Tax revenues in the state’s Education Trust Fund were up 2.08% in February compared to a year prior and better than January’s -7.67%. Revenues are still down -.75% for the year to $4 billion.
Income tax revenues were up 3% in February, but are still -1.93% for the year; sales tax receipts were up 1.23% in the fifth month of the fiscal year, but are flat year-over-year.
The General Fund saw 10.52% growth in February and is 3.87% for the year to $1.45 billion, though last month’s numbers are likely inflated because of some receipt timing issues.
The largest source of growth in the General Fund was the insurance premium tax, likely because of early payments, said Kirk Fulford, the Legislative Services Agency’s deputy director.
“I also believe there was a timing issue regarding the ad valorem tax payments, second largest growth source for the month,” Fulford explained to Alabama Daily News on Monday. “So, the monthly and YTD growth figures for the General Fund are likely overstated.”
Interest on state deposits, which was a driver of the General Fund’s record growth in fiscal 2023 and 2024, declined in February and is just above level for the year.
Both funds are expected to meet their 2025 spending obligations because lawmakers budgeted below revenue projections. That’s the same reason Gov. Kay Ivey was able to propose increased 2026 spending plans last month.
When there was record growth in the General Fund, Rep. Rex Reynolds, R-Hazel Green, said lawmakers focused on reserves and one-time expenses, “not growing government.”
But the slowing revenues will be part of the discussions when the Legislature begins its public budget work in early April.
The education budget will start its legislative journey in the Senate and committee chairman Sen. Arthur Orr said he asked recently for a list of outstanding tax credits that would soon be coming due, impacting revenues. In February, the state’s historic tax credit and the railroad tax credit totaled a $26.2 million decline for the ETF.
“Anytime we have negative revenue, it’s certainly a concern and this generous disposition toward tax credits is going to hurt us if we’re not careful,” Orr, R-Decatur, told ADN.
Orr said he and his House counterpart, Rep. Danny Garrett, R-Trussville, are working closely together on the spending proposal, so there will likely need to be few changes between the Senate and House passed versions, Orr said.
Similarly, Reynolds said the General Fund will likely begin moving at the same time as the ETF, after a second week-long break from Montgomery the last full week of March.