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With record state revenue, spending decisions ahead

Alabama lawmakers will soon be deciding how to spend record tax revenues in the state’s education fund — and how much they’re comfortable diverting from school spending in the form of tax cuts, rebates and other projects outside of education.

In the coming month, legislators will begin their public discussions and meetings on a proposed, record $8.8 billion 2024 education budget. Separately, they have the unique task of ironing out a supplemental spending plan for those billions that came from excess tax revenues in the education budget in fiscal 2023.

The surplus is an opportunity for one-time investments on non-recurring costs. It’s from there that Gov. Kay Ivey and others are proposing tax rebates for Alabamians. Separately, any tax cuts approved this session would be reoccurring and would come from the Education Trust Fund that supports K-12 and higher education in the state.

“I think we should rebate anything that’s not going to the classroom,” said Rep. Jamie Kiel, R-Russellville, a member of the House education budget committee, about a rare education surplus of nearly $2.8 billion. “If it’s not an investment in education, give it back to taxpayers.”

Ivey drew criticism in the past week for some of the line items in the supplemental plan she sent lawmakers, including Whitewater Park in Montgomery and funding to reimburse the World Games, which were held in Birmingham last year.

Alabama Daily News asked several members of the House and education budget committees how much of this record income and sales tax revenue, the two main drivers of the ETF,  they’re willing to spend on cuts and outside classrooms

“That’s all being discussed and is definitely under consideration,” said Sen. Arthur Orr, R-Decatur, the chairman of the Senate education budget committee, which will have the first votes on the spending proposals.

The supplemental

In her $2.78 billion surplus spending plan, Ivey included income tax rebates of $400 for individuals and $800 for couples, totaling about $966.7 million.

Some legislative leaders have signaled that amount is more than they’re comfortable with.

While Sen. Tim Melson, R-Florence, said he is in favor of a rebate, he hasn’t settled on an amount.

“The rebates will make a difference in some peoples’ lives for a bit, but substantial investments in education could make a lot of peoples’ lives better for years to come,” he said.

While most of the remainder of the supplemental goes to K-12 schools for multiple efforts — $40 million for bus fleet renewal; $360 million to offset inflationary increases in ongoing capital projects; $24 million for math summer camps; $10 million for school safety grants —some of the spending is admittedly not typical education spending:

  • $31 million for the Mobile Airport Authority to relocate commercial airline operations to the Mobile Downtown Airport for economic development purposes;
  • $25 million for the Port of Alabama for economic development and coal loading and unloading equipment;
  • $25 million to the Montgomery County Commission for economic development. first reported that intended use was for a planned Whitewater Park in Montgomery near Maxwell Air Force Base.
  • $5 million for the World Games;
  • $200 million to renovate downtown areas in some rural communities.

The 10-page supplemental bill has other specific allocations for K-12 education, community colleges and the state’s large universities.

Ryan Hollingsworth, executive director of the School Superintendents of Alabama, called the spending plan disappointing. He said the surplus is in part a result of state leaders’ conservative spending on education. Now that there’s excess money, it should stay with education.

” Just because they’ve been conservative doesn’t mean we don’t have needs,” Hollingsworth said. While the proposal does include money for new buses, for example, Hollingsworth said it would take an additional $85 million in the proposed education budget to fully fund systems’ daily transportation costs next year. Without that money, local systems will have to fill the gap.

Most annual education budgets dedicate about 68% to 69% of available funding to K-12, Hollingsworth said. By his math, the supplemental proposal in its current form sends about 25% to K-12.

“That’s astonishing,” he said. From facility improvements to more teachers, nurses and mental health professionals, schools could use that money, he said.

School safety is a priority for SSA members, Hollingsworth said and education leaders have requested a dedicated line item in the education budget and $100 million.

While the $10 million for school safety in the supplemental proposal is a lot of money, Hollingsworth said, it’s not a lot when compared to nearly $3 billion or so of the other expenditures in the proposal.

State Finance Director and former House education budget committee chairman Bill Poole said that in her proposed budget and supplemental, Ivey has a total of $1.8 billion in new dollars for education.

“We’re making historic, new investments in education,” Poole told Alabama Daily News on Wednesday.

Meanwhile, those non-education spending items are justifiable and responsible, Poole argued. They’re also the only proposals that will go through the legislative vetting process.

“They are now placed in the public domain for analysis and discussion,” he said. It’s fully expected that legislators will bring their own ideas to the spending bill.

Both Orr and his House counterpart, Rep. Danny Garrett, said any non-education spending will get extra scrutiny in the process.

“Certainly, we’re looking at all aspects of the expenditures and the rationale behind them,” Orr said. “They’re getting a very, very hard look.”

But spending education dollars on things not commonly considered educational isn’t new. In 2014, The Decatur Daily reported that education groups were upset that in the proposed $5.8 billion budget, there was about $150 million in expenses they thought should be in the General Fund, which supports non-education state functions.

Poole said some of Ivey’s proposals, such as the port and airport spending, are investments that will make the state money in the future.

“When we invest in our economy, we invest in education,” he said.

The spending plan also includes about $100 million for prison education. Prison education expenses have previously and increasingly been in the education budget. That new money will help fund learning activities at two new men’s prisons in Elmore and Escambia counties.

“(The planned new prison in Elmore County) is 4,000 beds,” Poole said. “That’s larger than some private colleges in the state of Alabama. And if we build that facility and do not have adequate education and vocational facilities, well, that would be a poor decision.”

Regarding the Whitewater Park project, Poole told ADN that his office talked to communities around the state about their needs and priorities, saying “we heard consistently from the Montgomery area that this was their sole project,” he said.

Tax cuts and education budget

While there are several tax-cutting proposals already filed in the Legislature, including income-tax reductions and removing the state sales tax from some or all groceries,  leaders said they don’t yet have in mind a total dollar amount that they’re willing to commit to tax cuts.

Garrett and Orr said they want to get all proposals on the table and make decisions from there about the best options. But whatever they do, it has to be sustainable, as they noted that they wish to avoid having to raise taxes in a few years because they cut too much this year.

“I don’t know what that number is, but that discussion will start when we get back,” Sen. Tim Melson, R-Florence, said.

“There are going to be lean times down the road,” Melson said. “I’m open to looking at any (tax cuts), but they have to be reasonable and not detrimental to existing programs.”

Finding that permanent tax cut number is key to the conversations, said Sen. Dan Roberts, R-Mountain Brook.

“That’s the biggest struggle in this — that’s why we’re putting a bunch (tax-cut proposals) out there (to) see what everyone is comfortable with,” he said.

The ETF saw a 20.5% revenue increase in fiscal 2022, largely attributed to federal COVID-19 stimulus and relief funding. In the first five months of fiscal 2023, growth has been about 7.7%.

“As everyone hopefully knows, the growth over the last couple of years is so far above normal growth for the ETF that a slow down is inevitable,” said Kirk Fulford, deputy director of the Legislative Services Agency, which helps lawmakers draft their budget proposals.

“Current expenditures are well below revenues for last year and that must be included in the consideration of cuts – in other words, many things can be supported if ongoing expenditure growth is contained.”

Not knowing the extent of a looming economic slowdown or exactly when it will occur only adds to the uncertainty, Fulford said.

Meanwhile, many educational programs have been started or funded with billions of federal relief dollars that have come to schools and colleges. When that federal money dries up, Fulford said the state will likely be asked to fund those programs.

“All of those things have to be considered, which is why the ‘can we cut’ question is not so cut and dry as some would like it to be,” Fulford said.

Poole said historically, prior to COVID, the ETF had a yearly growth of 3% to 4%.

“We expect to see a lot of bills filed dealing with tax cuts, tax credits, other tax reductions, and we will need to discuss and assess each of those (not only) in light of where we are today but what our expectations for future revenue would be,” Garrett said.

Lawmakers return to Montgomery to resume their legislative session today.


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