General Fund, Education Trust Fund revenue up in October with COVID ‘backstory’

General Fund, Education Trust Fund revenue up in October with COVID ‘backstory’

By MARY SELL, Alabama Daily News

Tax revenues in the state’s General Fund and Education Trust Fund grew significantly, 16.2% and 8.7%, in October compared to a year ago, but at least some of those increases are anomalies that shouldn’t be expected to continue as COVID-19 impacts tax collections. 

“October, one month into 2021 looks good, but there’s a backstory there that we ought to be concerned about,” Kirk Fulford, deputy director of the Legislative Services Agency, said. “I don’t want people to think that 16% is what the real growth was (in the General Fund) and in the ETF, in reality, it probably isn’t growing at 8%.”

The $31 million increase in the General Fund, which funds most non-education state functions, is attributable to a $32 million, 100% increase in the Financial Institutions Excise Tax. That’s because of a change in when the tax is collected and reported, Fulford said. There was no excise tax revenue in October 2019.

“What the General Fund receipts actually show is a continuation of the slow growth over the last several months,” Fulford said.

That slow year-over-year growth is expected to continue, in part because in the first half of fiscal 2020, “we were growing like gangbusters,” Fulford said.

Now, there is COVID-19-related decrease in business operations and travel, and lower interest rates, that are expected to continue at least for several months, Fulford said.

The ETF did show solid growth in October in its two largest tax sources: income (9.8%) and sales (9.9%).

“People are stir crazy and got out and shopped, it looks like,” Fulford said.  “So, the more the stores are able to open up, the more people are able to get to restaurants (the more that will increase),” Fulford said. “And I think the governor’s order (last week) that lifted some of the occupancy limitations on restaurants and entertainment places will certainly help on that going forward.”

Alabama Daily News reported in September that though some of the dozens of tax revenue streams that flow into the General Fund and education budgets withered when the coronavirus came to Alabama, overall, both funds’ revenues were up in 2020 compared to 2019.  Neither need growth in tax revenue to cover planned spending in 2021, $2.39 billion in the General Fund and $7.2 billion in the Education Trust Fund.

But another COVID-19-caused shutdown of businesses and agencies, as seen in the spring, could put revenue numbers in the negative, Sen. Arthur Orr, R-Decatur, said.

Orr, chairman of the Senate education budget committee, said the October numbers are good news, but an increase in recent COVID-19 cases is a concern.

“You see other states and counties pursuing the lockdown strategy, it is concerning where our economy may be going in the winter months,” Orr said. “I trust Gov. Ivey will avoid a second lockdown order for the state, she seems to have indicated a great reluctance to do so again.” 

Last week, Gov. Kay Ivey extended the statewide mask order and relaxed some social distancing mandates on some businesses. Sen. Greg Albritton, R-Range, said prior to Ivey’s announcement he’d asked the governor’s office to ease the restrictions even more. Albritton, the chairman of the Senate General Fund budget committee, said he’s concerned about retailers not being able to operate at 100% during the holiday sales season. The state is going into the strongest part of the retail year with a wet blanket around it, Albritton said.

“An old, wet, smelly blanket,” he said.

Albritton said Alabama’s COVID-19 economy was helped substantially by the federal Paycheck Protection Program loans and stimulus checks to individuals and families.

“That’s what kept the economy perking,” he said.

Earlier this year, more than 600,000 Alabamians’ jobs were kept through more than $6 billion in PPP loans, a report showed.

President-elect Joe Biden may have an impact on Alabama’s revenues this month and next. Fulford said there could be an increase in corporate income tax revenue yet this year as businesses try to push more income into tax year 2020 to take advantage of the current lower tax rate if they think the federal corporate tax rate will increase in a Biden administration. 

That could be helpful in November and December, Fulford said, but he also expects a drop later in the fiscal year because of the large number of people unemployed because of COVID-19 or with less income.

“We’ll see that overall impact in April, Fulford said.

Looking forward, Albritton said he’s concerned about state revenues.

“I think we’ll get through it, but they better start looking under the sofas again,” he said.

In a few months, state budget makers will begin talking about fiscal 2022, which begins in October. COVID-19 is a big factor and there are still a lot of unknowns, including what Congress may do with another stimulus package.

Last month, ADN reported there may be some shuffling of CARES money as the deadline to spend it approaches.

Earlier this week, $957.5 million had not been spent, though some may be committed and spent soon.