The Alabama House and Senate met in session this week on Tuesday and Thursday, the fifteenth and sixteenth legislative days of the 2016 Regular Session. The Legislature has therefore passed the midway point of this session, which can only last a total of 30 days. Although significant work continues on the more than 800 bills introduced thus far, talk of the budgets continues to dominate conversation in the State House.

Budget Update

General Fund

The House and Senate have both passed the General Fund budget, though in slightly different forms. The General Fund budget that passed the House this week is currently in the Senate, awaiting action by that body on the House changes. As it stands now, the budget allocates just more than $700 million for the state’s Medicaid Agency. That figure that is $85 million less than the minimum that Medicaid Commissioner Stephanie Azar says is needed to complete the agency’s transition from its current fee-for-service model to one using provider-based managed care entities known as Regional Care Organizations (“RCOs”). Commissioner Azar has stated that if the budget is passed in its current form, Medicaid would cut the few optional programs it runs (including outpatient dialysis and hospice care), cut provider reimbursement, and abandon the RCO transition. This last change would result in the loss of the almost $750 million in federal dollars that were recently approved as part of the state’s Section 1115 waiver from the Centers for Medicare and Medicaid Services.

Most believe that the Senate will agree to the House version of the budget and send it to Governor Robert Bentley. For his part, Governor Bentley has stated that he will veto the current budget if it comes to him unchanged. Most expect that, if vetoed, the Legislature would override that veto, and the budget—including the Medicaid shortfall—would take effect. This sequence of events would quite likely result in a summer special session to deal with Medicaid funding. Unfortunately, there are few, if any, palatable options for increasing General Fund revenue. There does not appear to be any desire in the Legislature to increase taxes, and thus far proposals to amend the Alabama Constitution to allow for a lottery, as noted below, have received only tepid support.

Education Trust Fund

Last week, the Alabama House unanimously passed the Education Trust Fund budget, sending it to the Senate for consideration. The Senate Committee on Finance and Taxation Education has yet to schedule a meeting to debate the budget, but is likely to do so soon. The House-passed budget totals approximately $6.3 billion, and includes a 4% pay raise for all post-secondary employees and all K–12 employees earning less than $75,000. Employees in K–12 earning more than $75,000 would receive a 2% raise. The budget would also fund an additional 475 K–12 teachers and provide a further $14 million in funding for the state’s voluntary pre-kindergarten program.

Economic Incentives & Credits

Historic Tax Credit

Legislation to reauthorize the state’s Historic Tax Credit program, widely considered a major success, has been placed on the House calendar for consideration this coming week. Proponents point to a study conducted by Novogradac that found that that the return on investment for the program is approximately $3.90 for every $1.00 of credit invested. If the bill, HB62 by Representative Victor Gaston (R–Mobile), is not passed, the program will sunset in May of this year. The extension of the credit is supported by a broad coalition of business and development groups, including REV Birmingham, the Birmingham Business Alliance, the Business Council of Alabama, the Downtown Mobile Alliance, and the Mayors of Birmingham, Huntsville, Montgomery and Mobile. An amendment by Representative Phil Williams (R–Huntsville), which would kill the bill if not removed, was added in committee in the House. Proponents hope that the amendment will be rejected when the bill comes up on the House floor.

Small Business Hiring & Apprenticeships

Two employer-related tax credit measures, one each in the House and the Senate, remain poised for final passage. HB36, sponsored by Representative Kyle South (R–Fayette) and known as the Small Business Jobs Act, would provide a $1,500 tax credit per new employee for businesses with fewer than 75 employees that hire a new worker at a salary of at least $40,000. The bill has passed the House and has been reported by a Senate Committee. It therefore can be taken up by the full Senate at any time. Meanwhile, SB90, an apprenticeship tax credit bill sponsored by Senator Arthur Orr (R–Decatur), is ready to be voted on by the full House. Orr’s bill would provide a $1,000 tax credit to employers for each apprentice hired.

Ports & Site Acquisition

The Alabama Renewal Act, HB34 by Representative Mac McCutcheon (R–Capshaw), also stands just one-step from final passage. The bill would create the Renewal of Alabama Commission, which would have the authority to approve tax credits for businesses that use the state’s ports. The bill would also allow the approval of tax credits for contributions to economic development projects that include the acquisition of property and the development of needed infrastructure. HB34 is expected to be debated on the floor of the Senate on Tuesday next week.

Research & Development

HB390, sponsored by Representative Chris Pringle (R–Mobile), received a public hearing this week in the House Committee on Technology and Research. The bill is a revised version of one of the Governor’s economic development proposals from last year’s regular session. The current version proposes $25 million in available tax credits. It would allow for a credit of 25% of research and development costs for research that is conducted by a qualifying Alabama research facility.

Capital Investments

On Wednesday, the House Committee on Ways and Means Education favorably reported a bill sponsored by Representative Danny Garrett (R–Trussville) that would provide incentives for businesses that invest in a small business fund qualified by the State Department of Commerce. The bill, HB224, can now be voted on by the full House and sent to the Senate at any time.

Incentives Study & Report

A bill that would require state agencies that administer economic incentives to produce reports to the Legislature regarding the cost of those incentives is nearing final passage. SB208, sponsored by Senator Orr, has passed the Senate and is pending action in the House Committee on Ways and Means Education. The bill is expected to receive a committee vote this week, after which the full House could pass the bill and send it to the Governor. The bill is designed to give the Legislature the ability to evaluate the effectiveness of economic incentive measures used by the state to attract industry and create jobs.

Taxes & Revenue

Infrastructure Improvement

On Tuesday this week, the long awaited measure to raise funds for infrastructure improvement in Alabama was introduced by Representative Mac McCutcheon, and was sent to the House Committee on Transportation, Utilities and Infrastructure. The bill, HB394, was favorably reported by the committee on Thursday, and can now be addressed by the full House. McCutcheon’s bill would set an excise tax on gas that is based on the average tax in Florida, Georgia, Mississippi and Tennessee. If implemented today, the bill’s formula would result in an increase to Alabama’s current gas tax of $0.06 per gallon. The bill calls for adjustments to the tax in subsequent years—again based on the average tax in surrounding states. A related bill, SB180, sponsored by Senator Gerald Dial (R–Lineville), would set the allocation of the taxes and restrict the use of new funds to infrastructure investment. That bill is ready for final passage by the House. The state’s gas tax has not been increased since 1992.

Digital Taxes

A bill that would make it clear that digital content is not subject to sales or rental tax cleared the House Committee on State Government on Wednesday by a vote of 11-0. The clarification was introduced in response to actions by the Alabama Department of Revenue apparently attempting to re-interpret the current statute to impose, for the first time, a tax on these services. HB349, sponsored by Representative Ed Henry (R–Hartselle), would alter the definition of tangible property to ensure that these services and this content remain untaxed. Several week ago, a separate measure that would have had the effective of taxing digital downloads was rejected by the Senate Committee on Ways and Means Education. That bill, SB242, was sponsored by Senator Trip Pittman (R–Montrose).

Lottery Legislation Update

Although it appeared earlier in the session that this might be the year that a lottery measure might reach the people for a vote, three separate lottery measures have stalled in their houses of origin. Alabama remains one of just four states without a lottery. In fact, the state has a prohibition on such games in its constitution. SB19, sponsored by Senator Jim McClendon (R–Springville), and HB13, sponsored by Representative Alan Harper (R–Northport), both of which would create a state lottery, and SB232, sponsored by Senator Trip Pittman, which would authorize only multi-state games such as PowerBall and MegaMillions, all remain pending. None are scheduled to receive a vote in the near future.

Prison Construction Legislation

For several years, conditions in Alabama’s prisons have left the system vulnerable to lawsuits and, in turn, the possibility of federal intervention. During his State of the State Address at the beginning of the Legislative Session, Governor Bentley proposed closing 14 of the state’s existing facilities, including Tutwiler Prison for Women, and building four new megaprisons. The Governor’s plan is to pay for the new prisons with an estimated $800 million bond issue, which would be paid back out of the savings realized by replacing the out-of-date prisons with modern ones. On Wednesday, the Senate Committee on Finance and Taxation General Fund approved SB287, sponsored by Senator Pittman, by a vote of 15-1. There remains some concern among legislators about the Governor’s desire to complete the projects under a design and build arrangement—where the same company would both design and then construct the facilities. Lawmakers are concerned that this approach would result in the elimination of Alabama companies from consideration for the work. The House version of the Governor’s proposal, HB313, has received a public hearing in the House Committee on Ways and Means General Fund, but no committee vote has been scheduled yet. Committee Chairman Steve Clouse (R–Ozark), the bill’s sponsor, previously indicated that there would be a second public hearing on the bill before calling for a vote.

Employment Legislation

Right to Work Constitutional Amendment

HB37, a bill that would enshrine Alabama’s Right to Work status in the state’s constitution, was passed by the Senate on Thursday, and will now head to the people for a vote in November. Proponents view the measure, sponsored by Representative Arnold Mooney (R–Helena), as a means to assist in the recruitment of new businesses—in particular manufacturers—to the state.

Ban the Box Legislation

SB327, introduced last week by Senator Quinton Ross (D–Montgomery), would eliminate certain questions on employment applications related to the applicant’s arrest and conviction history. So-called “Ban the Box” initiatives are intended to lower recidivism rates and help those who have paid their debts to society to re-enter the workforce. Many business groups are concerned that SB327 creates significant administrative and practical burdens for employers. Senator Ross’s bill is on the Senate Judiciary Committee agenda this coming Wednesday.

Alcohol Markets

Study Commission Legislation—Three Tier Modifications

Three bills that would allow the direct sale of alcoholic beverages to consumers by manufacturers in Alabama continue to march through the legislative process. On Tuesday of this week, HB176, sponsored by Representative Anthony Daniels (D–Huntsville), which would allow Alabama breweries to sell up to 288 ounces of beer per consumer per day for off-premises consumption, passed the Senate and was sent to the Governor for his consideration. Meanwhile, SB166, sponsored by Senator Linda Coleman-Madison (D–Birmingham), has passed the Senate and is scheduled for a public hearing in the House Committee on Economic Development and Tourism this coming Wednesday. The bill would allow Alabama wineries to open one additional off-site tasting room, and to sell one bottle of wine per day directly to each consumer. The House version, sponsored by Representative David Faulkner (R–Mountain Brook), is ready to be taken up by the full House. Finally, SB132, sponsored by Senator Bobby Singleton (D–Greensboro), which would allow Alabama distilleries to sell up to one bottle of liquor per customer per day, is scheduled for a public hearing in the House Committee on Economic Development on Wednesday. The House version, HB46, sponsored by Representative Alan Boothe (R–Troy), awaits action by the full House.

Full Privatization of Retail Sales

The Senate Committee on Fiscal Responsibility and Economic Development held a lengthy public hearing on Wednesday regarding SB292, sponsored by Senator Orr, which would take the Alabama Alcoholic Beverage Control (“ABC”) Board out of the retail business. Alabama currently has almost 600 privately owned and operated liquor stores; which must purchase all of their product from the ABC Board and then directly compete with the sate-owned ABC stores. Senator Orr’s bill, which would phase out the ABC’s retail operations over a five-year period, was favorably reported by the Committee by a vote of 10-4.

Payday Lending

On Wednesday, the House Committee on Financial Services, chaired by Representative Ken Johnson (R–Moulton), favorably reported a bill that would significantly regulate payday lending in Alabama. The bill, HB297 sponsored by Representative Garrett, would set the maximum APR at 150%, down from the current maximum APR of 456%. Garrett’s bill is supported by the State Banking Department. A similar bill, sponsored by Senator Orr, was reported from the Senate Committee on Banking and Insurance earlier in the Session but remains pending in the Senate.

Conclusion

The House will reconvene at 1:00 PM on Tuesday, March 22, for the seventeenth day of the Session. The Senate will convene at 2:00 PM on the same day. Both chambers are expected to meet Tuesday and Wednesday.

Ted Hosp or Edward O'Neal.