Despite COVID-19, flat income tax collections, state’s budgets expected to end year up

Despite COVID-19, flat income tax collections, state’s budgets expected to end year up
(Source: WSFA 12 News)

By MARY SELL, Alabama Daily News

Despite hits from COVID-19, revenues in Alabama’s education and General Fund budgets are still expected to show increases when the fiscal year is over in September.

Income tax collection this year is up .27% over last year, according to a report released Monday. Delayed from April until July because of the coronavirus, income tax had been the missing piece as state budget writers gauged the state's fiscal health and the coronavirus outbreak's impact.

In all, revenues in the Education Trust Fund, which supports public education at all levels, are up about 1.95% year-over-year. That means, despite significant uncertainty with schools starting back this fall, educators mustn't worry about the dreaded "p" words: pink slips and proration.

After five months of COVID-19′s impact on Alabamians’ work and personal lives, state leaders called the revenue report good news.

“I’d say it’s relieving news,” Sen. Arthur Orr, R-Decatur, said Monday. He’s chairman of the Senate education budget committee.

In the House, education budget chairman Rep. Bill Poole, R-Tuscaloosa, said the numbers are generally what has been predicted in recent months.

“It isn’t bad news, so therefore, in this environment, it is good news,” Poole said.

With two months left in this fiscal year, the ETF is up a little more than $100 million. In March, it had been up $250 million and was expected to finish the year with more than 5% growth.

“It looks like, absent a drastic drop off, the ETF is gonna finish the year with positive growth, which if you’d have asked us a couple of months ago … it didn’t seem likely,” said Kirk Fulford, deputy director of the Legislative Services Agency.

Fulford said the state has also benefited in this situation from having a fiscal year that ends in September rather than July like some states, giving revenues more time to “shake out” after the initial COVID-19 impact.

Income taxes, $3.5 billion year-to-date, and sales tax, $1.7 billion year to date with an 4.5% increase over last year, are the two main revenue sources in the education fund.

The General Fund, which supports non-education agencies and services, also shows an increase over fiscal year 2019 and has been less worrisome for state leaders in recent months.

A bright spot in that fund has been the relatively new Simplified Users Sales Tax, an 8% tax on online purchases. So far this year, it’s up about 106% and $57 million to $111 million.

Still, there is evidence of COVID-19 in the reports. The state’s lodging tax is down about $7 million year to date, or 17%, mostly because of the virus’ impact on beach tourism earlier this year.

Looking to fiscal year 2021, which begins Oct. 1, lawmakers and Gov. Kay Ivey approved budgets that are increases over the current year’s, but considerably less generous that what they’d planned early this year, prior to the coronavirus. Both Poole and Orr said they don’t foresee a need to make any changes to those budgets this year.

“Even if matters got unforeseeably worse, we could make it into February and make adjustments then,” Orr said. Lawmakers’ 2021 legislative session begins in early February.

Meanwhile, Poole pointed out that millions of dollars in federal CARES Act money is flowing directly into the state’s educational institutions.

“I don’t know what we could accomplish at this point relative to so many moving points,” Poole said.

The ETF was buoyed in March by a transfer of about $301 million from the Budget Stabilization Fund.

The Rolling Reserve Act, created by lawmakers nearly 10 years ago to prevent mid-year budget cuts, allows the state finance director to transfer funds from the reserve stabilization fund into the ETF during the first six months of a fiscal year to alleviate cash flow issues. That money is not tabulated in the 1.95%  year-over-year increase and will be paid back next month, Fulford said.

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