Gov. Kay Ivey and the Alabama Legislature should for the third year in a row be able to craft supplemental spending bills in 2025, separate from the regular budget bills.
Excess revenue above what was anticipated is now expected in both the General Fund and Education Trust Fund. However, in the General Fund at least some additional money has already been claimed for prisons and a new State House.
The spending of excess revenue outside the regular budgets will be less than in 2023 and 2024 and comes as budget leaders watch revenue growth in both those funds slow. The Alabama Department of Finance confirmed this week supplemental appropriations are expected next year.
“Funding amounts, however, will not be known until the end of fiscal year 2024, which will conclude at the end of this month,” the department said in an email to Alabama Daily News.
General Fund revenues for fiscal 2024 were up in August by 7.6%, or $223.7 million, with one month remaining in the fiscal year. While revenues have exceeded obligations, lawmakers and Gov. Kay Ivey have already assigned purposes to much of that surplus.
In the 2025 General Fund budget approved in May, there was about $248 million in conditional spending. The largest allocations are $200 million for prison construction and $35 million for the new State House, currently under construction behind the current State House under a lease-to-buy agreement with the Retirement Systems of Alabama. Excess revenue above that $248 could go into a supplemental.
“The amount of those supplemental appropriations (in the General Fund and Education Trust Fund) will depend on what the members and Governor are comfortable with considering uncertainty with revenues and obligations next year,” Kirk Fulford, deputy director of the Legislative Services Agency, told Alabama Daily News.
Revenues in the General Fund are up 11.9% in the first two months of fiscal 2024, dipping to 7.6% 11 months into the year. Higher-than-usual interest rates and yet-to-be-spent federal COVID-19 relief money continue to make interest on state deposits a significant revenue stream, accounting for about 65% of the growth in the ETF this year.
Asked about supplemental and possible uses, Senate General Fund budget chairman Sen. Greg Albritton, R-Range, rattled off a list of new expenses looming, including increased state employee retirement and health care costs.
“I would suggest that if we have excess money, it’s not really excess,” Albritton said.
House General Fund budget chairman Rex Reynolds, R-Huntsville, agreed there are “substantial needs” on the horizon and said lawmakers will be getting recommendations from the governor’s office.
The 2024 education supplemental was $651.2 million; the General Fund’s was $263 million. In 2023, they were $2.8 billion and $217 million, respectively.
The total amount available for supplemental appropriations in the ETF is limited to the amount allowed in the Rolling Reserve Act after transfers to the Budget Stabilization Fund, Advancement and Technology Fund, and the Educational Opportunities Reserve Fund, Fulford explained.
Though revenue growth has slowed in the ETF more than the General Fund this year, it was up 1.2% for the year as of August to $9.4 billion, more than the needed $9.3 billion to meet expenditures in fiscal 2024.
Sen. Arthur Orr, R-Decatur, said supplemental spending in 2025 could be about $500 million.
But like in the General Fund, there are spending increases on the horizon for the ETF, including $50 million for the school choice legislation approved this year and a large, looming shortfall in the state’s health care plan for teachers.Lawmakers will be asked next year for $134 million to help plug that hole.
“We’re going to have to look at that increase and decide where that money is going to come from,” said Orr, the Senate education budget committee leader. “Are we going to be able to shoulder that out of growth in the regular budget? Are we going to shoulder it out of the supplemental and growth? It’s dangerous to do it out of a supplemental because that’s one-time money.”
State Superintendent Eric Mackey at the state school board meeting last week mentioned school safety efforts as a possible supplemental expense next year.
“I think we should really have a lot of discussion between now and next February about what we want out of school safety, and ask for that to be a part of the supplemental appropriation,” Mackey told the board.
“The good thing about supplemental money is it’s available immediately, whereas the budget we’re working on right now, it’s not available to the schools until October (2025).”
Alabama Daily News’ Alexander Willis contributed to this report.