Budget surplus may lead to tax rebates, conversation around school funding

The state Legislature’s education budget chairs said last week they would wait and see what a proposed tax rebate would look like in the next session.

But even with a rebate, Rep. Danny Garrett, R-Trussville, and Sen. Arthur Orr, R-Decatur said in separate interviews that they expected money to be available for increased school spending. 

Orr said the logistics are in the air but added that he expects a ballpark of $500 million.

“I think there may be others that say $650 million or $700 million,” he said. “There may be others that say 400, 450. I think 500 is a ballpark number of where we will wind up.”

The scope of the rebate will affect the look of the 2023-24 education budget, which legislators will start working on when the 2023 regular session of the Legislature begins next month. The state constitution requires almost every penny of Alabama’s income tax to pay teacher salaries, and income tax refunds could reduce available funding for schools.

Garrett, who chairs the House Ways and Means Education Committee, said that federal COVID relief money, including $1.9 billion from the 2020 CARES Act, gave the state a “tremendous surplus.” The legislature was very conservative with their spending at the time, which led to the surplus, he said.

Now, he said, they are trying to determine what the tax policy would look like going forward.

Garrett said that some people proposed a one-time tax rebate while others are pushing for tax cuts. He said that other people are pushing for neither and are hoping that the windfall would be invested into other things.

Orr, the chair of the Senate Finance and Taxation Education Committee, said the tax rebate might go to all filers, only those who paid taxes into the system, or, potentially, all Alabamians.

Garrett said that he doesn’t know of any upper limit yet or who the rebate would affect. He and Orr both agreed that they would want the rebate, if it happens, to be a substantial amount of money for those who received it.

Not all of the surplus education budget will be delegated to the tax rebates, Orr said. Some of the money will be sent to a dedicated savings plan for education.

He also said that some of the funds will be earmarked for capital expenditures.

“But the schools when they finally are getting their projects, construction projects going, are finding that the costs have gone up 30, 40, 50%,” Orr said. “And, so, they’re finding that the plans that they had for a new wing on an elementary school or a new roof or whatever, are considerably higher than they originally factored.”

Currently, Alabama funds schools on a much lower per pupil level than average. Alabama spent $10,116 per student in the 2020 fiscal year per the United States Census. That same year, the national average was $13,494. Alabama was behind other states in the South region, as well, which funded schools with $10,954 per pupil on average.

Asked if the surplus might be used to bring school funding closer to the national average, Garrett said that the legislators had voted to direct more funding to underperforming or disadvantaged areas of the state during the last session. He said that it might be time to discuss how education is funded, in general, in Alabama.

“It’s not an easy topic,” he said.

Garrett said that the legislators might begin that discussion, but he doesn’t know if it’s something they’ll take up this session.