Lawsuit Filed by King Stops Payment from BP Resulting in Increased Proration for Schools

Lawsuit Filed by King Stops Payment from BP Resulting in Increased Proration for Schools

MONTGOMERY – After being informed today that BP will not pay the state this month on its claim for $148 million in lost tax revenue because of Attorney General Troy King’s lawsuit, Governor Bob Riley had no choice but to increase proration for the education budget by two percent. The increase is required because the end of this month is the end of the 2010 fiscal year, and the state is legally required to balance its budgets.

$116 million of the $148 million claim would have gone to the Education Trust Fund. That $116 million would have been enough to avoid the additional $113 million in spending cuts resulting from the increase in proration by two percent.

“If that lawsuit hadn’t paralyzed our negotiations, we wouldn’t have to make these additional cuts to education funding,” said Governor Riley. “One man made a brash, reckless decision to sue BP while the state was still working to recover lost tax revenue from the company. He did it without consulting me or local officials on our coast. No other state’s attorney general has sued BP at this time and King’s lawsuit stopped our ability to recover these tax dollars before the end of this fiscal year. BP can’t escape blame either. As the admitted responsible party, the company should live up to its commitments, even though the lawsuit stands in the way. No one is going to benefit from this nonsense except the lawyers.

“With no claim payment because of the lawsuit, we have no choice but to increase proration if the state is to meet its Constitutional requirement for a balanced budget,” Governor Riley said.

The Education Trust Fund entered fiscal year 2010, which started Oct. 1, with proration of 7.5 percent. The economy was on track to be able to sustain proration at 7.5 percent for the entire 2010 fiscal year until the BP oil disaster in April. The state estimated the disaster resulted in a loss of $148 million in lost tax revenue that would have gone to the state from May through September, including $116 million in revenue that was earmarked for the Education Trust Fund.

With the attorney general’s lawsuit stopping BP’s payment of the claim, proration at 7.5 percent cannot be maintained for the remainder of the 2010 fiscal year, which ends on Sept. 30. The state is legally required to have a balanced budget, so when revenues fall short, appropriations must be reduced -- a budgeting process called proration.

“As I’ve said all along, litigation is an option that can be exercised if it becomes necessary. But it should never have been the very first step,” said Governor Riley.


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