The 2018 Regular Session of the Alabama Legislature begins on Tuesday, January 9, and there are great hopes among the members that it will be a shorter and less contentious session than usual. This is an election year in Alabama, and by law the session begins approximately one month earlier than it has in the past two years. Every seat in the Legislature, as well as every constitutional office—from the Governor to the Commissioner of Agriculture & Industries—will be on the ballot in November. Due in part to the coming elections—with party primaries on June 5—legislative leadership has made known their preference for a shorter session with an expedited focus on the Legislature’s primary constitutional duty: the state’s budgets. While sessions often begin with high hopes for brevity and harmony, those goals have not often been met. The Session could theoretically last until April 23, if all 105 calendar days permitted by the Constitution are used. But many lawmakers are of the opinion that the session may conclude as soon as a month earlier, and that they may not even use all of the 30 meeting days that are allowed.

The Budgets

Education Trust Fund Budget

Whether or not lawmakers are able to get out of Montgomery early depends mostly on the status of the state’s two budgets, and their ability to come to an agreement on spending. In recent years, the Education Trust Fund budget (ETF) which funds all aspects of education, including Pre-K through 12th grade as well as the state’s two- and four-year colleges, has been fairly healthy. It looks as though that will be the case again this year. In a presentation on January 4th, state Finance Director Clinton Carter indicated that the ETF was expected to have growth this year of 4.6%. This increase would result in available resources of approximately $6.7 billion for education, if not for the Rolling Reserve Act, passed seven years ago. Under the Rolling Reserve Act, the Legislature is limited in what it may appropriate in order to prevent proration, which would result in the reduction of budgeted amounts mid-year in order to ensure the state does not spend in excess of its revenue. This year’s rolling reserve formula results in available revenue for appropriation for the ETF of about $6.63 billion. Even with the limitations, though, this amount is $220 million more than last year’s ETF budget. Director Carter indicated that the Governor planned to propose that $22 million of this additional money be used to increase access to the state’s pre-kindergarten program. Carter also noted that the State Department of Education had requested an increase of $150 million. More generally, though, it is not expected that the ETF budget will make any significant adjustment to the traditional split in revenues between K–12 and higher education, which should lessen the possibility of controversy and tension.

General Fund Budget

Unlike the ETF, the General Fund budget (GF) has for many years caused significant issues for the Legislature and the Governor. Funded primarily by non-growth revenue sources, the GF funds all non-education State agencies in Alabama, and has perennially fallen far short of the amounts sought by those departments. In particular, the members of the Legislature have struggled to find sufficient revenue for two agencies that have experienced extremely high increases in need: Medicaid and the Department of Corrections. Medicaid itself accounted for about 40% of the $1.85 billion appropriated from the GF last year. Prisons weighed in at about 22% of the total amount, meaning those two agencies consume more than 60% of the GF.

Based on recent reports and projections, however, even the GF looks relatively healthy this year, which is partly due to planning by the Legislature in 2017. Last year, because of uncertainty at the federal level—in particular with respect to the continued funding of the Children’s Health Insurance Program (CHIP)—the Legislature set aside $93 million in available funds as a reserve for the coming session. That set-aside, combined with unanticipated growth in GF revenue (especially in the collection of internet sales taxes, a portion of which is earmarked for the GF), means that the GF has about $211 million more than last year.

Medicaid Funding

Perhaps most surprising, the Medicaid Agency does not look to be a primary driver of budget discussions in 2018 for several reasons. First, according to Medicaid Commissioner Stephanie Azar, a number of factors, including a decrease in pharmaceutical costs, have resulted in that agency having a projected carry-forward of $53 million from last year. Commissioner Azar has also indicated that she expects additional savings this year, in part as a result of the state’s decision to abandon the planned move to managed care under Regional Care Organizations (RCOs). The agency had spent upwards of $25 million in recent years on private consultants as it prepared to make the switch to managed care. As a result of the carry-forward and the savings, Medicaid has only sought $757 million in FY2018-19 GF revenue. Moreover, according to Finance Director Carter, Governor Kay Ivey’s administration intends to propose fully funding that request.

One major issue that remains for Medicaid, though, is the continued uncertainty of federal funding for the CHIP program. Altogether, the program provides health insurance to about 150,000 children in Alabama, though about 65,000 of those children would be eligible for standard Medicaid if CHIP were to vanish. In recent years, as a result of a provision in the Affordable Care Act (also known as Obamacare), the federal government has assumed 100% of the cost of CHIP, which is known in Alabama as ALLKids. That cost is in the neighborhood of $280 million. Unfortunately, Congress missed a fall deadline to reauthorize full funding for the program, and has funded it since then (in Alabama and all other states) through the continuing resolution (CR) process. At the end of 2017, Congress provided additional funds for CHIP that were projected to keep the program afloat until the end of March. However, recent data indicates that the funding may run out sooner. The CR passed by Congress at the end of December expires January 19, but many expect another CR that would only provide funding until Presidents Day weekend in February. If a resolution is not reached, about 85,000 of the children covered by ALLKids would lose coverage, or Alabama would be forced to find the money to pay for their care. Those children who are eligible would revert to “regular” Medicaid, resulting in significantly increased costs to the State’s program. Moreover, failure to resolve the CHIP issue would create havoc in Alabama’s healthcare system as a whole, not to mention the problems that would be visited on the families of the children left without any healthcare coverage.

Department of Corrections

Unlike the Medicaid Agency, which—assuming a solution is found for funding CHIP—looks to be in good shape at least for this year, the Department of Corrections (DOC) has indicated that it is badly in need of additional funds. The state’s prisons remain the subject of ongoing litigation, and the Federal court overseeing that litigation has already found Alabama is liable for failure to provide adequate mental health care. That Court likely will enter an ordering imposing a remedy at some point soon. Any potential solution—including the construction of new prisons or meaningful increases to the number of prison staff—are likely to be costly and controversial. At the Corrections budget hearing on Thursday, DOC Commissioner Jeff Dunn stated that his Department was in need of a $30 supplemental appropriation for the current year (FY2017–18) as well as an increase for the next fiscal year of $50 million. The largest portion of this requested increase would go to cover an anticipated increased cost of $36 million for the medical and mental health care for inmates.

House Republican Caucus Agenda

As it does every year prior to the Regular Session, the House Republican Caucus, which holds a filibuster-proof majority in the lower chamber (as does the Senate Republican Caucus upstairs) released its agenda in mid-December. The agenda this year includes several measures that are focused on veterans, such as providing veterans and active duty military personnel free access to state parks. The agenda also includes a bill that would expand a tax credit provided to businesses that employ unemployed honorably discharged veterans. The Republicans have included at least two resolutions, which are non-binding expressions of the sense of the body, that tie directly into the agenda of President Donald Trump. One would express support for a border wall between the United States and Mexico. The other resolution would urge respect for the U.S. flag during the playing of the National Anthem, a direct response to some players in the NFL kneeling to protest alleged police brutality against African Americans. The Caucus also will work to implement the recommendations of the Governor’s Opioid Overdose and Addiction Council, which are expected shortly, and will prioritize rural development proposals, likely including the expansion of rural broadband service throughout the state.

Infrastructure

An issue that has received a great deal of attention, but that does not appear likely to be addressed this year, is that of infrastructure improvement and repair. It is generally agreed that Alabama’s roads and bridges are badly in need of a major upgrade, and that the current revenue generated by the Alabama’s gas tax—which has not been increased since 1992—is not sufficient. However, as noted above, 2018 is an election year, and it seems unlikely that members will seek to impose an additional tax on the public just prior to facing voters at the ballot box. That said, if the Federal government does manage to pass an infrastructure measure, it is likely to require states to share the costs, which could mean Alabama would need increased revenue to draw down any additional Federal dollars.

Conclusion

The Legislature will come into Session at 12:00 noon on Tuesday, January 9th for its first legislative day. As a practical matter, no real business can be undertaken, since each bill introduced will have to get its first reading that day. At 6:30 p.m. that evening, Governor Kay Ivey will deliver her State of the State address, laying out her priorities and vision for the coming year. It is expected that Wednesday will be a full day of Committee meetings in the House and Senate, and that bills reported from Committees will then receive their second reading on Thursday. No bill can be addressed and passed by its house of origin until the third legislative day, expected to be the next Tuesday, January 16th.

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's Governmental and Regulatory Affairs Practice, please click here.

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