The Alabama Legislature came into session this past Tuesday, kicking off the 2018 Regular Session. Although most are predicting - or hoping for - a calm and controversy-free session, that does not mean that it won’t still be busy. By the end of the week, after just two official Legislative days, almost 375 bills had been introduced in the House and Senate; 202 in the House and 171 in the Senate.

Because of Alabama’s Constitutional requirement that every bill receive three readings prior to being passed, this coming Tuesday, January 16, is the first day that either body can actually debate and vote on legislation. Following committee meetings on Wednesday and a day of Second Readings on Thursday, there are already 19 Senate bills in a position to be voted on by the upper chamber and 24 House bills ready to be debated in that chamber. It is expected that the coming week will focus on the agenda items of the Republican Caucuses as well as non-controversial pieces of legislation.

The Governor’s State of the State Address

At 6:30 pm on the first day of the Session, Governor Kay Ivey delivered her first State of the State address in the historic Old House Chamber located in the State Capitol. Governor Ivey, who took office last spring upon the resignation of now-former Governor Robert Bentley, declared that “the state of the state is strong and our future is as bright as the sun over the Gulf.”

The Governor focused on several popular and non-controversial agenda items in her speech. These included a call for pay raises for state and education employees. Although not mentioned in the speech, it is believed based on budget presentations given by members of the Governor’s administration that she is hoping for a 3% raise for state employees and a 2% raise for education employees. Recall that most education employees received a 4% raise during the 2016 Session. A 1% increase in pay for state employees costs the State’s General Fund about $5 million. In contrast, a 1% raise for education employees costs the Education Trust Fund approximately $40 million.

Governor Ivey also focused on issues facing rural Alabama. In particular, she voiced support for tax incentives that would help recruit healthcare providers to rural areas of the state - bill which have been introduced in previous years. She also advocated for expansion of rural broadband access in Alabama, endorsing tax incentives that would encourage private entities to build out additional infrastructure.

Finally, the Governor noted that her administration was working to correct what she called a “generational problem” in Alabama: the inadequate mental health care provided to inmates in Alabama’s state corrections facilities. A federal court has already found the state liable for failure to provide adequate care to inmates, but Governor Ivey promised that she would present a workable solution to the problem.

The Senate Republican Caucus Agenda

The Alabama Senate Republican Caucus unveiled its 2018 Legislative Agenda on Thursday this week, with Senate President Del Marsh (R-Anniston) noting that the Caucus had opted this year for quality over quantity. Like Governor Ivey, the Caucus has endorsed the expansion of broadband access in rural Alabama as one of its priorities, and on Thursday Senator Clay Scofield (R-Guntersville) introduced a bill, Senate Bill 149, that would provide incentives for broadband infrastructure. The caucus also is supporting a measure that would make child sex trafficking a capital offense in Alabama.

Finally, and perhaps somewhat surprising to some, Senate Republicans are backing a bill, sponsored by Senator Marsh, that would provide a tax cut to many Alabama families. The bill would raise the income level at which Alabama income tax filers can claim the maximum standards deduction. Alabama has a sliding standard deduction, which is less for those with higher adjusted gross incomes (AGI). Currently, Alabamians with an AGI of $20,000 can claim the maximum $7,500 deduction. The Marsh bill would increase that threshold to $23,000, meaning more filers would be permitted to claim the higher deduction. Although the bill has not yet been analysed by the Legislative Fiscal Office, Senator Marsh indicated at the Cause press conference on Thursday that he expected the cost of the legislation to be around $4 to $6 million.

The Budgets

The budgets - or at least one of them - are nearly always a source of contention and debate during the session. This year, however, is thus far shaping up to be a very notable exception to that general rule. As noted previously, both the State General Fund and Education Trust Fund budgets look to be in significantly better shape than previous years - a real positive for Legislators in a year where every single seat in the House and Senate is up for election. With likely additional revenues to budget for the next fiscal year, many in the Legislature have expressed strong agreement with the Governor’s call for pay raises for government and educations employees.

General Fund

Finance Director Clinton Carter has indicated that the State’s General Fund will have about $211 million more than was budgeted in the previous fiscal year. In additional to this positive news, as mentioned in last week’s Legislative Preview, the Medicaid Agency - generally a major driver of General Fund needs and debate - appears to be in much better shape than usual.

Medicaid and CHIP

Medicaid comes into the current budget cycle with an anticipated carry forward of approximately $53 million in unsent funds. This greatly reduces the amount that the Agency otherwise would be seeking for Fiscal Year 2018-19. Governor Ivey’s budget thus seeks $757 million for Medicaid for the coming year.

That said, one of the issues that could significantly alter the rosy scenario in the General Fund would be the failure of the federal government to reach an agreement on the funding of the Children’s Health Insurance Program, or CHIP. Since the passage of the Affordable Care Act (a/k/a Obamacare), the federal government has paid 100% of the cost of the program, known in Alabama as ALLKids. That program covers about 150,000 children in the State, only 65,000 of whom would otherwise qualify for Medicaid. The cost of the program is close to $300 million annually.

If the program is not funded at all, Alabama would have to find matching funds for teh 65,000 children who would revert to Medicaid, and would have to make a decision whether to try to cover the other 85,000 somehow - or simply allow them to go without coverage. Another possibility is that the federal government determines that it will no longer take responsibility for 100% of the cost, and will revert to the pre-Obamacare matching requirements, likely meaning the State will have to come up with about $55 million in state funds to continue the coverage. For this reason, the Department of Public Health, which has responsibility for administration the ALLKids program, has sought an additional $53.6 million appropriation for the coming year.

Prisons

As Governor Ivey discussed in her State of the State, there is an acknowledged need for additional funds at the Department of Corrections. With a federal decision already entered finding the State does not provide adequate mental healthcare for inmates, the Administration and Legislative Leadership appear to be committed to providing funds that would allow for expanded staff at the DOC. Specifically, it seems likely that the $30 million supplemental appropriation request submitted by Commissioner Jeff Dunn for the current fiscal year will be authorized. There also is support for increasing the Department’s budget in the next fiscal year by the $50 million sought by the Commissioner - or at least some number close to that. One item that has not been raised this year - and is next expected to be introduced in this session - is the prison construction plans that occupied much of the Legislature’s time in past sessions. To the extent that there is any new prison construction in the State, that is expected to be undertaken by private entities, which then may be able to lease the space to the State.

Education Trust Fund

According to budget presentations this past week, the State’s ETF likely will have close to an additional $220 million available for appropriation over last year’s budget. Governor Ivey has expressed an interest in using about 10% of this amount, or $23 million, to expand Alabama’s pre-Kindergarten program. The program currently serves 17,000 children in close to 1000 classrooms around the State. The requested increase could add as many as 200 additional classrooms to the program.

The State Department of Education, which oversees Kindergarten through 12th grade, is seeking an additional $144 million over last year’s appropriation. Interim State Superintendent Ed Richardson would add nearly 200 middle school teachers to the rolls. It would also increase the amount teachers receive for classroom support to $1,365 - up from $891 last year.

The State Community College System also sought an increase of $5 million per year for three years to cover half of the total cost to standardize the software and accounting systems throughout the State. The System is also seeking an increase for workforce training and for increased healthcare costs.

Finally, higher education - the State’s four-year schools - is seeking an increased appropriation of $67.3 million. If accepted, that would put the overall higher education funding level at $1.67 billion, or about 25% of the projected $6.6 billion ETF budget.

Conclusion

The Legislature has used two of its available 30 meeting days for the 2018 Regular Session. The Session can last until April 23 - 105 calendar days from its opening session on January 9, but talk in Montgomery is still that they will adjourn early this year, perhaps as early as March 22 or 26. The House will come back into Session on Tuesday of next week, meeting at 1:00 pm. The Senate reconvenes on the same day, but at 2:00 pm. Next week is anticipated to be a two legislative day week, with Wednesday reserved for committee meetings.

If you have any questions or would like to reach out for more information, please contact Edward A. "Ted" Hosp or Edward A. O'Neal. To read more about Maynard Cooper's Governmental and Regulatory Affairs Practice, please click here.

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