On Wednesday, the state General Fund (GF) budget received committee approval and is now primed for floor debate in the Alabama House of Representatives as early as next week. The Education Trust Fund (ETF) budget has yet to receive a committee hearing, but it could quickly follow the GF.
Using the state’s $3 billion combined budget surplus to grow government, rather than provide wide-ranging tax relief to Alabamians, is the theme so far from the GF budget approved by the House Ways and Means General Fund committee, as well as the ETF proposal submitted by Gov. Kay Ivey.
When asked about this situation, the most common response is that a recession is coming, and lawmakers must be fiscally responsible. But is a downturn really around the corner?
Starting with the GF, the budget approved on Wednesday would increase spending to just over $3 billion in 2024, a $169 million increase over this year. The largest increases would be an additional 10% to the Alabama Department of Corrections and an 8.7% increase to the Alabama Medicaid Agency, accounting for about $128 million of the total increase.
Aside from the 2024 GF budget, lawmakers are proposing to spend an additional $188.6 million this year through a supplemental appropriations bill. The largest components of the supplemental bill are a $50 million transfer to the GF reserve fund, $43 million to the Department of Mental Health, and $39.9 million to help pay off existing state debt.
None of these are inappropriate uses of the current GF surplus, but why aren’t lawmakers making a stronger effort to provide relief to citizens?
We can ask the same question on the ETF side of the equation. While a committee draft is yet to emerge from either chamber, the 2024 proposal submitted by Ivey proposes a 6.5% increase over this year. Total spending would reach almost $8.8 billion, not including any future supplemental appropriations.
Ivey’s proposal includes an additional $2.8 billion in current year spending, with nearly $1 billion earmarked for one-time tax rebates, an additional $604 million to the State Department of Education, $200 million to the Department of Economic and Community Affairs for rural community downtown revitalization, and a $164 million increase to the Department of Commerce. Other line items in the ETF supplemental bill would go towards projects that seem to have little to no link with public education.
The point is, if a recession is truly on the horizon, why are lawmakers proposing to increase spending by more than $700 million next year? Why would the state spend most of the current $3 billion surplus this year? Perhaps things are not as dire as we’ve been led to believe.
Accounting for potential 2023 supplemental spending, the GF would still have a balance of more than $278 million entering 2024, data from the Alabama Legislative Services Agency (LSA) reports. As of March 7, 2023, LSA projected that the ETF will have a surplus of $5.1 billion to start 2024. If you take out Ivey’s $2.8 billion supplemental spending proposal, that still leaves a balance of approximately $2.3 billion in 2024. In other words, strong growth is expected to continue through the end of 2023.
According to estimates from the state Department of Finance, 2024 could be a different story. Director Bill Poole projects that GF growth will shrink to 0.16% next year, and while ETF growth will slow, it will still gain 3.8% in revenues.
No one expected the record growth experienced in the past few years to continue forever. However, state officials are still projecting more growth, albeit considerably lower, in 2024. It’s also important to remember that projected growth will be from the highest revenue starting point in Alabama’s more than 200-year history.
To be fair, it’s not that the legislature is doing nothing to provide relief to citizens. Bills to eliminate Alabama’s 2% income tax bracket, as well as reduce the state’s top 5% rate have already passed the House and moved to the Senate. But those two bills would only save about $82 million annually once fully phased in.
Several other bills remain under consideration, including a partial repeal of the state sales tax on groceries, which is yet to receive a committee hearing. The one-time rebate check legislation is pending as well, though it would not provide long-term relief.
Alabama’s state government continues to be in a unique position to provide substantial permanent tax relief to hard-working Alabamians. To make that a reality though, lawmakers must take larger steps to slow the growth of government spending. It’s not a question of not having enough money.
Justin Bogie serves as Fiscal and Budget Reporter for 1819 News. The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to: Commentary@1819News.com.
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