The Alabama Legislature met for three days this week, using their 8th, 9th, and 10th legislative days out of a maximum of 30. The Legislature has therefore used a third of its meeting days in just the first four weeks of the 105-day window during which it can meet. By historical standards, this session is moving very quickly.

General Fund Budget

Nowhere is this fast pace more evident than in the budget battle. The Education Trust Fund budget is expected to be reviewed in the House Committee on Ways & Means Education next week. The General Fund budget, however, has already passed the Senate by a vote of 23–10. The budget will now be taken up in committee in the House beginning sometime in the next several weeks. It is somewhat unusual—to say the least—for either of the budgets to have made it out of their house of origin this early in the session. The great difficulties facing the General Fund budget make it particularly surprising that it has moved as quickly as it has.

The General Fund budget that was approved by the Senate is approximately $1.8 billion, which makes it $60 million (or 3%) larger than last year’s. Nevertheless, the budget remains roughly $100 million smaller than the one that Governor Bentley proposed at the start of the session. Under the current budget, most agencies remain funded at the same level at which they were funded last year. Some receive small cuts.

The state’s Medicaid Agency is funded at $685 million, which is the same appropriation that it received last year. Very significantly, however, Medicaid’s appropriation last year was augmented by one-time revenues from lawsuit settlements, carry-forwards, and other sources—which effectively increased its budget to $740 million. From this perspective, then, “level” funding for Medicaid actually represents a significant cut to the agency’s operating budget. Even at the $685 million level, Medicaid still consumes approximately 38% of the General Fund Budget. The Senate-approved allocation was $100 million lower than Governor Bentley recommended. The Governor suggested transferring $181 million from the Education Trust Fund into the General Fund in order to make ends meet, but the Senate rejected that proposal.

Because of contributions from hospitals, intergovernmental transfers, and federal matching programs, Medicaid spends more than $6 billion annually overall. It forms the backbone of the state’s healthcare infrastructure. As many are aware, the state has been transitioning the program from a fee-for-service model to a provider-based, managed care system under which Regional Care Organizations (known as “RCOs”) would receive a monthly per person payment from Medicaid for each person in their care. The RCOs would then have to cover all healthcare costs for that person using that payment. Earlier this month, the federal Centers for Medicare and Medicaid Services approved Alabama’s Section 1115 waiver proposal. The waiver came with extra federal funding, which would provide more than $750 million over the next five years for Medicaid in connection with the RCO transition.

According to Medicaid Commissioner Stephanie Azar, if the Senate’s approved allocation of $685 million is not increased, the RCO program cannot move forward and CMS may withdraw approval of the State’s waiver (including the $750 million it has agreed to provide). Commissioner Azar also indicated that she would likely have to cut all of the state’s optional programs, including outpatient dialysis and hospice care, and reduce physician reimbursements. Governor Bentley has stated that he would veto the Senate version of the General Fund budget if it is passed in its current form by the House.

Uniform Minimum Wage Legislation

On Thursday, the Senate passed—and Governor Robert Bentley signed—the Uniform Minimum Wage Act, which advanced through the Legislature with lightning speed. The City of Birmingham’s decision to accelerate the implementation of its previously adopted minimum wage ordinance greatly increased the Legislature’s sense of urgency over the matter. On Tuesday of this week, Birmingham voted for a second time to move up the effective date of the ordinance by setting the minimum wage at $10.10 beginning on Wednesday, February 23rd. In response, Attorney General Luther Strange stated that the change could not go into effect that quickly, so that Birmingham businesses would have time to adjust to the measure. The city’s effort became moot on Thursday, however, when the Senate voted 23-10 to pass HB174, sponsored by Representative David Faulkner (R–Mountain Brook). Within an hour, Governor Bentley had signed the bill into law. All involved—including the Attorney General’s office and the City of Birmingham’s own legal department—have stated that the state’s action effectively voids the Birmingham ordinance.

Prison Construction Update

In his State of the State Address on February 2nd, Governor Bentley outlined an ambitious prison construction program that he claimed would reduce the system’s current overcrowding issues. For years now, the state’s corrections system has operated under the threat of intervention by a federal court that could result in a complete takeover. Such an action could, in turn, lead to mandated upgrades to existing facilities at extremely high cost, or the mass release of thousands of inmates.

Governor Bentley’s plan began to take shape this week, starting with a press conference on Tuesday in the Old House Chamber of the State Capitol. Governor Bentley was joined by: the Chairmen of the House and Senate General Fund budget committees, Representative Steve Clouse (R–Ozark) and Senator Trip Pittman (R–Montrose); the Senate President Pro Tem, Del Marsh (R–Anniston); and the Commissioner of the Department of Corrections, Colonel Jeff Dunn.

The Governor’s plan would call for the state to issue $800 million in bonds that would be repaid over a thirty year period. The state would close fourteen of its sixteen existing facilities—13 men’s facilities and Julia Tutwiler Prison for Women. These facilities would be replaced by three megaprisons for male inmates, plus a new facility for female inmates. According to Commissioner Dunn, the bonds could be repaid from the savings realized by replacing the old, outdated facilities with modern ones. According to the Commissioner, the savings might be in the neighborhood of $50 million per year.

Following the press conference, the General Fund budget committee Chairs introduced bills in both the House and Senate to implement the plan. HB313, sponsored by Representative Clouse, and SB287, sponsored by Senator Pittman, are now pending before their respective body’s General Fund budget committees.

Governor Bentley has set a target of 2017 to begin construction on the four new prisons. They would likely take three years to complete.

Historic Tax Credit Legislation

On Wednesday, the House Committee on Ways & Means Education approved legislation that would reauthorize the state’s Historic Tax Credit program. The program, which is widely considered a success, is scheduled to sunset in May of this year unless the Legislature reapproves it. Such a measure, HB64, has been introduced by Representative Victor Gaston (R–Mobile).

Unfortunately for the program’s supporters, before the committee voted on the legislation, a member added an amendment that would essentially doom the bill if it is not removed. The amendment, proposed by Representative Phil Williams (R–Huntsville), an opponent of the program, would prevent the use of historic tax credits in years in which the state’s budgets receives level funding or in which the Governor declares proration. Because the tax credits are reserved at the outset of a project, but are not redeemable until a project is actually put into service and begins earning revenue, the Williams amendment would make the credits nearly impossible to use. The bill is in line to be considered by the full House, where supporters hope that the amendment will be rejected.

WIRED Act for Wireless Broadband

The WIRED Act, which is designed to ensure that all Alabama K-12 schools have wireless broadband access, was passed by the Alabama House on Thursday. The bill, HB41, sponsored by Representative Donnie Chesteen (R–Geneva) is part of the House Republican Caucus Agenda. It would assist in providing grants to local school systems for wireless broadband infrastructure. The state’s money would be matched at a very favorable rate by the FCC’s E-Rate program. School systems would have to develop a technology plan for the use of the funds. Senator Gerald Dial (R–Troy), who has championed this cause for many years, was personally thanked by Representative Chesteen for his “tireless leadership on this issue.” Senator Dial will handle the measure as it moves to the Senate.

Student Data Bill

HB125, sponsored by Representative Terri Collins (R–Decatur), also passed the House on Thursday. The bill would allow for the compilation of student data in a central state database. The measure would require the newly create Alabama Office of Education and Workforce Statistics to develop the program, known as the Longitudinal Data System. The new office would be housed in the Department of Labor. The program’s purpose would be to allow the state to track student performance and progress from early childhood through entry into the workforce. All of this information would only be available in the aggregate, however. The bill would not allow the database to include personal identifiable information of any student or parent. Senator Del Marsh intends to shepherd the bill through the Senate.

Alabama Lottery Legislation

Senate Finance & Taxation General Fund Chairman Trip Pittman’s multistate-only lottery legislation was approved by the Senate Committee on Tourism and Marketing Wednesday. The bill, SB232, would amend Alabama’s constitution to allow for multistate lottery games—such as PowerBall and MegaMillions—only. The proposed amendment would require a vote of the people to take effect, and would direct the revenue generated by the games to the state’s General Fund. One criticism of the bill has been that multistate games typically generate a fairly small portion of lottery proceeds. Estimates are that such games would bring in between $40 and $50 million annually, as opposed to the projected $250 to $300 some claim a state-sponsored lottery would generate. The previously introduced lottery measures, including full-scale lottery bills sponsored by Senator Jim McClendon (R–Springville) and Representative Alan Harper (R–Northport) did not move this past week.

Data Breach Legislation

On Wednesday, the Senate Committee on Fiscal Responsibility and Economic Development approved SB238, sponsored by Senator Arthur Orr (R–Decatur). If the bill passes, it would require business entities to notify consumers in a timely fashion of data breaches. Failure to comply with the notice requirements would be considered a deceptive trade practice, but not a criminal offense. No private right of action would be created by the legislation. Civil penalties of up to $50,000 for each breach, but not for each affected account, could be imposed. Under SB238, entities that are the victims of a breach that affected more than 1,000 people and that might result in financial damage would be required to notify the Attorney General, Alabama residents whose information had been compromised, and credit-reporting agencies. The notification would have to occur within 60 days of the breach, though a 15-day extension could be granted.

Workers Compensation Benefits

After a public hearing, the Senate Committee on Fiscal Responsibility and Economic Development approved SB122, sponsored by Senator Arthur Orr (R–Decatur), which would end an employer’s liability for permanent total disability benefits for an employee after the employee turns 65. The bill can now be considered by the full Senate.

Small Business Tax Jobs Act

The Small Business Jobs Act, sponsored by Rep. Kyle South (R–Fayette) was also approved by the Senate Committee on Fiscal Responsibility and Economic Development this week. The bill, HB36, would provide a one-time $1,500 income tax credit to Alabama businesses with 75 or fewer employees for each new full-time employee that they hire. The bill would increase the credit by an additional $1,000 if the new employee is a recently returned, unemployed veteran. The business must retain the new employee for a full year, and the employee must make $40,000 or more annually to qualify for the credit.

Alcohol Legislation

The Senate Committee on Fiscal Responsibility & Economic Development also approved three bills recommended by the Alabama Alcohol Beverage Study Commission. Each of the bills would allow greater opportunity for consumers to purchase alcohol directly from manufacturers, and so would blur the categories of Alabama’s three-tier distribution system.

SB132, sponsored by Senator Bobby Singleton (D–Greensboro), would allow an Alabama distillery directly to sell one standard-size bottle (up to 750 milliliters) per customer, per day for off-premises consumption. The House version of the bill, HB46, sponsored by Representative Alan Boothe (R–Troy), has also been favorably reported out of committee and awaits action by the full House.

SB211, sponsored by Senator Bill Holtzclaw (R–Madison), would allow small breweries and brewpubs to sell up to 288 ounces of beer per day to a customer for off-premises consumption. The House version of that bill, HB176, sponsored by Representative Anthony Daniels (D–Huntsville), is also ready to be voted on by the full House.

Finally, SB166, sponsored by Senator Linda Coleman-Madison (D–Birmingham) would allow a licensed winery to obtain a permit to operate one additional off-site tasting room. The House companion to that bill, HB83, sponsored by Representative Faulkner (R–Mountain Brook), was sent to the House floor on Wednesday by the House Committee on Economic Development and Tourism.

Finally, on Wednesday, Senator Arthur Orr introduced legislation that would take the state out or the retail alcohol business entirely. SB292 would phase out the state’s role over a five year period. The state currently operates approximately 175 liquor stores, which compete with close to 500 privately operated stores in the state. The bill has been referred to the Senate Committee on Fiscal Responsibility and Economic Development.

Conclusion

The Legislature has used 10 of the permitted 30 meeting days for the 2016 Regular Session. It is expected that the Legislature will meet on Tuesday and Thursday next week, with only committee meetings on Wednesday, but that is—as always—subject to change. Both the House and Senate are scheduled to re-convene at 2:00 PM on Tuesday, March 1.

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