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State revenues up in June; interest earnings surpass last year, remain growth driver in General Fund

In 2023, state revenue generated from interest on deposits, one of the main drivers of growth in the General Fund that year, was a record $404 million.

Through June of this year, with three months left in fiscal 2024, interest receipts are $419.9 million. 

So far this year, General Fund revenues are up $227.5 million, or 10%, to $2.5 billion. More than $149 million of that growth is attributed to revenue from the higher-than-average interest rates.

“While this is great for current budget conditions, it means the future Fed rate cuts could have a dramatic impact on General Fund growth,” Kirk Fulford, deputy director of the Legislative Services Agency, told Alabama Daily News on Monday.

“The Atlanta Fed EconomyNow app now gives the likelihood of a rate cut by September 18 of 61.8%. If so, that would have no impact on FY 2024 revenues, but the amount of a cut and the number of times they do it over the next year will determine the impact to the General Fund.”

Fulford said in March 2020, the Fed cut rates twice by a total of 150 basis points and interest on state deposits declined by 46.75% on average over the last 6 months of fiscal 2020. 

“Smaller, but more frequent rate cuts over a period of time would have a lesser impact,” he said.

In the Education Trust Fund, revenues were up by $115.9 million, or 11.65% in June compared to the year prior and showed 1.67% growth year-to-date to $7.7 billion.

There was about a $30 million caveat last month. The June receipts include nearly $30 million returned to the ETF from the now-defunct Distressed Higher Education Loan Program. Lawmakers in 2023 had set aside the money with the intention that much of it would be directed to Birmingham-Southern College.

Alabama Treasurer Young Boozer, put in charge of the loan program, denied BSC’s application, saying the school, which later announced its closure, was a credit risk. That about $30 million will instead be spent on Community Service Grants and the K-12 Capital Grant Fund, lawmakers decided earlier this year. 

Other growth areas in the EFT in June were in gross corporate income tax receipts, which were up by $80.5 million, or nearly 40%, Fulford said.

Gross individual income tax receipts were up by $11.88 million, or 2.11%.

Online sales tax revenue continues to be an area of growth, up more than 15% year-over-year. But sales tax revenue from brick-and-mortar store sales continues to be down, -.97% in June and -1.67% for the year.

Several education advocacy groups in the spring asked lawmakers not to approve additional tax cut or credit legislation, fearing the impact on school funding. 

According to the Council for Leadership in Alabama Schools, approved and signed legislation this year will have at least a negative impact of $24.7 million in fiscal 2025 and negative $132.7 million in 2026.

The current year’s education budget is $8.8 billion, the General Fund budget is $3 billion. For fiscal 2025, which begins Oct. 1, lawmakers and Gov. Kay Ivey this spring approved $9.3 billion and $3.4 billion spending plans, respectively. In both budgets, legislators did not appropriate all possible revenue.

Rep. Danny Garrett, R-Trussville, told ADN on Monday he’s not overly worried about the slow growth in the ETF, particularly because of multiple reserve accounts and spending limits regardless of available tax revenue.

“We have sufficient reserves, so we feel good about that,” Garrett said. “What we’re seeing — the flattening of revenues — is not unexpected and we budgeted with that in mind.”

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