Alabama’s education fund witnessed a 13.8% decrease in tax revenues in October compared to the previous year, but state officials are urging calm amid the decline.
“The Education Trust Fund receipts in 2021 and 2022 were so far above normal that we expected growth to slow down,” noted Kirk Fulford, deputy director of the Legislative Services Agency, reflecting on record revenues driven by federal pandemic relief spending. “The 2023 numbers came in slightly below where we thought, and the October receipts appear to be a continuation of the slowing down,” Fulford said. “October was also the first month with the reduced sales tax rate on groceries, so there was expected to be some impact there.”
Income Tax Receipts were down by about 18%
The reduction of the state’s sales tax on groceries from 4% to 3% on October 1 played a role in last month’s 12% decrease in sales tax revenue compared to October 2022, though not all of the decline can be attributed to this tax adjustment. Furthermore, income tax receipts were down by about 18% or $54.6 million in October. Despite the slowdown in 2023, the Education Trust Fund reached a record $10.4 billion. For the current year, state officials have allocated $8.8 billion for education.
Deputy Director Reassurance
“The really good thing is that even if there winds up being zero growth or even an overall reduction in Education Trust Fund revenues of a small or modest amount, it will not impact current obligations due to the conservative spending pattern used by the Legislature during the pandemic period and the latest revisions to the Rolling Reserve Act,” Fulford reassured.
With the 2024 legislative session and 2025 budget discussions approaching, lawmakers and Gov. Kay Ivey are expected to exercise more conservative spending as they keep a watchful eye on revenues.
“I think we’re reverting to the mean; the stimulus money is washing out of the system,” said Sen. Arthur Orr, R-Decatur, chairman of the Senate education budget committee. “(2024) will be a strong year in the Education Trust Fund, but it won’t be a banner year.” Conversely, the General Fund, which supports non-education state agencies, saw a 1.9% increase in the first month of the fiscal year, generating $253.9 million.
A Decline in Interest Rates in 2024.
Fulford attributed the lower-than-expected October receipts to a timing issue with the deposit of abandoned property revenues. In the General Fund, growth persists, primarily driven by interest on state deposits, which surged by more than 118% compared to October 2022, totaling $38.8 million last month. However, Fulford anticipates a decline in interest rates in 2024. Much like the education budget, prudent spending decisions mean the General Fund is not required to expand in 2024 to fulfill its obligations.
General Fund revenues in fiscal 2023 amounted to $3.2 billion, while the budget for 2024, approved by lawmakers and Gov. Ivey earlier this year, stands at $3 billion.
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