Alabama General Fund tax revenues are up 16.01% through June, largely because of earnings from increased interest rates. Meanwhile, Education Trust Fund receipts were up just slightly in June after declines over 2022 in May and April.
Much of the increase in the General Fund has come from interest on state deposits, up $264.5 million, or nearly 1,700%, for the first nine months of fiscal 2023.
“Interest on state deposits continues to drive all the growth in the General Fund,” Kirk Fulford, deputy director of the Legislative Services Agency, told Alabama Daily News. “There was $36.8 million in growth from interest and everything else declined by a collective $4.2 million (in June). For the year, total growth is over $300 million and all but $44 million of that growth is from interest on state deposits due to the increased amount of funds on deposit and the interest rates.”
The Federal Reserve opted not to raise interest rates last month after 10 increases over 15 months, the Associated Press has previously reported. The raised interest rates are an effort to cool the economy and bring down persistent, four-decade high inflation.
“That situation will continue for some time until the rates start going back down,” Fulford said. “Again, this is not unexpected in the current economy.”
In all, General Fund revenues totaled through June $2.26 billion.
In the ETF, growth was .74% in June and down -1.27%, or about $100 million, for the year compared to the record 2022. This is a slowdown Fulford and legislative leaders have expected.
“Sales tax growth was strong at above 4% — but this is a more normal growth situation than we have seen over the last couple of years,” Fulford said. “Again, we have been seeing this and expected the same. For income taxes, the growth in individual income taxes was offset by a decline in corporate taxes of a similar amount. This coupled with an increase in corporate refunds resulted in negative net growth. We are still watching this, but receipts are well ahead of necessary growth to support expenditures for both budgets.”
So far, the ETF has generated $7.77 billion this year.
Last month, legislators and Gov. Kay Ivey approved a reduction to the state’s sales tax on groceries. It will go from 4% to 3% on Sept. 1. In fall 2024, another percentage point will fall off if ETF revenue growth is projected to be at or above 3.5%.