The chair of the Alabama Senate education budget committee said today he expects a proposal for rebates to Alabama taxpayers totaling about $500 million later this year.

Sen. Arthur Orr, a Republican from Decatur, said decisions remain about specifics in the legislation. Orr said the rebates are possible because the state has a surplus of $2.3 billion to $2.7 billion in the Education Trust Fund.

“We believe, after we take care of state government, at least on the education side, we have enough to send back to the people of Alabama, who sent it to us in the first place,” Orr said. “In addition to that, with the economy and with inflation, they’re struggling. So, this would be a small matter of relief to them.”

Orr said he also expects proposals for tax cuts, although on a smaller scale than the rebate proposal. He said lawmakers should hold much of the extra revenue in savings.

Orr talked to reporters about the proposed rebates as the Alabama Legislature wrapped up its organizational session in Montgomery. Lawmakers elected leaders and passed rules during the two-day session, held at the beginning of each four-year term. They won’t consider state budgets and other legislation, including the possible tax rebates, until they return to the State House for the regular session in March.

The surplus is available because the amount of tax dollars the state took in for education far exceeded the amount budgeted for education during the fiscal year that ended Sept. 30. The Education Trust Fund received $10.4 billion, while the budget called for spending $7.7 billion.

The chair of the House education budget committee, Rep. Danny Garrett, R-Trussville, has also said he expects tax rebates in the range of $400 million to $500 million. Garrett talked about the surplus in December after the revenue numbers were presented at the Alabama Association of School Boards meeting Friday.

Read more: Alabama lawmakers must allocate an extra $2.7 billion in unexpected education funding

Orr and Garrett have cautioned that the unusual surge in tax revenue is temporary. It is partly the result of billions in federal dollars flowing to Alabama households, businesses, and government from the COVID-19 relief packages passed by Congress. Orr said lawmakers need to plan accordingly and put some of the money in savings accounts or rainy day accounts to be available for leaner times.

“I think everyone realizes this is a one-time phenomenon, having this surplus like this,” Orr said. “And we need to put money back because the economy is getting tighter and tighter.”

Senate Minority Leader Bobby Singleton, D-Greensboro, asked about Orr’s comments on $500 million in tax rebates, said he believed there could be better ways to use the surplus. Singleton said if the state can afford rebates of that amount, it could afford to expand Medicaid.

“I think that is something more substantial than doing a tax rebate,” Singleton said. “I think the citizens would get more out of an expansion of Medicaid than they would a one-time check to be able to spend.“

Democratic lawmakers in Alabama have called for expanding Medicaid for about a decade. Alabama’s Republican-controlled Legislature and the state’s Republican governors have not supported expansion.

Alabama is one of 11 states that has not expanded Medicaid as allowed under the Affordable Care Act, the signature legislation of President Obama, according to the Kaiser Family Foundation.

Singleton said he hopes lawmakers will invest some of the surplus revenues in making improvements in communities, similar to some of the ways they allocated some of the American Rescue Plan Act (ARPA) funds last year.

“I like to think that we’re going to do some significant investments in communities and making sure that we’re doing those things that can be longstanding like what we did with part of the ARPA funds,” Singleton said. “Making sure that we’ve got water and sewer out in some of these rural communities.”

Singleton said housing assistance for low-income people is another area of need.

“We need to deal with health care,” Singleton said. “We need to put more telemedicine portals out there across the state if we’re not going to expand Medicaid. Give people access to health care. So there’s a lot of different categories that we can use this money and make it investments and not just spending.

Orr said he expects to work with the Gov. Kay Ivey administration and legislators in the House and Senate on how to allocate the unexpected revenue.

“It’s been said that when you have a lot of money you have a lot of problems,” Orr said. “There’s certainly a lot of people wanting to spend that money. But we’re working on a plan, both with Governor Ivey and of course with the House of Representatives. I think we’ll see rebates in a big number. And I think we’ll also see some tax cuts, as well, to go along with that.”

Orr said possible tax cuts could include an expansion of the tax exemption the Legislature passed last year for people 65 and older. That bill exempted from up to $6,000 in taxable retirement income from state income tax. The exemption applied to withdrawals from 401(k)-type accounts and individual retirement accounts, known as defined contribution retirement plans. Orr said the exemption could possibly be expanded to $10,000.

As for the rebates, Orr said he expected rebate checks could go out sometime around the third quarter of this year. He estimated rebates could be in the range of $200 to $250 for individual state income tax filers, and double that for households filing as couples.

Orr said decisions remain about the legislation that would affect the rebate amounts.

“What is your universe of recipients of that,” Orr said. “Is it all (state income tax) filers? Is it people that just paid income tax returns? Do we add dependents to that? There’s just a lot of little variables there.”