BIRMINGHAM, Ala. – Alabama is launching its first round of education savings accounts this year, originally pitched last year as a $100 million per year investment. Since then, a combination of higher-than-expected demand and legislative changes has increased the state’s financial commitment to $530 million over the next three years.
Lawmakers say the adjustments are necessary to ensure the program’s long-term stability.
Some of the new funding was approved in public budget hearings, while other provisions – including a key change passed in the final days of the session – received little discussion. Together, they mark a sizable increase in the financial commitment the state is making to the CHOOSE Act.
The CHOOSE Act, approved by the Legislature and Gov. Kay Ivey in 2024, creates education savings accounts and offers up to $7,000 for eligible families to use on private school or public school out-of-district tuition and other approved educational expenses. Homeschooling families can receive $2,000 per student, up to $4,000 per family.
Lawmakers point to three main reasons for increasing their financial commitment:
- More than twice the expected number of students applied for ESAs,
- The academic and fiscal years don’t align, and
- Budget leaders want to ensure funding for the next three years
The first cost increase came when lawmakers learned nearly 37,000 students had applied — more than double the initial estimate. To cover the increase, they shifted $80 million from the Educational Opportunities Reserve Fund to the CHOOSE Act Fund. Any unused money from that $80 million goes back to the EORF.
As of May 8, the Alabama Department of Revenue has made 22,857 awards totaling about $125 million. Eighty percent, or $100 million, is going to students planning to use their ESA at a private school. And the review process is still underway, meaning more awards could be made.
According to House education budget committee Chairman Danny Garrett, R-Trussville, lawmakers then learned that the Alabama Department of Revenue, which is charged with administering the CHOOSE Act, was facing issues with the difference in the start of the academic year, July 1, and the start of the fiscal year, Oct. 1.
Their solution was to create an automatic funding mechanism so that CHOOSE Act funding could flow in a timely manner and without lawmakers having to allocate it each year through the budget.
They got that done by passing House Bill 52, which started as a bill to extend a tax deduction for savings accounts for disabled people but was substituted on the Senate floor to add the CHOOSE Act provision.
With respect to the CHOOSE Act, HB52 did three things:
- It created an automatic transfer from income tax receipts to the CHOOSE Act fund, and
- It raised the state’s financial commitment to $150 million per year, beginning in 2027, and
- It requires the legislature to make additional funds available if the amount of awards exceeds 90% of the balance of the CHOOSE Act fund.
“It just basically ensures that we’ve got the funding for what is going to happen next year,” Garrett said. “So we won’t have to go through these gyrations next year to shore up all this funding.”
The first provision – the automatic transfer – bridges the gap between the start of the academic and fiscal years, Garrett said. And it means the Legislature doesn’t have to appropriate money directly from the education budget.
The difference between the academic calendar and the start of Alabama’s fiscal year, Oct. 1, was problematic for ADOR, Garrett said. “Revenue says we’re fine with that, but we don’t want to tell people they’re approved and then come to find in October that they don’t have the money.”
“This was a technical fix to make sure that the revenue department has funding in place when they need it by May the first,” he added. Award notifications of who gets an ESA begin May 1 of each year.
The second change, raising the state’s financial commitment from $100 million to $150 million, was needed after nearly 37,000 students applied for an ESA – more than twice the original estimate of 14,000 to 15,000 students, Garrett said.
Beyond technical fixes, both budget chairs said protecting families from financial uncertainty was a core reason for the changes.
The third change was to make sure there is enough money in the CHOOSE Act fund to honor their commitment to parents who receive ESAs, Garrett said.
Senate education budget Chairman Arthur Orr, R-Decatur, echoed Garrett’s remarks.
“We don’t want to start something with (parents) and then in year four or five or six, we say ‘well, we have a financial problem. We’re gonna have to pull the rug from beneath you,’” Orr said. “We’re not going to go back on our commitment to them.”
Orr pointed out that the income eligibility cap of 300% of the federal poverty level is lifted at the start of the 2027-28 school year, but that doesn’t mean everyone is eligible or that everyone gets an ESA.
“The cap comes off, and that is a decision we the Legislature can make with the governor, year to year, as to, okay, do we want to go from 300% (poverty level) to 325%,” Orr said. But the funding to support those additional families would have to come from the budget, he added.
“Fiscal realities could not just make it available to all and the funding be there,” Orr said. “It was always subject to the available funding stream.”
“We’ll incrementally go northward, but it will be slow and deliberate.”
How the $530 million commitment breaks down
Since the CHOOSE Act was passed in March 2024, multiple appropriations have been made to make sure there is enough funding to support education savings accounts for all eligible families. The bulk of those changes came during the 2025 legislative session.
Funding for ESAs has come directly from the Education Trust Fund budget and from supplemental appropriations of unexpected tax revenue beyond what lawmakers budgeted for education.
2025-26 school year: $180 million committed
- $50 million from FY23 supplemental revenue,
- $50 million from FY24 supplemental revenue, and
- Up to $80 million from the Educational Opportunities Reserve Fund (EORF)
A conditional appropriation using FY25 supplemental revenue will repay up to $35 million to the EORF.
2026-27 school year: $200 million committed
- $100 million from the FY26 ETF budget, and
- $100 million from the automatic HB52-authorized transfer
2027-28 school year: $150 million committed
- Up to a total of $150 million, authorized under the HB52 transfer provision, if needed.
Additional funding could be appropriated, the chairmen said, if future demand exceeds expectations.
Updated 1:30 p.m. This article was updated to clarify that these are financial commitments, but do not indicate what is spent. Additionally, it was corrected to say that there is no automatic $100 million transfer for the 2026-27 school year, only that HB52 authorized up to a $150 million transfer. Finally, HB52 states that lawmakers will make additional funds available, but does not direct lawmakers to appropriate those funds.