The Alabama Legislature met in session two days this week, on Tuesday and Thursday, and met in a busy committee day on Wednesday. The Legislature has used 14 of a maximum of 30 meeting days, and therefore has almost reached the halfway point of this year’s regular session. The budgets continue to dominate every conversation; both have made significant progress towards final passage, though not without controversy.

The Budgets

Education Trust Fund Budget

On Tuesday, the House unanimously passed the Education Trust Fund budget, and sent it to the Senate for consideration. In addition to the $6.3 billion for the education budget, the House also gave separate approval to a 4% pay raise for all K–12 employees earning less than $75,000 and for all post-secondary employees. The same measure also included a 2% raise for K–12 employees making in excess of $75,000. The budget itself includes funds for an additional 475 K–12 teachers, as well as a $14 million increase in funding for the state’s voluntary pre-kindergarten program. Additionally, this year’s budget also fully funds employee health insurance and retirement plan increases unlike budgets in several recent years. Despite the obvious agreement on the budget in the House, it is fully anticipated that the Senate will make some changes. It is therefore likely that the differences between the two versions of the Education Trust Fund budget will end up being resolved in a conference committee made up of three members of the Senate and three of the House. It is not yet known when the Senate Committee on Finance and Taxation Education, chaired by Senator Arthur Orr (R–Decatur) will schedule a meeting to debate the education budget, though some have indicated that it could come as early as this week.

General Fund Budget

On Wednesday this week, the House Committee on Ways and Means General Fund approved a substitute to the General Fund budget passed by the Senate. The House committee made some minor changes to the budget, including a $15 million increase in the portion allocated to Medicaid. In the version sent to the floor by the committee, Medicaid would receive $700 million in state General Fund dollars for FY 2016–17. That figure is still $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”). According to Commissioner Azar, if the budget is passed in its current form, the Department would have to cut the few optional programs it runs (including outpatient dialysis and hospice care), cut provider reimbursement, and abandon the RCO transition. This last step would result in the loss of the $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.

On Wednesday, after the House committee approved the budget substitute, Governor Robert Bentley indicated that he would veto that budget if it passed. The House was unable to progress to its planned agenda on Thursday because of next Tuesday’s looming debate over the $1.85 billion General Fund budget. Some in the body, particularly Democrats, would like to rewrite the budget, but thus far no proposal for additional revenue to meet Medicaid’s needs has attracted significant support. As a result, there was increased discussion this week of a possible Special Session to address Medicaid funding. The Governor stated that he would call the Legislature back, and Legislative leadership stated that they hoped he would only do so if there were a specific plan for funding.

Economic Incentives & Taxes

Ports & Site Acquisition Incentives

HB34, sponsored by Representative Mac McCutcheon (R–Capshaw), did not move this week, remaining one step from final passage. However, this delay may simply be the result of the fact that the Senate did not accomplish anything on Tuesday due to a filibuster by Senator Paul Bussman (R–Cullman) over a bill that would regulate the practice of lawsuit lending. HB34 would provide incentives and tax credits for increased use of the state’s ports, and for contributions that assist in site acquisition for economic development projects. It is expected that the bill will be brought up on the Senate floor for final passage at some point in the coming week.

Small Business Capital Investment Legislation

A bill that would provide incentives for businesses that invest in a small business fund qualified by the State Department of Commerce will be up for a vote in the House Committee on Ways and Means Education this week. The bill, sponsored by Representative Danny Garrett (R–Trussville), received a public hearing in that committee three weeks ago.

Innovation Tax Incentives

A revised version of the Governor’s research and development tax credit bill from last year will be heard in the House Committee on Technology and Research this week. HB390 was introduced on Thursday. This year’s version increases the proposed available tax credits from the $10 million in last year’s legislation to $25 million. The bill allows for a credit of 25% of the research costs for research conducted with a qualifying Alabama research facility. The bill was sponsored last year by Representative Phil Williams (R–Huntsville), but this year is being carried by Representative Chris Pringle (R-Mobile).

Digital Download Taxes

On Wednesday, the Senate Committee on Ways and Means Education rejected a measure that would place a new tax on digital downloads such as movies, apps, and music purchased by consumers. Under current law, the sales and rental tax applies only to tangible items, which does not include digital downloads. SB242, sponsored by Senator Trip Pittman (R–Montrose), would have changed the definition of “tangible property” to include digitally downloaded content. This would have placed a new consumer tax on services such as Netflix, Amazon Prime Video, and possibly pay-per-view services accessed by the public. The bill failed by a vote of 4–8.

Separately, bills to make it clear that such content is not subject to tax were introduced in both the House and Senate. SB345, sponsored by Senator Bobby Singleton (D–Greensboro), and HB349, sponsored by Representative Ed Henry (R–Hartselle), would alter the definition of tangible property to ensure that these services and content are not subject to tax under the current law.

Simplified Sales & Use Tax Legislation

In special session last year, the Legislature passed a bill that allowed entities selling goods over the internet to individuals in Alabama to voluntarily remit use taxes due from the purchaser to the state. So-called remote sellers, who lack sufficient nexus with the state, are not required to collect and remit either sales or use tax on such purchases under current law—although the tax is due from the purchaser. It has been speculated that the Alabama loses as much as $250 million in unpaid taxes as a result of purchasers failure to remit the amounts owed. Under the new law, in exchange for a simplified—and guaranteed—rate, some remote sellers have begun to collect taxes. In fact, the $15 million that was added to the Medicaid budget in the House Committee on Ways and Means General Fund this week was specifically attributed to new revenue that resulted from this voluntary program. A bill to tweak this new law has been making its way through the Legislature this session, and on Wednesday the House and Senate companion bills were both favorably reported by their respective Committees in their second house. As such, both HB116, sponsored by Representative Rod Scott (D–Birmingham), and SB233, sponsored by Senator Trip Pittman (R–Montrose) are ready for final passage.

Technology & Education

PREP Act

Senate President Pro Tem Del Marsh (R–Anniston) presented his bill to restructure teacher evaluations and assessments in the Senate Committee on Education and Development on Wednesday. The bill would extend the time needed for a teacher to receive tenure. It would also revoke tenure for teachers who receive multiple negative assessments. Under the bill, high performing schools and schools that have a difficult time recruiting teachers would receive additional funds to increase teacher pay. The Committee approved the bill by a narrow 5-4 vote and was sent to the full Senate for its consideration.

WIRED Act & School Wi-Fi

Governor Bentley amended both HB41 and HB227 and sent them back to the House on Tuesday for consideration. The bills, sponsored by Representative Donnie Chesteen (R–Geneva) and Representative Bill Poole (R–Tuscaloosa) respectively, are together designed to ensure all schools in the State are equipped with high-density Wi-Fi systems. As passed by the Legislature, the bills gave oversight of the process to an independent commission. The Governor’s amendment transferred that oversight to the Alabama Education Technology Association. The House concurred in both amendments by the Governor and sent the bills to the Senate for their consideration, although there appears to be some concern about the changes in the upper chamber. However, according to several members of the Senate, including Senator Gerald Dial (R–Linville) who has worked on this issue for many years, there are ongoing discussions with the Governor in an effort to resolve this issue.

Prison Construction Plan

Governor Bentley’s plan to relieve prison overcrowding by building four new megaprisons received significant attention this week, with a debate in the Senate Committee on Finance and Taxation General Fund. Bentley’s plan would close most of the state’s 16 existing prisons, including the Tutwiler Prison for Women, and consolidate operations into three new large male facilities, and a new women’s facility. The total estimated cost of the plan is $800 million, which would be covered by a bond issue. According to administration officials, the debt service on the bonds would be paid for by the savings that result from shuttering the state’s older, more expensive prisons. One aspect of the Governor’s plan that has begun to receive scrutiny is his intention to allow one company to both design and build the facilities. In order to accomplish this part of the plan, the Department of Corrections would need an exemption from the state’s bid laws, which require that each of those functions be separately bid. Officials contend that combining the design and build functions could save as much as $100 million. The agenda for the coming week’s committee meeting has not yet been posted, so it is not currently known whether the legislation will be voted on this week—though a vote is expected. A riot at the Holman maximum-security facility over the weekend, during which two Corrections Officers were injured, likely will add to the urgency for the state to take some action that relieves the overcrowding situation. In a separate incident, an Officer was injured at the St. Clair facility on Monday. For several years now, the state has faced the threat of federal intervention that could result in court-mandated upgrades to the system, or to the requirement that some inmates be released.

Antitrust and Administrative Procedure

Several measures prompted by last year’s United States Supreme Court decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission have surfaced this session. Each is designed to re-insulate a board or commission from federal antitrust laws with state action immunity. In the Supreme Court decision, the Court found that in order to receive state action immunity a state board that was controlled by participants in the regulated profession (in that case, a dental board that was made up by a majority of dentists) must act pursuant to a clearly articulated state policy, and must be subject to meaningful oversight. Thus far, bills designed to provide the “clearly articulated state policy” have been introduced on behalf of the Board of Medical Examiners, the Board of Dental Examiners, and the State Pharmacy Board. Separately, a bill that is intended to provide the “meaningful oversight” or review of proposed regulations that impact competition, SB80 by Senator Gerald Dial (R–Linville), stands one step from final passage in the House.

Alcohol Market Restructuring

The bills that came out of last summer’s Alabama Alcoholic Beverage Study Commission continue to make steady progress towards final passage. On Thursday of this week, the Senate gave approval to SB166, sponsored by Senator Linda Coleman-Madison (D–Birmingham), by a vote of 25–1. This bill would allow Alabama wineries to open one additional off-sire tasting room, and to sell one bottle 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, but may now be set aside in order to pass the version that comes down from the Senate.

A bill to allow Alabama breweries to sell up to 288 ounces of beer per consumer per day for off-premises consumption was approved Wednesday by the Senate Committee on Fiscal Responsibility and Economic Development, chaired by Senator Phil Williams (R–Rainbow City). HB176, sponsored by Representative Anthony Daniels (D–Huntsville), can now be acted on by the full Senate. The Senate version of this legislation, sponsored by Senator Bill Holtzclaw (R–Madison), is already in line for passage by the Senate, meaning it is likely that Representative Daniels’ bill will be substituted for it at some point next week, passed by the Senate, and sent to the Governor for his signature or veto.

The Senate also passed a bill this week that would allow Alabama distilleries to sell up to one bottle of spirits per day directly to a consumer. SB132, sponsored by Senator Singleton, now goes to the House, where its companion legislation, HB46, sponsored by Representative Alan Boothe (R–Troy), awaits action by the full House.

Employment Law

Ban the Box Legislation

On Tuesday this week, Senator Quinton Ross (D–Montgomery) introduced legislation to “Ban the Box.” The bill, SB327, has been assigned to the Senate Committee on the Judiciary, and would generally eliminate questions on employment applications about whether the applicant has ever been arrested or has a criminal record. Ban the Box initiatives are designed to help those who have paid their debts to society re-enter the workforce, but some measures—including SB327—create significant administrative and practical burdens on businesses. Additionally, there are certain businesses, such as financial services organizations, that face conflicting federal obligations.

Right to Work Constitutional Amendment

Representative Arnold Mooney’s Right to Work constitutional amendment came up on the Senate floor on Thursday, but was carried over before it could receive a vote. The bill would, if approved by a majority of Alabama’s voters in a statewide referendum, enshrine Alabama’s status as a Right to Work state in the state’s constitution. Proponents view the measure as a means to assist in the recruitment of new businesses—in particular manufacturers—to the state. The bill will have to be placed on the Senate Special Order calendar again on a later date in order to be voted on. Because the bill proposes a constitutional amendment, if passed by the Senate, it would not go to the Governor for his review but directly to the people for a vote.

Governor Creates Office of Minority Affairs

On Wednesday this week, the Governor signed an Executive Order that creates the Governor’s Office of Minority Affairs. Maynard, Cooper & Gale attorney Nichelle Nix was appointed to lead the new office. The office will have a broad portfolio, and will be charged with reaching out to communities across the state and weighing in on issues such as health, education, and criminal justice. Those of us who had the opportunity to work with Nichelle at Maynard, Cooper & Gale are very sorry to see her go, but confident that she will do a spectacular job for the state in her new role.

Conclusion

Both the House and Senate are expected to meet for two days again this coming week, the 15th and 16th days of the Session. The House will reconvene at 1:00 PM on Tuesday. The Senate will convene at 2:00 PM on the same day.

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