Alabama’s $9.3 billion 2025 education budget and other spending bills will be in committee this afternoon and could be on the Senate floor later in the week.
Also pending, but with a murkier path forward, are a host of sales and income tax exemption and tax credit bills that passed the House earlier but haven’t received votes in the upper chamber. Those include the high-profile proposal to give employers tax credits if they help provide day care for employees and several others taking state sales tax off items ranging from diapers to hearing aids to farmers’ fence posts.
All of them would pull revenue from the Education Trust Fund.
“We have to look at those bills and figure out a course of action,” Sen. Arthur Orr, R-Decatur, told Alabama Daily News recently. He chairs the Senate education budget committee and said several of the bills could be before it on Wednesday.
The proposed $9.3 billion budget is a record, but revenue growth in the fund is flattening.
Orr said even though the state is spending more on education, when adjusted for inflation state per-pupil funding decreased by more than $700 between 2007-2008 and 2020-2021.
“We are spending less on education, if you consider inflation, than we were in 2008,” Orr told ADN. “That’s awful.”
“We’re going backward in school funding, yet there’s a big push (for some tax credits).”
Orr early in the session sponsored the Senate version of a bill to take the state sales tax off diapers, other baby care items and feminine hygiene products. He hasn’t pushed for its passage as other cuts and credits are weighed.
Meanwhile, several new laws have yet to fully impact the ETF.
Likely the biggest bill of the session is the school choice CHOOSE ACT that will allow tax credits to support private and homeschool costs through individuals’ education savings accounts. Lawmakers are dedicating at least $100 million per year to the ESA fund. That’s money that won’t flow into the ETF.
And the 2023 tax cut for overtime workers is having a larger impact than originally expected, ADN reported recently.
Separately, when ETF revenues do grow by at least 3.5%, another penny will come off the state’s sales tax on most groceries, per another 2023 tax cut.
Public school advocates are urging caution in the final weeks of the session.
“The record ETF budgets are helping our schools regain funding levels and address pressing needs after a period of high inflation. Even so, there still are unmet needs in our K-12 schools which should be the top priority for ETF expenditures,” Sally Smith, executive director of the Alabama Association of School Boards, told ADN.
“Every decision to grant an exemption, tax credit or sales tax holiday represents a value judgment that these needs are as important as our commitment to public school students.”
Smith said a possibly devastating “financial vortex” for public education is forming based on the combined impact of revenue flattening, the phase out of federal COVID-19 funds, the long-term tax implications of already enacted programs like the CHOOSE Act, grocery tax reduction, overtime tax credit and efforts to cap local property tax increases.
In March, AASB, the Alabama Education Association, the School Superintendents of Alabama and the Council for Leaders in Alabama Schools sent a letter outlining their opposition to any tax credit legislation Orr and House education budget committee chairman Rep. Danny Garrett, R-Trussville.
The letter said a thorough review and reform of the current state tax structure is long overdue.
A recent report from the Legislative Services Agency’s Fiscal Division said the ETF loses about $5 billion a year to tax expenditures defined as “state revenue losses attributable to a special exclusion, exemption, deduction, or special credit or preferential tax rate.”
The General Fund loses about $987.8 million.
The biggest ETF losses are in individual income tax revenues. Per the report, the state collected $6.8 billion in individual income taxes in fiscal 2023 and had estimated expenditures of $3.1 billion. Sales and use tax was next, collecting $3.8 billion and expenditures estimated at $1.6 billion.
The bills now before the Senate committee have passed the House and many of them have at least some support in the Senate, including the child care tax credit sponsored by Rep. Anthony Daniels, D-Huntsville, and Sen. Garlan Gudger, R-Cullman.
“In 2022, nearly 85,000 families in the state found themselves without viable child care options due to staffing shortages, affordability or concerns about quality,” Gudger said last week. “In Alabama, parents make up 35% of the workforce, meaning access to high-quality, affordable child care would boost labor force participation and drive economic growth at regional and statewide levels.”
That bill and a proposal to offer credits to developers who build housing complexes for low-income workers, are part of a package of workforce development bills pushed by Gov. Kay Ivey and legislative leadership.
Capped at $5 million in the first year, advocates say the program could help ease housing issues in fast-growing parts of the state.
With five legislative days left in the session, some tax credit bills have been declared dead.
Rep. Joe Lovvorn’s proposal for an annual sales tax holiday for sporting and outdoor equipment, including hunting gear, firearms won’t move forward this session, he told ADN on Monday.
And Rep. Terri Collins, R-Decatur, said her bill to allow a variety of tax credits in exchange for donations to rural hospitals, isn’t likely to move forward. She said she’ll continue to work on the bill, including getting better fiscal impact data, for next session.
“We will work on community support next year,” Collins said Monday. I still think it’s a great way to support rural health care.”