Get the Daily News Digest in your inbox each morning. Sign Up

Budget situation in 2024 session: Surpluses and caution

Alabama lawmakers and budget leaders are in a unique fiscal situation walking into the 2024 legislative session.

Excess revenues from 2023 in both the General Fund and Education Trust Fund will warrant supplemental spending bills — likely around $400 million in the General Fund and $600 million in the ETF — in 2024.

That’s money lawmakers and Gov. Kay Ivey can spend outside the traditional budgeting process.

But as decision makers look to fiscal 2025 budgets and the flat revenues in the ETF so far this year and General Fund earnings propped up by high but unsustainable interest rates, already conservative leaders become even warier.

“Due to economic growth attributable to the hard work of Alabama’s citizens and the continuation of conservative budget management by Gov. Ivey and the Legislature, the State of Alabama concluded FY23 with revenues that exceeded state appropriations,” State Finance Director Bill Poole told Alabama Daily News. “Accordingly, supplemental appropriations will be possible in both the General Fund and Education Trust Fund budgets and the Governor’s Office is working with legislative leadership to evaluate needs and priorities across all budget areas.

“It is important to note, however, that there are unusual factors influencing Alabama’s budgets. Accordingly, Gov. Ivey will continue to focus on passing conservative and responsible budgets that value the sanctity of taxpayer funding and focus on targeted investments, maintaining appropriate reserves and reducing the state’s debt.”

Revenues in the General Fund are up 11.9% in the first two months of fiscal 2024 to $590.9 million, an increase largely credited to the 148% increase in interest rates on state deposits. They total $93.6 million, a $55.9 million increase over the same period a year ago. Those interest earnings drove General Fund gains in 2023, but aren’t sustainable as the Federal Reserve will eventually lower interest rates.

“It’s time like these we have to be cautious and not spend today when we know tomorrow our revenues will be reduced and our receipts will be down,” Rep. Rex Reynolds, R-Huntsville, said. He’s chairman of the House General Fund committee. “The General Fund will see a drastic decrease as interest rates start to fall back down.”

Revenues in the 2023 General Fund were about $400 million above what was budgeted, allowing for a supplemental spending bill there, Reynolds said.  The first $100 million of that will be dedicated to prison construction, per language in the 2024 General Fund budget, ADN previously reported. With the remaining $300 million, Reynolds said funds may be used to fund one-time needs among agencies, including potentially more for prisons.

“We talk often about concerns about 2025 and we have to make sure we have some money in reserve and while we’ve got money now for finishing up the (new state prison in Elmore County), we’ve got to think about the prison in Escambia County and related costs. That’s a commitment that we have made. Hopefully, we start to see some (construction) pricing start to come down.”

Sen. Greg Albritton, R-Atmore, chairman of the Senate General Fund committee, said he’s not concerned about fiscal 2024 revenues.

“We’re fine with what we have and what the projects are,” he said. “But 2025 is going to be much more of a challenge, particularly with what happens with the economy and what happens with the election. Those two unknowns are going to be a huge concern in the spring when we’re trying to develop a budget.”

In the Education Trust Fund, total revenues did increase in November by about 7% but are still flat year-to-date. The largest two contributors to the ETF are income and sales taxes. Sales tax growth was .17% in November; income tax revenue grew by about 10% in November and is at 1.16% for the year.

The ETF collected a record $10.4 billion in 2023. In fiscal 2024, state officials plan to spend $8.8 billion on education. That means the budget in 2024 can withstand slowed growth.

“There is still an ongoing difference in the revenues vs. expenditures for the ETF, which could absorb a substantial drop off before impacting budgeted expenditures,” Kirk Fulford, deputy director of the Legislative Services Agency, told IAP.

In fiscal 2023, the ETF supplemental, largely a product of federal COVID-19 relief spending, was a record $2.3 billion. In 2024, it’s expected to be about $600 million. Despite the flat revenue in the ETF currently, Senate education budget chairman Sen. Arthur Orr, R-Decatur, said he’d be comfortable spending that supplemental money, largely because of reserve accounts lawmakers have created and padded in recent years, including the new Educational Opportunities Reserve Fund created in 2023, the Advancement and Technology Fund and the Budget Stabilization Fund.

“We feel confident, currently, that we’re in for a soft landing, because we’ve put away a significant amount in savings, that we can spend $600-plus million in a supplemental appropriation,” Orr said.

Supplemental bills aren’t the norm and 2024 allocations will likely be the last of the significant spending opportunities, at least for a while.

“But we’ve gone from $2.7 billion to about $600 million, and in 2025 we’re looking at less, so we’re definitely on the downhill,” Orr said.

Get the Daily News Digest in your inbox each morning.

This field is for validation purposes and should be left unchanged.

Web Development By Infomedia