Alabama’s General Fund had record revenue in 2023, more than state leaders budgeted to spend. Now, a $100 million chunk of that excess will be dedicated to prison construction, and more could follow.
For the fiscal year that ended last week, the General Fund, which supports most non-education state agencies, saw a $461 million increase in revenue over 2022 to $3.2 billion. The 2023 General Fund budget was $2.7 billion.
That 2024 budget bill also included language, added in late May right before final passage, directing up to $100 million of excess revenue from 2023 to a prison capital projects fund.
Beyond that, General Fund budget chairmen Sen. Greg Albritton, R-Range, and Rep. Rex Reynolds, R-Huntsville, are expecting to bring a General Fund supplemental bill, capturing the remaining several hundred million in excess revenue from 2023, in the 2024 session. Prisons — particularly a new one in Escambia County — will be a priority.
“It’ll have to be,” Reynolds told Alabama Daily News on Tuesday. “We have to begin to look at that supplemental for some cash for that second prison.”
In 2022, the Legislature allocated about $1.3 billion for two new 4,000-bed men’s prisons in Elmore and Escambia counties. But recent estimates for the Elmore site, where construction began first, is $1.08 billion.
“I think that’s a key factor in making this work,” Albritton said about directing supplemental funds to Escambia prison construction. He said lawmakers could have about $300 million in supplemental revenue to allocate.
“We would be foolish not to use the resources we have to take care of these obligations.”
Though the price tag on the prisons has increased, state leaders are committed to the second facility in Escambia to improve conditions in the state’s deadly facilities.
“We don’t have another option,” Albritton said. “This is an issue that has been festering for two generations. We’ve taken this on and now we have to finish it.”
Officials have said the southern Alabama prison should cost less because it won’t have the larger medical facilities the Elmore prison does and some of the design work could be duplicated. Lawmakers should know more about the cost of the Escambia site when they begin meeting in February, Reynolds said.
General Fund increases, as do warnings
Tax revenues into the General Fund were up in fiscal 2023 more than 16% year-over-year, an increase largely attributed to revenue from increased interest rates, which are expected to eventually dip in 2024.
Of the $461 million increase in General Fund revenue in 2023, $364.2 million came from increases in interest on state deposits, a 902% increase. When the Federal Reserve drops the interest rate, that revenue will decline.
“We don’t need to assume that that’s real growth,” cautioned Kirk Fulford, deputy director of the Legislative Services Agency. “Pull that number out, everything else grew about 3%.”
Fulford said from what he’s been told, interest rates will stay high into the next calendar year and it could be six months before a decline begins.
That means that deposit revenue could remain well above normal, but not the triple-digit growth of 2023.
The always-cautious Albritton on Tuesday said that while the raw numbers make the General Fund appear flush, that’s not the case.
“All of the increase is based on nothing more than the interest in accounts,” Albritton said. “… While the interest rates are high, we’re doing well. If you remove the interest rate money out of that, you’ll see that we’ve plateaued.”
Reynolds is hopeful the General Fund’s strong returns last at least through December, while online shopping and interest rates are still up.
Online sales tax collection continued to be a boon for both the General Fund and Education Trust Fund in 2023, increasing by 18.8% for a combined $368.8 million.
In ETF, income tax declines
Tax revenues into the state’s education fund were up a mere .11% over 2022, a number that wasn’t unexpected post-pandemic but is still giving state leaders cause for budgetary wariness moving forward.
The largest revenue source in the ETF is income taxes, worth $7 billion in 2023. That’s a decline of about 2% from 2022.
Sen. Arthur Orr, R-Decatur, said the income tax revenue number is concerning because the state’s employment rate is at record levels. If unemployment ticks up significantly, the loss in income tax revenue could be dramatic, he said.
Meanwhile, Alabama’s sales tax revenue in fiscal 2023 totaled nearly $2.6 billion, up 4.56% over 2022. Next year, it will lose an expected $150 million from the tax reduction on food approved earlier this year.
“We have got to be extremely cautious and guarded, and we have been thus far, but we’re seeing now the first real signs of declines in revenue,” Orr told Alabama Daily News.
“ … We don’t know how rapidly and how deep those declines will manifest themselves.”
“Both individual and corporate gross income tax receipts were up in 2023, but so were refunds, by nearly $250 million,” Fulford said.
Fulford said the income tax numbers are part of a post-pandemic resettling, along with adjustments to new federal and state tax laws.
“We’re going to go through a period in the next couple of years where we’re still trying to figure out the new normal,” Fulford said.
Overall, Fulford said he’s not overly concerned about the .11% growth in the ETF.
“Total growth being flat is not entirely surprising,” he said about the anomaly of record growth in 2021 and 2022 when federal COVID-19 relief funds bolstered spending.
The state’s conservative spending also eases concern, Fulford said. The state took in $10.4 billion in 2023, the 2023 education budget was $8.2 billion.
Orr said he expects about $700 million to go toward a nearly created educational savings account and about $600 million to be available in a 2024 supplemental spending bill. Asked about potential priorities for the supplemental, Orr said he anticipates a “money grab.”
“The window of excess revenues is closing and I would anticipate all four major areas of the education budget to make a last push for one-time funding: Four-year colleges, two-year colleges, K-12 and pre-K,” he said. “Our job as appropriators will be to be as discerning and judicious as we can be in investing for the future of our state through our younger generation.”
Orr said he’s already hearing from K-12 schools who used short-term COVID-19 federal relief funds – education in Alabama got a total of nearly $3 billion – to hire staff or create new programs, something he and others warned systems not to do.
“We’re already getting the pressure to sustain certain positions,” Orr said.
The following budget graphics were provided to lawmakers by the Legislative Services Agency.