Taxpayer money for Alabama schools shows double-digit growth; officials say it won’t last

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Boosted by record unemployment and billions of federal dollars for pandemic relief, tax revenues that support public education and other government programs in Alabama are well ahead of last year.

But inflation is expected to slow consumer spending and government coffer growth. The question is when and to what extent.

“It seems like the state today, the focus on today, is banging on all cylinders when it comes to the economy of the state,” said Sen. Arthur Orr, R-Decatur , Chairman of the Senate Education Budget Committee. “However, with $5 gas and 8% inflation, we need to slow down in the coming months. And when that happens, I imagine expenses will go down, which means sales tax revenue will go down as well. And I hope the jobs will stay in place. But if we fall into a recession, layoffs also happen.

Rep. Danny Garrett, R-Trussville, chairman of the House Education Budget Committee, has a similar view on revenue growth. That growth includes a 22% increase in taxes that support the Education Trust Fund through May, eight months into the state’s fiscal year, which began in October.

“We know at some point it’s going to reach a point where it’s going to change,” Garrett said. “We don’t know when it is. Some people say we will have a recession. Some people say we are in a recession. We don’t really know where all of this is right now.

“But at some point, if prices continue to rise, I think people will adjust their purchases. So at that time there could be a very rapid change in trajectory.

Legislators must at some point observe trends before making decisions. They will return for regular session early next year to consider the next round of state budgets. In the meantime, revenue will be enough to cover planned spending for the rest of this fiscal year, which ends September 30, said Kirk Fulford, deputy director of the Legislative Services Agency. Fulford said other states are also seeing unusually strong tax revenue growth.

“The most important thing to know is that revenue growth trends will return to ‘normal’ at some point,” Fulford said in an email. “We have been advised to pass budgets with this in mind. In other words, we did not adopt budgets that required huge revenue growth and used additional growth to fund many “one-time” expenses, such as fully funding reserve funds, paying down debts, and capital projects.

“Both of our budgets are in good shape right now. Things may change in the coming months, but I’m not concerned about funding issues for the rest of the fiscal year.

Through May, tax revenue from the Education Trust Fund totaled $6.9 billion, an increase of $1.2 billion from the prior year at this time, or 22 %.

The biggest source of money for the ETF is income tax, and it has increased the most, by $1.1 billion, or 30%. Fulford said part of that was a timing issue, as some tax payments were due earlier this year. But there was also an increase in personal income tax withholdings of $310 million, or 11%, due to the high number of jobs.

Sales tax, the second largest source, increased by $85 million, or almost 6%.

Another category of sales tax that applies to purchases made on the Internet is showing greater growth. The Simplified Vendor Use Tax (SSUT) brought in $204 million and was up 20% from the prior year.

Three-quarters of SSUT goes to the General Fund, which supports state non-educational services, including Medicaid, prisons, state troopers, courts and others. The General Fund, a smaller fund than the ETF and which has traditionally had lower taxes which rise with the economy, is also seeing an increase in income.

Through May, the General Fund had received $1.8 billion, up $144 million from the same time last year, an increase of almost 9%.

Orr said gas prices, inflation and rising interest rates are worrisome signs in the economy that make him reluctant to speculate on how the state might take advantage of the extraordinary increase. taxes.

An example of how these can affect the budget outlook is increased fuel costs for school systems operating buses and for other agencies, such as the Alabama Law Enforcement Agency, which keeps soldiers out of l state on the highways. Orr said the fiscal outlook could be different when lawmakers meet next year.

“There’s a lot of things that could happen negatively by then, so I really don’t want to speculate that we’ll have a lot of extra money or we will or we won’t,” he said. said Orr. “We may have money to carry over. It is certainly possible. But we may have to fill holes in the budget with this deferred money. So we just want to be very careful and conservative.

If the state’s revenue outlook remains strong next year, Orr said lawmakers should consider tax cuts.

“If the economy were to hold up and in March we still have record unemployment and the coffers are full, we have to look at some sort of tax refund or tax cut if the economy looming looks good,” Orr said. “I think we need to revisit helping Alabamians with their cost of living that they are experiencing today with 8% inflation.”

Garrett said the bottom line is that it’s unclear how strong revenue growth can be sustained. He said history indicates a downturn is ahead.

“We have more people working,” Garrett said. “We kind of brought the companies back to a more normal level of work. But everyone has to adapt to this escalating price. And at some point, logic would dictate that a person would say, “I’m going to stop spending.” At present, people’s consumption habits have not really changed. But many experts will tell you that it won’t last long. And historically, that is not the case.

“But we just don’t know. So we’re staying very close to that and doing a lot of analysis right now to try to figure out the numbers and try to figure it all out and see where we are. But the good news is that we are in good financial shape right now.

Read more: Alabama Governor Kay Ivey approves largest education budget in state history, historic teacher increases

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