The state’s General Fund and Education Trust Fund receipts have grown by double-digits over the last year, encouraging state leaders as they cautiously watch the continuing pandemic and brace for potential big expenses in 2022.
“We are recovering quite well from the pandemic and revenues are ahead of expectations for the fiscal year,” said Kirk Fulford, deputy director of the Legislative Services Agency’s Fiscal Division. “Obviously, it is too early to predict what 2022 will look like yet as much of that will depend on further issues with the latest strain of COVID and how that impacts businesses, health care, etc.”
From Oct. 1 through July, tax receipts in the ETF were up 11%, or $683.5 million, from the same point in fiscal 2020. The 2021 year-to-date collection was $6.8 billion.
Income tax ($4.3 billion) and sales tax ($1.9 billion) lead ETF receipts. The simplified sellers use tax, the ETF’s rising star, has grown more than 44% over the last year to more than $54 million collected so far this year.
“I think it’s no secret that the economy is looking very good in Alabama, therefore revenues are up,” said Sen. Arthur Orr, R-Decatur. He's the Senate education budget committee chairman. “However, we need to be very cautious going forward with the delta variant and its potentially adverse impact on revenues in the weeks and months ahead.
“But we can be very pleased with where we are at present in the General Fund and education budgets.”
In the General Fund, receipts were up 13% year-to-date, totaling $2 billion with three months left in the 2021 fiscal year.
Rep. Steve Clouse, the House General Fund budget committee chairman, attributes the increase to the economy opening back up and he’s cautiously watching for the impact of the COVID-19 delta variant.
“Everywhere I go, restaurants are full and people are out shopping and it seems like things are back to normal, getting back to school,” Clouse, R-Ozark, said. “That’s good news from an economic standpoint.”
The 2021 revenue numbers compare to 2020 revenues that largely remained flat last year, despite the pandemic.
“That’s good news compared to previous years where we’ve been singing the blues,” Clouse said.
The 2022 budget year starts Oct. 1. Lawmakers and Gov. Kay Ivey approved earlier this year a $7.6 billion education budget and a $2.4 billion General Fund budget.
The state’s economic recovery from the pandemic that began in 2020 is exceeding expectations, according to a report from the University of Alabama. While the delta variant could still be a factor on the economy, only a full shutdown would significantly stunt growth.
“We will most likely see 5.0-to-5.5% growth for this year, and perhaps next year, too, on the condition that we don’t shut down the economy again,” said Ahmad Ijaz, executive director of the UA Center for Business and Economic Research. “Another shutdown will most likely have a much more devastating impact on the economy.”
The state’s economy grew 6.8% in the first quarter of 2021, according to the report. The forecasted 5.5% economic growth for 2021 will make up for the 2.7% drop in economic activity in 2020.
Clouse also attributed the revenue gains to the billions in federal relief money pouring into the state, including money sent directly to residents and the Paycheck Protection Program that helped businesses stay open.
“I think people feel a little bit of relief that they've had some of that money come to them and they're spending it, generating sales tax dollars,” Clouse said. “And if folks keep their jobs, that helps with income tax and both of those things are very good for the education budget.”
Looking toward the 2022 budgets, Clouse said besides watching for a delta impact, he’s looking out for increased expenses, including possible new prisons and improvements to existing prisons.
“For the time being, we seem to have Medicaid under control,” Clouse said about one of the General Fund's largest annual expenses.
But prison expenses “will all be predicated on the plan that we come up with for new construction,” Clouse said.
Ivey, the Alabama Department of Corrections and legislative leadership have met throughout the summer to craft a plan for fixing the state’s aged and crowded prison infrastructure.
A bond issue is expected and lawmakers are also looking at using American Rescue Plan dollars.
Clouse said the plan is evolving. A special session on prisons and allocation of some of the federal dollars could happen later this summer or early fall.
“If we could use some of this Rescue Plan money — and I think we can, it's just a matter of how much — plus some of the good numbers we’ve had in the General Fund, we might could go ahead and advance some of those funds to the construction of at least one prison. That would help in terms of not having debt payments down the road.”
Sen. Greg Albritton, R-Range, the Senate General Fund budget committee chairman, said the delta variant isn't his biggest budget worry.
"I'm more worried about the inflation variant," he said. Increased prices not only impact consumers' spending power, but the state's.
A report from the U.S. Labor Department showed consumer prices jumped 0.5% from June to July. They have increased a substantial 5.4%, though, compared with a year earlier.
Prices at the wholesale level over the past 12 months are up a record 7.8%, the largest increase in that span of time in a series going back to 2010, The Associated Press reported.