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Friday, April 8th, 2016
LEGISLATIVE UPDATE WEEK 9

The Alabama Legislature returned from its week away from Montgomery on Tuesday, April 5 and very quickly overrode Governor Robert Bentley’s veto of the $1.8 billion General Fund budget. The House and Senate met in session on Tuesday and Thursday, and the members spent another long Wednesday in committee meetings. The Legislature has now met for 20 of its allotted 30 session days, leaving only a maximum of 10 more in this year’s Regular Session.

The Budgets

The General Fund Budget

Just prior to recessing for its week-long break, the Legislature passed a General Fund budget and sent it to the Governor for his review. As expected, the Governor vetoed that budget, primarily because it funded the Medicaid Agency at $700 million. Both the agency and the Governor himself believe that the agency would need roughly $85 million more to maintain the its current level of service. Overall, Medicaid—through matching finds and contributions from providers such as hospital, nursing homes, and pharmacies—is a $6.5 billion program. It covers approximately 1 million Alabamians, 70% of whom are children.

The Governor returned his veto message this past Tuesday, and both Houses voted to override that veto within hours. The Governor’s veto power under Alabama’s constitution is very weak; it only requires a simple majority of both houses to override, though in this case the vote was 22–10 in the Senate and 71–24 in the House. The Governor’s reaction to the override was somewhat unexpected, as he had previously indicated that he planned to call the Legislature back into special session this summer to address Medicaid funding. Instead, he and Medicaid Commissioner Stephanie Azar appeared before the press on Wednesday to detail the cuts that the agency was looking to implement. The Governor very clearly backed off on his prior threat to call a special session, instead stating that Medicaid would have to live within its means for now.

The first casualty of the cuts to Medicaid will almost certainly be the program’s planned transition from a traditional, fee-for-service model to provider-dominated Regional Care Organizations (“RCOs”). When announcing the cuts, the Governor and Commissioner both stated that the RCO transition, which is scheduled to go into effect October 1, could not proceed. As outlined by the Governor and Medicaid Commissioner, the following additional cuts (and potential savings) are being examined:

  • Prescription drug coverage:$50-60 million
  • Health Home and Physician case management fee: $16.6 million
  • Primary care physician pay bump—which increases the pay primary care doctors receive: $14.7 million
  • Outpatient dialysis care: $3.7 million
  • Program of All Inclusive-Care for the Elderly (“PACE”): $2 million
  • Prosthetics and orthotics: $500,000
  • Eyeglasses for adults: $300,000
  • Reduced reimbursement rates for ambulatory surgical centers, doctors, dentists, optometry, hearing and other programs: $0-$50 million.

It should be noted that, while each potential cut could represent a savings, there are also possible costs related to the cuts. For example, the elimination of outpatient dialysis obviously will require those patients to receive that treatment on an in-patient basis, which is costly and increases those patients’ long-term risk of infection. Similarly, discontinuation of prescription drug coverage may result in increased hospitalization of Medicaid recipients who stop taking their medication.

An additional option noted by Commissioner Azar was the use by Medicaid of a preferred pharmacy provider—a single-source vendor who would reduce the price of needed prescription drugs in exchange for an exclusive right to that client base. This option could save the state anywhere from $19 million to as much as $30 million.

It is difficult to predict what will come next for the Medicaid program. The cuts outlined by the Governor, for example, might work. But they could also result in a large number of providers leaving the system. If enough providers do so, the federal government could step in and terminate the program for failure to maintain the required minimum levels of access to care. In an effort to find a long-term solution to the funding issues, the Legislature is planning a series of joint hearings focusing exclusively on Medicaid in late April.

The Education Trust Fund Budget

In contrast to the General Fund, the Education Trust Fund budget has been relatively healthy and uncontroversial—at least so far. The budget passed the House unanimously several weeks ago and is pending in the Senate Committee on Finance and Taxation Education, chaired by Senator Arthur Orr (R–Decatur). Senator Orr has scheduled a public hearing on the Education Trust Fund budget for Tuesday at 2:00 PM. It is not yet clear what changes the Senate will propose to the House’s version of the budget. It also is not known whether the committee will vote on the budget on Tuesday or whether it will be scheduled for a vote at a second hearing at a later date—possibly as soon as the next day.

Criminal Justice Issues

Governor’s Prison Construction Plan

On Tuesday night, after some debate and a cloture petition, the Senate approved a bill by Senator Trip Pittman (R–Montrose) that would authorize an $800 million bond issue for the construction of four megaprisons in Alabama. The plan, which was announced by the Governor in his February 2nd State of the State Address, would result in the consolidation and closing of most of the existing prisons in the state, including the Tutwiler women’s prison. The payment of the debt service on the bonds would be made using the cost savings that would result from using fewer, more modern facilities. The measure, SB287, was approved by a vote of 23–11. It was assigned to the House Committee on Ways and Means General Fund, and is scheduled for a public hearing before that committee on Wednesday at 1:30 PM.

Prison Reform Amendments

On Wednesday, the Senate Committee on the Judiciary approved a bill that is designed to make changes to the major prison reform legislation passed last year. Billed in many respects as a “technical fix” to last year’s bill, it has drawn some opposition from counties and sheriffs. The bill would remove the right of local governments to refuse to accept those convicted of Class D felonies in local community corrections programs. The bill would also alter the use of “dips” and “dunks” which are short term jail or prison terms that are imposed on parole violators as an alternative to their being sent to state prison to serve the entirety of their sentence. The bill, SB349, sponsored by Senator Cam Ward (R–Alabaster), can now be voted on by the full Senate.

Innocence Commission

Just prior to adjourning on Thursday, the Senate approved a bill by Senator Dick Brewbaker (R–Montgomery) that would establish an Innocence Commission. The vote was 20-6. If passed, the bill would create a nine-member commission that would be responsible for reviewing claims of innocence made by death row inmates if the inmate has evidence of innocence that has not been heard in a court before. If a majority of the commission then believes the inmate is innocent, the case would be sent back to the trial court for review.

Economic Incentive Legislation

Historic Tax Credits

On Tuesday, the House of Representatives took up legislation that would renew the Historic Tax Credit initially passed three years ago. The program has been a major boost to redevelopment efforts across the State, but will expire this spring unless new legislation is reauthorizes the program. The bill, HB62, sponsored by Representative Victor Gaston (R–Mobile), was approved by the House by a vote of 91–4. The legislation now moves to the Senate, but has not yet been assigned to a committee.

Apprenticeship Tax Credits

SB90, the Apprenticeship Tax Credit Act, sponsored by Senator Arthur Orr (R–Decatur), has passed the Senate and been reported favorably by its House committee. It was included on the House Special Order Calendar on Thursday this week, but the House adjourned before it took up the bill. The measure would provide a $1,000 tax credit to employers for each apprentice hired. The bill will have to be selected again in the House Rules Committee in order to be brought back up before the body for a vote.

Capital Investment Credits

HB224, sponsored by Representative Danny Garrett (R–Trussville), passed the House of Representatives on Tuesday and has been assigned to the Senate Committee on Finance and Taxation Education, chaired by Senator Pittman. The bill would provide incentives for businesses that invest in a small business fund qualified by the state’s Department of Commerce.

Tax Credit Suspension Legislation

On Thursday, the 20th of 30 legislative days, Representative Phil Williams (R–Huntsville) introduced HB505. The bill addresses a concern expressed by some legislators that tax credits ought not be permitted in years that state revenue does not meet projections, which results in a mid-year cut of the budget known as proration. Under the legislation, if the Governor declared proration of either the General Fund or the Education Trust Fund, tax credits would be suspended for that year. The bill further provides that tax credits would be suspended if the General Fund or the Education Trust Fund budget is merely level funded from the prior year. The bill has been assigned to the House Committee on Ways and Means Education, chaired by Representative Bill Poole (R–Tuscaloosa).

Other Legislation of Interest

Digital Download Tax

HB349, sponsored by Representative Ed Henry (R–Hartselle), is scheduled to be debated by the full House this coming Tuesday. The bill would clarify the application of sales and rental tax to digital downloads of products such as movies and television shows in order to prevent the unilateral imposition of such taxes on consumers by the Department of Revenue. In general, sales and rental tax is not imposed on such services, but the DOR has made several attempts—first through regulation and then by proposed legislation—to begin imposing the tax.

Guns in Cars

Late Tuesday, the Senate overwhelmingly approved SB14, sponsored by Senator Gerald Allen (R–Tuscaloosa), which would allow all people in Alabama to carry a loaded firearm in their cars. Current Alabama law requires a person without a permit to carry a concealed weapon to store a firearm in a car unloaded, in a locked container, and out of the reach of the driver. The proponents of the guns in cars legislation contend that a car is an extension of a person’s home, and that because state law allows non-permitted individuals to maintain a firearm in their home for self-defense, the same ought to be allowed in cars. The vote in the Senate was 27–6. The bill has been assigned to the House Committee on Public Safety and Homeland Security.

Payday Lending

The Alabama Senate passed SB91, sponsored by Senator Orr, on Tuesday night by a vote of 28-1. The bill would place limits on the interest rates that can be charged on so-called “payday loans.” Payday loans are short term loans of $500 or less that roll over every two weeks if not paid back. Because of the fees incurred with each roll-over, the effective annual interest rates on such loans can be as high as 450%. Senator Orr’s legislation would allow borrowers to pay back the loans over a period of six months, and would limit the allowed effective interest rate to 120%. The bill is now pending in the House Committee on Financial Services.

Conclusion

The House of Representatives returns to Montgomery on Tuesday, April 12 at 1:30 PM for the 21stlegislative day of the session. The Senate will convene on the same day at 4:00 PM. The Legislature is expected to meet in session on Tuesday and Wednesday next week.

For more information please contact Ted Hosp or Edward O’Neal.