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Education revenues down 13.8% in October

Tax revenues in the state’s education fund were down 13.8% in October compared to the year prior, but officials say the decreases shouldn’t cause alarm.

“The Education Trust Fund receipts in 2021 and 2022 were so far above normal that we expected growth to slow down,” Kirk Fulford, deputy director of the Legislative Services Agency, said about previous record revenues fueled by federal pandemic relief spending.

“The 2023 numbers came in slightly below where we thought and the October receipts appear to be a continuation of the slowing down,” Fulford said. “October was also the first month with the reduced sales tax rate on groceries, so there was expected to be some impact there.”

The state’s sales tax on groceries dropped from 4% to 3% on Oct. 1. Sales tax revenue was down $21 million, or about 12%, last month compared to October 2022, though not all of that is attributable to the grocery tax reduction.

Income tax receipts were also down in October by about 18% or $54.6 million.

The state is ready for flat growth in the ETF this year, Fulford said. Even with a slowdown in 2023, the ETF took in a record $10.4 billion. This year, state officials plan to spend $8.8 billion on education.

“The really good thing is that even if there winds up being zero growth or even an overall reduction in ETF revenues of a small or modest amount, it will not impact current obligations due to the conservative spending pattern used by the Legislature during the pandemic period and the latest revisions to the Rolling Reserve Act,” Fulford said.

Lawmakers and Gov. Kay Ivey are now three months from the start of the 2024 legislative session and earnest 2025 budget discussions. As state agencies prepare their funding requests, more conservative spending is expected as lawmakers monitor revenues.

“I think we’re reverting to the mean, the stimulus money is washing out of the system,” said Sen. Arthur Orr, R-Decatur, chairman of the Senate education budget committee.

“(2024) will be a strong year in the ETF, but it won’t be a banner year,” he said.

The General Fund, which supports non-education state agencies, was up 1.9% in the first month of the fiscal year, taking in $253.9 million.

Fulford said October receipts are less than they should be because of a timing issue with the deposit of abandoned property revenues.

Growth in the General Fund continues to be driven by interest on state deposits, up more than 118% compared to October 2022 and totaling $38.8 million last month.

Interest rates are expected to decline at some point in 2024.

Like in the education budget, conservative spending means the General Fund doesn’t have to grow in 2024 to support its obligations, Fulford said.

General Fund revenues in fiscal 2023 totaled $3.2 billion. The 2024 budget approved by lawmakers and Ivey earlier this year is $3 billion.

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