Alabama’s budget basics
According to the National Association of State Budget Officers (NASBO), Alabama’s total expenditures in fiscal year (FY) 2019 were $26.7 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 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 $41.5 billion in FY 2017 (the most recent year census data were available), or $8,516 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 $9,446.
Alabama’s largest spending areas per capita were public welfare ($1,740) and elementary and secondary education ($1,611). 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 $40.0 billion in FY 2017, or $8,206 per capita. National per capita general revenues were $9,592. Alabama uses all major state and local taxes. After federal transfers, Alabama’s largest sources of per capita revenue were charges ($2,130), such as state university tuition and highway tolls, and general sales taxes ($1,039).
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 (77 Republicans to 28 Democrats) and Senate (27 Republicans to 8 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’s proposed FY 2020 budget included $28 million to expand the state’s pre-kindergarten program plus additional money for hiring more corrections officers and state troopers.
The legislature passed an appropriations bill for the Education Trust Fund in March 2019 and for the General Fund in April 2019. (Alabama and Utah are the only states with separate education and general fund budgets.) Both budgets generally aligned with the governor’s proposals.
For more on Alabama’s budget, see
Alabama’s economic trends
Alabama’s per capita income (per the Bureau of Economic Analysis) was $43,880 in 2019, ranking 48th among the states. It was below both the national average of $56,663 and the Southeast regional average of $49,145. The state’s median household income (five-year estimate) was $48,486 in 2018, ranking 44th among the states and below the national average of $60,293. Alabama’s poverty rate was 17.5 percent in 2018 (five-year estimate), above the national rate of 14.1 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 $26,291, and its poverty rate was 35.2 percent; the city of Mountain Brook’s median household income was $143,221, and its poverty rate was 3.7 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.)
The major industries that contributed the most to Alabama’s gross domestic product (GDP) in 2019 were manufacturing, finance, government, professional services, and social services (i.e. health and education). Manufacturing and government contributed more to Alabama’s GDP than they did to the nation’s and region’s GDP, while finance, professional services, and social services were less important to Alabama than they were to the nation and region in 2019.