The legislative session that ended Tuesday was largely about money.
Spending the last about $1 billion installment of federal COVID-19 relief funds to the state; Increasing possible tax cuts to industry in exchange for jobs and capital investments; Allocating about $15 billion in recent record state revenues while also planning for an economic slowdown; Sending a bit back to Alabamians through tax cuts and rebates.
A lawmaker since 1994, Rep. Steve Clouse, R-Ozark, said this year was unlike any other he’s seen.
“I would say unprecedented and anomaly are the two main words,” Clouse, R-Ozark about the fiscal situation created by federal infusions of cash in response to COVID-19 and state leaders’ previous conservative spending.
“We’re probably never going to see this again and I hope we never see COVID or another pandemic again.”
The last of ARPA
In a dedicated special session in early March, lawmakers and Gov. Kay Ivey dispensed a little more than $1 billion in federal American Rescue Plan Act money primarily on water and sewer projects, broadband expansion and funds for health care facilities.
This was the second and last tranche of ARPA money for the state and followed the CARES Act money 2020 and 2021. While federal guidelines put some restrictions on how the money could be used, lawmakers targeted much of the ARPA funds to make what they said was state-changing investments in infrastructure.
The plan included $400 million for water and sewer projects; $339 million for health care expenses, including $100 million each to hospitals and nursing homes to reimburse them for COVID-related costs; and $260 million for broadband internet expansion.
“My emphasis here is how much we have built in for the future of Alabama,” said Senate General Fund budget committee chair Sen. Greg Albrittion, R-Range. “The infrastructure, the construction, the things that we’ve done that we haven’t done in so long, water and sewer projects…
“When we come out on the other side of this, Alabama will be a different place than we were in 2020.”
More incentives
The state’s primary economic development incentives for capital investments and job creation were renewed and expanded in a quartet of priority bills in April.
Lawmakers extended for five years the Alabama Jobs Act and increased by $125 million to $475 million per year by 2027 the annual cap on incentives. State leaders began work on the legislation and rallying support last year. The bills, which also include some state help for industrial site development, easily passed both chambers.
Another bill that became law in April requires Commerce to publish information about incentive agreements and the number of jobs they create on its website.
Budgets, surpluses and a rebate
Prior to the session, Sen. Arthur Orr, R-Decatur, said there would be big decisions to be made about record revenues and how much to save, spend and send back to Alabamians.
In a 16-hour stretch last month, lawmakers gave final approval to the $8.8 billion education and $3 billion General Fund budgets for 2024 and the accompanying $2.9 billion education and $207 million General Fund surpluses to be spent this year.
Within that education surplus is a rebate for Alabama income tax payers — $150 for individuals and $300 for married couples.
“I have never been part of a rebate and I don’t know that we ever will be again,” Clouse said.
Long-serving lawmakers made decisions and votes based on their previous budget experiences. Sen. Clyde Chambliss, R-Prattville, said his first year in the State House was 2015 when there was a $250 million hole in the General Fund. He urged caution in spending this year as state revenues return to pre-pandemic levels and inflation continues to eat into agencies’ budgets.
“We struck a balance,” Chambliss said about lawmakers’ final fiscal products. “We put money in reserves, we paid off debt, we did a lot of good things that needed to be done.”
Lawmakers took $60 million from the General Fund surplus to pay off the remaining debt after Alabamians approved borrowing $437 million in 2012.
“I think we did some conservative things that will pay dividends in the 2024 session and the 2025 General Fund budget,” House budget committee chairman Rep. Rex Reynolds, R-Hunstsville, said.
In the General Fund, lawmakers put an additional $50 million toward a rolling reserve fund.
“Downtimes do come, and if we’re prepared for them, we can weather them,” Chambliss said.
On the education side, they created a new savings account, called the Education Opportunities Fund, and allocated nearly $354 million from the education surplus to it.
“We’ve improved our fiscal discipline for the future,” Orr said.
Tax cuts
Last year, lawmakers passed a significant $160 million in target tax cuts. This year, the proposed cut to the state’s sales tax on groceries, sponsored by Sen. Andrew Jones, R-Centre, is worth more than $300 million annually when fully implemented.
Alabamians will see the state sales tax on groceries reduced from 4% to 3% in September and potentially to 2% in September 2024.
Lawmakers also approved the proposal by Rep. Anthony Daniels, D-Huntsville, to allow Alabamians to earn overtime pay without having to pay the state’s 5% income tax on it. Originally, lawmakers capped the untaxed earnings at $25 million total per year. Ivey on Tuesday removed that cap.
“The Overtime Tax Exemption clearly demonstrates that bipartisan, executive and legislative branch cooperation can lead to real bottom line results for Alabama workers,” Daniels said on Twitter Wednesday. ” Any time Alabama taxpayers can keep more of the money they earn, it’s a good thing.”
Neither the grocery or overtime bill were stated leadership priorities entering the session.
“It was an organic move, those two pieces of legislation,” Senate President Pro Tem Greg Reed, R-Jasper, said Tuesday about how bills to help working people garnered bi-partisan support. Alabama is a low-tax state already, Reed said.
“The fact that we’re able to drill in to find ways to offer relief to the people of Alabama in regards to taxation is a win for the Legislature but a bigger win for the people of Alabama.”