The Economic Impact of Expanding Medicaid in Alabama

Expanding Medicaid coverage in Alabama could save the state almost $400 million per year over the next six years – more than enough to cover the cost of expansion – and have an average positive economic impact of $1.89 billion per year over that same time frame.

These findings are based on analysis conducted by the Public Affairs Research Council of Alabama and the Center for Economic Development and Business Research at Jacksonville State University.

The analysis was supported by the Daniel Foundation of Alabama, the Community Foundation of Northeast Alabama, the Community Foundation of Greater Birmingham, the Mike and Gillian Goodrich Foundation, and the Women’s Foundation of Alabama.

Medicaid is a federal healthcare program administered by the states. The federal government funds approximately 71% of Alabama’s current Medicaid costs. The state’s General Fund covers the balance.

Medicaid covers approximately 925,000 Alabamians – the majority are children. Low-income adults are only covered if they are caretakers of someone under 19, pregnant, over 65, legally blind, disabled, or in a nursing home. The income limits vary by program but can be very low. For example, the income threshold for a caretaker is 13% of the federal poverty level or $3,445 per year for a family of four.

Since 2014, states have been able to expand their Medicaid programs to cover adults earning up to 138% of the federal poverty level, $36,570 for a family of four. Initially, the federal government would cover 100% of the cost. From 2018 onward, the federal government covers 90%.

Alabama is one of 12 states which have chosen not to expand Medicaid. If Alabama chose to expand Medicaid, this would extend access to coverage to more than 280,000 people. The state would be responsible for 10% of the cost. Policymakers have expressed concern about the state’s ability to cover these increased costs – a reasonable concern given the troubled history of the state’s General Fund.

However, recent changes to federal law, including those in the various COVID relief packages, change the equation.

Our analysis finds that over the next six years, expanding Medicaid in Alabama could:

  • extend coverage to as many as 283,636 people.
  • create an average of 20,083 new jobs per year.
  • have an estimated positive economic impact of $11.36 billion.

Our analysis estimates covering that expanded population through Medicaid would cost an average of $225.4 million per year. However, expansion would result in the federal government paying $397.88 million in annual expenses currently paid by the state. As a result, the state could expand coverage, and at the same time, reduce or reinvest the amount paid to support healthcare for low-income Alabamians by $172 million annually.

Read the full report.


How Alabama Taxes Compare, 2021 Edition

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.


Alabama Tax Revenues Surge in 2021

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 7th 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

Alabama Public Opinion Survey 2021

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.


How Alabama Taxes Compare, 2020 Edition

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.


Alabama Tax Revenues Remarkably Resilient in 2020

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

Billions Coming to Alabama through the CARES Act

Alabama is in line to receive more than $2.47 billion from the CARES (Coronavirus Aid, Relief and Economic Security) Act signed into law by President Trump on March 27. A supplemental act passed Congress on April 23.

Below, PARCA explores key provisions of the Act, with attention to funds allocated for state and local governments and schools.

These projections do not include funds for hospitals, medical providers, airports, the value of business tax credits, or funds for expanded unemployment benefits and the Paycheck Protection Program.

The CARES Act provides $2.3 trillion in funding for individuals, schools, state and local governments, and businesses. The Act, running more than 800 pages, is complex and expansive. Many organizations and law firms have provided detailed explanations of the CARES Act and general COVID-19 responses, including:

State and Local Governments

The Act allocates $150 billion to support state and local governments’ responses to the pandemic.

State Government

Of the $150 billion, $8 billion is allocated for tribal governments, $2.5 billion for territories, and $500 million for Washington, D.C. The balance is allocated to states on a per capita basis based on population figures in the U.S. Census Bureau’s 2019 Population Estimates. Regardless of population, every state will receive at least $1.250 billion.

Based on these numbers, Alabama can expect $1.9 billion in funding. The chart below displays the total funding each state can expect.1 Alabama’s share, like all states, is reduced by the amount of funding directed to local governments.

CARES Act COVID Response Funding to State Governments

StateDistribution (billions)
Alabama$1.901
Alaska$1.250
Arizona$2.822
Arkansas$1.250
California$15.321
Colorado$2.233
Connecticut$1.382
Delaware$1.250
Florida$8.328
Georgia$4.117
Hawaii$1.250
Idaho$1.250
Illinois$4.914
Indiana$2.610
Iowa$1.250
Kansas$1.250
Kentucky$1.732
Louisiana$1.803
Maine$1.250
Maryland$2.344
Massachusetts$2.673
Michigan$3.873
Minnesota$2.187
Mississippi$1.250
Missouri$2.380
Montana$1.250
Nebraska$1.250
Nevada$1.250
New Hampshire$1.250
New Jersey$3.444
New Mexico$1.250
New York$7.543
North Carolina$4.067
North Dakota$1.250
Ohio$4.533
Oklahoma$1.534
Oregon$1.635
Pennsylvania$4.964
Puerto Rico$2.241
Rhode Island$1.250
South Carolina$1.996
South Dakota$1.250
Tennessee$2.648
Texas$11.243
Utah$1.250
Vermont$1.250
Virginia$3.310
Washington$2.953
West Virginia$1.250
Wisconsin$2.258
Wyoming$1.250
Subtotal$141.239
Territories$263
Tribal governments$8
District of Columbia$495
U.S. TOTAL$150,000,000,000

Local Governments

Local governments with populations of at least 500,000 also receive funding through the CARES Act. Local funds are deducted from their states’ shares. In Alabama, only Jefferson County meets the population threshold. Jefferson County should receive approximately $114.9 million of Alabama’s allocation, reducing the state government’s share to $1.786 billion.

Allowed Expenses

These are not insignificant amounts—$144.9 million represents 20% of Jefferson County’s FY20 budget; $1.786 billion represents 10.7% of the budgeted General Fund expenditures.

However, leaders do not have full discretion over how funds may be spent. The CARES Act limits expenditures to those that “are necessary expenditures incurred due to the public health emergency,” 2 are not included in current budgets, and are expensed between March 1, 2020 and December 30, 2020.

“Due to” implies direct and indirect expenses arising from governments’ responses to COVID-19. These include direct medical and public health expenses and economic support for affected employees and businesses. Some states allow governments to make loans and grants to businesses. A recent opinion by Alabama Attorney General Steve Marshall states that transactions are prohibited under the Alabama Constitution.3

The Treasury Department provides examples of allowed and disallowed expenditures.4

Allowed ExpendituresDisallowed Expenditures
Direct medical expensesDamages covered by insurance
COVID-19 testingPayroll or benefits expenses for employees whose work duties are not substantially dedicated to mitigating or responding to the COVID-19 public health emergency.
Emergency medical responseExpenses that have been or will be reimbursed under any federal program.
Public telemedicineReimbursement to donors for donated items or services.
Public health communicationsWorkforce bonuses other than hazard pay or overtime.
Personal Protective EquipmentSeverance pay
Cleaning and disinfecting public areasLegal settlements
Quarantine expenses
Payroll for public safety, public health, health care, human services, and similar employees responding to COVID-19
Food delivery to vulnerable populations
Facilitating distance learning for schools
Costs of sanitation and social distancing in prisons and county jails
Care for homeless populations
Unreimbursed unemployment insurance costs related to COVID-19

CARES Act funds cannot be used to offset declines in revenue, which are expected to be substantial.

Education Funding

The CARES Act provides $30.75 billion to education: $14.25 billion for higher education and $13.2 billion for elementary and secondary education.

Higher Education

Of the higher education funding, 90% is allocated directly to institutions of higher education. Allocations are based on the percentages of students receiving Pell grants. At least 50% of these funds must be used to provide emergency financial aid to students. The balance of the funds can be used for other purposes, including recouping student refunds for tuition, fees, room, and board, technology purchases for students, and additional aid to students.

Fifty-four institutions in Alabama should expect approximately $193.5 million in total funding with $96.8 million allocated to student aid.5

Public institutions are eligible for $167 million–$56.3 for two-year schools and $110.7 million for four-year schools.

Private institutions are eligible for $26.5 million.

SchoolTotal AllocationMinimum Allocation to  be Awarded for  Emergency Financial Aid  Grants to Students
Alabama Agricultural & Mechanical University$9,121,201$4,560,601
Alabama College Of Osteopathic Medicine$186,805$93,403
Alabama State University$6,284,463$3,142,232
Athens State University$845,033$422,517
Auburn University$15,769,779$7,884,890
Auburn University Montgomery$5,075,473$2,537,737
Bevill State Community College$2,642,839$1,321,420
Birmingham-Southern College$1,069,855$534,928
Bishop State Community College$2,871,392$1,435,696
Calhoun Community College$4,392,248$2,196,124
Central Alabama Community College$1,222,052$611,026
Chattahoochee Valley Community College$1,645,716$822,858
Coastal Alabama Community College$4,437,762$2,218,881
Drake State Community And Technical College$761,763$380,882
Faulkner University$2,422,978$1,211,489
Enterprise State Community College$1,240,737$620,369
Gadsden State Community College$3,756,166$1,878,083
Wallace Community College$3,655,757$1,827,879
Wallace State Community College$4,064,802$2,032,401
Wallace State Community College - Selma$1,298,325$649,163
Heritage Christian University$25,804$12,902
Herzing University$4,328,833$2,164,417
Huntingdon College$1,225,333$612,667
Ingram State Technical College$448,264$224,132
Jefferson State Community College$3,729,878$1,864,939
Jacksonville State University$6,050,640$3,025,320
Lawson State Community College$3,522,022$1,761,011
Judson College$369,009$184,505
Lurleen B. Wallace Community College$1,546,138$773,069
Northeast Alabama Community College$1,901,781$950,891
Marion Military Institute$514,237$257,119
Miles College$3,257,934$1,628,967
Northwest - Shoals Community College$2,069,470$1,034,735
Reid State Technical College$435,328$217,664
Oakwood University$1,573,749$786,875
Shelton State Community College$2,965,439$1,482,720
Samford University$2,381,353$1,190,677
Snead State Community College$1,239,198$619,599
Southern Union State Community College$3,196,100$1,598,050
Trenholm State Community College$1,892,834$946,417
Spring Hill College$1,372,682$686,341
Stillman College$1,206,208$603,104
Talladega College$2,069,544$1,034,772
Troy University$8,544,084$4,272,042
Tuskegee University$3,756,522$1,878,261
University Of Alabama$20,722,538$10,361,269
University Of Alabama At Birmingham$12,131,256$6,065,628
University Of Alabama In Huntsville$5,679,758$2,839,879
University Of Mobile$1,257,422$628,711
University Of Montevallo$2,560,001$1,280,001
University Of North Alabama$5,002,648$2,501,324
University Of South Alabama$11,408,535$5,704,268
University Of West Alabama$2,384,585$1,192,293

Elementary and Secondary Education

The $13.2 billion for elementary and secondary education is divided among the states based on the same formulas that allocate Title I funds — federal dollars that support low-income students.

The Alabama State Department of Education (ALSDE) is set to receive $216.9 million, 10% of the 2020 ETF budget. At least 90% ($195.3) is restricted to local systems. ALSDE can reserve up to 10% ($21.7 million) for departmental costs, including $1.084 million for administrative expenses. 6

ALSDE will disperse the $195.3 million to local school systems based on the systems’ shares of Title I funding in fiscal year 2020.

PARCA’s analysis of these numbers suggests the median dollar figure for Alabama schools in $780,000. Half of the systems would get more than this amount and half would get less. On the extreme ends, systems would get considerably more or less. PARCA estimates the largest allocation at $23.3 million and the smallest allocation at $84,000.

Final allocation numbers are expected from ALSDE soon.

Allowed Expenses

School systems appear to have more discretion than state and local governments. Authorizing legislation says systems can essentially spend these funds to:  

  • coordinate COVID-19 preparedness and response efforts
  • address the needs of special populations such as low-income students, students with disabilities, English learners, racial and ethnic minorities, and students experiencing homelessness
  • train employees on sanitation and minimizing the spread of infectious diseases
  • purchase cleaning and sanitation supplies
  • plan and coordinate during long-term closures
  • provide meals
  • provide technology
  • provide mental health services  
  • sponsor summer learning, including classroom instruction or online learning
  • sponsor after-school programs
  • address the needs of the individual schools

Maintenance of Effort

States cannot use these funds to supplant traditional education funding. The Act requires that in both 2020 and 2021, states budget and fund education at amounts equal to or greater than the average spent between 2017 and 2019. However, the U.S. Secretary of Education can waive this requirement.

Childcare

The Act allocates $3.5 billion for childcare. The funds can be used to make payments to childcare providers dealing with declining enrollment or closure, provide childcare assistance to healthcare, emergency response, and sanitation workers, or for other needs.7

Exact allocations are not final, but based on guidance provided by the Department of Health and Human Services, Alabama could receive approximately $65.4 million. These funds are administered by the Child Care Services Division of the Alabama Department of Human Resources.

Public Transportation

The Act allocates $25 billion for transit agencies “to help to prevent, prepare for, and respond to the COVID-19 pandemic.”8

Alabama should expect to receive $59 million [efn_]https://cms7.fta.dot.gov/sites/fta.dot.gov/files/docs/funding/apportionments/148421/table-3-cares-act-apportionment-section-5311-appalachian-allocations.xlsx[/efn_note] to support COVID-19 responses in rural and inter-city transportation programs. This is approximately 300% of the total annual federal appropriation for rural and inter-city transportation in Alabama.

Additionally, local governments could receive almost $68.75 million to support COVID-19 responses in local mass transit programs.9

Anniston-Oxford$3,582,050
Auburn-Opelika$3,156,205
Birmingham-Hoover$21,450,875
Daphne-Fairhope$1,992,086
Decatur$2,678,574
Dothan$2,659,981
Florence$2,946,627
Gadsden$2,241,726
Huntsville$6,830,268
Mobile$8,833,150
Montgomery$7,610,574
Tuscaloosa$5,766,327

Community Development Block Grants

The Act allocates $5 billion for Community Development Block Grants (CDBG) and related programs managed by the U.S. Department of Housing and Urban Development. Jurisdictions have broad leeway in how to spend these funds, and the Act does not appear to specify that funds must be used in COVID-19 response. A HUD press release lists possible uses.

To date, the Department of Housing and Urban Development has announced $39.9 million in additional funds for Alabama through traditional Community Development Block Grants (CDBG) and programs for people who are homeless and for people with HIV/AIDS.[efn_fn]10

CityCDBGHome Investment PartnershipEmergency SolutionsHousing Opportunities for Persons With AIDSHousing Trust FundTotal
Anniston$554,171$404,132$0$0$0$958,303
Auburn$645,889$0$0$0$0$645,889
Bessemer$590,538$0$0$0$0$590,538
Birmingham$5,969,972$1,402,448$515,798$1,444,186$0$9,332,404
Decatur$483,015$0$0$0$0$483,015
Dothan$502,786$0$0$0$0$502,786
Florence$327,756$0$0$0$0$327,756
Gadsden$1,057,180$0$0$0$0$1,057,180
Huntsville$1,408,479$714,011$0$0$0$2,122,490
Mobile$2,415,548$833,588$208,702$0$0$3,457,838
Montgomery$1,690,472$912,271$146,352$0$0$2,749,095
Opelika$271,786$0$0$0$0$271,786
Tuscaloosa$823,209$456,439$0$0$0$1,279,648
Jefferson County$2,414,493$1,022,067$204,775$0$0$3,641,335
Mobile County$1,622,148$580,826$0$0$0$2,202,974
Non-metropolitan areas$23,848,737$11,381,870$2,719,098$2,514,357$3,123,706$43,587,768


Alabama Public Opinion Survey 2020

PARCA’s 2020 Public Opinion Survey, completed before the onset of the COVID-19 in the U.S., hints at the challenges state policymakers will face in responding to the pandemic.  

The survey finds, once again, aversion to certain taxes, support for public education, and mistrust in state government. At the same time, the survey finds a lack of consensus in how the state should respond to other critical issues facing the state.

Taxes

Alabamians have a strong aversion to taxes but may not fully understand their tax burden.

  • 57% believe they pay the same or more taxes than people like themselves in other states.
     
  • 51% say upper-income earners pay too little. The percent of respondents who believe upper-income earners pay too little has dropped in each of the last four years.
     
  • 49% say lower-income earners pay too much, up from 40% in 2016.
     
  • 48% say they pay the right amount of taxes, compared to 45% in 2010.

Public Education

Alabamians believe education is the most important service state government provides.

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

Alabamians value local control of schools.

  • 87% say the local board (45%) or state board of education (42%) should set school calendars, while only 3% say the legislature should decide.
     
  • 59% say local boards of education are best suited to decide how education dollars are spent.

Other notable education findings:

  • 76.5% 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.
     
  • 66% say any potential lottery revenue should be restricted to the Education Trust Fund.
     
  • 59% oppose using state tax credits to fund private school scholarships.
     
  • 49% say charter schools provided expanded opportunities rather than diverting funds from other schools, but almost 25% don’t know or have no opinion.
     
  • 41% say new education funding should be prioritized to increasing teacher compensation.

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.

  • 80% support keeping the General Fund and Education Trust Fund separate, down from 82%, but still well above the 69% reported in 2016.
     
  • 66% believe state government officials do not care about their opinions, down from 69% last year. This compares to a low of 55% in 2008 and a high of 74% in 2010.
     
  • 55% believe they have no say in state government, down from 57% last year, but well above the low of 43% in 2008.

Policy Preferences

Alabamians express a wide variety of opinions on pressing policy issues. We asked respondents to choose their preferred policy response or policy action to such issues as prison overcrowding, taxes, education, and healthcare. Each of these six questions offered multiple responses from a range of perspectives. No single policy proposal garnered a majority response. The closest was a proposal to expand mental health services for the homeless, identified as the most important response to homelessness by 45% of respondents.

Download the full report here.


Education Trust Fund Grows but School Spending Still Behind

Receipts to Alabama’s Education Trust Fund grew by 4.2 percent in FY2015, according to year-end revenue reports, allowing the state to finish repaying the education’s borrowing from the state savings account and to begin socking away additional savings for the next downturn.

It should be noted, however, that for the current budget year, state support for local K-12 schools is still lower than it was in 2008.

The total received by the ETF, the account that pays for K-12 and higher education, climbed from $5.8 billion to $6 billion. Proceeds from the state sales tax were up 3.25 percent, and individual income tax totals increased 4 percent. Gross corporate income taxes collections were up substantially, but a big chunk of that was due to a one-time infusion of $90 million that came as the result of an audit. Leaving out that $90 million, gross collections were up 1.75 percent. At the same time, though, refunds to companies paying the corporate income tax were down. As a bottom line, when the one-time payment is factored out and the refunds factored in, receipts from the corporate income tax were up 6.3 percent. The chart below summarizes the receipts to the Education Trust Fund.

The growth allowed the state to repay prior obligations and to begin reserving money to offset future downturns. From the sales tax, $24 million was spent to restore the financing of the state’s pre-paid tuition program (PACT). Another $58 million was used to repay the Alabama Trust Fund for withdrawals from the Rainy Day Fund made during the Great Recession. The Rainy Day Fund is a pool of money within the oil and gas trust fund that can be drawn on to prevent mid-year budget cuts, known as proration.

In addition, the 2011 Rolling Reserve Act places a cap on the amount ETF spending can increase each year. Those limitations on the 2015 budget resulted in the ETF ending the year with a positive balance of $140 million. Of that, $118 million will be held in what’s known as the Budget Stabilization Fund. In the event of an economic downturn, that will provide an additional cushion against proration. The other $22 million of that 2015 balance will be deposited in an Advancement and Technology Fund, which the Legislature can tap to pay for repairs or deferred maintenance of facilities, for classroom instructional support, for insuring facilities, for transportation, or for the acquisition and/or purchase of education technology and equipment.

The 2016 budget makes $4 billion in state funds available to support local schools. By comparison, the 2008 budget allocated $4.3 billion. Allocations for technology, textbooks, professional development, transportation, classroom supplies, and student materials are still well below 2008 levels.