Alabama had the nation’s second-lowest tax collections per capita in 2019. Only Tennessee had lower state and local tax revenue per resident than Alabama.

Since the early 1990s, Alabama had the lowest tax collections in the U.S. But beginning in 2018, tax cuts in Tennessee and economic growth in Alabama caused Tennessee to dip below Alabama in per capita collection.

During the period, Alabama’s economic growth has been strong. Between 2018 and 2020, per capita personal income in Alabama grew faster than it did in Tennessee. By late 2019 Alabama was experiencing its lowest unemployment rate ever. On top of that, the state’s labor force participation rate had improved, bringing more workers into the workforce. Meanwhile, Tennessee is in the process of phasing out what remains of its small income tax. It has also reduced its sales tax rate on groceries.

Despite outpacing Tennessee, Alabama still trails far behind other Southeastern states in the amount of state and local taxes collected per resident, which partially explains why Alabama struggles to provide the same level of public services as other states.

PARCA’s 2021 edition of How Alabama Taxes Compare describes Alabama’s tax system and how it compares with tax systems in other states, based on the latest data available from the U.S. Census Bureau and the Bureau of Economic Analysis.

In addition to the PDF version of the report, the interactive charts below allow you to explore the data on your own. For better viewing, expand to the full-screen view by clicking on the button on the bottom right of the display below. Navigate through the story of Alabama taxes using the tabs at the top of the interactive display.

Read the Print version.

By the end of FY 2021, Alabama tax collections had grown at their fastest pace in recent history, fueled by economic recovery from pandemic shutdowns and by unprecedented injections of federal stimulus for governments, businesses, and individuals.

For the fiscal year that ended September 30, both the Education Trust Fund (ETF) and the General Fund grew by more than 11%, compared to historical averages of 3.5-3.7% for the ETF and 2-2.25% for the General Fund. Alabama’s percentage gain in tax revenue since the pandemic crash ranks 7^th among the states, according to an analysis by the Pew Charitable Trusts.  The growth rates far exceed any year since at least 1995.

Printable Version

However, it is important to remember the growth comes in comparison to FY 2020, a year in which COVID shutdowns constrained growth. During FY 2021 (from October 2020 — September 2021), businesses were open throughout the year, though some were still affected by restrictions related to the virus.

The growth is also taking place in the context of rising inflation, meaning the revenue is based on higher prices, and the money collected won’t have the same purchasing power it previously did. Regardless, the growth was substantial.

The ETF took in $900 million more than in FY 2020, topping $8.6 billion. And that understates the gain. FY 2020’s total included over $300 million borrowed from the Budget Stabilization Fund for cash flow purposes. That money was returned to the fund later in 2020.

The General Fund took in almost $2.6 billion, an increase of $262 million over last year.

Where did the growth come from?

Based on estimates from the Federal Funds Information for States, Alabama budget analysts estimate that $30 billion in federal relief flowed to individuals and businesses in Alabama. In addition, $16 billion in federal relief was authorized and is in the process of flowing through the state out to agencies and local governments.

That extra money in the hands of consumers fueled spending. Gross sales tax collections increased almost 15%, driven by multiple rounds of economic stimulus payments to individuals and parents with children. Spending was also boosted by unemployment benefits, which provided roughly twice the minimum wage. For some laid-off workers, the benefits amounted to a raise. Aid from the paycheck protection program kept businesses solvent and employees on payrolls.

While the bulk of the sales tax is deposited in the ETF, the General Fund also benefited from the increased spending and changed consumer patterns. The Simplified Sellers Use Tax (SSUT), the tax on online sales, rose almost 40% over 2020 totals (and 2020 was 99% higher than 2019). The Legislature’s decision to deposit the bulk of the SSUT into the General Fund added a growth element to the General Fund that had been lacking. Instead of lurching from crisis to crisis, the fund has kept pace with the rising costs.

Gross individual income tax collections were also up, increasing 13%, despite the fact employment levels haven’t reached pre-pandemic highs. By the beginning of FY 2021, employment levels had rebounded to about 60,000 short of March 2020 employment. Since then, they have continued at that level. Meanwhile, wages have been on the rise as businesses seek workers in the face of a shortage of workers.

Surpluses and Temptations

Thanks to the additional revenue, the state covered the 2021 ETF budget and ended with a balance of $1.24 billion, which will be available for lawmakers when the lawmakers convene in 2022.

The General Fund ended with a surplus of $368 million, which has already been put to use, appropriated as part of the funding for new prison construction.

The surge in state tax dollars has come along with a surge in federal support for state government operations as well. In a typical year, federal funds provide almost the same amount the state raises in taxes. But with the pandemic, the U.S. government sent an estimated $17 billion in relief funding to Alabama to schools, hospitals, and other agencies. Some of that is flowing through the appropriation process, but much of it is flowing directly to the agencies, making it difficult to know whether it has been spent yet or not.

The danger comes when those federal relief funds dry up. Growth will taper. State agencies receiving federal relief cannot count on that level of funding to continue. Legislators will convene in 2022, in an election year, with a lot to spend. But they will also have to keep an eye toward an unpredictable future and not commit to unsustainable levels of recurring expenses.

Thus, it’s useful to look for clues in the FY 2021 collections.

General Fund Revenue Sources

A myriad of tax sources supports the General Fund. Traditionally, most of those sources saw little growth from year to year. The General Fund struggled to keep up with rising expenses in non-education expenses, like funding for prisons and the Medicaid program.

However, in recent years, some growth taxes have been added to the General Fund, and its rate of growth has been similar to the Education Trust Fund. Since 2017, General Fund receipts have increased 33%, while ETF receipts have increased 37%.

Big gainers

Insurance Co. Taxes: The largest tax in the General Fund, the tax on insurance premiums, contributed close to $500 million to the General Fund, increasing by $77 million or 19% over 2020 collections. As insurance rates go up, and as more people take out insurance, the tax brings in more. Also, $30 million of the tax had been going to the ETF. That ended with a law change in 2019, increasing the yield to the General Fund.

Simplified Sellers Use Tax: The SSUT continued a string of huge gains as the shift to online sales continued in FY 2021. An additional $55 million came in from this source, an increase of 39% over 2020 (In 2020, the increase was 99%). It has quickly grown into the third-largest source of revenue in the General Fund at $192 million. That represents 75% of the tax. The remaining 25% goes into the ETF. Some of the growth may be attributable to new retailers submitting the tax. Still, this year’s growth is likely attributable to both the increased spending power of consumers because of stimulus and rising wages and to the continuing shift to purchasing online for home delivery. Considering the decreased threat of Covid, the tax is expected to grow more slowly in the future.

Financial Institutions Excise Tax: Coming off a down year in 2020, this tax source jumped by $55 million, an increase of 156%. The big jump is attributable to a new law in 2019 that required banks to make payments quarterly rather than in a lump sum. It also changed how the tax amount due was calculated, bringing it more in line with the federal definition of taxable income. The big surge in collections was not expected, as the law changes were expected to be revenue-neutral. State budget officials think the shift in the schedule for payment of the tax may have resulted in a surge of revenue in FY 2021 will not continue.

Sales and Use Tax: a share of the sales tax on autos and boats is distributed to the General Fund, and each of those lines was up by more than $25 million, thanks to the strong demand and rising prices for both.

ABC Board: Liquor sales continued a rising trend posting a 12% gain over 2020, a year when ABC proceeds climbed by 14%. This may result from a continuing shift toward purchase for home consumption, as restaurant and bar operations continued to be somewhat curtailed in FY 2021. The revenue sent to the General Fund from the ABC sales increased to $157 million.

Mortgage and Deed Record Taxes: About $20 million additional came in through taxes related to home sales. Both prices and activity spike in 2021, reflected in a 34% increase in the mortgage tax, adding $15 million to reach a total of $58 million, and a 45% jump in the deed record tax, reaching $17 million. Continued low-interest rates led to more refinancing and home purchases.

Lodging Tax: This tax on hotels and vacation rentals was up 26% in 2021 after being down 15% in 2020, bringing in an additional $13 million compared to 2020. Gulf Coast rentals saw a record demand though some units were offline because of damage caused by Hurricane Sally in Sept. 2020. Convention and hotel traffic remained depressed compared to historic norms.

Interest on the Alabama Trust Fund: More accurately described as investment returns on the Alabama Trust Fund, the contribution from this source increased 8%, or $8 million, thanks to a strong market. Also known as the State’s savings account, the Alabama Trust Fund is at nearly full strength as amounts borrowed during previous downturns have largely been repaid.

Oil and Gas Production Tax: The oil and gas production tax was up 16%, recovering somewhat from a crash in FY 2020.

Court Costs: With the courts open again, court costs recovered some of the previous year’s drop, though FY 2021 collections were still behind 2019s. In FY 2021, proceeds from court costs contributed $60 million to the General Fund.

Big losers

Cigarette Tax: Though it remains a significant source of revenue, the cigarette tax continues to decline as smoking decreases. The taxes brought in $143 million to the General Fund in FY 2021, down by $5 million, a decline of 3%. Meanwhile, a Tax on Vapor products increased 28%, or $614,875, to $2.8 million.

Interest on State Deposits: The state earns interest on the cash it holds, but this source of revenue declined $31 million or 62% because of dropping interest rates. The state collected about $20 million from this source in 2021.

Mobile Telecom Tax: A dying tax, this tax applied to phone plans that sold talk time. For the most part, cellular plans now provide unlimited talk time at no charge but charge for data, which is not covered by this tax. Revenue continues to decline, bringing in just over $11 million, down another nearly $4 million or 26% lower than last year.

Education Trust Fund

The ETF supports K-12 schools, colleges, and universities. The state’s two largest revenue sources flow into it: the income tax and the sales tax.

Benefiting from growth taxes, the ETF has traditionally seen the most substantial ups and downs: rapid growth in good times and jarring contractions when the economy falters. However, more recently, the Legislature has spread some of the growth taxes and has imposed rules on how fast spending can grow. These restraints have thus far prevented mid-year budget cuts and have allowed the accumulation of reserve funds.

Big Gainers

Income Taxes: Net income tax deposited in the ETF was increased by a jaw-dropping 21%. The anemic growth of income taxes in FY 2020 is part of the story. FY 2021 full-year of full-time employment earnings produced a substantial gain in gross personal income tax collections, up $643 million to a total of $5.8 billion. But even more staggering was a 61% increase in corporate income taxes. Corporate income taxes increased $370 million to a total of $974 million. Explanations for such a large jump are not completely clear. Certainly, the recovering economy had businesses operating a full calendar year. Pent-up demand and the stimulus in the economy drove up sales bolstering income over a down 2020. Budget analysts also speculate that corporations may have realized more revenue in 2021 to avoid potentially higher federal taxes in 2022. After refunds and other adjustments, the income tax contributed $5.6 billion to the ETF, increasing $987 million over 2020.

Sales Taxes: The state received over $2.3 billion in sales tax revenue in 2020, and $325 million more than last year was sent to the General Fund, an 11% increase. Sales were robust at grocery and hardware stores as people continued to invest in home improvements. It’s also important to note that inflation has driven up the prices of some goods, which in turn drives up sales taxes, which are based on the total cost. With the dissipation of stimulus money, this pace of growth is unlikely to recur. But, with the pandemic under better control, activity continues to accelerate, Demand is strong. Unemployment is low, and wages are rising. That suggests income and sales taxes will continue to grow.

Simplified Sellers Use Tax: As in the General Fund, the contribution of this tax was up 40%, adding $18 million to the ETF, for a total contribution to the ETF of $64 million. The proceeds of the tax are divided, with the ETF receiving 25% and the General Fund 75%.

Big losers:

Insurance Premium Tax: Before FY 2021, $30 million from the Insurance Premium Tax was deposited into the Education Trust Fund. That ended because of a 2019 change in the law governing the distribution. The total amount is now in the General Fund.

The Utility Tax: Down 2% or $8 million, this is a tax on electric, water, telephone, and gas utilities. FY 2021 saw both a mild summer and winter and a wet one. That leads to decreased energy consumption and lower levels of water use. However, the extra rain provided more opportunities for hydropower generation, driving up receipts from the hydroelectric tax.

From the Year’s End Looking Forward

Both funds ended FY 2021 with substantial surpluses. FY 2022 budgets were built on the assumption of 3% growth over the 2021 budgets. Current conditions suggest the state should easily exceed those predictions.

Alabama is in an unfamiliar position of having to manage its way through unexpected excess revenue.

General Fund

• FY 21 Budgeted $2,393,272,863
• FY 21 Receipts $2,562,158,281
• FY 22 Budgeted $2,637,874,471

Education Trust Fund

• FY 21 Budgeted $7,217,422,487
• FY 21 Receipts $8,643,813,063
• FY 22 Budgeted $7,672,576,575

And that’s only part of the picture

The ETF and General Fund totals don’t even represent half the revenue that powers public agencies, state schools, universities, and hospitals. Nor does it represent the federal benefits that flow through state agencies like Medicaid, the Departments of Human Resources, Health, Mental Health, Labor, and Rehabilitation Services. The chart below gets closer to a picture of the scale of public spending in Alabama.

Reserve Fund Balances

Current conditions suggest continued recovery, But if things were to falter, Alabama has built up major reserves that are available to tap in case of an economic downturn. A recent analysis on state reserves and rainy day funds by the Pew Charitable Trusts estimated that Alabama $1.1 billion in rainy day funds or 11.2% of spending. The state could run on its rainy day funds for 41 days, Pew estimated. That puts Alabama well ahead of the 50-state median for the strength of its reserves.

• ETF Budget Stabilization: $448,410,575
• ETF Rainy Day: $484,979,764
• ETF Advancement & Technology: $282,314,668
• GF Budget Reserve: $75,303,255
• GF Rainy Day: $263,994,883

PARCA’s 2021 public opinion survey finds a growing majority of Alabamians support spending more on education but a lack of consensus on how to pay for the increase.

Among the findings:

Taxes

• 61% of respondents say upper-income Alabamians pay too little in state taxes. The percent of respondents who believe upper-income earners pay too little increased by 10% from 2020.
   
• 53% say lower-income earners pay too much, up from 40% in 2016.
   
• 49% say they pay the right amount of taxes, compared to 57% in 2016.

• Despite Alabama’s low per capita tax yield, 69% of residents believe they pay the same or more taxes than people like themselves in other states.

Public Education

Alabamians believe education is the most important service state government provides, but its lead over other services is declining.

• 44% rank education as the most important service, while 31.3% rank healthcare No. 1.

• 78% believe the state spends too little on education, compared to 74% in 2019 and 68% in 2013. Large majorities in every subpopulation have this belief.
   
• 69% support increasing taxes to support education, but no single tax increase option garners majority support.

• This year, respondents were asked what supplemental programs might improve education. No program received a majority response, but the top priorities were expanded tutoring, increased technology funding, and more mental health counseling.
  
  
• When asked what respondents’ top priority for new education funding would be, the highest percentage (41%) said that new revenue should go to increasing salary and benefits for teachers 
  
  
• 59% say local boards of education are best suited to decide how education dollars are spent.
  
  
• Respondents believe that the local board of education are best suited to decide school spending, school policy, and school closings.

Other notable education findings:

• 77% believe that taxes on Internet sales should be distributed to local schools in the same way as sales tax revenue from brick-and-mortar sales.
   
• Alabamians are almost evenly split on tax-funded vouchers to pay for private school tuition. However, 61% of Alabamians believe vouchers, if allowed, should be available to all students. 

Trust in State Government

Alabamians’ trust in state government improved slightly compared to 2019 but is still well below rates reported in the early 2000s.

• 77% support keeping the General Fund and Education Trust Fund separate, down from 80% in 2020 and 82% in 2019, but still well above the 69% reported in 2016.
   
• 63% believe state government officials do not care about their opinions, down from 66% last year. This compares to a low of 55% in 2008 and a high of 74% in 2010.
   
• 61% believe they have no say in state government, up from 55% last year, but well above the low of 43% in 2008.

Download the full report here.

Recent data from the U.S. Census Bureau indicate a growing number of people moving to Alabama prior to the Covid pandemic, which helped offset population loss due to a rising death rate and declining birth rate. The estimated number of net new domestic migrants was 13,115 in 2020, the largest inflow of the decade.

That estimate data, released earlier this month, is generated annually by the Bureau. Those estimates use the 2010 Census count as a base and attempt to capture population change by tracking births, deaths, and migration. The actual census count, conducted in 2020, showed even stronger growth than the estimates have indicated.

By April 1, 2020, Alabama’s statewide population had climbed above 5 million, according to the official 2020 Census enumeration. That total, 5,024,279, exceeds by more than 100,000 the Census Bureau’s estimate of Alabama’s population for July 1, 2020. Going forward, estimates will be re-calibrated using the Census count as a basis. On the basis of the count, Alabama kept all seven U.S. House Districts. According to the official Census count, Alabama added 244,543 residents since 2010.

According to the counts, Alabama’s population grew by 5% from 2010 to 2020. The Carolinas, Tennessee, and Georgia grew at about twice that rate, but Alabama grew faster than Mississippi, which lost population, and Louisiana and Arkansas, both of which grew at a rate of 3%. Florida’s population grew by 15%, adding a staggering 2.7 million new residents.

Components of Change

Though Census population estimates were off compared to the actual 2020 count, the estimates and components that drive the estimates provide insight into the drivers of population change in Alabama throughout this past decade. The newest estimates, released earlier this month, and the estimates from prior years present some patterns:

• Over the course of the decade, Alabama birth rates fell, and death rates climbed as the population aged.
• International migration provided growth in the early part of the decade.
• As international immigration faltered in the final years of the decade, domestic migration to Alabama surged.

Aging and Fertility

The most fundamental elements of population change are births and deaths. Census estimates are based on the number of birth and death certificates issued, with some short-term projection built-in since there is a two-year lag in getting the actual county-level data..

According to Census estimates, over the course of the decade, Alabama and the U.S. saw a decline in the number and rate of births and a rise in the number and rate of deaths. For the first time in 2020, the Census Bureau estimated that more people died in Alabama than were born.

If the estimates accurately captured the trend, deaths will likely exceed births in Alabama again in 2021. The math that drives these numbers has to do with the size of generations and the size of families. Members of the Baby Boom Generation, the extra-large cohort born between 1945 and 1965, have entered years of increased mortality, causing a rise in the death rate. Meanwhile, younger generations, with fewer members, have had children later in life and are having fewer children. In addition, the Covid-19 pandemic led to increased mortality, between March and July 1, 2020. The Census Bureau made a national-level adjustment for increased mortality from Covid-19 between March and July of 2020. That will factor into population change this year as well.

But the effects of these changes in fertility and mortality play out unevenly across the U.S. and across Alabama counties. Places that have attracted younger residents have a lower median age and a higher share of births. Places that are losing population tend to retain a higher share of older individuals and consequently see higher death rates. Birth rates are highest in the counties with urban centers, or universities, or cities’ suburbs. Death rates are highest in rural communities where the population is older. The social, ethnic, and racial composition of a community affects birth rates as well. Hispanic and Black families tend to have more children.

The visualization above allows you to explore how the differences play out in different states. The visualization below allows you to explore those differences among Alabama counties.

For example, Blount County has a pattern that reflects the state as a whole. However, using the selector on the right, toggle to Madison or Shelby County, and observe a different pattern: The number of deaths is still rising, but so is the number of births as young families move in, producing a positive rate of natural increase. Conecuh County, by contrast, shows a steep fall in births and a rise in deaths, producing a population decline through natural factors.

Migration

Beyond births and deaths, population change is driven by who is moving in and who is moving out, measures of migration. The Census Bureau develops estimates of movement within the United States (domestic migration) and between the U.S. and other counties (International migration). Over the past decade, general regional migration patterns emerged: Southern and Western states have gained through domestic migration. Northeastern states and California have gained through international migration. Rural counties in the interior South, Rust Belt, and the Plains States have seen moderate growth or some population decline. In the end, all states except Mississippi, Illinois, and West Virginia added population between 2010 and 2020, with gains concentrated in the cities and metropolitan, suburban counties, and retirement and recreational destinations.

According to the estimates, Alabama experienced two different periods of migration since 2010. In the first part of the decade, rising international in-migration offset weak growth and even population loss through domestic migration. Over a span of years, Alabama had more residents moving away than arriving from other states. But late in the decade, those factors flipped: a surge in domestic in-migration replaced faltering international immigration as the driver of population change.

Time will tell whether that surge in domestic migration will resume or even accelerate after the Covid pandemic. Early indications suggest it might. Unemployment in Alabama is down close to pre-pandemic levels, historic lows that should attract movers. There are indications that movements already underway are continuing and even accelerating. The Wall Street Journal analyzed data from permanent change of address forms filed with the U.S. Post Office. The results suggest that during the pandemic, there has been a movement out of dense urban areas in the Northeast towards the South and toward smaller metros and suburbs. The pandemic has accelerated retirements and migration to retirement destinations, adding fuel to the strong growth in Alabama’s Baldwin County, for instance.

As has been the case throughout the decade, estimates indicate that most of the growth in Alabama is occurring in a handful of counties, led by Baldwin and Madison, home to Huntsville. A second tier of growth magnets consists of Lee County, home of Auburn University; Shelby County, south of Birmingham; Limestone County, adjacent to Huntsville; and Tuscaloosa, home to the University of Alabama.

In the estimates for 2020, more counties in Huntsville’s orbit, including Colbert and Lauderdale in the Shoals and Morgan, are showing population gains. Meanwhile, in Southeast Alabama, counties around Dothan, including Houston and Coffee, appear to be picking up residents, as well.  

Jefferson, Montgomery, and Mobile counties all lost population in 2020, according to the estimates. All three counties have been net exporters of domestic migrants throughout the decade but have made up for the loss through natural increase and the arrival of residents from other countries. However, with the clampdown on immigration during the Trump years, made even more acute by the pandemic, all three counties saw sharper losses. That was particularly true in Jefferson, which had a rising number of deaths, a lower number of births, a depressed level of international immigration, and a higher net loss through domestic migration. Jefferson was estimated to have 3,197 fewer people living in the county in July 2020 than in July 2019, the biggest numeric loss among Alabama counties.

Dallas County continued to lose population with an estimated 1,084 fewer residents in 2020. According to the estimates, Dallas County had a population of 36,098 in 2020, a cumulative loss of 7,715 people since 2010. Dallas experienced the second-fastest rate of decline since 2010, 17.6%, among Alabama counties. Only Perry County, at 17.9%, had a greater rate loss. Perry’s population, estimated at 8,698 in 2020, is second lowest in Alabama, outranking only Greene County’s 7,990.

Prior to the pandemic, with unemployment at a historic low, Alabama was on the verge of a labor force shortage. Perhaps in response, the state appears to have begun drawing increased numbers of new residents. For Alabama to reach its economic potential, the state will need to continue to draw migrants. The existing population is aging, with the Baby Boom generation headed for retirement.

Drawing more workers into the state may help Alabama meet the goal established for the state workforce system: add 500,000 highly-skilled workers to its workforce by 2025. But reaching that goal will also require bringing more Alabamians back into the workforce, increasing labor force participation by increasing access to training and education.

Average ACT scores for Alabama public high school graduates declined with the graduating class of 2020, with students now scoring lower than they did five years ago. The results mirror a national decline that cuts across gender, economic and demographic groups of students.

The scores reported here would not have been affected by the Covid-19 pandemic; 2020’s seniors would have taken the tests and applied for college before the disruption.

Interactive charts in this report allow you to explore the results at the state level and by system and school, subject, and year.

Statewide, the average composite score declined – from 18.9 to 18.6 on a 36-point scale – and the average score in each of the four subject areas – English, reading, math, and science – declined as well.

The data on which PARCA’s analysis is based was obtained from the Alabama Department of Education. The results consider the students’ best individual score by subject if the student took the test multiple times. 

Nationally, composite and subject scores all ticked down. The national average composite was 20.6, down from 20.7 in 2019. Alabama’s average score should not be compared to the national average score. Only half the nation’s high school graduates take the ACT, and the students who do are disproportionately likely to be headed to college. In Alabama, all public high school students take the test. But for both Alabama and the nation, this was the third year in a row of decline. For both, 2017 was the high point over the past five years—Alabama at 19.1, the nation at 21.

A better score comparison is to other states where all public high school students take the ACT. Among those 15 states, average ACT scores range from 20.2 in Utah to 17.9 in Nevada. Alabama is tied with North Carolina for the No. 10 ranking among those 15 states.

For reference, the average ACT for students entering Alabama colleges ranges from a composite score of 18 at Alabama State and Alabama A&M to 28 at Auburn and the University of Alabama in Huntsville.

ACT also reports the percentage of students scoring at or above the college-ready benchmark in each subject. Only 16.3% of Alabama students scored at or above the benchmark in all four subjects in 2020. According to ACT, students scoring at or above the benchmark in a subject have a 50% chance of earning a B or higher or about a 75% chance of obtaining a C or higher in the corresponding introductory college course. Just under half of Alabama students, 48%, scored college-ready in English, but the ACT results indicated that only 21% were ready for success in a college-level math course.

ACT scores are also reported by demographic and economic subgroup. The data points to lingering disparities in scores between non-economically disadvantaged and economically disadvantaged students, between Asian, white, Black, and Hispanic students, and between males and females. But all groups saw scores decline in 2020.

The big count with major consequences for Alabama continues, and it looks like it will come down to a very tight margin.

The decennial census for 2020, the official count of people living in the United States, is expected to be released in February. But in the meantime, in December, the Census Bureau released its annual population estimates for the states. According to those estimates, as of July 1, 2020, Alabama’s population would be just high enough to keep its current seven representatives in the U.S. House. In that scenario, New York would lose a seat.

However, the estimates don’t count; the Census does. And it is the population as of April 1 that matters when calculating each state’s proportional representation in Congress.

How will the count and estimates differ, particularly considering that the count (and the estimates’ calculations) took place in the time of a pandemic, with all the disruptions, delays, and difficulties that accompanied it?

And not only that. This Census count took place in a fog of unprecedented controversy over who the Census is supposed to count and how it might be used to determine apportionment. Judging by the estimates, Alabama and New York are the two states closest to the line for losing or gaining a seat.

Alabama vs New York

Alabama added a net total of 13,567 residents between July 1, 2019, and July 1, 2020, bringing the state’s total population to 4,921,532, according to the estimates released in December.

Using those figures in an apportionment calculator created by the University of Michigan’s Institute for Social Research, Alabama would maintain its seventh Congressional seat, but only by a margin of 6,210 residents. Under that scenario, the state of New York, which is losing population, would lose 2 Congressional seats. According to the estimates, New York suffered a net loss of 126,355 residents between July 1, 2019, and July 1, 2020.

Where did the two states stand three months earlier, on April 1? And how closely will the count correspond to the estimates? The count is supposed to tally the population before a spike in deaths in New York caused by Covid-19 and before an exodus from the city due to the extreme outbreak there. If by April 1, Alabama had not achieved its needed net gain in population, or if New York’s population hadn’t seen its big drop, the tables might turn. New York might lose just one seat, and Alabama might lose one.

Looking Back Over the Decade

Looking back over a decade, the estimates had Alabama growing moderately throughout the decade, with stronger growth relative to other states in the most recent years. In percentage growth, Alabama’s growth ranked 26 among the 50 states in 2020.

In the middle part of the decade, Alabama’s annual growth rate lagged, ranging between 0.25% to 0.23%. Between 2018 and 2020, the annual growth rate bumped up, ranging between 0.28% and 0.33%.

Southeastern Comparison

According to the estimates, Alabama’s growth rate was 3% over the course of the decade, adding 141,414 residents. That’s a stronger rate of growth than Mississippi and Louisiana, tied with Kentucky, and just behind Arkansas. The gap with other Southern states is wider: Tennessee grew 9% over the course of the decade: Georgia, 11%; North Carolina, 11%; and South Carolina, 13%. In 2010, Alabama’s population exceeded South Carolina’s population by 150,000. By 2020, South Carolina’s population was estimated to have exceeded Alabama by almost 200,000.

In terms of numeric change, Mississippi was estimated to have lost a net total of 1,343 residents between 2010 and 2020, while Louisiana, Arkansas, Kentucky, and Alabama gained between 100 and 150,000. Meanwhile, South Carolina and Tennessee each added over 500,000 residents; Georgia and North Carolina over 1 million and Florida, almost 3 million.

The South Region, as the Census defines it, was the fastest-growing region in the U.S. Beyond the Southeastern states, the Census South Region includes growth hotspots Texas, Virginia, D.C., and Maryland. It also includes West Virginia, which lost population at a faster rate, 4%, than any other state. Illinois suffered the greatest net loss in population, 244,042, over the course of the decade.

Taking population into consideration, Jefferson County may have more jails than any other major county in the U.S., and the county’s mayors are investigating options for decreasing the liability, expense, and inefficiency that comes with operating so many separate facilities.

As part of ongoing regional cooperation efforts, the Jefferson County Mayors Association commissioned a new study jointly funded by the Association and the Community Foundation of Greater Birmingham. The resulting report, authored by the Public Affairs Research Association of Alabama, examines the capacity, occupancy, and age of Jefferson County’s 18 jails and identifies short-term and long-term options for decreasing the number of jails through cooperation between cities and the county.

The report finds that Jefferson County’s 18 municipal jails have a combined capacity that far exceeds the diminished number of municipal inmates typically held in them, a situation that predates the Coronavirus pandemic.

Several jail facilities including Bessemer, Birmingham, and Jefferson County’s downtown Birmingham jail, are aging and in need of serious repair or replacement.

Several factors are driving cities to reconsider operating jails. The cost of providing medical or mental health care to inmates can be high. Prisoner lawsuits and potential injuries to employees create a liability risk for cities. Municipal courts are now less likely to keep prisoners in jail, driving down occupancy and driving up per prisoner costs.

At both the national and state level, there is a trend toward shared jail facilities between cities and between cities and counties. Across the U.S., most jails are operated at the county level; 80 percent of jails are operated by county sheriffs. Most large cities in Alabama, including Huntsville, Mobile, Tuscaloosa, Auburn, Florence, and Decatur, now contract with the county sheriff for holding inmates. Several Jefferson County cities have closed their jails and contract with neighboring cities to hold prisoners. Other cities contract with Jefferson County Sheriff’s Office for both patrol and jail services.

The development of the report and discussions of the findings have launched conversations between mayors and county officials about the options, discussions that expected to continue in 2021.

As a long-term solution, Jefferson County Sheriff Mark Pettway has expressed interest in constructing and operating a metro jail capable of housing inmates from interested municipalities.

However, that proposal is years away from being considered. Jefferson County is still recovering from bankruptcy and will not be in a position to provide financial backing until 2024. Depending on the location, a new facility could necessitate the construction of both a new jail and courthouse. Such an expensive project would require a broad array of support from county commissioners, judges, law enforcement, the district attorney and the defense bar. And, for the project to provide substantial savings for the community at large, municipal participation, particularly from the city of Birmingham would be crucial.

In the shorter-term, cities can collaborate through contract. Police officials in Birmingham say they are willing to house prisoners from other jurisdictions, using the revenue to renovate operate the Birmingham jail. Police officials in Hueytown and Adamsville also have excess capacity and are have expressed willingness to provide jail space to neighboring jurisdictions. Trussville and Warrior already are hosting inmates from neighboring cities.

In the long-term, political leaders in Birmingham and other cities are interested in getting out of the jail business. But in order to do that, an agreement would need to be struck either with the sheriff and Jefferson County or with a coalition of cities coming together to form a regional authority to construct and operate a shared jail.

Read the full report here.

Before the Coronavirus pandemic, economic developers in Southeast Alabama recognized the advantages of pulling together as a region rather than each city and county trying to recruit new industry independently. Wanting to take cooperation to a new level, they asked PARCA to investigate how other regional economic development organizations across the state and across the nation work.

When the pandemic struck, cooperation shifted into overdrive, and more counties rallied to the cause.

“We really pulled together as a region. We shared information about challenges and opportunities in the face of the crisis, and we strengthened our relationships,” said Veronica Crock, president of the Ozark-Dale County Economic Development Corporation. “As we come out of the pandemic, we will all benefit from working together to retain our existing businesses in a time of such uncertainty, and we will benefit from working together as a team to bring new jobs and industry to our region.”

PARCA’s newly released report, Growing Cooperation in Southeast Alabama, describes the efforts of the 11 counties in the state’s Wiregrass region to turn their loose alliance into a sustainable regional organization. Together, the counties hope to broaden their appeal, extend their reach, and amplify their message, while decreasing duplication of effort and expense.

Grow Southeast Alabama consists of economic development entities in Houston, Henry, Butler, Crenshaw, Coffee, Covington, Dale, Barbour, Bullock, Geneva, and Pike counties. Most off the Interstate corridors that connect the state’s largest metros, the counties in the Southeast corner of Alabama sometimes feel overlooked and undervalued. While known for peanut farming and pine forests, the region’s strength as a hub of aerospace and defense contractors is under-appreciated. Dothan, the region’s center of gravity, is the state’s seventh-largest city and is ringed by smaller but still considerable population centers, Enterprise and Ozark. Dothan is growing and serves as a trade and healthcare hub for a wide radius of counties in Alabama, Georgia, and Florida.

Though the counties are united under the state’s regional workforce council system, they are spread and don’t have a long history of working together. While that’s not uncommon, some portions of the state have a head start on building economic coordination and regional identity across county lines. For instance, North Alabama counties have been working together for decades through the North Alabama Industrial Development Association and the Alabama Mountain Lakes Tourist Association. There is no set pattern for how the various roles in economic development and workforce development are organized and carried out at the regional level. Sometimes a regional chamber of commerce, like the Birmingham Business Alliance or the West Alabama Chamber of Commerce, may play an overarching role. And meanwhile, a locally-funded economic development organization engages in more targeted recruitment and support for existing industries.

The developers involved in Grow Southeast are sorting out which functions will be carried out by a regional organization and which will remain local. A central challenge will be sustainably financing the regional organization while preserving funding for the local economic development organizations and programs. Another will be setting up rules and expectations for working together for the region while, at times, competing on behalf of their local community.

“We greatly enjoyed working with the PARCA team and are grateful for the professional, thorough, and detailed report they provided,” Crock said. “Their research was not only instrumental in bringing to light the positive and negative aspects of working collaboratively in a competitive environment, but also confirmed our commitment to putting this competitiveness aside for the sake of the region.”

“We benefitted from the research into the framework of successful economic development in other regions in the United States,” she said. “We will certainly rely on this report as we position ourselves to move forward in our regional collaboration effort.”    

Alabama had the nation’s second-lowest tax collections per capita in 2018, the first time since the 1990s that any other state — in this case Tennessee — had lower state and local tax revenue per resident than Alabama.

Economic growth in Alabama, including a significant gain in income tax collections, helped Alabama nudge past Tennessee. It also helped that Tennessee is in the process of phasing out what remains of its small income tax and also reduced its sales tax rate on groceries. Tennessee’s more rapid population growth may also have had some effect on the per capita calculations.

Despite outpacing Tennessee, Alabama still trails far behind other Southeastern states in the amount of state and local taxes collected per resident, which partially explains why Alabama struggles to provide the same level of public services as other states.

PARCA’s 2020 edition of How Alabama Taxes Compare describes Alabama’s tax system and how it compares with tax systems in other states, based on the latest data available from the U.S. Census Bureau and the Bureau of Economic Analysis.

In addition to the PDF version of the report, the interactive charts below allow you to explore the data on your own. For better viewing, expand to the full-screen view by clicking on the button on the bottom right of the display below. Navigate through the story of Alabama taxes using the tabs at the top of the interactive display.

Read the full report here.

Tax revenue flowing into Alabama’s General Fund and Education Trust Fund held up surprisingly well in 2020 fiscal year in spite of the Coronavirus pandemic, thanks to an extremely strong state economy preceding the pandemic and a flood of federal aid that followed the pandemic’s arrival.

Remarkably, both Alabama’s General Fund and its ETF grew substantially in 2020, meeting and exceeding budget expectations. The ETF took in an additional $209 million in 2020 compared to 2019, a 3% increase. The General Fund received 7% or $147 million more in 2020 than it did in 2019.

How is that possible considering the spike in unemployment that began in March and still has not completely abated? What about the mandatory business closures in March and April and the restrictions still in place to protect against the spread of the Coronavirus?

Several factors combined to dampen the blow to tax revenues.   

1. A very strong economy going into the pandemic. Unemployment was at a historic low between October and March. That makes up the first half of the fiscal year. Prior to the pandemic, income tax receipts were up around 7% over the same period in 2019. Collections dropped drastically but then began to recover. Taking the whole year into consideration, income tax collections were up 2.4%.
2. Unprecedented levels of federal aid to businesses and individuals. into the economy. According to USASpending.gov, individuals and governments in Alabama have received commitments of $4.1 billion in grants, loans, director payments, or contracts related to Covid-19 relief.
3. Sustained consumer spending. With the Paycheck Protection Program preserving payrolls, and unemployed workers receiving $600 per week in a supplement to unemployment insurance, spending shifted but didn’t contract to the extent it could have. Sales taxes dropped, then recovered and have been up and down in the months since. At the same time though, tax on internet purchases surged, offsetting the erosion in sales tax. Unlike some other states, Alabama’s sales taxes apply to groceries and medicine and thus it tends to be more stable.
4. Thus far, a relatively quick recovery. By August, Alabama’s unemployment rate was 5.6%, down from 13.8% in April. That’s better than the national rate of 8.4%. September 2020 results on income and sales taxes trailed September 2019 results but not dramatically.

The overall stability of the budget masks some major shifts in some revenue sources. Some of the changes were pandemic related, some not. Here are some highlights.

General Fund Revenue Sources

The General Fund is supported by a myriad of tax sources. Traditionally, most of those sources saw little in growth from year to year, and the General Fund struggled to keep up with rising expenses in non-education expenses.

However, in recent years, some growth taxes have been added to the General Fund and support for general fund agencies has become more stable.

Big gainers

Simplified Sellers Use Tax: Revenue from this tax on online sales nearly doubled, up $69 million to $139 million. There are two reasons. First, this is a relatively new tax, and some new retailers joined the program for the first time. So, prior to the pandemic, the tax was already up significantly. When the pandemic set in, people shifted more spending to online purchases. While this tax, a portion of which also goes to the ETF, is expected to continue to grow, it is not expected to grow at nearly this rate in the future.

Transfers and Reversions: This boost of $44 million to the General Fund was inflated by a transfer from the Revenue Department. The department transferred $22 million in fees related to drivers who didn’t have Mandatory Auto Liability Insurance.

Insurance Premium Taxes: An additional $27 million flowed in from this tax on insurance premiums. This can be the result of more policies issued or a rise in the cost of insurance. This is the largest source of revenue in the General Fund contributing $412 million in 2020.

ABC Board: With bars closed and people stuck at home, Alabamians apparently flocked to liquor stores contributing an extra $17 million to the General Fund, an increase of 14%. Most of the jump occurred in April and May, which were record months for the ABC board.

Mortgage Record Tax: An additional $12 million flowed into the General Fund from this percentage tax charged on both refinances and home purchases. Revenues from this source accelerated in the June, July, August, and September as interest rates plunged and refinancing surged. For the year, the tax was up 38% over 2019.

Interest on the Alabama Trust Fund: A 10% jump came from the proceeds off the investments in the State’s savings account, the Alabama Trust Fund. The savings account is back at full strength now since Alabama repaid its previous borrowing from the fund that occurred during the Great Recession.  That and a strong stock market helped it generate $11 million more in 2020 than it did in 2019.

Big losers

Oil and Gas Production Tax: Thanks to the collapse in the oil market, this tax dropped by $13 million, down 41% from 2019.

Interest on State Deposits: The state earns interest on the cash it holds but because of dropping interest rates this source of revenue declined $11 million or 18%.

Lodging Tax: This tax on hotels and vacation rentals was down 15% for the year, collecting almost $9 million less for the General Fund. According to Finance officials, the drop would have been even more precipitous, but the Gulf Coast beaches saw a surge of business during the summer. The continued depression of convention and hotel traffic will continue to weigh on this revenue source, which is important for cities and for the state tourism agency. Hurricane Sally will also take a toll.

Court Costs: With the courts closed or severely limited in operation, the costs assessed to participants in the court system dropped by $5.4 million or 9%.

Education Trust Fund

The ETF supports K-12 schools and colleges and Universities. Flowing into it are the state’s two largest revenue sources: the income tax and the sales tax.

Big Gainers

Benefiting from growth taxes, the ETF has traditionally seen the strongest ups and downs: rapid growth in good times and jarring contractions when the economy falters. However, more recently the Legislature has spread some of the growth taxes and has imposed rules on how fast spending can grow. These restraints have thus far prevented mid-year budget cuts and have allowed the accumulation of reserve funds.

Income Tax: Income tax receipts to the Education Trust Fund totaled almost $4.7 billion in 2020, $109 million more than 2019, an increase of 2%. Pre-pandemic this tax was trending toward an astounding 7% increase.

Sales Taxes: The state received over $2 billion in sales tax revenue in 2020, $71 million more than last year was sent to the General Fund. In actuality, sales tax revenue increased 2.25%, solid growth, that didn’t fall off significantly during the pandemic. Smaller retailers did suffer during the closures, but grocery and hardware stores saw strong sales. With the enhancement unemployment compensation ended and continued uncertainty in the labor market, budget forecasters are keeping a close eye on this revenue source. However, so far, spending levels have held up. Revenues from September 2020 were 2.9% higher than in September 2019.

Simplified Sellers Use Tax: As in the General Fund, the contribution of this tax nearly doubled, bringing in an additional $23 million to the ETF. The proceeds of the tax are divided, with the ETF receiving 25% and the General Fund 75%.

Use Tax: A 14% increase in the Use Tax is not all because of growth. More than half the “increase” stems from the fact that the state had to pay a $12 million refund out of this tax source last year.

Biggest losers:

The Utility Tax: Down 3% or $13 million, this tax was lower because of lower energy use thanks to a cooler summer.

Mobile Telecom Tax: A dying tax, this tax applied to phone plans that sold talk time. For the most part, cellular plans now provide unlimited talk time at no charge but charge for data, which is not covered by this tax. Revenue continues to decline, down another $2 million or 18% lower than last year.

From the Year’s End Looking Forward

According to Finance Department officials, Alabama ended 2020 with $330 million balance in the ETF and a $315 million balance in the General Fund. That was result both of revenues that exceeded the budgeted amounts and expenditures that were lower than what was appropriated.

For the current fiscal year, FY 2021, Finance officials are relatively confident that revenues will more than cover the budgets. Lawmaker scaled back spending plans in light of the pandemic. As long as there aren’t additional unforeseen shocks to the economic system, the Alabama economy should generate the revenue needed to make the budgets as adopted this spring.

ETF

• ETF 2020 budgeted: 7,125,895,252
• ETF 2020 Receipts: 7,423,906,758.89
• ETF 2021 budgeted 7,217,422,487

General Fund

• General Fund 2020 budgeted: 2,192,379,876
• General Fund 2020 receipts: 2,299,176,800
• General Fund 2021 budgeted; 2,393,272,863

And if things were to falter, Alabama still has reserves to tap under extreme circumstances. Rainy Day Funds for both budgets have been repaid and additional budget stabilization funds are also available. As of now, none of those emergency measures have been employed.

RESERVE FUND BALANCES

• ETF Budget Stabilization Fund – $373,269,077
• ETF Rainy Day Account – $465,421,670
• GF Budget Stabilization Fund – $27,297,483
• GF Budget Rainy Day Account – $232,939,781