Alabama’s economic outlook is changing, and budgets will get tighter.
That was the message from the state’s top financial officials, who shared a somewhat gloomy forecast with a joint committee of lawmakers on Wednesday in Montgomery.
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Senate Education Budget Chairman Arthur Orr said he sees cloudy skies looming, but can’t yet predict what’s coming.
“You don’t know exactly how dark the clouds will get, or how strong the rain may be, but we do see clouds on the horizon.”
Senate General Fund Budget Chairman Greg Albritton shared Orr’s view, using a different analogy.
“We’re coming to where the lane changes are, and the lanes are being closed, and the lights are shining,” he said.
General Fund woes
The General Fund budget – which pays for Medicaid, corrections and other state agencies – is where the most immediate pressure is.
Finance Director Bill Poole told lawmakers Gov. Kay Ivey’s proposed $3.69 billion General Fund budget calls for level funding of all state agencies when it comes to operations and maintenance. It reflects a $28.5 million drop from the current year’s $3.71 billion budget.
The tightening is due to an expected 4.2% decline in revenue for FY27, which begins Oct. 1, 2026. The drop isn’t in core revenue streams, Poole said, but instead comes from a sharp decline in interest earned on the state’s deposits.
Interest was not historically a large part of the general fund’s revenue, between $10 million and $60 million from 2016 to 2022. But since 2023 – when federal pandemic relief funds were distributed to states and sat waiting to be spent – interest earnings have brought in between $400 million and $560 million each year. The current year’s interest revenue is expected to be $374 million. The estimate for 2027 is $124 million, officials said.
In the future, interest is expected to move more toward historical levels and there is no replacement for those funds, Poole said.
“That is going to be the challenge as this correction that we forecast for some period of time occurs,” he said.
The only increases Ivey proposed for the General Fund are a 2% raise for state employees, expected to cost $16 million, and a $28 million increase to cover rising health insurance costs.
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EDITOR’S NOTE — This story was written by Trisha Powell Crain and originally published by the Alabama News Daily.
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