has followed the practice of financing certain capital
improvement programs, principally for highways, education and improvements to the facilities of the Alabama State
Port Authority, through the issuance of limited obligation bonds payable solely out of certain taxes and other
revenues specifically pledged for their payment and not from the general revenues of the State. Such limited
obligation bonds are not general obligations of the State, and the full faith and credit of the State have not been
pledged to the payment thereof. See Table 12 (“Limited Obligation Bonds of State Departments and Certain State
Authorities Outstanding at the Close of Business on May 1, 2014”) herein.
General Obligation Debt
As of May 1, 2014, ten series of general obligation bonds of the State, aggregating $652,920,000, remain
outstanding. The full faith and credit of the State are pledged for the payment of each of those issues. The State has
historically paid from the General Fund the principal of and interest on those of its general obligation bonds for
which no moneys or taxes are specifically appropriated or earmarked. On November 7, 2000, the Alabama voters
ratified Amendment 666 to the State Constitution that authorized the use of funds from the Alabama Capital
Improvement Trust Fund for the payment of principal and interest on certain general obligation bonds. Currently, in
addition to bonds issued under the sale Amendment 666, as amended, the Alabama Capital Improvement Trust Fund
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is paying the principal and interest on the State’s General Obligation Bonds, Series 2006, and a portion of the debt
service on the State’s General Obligation Bonds, Series 2005-A, 2007-A, 2010-A and 2010-B.
The following table sets forth the principal amount of general obligation debt of the State outstanding as of
the close of business on May 1, 2014.
Table 11.
State of Alabama General Obligation Debt
as of Close of Business on May 1, 2014
Issue Dated Outstanding
Principal Amount
Series 2005-A 2/1/05 4,735,000 Series 2006 2/1/06 44,130,000 Series 2007-A 8/1/07 238,030,000 Series 2010-A 4/6/10 32,445,000 Series 2010-B 4/6/10 10,535,000 Series 2010-C 5/11/10 53,030,000 Series 2010-D 5/11/10 105,855,000 Series 2013-A 8/21/13 129,235,000 Series 2013-B 8/21/13 33,000,000 Series 2013-C 8/21/13 1,925,000
Total Outstanding 652,920,000 _________________________________
Source: Department of Finance, State of Alabama.
Limited Obligation Bonds of State Departments and Certain State Authorities
The State has created public corporations and authorities of the State for the purpose of financing certain
projects and programs such as public highways, public education facilities, judicial facilities, industrial site
preparation grants and surveys, single and multi family housing and agricultural development loans. The obligations
of such public corporations and authorities are not general obligations of the State, but are rather limited obligations
of the issuer, payable solely from the revenues pledged for the obligations of each such issuer including, in some
cases, earmarked tax revenues and, in other cases, revenues from the projects or programs financed.
For the fiscal years ended September 30, 2006 and 2007, funds from the Alabama Capital Improvement
Trust Fund were appropriated to pay the debt service on the Alabama Judicial Building Authority, Series 1996
Bonds (which were refunded on October 24, 2007, out of the proceeds from the Alabama Judicial Building
Authority Revenue Bonds, Series 2007). For the fiscal years ended September 30, 2006, 2007 and 2008, funds from
the Alabama Capital Improvement Trust Fund were also appropriated to pay the debt service on the a portion of the
Alabama Building Renovation Finance Authority, Series 1999 Bonds, the Alabama Corrections Institution Finance
Authority, Series 2003A and Series 2003B Bonds, the Alabama Mental Health Finance Authority, Series 2005, and
the Alabama Public Health Care Authority, Series 2005. The following table shows the principal amount of limited
obligation bonds outstanding as of the close of business on May 1, 2014, which are payable from tax revenues or
other state funds.
Principal Outstanding
Table 12.
Limited Obligation Bonds of State Departments and
Certain State Authorities Outstanding
at the Close of Business on May 1, 2014
Issue
Final
Maturity(1)
842,480,000 Alabama Public School and College Authority Capital Improvement Bonds Series 2007 (sales, use taxes,
utility gross receipts and utility service taxes, and lease taxes)
2028
38,270,000 Alabama Public School and College Authority Capital Improvement Bonds Series 2008 (sales, use taxes,
utility gross receipts and utility service taxes, and lease taxes)
2028
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Principal Outstanding
Table 12.
Limited Obligation Bonds of State Departments and
Certain State Authorities Outstanding
at the Close of Business on May 1, 2014
Issue
Final
Maturity(1)
290,130,000 Alabama Public School and College Authority Special Obligation Bonds, Series 2009-A Refunding (sales, use taxes, utility gross receipts and utility service taxes, and lease taxes)
2024
101,740,000 Alabama Public School and College Authority Special Obligation Bonds, Series 2009-B Refunding Bonds
(sales, use taxes, utility gross receipts and utility service taxes, and lease taxes)
2019
30,350,000 Alabama Public School and College Authority Special Obligation Bonds, Series 2009-C Pool Bonds (sales,
use taxes, utility gross receipts and utility service taxes, and lease taxes)
2029
145,880,000 Alabama Public School and College Authority Special Obligation Bonds, Series 2009-D Capital
Improvement Pool Qualified School Construction Bonds Tax Credit Bonds (sales, use taxes, utility gross
receipts and utility service taxes, and lease taxes)
2026
109,775,000 Alabama Public School and College Authority Special Obligation Bonds, Series 2010-A Capital
Improvement Refunding Bonds (sales, use taxes, utility service taxes, and lease taxes)
2019
154,727,000 Alabama Public School and College Authority Special Obligation Bonds, Capital Improvement Pool
Qualified School Construction Bonds, Direct Loan Bonds (sales, use taxes, utility gross receipts and
utility service taxes, and lease taxes)
2027
50,070,000 Alabama Public School and College Authority Series 2010-C Fleet Renewal Bonds (sales, use taxes, utility
gross receipts and utility service taxes, and lease taxes)
2021
12,795,000 Alabama Public School and College Authority Series 2010-D Fleet Renewal Taxable Bonds (sales, use taxes, utility gross receipts and utility service taxes, and utility service taxes, and lease taxes)
2021
51,270,000 Alabama Public School and College Authority Special Obligation Bonds, Qualified Zone Academy Bonds, Series 2011-A (sales, use, utility gross receipts and utility service taxes, and lease taxes)
2026
18,130,000 Alabama Public School and College Authority Special Obligation Bonds, Series 2011-B Capital
Improvement Refunding Bonds (sales, use taxes, utility service taxes, and lease taxes)
2021
66,925,000 Alabama Public School and College Authority Bonds, Series 2012-A Pool Refunding Bonds (sales, use,
utility gross receipts and utility service taxes, and lease taxes)
2024
85,435,000 Alabama Public School and College Authority, Series 2012-B Capital Improvement, Economic Development and Training Refunding Bonds (sales, use, utility gross receipts and utility service taxes, and lease taxes)
2029
5,225,000 Alabama Public School and College Authority Series 2012-C Fleet Renewal Bonds (sales, use taxes, utility gross receipts and utility service taxes, and lease taxes)
2023
24,995,000 Alabama Public School and College Authority Series 2012-D Fleet Renewal Taxable Bonds (sales, use taxes,
utility gross receipts and utility service taxes, and utility service taxes, and lease taxes)
2023
119,085,000 Alabama Public School and College Authority Capital Improvement Bonds Series 2013-A (sales, use taxes,
utility gross receipts and utility service taxes, and lease taxes)
2033
53,625,000 Alabama Public School and College Authority Capital Improvement Bonds Series 2013-B (sales, use taxes,
utility gross receipts and utility service taxes, and lease taxes)
2033
80,000,000 Alabama Public School and College Authority Capital Improvement Bonds Series 2013-C (sales, use taxes, utility gross receipts and utility service taxes, and lease taxes)
2023
23,985,000 Alabama Public School and College Authority Capital Improvement Bonds Series 2013-D (sales, use taxes,
utility gross receipts and utility service taxes, and lease taxes)
2033
15,570,000 Alabama Judicial Building Authority Revenue Bonds, Series 2007 (lease payments from judicial system to
Authority)
2019
25,710,000 Alabama Building Renovation Finance Authority, Series 2006 (lease payments from various State agencies
to Authority)
2031
22,330,000 Alabama Building Renovation Finance Authority, Series 2010 (lease payments from various State agencies
to Authority)
2024
20,960,000 Alabama Incentives Financing Authority, Series 2009-A (TVA in-lieu-of-taxes) 2029
88,420,000 Alabama Incentives Financing Authority, Series 2009-B (TVA in-lieu-of-taxes) 2029
15,805,000 Alabama Incentives Financing Authority, Series 2009-C (TVA in-lieu-of-taxes) 2029
123,385,000 Alabama Incentives Financing Authority, Series 2012-A (TVA in-lieu-of -taxes) 2042
3,030,000 Alabama Mental Health Finance Authority, Series 2005 (Cigarette Taxes and Liquor Tax) 2015
15,700,000 Alabama Mental Health Finance Authority, Series 2012 (Cigarette Taxes and Liquor Tax) 2023
48,560,000 Alabama Public Health Care Authority, Series 2006 (lease payments from Department of Public Health) 2035
2,040,000 Alabama Corrections Institution Finance Authority, Series 2003-B (lease payments from the Department of
Corrections to the Authority)
2015
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Principal Outstanding
Table 12.
Limited Obligation Bonds of State Departments and
Certain State Authorities Outstanding
at the Close of Business on May 1, 2014
Issue
Final
Maturity(1)
92,630,000 The 21st Century Authority, Tobacco Settlement Revenue Bonds, Series 2012-A (payments received from certain smoking-related litigation)
2021
48,385,000 Alabama Federal Aid Highway Finance Authority, Series 2011 (Federal Grant Anticipation Bonds) 2017
327,545,000 Alabama Federal Aid Highway Finance Authority, Series 2012 (Federal Grant Anticipation Bonds) 2026
18,100,000 Alabama Revolving Loan Fund Authority, Series 2010 (privilege and license tax on providers of cellular
radio telecommunications services)
2030
$3,173,062,000 TOTAL OUTSTANDING
_____________________________
Note (1) Final Maturity in the State’s Fiscal Year.
Source: Department of Finance, State of Alabama.
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Table 13.
Debt Service On All Bonds Outstanding
as of Close of Business May 1, 2014(1)
Fiscal Year Ending
September 30
General Obligation
Bond Debt Service
Limited Obligation
Bond Debt Service
Total
Debt Service
2014 $44,375,214 $92,054,544 $136,429,758
2015 67,959,178 360,888,215 428,847,393
2016 67,597,128 362,448,209 430,045,336
2017 71,687,828 363,888,204 435,576,032
2018 71,471,628 356,554,074 428,025,702
2019 76,582,378 360,265,819 436,848,197
2020 76,564,665 278,819,540 355,384,205
2021 76,867,240 277,808,610 354,675,850
2022 52,741,940 238,397,499 291,139,438
2023 49,197,415 226,961,618 276,159,033
2024 49,042,953 210,281,663 259,324,615
2025 48,956,234 192,772,067 241,728,301
2026 38,633,653 190,275,160 228,908,812
2027 33,663,640 137,927,043 171,590,683
2028 10,661,059 131,081,151 141,742,210
2029 10,601,309 49,303,198 59,904,507
2030 10,550,309 39,247,759 49,798,068
2031 10,501,859 37,756,881 48,258,740
2032 10,462,290 35,626,306 46,088,596
2033 35,513,869 35,513,869
2034 - 16,530,550 16,530,550
2035 - 16,535,213 16,535,213
2036 - 9,310,000 9,310,000
2037 - 9,740,000 9,740,000
2038 - 10,195,000 10,195,000
2039 - 10,705,000 10,705,000
2040 - 11,240,000 11,240,000
2041 - 11,805,000 11,805,000
2042 - 12,390,000 12,390,000
Total $878,117,920 $4,086,322,192 $4,964,440,108
_____________________________
Note (1) This table excludes annual debt service on any outstanding bonds which have been refunded.
Source: Department of Finance, State of Alabama.
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Table 14.
Debt Ratios
As of the Close of Business
May 1, 2014
Principal
Amount
Debt Per
Capita (1)
Debt To
Assessed
Valuation (2)
Debt To
Personal
Income (3)
General Obligation Bonds $652,920,000 $135.08 0.94% 0.37%
Limited Obligation Bonds 3,173,062,000 656.44 4.57% 1.80%
Total $3,825,982,000 $791.52 5.51% 2.17%
_______________________________
Note (1) Based on 2013 population of 4,833,722.
Note (2) Based on 2013 estimated gross assessed valuation of $69,384,129,000.
Note (3) Based on 2013 personal income of $176,435,556,000.
Source: Department of Finance, State of Alabama.
General Obligation Bonds Authorized but Unissued
Pursuant to Amendment 666, the State was initially authorized to sell and issue up to $350 million
aggregate principal amount of general obligation bonds in one or more series for various purposes specified therein
without any additional legislative or voter approval. Amendment 666 was amended by Amendment 796, ratified
June 5, 2007, which increased the aggregate principal authorization to $750 million. As of September 1, 2013,
$720,025,000 aggregate principal amount of general obligation bonds has been issued pursuant to the authority
given under Amendments 666 and 796, thereby leaving $29,975,000 of general obligation bonds authorized but
unissued under Amendments 666 and 796. On November 6, 2012, Alabama approved an Amendment to the State
Constitution that (i) provides that the authority of the State to issue general obligation bonds pursuant to
Amendments 666 and 796 would not be subject to the aggregate principal amount limitations contained in said
amendments; provided, that at no time shall the aggregate principal amount of general obligation bonds (including,
without limitation, general obligation refunding bonds) issued pursuant to the provisions of said amendments be
outstanding in excess of $750 million, and (ii) allows the issuance by the State of general obligation refunding bonds
under the authority of Amendment 666, subject to certain minimum savings thresholds and limitations of maximum
average maturity. There is currently $597,965,000 in aggregate principal amount of debt outstanding under
Amendments 666 and 796.
Pursuant to Act No. 2013-266 duly adopted during the 2013 Regular Session of the Alabama Legislature,
an amendment to the State Constitution has been proposed that would allow the State to issue an additional
$50,000,000 of general obligation bonds in order to finance the construction and maintenance of Alabama National
Guard armories. The proposed amendment must be approved by a majority of the qualified voters of the State. It is
expected that consideration of the proposed amendment will be placed on the ballot at the next general state-wide
election in the fall of 2014.
Limited Obligation Bonds Authorized and Unissued
As of May 1, 2014 and taking into account the issuance of the bonds offered by this Official Statement,
limited obligation bonds payable from State revenues, which have been authorized but are unissued include:
Alabama Public School and College Authority in the principal amount of $102,290,000; Alabama Public Health
Finance Authority in the principal amount of $45,000,000; the Alabama Parking Deck Authority in the amount of
$13,000,000; Gulf State Park Authority in the amount of $70,000,000; State Industrial Development Authority in the
principal amount of $100,000,000, of which only $40,000,000 can be outstanding at any one time; Farmers Market
Authority in the principal amount of $10,000,000; the Alabama Corrections Institution Finance Authority in the
aggregate principal amount of $64,000,000; the Alabama Highway Authority in the principal amount of
$15,000,000; the Garrett Coliseum Redevelopment Corporation in the principal amount of $100,000,000; the
Alabama Public Health Care Authority is unlimited; the Alabama Toll Road, Bridge and Tunnel Authority is
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unlimited based on the Authority’s construction of toll roads and bridges; and the Federal Aid Highway Finance
Authority is based on the amount of federal funds received.
Interest Rate Hedging Agreements
State Policy. The State’s Finance Director adopted a Policy for the State of Alabama in June of 2004 to
provide criteria for the State in assessing and implementing hedging agreements in conjunction with the State’s
management of its assets and liabilities. The policy outlines procedures for entering into interest rate swap
agreements (“Swaps”), permitted uses, counterparty credit standards, risk management considerations and reporting
requirements for Swaps entered into by the State. The policy provides that the State will track and regularly report
on the financial implications of its hedging transactions. In addition to or in connection with monitoring and
reporting required by rating agencies and GASB compliance, an annual report will be prepared by the State Finance
Director that will include the mark-to-market value of Swaps entered into by the State.
Swap Agreements Related to Limited Obligation Bonds. Separate interest rate swap agreements have been
entered into by public corporations or authorities created by the State for the purpose of financing certain projects
and programs such as public highways, public education facilities, judicial facilities, student loans, industrial site
preparation grants and surveys, single and multi-family housing and agricultural development loans, the obligations
of which are not general obligations of the State but are limited obligations of the issuer payable solely from the
revenues pledged for the obligations of each such issuer.
MAJOR OPERATING FUNDS
The allocation of revenues among the various funds, as well as other financial accounting practices of the
State, is controlled to a large extent by constitutional and statutory provisions that allocate or earmark revenues.
Most major revenue sources of the State are required either by the Alabama Constitution or by continuing
appropriations of the Legislature to be deposited into special funds. Appropriations are made out of the separate
funds for the purposes for which the revenue sources were allocated.
There are five major operating funds of the State: the General Fund, the Alabama Education Trust Fund
(the “Education Trust Fund” or “ETF”), the Public Road and Bridge Fund, the Special Mental Health Trust Fund
and the Public Welfare Trust Fund.
Taxes from approximately 36 sources are deposited into the General Fund. These taxes are described
below under “Receipts, Disbursements, Taxes and Revenues – State Taxes and Other Major Sources of Revenues
and Income.” The largest revenue sources allocated to the General Fund are the insurance company premium tax,
interest on State deposits, interest on the Alabama Trust Fund, oil and gas lease and production taxes, cigarette
taxes, ad valorem taxes and net profits from the operations of the Alabama Alcoholic Beverage Control Board. Nine
tax sources are allocated to the Education Trust Fund, the largest of which are the income tax, the sales tax, the
utility tax and the use tax. Revenues from income taxes and sales taxes constitute an average of approximately 85%
of the Education Trust Fund’s annual revenues. Nine tax sources are allocated to the Public Road and Bridge Fund,
the largest of which are the gasoline and gasoline excise taxes, automobile and truck net license fees and motor fuel
taxes. The Special Mental Health Trust Fund is funded by three major tax sources, which are the public utilities tax,
contractors’ gross receipts taxes, and distiller’s tax and whiskey tax profits. The major revenue sources for the
Public Welfare Trust Fund are the whiskey tax and net profits from the operation of the Alabama Alcoholic
Beverage Control Board, sales taxes, franchise taxes and beer taxes.
The three largest operating funds of the State are the General Fund, the Education Trust Fund and the
Public Road and Bridge Fund. Details of these funds are set forth on Tables 15 through 17.
The information contained in this Official Statement as to the various taxes and revenues paid into the
above-described funds, and the constitutional or statutory provisions respecting their use, is illustrative only and
does not summarize all of the provisions of the Alabama Constitution and statutes respecting allocation of revenues.
Historically there has been no inter-fund borrowing or commingling of funds. The Legislature, however,
has the authority to transfer the responsibility of funding various agencies between funds. Transfers of this type
have been made infrequently.
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The General Fund
The General Fund is one of three primary funds of the State of Alabama. Revenues credited to the General
Fund are used for the ordinary expenses of the executive, legislative and judicial departments of the State, for other
functions of the government, for debt service on certain general obligation bond issues and for capital outlay.
Revenues for the General Fund are appropriated by the Legislature on an annual basis. Certain appropriations from
the General Fund are subject to proration. The Constitution of Alabama requires that the State have a balanced
budget. (See “The Budgetary Process And Financial Controls - Financial Controls,” below).
Table 15.
Summary of Receipts and Disbursements (Cash Basis) General Fund
For the Last Five Fiscal Years (amounts in thousands)
2013 2012 2011 2010 2009 Receipts
Investment Income $ 15,111 $73,876 $81,488 $87,841 $126,521 Insurance Premium Tax 257,729 240,324 236,258 220,243 231,866 Excise, Sales & Use Taxes 467,515 390,986 371,641 369,224 388,674 Corporation Taxes 43,311 42,467 109,040 1,545 127,395 Liquor Taxes, Licenses, & Profits 93,608 87,942 83,860 82,405 83,627 Drivers & Motor Vehicle Licenses 74,605 76,335 75,566 74,646 74,839 Property Taxes 140,725 141,983 140,162 138,982 136,965 Oil & Gas Production Taxes 86,580 86,162 82,397 64,440 95,466 Other Taxes 104,405 98,539 93,607 91,332 96,833 Other Licenses, Permits, Fees 69,980 80,869 74,713 79,368 83,642 Other Revenues 371,657 364,382 168,330 218,063 156,744 Federal Revenues 0 - 30 - - Total Receipts $1,725,226 $1,683,865 $1,517,092 $1,428,089 $1,602,572
Disbursements
Economic Development $ 13,763 $15,545 $19,603 $22,006 $24,891 Educational & Cultural 6,541 4,552 12,186 16,258 10,129 Natural Resources & Recreation 4,051 6,696 8,524 8,146 6,342 Health - Physical & Mental 739,910 730,184 620,993 507,488 588,316 Social Services 91,358 99,893 107,031 121,929 121,320 Protection of Persons and Property 551,923 536,055 490,143 471,334 574,473 Transportation -- -- -- 2 -- General Government 240,194 255,132 297,918 330,121 354,547 Debt Service 37,480 31,637 18,335 2,418 -- Total Disbursements $1,685,220 $1,679,694 $1,574,733 $1,479,702 $1,680,018
Net Increase (Decrease) in Cash Balance 40,006 4,171 (57,641) (51,613) (77,446) Beginning Cash Balance, Oct. 1 82,198 78,027 135,668 187,281 264,727 Ending Cash Balance, Sept 30 $122,204 $82,198 $78,027 $135,668 $187,281
_____________________________ Source: State Comptroller’s Office.
The Education Trust Fund
The Education Trust Fund is the largest operating fund of the State. Revenues credited to the Education
Trust Fund are used for the support, maintenance and development of public education and capital improvements
relating to educational facilities. Moneys on deposit in the fund are appropriated by the Legislature on an annual
basis.
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Table 16.
Education Trust Fund
Summary of Receipts and Disbursements (Cash Basis)
For the Last Five Fiscal Years
(in thousands)
2013 2012 2011 2010 2009
REVENUES
General Sales Tax $1,542,580 $1,650,924 $1,580,394 $1,565,128 $1,465,847
General Use Tax 219,225 274,449 256,999 237,871 237,459
Income Tax 3,452,404 3,297,903 2,984,083 2,896,869 3,037,529
Utilities Tax 385,244 367,022 394,045 421,752 410,862
Insurance Companies 30,993 30,993 30,993 31,040 30,946
Tobacco & Cigarette Taxes
Beer Tax 22,311 22,368 22,814 22,147 22,771
Leasing/Rental Personal Property
Hydroelectric Companies
Chain Store License 71 57 0 2 46
Employer Cost from Federal Funds
Transfers and Reversions
30,201 32,844 374 438,020
Other 30,468 30,291 35,492 42,287 35,640
TOTAL REVENUES 5,683,296 5,704,208 5,337,664 5,217,470 5,679,120
EXPENSES
Commerce 48,945 -- -- -- --
Education 3,702,171 3,812,170 3,644,724 3,500,159 3,807,395
Public Health 14,571 46,642 14,956 15,585 16,017
Military 0 0 0 438 99
Youth Services 54,910 58,184 62,005 60,307 56,599
Legislature 981
Archives And History 3,694 3,415 3,340 3,170 3,476
Examiners Of Public Accounts 6,214 6,533 6,683 6,742 6,719
Geological Survey 448
Legislative Fiscal Office 306 345 328 336 269
Legislative Reference Service 88 94 97 98 96
Public Library Service 7,259 6,748 7,172 6,896 7,938
Veterans Affairs 52,025 39,017 45,824 20,383 26,146
ETF Direct Disbursements 12,037 12,127 12,129 13,624 20,424
Debt Service And Reserve 10,813 9,006 7,586 6,006 2,398
Serve Alabama 89 79 85 101 119
Postsecondary Education 318,346 370,288 365,776 358,233 411,507
Children's Affairs 18,295 17,590 17,655 17,397 16,040
Rehabilitation Services 37,872 38,355 30,954 33,530 37,182
Drug Education/Awareness Oversight Council
High School Of Math and Science 5,991 5,678 5,816 5,624 6,300
Legislative Oversight Committee on Community Service
State Executive Community Serv. Grants
Commission 3,000 4,092 8,217 10,507 7,874
Knight vs. Alabama Financial Obligation 1,751 1,682 4,236 8,218 9,116
Sickle Cell Oversight Commission 1,403 1,172 1,397 1,225 1,466
Alabama Innovation Fund 5,670 980
Educational Television Commission 4,281 5,500 7,451 7,064 8,253
Alabama Law Institute 553 267 262 224 234
Council On The Arts 3,498 3,545 4,450 4,493 5,223
Commission On Higher Education 17,280 17,766 17,696 17,105 17,133
Nursing Board 166 171 228 238 229
Physical Fitness Commission 949 896 994 794 868
Peace Officer Standards and Training 570 643 629 651 797
State Law Enforcement 238
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Soil and Water Conservation Commission
Sports Hall Of Fame Board
University Of Alabama - Tuscaloosa 140,700 145,951 137,427 138,540 156,521
University Of Alabama - Birmingham 258,386 268,566 254,038 256,086 284,899
University Of Alabama - Huntsville 42,711 43,241 42,704 43,073 45,861
Alabama Agricultural and Mechanical University 37,047 38,065 36,382 36,244 40,244
Alabama State University 40,907 42,612 42,261 39,178 42,365
Auburn University 238,378 247,583 235,491 235,973 261,397
Jacksonville State University 35,316 36,690 36,156 36,028 39,462
University Of West Alabama 13,104 13,519 13,519 12,737 13,529
University Of Montevallo 17,551 18,283 17,259 17,408 19,391
University Of North Alabama 24,765 25,796 24,352 24,562 27,360
University Of South Alabama 101,295 104,391 96,949 97,860 108,451
Troy University 44,923 46,276 43,740 44,112 49,035
Alabama Institute For the Deaf and Blind 47,569 45,559 42,059 42,178 45,942
ETF Non-State 9,699 10,221 10,490 10,580 11,707
Medical Scholarships Awards Board 713 766 1,040 1,068 1,117
Athens State University 11,178
Alabama Fire College/Shelton State 2,900
ETF Appropriated Transfers 53,567 115,239 54,359 53,443 58,645
TOTAL EXPENSES 5,455,123 5,665,743 5,358,916 5,188,218 5,675,843
Cash Balance, October 1 97,745 59,280 80,532 51,280 48,003
Cash Balance, September 30 325,918 97,745 59,280 80,532 51,280
Cash Reserve for Obligations 59,743 77,800 50,676 68,759 51,280
Unobligated Cash Balance September 30 $266,175 $19,945 $8,604 $11,773 $0
Source: State Comptroller’s Office.
The Public Road and Bridge Fund
The Public Road and Bridge Fund is the general operating fund for the Department of Transportation and
receives all State revenues, all federal aid reimbursements and all miscellaneous receipts for the Department of
Transportation. An amendment to the Alabama Constitution provides that no moneys derived from any fees,
excises, or license taxes levied by the State, relating to registration, operation or use of vehicles upon the public
highways, except a vehicle use tax imposed in lieu of a sales tax, and no moneys derived from any fee, excises, or
license taxes levied by the State relating to fuels used for propelling such vehicles, except pump taxes, shall be
expended for other than the cost of administering such laws, statutory refunds and adjustments allowed therein, the
cost of construction, reconstruction, maintenance and repair of public highways, rights-of-way, the payment of
highway obligations, the cost of traffic regulation, and the expense of enforcing State traffic and motor vehicle laws.
The Department of Transportation has historically operated out of these revenues and, when available, federal
moneys. The Department of Transportation has received only nominal amounts from the General Fund.
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Table 17.
Public Road and Bridge Fund
Summary of Receipts and Disbursements
Fiscal Years Ending September 30
2013 2012 2011 2010 2009
Cash on Hand, October 1* $272,402,333 $377,505,353 $324,873,424 $199,282,734 $363,835,243
RECEIPTS:
Gasoline Excise Tax - $0.05 92,344,275 93,395,530 94,242,880 95,347,363 94,079,855
Gasoline Excise Tax - $0.04 43,259,850 43,761,352 44,149,243 44,665,899 44,072,830
Motor Fuel Tax - $0.04 38,395,486 38,161,914 37,923,679 35,730,756 34,201,772
LP Gas Vehicle Permits 86,640 78,814 96,271 93,990 96,823
Motor Vehicle License Taxes 99,743,008 96,483,434 98,431,281 100,687,436 105,262,252
Gasoline Excise Tax - $.07 73,978,570 74,861,753 75,480,053 76,363,380 75,349,397
Lubricating Oil Tax 533,205 568,409 638,872 540,431 473,333
Oversize Hauling Permits 3,588,880 3,687,700 3,375,570 3,352,990 3,368,990
Motor Fuel Tax - $.13 88,157,236 87,587,934 87,061,861 82,026,996 78,517,674
Truck Identification Decals 866,599 882,504 849,791 806,934 811,550
Petroleum Products Inspection Fees 43,068,004 46,642,046 46,926,893 46,936,497 47,196,197
Outdoor Advertising Permits 62,267 65,980 66,942 68,608 67,307
Motor Carrier Tax 487,602 529,599 457,414 477,071 574,156
Interest Income -- -- -- -- 2,315,605
Federal Aid 891,727,257 803,689,683 909,419,520 952,667,032 740,777,573
County Aid & Miscellaneous 50,162,609 24,228,695 21,151,327 28,276,034 25,213,678
Industrial Access 511,763 - - 1,682,887 -
Transfer from Bond Accounts 38,267,934 - - - 8,790
TOTAL RECEIPTS $1,465,243,185 $1,314,625,346 $1,420,271,597 $1,469,724,304 $1,252,387,780
DISBURSEMENTS:
Construction $1,207,483,368 $1,124,254,889 $1,043,096,706 $1,066,196,842 $1,073,404,605
Maintenance 182,472,294 157,840,721 194,010,786 188,096,709 222,817,577
Equipment Purchase 7,994,000 6,356,495 7,001,464 7,249,051 10,070,494
Administration 34,393,588 55,469,813 60,754,958 61,883,535 59,813,430
Debt Service 14,540,000 13,930,000 13,605,000 13,010,000 12,450,000
Other Expenditures 77,707,635 61,876,447 49,170,754 7,697,477 38,384,183
TOTAL DISBURSEMENTS 1,524,590,885 1,419,728,365 $1,367,639,667 $1,344,133,614 $1,416,940,289
CASH BALANCE, SEPT. 30 $213,054,633 $272,402,333 $377,505,353 $324,873,424 $199,282,734
_____________________________
*Beginning and ending balances are on a cash basis and include encumbered funds. Columns may not add due to rounding.
Source: Alabama Department of Transportation.
Unemployment Compensation Trust Fund
The unemployment compensation benefits in the State are paid through unemployment compensation taxes
levied against employers and employees. Moneys collected from these taxes are transferred to a trust fund in
Washington, D.C., the trustee of which is the Secretary of the Treasury of the United States. The moneys in the
special trust fund in Washington are transferred back to the State at the State’s request to pay unemployment
compensation benefits. The moneys received are deposited in the State’s Unemployment Compensation Trust Fund
and are disbursed therefrom for the payment of benefits.
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THE BUDGETARY PROCESS AND FINANCIAL CONTROLS
The Budgetary Process
The Executive Budget Office of the Finance Department is by statute responsible for preparing the initial
information concerning the State’s budget and its execution, revenue estimates, review of Appropriation Acts and
fiscal analysis. The Executive Budget Office also assists the Director of Finance and the Governor in duties relating
to the formulation of the budget; correlating and revising the estimates of revenues and requests for appropriations
of all budgeted agencies; and investigating, supervising and coordinating the expenditures and other fiscal
operations of such agencies. The budget document, as finally developed by the Governor, is published and
transmitted to the Legislature on or before the second legislative day of each regular session. Appropriation
recommendations are subject to alteration by the Legislature.
General Fund and Education Trust Fund Budgetary Status for Fiscal Years 2012 and 2013
From the information that the Executive Budget Office accumulates on revenues and expenditures, certain
schedules are prepared. The following table sets forth beginning and ending balances and activity for the General
Fund and the Education Trust Fund.
Table 18.
Condition of Funds
General Fund and Education Trust Fund
Actual
Fiscal Year 2013
Budgeted
Fiscal Year 2014(1)
General Fund*
Education
Trust Fund General Fund**
Education
Trust Fund
Beginning Balance $42,372,902 $19,944,992 $61,302,483 $266,174,871
Revenues 1,725,226,280 5,683,296,432 1,760,841,438 5,834,823,414
Total Funds Available 1,767,599,182 5,703,241,424 1,822,143,921 6,100,998,285
Expenditures 1,706,296,699 5,437,066,553 1,809,060,403 6,094,214,103(2)(3)
Ending Balance $61,302,483 $266,174,871(2) $13,083,518 $6,784,182
_____________________________ * Includes $2.7 million of Medicaid General Fund carried over from FY 2012. ** Includes $23.2 million of Medicaid General Fund carried over from FY 2013. (1) Fiscal year 2014 budget data is as of March 31, 2014. (2) $260,388,971 of the fiscal year 2013 ending balance was repaid to the Education Trust Fund Rainy Day Fund. (3) Includes an absolute appropriation of $35.0 million and a conditional appropriation of $65.0 million. Source: Department of Finance, Executive Budget Office, State of Alabama.
Financial Controls
General. An appropriation for a department, agency or program of the State is initially contained in one of
the appropriation bills enacted by the Legislature. Before any moneys may be disbursed pursuant to an
appropriation, the department, board, bureau, commission, agency, office or institution of the State for which the
appropriation was made must submit to the Finance Department a requisition for an allotment of the amount
estimated to be necessary to carry on its work during the period for which the allotment is to be made. Allotments
are made for such length of time as may be determined to be appropriate and convenient by the Department of
Finance with the approval of the Governor, but no allotment (except for the acquisition of land, permanent
improvements or other capital projects) shall, in any event, be for a period of longer than three months. The
Department of Finance must examine each such requisition and, with the approval of the Governor, make such
allotment or modification thereof as may be necessary.
The State Comptroller is required to establish all allotments on his books and is prohibited from paying to
or for any agency amounts in excess of such allotment. The Department of Finance, with the approval of the
Governor, may subsequently modify any allotment either upon the written request of the head of the agency or
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institution concerned or upon the initiative of the Department of Finance or the Governor. After the Comptroller has
recorded an allotment, the moneys represented thereby may be expended or encumbered upon request of the head of
the agency or institution for which such moneys have been appropriated.
State moneys, which have been appropriated and allotted, are subject to disbursement by the State
Treasurer. Each disbursement of such moneys for payment of vouchers submitted by an agency or an institution
must be made pursuant to a warrant drawn upon the State Treasury by the Comptroller. Each warrant presented to
the State Treasurer by the Comptroller must specify the particular appropriations against which it is drawn, or the
State Treasurer will not pay such warrant. The Comptroller is responsible for keeping an account in connection with
each appropriation and allotment. No warrant may be issued by the Comptroller or paid by the State Treasurer in
excess of the available balance of the applicable account or funds on hand in the State Treasury. The State Treasurer
is required to honor all warrants properly drawn by the Comptroller.
It is unlawful for any agency official to expend any appropriation for any purpose other than that for which
the money was originally appropriated, budgeted and allotted. If the Governor ascertains that funds are being spent
unlawfully, the Governor has the power to suspend all appropriations and allotments to such agency or institution
until such amounts diverted or wrongfully expended have been replaced.
Unencumbered balances of appropriations lapse at the end of each fiscal year unless otherwise provided by
statute. Appropriations for the purchase of land, the erection of buildings, new construction or Department of
Transportation maintenance of roads and bridges on the state highway system continue in force until the attainment
of the object or the completion of work for which such appropriations were made is accomplished.
An appropriation may be made payable in full only in the event that the estimated budget resources during
the fiscal year for which the appropriation is made are sufficient to pay all appropriations for such fiscal year in full.
To accomplish that objective and to prevent an overdraft or deficit in any fiscal year, the Governor is required to
restrict allotments by prorating, without discrimination, the available revenues among the various departments,
boards, bureaus, commissions, agencies, offices and institutions of the State, all to the end that each appropriation
shall be payable in such proportion as the amount of total revenues estimated by the Department of Finance to be
available in the fiscal year for which such appropriation was made bears to the total sum of all appropriations made
for such fiscal year.
Under the Alabama Constitution, if, at the end of any fiscal year, the moneys in the State Treasury are not
sufficient for the payment of all proper claims presented to the Comptroller, then, as of the end of the fiscal year, the
Comptroller is required to issue warrants only for that proportion of each such claim equal to the percentage of the
amount of such claim relative to the total of all claims. The courts of Alabama have interpreted this provision to
require the annual financial operations of the State to be on a balanced budget and to prevent any department of the
State from creating State debt. Consequently, in the event of a deficit, the available moneys are to be prorated
among all claims presented for payment. At the end of the fiscal year all excess unpaid appropriations which exceed
the moneys in the State Treasury after proration become null and void.
The Supreme Court of Alabama has held that certain expenses of the State necessary for essential functions
of government are not subject to proration. It has been determined by the Supreme Court and subsequent advisory
opinions of the Alabama Attorney General that such expenses include fixed salaries and other fixed expenses and
payment of debt service on outstanding general obligation bonds of the State. Nonetheless, there can be no
assurance that the Supreme Court of Alabama will not, upon further consideration of the issue, modify its earlier
decisions and rule that debt service payments on the bonds of the State may be made subject to proration.
Consequently, it is not possible to determine what effect, if any, proration with respect to the State’s General Fund
may have on the payment of the principal of or interest on bonds of the State. Previous proration (which has
occurred from time to time since 1933) has not, however, resulted in any default in the payment of the bonds of the
State. The following table provides historical data concerning General Fund and Education Trust Fund proration.
Rolling Reserve Act. In March 2011, the Legislature passed and the Governor signed into law The
Education Trust Fund Rolling Reserve Act, which is designed to reduce the risk of proration in the State’s education
budget. Proration occurs when budgeted education spending must be cut mid-year due to lower-than-expected
revenues. The education budget process has historically been based on projecting the annual change in Education
Trust Fund revenues. The sources of revenue that fund the Education Trust Fund are highly sensitive to changes in
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the economy and the range of total revenues varies widely from year to year. As a result, accurately projecting the
Education Trust Fund revenues each year in order to prepare a workable education spending budget has been
difficult. The inability to make accurate revenue projections has led to increased instances of proration in the
education budget.
The Rolling Reserve Act caps the education spending budget using a growth rate equal to the rolling 15-
year average annual revenue growth rate as applied to actual revenues. Under the Rolling Reserve Act, Education
Trust Fund revenues over and above the budgeted amount are to be transferred to the Education Trust Fund Rainy
Day Account (the “Rainy Day Account”) until the Rainy Day Account has been reimbursed in full. The Rainy Day
Account currently gives the State the power to temporarily transfer money from the Alabama Trust Fund to prevent
proration, but the money must be reimbursed within 6 years of its transfer. There is currently a shortfall of $162.589
million in the Rainy Day Account that must be repaid. At the end of Fiscal Year 2013, $260.388 million was repaid
to the Education Trust Fund Rainy Day Account, and it is expected that, by the end of Fiscal Year 2014, an
additional $100.0 million will be repaid to the Education Trust Fund Rainy Day Account.
Once the Rainy Day Account has been fully repaid, any remaining revenues will be transferred to a new
savings account established by the Rolling Reserve Act, the Education Trust Fund Budget Stabilization Fund (the
“Budget Stabilization Fund”). Money in the Budget Stabilization Fund may be withdrawn only to prevent proration
in the Education Trust Fund. If the balance in the Budget Stabilization Fund reaches an amount equal to 20% of the
then current year education budget, any funds above that amount will be transferred to another new fund created by
the Rolling Reserve Act, the Education Trust Fund Capital Fund (the “Capital Fund”). Money in the Capital Fund
may be used for construction or renovation to public education facilities in the State. The budget process required
by the Rolling Reserve Act was implemented beginning with the 2013 budget.
Table 19.
History of General Fund
and Education Trust Fund Proration
1963-2012
General Fund Education Trust Fund
Fiscal Years Percent Amount Percent Amount
1963-1964 to 1977-1978(1) 1978-1979 2.9811% $29,670,397 1979-1980 6.1406 60,887,044 1980-1981 3.5681 39,988,286 1981-1982(1) 1982-1983 15.0000% $55,292,355 1983-1984 to 1984-1985(1) 1985-1986 3.0000 16,240,969 4.2133 79,645,728 1986-1987 to 1989-1990(1) 1990-1991 2.6000 19,970,302 6.5000 165,768,993 1991-1992 5.5000 41,745,530 3.0000 73,428,415 1992-1993 3.2000 24,532,925 1993-1994 to 1999-2000(1) 2000-2001 6.2000 263,826,397 2001-2002(1) 2002-2003(2) 4.4100 185,067,841 2003-2004 to 2007-2008(1) 2008-2009(3) 17.9000 1,134,872,220 2009-2010(4) 20.516395 153,709,068 9.5000 542,084,273 2010-2011 15.00 250,152,394 3.00 164,039,534 2011-2012 10.62 186,989,003 2012-2013(1)
_____________________________
Note (1) No proration in either fund. Note (2) Funds from the ETF Rainy Day Account were used to offset a portion of proration in the ETF during 2002-2003. See “Alabama Trust
Fund” under Receipts, Disbursements, Taxes And Revenues in this Appendix A. Note (3) Funds from the ETF Rainy Day Account and the Proration Prevention Account were used to offset a portion of the 17.90%, resulting
in an effective rate of 11%.
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Note (4) No funds are currently available in the ETF Rainy Day Account or the Proration Prevention Account to offset the shortage in the Education Trust Fund. Funds from the General Fund Rainy Day Account were used to offset a portion of the 20.516395%, resulting in an effective rate of 10%.
Source: Department of Finance, Executive Budget Office, State of Alabama.
RECEIPTS, DISBURSEMENTS, TAXES AND REVENUES
Revenues are collected by nearly every State entity. Table 20 shows the total receipts and disbursements
only for those governmental and expendable trust funds operating from the State Treasury. Table 20 does not
include the activities of funds operating outside the State Treasury, such as the Alabama State Port Authority, the
Alabama Housing Finance Authority, the Alabama Higher Education Loan Corporation or the various colleges and
universities. Table 20 also does not include the activities of any agency funds, proprietary funds or similar pension
and nonexpendable trust funds. Agency funds involve moneys held for other funds or individuals and thus do not
generate revenues or expenditures for the State. Proprietary funds generally involve functions that are financed by
charges to the governmental funds for services such as the motor pool, print shop or self-insurance funds for state
property and employee’s health insurance. Pension trust funds are financed partly by charges to the governmental
funds and partly by investment earnings. The net effect of some proprietary and similar trust funds is included in
Table 20. The taxes and licenses collected by the Alcoholic Beverage Control Board (“ABC”) are recognized in
governmental funds, and the net profits are required by law to be transferred to various governmental funds.
Therefore, the net earnings generated by ABC are included in Table 20. Similarly, the interest earned by the
Alabama Trust Fund is transferred to the General Fund and is reflected in Table 20 as an Other Financing Source.
Because the State records its revenues on a modified cash basis, the information includes encumbered funds, cash
owed to local governments, the federal government and other items which are already obligated. It should also be
noted that only a small portion of the receipts shown in Tables 20 and 21 are deposited into the General Fund.
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Table 20.
Schedule of Receipts and Disbursements (Cash Basis)
Governmental Fund Types (State Treasury Funds Only)
For the Last Five Fiscal Years
(amounts in thousands)
Fiscal Years Ended September 30
2013 % 2012 % 2011 % 2010 % 2009 %
Receipts Taxes $8,939,440 39.2% $8,738,778 39.3% $8,330,553 37.4% $8,003,905 34.7% $8,083,510 39.1%
Licenses, Permits and Fees 639,191 2.8 637,064 2.9% 626,670 2.8 623,490 2.7 610,336 3.0
Fines and Forfeits 194,226 0.9 158,369 0.7% 167,096 0.8 145,922 0.6 250,093 1.2 Federal Funds 8,343,804 36.6 8,380,376 37.7% 9,246,312 41.5 9,309,837 40.4 7,568,491 36.6
Investment Income 83,019 0.4 186,071 0.8% 191,678 0.9 63,001 0.3 119,775 0.6
Other Revenues 956,443 4.2 1,055,901 4.7% 883,559 4.0 979,647 4.3 992,748 4.8 Other Financing Sources 3,629,177 15.9 3,100,712 13.9% 2,814,145 12.6 3,935,831 17.1 3,063,216 14.8
Total Receipts $22,784,300 100.0 $22,257,271 100.0% $22,260,013 100.0% $23,061,633 100.0% $20,688,169 100.0%
Disbursements
Economic Development & Regulation $ 117,238 0.5% $ 149,456 0.7% $ 116,333 0.5% $ 114,399 0.5% $ 118,095 0.5%
Education and Cultural Resources 6,700,850 29.8 6,611,961 29.3% 6,907,457 30.5 6,639,244 29.0 6,599,375 30.2 Natural Resources and Recreation 175,165 0.8 166,748 0.7% 169,094 0.8 228,329 1.0 186,271 0.9
Health - Physical and Mental 7,623,886 34.0 7,650,366 33.9% 7,398,299 32.7 7,338,132 32.0 6,828,394 31.3
Social Services 2,659,977 11.9 2,681,550 11.9% 2,817,154 12.5 2,551,393 11.1 2,204,053 10.1 Protection of Person and Property 1,061,533 4.7 1,086,119 4.8% 1,176,513 5.2 1,113,749 4.9 1,086,417 5.0
Transportation 1,775,637 7.9 1,407,494 6.2% 1,813,033 8.0 1,613,165 7.0 1,656,778 7.6
General Government 1,530,211 6.8 1,626,377 7.2% 1,322,774 5.9 1,462,764 6.4 1,899,682 8.7 Capital Outlay 152,769 0.7 378,823 1.7% 478,965 2.1 513,639 2.2 757,304 3.5
Debt Service 659,137 2.9 799,094 3.5% 418,416 1.9 1,329,087 5.8 506,660 2.3
Total Disbursements $22,456,403 100.0% $22,557,988 100.0% $22,618,038 100.0% $22,903,901 100.0% $21,843,029 100.0%
_____________________________
Columns may not add, and totals may not agree with other tables included in this Appendix, due to effects of rounding.
Source: State Comptroller’s Office.
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Table 21.
Summary of Revenues by Principal Sources (Cash Basis)
Governmental Funds in State Treasury
For the Last Five Fiscal Years
(amounts in thousands)
2013 2012 2011 2010 2009
TAXES General Sales Tax (4% on gross retail sale of merchandise) $2,028,233 $2,023,727 $1,932,919 $1,857,375 $1,828,808 General Use Tax 308,296 282,742 265,254 245,780 245,189 Income Tax (2% to 5% personal, 6.5% net corporate income) 3,498,266 3,343,766 3,033,520 2,949,581 3,086,469 Property Tax Relief (represents portion of Income Tax used to offset
property taxes lost in certain funds due to homestead exemptions) 48,247 48,129 47,710 46,976 45,588 General Property Tax (6½ mills for state on varying rates not over 30%) 322,757 322,674 317,425 316,705 312,659 Gasoline Taxes (.16 per gallon; .03 aviation; .01 jet) 399,143 402,261 406,754 410,158 403,366 Utilities Tax (6% telephone, 4% other) 400,156 381,934 408,982 436,765 425,834 Insurance Premium Tax (1% to 6%) 293,900 276,945 273,020 256,786 268,586 Liquor & Wine Tax (totals 56%, collected by ABC stores) 107,380 105,291 99,960 104,802 100,247 Tobacco & Cigarette Taxes (21.25 mills per cigarette; varying amounts on
cigars, smoking tobacco, snuff, etc.) 127,724 133,414 136,615 137,737 140,725 Corporation Taxes (privilege, 25 cents to $1.75 per $1,000 net worth;
permit, entrance fees for filing) 75,767 76,346 143,750 39,064 164,559 State Beer Tax (.05 per 12 oz.) 55,778 54,489 58,464 55,368 56,927 Public Utilities (2.2%) 144,923 149,828 149,914 143,742 142,909 Motor Fuel Tax (diesel .17 per gallon) 139,708 138,396 140,614 137,234 142,288 Tennessee Valley Authority (payments in-lieu of all state taxes) 112,087 121,421 117,206 122,653 122,283 Leasing/Renting Tangible Personal Property - (4% most items, 1.5%
vehicles, 2% garments) 62,510 61,026 61,866 62,235 66,037 Production Privilege Tax (Oil & Gas Severance at amounts varying from 2 to 8%) 114,523 111,081 110,904 81,969 110,651 Financial Institutions Excise Tax (6.5% of net income of banks and other
financial institutions) 33,080 35,549 14,468 18,874 43,253 Documentary Filing Taxes (auto title, deed, mortgage, securities, etc.) 70,427 63,491 58,086 55,730 61,164 Coal Severance Tax (0.335 per ton) 9,141 3,453 6,416 6,445 6,200 Forestry Severance Tax 5,259 5,087 5,153 4,964 4,691 Inheritance Tax (amount of federal credit) 18 303 41 96 (24) Contractors Gross Receipts Tax (5% or gross receipts) 42,052 37,490 34,587 33,724 34,755 Lodgings Tax (4% or 5% of charge) 53,885 51,787 49,683 43,312 43,656 Hydroelectric Companies (tax on 2/5 mill per kilowatt hour and 2.2% per
dollar gross receipts) 5 945 1,111 1,727 1,146 Lubricating Oil Tax (.06 per gallon) 1,797 1,914 2,151 1,823 1,597 Pari-mutuel Betting (1 or 2% on pari-mutuel pools) 1,557 1,841 1,973 2,104 2,427 Court Cost Taxes 27,674 30,415 32,266 35,200 36,682 Medicaid Taxes 354,623 341,812 302,606 269,627 58,812 Cellular Telephones (6%) 80,510 82,403 94,790 105,918 108,781 Ground Materials Severance Tax 225 - 41 831 3,929 Miscellaneous Taxes 18,780 48,816 18,807 18,603 13,172
TOTAL TAXES 8,938,440 8,738,776 8,327,056 8,003,908 8,083,366 LICENSES, PERMITS AND FEES
Conservation Licenses (fishing, hunting, boat registration, etc.) 26749 26,575 27,724 26,149 27,634 Drivers Licenses & Fees 50432 52,887 51,705 50,954 50,967 Petroleum Products Inspection Fees (.00025 cents to 15 cents per gal) 57,139 58,966 59,634 60,011 59,640 Agricultural License, Permits, Fees 14,845 12,856 12,043 11,091 12,277 Wholesale Oil Company License 6,790 5,587 4,073 3,677 6,552 Motor Vehicle License ($23.00 on auto; up to $845.00 on trucks and up to
$210.00 on buses) 159,772 156,554 156,972 157,239 147,921 Privilege License (fees for privilege of operating stores, factories,
professions, businesses, etc.) 84,159 82,420 81,071 76,519 75,385 Court Fees 80,326 76,036 76,126 80,346 77,652 Alcoholic Beverage Licenses 2,720 2,733 2,914 2,489 2,477 Insurance Corporation Licenses and Fees 1,307 1,366 1,275 1,369 1,242 Miscellaneous License, Permits, Fees 154,952 161,084 156,631 153,648 148,592
TOTAL LICENSES, PERMITS AND FEES 639,191 637,064 630,168 623,492 610,339 FINES & FORFEITS
Court Fines & Forfeits 26,215 28,852 31,071 32,852 34,323 Tobacco Settlement 141,261 95,038 92,001 97,266 116,588 Miscellaneous Fines & Forfeits 26,750 34,480 44,024 15,803 99,181
TOTAL FINES & FORFEITS 194,226 158,370 167,096 145,921 250,092 FEDERAL FUNDS 8,343,804 8,380,374 9,246,312 9,309,838 7,568,492 INVESTMENT INCOME 83,019 183,685 191,676 63,001 119,775 OTHER REVENUES 956,443 1,048,740 878,501 979,648 992,825 TOTAL REVENUES $19,155,123 $19,147,009 $19,440,809 $19,125,808 $17,624,889
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State Taxes and Other Major Sources of Revenues and Income
The following is a description of the major State taxes and other major sources of revenues and income.
Not all of such taxes or revenues are deposited into the General Fund. No assurance can be made that any of these
specific sources or revenues or income will be available in the future.
Ad Valorem Taxes. Ad valorem taxes in Alabama are computed by multiplying the tax rate by an assessed
value for the taxable property. This assessed value is determined by the tax assessor or revenue commissioner of the
county in which such property is located (or by the State Department of Revenue in the case of railroad property and
utility property) as a specified percentage (the “Assessment Ratio”) of the fair and reasonable market value of such
property or, in certain circumstances, its current use value. The assessment of property in Alabama for ad valorem
taxes has been significantly affected by several judicial decisions and two amendments to the Alabama Constitution
— the first adopted in 1973 and the second adopted in 1978 — which have caused significant differences from year
to year in the determination of the assessed value of property. Since revenues from ad valorem taxes approximate
only 2% of all taxes raised annually by the State, the changes in the method of determining assessed valuation have
not significantly affected the revenues of the State.
Under current law, all property is divided into four classes, and the Assessment Ratio applicable to each
class of property for purposes of state taxation is as follows:
Class I All property owned by utilities 30%
Class II All property not otherwise classified 20
Class III All agricultural, forest and single-family, owner-occupied residential property and historic buildings and sites
10
Class IV Private passenger automobiles and pickup trucks owned and operated by an individual for personal or private use
15
An owner of Class III property may elect to have such property appraised for assessment at its “current use
value” rather than its “fair and reasonable market value.”
The following table shows the assessed valuation by categories of property taxed for the fiscal years
indicated. Valuation of motor vehicles is for the preceding year. Assessed valuation used in computing penalties
for late payment of taxes is not included in the values shown for any category of property. The total market value of
all assessed property in the State in the Tax Year ending September 30, 2012 was $69,384,129.
Table 22.
Assessed Valuation of Property Subject to Ad Valorem Taxation by Categories
(in thousands)
Tax
Year
Real
Property
Personal
Property
Public
Utilities
Motor
Vehicles
Total Assessed
Valuation
2000 $24,142,191 $5,210,608 $3,510,138 $4,999,654 $37,862,591 2001 25,228,677 5,487,577 3,618,070 5,379,308 39,713,632 2002 27,283,157 5,890,665 3,755,679 5,742,699 42,672,200 2003 30,310,804 6,329,063 3,835,294 5,605,939 46,081,100 2004 34,175,112 6,586,647 3,868,265 5,814,154 50,984,178 2005 37,149,155 6,408,984 4,054,282 6,773,304 54,385,725 2006 39,485,222 6,646,981 4,061,896 7,021,626 57,215,725 2007 44,050,761 7,341,829 4,134,522 7,047,504 62,574,616 2008 46,865,127 7,759,521 4,249,245 7,161,765 66,035,658 2009 48,706,712 7,995,156 4,325,584 6,493,688 67,521,140 2010 48,708,186 8,257,105 4,318,576 5,824,778 67,108,645 2011 48,194,416 8,653,940 4,355,528 6,621,229 67,825,113 2012 47,743,321 8,693,690 4,531,874 7,124,065 68,092,950 2013 48,292,454 9,013,350 4,669,297 7,409,028 69,384,129
_____________________________
Source: Alabama Department of Revenue.
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Alabama Trust Fund. The State Lands Division manages oil, gas and mineral interests owned by the State
of Alabama. Alabama authorizes the Commissioner of Conservation and Natural Resources to lease, upon such
terms as he or she may approve, certain waters of the State, adjacent land and submerged lands in the Gulf of
Mexico, for the exploration, development and production of oil, gas and other minerals. All lands proposed to be
leased by the Lands Division must be leased only upon the basis of competitive bids.
Currently, the State owns oil and gas interests on small upland tracts, submerged river bottoms and in an
offshore area. The most significant are the natural gas reserves lying within the three-mile offshore area of Mobile
and Baldwin Counties. Major discoveries of natural gas in the 1980s led to the development of an array of natural
gas reservoirs which occur some 19,000 feet below sea level. Most of these “deep discoveries” were developed by
major natural gas producers. However, more recently, “shallow reserves” at between 3,000 and 7,000 feet below
sea level are being developed. While the magnitude of the shallow reserves are not as significant as the deeper
production, shallow gas production is economical partly because it requires less treatment to remove impurities.
Alabama recently completed a new oil and gas reserve and resource study to more accurately determine the gas
reserves in the Alabama state waters of Mobile Bay and the Gulf of Mexico. This study will periodically be updated
to reflect the most recent available geological, geophysical and engineering data.
Originally, revenues generated from the lease of any submerged lands in the Gulf of Mexico, less the cost
of administration referred to below, were paid by the Commissioner of Conservation and Natural Resources to the
State Treasurer to become a part of the General Fund. The Lands Division was entitled to 10% of all revenues,
including royalties, as the cost of administration.
Pursuant to an amendment to the Alabama Constitution adopted in 1982, an irrevocable permanent trust
fund named the Alabama Heritage Trust Fund (the “Heritage Trust Fund”) was created into which there was to be
deposited the proceeds received by the State from January 1, 1981, through October 31, 1981, for the rights to
explore and drill for oil and gas in any offshore area. A subsequent amendment to the Alabama Constitution
adopted in 1985 created a new trust fund known as the Alabama Trust Fund and provided for the dissolution of the
Heritage Trust Fund and the transfer of its assets into the Alabama Trust Fund.
In addition to the funds transferred from the Heritage Trust Fund, the initial trust capital of the Alabama
Trust Fund consisted of an amount equal to the sum of all proceeds of any oil and gas capital payments paid to the
State pursuant to sealed bids received on August 14, 1984, plus certain other revenues payable to the State for the
lease of State lands. The Division of Lands was entitled to 4% of the $347,483,000 which was received by the State
pursuant to the sealed bids awarded on August 14, 1984. The Alabama Trust Fund is augmented by all proceeds of
any oil and gas capital payments, as defined in the constitutional amendment pursuant to which the Alabama Trust
Fund was created (the “Amendment”) subsequent to August 14, 1984; provided, however, that the Division of Lands
of the Department of Conservation and Natural Resources is entitled to 1% of all proceeds of any oil and gas capital
payments, as defined in the Amendment, subsequent to August 14, 1984. “Oil and Gas Capital Payment” is defined
in the Amendment as follows: “any payment, including any royalty payment, received after August 1, 1984, by the
state or any agency or instrumentality thereof as all or part of the consideration for the sale, leasing or other
disposition by the state or any agency or instrumentality thereof of any right to explore and drill for or to produce
oil, gas or other hydrocarbon minerals in any area on the water side of the high water mark of Mobile Bay or in any
other offshore area and shall include any revenue received by the state from federal oil and gas leases off the coast
of Alabama. Any royalty or other payment, with the exception of any taxes heretofore or hereafter levied that is
based upon or determined with respect to, the production of oil, gas or other hydrocarbon minerals and that is paid to
the state or any agency or instrumentality thereof regardless of the time of such payment shall be considered an oil
and gas capital payment.” The Amendment provided that the trust capital is to be held in perpetual trust and may
not be appropriated by the Legislature or expended or disbursed for any purpose other than to acquire eligible
investments in accordance with the provisions of the Amendment. Any trust income derived from the investment of
trust capital is to be paid directly into the General Fund and is subject to appropriation and withdrawal by the
Legislature. The Amendment required that 10% of trust income be reinvested in the Alabama Trust Fund.
However, a subsequent amendment to the Alabama Constitution, pursuant to which the Forever Wild Land Trust
was created, redirected the 10% of income from the Alabama Trust Fund to the Forever Wild Land Trust, up to a
maximum of $15 million in any one fiscal year.
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Table 23.
Fund Balance of Assets in the Alabama Trust Fund
Fiscal Year Ending 9/30 $ Billion
2000 $1.421
2001 1.749
2002 2.176
2003 2.265
2004 2.460
2005 2.704
2006 2.975
2007 3.302
2008 2.982
2009 2.951
2010 3.140
2011 3.202
2012 2.931
2013 2.923
_____________________________
Source: State of Alabama, Treasurer’s Office.
Alcoholic Beverage Control Board Revenue. Licenses and associated filing fees are required of distillers,
manufacturers, wholesalers and retailers for the privilege of distributing alcoholic beverages within the State.
Annual license fees vary with an original application filing fee of $50. The Alabama Alcoholic Beverage Control
Board collects licenses, fees, and liquor, beer, and table wine taxes. Spirituous and vinous liquors are taxed at 56%
of cost plus a 30% markup as set by the State, and the taxes, as well as the profits of the Alabama Alcoholic
Beverage Control Board, are distributed to the General Fund, the Department of Human Resources, the Special
Mental Health Trust Fund, and municipalities and counties in which the sale of alcoholic beverages is permitted by
law. The last tax increase was passed in 1988 and raised the total liquor tax from 48% to 56%. 61.5% of this
increase was appropriated to pay principal, premium and interest on all bonds issued by the Alabama Mental Health
Finance Authority, and the remaining 38.5% was appropriated to the General Fund.
Amendment 666. On November 7, 2000 the Alabama voters ratified an amendment to the Alabama
Constitution (“Amendment 666”). Amendment 666 provides that in any fiscal year which the income from the
investment the Alabama Trust Fund exceeds $60 million, 10% of the trust income shall be distributed to the County
Government Capital Improvement Fund and 10% of the trust income shall be distributed to the Municipal
Government Capital Improvement Fund. These distributions are in lieu of distributions otherwise required to be
made into such funds out of the General Fund. Additionally, in the fiscal year following the first fiscal year that the
Forever Wild Land Trust receives the full $15 million from the Alabama Trust Fund, one-fourth of one percent, not
to exceed $5 million, of the trust income earned from the Alabama Trust Fund is to be paid to the Alabama Senior
Services Trust Fund. Amendment 666 also provides that 75% of the realized and unrealized gains may be
distributed from the Alabama Trust Fund as follows: 10% to the County Government Capital Improvement Fund,
10% to the Municipal Government Capital Improvement Fund and the balance to the General Fund, except that a
portion of such realized and unrealized capital gains shall be distributed in the same manner as, and deemed to be a
part of trust income for purposes of, the constitutional amendment creating the Forever Wild Land Trust.
Amendment 666 also provided that on the October 1 immediately following its ratification, 35% of all Oil and Gas
Capital Payments paid into the Alabama Trust Fund in any fiscal year shall be transferred to a special trust fund as
follows: (a) an amount equal to 7% of all Oil and Gas Capital Payments shall be paid into the County and
Municipal Government Capital Improvement Trust Fund; and (b) an amount equal to 28% of all Oil and Gas Capital
Payments is to be paid into the Alabama Capital Improvement Trust Fund.
Amendment 709. Amendment 709 to the Alabama Constitution established an Education Trust Fund
Rainy Day Account within the Alabama Trust Fund in 2002. The Amendment authorized a one-time transfer from
the Alabama Trust Fund to the Education Trust Fund Rainy Day Account of up to six percent of the Education Trust
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Fund’s appropriation for the fiscal year ended September 30, 2002. Amendment 709 was repealed by Amendment
803 in November 2008.
On June 17, 2002, a transfer of approximately $248 million was made from the Alabama Trust Fund to the
Education Trust Fund Rainy Day Account. During fiscal year 2003, proration in the Education Trust Fund was
declared and $179,993,229 was transferred from the Education Trust Fund Rainy Day Account to the Education
Trust Fund to lessen the effects of proration. These funds were fully repaid prior to the end of fiscal year 2007.
Amendment 803. Amendment 803 to the Alabama Constitution, ratified in November 2008, repealed
Amendment 709 and established an Education Trust Fund Rainy Day Account and a General Fund Rainy Day
Account within the Alabama Trust Fund. In any year in which the Governor declares that proration would occur,
the Education Trust Fund Rainy Day Account or the General Fund Rainy Day Account shall be credited with funds
from the Alabama Trust Fund. However, withdrawals from the Education Trust Fund Rainy Day Account are
limited to 6.5 percent of the previous fiscal year’s appropriations, less any previous withdrawals not repaid, and the
General Fund Rainy Day Account withdrawals are limited to 10 percent of the previous fiscal year’s appropriations,
less any previous withdrawals not repaid. The Education Trust Fund Rainy Day Account must be repaid within six
years and the General Fund Rainy Day Account must be repaid within ten years.
On September 29, 2009, the Governor declared proration of 7.5% in the Education Trust Fund for the 2010
fiscal year. That proration was increased to 9.5% in September 2010. On February 28, 2011, the Governor declared
proration of 3% in the Education Trust Fund for the 2011 fiscal year. Fiscal year 2011 marked the fourth straight
year that proration had been declared in the Education Trust Fund. The Education Trust Fund Rainy Day Account
was depleted in fiscal year 2009, with only a nominal repayment since, and until funds previously withdrawn from
the account are repaid, there will be no additional funds available for withdrawal. See “THE BUDGETARY
PROCESS AND FINANCIAL CONTROLS—General Fund and Education Trust Fund Budgetary Status for Fiscal
Years 2012 and 2013” herein for a discussion of the recently enacted Rolling Reserve Act, which is designed to
reduce the risk of proration in the State’s education budget and provides another method for reimbursing the
Education Trust Fund Rainy Day Account.
On April 30, 2010, the Governor declared 12% proration in the State General Fund for the 2010 fiscal year.
That proration was increased to 20% on August 3, 2010, with a portion of the available General Fund Rainy Day
Account drawn to maintain proration at 12% in the State General Fund. On September 28, 2010, the remainder of
the General Fund Rainy Day Account was drawn to reduce proration in the State General Fund to 10% for fiscal
year 2010. On March 31, 2011, the Governor declared proration of 15% in the State General Fund for fiscal year
2011, and on March 16, 2012, the Governor declared proration of 10.6 percent in the State General Fund. Fiscal
year 2012 marked the third straight year that proration has been declared in the State General Fund. The General
Fund Rainy Day Account was depleted in fiscal year 2010. Since that time the State has reimbursed the said fund,
and as of May 1, 2014, the balance owed to the General Fund Rainy Day Account is $162.6 million.
Beer Tax and County Licenses. Excise taxes are levied on the sale, storage, or receipt of malt or brewed
beverages for the purpose of distribution. The taxes total 5 cents per 12 fluid ounces or fractional part thereof and
are collected by the Alabama Alcoholic Beverage Control Board for distribution to the General Fund, the
Department of Human Resources, the Alabama Education Trust Fund, and counties in which the sale of alcoholic
beverages is permitted by law.
Business Entity Taxes and Fees. An Occupational License Tax is paid by a qualifying foreign corporation
in lieu of the Business Privilege Tax. It is levied on any agent or custodian appointed by any such foreign
corporation which has no place of business in Alabama but takes and holds mortgages on real property in Alabama.
Fees are set at $100.00 for original license and $5.00 for annual renewal. The State also levies fees on corporations
and other types of business entities for filing documents, issuing certificates, as well as certain miscellaneous
charges and penalties. Such fees are collected by the State Department of Revenue and are deposited into the
General Fund.
Business License Taxes. The State levies, at varying rates, a privilege tax on persons or firms,
corporations, companies, associations, receivers or trustees engaged in a certain business, vocation or profession.
After the cost of collection, the receipts are distributed 50% to the General Fund and 50% to the respective counties
where such receipts are collected.
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Business Privilege Tax. The Business Privilege Tax was enacted, effective May 23, 2000, as a means of
replacing the State’s franchise tax on foreign corporations and share tax on domestic corporations. This is an annual
tax based on the net worth of a corporation, whether foreign or domestic. The tax is collected by the State
Department of Revenue and is distributed to the General Fund and counties wherein the corporation operates.
Cigarette and Tobacco Taxes. A privilege and use tax on tobacco products, including a tax of 21.25 mills
per cigarette, is levied on the sale, storage or distribution of cigarettes by wholesalers and retailers, and varying rates
on other tobacco products. The proceeds derived from the tax levied upon cigarettes are divided among the State
Public Welfare Trust Fund, State Medicaid programs, the Special Mental Health Trust Fund, the State Park Fund,
the State Health Department, the General Fund and the State Treasurer’s Office for payment of maturities of
principal and interest on: (1) certain bonds issued by the State Industrial Development Authority, and (2) certain
bonds issued by the State or the Alabama Mental Health Finance Authority for the acquisition and construction of
mental health facilities. The proceeds derived from the tax levied on tobacco products other than cigarettes are
deposited into the General Fund.
Corporation Fees. Fees are charged by the Secretary of State and probate judges for filing documents,
issuing certificates, etc., on behalf of corporations. Funds collected by the Secretary of State are divided between
the Corporations Fund and the General Fund. Collections by counties are deposited in the county treasuries.
Driver’s License Fees, Transcripts and Duplicates. County probate judges collect fees for four-year
driver’s licenses, eight-year non-driver’s identification cards for those less than 62 years of age, transcripts,
duplicates and learner’s permits. The driver’s license fees are deposited into the General Fund and earmarked for
public safety use after each county retains $1.50 per license issued.
Federal Funds. Federal funds provided revenues to the State in prior years as shown in Table 20. Federal
funds received in recent fiscal years provided the citizens of the State with aid in the areas of health, welfare,
education, highways, employment services, disaster recovery, planning, energy and many routine government
operations. No assurance can be made that federal funds will continue to be allocated to the State in the amounts
received during prior years.
Financial Institutions Excise Tax. A 6.5% excise tax is levied on the net income of any bank, credit
union, banking association, trust company, loan company or association, or person or institution coming into
competition with the business of national banks. The funds remaining after deducting administrative costs and 0.5%
which is distributed to the General Fund, are deposited 25% into the General Fund, 25% to the respective counties
and 50% to the respective cities.
Gasoline Tax. A total of $0.16 per gallon is now charged on the sale, consumption, distribution, storage or
withdrawal from storage of gasoline. However, this $0.16 per gallon tax is not required to be collected on gasoline
sold (1) for use as fuel to propel aircraft, (2) to certain counties and municipalities for use by their boards of
education, (3) to certain private and church schools, (4) to certain governmental entities, (5) for agricultural
purposes, and (6) for other miscellaneous purposes. Of the total $0.16 remaining after the cost of collection is
deducted, the proceeds are distributed in three portions: $0.07, $0.04, and $0.05. Of the $0.07, a minor portion is
distributed to State’s Water Safety Fund and the Seafood Fund, and the remainder is divided 45% to the Public Road
and Bridge Fund and 55% to the counties. Of the $0.05, after a minor portion is distributed to the State’s Water
Safety Fund and Seafood Fund, the remainder is divided 60% to the Public Road and Bridge Fund and 40% to the
Public Road and Bridge Fund and the counties for highway purposes. Of the $0.04, 45% is transferred to the Public
Road and Bridge Fund and 55% is divided among the counties and municipalities according to the law providing for
such tax. The State Department of Revenue also collects an aviation gasoline tax on the sale, consumption,
distribution or storage of gasoline for use as a fuel to propel aircraft. The proceeds, after a deduction for the cost of
collection, are allocated to the Alabama Department of Transportation and to political subdivisions operating
airports.
Hazardous Waste Fees. The State collects a per ton levy on operators of commercial sites for the disposal
of hazardous substances for each ton of hazardous waste or hazardous substance received for disposal and disposed
of at such sites, with a portion of the amount collected going to the State’s General Fund and a portion going to the
county in which the site is located.
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Hydroelectric Companies Tax. The State levies a privilege tax on the manufacture and sale of
hydroelectric power within the State. The tax is assessed at 2/5 of a mill (0.04%) upon each kilowatt-hour of
hydroelectric power and is allocated 42% to the Alabama Education Trust Fund and 58% to the Special Mental
Health Trust Fund.
Income Tax. Personal income is taxed as a maximum of 5% after specified exemptions and deductions
(including federal income taxes paid). Corporate income remaining after the subtraction of statutory deductions
(including federal income taxes paid) is taxed at the rate of 6.5%. After deducting costs of collections, the State
Department of Revenue allocates a portion of the income tax revenues to the General Fund, the Soldier’s Relief
Fund, and the Public School Fund for reimbursement for homestead and other ad valorem tax exemptions and any
balance remaining is transferred to the State Treasurer for credit to the Education Trust Fund to be used for payment
of public school teachers salaries only.
Insurance Company Licenses and Premium Tax. A license tax, at varying rates, is levied for the privilege
of providing insurance within the State with the proceeds distributed between the General Fund, the Education Trust
Fund, the Special Mental Health Trust Fund and the Insurance Department Fund.
Interest on State Deposits. Interest earned by the State Treasurer through the investment of State funds is
paid to the State Treasury and, unless otherwise provided for by law, is credited to the General Fund. Because these
amounts are not considered to be derived from tax revenues, they are not reflected in Table 20.
Leasing or Renting of Tangible Personal Property. A privilege tax is levied upon persons engaging in
leasing or renting tangible personal property. The tax rates are as follows: 4% of gross proceeds from leasing or
renting tangible personal property; 1.5% of gross proceeds from renting or leasing automotive vehicles, trucks,
semi-trailers or house trailers; and 2% of gross proceeds from renting or leasing linens and garments. All of the
proceeds of this tax are distributed to the General Fund.
Lodgings Tax. A privilege tax is levied upon every person or firm that rents or furnishes lodgings or
accommodations to transients for a period of less than 180 days for a fee. The tax is levied at the rate of 5% of the
charges for accommodation in counties of the geographic region comprising the Alabama mountain lakes area and
4% of the charges for accommodations in all other Alabama counties. One fifth of the 5% tax collected in the
Alabama mountain lakes area counties is distributed 50% to the Alabama Mountain Lakes Tourist Association and
50% to the respective 16 counties where the tax is collected for the promotion of tourism and recreation. The
balance of the tax collected in the mountain lakes area counties as well as the entire proceeds from the 4% tax levy
collected in all other Alabama counties is distributed to 75% the General Fund and 25% to the Department of
Tourism and Travel.
Mortgage Recording Tax. A license tax is collected by the probate judge of each county for filing a
mortgage, deed of trust, contract of conditional sale, or similar instrument given to secure payment of any debt
incurred in connection with the conveyance or transfer of any real or personal property in the State, or any security
agreement or financing statement provided for by the Alabama Uniform Commercial Code. The tax rate is $0.15 for
each $100 of indebtedness, or fraction thereof. Two thirds of the net amount collected is deposited into the General
Fund and one third into the county treasury. Out of the total amount collected, 5% is retained by the Judge of
Probate to cover costs of collection.
Motor Fuels Tax. An excise tax is levied upon the sale, consumption, distribution, storage or withdrawal
from storage of any motor fuel (primarily diesel) used in the operation of a motor vehicle upon State highways. The
State collects two levies ($0.13 and $0.06) which total $0.19 per gallon. The State Department of Revenue collects
this tax and, after the cost of collection is deducted, the $0.13 tax is used for the repayment of Alabama Highway
Authority Bonds, if any are outstanding, and the construction and maintenance of roads and bridges and the $0.06
tax is distributed 4.69% equally among the 67 counties for public road and bridge purposes, 0.93% to incorporated
municipalities and the balance to the Department of Transportation for highway purposes.
Motor Vehicle Registrations. An annual license tax or registration fee is required for each motor vehicle
operated on the public highways of Alabama. Registration fees are collected by the Judge of Probate of each county
and are set at $23.00 for each passenger automobile, $15.00 for each motorcycle, $47.50 to $210.00 for each motor
bus, $23 to $500 for motor homes and $23.00 to $845.00 for each commercial car, truck or truck tractor. Fees for
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buses are based on city population and seating capacity. After the deduction of administrative costs and certain
additional amounts collected on cars, trucks and truck tractors, 72% of the proceeds is deposited into the Public
Road and Bridge Fund, 21% is distributed to the county or municipality in which the vehicle is located and 7% is
distributed by the State Treasurer to the 67 counties on the basis of vehicle registrations. Additional amounts
collected on truck and truck tractors are distributed: 64.75% to the Public Road and Bridge Fund and 35.25%
among the 67 counties of the state. $10 in additional fees on private passenger automobiles and trucks are deposited
into the General Fund for Department of Public Safety purposes.
Oil and Gas Privilege Tax. There is an annual privilege tax that is collected by the State Department of
Revenue on all persons engaged in the business of producing or severing oil or gas from beneath soil or water. Well
units are taxed at a percentage of the gross value of the oil or gas at the point of production. The privilege tax varies
according to type of well (offshore or onshore), permit date, and well classification (discovery, replacement,
development, or occluded gas). The amount collected is divided between the General Fund and the counties where
the oil and gas is produced (and the municipalities, if applicable).
Oil and Gas Production Tax. This tax is on the production of oil or natural gas severed from any well in
Alabama. The tax is 2% of gross value at the point of production or 1% for any well permitted between July 1,
1996, and July 1, 2002, that is not a replacement well, for five years from the first production. Revenues are
collected by the Department of Revenue and distributed to the General Fund.
Pari-Mutuel Tax. In 1988, the Alabama Legislature passed a 1% privilege tax on the pari-mutuel pool on
all pari-mutuel races. Alabama previously had a 1% tax on the pari-mutuel pool on all horse races. The Legislature
also enacted an additional 1% privilege tax on the pari-mutuel pool on all pari-mutuel races requiring the selection
of three or more racers.
Public Utilities Tax. A 2.2% tax on each dollar of gross receipts for the preceding year on all persons
operating a public utility except railroads, express companies, telephone and telegraph companies. After a
deduction for costs of collection, the public utilities tax is distributed as follows: 15% to the General Fund and 85%
to the Special Mental Health Trust Fund.
Sales and Use Taxes. The sales tax is a tax imposed on the gross proceeds from the sale of tangible
personal property within the State. The use tax is an excise tax on the storage, use or other consumption within the
State of tangible personal property purchased outside the State. After the deduction of collection costs for the sales
tax, $189,000 is distributed to the 67 counties on the basis of population; $189,000 is distributed to the 67 counties
equally; $1,322,000 is distributed to the Department of Human Resources for general welfare purposes; varying
amounts are distributed to the Department of Conservation and Natural Resources and for other purposes as
specified by state statute; the amount necessary to administer the Food Stamp Program is distributed to the
Department of Human Resources; the funds necessary to retire specified bond issues are deposited into appropriate
sinking fund accounts; and the balance is deposited into the Education Trust Fund. After deduction of collection
costs for the use tax, 42% of tax on automotive vehicles, truck trailers, semi-trailers or house trailers is distributed to
the General Fund; 15% of the remaining proceeds are deposited into the Education Trust Fund and 25% of the
remaining proceeds are deposited into the General Fund.
Tennessee Valley Authority Payments. The Tennessee Valley Authority (“TVA”) makes payments in lieu
of all taxes to the states where its power properties and operations are located. It pays 5% of its gross revenues from
the sale of power in the preceding fiscal year to the states on a proportionate basis. The amounts received by the
State from TVA’s payments in lieu of taxes are distributed as follows: certain counties, 83%; and the remainder to
the State. The State’s share is required to be deposited into a special fund held by the State Treasurer (the “Special
Fund”) for the Alabama Incentives Financing Authority Bonds. If directed so to do by a resolution of the Board of
Directors of the Alabama Incentives Financing Authority, the State Treasurer must transfer from the Special Fund to
the General Fund moneys and securities the Board of Directors determines are not needed to meet obligations of the
Alabama Incentives Financing Authority.
Utility Gross Receipts Tax and Utility Service Use Tax. A privilege tax on every utility furnishing utility
services is collected by the State Department of Revenue. For every utility furnishing electricity, domestic water or
natural gas, the tax rate is 4% on the first $40,000 of monthly sales, 3%, on the next $20,000 of monthly sales and
2% on all monthly sales above $60,000. For every utility furnishing telegraph or telephone services, the rate is 6.0%
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on all monthly sales. After a deduction for cost of collection and $14,600,000 for deposit into the Special Mental
Health Trust Fund, the proceeds from this tax are deposited into the Education Trust Fund. The Utility Service Use
Tax, complementary to the Utility Gross Receipts Tax, is levied on the sales price of utility services stored, used or
otherwise consumed in Alabama, regardless of whether the utility is engaged in business in Alabama, at the same
rates as the Utility Gross Receipts Tax. After a deduction for cost of collection, the proceeds of this tax are
deposited into the Education Trust Fund.
Sales Tax Holiday. This act, passed during the 2006 Regular Session of the Alabama Legislature, created
a sales tax holiday that will exempt from the state sales tax the purchase of selected products (computers, clothes,
school supplies, etc.) up to a maximum cost, for the first weekend in August each year. The annual financial effect
is estimated to be a loss of revenue to the Education Trust Fund of $3.5 million.
Individual Income Tax Changes. For all tax years beginning on or after December 31, 2006, the amounts
allowed for the personal and dependent exemptions and the optional standard deduction will be increased for low
and moderate income taxpayers. The changes were estimated to result in a reduction in revenue deposited to the
Education Trust Fund of $36 million in fiscal year 2007, and are estimated to result in a reduction of $60 million for
each fiscal year thereafter.
Three pieces of legislation were passed during the 2013 Regular Session and the 2012 First Special Session
of the Alabama Legislature that will have significant budgetary impact.
Alabama Accountability Act. In March 2013, the Legislature passed and the Governor signed into law the
Alabama Accountability Act of 2013 (Act No. 2013-64), which, among other things, (1) allows for flexibility
contracts between the State Board of Education and local public school districts in order to enhance innovation in
Alabama public schools, (2) creates income tax credits for families with students in a failing school to attend a
nonpublic school or non-failing public school, and (3) creates income tax credits for taxpayers who donate to a
nonprofit organization that provides scholarships for students to attend a nonpublic school or non-failing public
school. The act has an effective date of March 14, 2013, but it is expected that the act will first have a fiscal effect
beginning with the State’s budget for the fiscal year beginning October 1, 2013 and ending September 30, 2014.
The estimated fiscal effect for that fiscal year is $40,000,000.
The income tax credits for families with students in a failing school are refundable tax credits, which means
that, if the Alabama income taxes owed by the family are less than the total credit allowed under the act, the family
is entitled to a refund or rebate equal to the balance of the unused credit. The act provides that these refunds or
rebates are to be paid out of sales tax collections of the Education Trust Fund. The act provides for no limit on these
tax credits. The income tax credits for taxpayers who donate to a nonprofit scholarship organization are not
refundable tax credits; further, the act limits these tax credits to $25,000,000 per year.
Use Tax Redistribution and Remote Sales/Use Tax. In May 2012, the Legislature passed and the
Governor signed into law a bill that changed the distribution of the use tax (Act No. 2012-599), repealed the current
remote sales and use tax distribution, and put a new remote sales and use tax distribution in place, with an effective
date of October 1, 2012. This bill changed the use tax distribution from a full distribution to the Education Trust
Fund to 75% to the Education Trust Fund and 25% to the State General Fund (this change does not affect the
distribution of sales tax on automobiles, which is deposited 42% State General Fund and 58% Education Trust
Fund).
The legislation also repealed the remote sales and use tax distribution to be enforced if the United States
Congress provided for states to enforce collection of a sales or use tax on remote sellers enacted in 2001, that
allowed for deposits to the Education Trust Fund Rainy Day Account until the balance reached 6.5% of the previous
year’s Education Trust Fund appropriation; then deposits were to be placed in the General Fund Rainy Day Account
until the balance reached 6.5% of the previous year’s General Fund appropriation; then deposits were to be placed
into the Education Trust Fund. In its place, if there was a national agreement for the collection of sales and use taxes
from remote sellers that establishes a national tax rate or if the agreement provides for the State to establish a single
statewide rate on remote sales, one-half of the proceeds would be distributed to the State, with 75% deposited into
the State General Fund and 25% deposited into the Education Trust Fund. One quarter would be distributed to the
municipality in which the delivery was made, if the delivery is made to a municipality. The remainder would be
distributed to the county in which the delivery is made.
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Alabama Trust Fund Distributions. To provide a more steady and reliable revenue stream to the State
General Fund, rather than relying on unstable capital gains from the Alabama Trust Fund, the Legislature passed, the
Governor signed, and the people approved Constitutional Amendment 856 to the Constitution of Alabama of 1901.
Prior to this change, Amendment 666 to the Constitution of Alabama of 1901 stated that in any year when trust
income exceeded $60,000,000, 10% shall be transferred to the Municipal Government Capital Improvement Trust
Fund, 10% shall be transferred to the County Government Capital Improvement Trust Fund, up to 10%, but no more
than $15,000,000, shall be transferred to the Forever Wild Land Trust, one-fourth of 1% (increasing one-fourth of
1% each fiscal year), but no more than $5,000,000, shall be transferred to the Senior Services Trust Fund, with the
remainder to the State General Fund. Oil and gas royalties were to be distributed as follows: 1% to the Land
Division of the Department of Conservation and Natural Resources, of the 99% remainder, 65% to the Alabama
Trust Fund, 28% to the Capital Improvement Trust Fund, and 7% to be split 50% to the Municipal Government
Capital Improvement Trust Fund and 50% to the County Government Capital Improvement Trust Fund. In addition,
the Alabama Trust Fund Board, with a majority of members present making a quorum, and with majority vote of
members present, could transfer up to 75% of realized and unrealized capital gains, with 10% each transferred to the
Municipal Government Capital Improvement Trust Fund and the County Governmental Capital Improvement Trust
Fund and the remainder (80%) to the State General Fund.
Amendment 856 changed the distribution to allow 33% of the oil and gas capital payments paid into the
Alabama Trust Fund for the fiscal year ending one year prior to the beginning of the fiscal year for which the
distribution is being made plus 5% of the average market value of the invested assets of the Alabama Trust Fund as
of the end of the three fiscal years ending one, two and three years prior to the beginning of the fiscal year for which
the distribution being made to shall be distributed. 10% will go to the County Government Capital Improvement
Trust Fund, 10% to the Municipal Government Capital Improvement Trust Fund; 10%, but not more than
$15,000,000 in anyone year, will go to the Forever Wild Land Trust, 1%, but not more than $5,000,000 in anyone
year, will go to the Senior Services Trust Fund, with the remainder to the State General Fund. The distributions may
be reduced (either a smaller percentage of oil and gas payments, a smaller percentage of average amount of invested
assets, or both) due to detrimental financial or market conditions if approved by a two-thirds vote of the entire board
membership.
The Amendment also allowed for three transfers from the Alabama Trust Fund to the State General Fund
for each of the fiscal years 2013 through 2015 in the amount of $145,796,943 annually.
Pursuant to Act No. 2013-6 duly adopted during the 2013 Regular Session of the Alabama Legislature, the
Legislature shall provide for the repayment of all funds transferred from the Alabama Trust Fund to the State
General Fund pursuant to Amendment 856 not later than September 30, 2026.
STATE RETIREMENT PROGRAMS
General
The State of Alabama (the “State” or “Alabama”) is one of many participants in three statewide retirement
pension benefit programs provided through the Retirement Systems of Alabama (“RSA” or the “System”) and two
healthcare benefit programs. Teachers’ Retirement System (“TRS” or the “Teachers’ System”), Employees’
Retirement System (“ERS” or the “Employees’ System”), and Judicial Retirement Fund (“JRF”) operate under
common management and are collectively referred to as RSA. Each of the three retirement pension programs is a
defined benefit program, whereby the investment risk of the program is borne by the employer.
The Systems are funded by (1) employee contributions, (2) appropriations by the Legislature from the
Education Trust Fund, the General Fund and other funds from local units who are responsible for employer
contributions, and (3) earnings on investments. Active members participate in the Systems as a condition of
employment with concurrent contributions made on their behalf by their respective employer.
The TRS, a cost-sharing multiple-employer public employee retirement plan, was established as of
September 15, 1939 under the provisions of the 1939 Alabama Acts 419 for the purpose of providing retirement
allowances and other specified benefits for qualified persons employed by State-supported educational institutions.
The responsibility for the general administration and operation of the TRS is vested in its Board of Control.
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The ERS, an agent multiple-employer public employee retirement plan, was established as of October 1,
1945 under the provisions of the 1945 Alabama Acts 515 for the purpose of providing retirement allowances and
other specified benefits for State employees, State police, and on an elective basis, to all cities, counties, towns, and
quasi-public organizations. The responsibility for the general administration and operation of the ERS is vested in
its Board of Control.
The JRF, a cost-sharing multiple-employer public employee retirement plan, was established as of
September 18, 1973 under the provisions of the 1973 Alabama Acts 1173 for the purpose of providing retirement
allowances and other specified benefits for any Justice of the Supreme Court of Alabama, Judge of the Court of
Civil Appeals, Judge of the Court of Criminal Appeals, Judge of the Circuit Court, District and Probate Judges, or
office holder of any newly created judicial office receiving compensation from the State Treasury. The
responsibility for the general administration and operation of the JRF is vested in the Board of Control of the ERS.
The TRS, ERS, and JRF provide retirement benefits as well as death and disability benefits as established
by State law. Changes to benefits, including ad hoc cost of living adjustments, must be established by statute.
Benefits for TRS and ERS members vest after 10 years of credited service. Teachers and state employees who retire
after age 60 (52 for state police) with 10 years of credited service or with 25 years of service (regardless of age) are
entitled to an annual retirement benefit, payable monthly for life. Service retirement benefits are calculated by two
methods with the member receiving payment under the method which yields the highest monthly benefit: (1)
minimum guaranteed, or (2) formula. Under the formula method, members of TRS and ERS (except state police)
are allowed 2.0125 percent of their final average salary (highest 3 of the last 10 years) for each year of service.
State police are allowed 2.875 percent for each year of state police service in computing the formula method.
Disability retirement benefits are calculated in the same manner. JRF benefits vest from five to eighteen years.
Service retirement benefits for justices and judges are dependent upon the particular office held in the judicial
branch of government.
Act 377 of the Legislature of 2012 established a new tier of benefits (Tier 2) for members hired on or after
January 1, 2013. Tier 2 TRS and ERS members are eligible for retirement after age 62 (56 for State police) with 10
years or more of credited service and are entitled to an annual retirement benefit, payable monthly for life. Service
and disability retirement benefits are based on a guaranteed minimum formula method, with the member receiving
payment under the method that yields the highest monthly benefit. Under the formula method, Tier 2 members of
the TRS and ERS (except State police) are allowed 1.65% of their average final compensation (highest 5 of the last
10 years) for each year of service. State police are allowed 2.375% for each year of State police service in
computing the formula method.
At September 30, 2013, the number of participating employers in each system was as follows:
Table 24.
Participating Employers by System
As of September 30, 2013
TRS ERS JRF
Cities - 290 -
Counties - 65 67
Other Public Entities - 518 -
Universities 13 - -
Post-Secondary Institutions 31 - -
City and County Boards of Education 133 - -
State Agencies and Other 32 1 1
Total 209 874 68
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The following table shows the number of active and retired State members in the various State and local
participating units of the System.
Table 25.
Number of Active and Retired Members
As of September 30, 2012
ERS
TRS ERS JRF
Total
Members
State
Employees
State
Policemen
Local
Member
Retired and beneficiaries currently
receiving benefits 78,370 40,976 347 119,693 20,618 839 19,519
DROP Participants(1) 4,436 2,121 - 6,557 1,445 25 651
Terminated employees entitled to benefits
but not yet receiving benefits 18,568 10,554 45 29,167 3,197 16 7,341
Active Members 133,791 84,169 337 218,297 29,548 777 53,844
Total 235,165 137,820 729 373,714 54,808 1,657 81,355
_____________________________
Note (1) DROP is the State’s Deferred Retirement Option Program. DROP was repealed by the Alabama Legislature effective March 24, 2011. For further information regarding DROP, see “DROP Program” below.
Sources: Actuarial reports for ERS, TRS and JRS, as of September 30, 2012.
Benefits Provided
The System provides retirement, disability and death benefits. The benefits are available to members at
varying times during their creditable service. While there are variations in certain benefits, the basic annual service
retirement allowance is 2.0125% of the member’s “final compensation” multiplied by the number of years of
creditable service. A member’s “final compensation” is determined by taking the average of the highest three years
of compensation out of a member’s final ten years of service. Retirement benefits are available after 25 years of
creditable service or after 10 years of creditable service and attainment of age 60. Members of the System are
qualified for vested deferred benefits after completion of 10 years of creditable service.
Tier 2 members are also provided retirement, disability and death benefits. The basic annual service
retirement allowance is 1.65% of the member’s “final compensation” multiplied by the number of years of
creditable service. A member’s “final compensation” is determined by taking the average of the highest five (5)
years of compensation out of a member’s final ten (10) years of service. Retirement benefits are available after ten
(10) years of creditable service and attainment of age 62. Members of the System are qualified for vesting deferred
benefits after completion of ten (10) years of creditable service.
Members also receive health insurance benefits through one of two health insurance plans. For a
discussion of health benefits provided, see “Other Post Employment Benefits” below.
DROP Program
Operation of the State’s Deferred Retirement Option Program (“DROP”) commenced in June 2002. DROP
was a retirement program designed to keep highly experienced employees from taking early retirement. DROP
allowed state and education employees who were eligible for retirement to defer receipt of their retirement
allowance and continue employment for a period of not less than 3 years nor more than 5 years. At the end of the
period, the member could withdraw from active service and receive his or her normal retirement benefit calculated
at the time of enrollment in DROP, plus a lump sum payment comprised of the deferred retirement benefits,
employee contributions made while participating in DROP, and interest earned on DROP deposits. DROP
participation was available to eligible members who had twenty-five years of service (exclusive of sick leave), were
at least 55 years of age, and were eligible for service retirement.
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In March 2011 the Alabama Legislature voted to repeal DROP and the Governor signed into law a bill (Act
No. 2011-27) affecting the repeal. The repeal of DROP was effective March 24, 2011 and eliminated all new
enrollments into the program with an effective participation due after June 1, 2011.
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Annual Valuation and Unfunded Accrued Liability
Alabama statutes require an actuarial valuation of the System by a competent actuary annually. Valuations
are released approximately one year after the valuation date. The System actuary is currently Cavanaugh
Macdonald Consulting, LLC (“Cavanaugh”). Cavanaugh released its September 30, 2012 valuation for the System
(the “2012 System Valuation”) in July, 2013. The 2012 System Valuation includes an actuarial valuation for each
component of the RSA System (TRS, ERS and JRF).
In connection with the System pension programs, the State is pooled with certain local governments and
municipalities, universities, colleges and community colleges, boards and authorities, non-profit agencies, parks,
libraries and other affiliated groups. Because System assets and liabilities are pooled on a program-wide basis, the
State is pooled with all Alabama local governments in connection with the System.
An employer’s unfunded actuarial liability (“UAL”) is the excess of the actuarially determined present
value of the employer’s benefit obligations to employees over the existing actuarially determined assets available to
pay those benefits. The following methods and assumptions adopted by the RSA are the basis for the actuarial
valuations of the related pension benefit programs:
Table 26.
Pension Assumption Method
Actuarial Cost Method:
TRS Entry Age Normal
ERS Entry Age
JRF Entry Age Normal
UAL Amortization Method Level Percent Open
Amortization Period
TRS 30 years
ERS(1) 30 years
JRF 27 years
Asset valuation Method:(2)
TRS Five-Year Market Related Value
ERS Five-Year Market Related Value
JRF Five-Year Smoothed Market Value
Payroll Growth Rate:(3)
TRS 3.50% - 8.25%
ERS 3.75% - 7.25%
JRF 4.00%
Inflation Level 3.00%
Cost of Living Adjustments None for TRS and ERS
JRF: 3.25% per year for certain members hired prior to
July 30, 1979 and for spousal benefits subject to increase
_____________________________
Note (1) For local employees in ERS, within 30 years, varies by employer.
Note (2) Actuarial value of assets was set to equal to the market value on September 30, 2012. Smoothing will commence again in future years.
Note (3) Includes inflation.
Sources: Actuarial reports for ERS, TRS and JRF as of September 30, 2012.
State law provides that the RSA Boards of Control engage an actuary to prepare an annual valuation of the
assets and liabilities of the various retirement plans. Under the provisions of GASB Statement No. 25, Financial
Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, the actuary
determines the “unfunded actuarial liability.”
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Teachers’ Retirement System
Actuarial Valuations. The table below reflects the unfunded actuarial accrued liability, actuarial value of
assets and funded ratio of the TRS as of the actuarial valuation dates shown:
Table 27.
Historical Funded Status
Teachers’ Retirement System
(includes non-State obligated portion)
(in millions of dollars)
Valuation Date
(September 30)
Actuarial Value
of Assets(1) Actuarial
Accrued Liability
Unfunded Actuarial
Accrued Liability
Funded Ratio
(%)
(a) (b) (b-a) (a/b)
2012 $18,786 $28,251 9,465 66.5%
2011 19,430 28,776 9,346 67.5
2010 20,133 28,300 8,167 71.1
2009 20,582 27,537 6,955 74.7
2008 20,812 26,804 5,992 77.6
2007 20,651 25,972 5,321 79.5
_____________________________
Note (1) The five-year market related value method is used to determine the actuarial value of assets. This method spreads the difference
between the market value of assets and the actuarial value of assets over a 5 year period to prevent short-term fluctuations that may
result from economic and market conditions. For each year, this method recognizes 20 percent of the investment gains or losses for the prior 5 years. Actuarial value of assets was set to equal the market value on September 30, 2012.
Source: Actuarial Valuations of Teachers’ Retirement System of Alabama – Report of Actuary on the Annual Valuation Prepared as of
September 30, 2012.
Cash Flow Analysis. The table below reflects a cash flow analysis for the Teachers’ System for the fiscal
years shown below.
Table 28.
History of Additions and Deductions
Teachers’ Retirement System
(in millions of dollars)
2013 2012 2011 2010 2009 2008
Employee Contributions $474.2 $457.0 $321.1 $319.8 $321.1 $323.8
Employer Contributions 628.0 618.3 779.6 776.4 753.5 730.0
Investment Income 2,733.0 2,989.0 352.0 1,448.3 (1,485.1) (3,336.7)
Other Income & Transfers 3.3 2.0 2.1 1.6 2.6 3.2
Total Additions 3,838.0 4,066.0 1,454.8 2,546.1 (407.9) (2,279.7)
Total Deductions(1) 1,968.0 1,868.1 1,740.3 1,629.5 1,571.5 1,538.7
Net Increase (Decrease) $1,870.2 $2,198.0 $(285.5) $916.6 $(1,979.4) $(3,818.4)
_____________________________
Note (1) Includes payments to retirees and beneficiaries, as well as administrative expenses.
Note: Totals may not add due to rounding.
Source: Retirement Systems of Alabama Comprehensive Annual Financial Reports for the 2013 Fiscal Year.
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Employees’ Retirement System
Actuarial Valuations. The table below reflects the unfunded actuarial accrued liability, actuarial value of
assets and funded ratio of the ERS as of the actuarial valuation dates shown:
Table 29.
Historical Funded Status
Employees’ System
(includes non-State obligated portion)
(in millions of dollars)
Valuation Date
(September 30)
Actuarial Value
of Assets(1)
Actuarial
Accrued Liability
Unfunded Actuarial
Accrued Liability
Funded
Ratio (%)
(a) (b) (b-a) (a/b)
2012 $9,117 $13,885 $4,768 65.7%
2011 9,456 14,367 4,911 65.8
2010 9,739 14,284 4,545 68.2
2009 9,928 13,756 3,828 72.2
2008 9,906 13,079 3,173 75.7
2007 9,771 12,370 2,599 79.0
_____________________________
Note (1) The five-year smoothed market method is used to determine the actuarial value of assets. This method spreads the difference between
the market value of assets and the actuarial value of assets over a 5 year period to prevent short-term fluctuations that may result from economic and market conditions. For each year, this method recognizes 20 percent of the investment gains or losses for the prior 5
years. Actuarial value of assets was set to equal the market value on September 30, 2012.
Source: Report on the Actuarial Valuations of Employees’ Retirement System of Alabama prepared as of September 30, 2012.
Cash Flow Analysis. The table below reflects a cash flow analysis for the Employees’ System for the
fiscal years shown below.
Table 30.
History of Additions and Deductions
Employees’ Retirement System
(in millions of dollars)
Fiscal Year Ended September 30
2013 2012 2011 2010 2009 2008
Employee Contributions $222.0 $214.9 $193.7 $194.9 $208.4 $189.8
Employer Contributions 339.0 318.0 395.0 377.9 451.1 329.3
Investment Income 1,296.5 1,427.9 196.9 696.7 (887.8) (1,574.1)
Other Income & Transfers 1.8 2.0 2.0 1.8 1.8 1.9
Total Additions 1,859 1,962.2 787.6 1,271.3 (226.5) (1,053.1)
Total Deductions (1) 956.0 904.0 833.9 773.6 742.2 700.4
Net Increase (Decrease) 903.2 $1,058.3 $(46.3) $497.7 $(968.7) $(1,753.5)
_____________________________
Note (1) Includes payments to retirees and beneficiaries, as well as administrative expenses.
Note: Totals may not add due to rounding.
Source: Retirement Systems of Alabama Comprehensive Annual Financial Reports for the 2013 Fiscal Year.
Unfunded Accrued Liability – State and Local Obligations. The statute creating the ERS, which allows
covered local government employees to elect to participate in the ERS, provides that, notwithstanding anything to
the contrary, the ERS shall not be liable for the payment of any pensions or other benefits on account of employees
of any local government, whether active or retired, for which reserves have not been previously created from funds
contributed by each such local government for the employees of that local government. For that reason, among
others, the following table separately reflects the unfunded accrued liability of the ERS, as determined by the
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actuary, for State employees and policemen and the total unfunded accrued liability for all covered employees, as of
the annual valuation dates shown.
Table 31.
Unfunded Accrued Liability – Employees’ System
(in millions of dollars)
Valuation Date
(September 30)
Unfunded Liability for
State Employees and
State Policemen
Unfunded Liability for
All Groups
2012 $2,708 $4,768
2011 2,696 4,911
2010 2,485 4,545
2009 2,134 3,828
2008 1,840 3,173
2007 1,580 2,599
_____________________________
Source: Report on the Actuarial Valuation of Employees’ Retirement System of Alabama prepared as of September 30, 2012.
The funded status of the pension programs may change depending on the market performance of the
securities that RSA is invested in, future changes in compensation and benefits of covered employees, demographic
characteristics of members and methodologies and assumptions used by the actuary in estimating the assets and
liabilities of RSA. Additionally, the market value of the investments held in RSA is determined using various
sources. For descriptions of the methodologies applied to determine the market value of the RSA investments, refer
to the Retirement Systems of Alabama 2012 Comprehensive Annual Financial Report and 2013 Comprehensive
Annual Financial Report. No assurance can be given that the UAL of the pension programs and the State’s
contribution rates will not materially increase.
Judicial Retirement Fund
Actuarial Valuations. The table below reflects the unfunded actuarial accrued liability, actuarial value of
assets and funded ratio of the JRF as of the actuarial valuation dates shown:
Table 32.
Historical Funded Status
Judicial Retirement Fund
(includes non-State obligated portion)
(in millions of dollars)
Valuation Date
(September 30
Actuarial Value of
Assets(1)
Actuarial Accrued
Liability
Unfunded Actuarial
Accrued Liability Funded Ratio (%)
(a) (b) (b-a) (a/b)
2012 $234 $380 $146 61.6%
2011 236 394 158 59.9
2010 246 358 112 68.7
2009 253 341 88 74.1
2008 259 323 64 80.1
2007 265 316 51 83.9
_____________________________
Note (1) The five-year smoothed market value is used to determine the actuarial value of assets. This method spreads the difference between the market value of assets and the actuarial value of assets over a 5 year period to prevent short-term fluctuations that may result from economic and market conditions. For each year, this method recognizes 20 percent of the investment gains or losses for the prior 5 years. Actuarial value of assets was set equal to the market value on September 30, 2012.
Source: Alabama Judicial Retirement Fund Report of the Actuary on the Annual Valuation prepared as of September 30, 2012.
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Special Payments. In addition to these contributions to the Judicial Retirement Fund, there are certain
supernumerary district attorneys, circuit clerks, judges, and other eligible persons, who are receiving special
payments which are, or might be construed to be, pensions. The present total of all such payments is not considered
to be material to the State.
Cash Flow Analysis. The table below reflects a cash flow analysis for the Judicial Retirement Fund for the
fiscal years shown below.
Table 33.
History of Additions and Deductions
Judicial Retirement Fund
(in millions of dollars)
Fiscal Year Ended September 30
2013 2012 2011 2010 2009 2008
Employee Contributions $3.7 $3.5 $2.6 $2.6 $2.6 2.5
Employer Contributions 13.9 10.7 10.9 10.8 10.3 9.9
Investment Income 32.2 39.0 2.0 21.9 0.8 (38.3)
Other Income & Transfers 0.2 0.0 0.1 0.0 0.1 0.2
Total Additions 50.1 53.4 15.6 35.3 13.8 (25.7)
Total Deductions (1) 30.0 27.7 26.7 25.1 24.6 23.4
Net Increase (Decrease) $20.5 $25.7 $(11.1) $10.2 $(10.8) $(49.1)
_____________________________
(1) Includes payments to retirees and beneficiaries, as well as administrative expenses.
Note: Totals may not add due to rounding.
Source: Retirement Systems of Alabama Comprehensive Annual Financial Reports for the 2013 fiscal year.
Total Unfunded Liability of System
The following table depicts the unfunded actuarial accrued liability (“UAAL”) for both the State-obligated
and non-State obligated portions for each of the retirement systems:
Table 34.
Pension Unfunded Actuarial Accrued Liability
As of September 30, 2012
State Local Total
TRS(1) $5,458,672,718 $4,006,686,599 $9,465,359,317
JRF(2) 124,493,223 21,677,052 146,170,275
ERS:
Employees 2,483,987,366 0 2,483,987,366
Local Government 0 2,060,705,460 2,060,705,460
State Policemen 223,751,421 0 223,751,421
Total Unfunded Actuarial
Accrued Liability(1) $8,290,904,728 $6,089,069,111 $14,379,973,839
Percent of Total(1) 57.66% 42.34% 100.00%
_____________________________
Note (1) Retirement Systems of Alabama cannot verify the state and local breakdown for TRS because the formula used to calculate such
liability is internal to TRS.
Note (2) The JRF Local Amount is based on the Probate Judges’ annual compensation per the September 30, 2012 JRF Valuation as a
percentage of the total compensation of JRF active members. The State amount is the difference between the Total and the Local amounts.
Sources: State of Alabama Budget Office; Retirement Systems of Alabama. Actuary reports as of September 30, 2012 (dated July 2013).
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Employer Contributions
Sufficiency of Contributions. As required by the Alabama State Law, the TRS, ERS, and JRF provide for
employer contributions at actuarially determined rates (expressed as percentages of annual covered payroll) that
accumulate sufficient assets to pay benefits when due. The employer contributions required to support the benefits
of each system are determined following a level funding approach and consist of a normal contribution, an accrued
liability contribution, and a portion to finance administrative costs. At the end of each fiscal year, the latest actuary-
provided valuations determine employer contribution rates, which are effective for the following year. The 2011
System Valuation was used to provide the recommended contribution for fiscal year 2014. The employer
contributions are made from funds on deposit in the Education Trust Fund and the General Fund, and from other
funds provided by local units.
Contribution Rates. The following table shows the State’s employer contribution rates expressed as a
percentage of the actuarially determined covered payroll for System pension costs.
Table 35.
Employer Retirement Contributions
Fiscal
Years Teachers(1)
Employees(1)
Law
Enforcement(1) Judicial
Tier 1 Tier 2 Tier 1 Tier 2 Tier 1 Tier 2
2015 11.71% 11.05% 13.45% 13.31% 38,37% 32,45% 35.24%
2014 11.71 11.08 12.02 11.96 35.81 29.52 35.24
2013 10.08 9.44 10.12 10.04 31.61 25.32 32.06
2012 10.00 9.42 29.92 24.35
2011 12.51 11.94 30.57 24.20
2010 12.51 11.94 30.57 24.20
2009 12.07 11.88 30.99 23.23
2008 11.75 10.26 30.42 23.05
2007 9.36 7.78 24.12 22.50
2006 8.17 6.77 21.36 21.93
2005 7.03 5.57 18.03 21.93
2004 6.56 4.19 13.87 21.93
2003 5.02 3.95 9.24 21.19
2002 5.96 3.95 9.24 21.19
2001 6.38 4.08 9.45 21.19
2000 6.38 4.08 9.45 21.19
_____________________________
Note (1) Act No. 2012-377 of the Acts of Alabama created a Tier 2 defined benefit plan for all TRS and ERS members hired on or after 1/1/2013. New members and their employers will pay lower contribution rates. However, new members will not be able to draw a
retirement benefit until they reach age 62. State police, law enforcement, firefighters and correctional officers will be able to draw a
benefit at age 56.
Source: Actuarial reports for TRS, ERS and JRF and the CAFR for the Retirement Systems of Alabama.
Annual Required Contribution. The State’s annual pension expense is based on the annual required
contribution (the “ARC”), an amount actuarially determined in accordance with the parameters of Governmental
Accounting Standards Board (“GASB”) Statement No. 25. The ARC represents a level of funding that, if paid on an
ongoing basis, is projected to cover normal costs each year and to amortize any unfunded actuarial liabilities over
thirty years. Significant assumptions used in the actuarial valuation are described above. The annual actuarially
determined ARC calculation includes required contributions from both state and local entities.
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The actuarially determined ARC calculation of each plan (including non-State obligated) as of the latest
actuarial valuation (September 30, 2012) is as follows:
Table 36.
Pension Annual Required Contribution
As of September 30, 2012
State Local Total
TRS $420,202,770 $308,430,436 $728,633,206
JRF 12,739,832 2,218,289 14,958,121
ERS:
Employees 170,429,385 0 170,429,385
Local Government 0 260,782,920 260,782,920
State Policemen 17,636,162 0 17,636,162
$621,008,149 $571,431,645 $1,192,439,794
Percent of Total 52.08% 47.9% 100.00%
_____________________________
Sources: State of Alabama Budget Office; Retirement Systems of Alabama. Actuary reports as of September 30, 2012, dated July 2013.
As depicted in the table above, the State’s portion of pension-related ARC obligation of $728,633,206
represented 52.08% of the total ARC requirement of $1,192,439,794, as of September 30, 2012. The remaining
portion of the required contribution is attributed to local governments and other participants and is not a direct
obligation of the State’s General Fund or Education Trust Fund.
Future Increases in Benefits
There is, of course, no guarantee that future Legislatures will not provide further increases in benefits
without providing either for corresponding increases in member contributions or increases in taxes to fund the
increased level of benefits, the net effect of which could be the disbursement of a higher proportion of the State’s
assets to fund the Systems than that represented by the contributions by the State for the most current fiscal year.
Solvency Tests
Tables 37, 38 and 39 that follow reflect a 10-year history of a solvency test for each of the Teachers’
System, the Employees’ System and the Judicial Retirement Fund.
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Table 37.
Teachers’ Retirement System of Alabama
Solvency Test
2003-2012
(in thousands of dollars)
Valuation
Date
(September 30)
Aggregate Accrued Liabilities for
(1)
Active
Members
Contributions
(2)
Retirants
and
Beneficiaries
(3)
Active
Members
(Employer
Financed
Portion)
Reported
Assets
Portion of Accrued
Liabilities Covered
by Reported Assets (6)
(A) (B) (C)
9/30/2012 (1) $3,921,179 $17,085,972 $7,244,216 $18,786,008 100% 87% 0.0%
9/30/2011(2) 3,620,301 17,245,088 7,910,927 19,430,135 100 92 0.0
9/30/2010 3,498,959 16,083,293 8,717,271 20,132,779 100 100 6.3
9/30/2009 3,233,664 15,328,508 8,975,228 20,582,348 100 100 22.5
9/30/2008 3,153,859 14,678,975 8,971,283 20,812,477 100 100 33.2
9/30/2007(3) 3,038,296 14,048,525 8,884,713 20,650,916 100 100 40.1
9/30/2006(2) 2,943,588 13,408,294 7,593,218 19,821,133 100 100 45.7
9/30/2005(4) 2,856,983 12,998,138 7,172,217 19,248,207 100 100 47.3
9/30/2004(5) 2,779,858 11,491,556 6,614,776 18,704,009 100 100 67.0
6/30/2003 2,750,536 9,548,773 7,058,426 18,110,470 100 100 82.3
_____________________________
Note (1) Reflects changes in methods.
Note (2) Reflects changes in actuarial assumptions.
Note (3) Reflects pay increases payable to public education employees under Act No. 2007-296.
Note (4) Reflects pay increases payable to public education employees under Act No. 2005-174 and additional allowance payable to public education employees under Act No. 2006-310.
Note (5) Reflects additional allowance payable to public education employees under Act No. 2005-174.
Note (6) Column (A) represents the percentage of Active Member Contributions, as shown in (1), covered by the Reported Assets. Column (B)
represents the percentage of the amounts owed to Retirants and their Beneficiaries covered by Reported Assets after accounting for the
payment of amounts constituting Active Member Contributions, as shown in (1) (for example, for the valuation date of 9/30/2012: ($18,786,008 - $3,921,179)/$17,085,972). Column (C) represents the percentage of the amounts owed to Active Members covered by
Reported Assets after accounting for the payment of amounts constituting Active Member Contributions, as shown in (1), and
amounts owed to Retirants and their Beneficiaries, as shown in (2) (for example, for the valuation date of 9/30/2012: ($18,786,008-$3,921,179-$17,085,972)/$7,244,216).
Source: The Retirement Systems of Alabama, Comprehensive Annual Financial Reports and Actuarial Valuations.
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Table 38.
Employees’ Retirement System of Alabama
Solvency Test
2003-2012
(in thousands of dollars)
Valuation
Date
(September 30)
Aggregate Accrued Liabilities for
(1)
Active
Members
Contributions
(2)
Retirants
and
Beneficiaries
(3)
Active
Members
(Employer
Financed
Portion)
Reported
Assets
Portion of Accrued
Liabilities Covered
by Reported Assets(6)
(A) (B) (C)
2012(1) $2,218,478 $7,781,431 $3,885,086 $9,116,551 100% 89% 0.0%
2011(2) 2,112,356 7,722,942 4,531,498 9,456,158 100 95 0.0
2010 2,050,051 7,130,938 4,535,113 9,739,331 100 100 12.3
2009 1,973,511 6,707,240 5,075,425 9,928,104 100 100 24.6
2008(3) 1,860,095 6,275,136 4,943,455 9,905,766 100 100 35.8
2007(3) 1,777,331 5,911,861 4,681,149 9,770,897 100 100 44.5
2006(2) 1,705,372 5,540,766 4,211,426 9,287,531 100 100 48.5
2005(4) 1,616,410 5,076,621 3,941,945 8,935,568 100 100 56.9
2004(5) 1,533,055 4,496,854 3,516,569 8,563,945 100 100 72.1
2003 1,484,793 3,928,131 3,711,355 8,312,500 100 100 78.1
_____________________________
Note (1) Reflects changes in methods.
Note (2) Reflects changes in actuarial assumptions.
Note (3) Reflects pay increases payable to State employees under Act No. 2007-297.
Note (4) Reflects pay increases payable to State employees under Act No. 2005-316 and Act No. 2006-231 and cost of living adjustment granted October 1, 2006 under Act No. 2006-510.
Note (5) Reflects cost of living adjustment granted October 1, 2005 under Act No. 2005-316. Active member contributions exclude
$20,500,000 of employee lump-sum contributions made by local employers before September 30, 2004, but not recognized for
valuation purposes.
Note (6) Column (A) represents the percentage of Active Member Contributions, as shown in (1), covered by the Reported Assets. Column (B) represents the percentage of the amounts owed to Retirants and their Beneficiaries covered by Reported Assets after accounting for the
payment of amounts constituting Active Member Contributions, as shown in (1) (for example, for the valuation date of 9/30/2012:
($9,116,551-$2,218,478)/$7,781,431). Column (C) represents the percentage of the amounts owed to Active Members covered by Reported Assets after accounting for the payment of amounts constituting Active Member Contributions, as shown in (1), and
amounts owed to Retirants and their Beneficiaries, as shown in (2) (for example, for the valuation date of 9/30/2012: ($9,116,551-$2,218,478-$7,781,431)/$3,885,086).
Source: The Retirement Systems of Alabama, Comprehensive Annual Financial Reports and Actuarial Valuations.
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Table 39.
Judicial Retirement Fund
Solvency Test
2003-2012
(in thousands of dollars)
Valuation
Date
(September 30)
Aggregate Accrued Liabilities for
(1)
Active
Members
Contributions
(2)
Retirants
and
Beneficiaries
(3)
Active
Members
(Employer
Financed
Portion)
Reported
Assets
Portion of Accrued
Liabilities Covered
by Reported Assets(4)
(A) (B) (C)
2012(1) $38,341 $237,197 $104,932 $234,300 100% 83% 0.0%
2011 32,898 250,731 110,006 235,870 100 81 0.0
2010 33,950 218,969 105,540 246,197 100 97 0.0
2009 32,533 215,730 92,715 252,646 100 100 4.7
2008 32,585 203,062 87,781 259,071 100 100 26.7
2007 30,286 202,835 82,820 265,189 100 100 38.7
2006(2) 31,569 180,555 89,468 260,664 100 100 54.3
2005(3) 29,027 183,797 86,840 256,092 100 100 49.8
2004 27,492 178,446 87,118 251,844 100 100 52.7
2003 25,012 181,882 78,228 247,011 100 100 51.3
_____________________________
Note (1) Reflects changes in methods.
Note (2) Reflects additional allowance payable to certain retirees and beneficiaries of the System under Act No. 2006-510.
Note (3) Reflects additional allowance payable to State employees under Act No. 2005-316.
Note (4) Column (A) represents the percentage of Active Member Contributions, as shown in (1), covered by the Reported Assets. Column (B) represents the percentage of the amounts owed to Retirants and their Beneficiaries covered by Reported Assets after accounting for the
payment of amounts constituting Active Member Contributions, as shown in (1) (for example, for the valuation date of 9/30/2012:
($234,300-$38,341)/$237,197). Column (C) represents the percentage of the amounts owed to Active Members covered by Reported
Assets after accounting for the payment of amounts constituting Active Member Contributions, as shown in (1), and amounts owed to
Retirants and their Beneficiaries, as shown in (2) (for example, for the valuation date of 9/30/2012: ($234,300-$38,341-
$237,197)/$104,932).
Source: The Retirement Systems of Alabama, Comprehensive Annual Financial Reports and Actuarial Valuations.
Other Post Employment Benefits
The State Employees’ Health Insurance Plan (“SEHIP”) provides health insurance benefits for active and
retired state employees, state policemen and local participating entities and is governed by the SEHIP Board of
Control (the “SEHIP Board”). The Public Education Employees’ Health Insurance Plan (“PEEHIP”) provides
health insurance benefits for active and retired education employees and is governed by the PEEHIP Board of
Control (the “PEEHIP Board”). Employees covered under these two plans who retire from active service and begin
receiving monthly benefits from the Employees’ System or from the Teachers’ System may elect to continue
coverage under the group insurance plan by consenting to have deducted from their monthly benefit payment the
difference in the total cost of their insurance coverage and the portion authorized to be expended by the SEHIP or
the PEEHIP for coverage of such retired employees.
The State established the Alabama Retired State Employees’ Health Care Trust and the Alabama Retired
Education Employees’ Health Care Trust Fund for the purposes of accumulating assets to fund retiree and Other
Post Employment Benefits (“OPEB”). The education employee trust is a multiple employer cost-sharing plan while
the state employees’ trust is a single employer plan.
The Code of Alabama authorizes the employer contributions to SEHIP and PEEHIP. The Legislature is not
legally required to follow the recommendations of the actuaries or the Governor in determining the State’s
contribution to the plans. The Legislature sets the amounts employers pay on behalf of each active member in the
annual appropriations bills. A portion of the premium is used to assist in funding retiree and dependents’ benefits.
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The fiscal year 2013 rates were $765 per active member per month for SEHIP and $714 per active member per
month for PEEHIP. The fiscal year 2014 rates are $825 per active member per month for SEHIP and $714 per
active member per month for PEHIP. The fiscal year 2015 rates will be $825 per active member per month for
SEHIP and $780 per active member per month for PEHIP.
The following table lists the number of participants by status:
Table 40.
Number of Active and Retired Employees
As of September 30, 2012
PEEHIP SEHIP Total
Active Members(1) 138,227 32,132 170,359
Retired Members 71,589 20,198 91,787
Spouses of Retirees 24,678 6,704 31,382
Total 234,494 59,034 293,528
_____________________________
Note (1) Includes DROP participants.
The cost of retired teachers’ health care benefits is recognized as an expenditure to PEEHIP as claims are
incurred. The cost of benefits is paid from the regular appropriations made to individual education entities. As of
the latest actuarial valuation, the total members including active and retirees numbered approximately 234,494.
The retired employee allocation is funded through the active employee premium. Of the active employee
premium, approximately $264,157,169 was on behalf of retired members of PEEHIP for fiscal year 2013. Retirees
who are eligible for Medicare benefits must pay $10.00 per month for the Hospital/Medical coverage while those
who are not eligible for Medicare must pay $151.00 per month for the coverage. Additionally, premiums are paid
for dependents. Retirees have the option to use this insurance allocation to purchase two plans of supplemental
insurance offered by PEEHIP with no out-of-pocket cost. Total premiums paid to PEEHIP by retirees for
Hospital/Medical coverage was $98,215,000 for the fiscal year 2013 to cover themselves and their dependents. The
State may also make additional contributions. During the fiscal year ended September 30, 2008, additional funds
were contributed in the amount of $204,226,000 as authorized by the PEEHIP Board. No funds were contributed for
the fiscal years 2009, 2010, 2011, 2012, or 2013.
In 2011, the Alabama Legislature signed into law Act No. 2011-704, which establishes changes to the
retiree sliding scale premium calculation for PEEHIP members retiring on or after January 1, 2012. The new law
requires an employee who retires with less than 25 years of service to pay 4% of the employer share for each year
under 25 years of service (years of service premium) instead of the 2% under the previous law. The new law also
requires an employee who retires before becoming eligible for Medicare to pay 1% of the employer share for each
year less than age 65 (age premium) and to pay the net difference between the active employee subsidy and the non-
Medicare eligible retiree subsidy (subsidy premium). For 2012, the subsidy premium amount is $97.65 per month.
For 2013, the subsidy premium amount is $117.14 per month. For 2014, the subsidy premium is $119.94 per
month. Once the retiree becomes eligible for Medicare, the age and subsidy premium will no longer apply.
However, the years of service premium will continue to be in effect throughout retirement.
The additional premium amounts for members retiring on or after January 1, 2012 will be phased in over a
five-year period.
The State provides healthcare benefits for retired state employees through SEHIP. The cost of benefits is
recognized as an expense in the month in which it is incurred, including an estimate of claims incurred but not
reported. For retirees who retired prior to October 1, 2005, the State pays 100 percent of the premium for a retiree
who is over 65 and eligible for Medicare. The State pays a portion of the premium for a retiree who is under 65.
Under the SEHIP statute, the State contribution per month per retiree is funded on a pay-as-you-go basis through the
active employee premiums each agency pays for its active employees. For retirees who retired after September 30,
2005 through December 31, 2011, the state went to a sliding scale premium structure based on the years of service.
For employees retiring with 25 years of service, the State pays 100% of the State’s share premium. For each year of
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service less than 25, the State share is reduced by 2% and the retiree share is increased accordingly. For each year
of service more than 25, the State share is increased by 2% and the retiree share is reduced accordingly.
In 2011, the Alabama Legislature signed into law Act No. 2011-698, which is similar to the PEEHIP law,
and states that all SEHIP participants retiring after December 31, 2011 will be subject to a sliding scale premium
calculation based on years of creditable coverage in SEHIP. For each year of creditable coverage less than 25, the
State share is reduced by 4% and the retiree share is increased accordingly. For each year of creditable coverage
more than 25, the State share is still increased 2% and the retiree share is reduced accordingly. The law also states
that employees retiring after December 31, 2011 will be subject to a sliding scale premium calculation based on the
difference between the age of the employee at retirement and the Medicare entitlement age.
Cavanaugh Macdonald Consulting, LLC provided to the Alabama State Employee’s Insurance Board and
to the Alabama Public Education Employees’ Health Insurance Board reports on the actuarial valuations of the
retiree medical plans as of September 30, 2012. The 2012 PEEHIP Actuarial Study is available at www.rsa-al.gov
and the 2012 SEHIP Actuarial Study is available at www.alseib.org.
Actuarial Assumptions. The following methods and assumptions are the basis for the actuarial valuations
of the related OPEB programs:
Table 41.
OPEB Assumptions
PEEHIP SEHIP
Actuarial Cost Method Projected unit credit
Amortization Method Level percent of pay, open
Remaining Amortization Period 29 Years, closed 30 Years
Asset Valuation Method Market Value of Assets
Actuarial Assumptions:
Investment Rate of Return 5.00% 5.00%
Medical Cost Trend Rate:
Medicare Eligible 7.00% 7.00%
Pre-Medicare 8.50% 8.50%
Ultimate Trend Rate
Medicare Eligible 5.00% 5.00%
Pre-Medicare 5.00% 5.00%
Inflation Assumption 3.00% 3.00%
Year of Ultimate Trend Rate 2017 2017
Dental Trend Rate 5.00% 5.00%
_____________________________
Sources: Actuarial reports of PEEHIP & SEHIP, as of September 30, 2012.
In response to changes in GASB statements 43 and 45, and the two previous actuarial valuations, the State
of Alabama pursued options to establish both a statutory trust fund and a constitutional trust fund for each health
plan to fund its liabilities. The Director of Finance formed a committee from his senior staff to work with the
insurance board staffs and outside legal counsel to draft a plan and legislation that was presented to and approved by
the two boards and the Legislature (Act No. 2007-11). The legislation involved both a bridge trust fund and a
constitutional trust fund for each health plan. All monies for funding this liability would initially be deposited into a
bridge trust fund created by statute and later transferred into an irrevocable and permanent trust fund created by
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constitutional amendment. Each health board was given power and responsibility for managing its bridge and
permanent funds.
Actuarial Valuations. The funded status of each plan (including non-State obligated) as of the latest
actuarial valuations (September 30, 2012) is as follows:
Table 42.
Schedule of OPEB Funding Progress
(Dollar Amount in Thousands)
Actuarial
Valuation
Date
(September 30)
Actuarial Value
of Plan Assets
(a)
Actuarial
Accrued
Liability (AAL)
Entry Age
(b)
Unfunded AAL
(UAAL)
(b-a)
Funded Ratio
(a/b)
Public Education Employees’ Health Insurance Plan
2012
2011
$930,278
777,933
$8,957,154
9,081,334
$8,026,876
8,303,401
10.4%
8.6
2010 750,384 11,584,965 10,834,581 6.5
2009 670,004 11,915,692 11,245,688 5.6
2008 579,813 13,224,411 12,644,598 4.4
2007 400,783 12,965,398 12,564,615 3.1
State Employees’ Health Insurance Plan
2012
2011(4)
$126,670
108,723
$3,215,956
3,369,897
$3,089,286
3,261,173
3.94%
3.23
2010(3) 97,485 4,162,276 4,064,792 2.34
2009(1) 88,588 4,142,076 4,053,488 2.14
2008(2) 52,185 3,003,381 2,951,196 1.74
2007(2) 0 2,984,796 2,984,796 0.00
______________________________
Note (1) Medicare eligible retirees reverted back to self-funded traditional Medicare and plan changes regarding copays and deductibles for all
retirees.
Note (2) Covered payroll reflects pay increases granted under Act No. 2007-297.
Note (3) Reflects Act No. 2011-27, which closes the DROP program to new participants effective March 24, 2011 and Act No. 2011-698,
which increases retiree premiums for members retiring on or after January 1, 2012.
Note (4) Reflects the impact of the EGWP + Wrap and the five-year experience study.
Sources: Actuarial Reports for PEEHIP and SEHIP as of September 30, 2012.
Sections 36-36-1 through 36-36-11, Code of Alabama (1975), authorize and direct the SEHIP Board and
the PEEHIP Board to create irrevocable trusts for the purpose of holding, investing, and distributing assets to be
used for certain post-employment health care benefits. Constitutional Amendment No. 798, which was ratified on
June 5, 2007, further protects the trust funds and requires they be used exclusively for the purpose of providing
health care benefits to retired state and education employees. The PEEHIP Board made transfers totaling $621
million into the Alabama Retired Education Employees’ Health Care Trust Fund. The net assets of the trust fund at
September 30, 2013 were $1,074.9 million. The SEHIP Board has made transfers of $96.75 million into the
Alabama Retired State Employees’ Health Care Trust Fund as of September 30, 2012. The fair market value of the
trust fund at September 30, 2012 was $126.67 million. Because of the establishment of and deposits to the trust
funds, the discount rate used beginning with the September 30, 2006 valuations was increased from 4% to 5%. The
discount rate for both trust funds remains at 5%.
Unfunded Accrued Liability. The actuarially-determined total UAAL calculation of each plan (including
non-State obligated) as of the latest actuarial valuation (September 30, 2012) is as follows:
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Table 43.
OPEB Unfunded Actuarial Accrued Liability
As of September 30, 2012
State Local Total
PEEHIP $4,629,099,366 $3,397,776,594 $8,026,875,960
SEHIP 3,089,285,837 0 3,089,285,837
$7,718,385,203 $3,397,776,594 $11,116,161,797
Percent Allocable 69.43% 30.57% 100.00%
_____________________________
Sources: State of Alabama, Budget Office; Retirement Systems of Alabama. Actuary reports as of September 30, 2012, dated August, 2013.
As of the latest actuarial valuation (September 30, 2012), the State’s portion of OPEB-related UAAL was
$7,718,385,203, which represents 69.43% of the total UAAL of $11,116,161,797. The remaining portion of the
UAAL is attributed to local governments and other participants.
Annual Required Contribution. The State’s annual OPEB expense is based on the annual required
contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No.
45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each
year and to amortize any unfunded actuarial liabilities over thirty years. Significant assumptions used in the
actuarial valuation are described above.
The actuarially determined total ARC calculation of each plan (including non-State obligated) as of the latest
actuarial valuation (September 30, 2012) is as follows:
Table 44.
OPEB Annual Required Contribution
As of September 30, 2012
State Local Total
PEEHIP $391,183,834 $287,130,427 $678,314,261
SEHIP 220,482,286 0 220,482,286
$611,666,120 $287,130,427 $898,796,547
Percent Allocable 68.05% 31.95% 100.00%
_____________________________
Sources: State of Alabama, Budget Office; Retirement Systems of Alabama. Actuary reports as of September 30, 2012, dated August, 2013.
As of the latest actuarial valuation (September 30, 2012), the State’s portion of OPEB-related ARC
obligation was $611,666,120, or 68.05% of the total ARC requirement of $898,796,547. The remaining portion of
the required contribution is attributed to local governments and other participants.
Additional Information
Additional information respecting the Retirement Systems of Alabama, including Annual Reports and
Comprehensive Annual Financial Reports, may be viewed and downloaded at the Retirement Systems website:
http://www.rsa-al.gov.
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LITIGATION
No litigation is pending or threatened to restrain or enjoin the authorization, sale or delivery of the Bonds.
The Attorney General’s Office has reviewed the status of pending lawsuits and reports that an adverse decision in
any one of the listed cases could expose the state to liability of $20,000,000.00 or more.
Income Tax
Siemens Corp. v. Alabama Department of Revenue (“ADOR”), Administrative Law Division, Docket
No. BIT. 10-770. ADOR counsel is Mark Griffin. This appeal concerns an Alabama business income tax
assessment entered against the Taxpayer, Siemens Corporation, and its subsidiaries, in the amount of
$6,704,971.12 for the tax periods ending 09/30/03, 09/30/05, 09/30/06, and 09/30/07. The Taxpayer files
an Alabama nexus consolidated corporate income tax return with ADOR on behalf of itself and numerous
subsidiaries. The appeal concerns three issues: (1) Whether any of the statutory exceptions to the “add-
back” of related member interest expenses are applicable in computing the Taxpa yer’s taxable income; (2)
Whether the “throw-back” rule as applied to a subsidiary’s sales, is applicable in computing the Taxpayer’s
Alabama apportionment factor; and (3) Whether a subsidiary’s $44 million gain was properly classified as
“business” income in determining the Taxpayer’s apportionable Alabama income.
The parties agreed to hold the case in abeyance before the ALD pending review of additional
documentation provided to ADOR by the Taxpayer. The review is still in progress.
Exxon Mobil Corporation v. State of Alabama Department of Revenue (DOR), Administrative Law
Division, Docket No. CORP. 08-1004. ADOR counsels are David Avery and Glen Powers.
ADOR audited Exxon Mobil Corporation and various subsidiaries/affiliates and applied the “add-back”
statute, Code of Ala. 1975, § 40-18-35(b), to add back to Exxon Mobil Corporation’s income certain interest
expenses that were paid to related members throughout tax year 2005. The taxpayer challenges the constitutionality
of the statute and regulations promulgated by ADOR related to its administration and enforcement. The statute was
upheld by the Supreme Court of Alabama on September 19, 2008, in VFJ Ventures, Inc. v. DOR. The potential
impact of the statute’s invalidation exceeds $20 million.
A second issue being challenged relates to the statutory interplay between the federal depletion calculation
and the Alabama depletion allowance (Code of Ala. 1975, § 40-18-16), which ADOR argues in an unintended
“double deduction” windfall to the taxpayer. The total refund claimed is $5,399,505.00 for CYE 2005. This case is
currently proceeding at the Administrative Law Division level, with a hearing date to be determined. Settlement
negotiations are in progress.
Coca - Cola Enterprises, Inc. v. ADOR, Administrative Law Division No. CORP. 09-641, on appeal to
Montgomery County Circuit Court, Case No. CV- 2013-900448. ADOR Counsels are Kelley Gillikin and Craig
Banks.
This appeal concerns an interpretation of Ala. Code, §40-18-39(h) and its limitation on an Alabama
affiliated group of corporation’s carryforward of the member corporation’s net operating losses (“NOL”) to an
Alabama consolidated income tax return. The subsection (h) limitation applies if a NOL was incurred by a group
member in a year before the member became a member of the Alabama affiliated group. The primary issue to be
determined is whether an Alabama affiliated group can exist before the group files its first consolidated return.
Pursuant to the definition of an Alabama affiliated group, the filing of an Alabama consolidated return is a
prerequisite to the existence of an Alabama affiliated group. Ala. Code, §40-18-39(b)(1f). The Administrative Law
Division, however, held that other provisions in §40-18-39, when read together with the prerequisites, show that the
filing of an Alabama consolidated return is not a prerequisite to the existence of an Alabama affiliated group. The
Department appealed the decision to the Montgomery County Circuit Court. The Taxpayer filed a cross appeal.
The case has been submitted on the record and briefed. Judge Hobbs entered an order authorizing Jim Edwards as a
special master to hear the case.
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Pursuant to the Administrative Law Division Order, the amount of tax refund due is $414,248.19. Several
other taxpayers’ appeals are being held in abeyance pending the outcome of this case. Accordingly, a decision in
favor of the Taxpayer will have a substantial revenue effect.
Sales and Use Tax
AT&T Mobility II, LLC v. Alabama Department of Revenue; Decatur RSA, LP v. Alabama Department
of Revenue, Administrative Law Division, Dockets Nos. S. 13-414 and 415. ADOR counsel is Christy O. Edwards.
AT&T and its affiliates who provide wireless telecommunications services, one of which is Decatur, were
sued in numerous jurisdictions by uncertified classes of customers claiming that taxes charged on data service
charges for various wireless devices were collected in violation of the federal Internet Tax Freedom Act (the
“ITFA”), 47 U.S.C. § 151 (1998) (as amended). The cases were consolidated into one class action lawsuit and
transferred to the United States District Court for the Northern District of Illinois (the “District Court”). In re AT&T
Mobility Wireless Data Services Sales Tax Litigation, 789 F.Supp.2d 935 (N.D. Ill. 2011). The customers sought
damages in the amount of state and local taxes charged by AT&T and its affiliates on data service charges. They
also sought an order of the District Court enjoining the collection by AT&T and its affiliates of state and local taxes
on internet access. Although necessary for a complete adjudication of the claims presented, not a single state was
included in the action. Before a decision on the merits was reached, AT&T and its affiliates reached a tentative
Global Class Action Settlement Agreement (“Agreement”) with the national class of customers (the “Settlement
Class”) in late June or early July 2010. Pursuant to the Agreement, AT&T would agree to stop collecting tax on
data services charges and to seek refunds of taxes collected on data services and paid to the relevant taxing
jurisdictions on behalf of the national class. The District Court preliminarily approved the Agreement on August 11,
2010, but, by its terms, the Agreement did not become effective or binding on the parties until final approval was
granted by the District Court through a final order dated June 2, 2011. In re AT&T, 789 F.Supp.2d 935.
On November 9, 2010, the Department received AT&T’s and Decatur’s defective Joint Petition for Refund
requesting refunds of telecommunications tax remitted to the Department pursuant to Chapter 21 of Title 40 of the
Code of Ala. 1975 for the periods of November 1, 2005 through September 7, 2010. AT&T requested a refund of
$13,351,045.65 and Decatur requested a refund of $239,799.02. The requests were denied by operation of law on
May 9, 2011. On June 20, 2011, the Department notified the Petitioners/Taxpayers that the joint petitions were due
to be denied because the petitions failed to meet the requirements for joint petitions for refund by law, and that the
Petitioners/Taxpayers requested refunds for periods outside of the statute of limitations for the issuance of refunds.
On April 2, 2014, the Administrative Law Division entered an Opinion and Preliminary Order declaring
that the petitions complied with the refund statute and determining that the refunds were due to be granted for the
open tax period. The Order further directs ADOR to review the Taxpayers’ documentation to determine whether the
requested refund amounts are correct.
Greenetrack, Inc. v. State of Alabama Department of Revenue, Circuit Court of Greene County, CV
2009-900044 and CV2009-900048. ADOR counsels are Assistant Attorneys General Ben Albritton and James
Steinwinder.
Greenetrack filed a Petition for Writ of Mandamus to compel the Department to dissolve tax liens filed to
protect the State’s interest involving Greenetrack’s potential liability for more the $72.5 million involving the State
Amusement tax and the State Consumer Use tax. Greene County filed a motion to intervene on the ground that it
owns one half interest in the property. In case no. 2009-900048, Greentrack sued the Commissioner of Revenue in
his individual capacity and the Probate Judge in order to obtain venue in Greene County.
CSX Transportation Inc., CV08-0655, USDC, ND. ALA. ADOR counsel is Margaret McNeill.
In a prior case containing the same issues, Norfolk Southern Rwy. Co. v. ADOR, et al., CV-08-HGD-0285,
Plaintiff contended that the Department’s imposition of Alabama sales and/or use tax on diesel fuel purchased and
used for rail transportation purposes is discriminatory and unlawful under Section 306 of the Railroad Revitalization
and Regulatory Form Act of 1976, codified at 49 U.S.C. §11 501. Plaintiff sought to restrain and enjoin the
Department from assessing, levying, or collecting from Plaintiff Alabama sales and/or use tax on the purchase or
consumption of diesel used for rail transportation purposes in Alabama. Plaintiff alleged that the imposition of
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Alabama sales and/or use taxes on Plaintiff is unlawful under §3061(d) as there are no specific exemptions for the
purchase and consumption of diesel fuel by railroads from sales and/or use tax, and that Plaintiff’s principal
competitors, motor carriers and water carriers engaged in interstate commerce, are exempt from sales and/or use tax
on their purchase or consumption of diesel fuel in Alabama. United States Magistrate Judge Harwell Davis denied
the Plaintiff’s motion for preliminary injunction. Norfolk Southern appealed to the 11th
Circuit Court of Appeals,
which affirmed. In CSX, the District Court denied the request of CSX for an injunction after the 11th
Circuit’s
ruling in Norfolk Southern, and the taxpayer appealed to the 11th
Circuit. The 11th
Circuit ruled for the DOR, based
on Norfolk Southern. CSX filed a petition for certiorari in the U. S. Supreme Court, which reversed and remanded,
and stated that the taxpayer may assert discrimination based on exemptions granted to competitors. On remand, the
district court ruled in favor of the State, and CSX appealed to the 11th
Circuit, which held on July 1, 2013, that the
tax violates the 4R Act and reversed and remanded the case to the District court to enter declaratory and injunctive
relief in favor of CSX. The DOR applied for an extension of the deadline for submission of a writ of certiorari to
the Supreme Court. The DOR filed its writ of certiorari on October 30, 2013. The Court requested a brief from the
Solicitor General.
The potential impact of an adverse ruling would be $10 million in refunds and the loss of $7-10 million per
year in future revenue.
Franchise Tax
Franchise Tax Litigation . Originally, 165 Circuit Court cases and 616 Administrative Law Cases were
filed. One Circuit Court case and 34 Administrative Law cases remain pending. Outside counsel for the Department
is Pamela Slate, Montgomery, Alabama.
In March 1999, the U. S. Supreme Court held that Alabama's franchise tax system unconstitutionally
discriminated against interstate commerce. South Central Bell Telephone Co. v. Alabama, 119 S. Ct. 1180 (1999).
After remand of that case to the trial court, the South Central Bell Plaintiffs settled franchise tax refund claims
totaling over $141 million.
Gladwin Corp. v. Lyons, Civil Action No.: CV-96-1065-GR, filed in the Circuit Court of Montgomery
County, then became the primary trial court case. It was a class action on behalf of a putative class of all non-
Alabama, foreign corporations that had been required to pay corporate franchise taxes in Alabama. It challenged the
constitutionality of the pre-2000 franchise tax on the same grounds as South Central Bell, above. Gladwin was
certified by the trial court as a class action. The Department successfully contested the class certification in an
appeal to the Alabama Supreme Court. A petition for writ of certiorari bearing the substituted style Millcraft-SMS
Services, etc., et al. v. Underwood, etc., was denied by the U.S. Supreme Court on October 21, 2002.
The net result of the South Central Bell holding and the class decertification outcome of Gladwin was to
require that the then pending 781 corporation franchise tax refund claims (excluding BellSouth) be thereafter
prosecuted as individual cases in the Circuit Court (165 cases) and Administrative Law Division (616 cases). The
potential loss exposure risk for the State in aggregate class refund claims "filed" prior to decertification was
approximately $937 million. The potential loss exposure afterward for the 781 cases which were allowed to proceed
individually after class decertification was estimated to be in excess of $280 million. However, the State has been
aggressively defending the individual cases and negotiating settlements on a case by case basis. The remaining 30
franchise tax refund cases are estimated to represent an exposure of approximately $15 million of tax, which would
increase to $20 million with accumulated interest included.
Property Tax
Lynch et al. v. State, et al., USDC, ND Ala., 5:08-cv-00450-CLS. ADOR trial counsels were Drayton
Nabers, Jr. of Maynard Cooper & Gale, P.C. and John B. Tally, Jr., of Rumberger, Kirk & Caldwell. The appeal to
the 11th
Circuit is assigned to Will Parker of the AG’s office.
This is a class action brought on behalf of public school students who maintain that their civil rights have
been violated by the manner in which Alabama’s public schools are funded. They allege that “the current ad
valorem tax structure is a vestige of discrimination inasmuch as the state constitutional provisions governing the
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taxation of property are traceable to, rooted in, and have their antecedents in an original segregative, discriminatory
policy.” The Plaintiffs seek a declaratory judgment that the property tax restrictions in the Alabama Constitution are
racially motivated and therefore violate Title VI of the civil Rights Act, 42 U.S.C. §2000d et seq., and the Equal
Protection Clause of the Fourteenth Amendment to the Constitution of the United States. They also seek an
injunction against enforcing the current property tax laws until the legislature enacts tax reform and adequate
funding of education. The financial impact is not determinable, but it is potentially significant.
U.S. District Judge Lynwood Smith issued a final order on October 21, 2011, rejecting the plaintiffs’
claims of discrimination. The plaintiffs appealed to the 11th Circuit Court of Appeals on November 18, 2011. The
appeal has been fully briefed and oral argument was held on December 6, 2012, in Atlanta.
The 11th Circuit affirmed the district court’s decision on January 10, 2014. On April 10, 2014, the
Plaintiffs filed a petition for writ of certiorari with the U.S. Supreme Court.
B-H Transfer Co., Inc. v. Magee, et al. Cir. Ct. Talladega County, CV-12-900318 (Judge William
Hollingsworth). This case involves an appeal from the Talladega Board of Equalization filed by B-H Transfer
Company, Inc. (“B-H”), and an action for declaratory judgment by B-H and the Alabama Truckers Association.
Both the appeal and the action for declaratory judgment involve a challenge to the constitutionality of Alabama’s ad
valorem taxation scheme as applied to tractor trucks and trailers (“rolling stock”) that are based in Alabama, but
used in interstate commerce. The plaintiffs contend that this taxation scheme violates both the Commerce Clause
and Equal Protection Clause of the Constitution of the United States to the extent that it requires the state to assess
ad valorem tax on the full fair market value of the rolling stock, even though the same rolling stock may be subject
to taxation in one or more other jurisdictions.
Although the amount at issue in the present case is relatively insubstantial, going forward, the outcome of
this case is a “lose-lose” proposition for the state and the counties that benefit from revenue generated by the
taxation of rolling stock that is based in the state/county, but used in interstate commerce. The United States
Supreme Court has consistently held that a state in which rolling stock is domiciled may only tax the value of that
property to the extent that is not subject to taxation in another jurisdiction. As a result, in the present case if the
court determines that, under Alabama’s current ad valorem taxation scheme, the state must assess tax based on the
full fair market value of the rolling stock, without apportioning this value to account for the extent to which the
property is subject to taxation in another state, the state will be unable to assess any tax on rolling stock based in this
state that is subject to taxation in another jurisdiction. The result will be that all revenue currently generated by the
taxation of such property will be lost. The precise amount of this loss is not determinable at this time, but it will be
significant. Moreover, even if the court determines that, under the state’s current statutory scheme, the value of the
rolling stock can be apportioned to account for the extent to which the property is subject to taxation in another
jurisdiction, the state will experience a reduction in revenue from the taxation of rolling stock based in the state and
used in interstate commerce. Again, the precise amount of the reduction in annual revenues due to the
apportionment of the value of this rolling stock is not determinable at this time, but it will be significant.
Tobacco Revenue
Arbitration of the Non-Participating Manufacturers’ Adjustment under the Master Settlement
Agreement. JAMS reference No. 1100053390. ADOR counsels are David Avery and Christy Edwards; AG counsel
is Kevin Turner. David Boyd and Aaron Dettling of Balch & Bingham have been retained to litigate the
arbitration proceedings.
The State of Alabama is a signatory to the Master Settlement Agreement (MSA) that was negotiated with
the tobacco industry in 1998. The MSA was entered into as a settlement of litigation brought against the
participating manufacturers (PMs) by the Attorney Generals of the signatory states to reimburse the states for health
care expenses in treating their citizens affected by the use of tobacco products sold by the PMs. The MSA requires
the PMs to make payments annually to the states but also contains a provision that allows the PMs to claw- back a
portion of that payment if it is determined that the state failed to diligently enforce its escrow statutes ( Ala. Code,
Section 6-12-1, et seq.).
The State initially took the position that Alabama Courts could determine its diligent enforcement.
However, in State v. Lorillard Tobacco Co., 1 So.3d 1 (Ala. 2008), the Alabama Supreme Court held that the issues
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would be decided by national arbitration. Before Alabama’s arbitration hearing began, a settlement was reached
between 22 states including Alabama, (the “signatory states”) and the PMs resolving, among other things, diligent
enforcement determinations through 2012. This settlement provided Alabama with a “one- time” distribution on
April 15, 2013 of about 48 million dollars, in addition to its normal annual distribution. Following this distribution,
the arbitration panel found that of the non- signatory states, Kentucky, Indiana, Pennsylvania, Maryland, New
Mexico and Missouri did not diligently enforce their escrow statutes, and that together they must pay the 2003
adjustment to the PMs for all of the states, which will be more than 500 million dollars.
There are several remitter actions around the nation attacking the December 2012 settlement as well as the
arbitration awards. If the settlement is not upheld, Alabama’s potential share of the NPM adjustment could be as
much as $80 million if Alabama is subsequently determined to have not diligently enforced its escrow statutes
during 2003. Additional arbitration proceedings would be likely for all of the subsequent years.
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