After years of record budgets, state revenue growth slows

As state leaders prepare to kickoff the legislative session next month and work on the state’s 2026 budgets, they’re watching and preparing for continued revenue growth slowdowns.

Bạn đang xem: After years of record budgets, state revenue growth slows

Tax revenues in the Alabama Education Trust Fund have increased by .08% to $2.4 billion in the first three months of fiscal 2025, according to state data. That meager increase was driven by December receipts that were up 8.6% compared to the year prior, largely attributed to higher income tax receipts, after declines in October and November compared to the previous year.

Income taxes are the ETF’s largest revenue source and are now at -0.88% and $1.6 billion for the year. 

Net sales tax revenue, the fund’s second-largest source, is $542.1 million for the fiscal year, up 2.02% over last year.

The flat-lined revenue after record years isn’t a surprise or a concern, Rep. Danny Garrett, R-Trusseville, said on Friday. It was expected.

“That’s why we saved and set the reserves and cut our spending,” the House education budget committee chairman said. “Because we knew that the revenue would at some point flatten. 

“… So the fact that revenue is flat now, it’s not a concern because we’ve limited our budget growth.”

Both the ETF and General Fund are on track to meet their record 2025 spending obligations, despite declines in revenue growth. The 2025 education budget is $9.3 billion; the General Fund is $3.3 billion.

In the General Fund, December revenues were up 8.45% and totaled nearly $857 million for the first quarter of the fiscal year. But budget leaders note a few potential anomalies in the December figures, including a timing issue with the abandoned property receipts of $11.2 million in December. There was no deposit in that fund in December of last year. 

“The total amount that will be deposited this year is $45 million to be made in equal quarterly transfers – but the month of the transfer this year is not matching up with last year so it is impacting the monthly comparisons but will not impact the total,” Kirk Fulford, deputy director of the Legislative Services Agency, explained to Alabama Daily News. “Absent this outlier, real growth for the month was $8.58 million, or 3.66%.”

Year-to-date, the General Fund’s growth is about 3.7%.

Separately, the interest on state deposits was up again in December by 11.5%, worth $5.3 million, after decreasing significantly in November, the first decline in more than two years for the revenue stream that’s been a major contributor to the General Fund’s growth, propped up by high interest rates and federal COVID-19 relief money waiting in state accounts to be spent. In fiscal 2024, interests on state deposits accounted for about $152 million of the General Fund’s $226 million growth. 

Xem thêm : Minimizing CISO personal liability through end of year budgeting

The growth in December seems to counter the recent rate cuts by the Federal Reserve. However, it is likely due to the rates on treasury securities still being elevated and running in the opposite direction of the interest rates, Fulford said. 

“The year-to-date interest on state deposits is still down by $2.7 million and we expect that pattern to continue throughout the year as invested funds are expended and the full impact of the interest rate cuts are realized,” he said.

The Simplified Sellers Use Tax, otherwise known as the online sales tax, another solid performer for the General Fund, was up more than 13% in December and is up nearly 13% for the year. The same is true for the SSUT in the education fund, but a larger percentage of the tax revenue flows to the General Fund. 

Lawmakers and state budget leaders will begin their public 2026 budget discussion early next month when the Legislature gavels in for their annual session. A series of presentations and agency hearings are slated. Expect lawmakers to take a “cautionary sense about spending” when looking at 2026, Sen. Greg Albritton, R-Range, said.

“Government is not known for its ability to plan ahead,” Albritton, chairman of the Senate General Fund committee, said on Friday. “… My goal is to try to force (agency leaders) to look beyond the day-to-day and to the next two to three to five years.”

Last year at this time, the General Fund was still enjoying significant growth in interest on state deposits.

“That was a huge supplement to the General Fund,” Rep. Rex Reynolds, R-Hazel Green, the House General Fund committee chairman, said. “This year is just the opposite, now that we know rates are going to continue to go down. We don’t have that same luxury of a year ago.” 

Meanwhile, a supplemental spending bill created from excess revenue from fiscal 2024 is expected this year in the ETF, though lesser than the previous two years. Additional funds are available in the General Fund, but Reynolds said it’s not clear yet how Gov. Kay Ivey’s office will suggest spending those funds.

“We could see (Ivey’s administration) zero out any possible supplemental appropriation and use those revenues to fulfill the (2026) budget and departments’ requests,” Reynolds said. “Or they may choose to leave some room there for the legislators (to make supplemental appropriations). We’re having those conversations, it’s just not locked in stone yet.”

Budget hearing schedule

Feb. 5

9:30 a.m. – Kirk Fulford, legislative fiscal officer, Alabama’s financial condition

10:15 a.m. – Bill Poole, finance director, fiscal year 2026 proposals and priorities

Xem thêm : State budgets are looking pretty grim nationwide, but especially in PA and MD

1:30 p.m. – Jimmy Baker, chancellor, Community College System

2 p.m. – Jim Purcell, executive director, Commission on Higher Education 

2:30 p.m. – Eric Mackey, state superintendent, Department of Education

 

Feb. 6

10 a.m. – Cam Ward, director, Alabama Bureau of Pardons and Paroles 

10:30 a.m. – Hal Taylor, secretary, Alabama Law Enforcement Agency

11:00 a.m. – John Hamm, commissioner, Alabama Department of Corrections 

1:30 p.m. – Nancy Buckner, commissioner, Alabama Department of Human Resources 

2 p.m. – Kim Boswell, commissioner, Alabama Department of Mental Health 

2:30 p.m. – Stephanie Azar, commissioner, Alabama Medicaid Agency

 

Alabama Daily News’ Trisha Powell Crain contributed to this report.