The 2016 Regular Session of the Alabama Legislature began on Tuesday, February 2. Once again, the anemic General Fund budget will likely be the dominant topic of conversation both in Montgomery and around the state. The House and Senate convened briefly in the afternoon on Tuesday. Both bodies then recessed and reconvened later that evening for a Joint Session to hear the Governor’s State of the State Address, which he delivered in the old House Chamber in the State Capitol Building.

Governor Bentley’s Proposals

Recalling Alabama's role in producing the Saturn V rocket that took man to the Moon, Governor Bentley set forth an ambitious agenda focusing in large part on improving the lives of rural Alabamians. Governor Bentley called his vision for the state "Alabama's Great State 2019 Plan." The plan addresses education, healthcare, access to technology, job growth, and economic opportunity. Major initiatives outlined by the Governor in his speech included the following:

Expansion of Alabama's Voluntary Pre-kindergarten Program. Governor Bentley re-emphasized that children who attend pre-kindergarten programs are more likely to read at their grade level, are more likely to have higher math scores, and are less likely to need special-education services. Citing the success of Alabama's existing pre-kindergarten program, Governor Bentley proposed increasing the program’s funding by $20 million, to a total of $68 million, in his budget. His goal is that by 2019 every child in Alabama will be able to attend a free voluntary pre-kindergarten program.

FUTURE Scholarship Plan. The Governor also outlined a new scholarship plan that will identify seventh graders in the state’s poorest counties and help them to achieve Associate Degrees. The plan would enable students to receive tutoring, attend summer help programs, and would provide assistance with financial planning for college. The Governor proposed that students who meet the program’s criteria and keep their grades up will have their two year college tuition paid for by the state. The program is modeled after the GEAR Up Program that UAB began last fall.

Rural Broadband Initiative. Governor Bentley outlined an ambitious plan to bring rural communities better access to broadband—high-speed, high capacity—technology. The program he outlined would appear to call for an initial government investment in infrastructure, with services then provided by the private sector. Part of the Governor's plan, which would use a combination of state and federal funds to pay for fiber optic cable to be run to schools and libraries across the state, was discussed in committee on Wednesday in the House.

Prison Construction and Reform. The Governor also set forth a plan to completely rework the state’s prison system. Under his plan, the state would issue $700–800 million in bonds in order to construct four new state-of-the-art prison facilities. This move would allow the Department of Corrections to shutter the old, crumbling buildings it currently uses. The Governor contends that the annual cost savings realized by this program will pay off the bonds in ten years and drastically reduce Alabama's prison overcrowding problem.

Rural Healthcare Expansion. Governor Bentley proposed increasing the number of doctors serving rural areas by increasing funding for medical scholarships and loan forgiveness for students who commit to serve for a period of time in underserved communities. These programs would apply not just to doctors but also to care extenders, such as physician assistants and Advanced Practice Registered Nurses. Governor Bentley also proposed a state tax credit of up to $5,000 for rural healthcare providers.

One item not mentioned by the Governor in his speech was Medicaid and the funding crisis facing that agency. Many believe that the Governor has been considering making a move to expand Medicaid, but his speech did not give any indication of such a plan. Further, the Governor did not mention the agency’s ongoing project to convert from a traditional fee-for-service program to one that uses provider-dominated managed care entities (known as “Regional Care Organizations” or “RCOs”) that will provide healthcare services to enrollees on a flat—or “capitated”—per person basis.

General Fund Budget

On Tuesday, the state’s Legislative Fiscal Office (“LFO”) provided members of the House and Senate with budget estimates for Fiscal Year 2016–17, which begins October 1, 2016. According to LFO, General Fund receipts are expected to decline by approximately $42 million. That figure represents approximately 2% of last year’s General Fund Budget, which pays for most non-educational state services, including Medicaid and prisons. Medicaid and prisons currently consume approximately 60% of the entire General Fund budget. Even though the decrease in revenue is just 2%, due to other factors including increased costs, Acting State Finance Director Bill Newton indicated that there is a projected 10% shortfall in the GF budget—or approximately $180 million. This figure is similar to the shortfall faced last year by the Legislature.

To balance the budget last year, the Legislature raised the cigarette tax slightly, transferred $80 million in use tax from the Education Budget to the General Fund, and cut spending by the General Fund by about 4.5%. Several agencies, including Medicaid and Corrections, were level-funded last year, while most received cuts of 5% or more.

On Wednesday, Governor Bentley proposed taking another $180 million from the Education Trust Fund to shore up the General Fund. Approximately $150 million of this transfer would come from the remainder of the use tax collections, and an additional $30 million would come from the transfer of revenue from the insurance premium tax. In Fiscal Year 2016–17, Governor Bentley proposes to offset the $180 million loss to the Education Trust Fund by withdrawing funds from the Budget Stabilization Fund, which was created in 2011 by the Rolling Reserve Act. Governor Bentley’s plan does not address a method for replacing the lost Education Fund revenue in years after Fiscal Year 2016–17, though some are betting that this may be where a possible lottery comes into play. It is generally believed that voters would favor a lottery that funded education over one earmarked for programs like Medicaid or prisons. By shifting education revenue to the General Fund on the front end, a lottery to replace that revenue may begin to make more sense both to lawmakers and the public.

Governor Bentley's budget calls for a $100 million increase in the appropriation to the Alabama Medicaid agency—funding the agency at $785 million. This figure is nearly $70 million less than the $842.5 million requested by Acting Medicaid Commissioner Stephanie Azar in budget hearings in late January. It is not clear whether funding at the Governor’s requested level would be sufficient for the state to proceed with the program’s transition to the RCO model. Currently, the start date for the RCOs is scheduled for October 1, 2016.

Governor Bentley’s budget seeks a $20 million increase for the Department of Corrections, which would fund the agency at approximately $420 million. The Governor’s plan to build four new state-of-the-art prisons would not be funded by the agency’s General Fund appropriation. Funds for the construction plan would come from bonds which are expected to be proposed by separate legislation.

Education Trust Fund Budget

LFO officials indicated that the education budget was expected to grow in Fiscal Year 2016–17 by approximately $380 million. That would allow for education spending of $6.3 billion for next year, roughly a 6% increase over this year, assuming Governor Bentley's proposed transfers do not occur.

Teacher Pay Raises

Given the anticipated increase in available funds for education, there continues to be a great deal of discussion of a pay raise for educators, including by the Governor himself in his State of the State Address. The Governor is seeking a 2% increase for teachers and support staff. The State Board of Education has asked for a 5% raise, which is the same amount sought by Democratic legislators.

Common Core Repeal

A bill that would require the State Board of Education to abandon its tough College and Career readiness standards (known generally as Common Core) was the subject of a lengthy committee meeting on Wednesday. The bill, sponsored by Senator Rusty Glover (R–Mobile), has fifteen Senate cosponsors. Many believe that in order to be brought to the floor, the bill must have the support of a minimum of twenty-one senators so that it would avoid a filibuster.

RAISE Act

Senate President Pro Tem Del Marsh has not yet introduced his teacher tenure bill, known as the Rewarding Advancement in Instruction and Student Excellence (RAISE) Act. Drafts of the bill have circulated for weeks, and, after receiving considerable input from stakeholders, the bill has changed significantly. Senator Marsh has clarified that the legislation will not link teachers’ pay to student achievement, and will not increase the number of tests that teachers must administer. The bill is expected to be introduced in the coming weeks.

The Week’s Events in the Legislature

Things essentially went as expected in the Legislature this week. Because it takes three legislative days for any bill to come to the floor of the House or Senate, there was little of significance that could occur during the first two days of the session.

The House quickly went to work on the House of Representatives Republican Caucus’s agenda items. In line for passage next week are several Caucus measures, including the Small Business Act (HB36) sponsored by Representative Kyle South (R–Fayette). The bill would provide a tax credit of $1500 to businesses with fewer than seventy-five employees when they add an employee with an annual salary of more than $40,000.

The House Committee on Constitution, Campaigns, and Elections favorably reported a bill sponsored by Representative Arnold Mooney (R–Helena) that would enshrine Alabama’s status as a Right to Work state in the Constitution. The House Committee on State Government favorably reported HB38, sponsored by Representative Mark Tuggle (R–Alexander City), which is designed to increase the independence of the state’s Taxpayer Advocate. These bills likely will be voted on by the full House this coming week. In general, the House is expected to work through its agenda items before turning its attention to anything else.

The Senate reported fewer bills to the floor this week than the House, which is fairly typical. The Senate Committee on Agriculture, Conservation and Forestry favorably reported a bill that was the center of some disagreement in the body last year. SB62, sponsored by Senator Tom Whatley (R–Auburn), would allow the hunting of deer and feral swine using bait. The bill caused a brief slowdown in the Senate last year, and it is unclear whether the disagreements regarding the measure have been settled or whether it might cause the Senate to bog down again this year.

Other measures of interest that have been introduced include a bill that would renew the historic tax credit, sponsored in the house by Representative Victor Gaston (R–Mobile). The bill passed the house last year by a vote of 98-0 before stalling in the Senate. The Senate version this year will be sponsored by Senator Jabo Waggoner (R–Vestavia Hills), chair of the powerful Rules Committee. Senator Waggoner intends to introduce the Senate version this coming week. The tax credit has been a successful program that has led to the renovation of numerous previously vacant buildings across the state. When it was first passed several years ago, the tax credit was the subject of an independent study which found that the credits provided a remarkable return on investment.

SB90, sponsored by Senator Arthur Orr (R–Decatur), Chair of the Finance & Taxation Education Committee, was introduced on the first day of the session. If enacted, the legislation would provide an income text credit for employers who have qualified apprentices. The tax credit would be $1000 for each apprentice. The total amount of available credits would be capped at $3 million (or 3,000 apprentices) for the first two years, and would increase to $5 million per year thereafter. Under the act, an apprentice would have to be at least 16 years of age and would have to enter into a written apprenticeship agreement with his or her program sponsor.

One measure not introduced in the first week, though still expected, is a bill to require mandatory unitary combined reporting for taxes. That bill is known to be favored by Department of Revenue Commissioner Julie Magee and some members of the Senate. Opponents argue that the bill would amount to a tax increase on multistate businesses and would significantly hinder the state’s economic development efforts.

The Alabama Legislature has met for two of its maximum of thirty days. The Alabama House of Representatives will convene at 1:00 PM Tuesday, Feb. 9, for the third legislative day of the Alabama Legislature’s 2016 Regular Session. The Alabama Senate will convene on the same day at 2:00 PM. Because it takes three legislative days for a bill to pass its chamber of origin, Tuesday will be the first day that bills can move from one chamber to the other.

For additional information contact Ted Hosp or Edward O'Neal.