Lawmakers will consider less ambitious budgets this session as the state’s financial experts warned of COVID-era revenue streams drying up in the coming years.
“We’re making somewhat of a pivot,” said Senator Arthur Orr, R-Decatur, who chairs the Education Trust Fund budget for the Senate. “I’ve compared it to seeing clouds on the horizon.”
That includes cutting the General Fund budget by more than $28 million as a rare recent spike in revenue from interest on state deposits trends back downward to historical norms.
“Those sugar high years have come to an end,” said Kirk Fulford, legislative fiscal officer.
Alabama Finance Director Bill Poole said the budget provides level funding for the core operations of the agencies funded out of the General Fund, while eliminating or reducing many earmarked funds.
“Departments need to pick up the signal that (Fiscal Year 2028) is coming,” Poole said. “The General Fund budget is going to face some difficult decisions, particularly in 2028. The only increases in the General Fund are really the COLA and Medicaid.”
Governor Kay Ivey released a statement on her budget proposals Wednesday, calling them “strong, conservative budgets that will serve our state well into the future.”
“The General Fund prioritizes responsible stewardship of taxpayer dollars while making targeted investments in public safety and other core services that Alabamians rely on every day,” Ivey said. “This will ensure Alabama remains the best state to live, work and raise a family.”
The General Fund could face a devastating hurdle as a lawsuit threatens its revenue source from online sales tax, known as the Simplified Sellers Use Tax.
Fulford said the revenue stream has been consistently growing by about 13 percent year-over-year. Losing that revenue stream would cost the state about $477 million—more than three times what the state has in its reserves.
While the General Fund faces its first cut in years, Ivey proposed an additional half million to the Education Trust Fund budget.
Part of that funding, about $100 million, will go to a 2 percent COLA raise for teachers.
Another $210 million will go to cover increased costs to the Public Education Employees’ Health Insurance Plan. That’s $170 million less than the $380 million requested by PEEHIP.
Poole said fully funding the request would have required almost all new funding for the ETF budget, and that Ivey chose to partially fulfill the request in part to also offer the COLA increases.
The ETF does make room for $70 million in increased funding to the CHOOSE Act for a total of $250 million; however, only $100 million of that is coming out of the budget. Poole said the other $150 million comes off the top from income taxes before entering the ETF.
The Child Health Care Insurance Plan will be paid out of supplemental ETF funds this year, after being fully funded through the General Fund last year. Poole said the funding has bounced between both budgets over previous years.
Ivey also proposed $50 million in additional safety measures at K-12 schools and a $12.4 million increase for the state’s Pre-K program.
“I am especially proud that my final Education Trust Fund proposal is the largest ever in our state’s history. We will continue making generational investments where they matter most—with our students, teachers and parents,” Ivey said. “The budget continues our commitment to proven initiatives like the Literacy and Numeracy Acts, our Turnaround Schools initiative and supports education reforms that are delivering real results like the CHOOSE Act and First Class Pre-K program.
“We will meet the evolving needs of students, educators and parents across the state. My budget includes support for paid parental leave for teachers, computer science education, enhanced school safety measures and another pay raise for teachers. Education will continue to be my number one priority over these next 12 months.”
