The Alabama Legislature met for two days this past week, with an uncommon Wednesday afternoon session following a fairly busy morning of committee meetings. The Legislature has now met for 18 of an available 30 session days. Legislators will take the next week off, returning for the stretch run on Tuesday, April 5.

The General Fund Budget

As expected, just prior to adjourning on Wednesday afternoon the Senate concurred in the House’s version of the General Fund budget and sent it to Governor Robert Bentley. Pursuant to Alabama’s constitution, the Governor has until Thursday, April 7 to make a decision about whether he will sign it, veto it, or attempt to amend it. The Governor has stated that he plans to veto the budget, but he has not done so yet. The vote in the Senate was 20–13, with four Republicans joining the eight Democrats and one Independent in the Senate to vote against the $1.85 billion budget. Significantly, the Governor’s veto power is weaker than in the federal system; it can be overridden by a simple majority of both the House and Senate.

Some General Fund agencies received modest increases in the proposed FY16–17 budget, which allocates about $95 million more overall than the current fiscal year. The court system, for example, received a slight increase of $4.5 million—to a total of approximately $97 million. The Department of Corrections, one of the largest consumers of General Fund dollars, was funded at $412 million, or approximately $13 million more than FY15–16. With that said, however, the discussion in Montgomery continues to center on Medicaid funding, and how to adequately fund that agency, which supports the healthcare needs of more than 1 million Alabamians— approximately 70% of whom are children.

The budget sent to the Governor allocates just over $700 million in General Fund dollars to Medicaid. Although that is an increase of $15 million over the amount budgeted in the FY15–16 budget, it is still $85 million less than the Governor and Medicaid Commissioner Stephanie Azar say is needed for the agency to continue delivering services at the current level. According to the agency, at the current level of $700 million the transition of the program to managed care under provider dominated Regional Care Organizations (“RCOs”) would have to be scrapped. The RCOs are currently scheduled to start operations at the start of the state’s fiscal year on October 1, 2016. Several weeks ago, the federal government approved the state’s Section 1115 waiver which would—assuming the RCO transition goes forward—provide an additional $750 million in federal funding for programs designed to advance four specific healthcare related goals, including wellness care and treatment of chronic conditions. In the event that the RCOs do not become operational, the great likelihood is that the additional federal funding would be withdrawn.

The Education Budget

The $6.3 billion education budget, which was passed two weeks ago by the House, has not yet been taken up by the Senate. Education budget Chairman Senator Arthur Orr has said that his committee will consider the budget when the Legislature returns from spring break—most likely with a public hearing on Wednesday, April 6.

The Lottery & Special Session(s)

There is increasing discussion in the State House of a possible special session that would deal primarily, if not exclusively, with Medicaid funding. Most in Montgomery expect a special session this summer, though the timing of such a session is primarily speculation at this point. One point that has been raised repeatedly by legislative leadership is that, should the Governor bring the legislature back to Montgomery to address Medicaid funding, there would need to be a concrete plan that had been vetted and discussed prior to that session. Problematically, there is little, if any, apparent willingness on the part of legislators to raise additional tax revenue to fund the state’s ever-growing Medicaid needs.

Earlier this week, Governor Bentley indicated in several meetings that he viewed the creation of a lottery as the only likely means to provide the additional funding that the agency needs. The Governor’s comments brought renewed talk, though no action, regarding gaming in general. Specifically, the discussion focuses on whether this might be the year that Alabama amends its constitution to allow for a lottery or for other forms of gaming such as full-scale Class III casinos. As pointed out by several, including House Minority Leader Craig Ford (D–Gadsden), a lottery is not a quick fix for the Medicaid budget. In fact, because instituting a lottery would first require a vote of the people, and would then require the structure and mechanisms implementing the lottery to be created, it is likely that the state would not realize any lottery income for at least 15–18 months. Nevertheless, increased talk of gaming and lottery is likely over the next several months.

There is also even more talk that the legislature may adjourn once the General Fund budget is in place and the Education Budget, which is not controversial, is sent to the Governor for his signature. While talk of an early departure occurs every year, given recent events in the capital city, and the likelihood that the legislature will be back before the end of the year, such rumors seem to have greater credibility this session.

Prison Construction

On Tuesday, the Senate delayed a vote on the Governor’s prison construction plan, SB297, sponsored by Senator Trip Pittman (R–Montrose), by carrying the bill over in the face of some questions and concerns. The Governor’s plan, first announced in his State of the State Address, includes the construction of four megaprisons, including one female facility, and the closure of most of the existing facilities in the state. The construction would be paid for by an $800 million bond issue, which would be repaid through savings realized through the consolidation and modernization of the prisons. Several concerns have been raised in the Legislature, including concerns about the Governor’s intention to use a design–build contract for the project. Under a design–build contract, the same firm would be retained to both design the prisons and then construct them. Some have raised concerns that this would limit the potential contracts to a very small number of large firms - and would limit the ability of Alabama-based firms to participate in the project. Additionally, some members of the legislature whose districts include existing prisons have begun to raise concerns that the consolidation plan—and the resultant closure of those existing facilities—would result in the loss of jobs back home.

Economic Incentives

Alabama Renewal Act

On Tuesday, the Alabama Renewal Act passed the Senate, and, after the House concurred with minor Senate changes, the bill was sent to the Governor for his signature. HB34, sponsored by Representative Mac McCutcheon (R–Capshaw) in the House, and championed by Senator Greg Reed (R–Jasper) in the Senate, is designed to stimulate use of the state’s port facilities by creating a new tax credit. The bill also creates a tax incentive for the acquisition and development of sites that would be available for economic development projects in the State. The Governor has until April 7 to sign the bill. If he does not act on the legislation by then, the bill will become law without his signature.

Historic Tax Credit

On Wednesday, HB62, which would renew the Alabama Historic Tax Credit, took a step towards passage. The bill was on the House’s 10-minute calendar, which limits debate on any individual measure to 10 minutes. The sponsor, Representative Victor Gaston (R–Mobile) was successful in passing the Budget Isolation Resolution, and in having an amendment that would essentially kill the tax credit program removed from the bill prior to time expiring. The bill has been placed second on the House calendar when the House returns to Montgomery on Tuesday, April 5. Proponents of the bill have pointed to the revitalization of numerous historic structures around the state, as well as an economic impact study showing that for every $1 invested in the program the state receives a $3.90 return, as reasons for renewing the program.

Other Incentives

Several other incentive bills pending in the legislature made no movement this week. For example, the Small Business Jobs Act, HB36, sponsored by Representative Kyle South (R–Fayette), remains pending final passage in the Senate. The bill would provide a $1,500 tax credit for businesses with fewer than 75 employees that hire a new worker at a salary of at least $40,000.

The Apprenticeship Tax Credit bill, sponsored by Senator Arthur Orr (R–Decatur), also remains one step from final passage. SB90 would provide a $1,000 tax credit to employers for each apprentice hired.

A research and development tax credit bill, HB390, sponsored by Representative Chris Pringle (R–Mobile), remains in the House Committee on Technology and Research for the time being. The bill would create $25 million in tax credits available for research costs, focused especially on research conducted by, or in cooperation with, a qualifying Alabama research facility.

Finally, HB224, sponsored by Representative Danny Garrett (R–Trussville), which would provide incentives for businesses that invest in a small business fund qualified by the State Department of Commerce, is pending on the House Special Order Calendar for Tuesday, April 5. If passed on April 5, the bill would head to the Senate for its consideration.

Conclusion

The legislature has a maximum of 12 meeting days remaining for its 2016 Regular Session. As has been the case throughout the session, issues surrounding the General Fund and Medicaid funding are almost certain to dominate discussion when the Legislature returns the week of April 5. Indeed, they are likely to dominate into a special session over the summer. The House will reconvene on Tuesday, April 5 at 1:00 PM. The Senate will reconvene on the same day at 2:00 PM.

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