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Alabama’s budget basics
According to the National Association of State Budget Officers (NASBO), Alabama’s total expenditures in fiscal year (FY) 2020 were $28.6 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, Alabama’s combined state and local direct general expenditures were $42.6 billion in FY 2018 (the most recent year census data were available), or $8,718 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,801.
Alabama’s largest spending areas per capita were public welfare ($1,752) and elementary and secondary education ($1,633). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.
Alabama’s combined state and local general revenues were $41.6 billion in FY 2018, or $8,508 per capita. National per capita general revenues were $10,071. Alabama uses all major state and local taxes. After federal transfers, Alabama’s largest sources of per capita revenue were charges ($2,186), such as state university tuition and highway tolls, and general sales taxes ($1,075).
Governor Kay Ivey, a Republican, was elected in 2018 with 59 percent of the vote. The next gubernatorial election is in 2022.
Republicans control both the House of Representatives (75 Republicans to 28 Democrats) and Senate (27 Republicans to 7 Democrats), with veto-proof majorities in both houses. Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in Alabama. The entire legislature is up for election in 2022 because both representatives and senators serve four-year terms.
Alabama’s budget institutions, rules, and constraints
Alabama uses an annual budget. The legislature must pass a balanced budget and is prohibited from carrying a deficit into the following year. There are no further tax and expenditure limits. Alabama does limit its total authorized debt (but not debt service).
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
Alabama’s recent fiscal debates
- In her 2019 State of the State address, Governor Kay Ivey proposed a 10-cent increase over three years in the state’s gas tax. Ivey pledged every penny of the tax increase would be “scrutinized and watched over” and all new revenue would fund transportation projects. During a special session, the legislature passed the Rebuild Alabama Act, which increases the state’s gas tax rate by 6 cents in September 2019, 2 cents in 2020, and 2 cents in 2021—ultimately bringing the state’s tax rate to 34 cents per gallon. In 2023 and every year thereafter, the tax rate will automatically increase with the National Highway Construction Cost Index. When fully phased in, the 10-cent tax increases will raise an estimated $320 million a year for road construction and maintenance. This was the state’s first gas tax increase since 1992.
- In 2018, Alabama made a modest change to its standard deductions. Before the changes, the standard deductions lost value between $20,500 and $30,000 in adjusted gross income but never completely phased out. For example, a married filer’s standard deduction dropped from $7,500 to $4,000 over the income range, while a single filer’s standard deduction fell from $4,700 to $2,000. Senate Bill 76 pushed the start of the phase out to $23,000 in adjusted gross income for most filers. This small change is projected to cost the state only $4 million annually. This was the state’s first tax cut since 2006.
- Alabama is one of only five states without a lottery. (Wyoming added a lottery in 2014 and Mississippi did so in 2018.) In 2016, then-governor Robert Bentley unsuccessfully pushed for a lottery to bridge a budget gap; a proposal in 2019 passed the Senate but failed in the House. If enacted, the state estimates a lottery would raise $166 million annually. Ultimately, the final decision on a lottery is with the state’s voters because the state’s constitution bans lotteries. Alabama voters rejected a ballot initiative in 1999 that would have changed their constitution and created a lottery.
Alabama’s current budget
Governor Ivey released her FY 2021 budget proposal in February 2020. The governor proposed $7.5 billion in Education Trust Fund spending (5.3 percent increase over the previous fiscal year) and $2.6 billion in general fund spending (14.5 percent increase). (Alabama and Utah are the only states with separate education and general fund budgets.) The governor’s budget plan included additional funds for higher teacher pay and school construction plus a pay raise for all non-education state employees.
The legislature passed an appropriations bill for both the Education Trust Fund and the general fund in May 2020. Both enacted budgets approved less spending than what the governor proposed: the enacted Education Trust Fund budget was $7.2 billion (and did not include the teacher pay raise), and the enacted general fund budget was $2.4 billion (and did not include the raise for state employees).
Governor Ivey released her proposed FY 2022 budget and gave her State of the State address in February 2021. The governor proposed $7.7 billion in Education Trust Fund spending and $2.5 billion in general fund spending. Both totals are above the previous fiscal year’s enacted spending, but the general fund proposal is below what the governor proposed before the pandemic. In her speech, Governor Ivey renewed her proposal for a 2 percent pay increase for teachers and other state employees.
For more on Alabama’s budget, see
Alabama’s economic trends
Alabama’s per capita income (per the Bureau of Economic Analysis) was $46,908 in 2020, ranking 46th among the states. It was below both the national average of $59,729 and the Southeast regional average of $51,796. The state’s median household income (five-year estimate) was $50,536 in 2019, ranking 45th among the states and below the national average of $62,843. Alabama’s poverty rate was 16.7 percent in 2019 (five-year estimate), above the national rate of 13.4 percent.
Although Alabama’s averages tell a story about the entire state, Alabama is composed of diverse localities. For example, the city of Prichard’s median household income was $29,009, and its poverty rate was 31.5 percent; the city of Mountain Brook’s median household income was $152,355, and its poverty rate was 3 percent.
Alabama’s unemployment rate historically tracks the national rate. The state’s rate was slightly above the national average following the Great Recession, but it has closely tracked the US rate for the past few years. (See how COVID-19 is affecting state employment and earnings data.)
Unemployment rates (like other economic indicators) often vary significantly by race and ethnicity. In Alabama, the average unemployment rate in 2020 was 4.9 percent for white residents, 9 percent for Black residents, and 8.3 percent for Latino residents.