State budgets: Historic revenue, ‘fiscal cliff coming’

State budgets: Historic revenue, ‘fiscal cliff coming’

By MARY SELL, Alabama Daily News

MONTGOMERY, Ala. – Alabama lawmakers will have historic levels of revenue to appropriate for fiscal year 2023, but they shouldn’t expect recent growth to last and will need to plan accordingly.

“We know that these are artificially inflated revenue numbers,” State Finance Director Bill Poole told lawmakers Tuesday, the first day of the legislative session.

“… We need to be very, very careful as we contemplate these budgets that we don’t make permanent decisions based on a temporary circumstance,” Poole said. “That’s what we have right now, a temporary circumstance.”

Gov. Kay Ivey will soon send lawmakers a proposed $2.7 billion General Fund budget and a $8.3 billion education budget. Those are increases of about $300 million and $627 million, respectively.

For the 2021 fiscal year, revenues into the General Fund grew by 11.4% and into the Education Trust Fund by 16.4%, bolstered by federal COVID-19 relief spending and a strong economy.

“That is not a normal growth rate, Kirk Fulford, deputy director of the Legislative Services Agency told lawmakers. 

In 2022, revenues are already above expectations, Fulford said. For 2023, estimated revenue is expected to grow another 2.08% in the General Fund and 3.61% in the ETF.

Poole said people can expect fiscally conservative budgets that make sure the state is on “solid ground” when the federal funds run out. He expects proposals to include paying down state debt and bolstering rainy day accounts.

Both Fulford and Poole warned lawmakers not to spend all the money at their disposal setting up programs or services that could face cuts in the future when the federal infusions dry up.

“There is a fiscal cliff coming on the education side as well as the General Fund side,” Fulford said.

Poole said General Fund priorities in 2023 will include mental health services, one-time construction projects for public health and safety and “preparations for future economic downturns.” In the education budget, more resources for math and science education and investments in pre-K, after school and summer school programs can be expected.

Across-the-board pay raises for teachers and state employees are expected in the 2023 budgets. Fulford said that each 1% raise for teachers would cost about $45 million; the same for state employees is about $30 million. 

Rep. Barbara Drummond, D-Mobile, said the Legislature should look for ways to fund services that help families who have struggled in the pandemic.

“I personally would like us to look at sustainable housing for low-income families,” said Drummond, noting Alabama’s high poverty rate. Along with education and health care improvements, Drummond would also like to see some of the funds help to “bridge the digital divide…throughout the entire state.”

Rep. Lynn Greer, R-Rogersville, is on the House General Fund committee. With a legislative career that goes back to 1974, Greer called the record revenue “a unique situation.”

“It’s not going to last forever,” Greer said. He’d like to see money put in reserve accounts or carried forward for future budget years.

Rep. Jamie Kiel, R-Russellville, is on the House education budget committee and participated in the hearings Tuesday.

“We have had extraordinary increases in the Education Trust Fund due to increases in both use tax collection and income tax collection,” Kiel said. “This is due, in large part, to one-time Covid money that families and businesses were given during the last year.   We are very cognizant of this one time bump in the budget as we do not anticipate the same level of federal government handouts going forward.

“… This is an opportunity to pay down debt and put money back for a potential downturn in the economy,” Kiel said.  It is also an opportunity to invest in critical educational needs that are not recurring expenditures.”

Rep. Randy Wood, R-Anniston, said he’d like to see in the budgets more money for educators and support for law enforcement. He also cautioned careful budgeting with one-time funding because “you can’t continue to do this forever,” he said about revenue growth.

Meanwhile, the state has a chance to make significant one-time investments with about $1.6 billion in American Rescue Plan Act money, about $580 million of which is expected to be allocated in this session. Ivey could call a special session within this regular session to focus on the federal infusion of cash.

Potential uses include expanding rural broadband internet service, sewer and water assistance, relief for businesses hurt by the pandemic and public health infrastructure. Another $1.1 billion from the federal government is expected in May or June after this year’s session will have finished.

While lawmakers say they’re planning for conservative spending, they expect other agencies to do the same. Local school systems have received about $3 billion directly in federal COVID funds.

Sen. Arthur Orr, R-Decatur, the chairman of the Senate education budget committee, said he and House counterpart Rep. Danny Garrett, R-Trussville, met Tuesday morning with school leaders to advise them not to use one-time federal money on personnel or other items that need to be funded long-term.

Local systems shouldn’t get themselves obligated to recurring expenses “and then ask us to sustain it,” Orr said Tuesday during the budget presentation.

“You can’t come down here in a year or two or three with their hand out,” Orr said.

Rep. K.L. Brown, R-Jacksonville, agreed.

“We are especially concerned about local boards of education hiring a lot of additional personnel and then not being able to fund them when resources dry up and expecting the legislature to shore up additional funding,” Brown said. “We are going to have to be very cautious during these next few years.”

Alabama Daily News reporter Maddison Booth contributed to this story.