Lawmakers this week reviewed the financial outlook for the Education Trust Fund as they discussed a new education initiative and examined the challenges facing the state’s largest budget.
During a Senate Finance and Taxation Education Committee, Chairman Arthur Orr, R-Decatur, walked through revenue trends, reserve funds and spending pressures expected in the coming fiscal years. While the Education Trust Fund has grown since the COVID-19 pandemic, lawmakers said that growth is beginning to level off and reserves that helped drive recent increases are starting to decline.
Orr pointed to a large projected drop in the state’s beginning balance for fiscal year 2027. According to the budget projections presented, the starting balance for the upcoming year will be nearly $1 billion lower than it was previously.
“The biggest line to take note of is the first line where you see the estimated 2027 starting balance,” said Orr. “The almost billion-dollar decrease you see there is big money.”
Despite the reduction in the starting balance, projected revenues for the Education Trust Fund have risen by about $270 million year over year. Lawmakers said the change reflects the end of an unusual period of rapid growth that followed the pandemic.
“We’ve had nice, substantial growth year over year going back to the COVID year, but the fiscal reality is hitting,” said Orr.
Orr added that while the state is not facing a crisis, the decline in reserves is something lawmakers anticipated as revenue growth stabilizes.
Another major reserve is the Advancement and Technology Fund, which supports capital projects and other long-term education investments. The fund received $744 million in the current fiscal year, but projections show deposits dropping to about $492 million in the next cycle as revenue growth slows.
Even with the slowdown, lawmakers emphasized that maintaining strong reserve funds remains a priority because school systems and colleges rely on stable funding.
“If we’re going to promise money for things like hiring a gifted teacher or an EL teacher, we can’t give the money one year and pull it back the next,” said Orr.. “They can’t be on a roller coaster with this. They’re making investment decisions based on what we promise.”
Lawmakers also discussed several major education initiatives funded through the Education Trust Fund, including the CHOOSE Act, the RAISE Act and a new proposal known as the CHEER Act.
The CHOOSE Act, Alabama’s education savings account program, will receive approximately $250 million in funding. Orr noted that a portion of that funding is taken “off the top” before the legislature appropriates the rest of the education budget.
The RAISE Act, which lawmakers passed last year, is designed to provide additional resources for high-poverty schools as well as programs for special education students, gifted students and English learners. Lawmakers said the fund supporting the initiative is expected to grow to roughly $500 million after additional transfers. Last year, the legislature put $375 million into the RAISE Act. but only expended about $108 million. Orr said that this year, the hopes are to pass $362 million and have a balance of about $500 million.
The committee also reviewed the proposed CHEER Act, which would create a new funding pool aimed at improving outcomes at Alabama’s colleges and universities. The plan would deposit $152 million into the new fund and spend about $65 million initially, leaving roughly $87 million in reserve.
Under the proposal, institutions would work with lawmakers to set goals for improvements in areas such as student retention, graduation rates and workforce outcomes. Orr said lawmakers want to take a collaborative approach with colleges rather than using penalties for schools that struggle with student outcomes.
“We’re going to sit down with each institution and ask what they want to improve,” he said. “Do you want to improve your retention rate? Your graduation rate? What kind of graduates are you creating that fill the needs of Alabama’s job market?”
Some lawmakers raised concerns that new performance-based funding initiatives could overlook longstanding problems faced by struggling schools.
Senator Rodger Smitherman, D-Birmingham, argued that the state should also set aside additional funding to help the state’s lowest-performing K-12 schools improve facilities and academic programs.
“There are about 121 priority schools,” said Smitherman. “We need to figure over here about $121 million to get those schools up to where they need to be.”
Smitherman said programs like the RAISE Act will help schools maintain progress but may not provide enough resources to address decades of underinvestment.
“The RAISE Act will put them in the mix,” said Smitherman. “But they’re going to always stay down if we don’t provide that one-time real money to get them up to that level.”
Lawmakers also discussed how differences in resources between universities could affect performance measures tied to funding.
Smitherman warned that institutions with fewer facilities and resources could be disadvantaged if they are held to the same standards as larger universities.
“If we’re not ready to put money into those schools to get the stuff they need, then all we’re doing is setting up a process to close their programs,” said Smitherman.
Orr responded that the proposal is intended to tailor goals for each institution based on its mission and current circumstances.
“They’re not all the same,” said Orr. “Little old Athens State doing the junior and senior year can’t compare to a flagship research institution. Each school will sit down and discuss what they want to improve.”
Another major issue lawmakers reviewed was the rising cost of the Public Education Employees’ Health Insurance Plan. Orr said employer costs for the program are expected to increase by about $380 million in the upcoming year.
“That’s the delta we’ve had to make up in the education budget to keep premiums level,” said Orr.
Officials attributed the increase primarily to rising healthcare utilization and medical costs, noting that more people are using healthcare services and undergoing more procedures.
The budget discussions offered an early look at the financial pressures and priorities that will shape the Education Trust Fund budget in the coming weeks as the Legislature moves closer to final negotiations.
