Alabama officials say $400 million in federal funds from a COVID-19 relief bill will be an important part of the plan to build two new men’s prisons because it will reduce the amount of debt the state takes on for the projects.
The American Rescue Plan Act, the largest of several relief bills Congress has passed during the pandemic, allows states to replace tax revenue they lost because of the pandemic and gives states flexibility on spending that money.
The state is slated to receive a total of $2.1 billion from the Rescue Plan, signed into law by President Biden in March. Alabama and other states got half their money this spring. The $400 million would come from that amount. States will receive the second half of their Rescue Plan funds next May.
State Finance Director Bill Poole said last week the state was still finalizing calculations to determine how much it will claim in lost revenue under a formula included in the Rescue Plan.
“We expect that number to be north of $400 million,” Poole said. “No state to my knowledge has certified their calculation on that. There are a lot of complexities to that calculation, so we want to make certain that we are accurate and compliant before we certify. But it will be a substantial number, is our anticipation.”
It will be the Legislature’s decision to appropriate the Rescue Plan money, just as it did for money the state got from the CARES Act, a coronavirus relief bill Congress passed in 2020. The Legislature has until the end of 2024 to obligate the Rescue Plan money and until the end of 2026 to spend it.
Gov. Kay Ivey notified legislators last week that they will meet in special session starting Sept. 27 to consider the prison-building plan, contained in a draft bill developed by her administration and legislative leaders.
The bill calls for new 4,000-bed prisons for men in Elmore and Escambia counties. The Elmore County prison would have special facilities for medical and mental health care, substance abuse treatment, and education programs.
Four smaller prisons would close – Elmore and Staton in Elmore County, Kilby in Montgomery County, and the Hamilton facility for the Aged and Infirmed in Marion County.
The draft bill authorizes a bond issue of up to $785 million to help pay for the two new prisons. A summary of the bill from the Legislative Services Agency says other funding would come from the American Rescue Plan Act and the state General Fund.
Rep. Steve Clouse, R-Ozark, chairman of the House General Fund committee, will sponsor the bill. Clouse said the plan is to use at least $400 million in Rescue Plan funds, plus about $150 million from the state General Fund, in addition to the bond issue.
Clouse said use of the Rescue Plan funds will save the state money on interest because it reduces the amount of the bond issue, which will be for 30 years. Clouse said the annual payments on a $785 million bond issue will be about $50 million.
That’s barely half the $94 million or more the state expected to pay in annual lease payments under an earlier plan for three new prisons. That plan collapsed because the developers who would have leased the prisons to the state could not obtain financing. Legislative leaders and Ivey developed the new plan after that.
“We were getting ourselves prepared over the last few years on this proposed lease program that was going to cost $94 million,” Clouse said. “We were getting our Department of Corrections budget in shape to be able to meet those payments. So now, the $785 million bond issue, that’s around $50 million a year. So this gives us some room to grow here.”
The reduced bond debt will help the Legislature put money into a new capital improvement and maintenance fund for prisons. The regular source of funding for maintenance would help prevent the neglect that has contributed to the deterioration of Alabama’s prisons, officials say.
The fund would also be intended to help pay for a second phase of construction and renovation without taking on more bond debt, Clouse said. The second phase includes renovations of Donaldson prison in Jefferson County, Limestone prison in Limestone county, and one of the prisons in Barbour or Bullock counties, as well as a new women’s prison in Elmore County to replace Julia Tutwiler.
Senate Minority Leader Bobby Singleton, D-Greensboro, said he supports the concept of combining the federal money, state money, and borrowed money and believes it is the most workable plan for building prisons so far. Legislators have debated plans to build prisons since the Robert Bentley administration in 2016.
“We’re setting up a maintenance budget so that we won’t get back in the same situation that we are now,” Singleton said. “So, I think this is probably the best plan of all the plans that I’ve seen come out thus far.”
Rep. Chris England, D-Tuscaloosa, who is also chair of the Alabama Democratic Party, said last week he did not support the use of American Rescue Plan funds for prisons and questioned whether the federal government would allow it.
“I can’t imagine that funds that were distributed for the purpose of helping states recover and deal with the coronavirus and this pandemic can be used to build prisons,” England said. “I could think of thousands of different things that that money should be spent on rather than buildings.”
But Clouse said states can use the Rescue Plan funding that qualifies as lost revenue for prisons and most other purposes.
“There is very wide latitude as far as the uses,” Clouse said. “The only two things they specify that you can’t use it for are to fund a tax cut or to prop up your pension fund, which we’ve never had an issue with that in Alabama.”
Jana Ingels, public information officer for the state Finance Department, responded by email to the question of whether Rescue Plan lost revenue funds can be used for prisons.
“The American Rescue Plan Act provides a formula for the replacement of state revenue losses during the COVID-19 pandemic,” Ingels said. “The funds resulting from that calculation may be used for almost any purpose, except specifically prohibited uses such as pension fund deposits or offsetting tax cuts.”
Ingels said the Finance Department, working with the Legislative Services Agency, “is confident that at least $400 million is available for appropriation by the legislature pursuant to the lost revenue calculation.”
Ivey was asked today why the prison project is a good use for the $400 million in American Rescue Plan funds.
“So, we don’t have to borrow quite so much money and pay all that money back,” Ivey said.
The governor said questions about whether there were better uses of the money at this point were “speculation.”
If lawmakers approve using the $400 million in Rescue Plan funds for prisons, they still have decisions to make about the remainder of the $2.1 billion.
Finance Director Poole, noting that legislators have until the end of 2024 to obligate the money and that it does not have to be spent until the end of 2026, said legislators should not rush those decisions. He suggested appropriating the first half of the Rescue Plan funds during the 2022 legislative session, and appropriating the second half, which Alabama won’t get until May, during the 2023 legislative session.
“If you think about all of the anomalies, all of the disruption, and all of the things that are going on right now, I think we’d be wise to be conservative and be very methodical and practical and not get in a rush in terms of the utilization of these funds,” Poole said. “I think we certainly have a priority as it relates to prisons. We have some priorities as it relates to health care issues. But we also have time is on our side at this point.”
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