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State ETF revenue down 10.1% in first month of FY 2025

State tax revenues in the Education Trust Fund fell by $46.8 million, 10.12%, in October, the first month of fiscal 2025, when compared to a year prior.

The biggest decrease in the fund that supports all levels of public education was income taxes, the largest driver in the fund, down 18.36%, according to a state report.

Gross individual income tax receipts were down by $32.5 million while gross corporate income tax receipts were up by $8 million last month, Kirk Fulford, deputy director of the Legislative Services Agency, explained.

The state’s unemployment rate has ticked up slightly over the last year, from 2.7% in September 2023 to 2.9% last month.

“(The declines) are to be expected, but certainly not trending in the correct direction,” Sen. Arthur Orr, R-Decatur, told Alabama Daily News. He’s the chairman of the Senate education budget committee.

Net sales tax revenue, the second largest contributor to the ETF, was down about $2.2 million or 1.47%.
October was the first month for an apples-to-apples sales tax comparison after state leaders last year shaved 1 percentage point off the state sales tax on most groceries.

“It is interesting to note that gross sales taxes were up, albeit by a small amount,” Fulford said. “… The net sales tax receipts, after deductions, were down due to roughly $5.8 million in increased deductions, primarily administrative costs and transfers of sales tax discount to (the Alabama Department of Conservation and Natural Resources).”

Lawmakers are three months from the 2025 legislative session and planning the 2026 fiscal budgets.

Orr said this report gives more reason for them to be “very cautious and wary of where we’re headed.”

Despite the decline, the ETF is on track to meet its 2025 obligations. It needs an additional $7.95 billion over the next 11 months to meet its fiscal ’25 obligations and over the same period last year, receipts were $10.2 billion, Fulford said.

On the General Fund side, revenue, at least on paper, was up $15.6 million or 6.17% to $253.9 million. But much of that is because of a transfer timing issue and real growth, Fulford said, was $2.7 million or 1.1%.

State leaders continue to watch federal interest rates and their impact on the General Fund. Interest on state deposits has been a major contributor to the General Fund in the past two years, especially as the state has had in the bank federal pandemic relief money waiting to be doled out. As that money is spent and interest rates decline, that interest revenue will shrink. It increased in October by 4.29% to $40.5 million, still the largest single source of income among the about three dozen that flow into the General Fund.

“It will be interesting in the coming months when the interest rate cut gets reflected in the receipts from that source,” Fulford said. (The Federal Reserve) meet again next week after the election, so we’ll see if they continue forward with the planned rate cuts after that.”

Like the ETF, the General Fund is on track to meet its FY ’25 obligations, Fulford said.

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