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A session defined by spending decisions approaches

Alabama lawmakers are walking into a unique financial situation in the 2023 regular session that begins Tuesday. In their ranks are 35 brand new members. On the table are several billion dollars in one-time money that wouldn’t normally be available for spending.

In a typical session, lawmakers’ fiscal focus is the two state budgets, the General Fund and the larger education budget. This year, the freshly elected 140-member Legislature and Gov. Kay  Ivey have decisions to make on other separate money matters: More than $1 billion in American Rescue Plan Act money, the last of the federal COVID-19 relief money that flowed to the state since 2020, and surpluses in both budgets, including an astonishing $2.7 billion in education.

While the budgets are usually passed later in sessions, the ARPA money, which has federal deadlines for spending, is a priority for Ivey and lawmakers.

Also money related, another priority early in the session is the renewal and expansion of the state’s economic incentive laws used to recruit industry. That legislation hasn’t yet been filed, but recommendations have included raising the total amount the state is allowed to pledge to companies in exchange for investments and new jobs. Creating more shovel-ready “megasites” around the state is also expected to be part of the discussion.

Ivey and her office are saving details on her legislative priorities for Tuesday night’s annual state of the state, but she has said education is a top priority.

“The most pressing issue we have is to ensure that every child has a quality education,” she said last week. “We’re also going to be dealing with some very important topics in other areas of economic development, so stay tuned.”

Lawmakers will meet for three weeks before taking a spring break the last week in March. The expectation among many is to pass some major legislation before then.

Every session is special

As they did last year, the Legislature is expected to make ARPA distribution decisions in a special session, which allows them to focus on only the issues Ivey puts on that agenda. Some lawmakers have said they expect it early in the regular session that could go until mid-June.

That tracks with previous specials Ivey has called within regulars. In 2019, to pass her gas tax and infrastructure plan, Ivey called a special during her state of the state address. It began the next day.

Last year, to dole out some of the first tranche of ARPA funds, the special session was one week after the regular began.

Though no ARPA spending plan has been publicly discussed, closed door talks with Ivey and legislative leadership have been happening for months. In a recent Alabama Daily News interview, Senate President Pro Tem Greg Reed, R-Jasper, said priorities are similar this round: broadband internet, water and sewer infrastructure and health care.

But spending discussions were ongoing last week.

“The governor will only call a special session when we have a bill and can show that we have the votes,” Sen. Greg Albritton, R-Range, said on Wednesday. “And no, we’re not there yet.” 

State departments and lobbyists are well aware that this is the last of the one-time federal COVID-19 money, Albritton said.

“For all the agencies, this is a now or never deal,” Albritton said.

Among some of those other requests put before Ivey and lawmakers includes nearly $100 million to cover COVID-19 related care expenses for the Public Education Employees’ Health Insurance Plan, the insurance provider for state educators. Separately, the State Employees’ Insurance Board needs just over $33 million to cover COVID-19 related care costs since March of 2021.

House Minority Leader Rep. Anthony Daniels, D-Huntsville, said he’s been advocating for infrastructure investments that will help local communities, specifically in rural communities.

“With one-time money, you want to make certain the investments you’re making are going to yield a return,” Daniels said recently on Alabama Daily News’ podcast, In the Weeds. “ … I think in this unique situation with one-time money, the top priority has to be investments in people as well as infrastructure. And what we’re beginning to see is some opportunities for housing, a lot of health care needs and infrastructure.”  

‘Spend it, save it, send it back’

In fiscal 2022, which ended in September, the state’s education budget had record tax revenue of more than $10 billion, much more than leaders had budgeted for.

Largely related to continued COVID relief spending, the revenue has been called “historic, but completely unsustainable.” The result is about $2.7 billion in unexpected money that Ivey and lawmakers can now appropriate in supplemental bills that will likely travel through the legislative process with the 2024 education budget. Ivey has to send her budget recommendations to lawmakers on the second day of the regular session. The Senate this year gets first crack at potential changes to that document.

“When Gov. Ivey sends the budget across the street, we’re certainly going to look at it closely and see what the membership of the Senate wants to do,” Sen. Arthur Orr, R-Decatur, said. He’s chairman of the Senate education budget committee. “That includes, as far as the surplus, how they want to spend it, save it, send it back to the people or a combination of all of these. We’ll just have to see where the sense of the Senate is when that budget comes across the street.” 

Orr last year floated the idea of using some of the money for a tax rebate for income tax payers. There are also some discussions happening on permanent tax cuts, including for retirees.

Last month, the House’s new Speaker, Rep. Nathaniel Ledbetter, R-Rainsville, said he was supportive of a tax rebate.

“Me personally, I certainly want to see some of it go back, I think that’s the right thing to do.”

A variety of tax cuts are expected to be discussed and, whatever lawmakers decide, it has to be sustainable when the federal money runs out, Rep. Danny Garrett, R-Trussville, said. Garrett is the House education budget chairman and, in his professional life, he’s been a chief financial officer for multiple companies.

“Companies always make their worst decisions when they have a lot of money,” Garrett told Alabama Daily News on Thursday. “That’s the challenge for us. We have to realize that this one-time money is a temporary situation; it’s not always going to be this way.”  

As for the fiscal 2024 General Fund and education budgets, lawmakers will get revenue projections Tuesday.

For the current year, Ivey and lawmakers budgeted $2.7 billion in the General Fund and $8.2 billion in the education budget. For the first five months of fiscal 2023, General Fund tax receipts were up 13.75%, according to state reports. The ETF is up 7.7%, a slower rate of growth than it saw last year. 

Some legislative budget leaders are warning that, despite the surplus revenue, the funds are not limitless. At budget hearings last month, six of the largest of the state’s dozens of agencies presented 2024 funding requests, much of which centered around hiring more staff, that more than ate up the General Fund’s 2022 surplus of over $200 million.

The state has a lot of short-time money and a lot of long-neglected and expensive needs, Albritton said.

“We can’t foul this up,” Albritton said.

Alabama Daily News’ Alexander Willis contributed to this report.

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