Governor requests $9.9 billion for education

February 19, 2025 – Alabama Governor Kay Ivey (R) is requesting $9,909,416,539 in her proposed 2026 education trust fund budget (ETF). This is an increase of $560,910,370 from the 2025 budget of $9,348,506,169.

The current 2025 education budget is the largest in the entire history of the state of Alabama and the Governor's 2026 education budget is half a billion higher than the 2025 budget.

In the Governor's proposed budget 68.05% of the budget will be spent on K-12 education – virtually the same percentage as in the 2025 budget. Higher education receives 25.75% of the funds – an increase from 2025 where higher Ed got just 25.64% of the funds. Other education-related agencies would receive 6.2% of the funds. Their split is down from 6.3% in 2025 though their total appropriation is up in the significantly higher 2026 budget.

In Alabama (like the federal government) the fiscal year starts on October 1.

Alabama has an arcane budgeting system where most of the funds are earmarked and there are two not one budgets. Non-education related spending (other than for roads and bridges which is a third fund) is in the state general fund budget (SGF), which is expected to be around $3.7 billion in 2026.

This $9.9 billion does not include federal dollars that the schools receive or local funding. All counties and cities contribute something to education from property taxes collected and sometimes from sales taxes. The millage rates for education across the state can vary wildly from town to town and the dollars generated from those taxes can vary even more as more affluent cities typically have a larger tax base than poorer towns and cities.

The state education budget receives all of the personal income and corporate income taxes collected by the state of Alabama. That money is earmarked for education by the Alabama Constitution and cannot go to other uses such as prisons, state troopers, Medicaid, roads, or public health even when those agencies may have a greater need.

The ETF also receives income from sales taxes and a smaller amount from use taxes and online sales. Alabama is one of only a few states that collects sales taxes on foods. The Alabama Legislature has significantly lowered the tax rate charged on foodstuffs. It remains to be seen if the Legislature will lower it further given the anticipated record receipts into the education side of the state budget.

Currently Alabama does not collect state taxes on overtime pay. Employers across the state face a desperate labor shortage due to poor workforce participation and many workers who are only loosely in the workforce (part time and seasonal). To encourage the existing workforce to work harder the Legislature exempted overtime pay from state income taxes putting more money into worker's take home pay the harder they worked. Those incentives are scheduled to expire in 2026. The Legislature may renew them or go ahead and let them expire and use that money in the ETF.

Despite record high funding for education in the state budget, the fiscal situation for schools across the state is not all rosy. The Biden administration, in an attempt to grow the economy and boost employment, borrowed insane amounts of money to spend on infrastructure and the controversial American Rescue Plan Act (ARPA). Those one-time revenue from the ARPA spending spree is running out. Local school systems that spent their ARPA dollars on recurring expenses like payroll and maintenance are scrambling to either replace that revenue or make cuts. There is also the possibility that the Trump administration may eliminate the largely ineffective Department of Education. How and if that translates into reduced federal dollars for schools is an unknown that local school boards will have to consider as they prepare their own budgets. Ongoing cuts to the federal payroll could potentially adversely impact state income tax collections if those federal workers based in Alabama leave the workforce or are forced to take lower paying positions in the private sector.

Proration is unlikely in 2026 even if the economy takes a significant downturn because all the state's reserve funds are fully funded on the education side entering 2026. The ETF has not faced a proration in over a decade.

The Governor's proposed budget is a starting point in the budgeting process. The Legislature may give the governor more or less funds based on their own estimates of the overall strength of the economy and whether or not they prioritize tax cuts as they prepare their FY2026 ETF budget.

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