State lawmakers returned to Montgomery Tuesday tasked with passing budgets after seeing historic revenues in FY 2021.
But state finance officials warned that those revenues are an anomaly and should not be relied upon for future budgets.
“Just know there is a fiscal cliff coming, on the education side as well as the General Fund side,” said Kirk Fulford, Legislative Fiscal Services Agency deputy director.
General Fund revenues were up 11.4 percent to $2.56 billion in 2021, while the Education Trust Fund growth was even more staggering at a 16.4 percent increase to $8.64 billion. The average ETF growth from 2011 to 2019 was just 3.7 percent for comparison.
That growth is fueled by record income and sales taxes.
Gross individual income tax rose 13.03 percent while sales tax revenue grew 14.75 percent.
“I can go back 50 years and can’t find a 15 percent sales tax growth,” Fulford said.
Corporate income tax revenue grew by 61.25 percent. All of these increases are major anomalies compared to typical years when the increases tend to be single digits.
Fulford attributed the personal income growth in large part to federal assistance during the COVID-19 pandemic through a variety of avenues including direct economic payments, expanded unemployment benefits and Paycheck Protection Program loans.
But during the early uncertainty of the pandemic, Fulford said lawmakers budgeted conservatively, meaning the ETF will have a beginning balance of $1.33 billion compared to a beginning balance of $60.54 million in FY 2020.
With these increases, Gov. Kay Ivey is proposing a general fund budget of $2.718 billion and an ETF budget of $8.3 billion for FY 2023.
Despite the historic leaps forward, the budget is projecting a return to modest growth for the new fiscal year.
Director of Finance Bill Poole said the overall priorities for the budgets are focusing on sustainability, addressing one-time needs, not utilizing carryover balances for ongoing expenses and preparing for the expected future economic downturns with “careful, thoughtful allocations of funds.”
Fulford expressed concern to lawmakers about local school boards appropriating federal funds in an unsustainable fashion.
“One of my major concerns is the impact of federal stimulus on K-12 schools,” Fulford said. “They’ve gotten almost over $3 billion in assistance from the federal government. My concern about that is, what happens when the federal money runs out? So if (local school boards) spend a lot of that money on salary and benefits and people, chances are they’re going to want you to continue funding that.”
Fulford also gave lawmakers a glimpse at the economic landscape of the state.
He described what has widely been reported in the wake of the pandemic: a job market with more jobs than employees, and pressure driving up wages and salaries.
“The labor market participation rate is still a struggle at 61.9 percent in December,” Fulford said. “Over the last six months, over 20 million people have left their jobs looking for a better job or a better situation. It’s an employee job market right now. Everybody is offering higher wages and incentives to come to work. Employees can pick and choose. There are 1.5 job openings for the number of people looking for a job.”
After hearing from Fulford and Poole, the joint budget committee with representatives from the House and Senate also heard from State Superintendent of Education Dr. Eric Mackey, Community College System Chancellor Jimmy Baker and Commission on Higher Education Executive Director Dr. Jimmy Purcell about their departments’ needs.
Budget hearings will continue Wednesday.