Report: One Alabama budget up, one stable at the end of fiscal year 2023

One of Alabama’s budgets is floating on the breeze, while the other is coming back down to Earth, according to a new report from the Public Affairs Research Council of Alabama (PARCA).

The report said that the state’s General Fund budget was up by 16.6% in fiscal year 2023, which ended on Sept. 30. The state’s Education Trust Fund budget was relatively stagnant, increasing 0.11% over the year.

Tom Spencer, a senior research associate for PARCA, said in an interview Monday that high interest rates due to inflation; growth in the simplified sellers tax, including taxes from online sales, and insurance company licensing has driven General Fund receipts up. 

The ETF, meanwhile, appears to returning to normal growth patterns after years of explosive growth and unusual federal funding level. Most funding for the ETF comes from state income and sales taxes, both of which are sensitive to economic conditions.

“We have continued to see kind of unusual patterns of revenue growth in the General Fund, but we’d expect that to come to an end and it looks like the Education Trust Fund, after some very unusual levels of growth over the last couple of years, particularly last year, has kind of come to Earth,” he said.

Federal funds had contributed to the previous spikes of the Education Trust Fund, and those funds are now going away, said Spencer.

He also said that the stock market is not as good as 2021 but better than 2022.

But Spencer said that nothing in the budget numbers was setting off any immediate alarm bells for him, in part because Alabama has historically had conservative budgets and a Rolling Reserve Act, which caps spending by legislators.

“We’re on track to be able to pay for our budget this year. So it’s just now looking longer term when they convene in February to start drawing budgets for 2025. It will be important to take note of these trends and make sure we continue to budget in a way that’s sustainable,” he said.

State Superintendent Eric Mackey said in a phone interview Monday that they are closely watching the numbers for the next few months. 

“That would be, I mean, double digit losses would put people in a panic normally, except that we had such tremendous growth for so many months in a row that really that is it appears to be at least just a return to normal,” he said. 

October saw a drop in revenue, but Mackey said that the coming holiday months might lead to increases. After the holidays, he said, sometimes the revenue goes down after people try to adjust their spending after the holidays.

Mackey said that they have already submitted their budget request. The request goes to the governor’s office before the Alabama Legislature. The state board approved a $6.2 billion budget request in October. The ETF, which also includes outlays for colleges and universities and some state programs, is budgeted at $8.799 billion for the current year.

Right now, Mackey said he thinks that the budget will meet the cap, but legislators could choose to not budget to the cap, as they have done in previous years.

Spencer said changes to the Rolling Reserve Act, such as now being able to discount extremely high as well as extremely low years, will contribute to its stability.

Spencer said that Alabama’s budget can be more complicated because of earmarking revenues and moving them from one fund to another.

“We’ve got some ambitious plans for improving literacy and math instruction, for instance, which call for greater investments and we have to, we need to be able to make sure we sustain those because Alabama has a tendency to launch new initiatives and not necessarily sustain support for them,” he said.

He also referenced healthcare and prisons as costs for the General Fund.

“The tendency to earmark revenues and not be able to move them toward our highest priorities sometimes makes it more complicated than it needs to be,” he said.