The Alabama Legislature met three days this week—the fifth, sixth, and seventh of the 2016 Regular Session. Both the House and Senate have been working steadily, the House primarily on the House Republican Caucus Agenda bills, and the Senate on sunset bills that reauthorize state agencies including the Securities Commission, the Department of Insurance, and the Public Service Commission. Though these measures are without question important, they are the prelude to the major battle to come over the State General Fund and Education Budgets. Those fights are expected to begin in earnest in the next week or so.

Uniform Minimum Wage Legislation

After a lengthy debate on Tuesday, the House of Representatives passed a bill that would reserve to the state the power to set a minimum wage. Alabama currently has no statewide minimum wage; instead, it uses the federal minimum wage of $7.25 an hour. The bill, HB174, sponsored by Representative David Faulkner (R–Mountain Brook) would preempt attempts by counties or municipalities to set their own minimum wage rates. The city of Birmingham recently attempted to do just that, passing an ordinance that would raise the minimum wage for employees in the city to $8.50 per hour beginning March 1, 2016, and then to $10.10 per hour in 2017. Some proponents of the uniform minimum wage law argue that increasing the minimum wage will cost people jobs. They also contend that having a patchwork of different minimum wages throughout the state unduly burdens businesses with multiple locations. Republicans clotured Democratic opponents of the measure after about three hours of debate, and then passed the bill by a vote of 71-31. The bill now moves to the Senate.

Historic Tax Credit

A bill to extend the state’s Historic Tax Credit for seven years received a public hearing in the House Ways & Means Education Committee on Wednesday morning. The state’s program has been operational for three years, and proponents produced a study indicating that the return on investment will be approximately $3.90 for every $1.00 invested. Numerous groups have come together to push for the credit’s extension, 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. The bill, HB64, sponsored by Representative Victor Gaston (R–Mobile) is identical to a bill introduced last year that passed the House by a vote of 98-0 only to fail in the Senate. This year, the Senate version of the measure has 32 of the 35 Senators listed as co-sponsors. The Committee did not vote on the bill following the public hearing, but is expected to at its meeting on February 24th.

Small Business Tax Credit

The Small Business Jobs Act, which creates a $1,500 tax credit for businesses with fewer than 75 employees for each new job that they add with a salary of $40,000 or more, continues to move quickly through the Legislature. The bill is a part of the House Republican Caucus Agenda and was one of the first to pass its house of origin. HB36, sponsored by Representative Kyle South (R– Fayette) is scheduled to come before the Senate Committee on Fiscal Responsibility and Economic Development, chaired by Senator Phil Williams (R–Rainbow City) on Wednesday. Depending on the Legislature’s schedule this week, it could receive final passage and be sent to the Governor as early as Thursday.

Right to Work Constitutional Amendment

On Wednesday, the House of Representatives passed a bill by Representative Arnold Mooney (R–Helena) that would amend the Alabama’s constitution to reaffirm that Alabama is a Right to Work state. Alabama currently has a statute in place declaring the state to be right to work. However, union activity and efforts to unionize Alabama’s still growing manufacturing base have appeared to increase in the past several years. Proponents contend that an amendment to the constitution would demonstrate to the world—and especially to businesses considering whether to locate here—that the Right to Work philosophy is one of Alabama’s core values. The bill passed the House by a vote of 69-33.

New Revenue Measures Proposed

Department of Revenue Proposals

The State Department of Revenue is pushing for several changes to the revenue laws, each of which would have some impact on taxpayers. The first, SB183, would make changes to the way Revenue calculates interest on the overpayment of taxes. The bill is sponsored by Senator Tim Melson (R–Florence), and was reported favorably by the Senate Committee on Finance and Taxation General Fund on Wednesday. If passed, the bill would allow Revenue to delay the accrual of interest on any tax refund owed until 30 days after it receives a refund petition from a taxpayer. Under current law, Revenue is required to calculate interest from the date it receives the petition. In contrast, SB183 would not make a similar change to how interest owed by the taxpayer would accrue for the underpayment of taxes.

As noted last week, a bill to move Alabama to Mandatory Unitary Combined Reporting (“MUCR”) was introduced on February 11th with the support of the Department of Revenue. The bill, SB202, is sponsored by Senator Linda Coleman-Madison (D–Fairfield). It lists as one of its co-sponsors Senator Trip Pittman (R–Montrose), former chair of the Senate Committee on Finance and Taxation Education, and now Chair of the Senate Committee on Finance and Taxation General Fund. The bill is viewed by opponents as effectively being a tax increase on businesses that operate in multiple states. The economic development community has argued that passage of MUCR would severely hinder the state’s business recruitment and retention efforts, and point to GE’s recent departure from Connecticut following that state’s adoption of a similar law. The bill was assigned to the Senate Committee on Finance and Taxation Education, but has not yet been scheduled for a hearing. Estimates are that the bill would raise taxes on businesses by approximately $30 million per year overall by altering the manner in which taxes are calculated on separate, related enterprises.

The Department of Revenue is also making another attempt to impose sales and rental tax on digital goods, including streaming video. SB242, sponsored by Senator Pittman, is seemingly an attempt to do legislatively what the Department failed to do last year by changing its own regulations. In the end, that proposed regulation was withdrawn as a result of pressure from the business community and members of the Legislature. If passed, digital transmissions of material such as movies, TV programs, and music would become subject to taxation. The law would also apply to some modems, routers, and DVRs.

Lottery

There was little movement this week on the proposed constitutional amendments that would give the people the opportunity to vote to create a lottery. The two bills, sponsored by Representative Alan Harper (R–Northport) in the House and Senator Jim McClendon (R–Springville) in the Senate, would simply authorize the Legislature to establish a lottery. They would not prescribe any requirements as to the form of the lottery, nor would they allocate the revenue generated by the lottery. The House version of the measure was reported favorably by the House Committee on Economic Development and Tourism last week. The Senate version was not voted on last week following a public hearing, and was not set for a vote by the Senate Tourism and Marketing this week.

Senator Pittman introduced a new lottery bill that would specifically dedicate any revenue from a lottery to the cash-strapped General Fund. Senator Pittman’s bill would also limit the games that the state could participate in to multi-state lottery games such as Powerball and MegaMillions. Although multi-state games have jackpots that can rise into the hundreds of millions of dollars (or more than a billion dollars in the case of a recent Powerball jackpot) and so generate a great deal of press and attention, they typically account for a very small portion of the revenue generated by states through their lotteries. In fact, while estimates have indicated that a full scale adoption of lotteries, including scratch off games, would generate as much as $325 million annually for the Alabama, the estimates for multistate games alone are as low as $40 million. As required by Senate rules relating to gaming measures, Senator Pittman’s bill has been referred to the Senate Committee on Tourism and Marketing, chaired by Senate President Pro Tem Del Marsh (R–Anniston).

Alabama RICO Act Proposed

This week, Senator Arthur Orr (R–Decatur) introduced an Alabama Racketeer Influenced and Corrupt Organizations (“RICO”) Act, which would create new criminal and civil penalties for organized crime in Alabama. Modeled after the federal RICO Act, SB234 would not just provide law enforcement with new weapons in their fight against criminal activity, but would also create private civil causes of action, allowing for awards of up to treble damages against people and businesses alleged to be engaging in organized criminal activity. There is some concern that the bill may be too broad with respect to these civil remedies, but the Alabama District Attorneys Association, which is supporting the bill, maintains that it is a necessary tool for pursuing increasingly sophisticated criminal operations in the state.

Payday Lending Reform Advances in the Senate.

On Wednesday, the Senate Committee on Banking and Insurance approved a bill that would cap interest rates that could be charged on short-term, so-called “payday” loans in Alabama. SB91, sponsored again this year by Senator Orr, would set the maximum annual interest rate on such loans at 180%. The current maximum APR is 456%. Additionally, the bill would extend the repayment terms of the loans, which are currently 14 to 30 days, to six months. The bill can now be voted on by the full Senate, although last year Senator Orr’s bill was approved by the Committee and did not receive a full Senate vote.

Prison Reform - Buyer’s Remorse

One unexpected development this week was the decision of some of the state’s District Attorneys to try to undo last year’s prison reform measure. After a long study by the Prison Reform Task Force, legislation was passed last year designed to relieve the serious overcrowding issues in Alabama’s correctional facilities. The state’s prisons are filled to close to double their design capacity, and face the realistic threat of a federal takeover that could result in extraordinarily expensive upgrades to the system or the mass release of inmates. Despite the fact that the Task Force, which was chaired by Senator Cam Ward (R–Alabaster), included a wide range of stakeholders—including prosecutors—new objections were raised this week by some District Attorneys. The District Attorneys now object to several of the the changes made by the law, including the creation of a Class D felony in Alabama for low value, non-violent property crimes. The objectors have formed a new group, made up of District Attorneys, sheriffs, and police calling itself the Alabama Law Enforcement Alliance for Public Safety. The aim of the group is to reverse many of the changes made last year, which would almost certainly mean that more individuals would be sent to prison. The cost of the changes sought by the new group is not known, but the Alabama Department of Corrections is currently one of the largest items in the General Fund Budget. Combined with Medicaid, the two agencies annually consume roughly 60% of the $1.6 billion fund.

Prison Reform - Megaprison Construction

In his State of the State Address, Governor Robert Bentley proposed a fairly ambitious prison construction plan that would close multiple existing facilities and consolidate the housing of inmates statewide in four megaprisons. The Governor’s plan would theoretically save the state money through achieving economies of scale and by eliminating the costs of using and maintaining outdated facilities. This week, Jeff Dunn, the Commissioner of the Department of Corrections, provided additional details of the plan. According to the Commissioner, the state could issue $800 million in bonds in order to contract the four new megaprisons. The bonds would be repaid by the savings realized as a result of the projects. Commissioner Dunn estimates the total annual savings to be as much as $50 million, as a result of decreased need for overtime and staff in more automated modern facilities, as well as a reduction in inmate healthcare costs. Under the plan, three new 4,000 bed facilities for male inmates and one 1,200 bed facility for female inmates would be constructed. Fourteen of the sixteen existing prisons in the state would be closed. The result would be a reduction from sixteen facilities to just six. Senator Ward anticipates introducing legislation this week that would give the Department of Corrections the authority to begin the design phase of this plan.

Education Items

After favorably reporting the Alabama Ahead Act (HB41), sponsored by Representative Donnie Chesteen (R–Geneva) last week, the House Committee on Ways and Means Education passed a supplemental appropriation to fund it this week. As with the vote on the bill itself, the committee’s vote was unanimous. The Alabama Ahead Act will allow schools to use state funds to apply for federal matching funds to install wireless internet infrastructure.

The House Committee on Education Policy favorably reported HB125, which is sponsored by the committee’s Chairwoman, Representative Terri Collins (R–Decatur). The bill would create the Alabama Longitudinal Data System, which would track student performance throughout the state. Proponents, including many in the business community, cite the need to identify strengths and weaknesses in the state’s educational system for workforce development purposes. Opponents express significant concern about the centralization of so much of students’ personal data, even though it is theoretically kept anonymously, in one government database.

The General Fund Budget

The fights over the limited resources in the state’s General Fund are expected to begin in earnest this week when the Senate Committee on Finance and Taxation General Fund takes up the budget (SB125) for the first time this session. The fate of the state’s project to transition Medicaid administration from a traditional fee-for-service model to a capitated model managed by Regional Care Organizations (“RCOs”) will likely be in the balance. Similarly, the future nature of the state’s prison system will almost certainly be debated. Senator Trip Pittman, formerly the chairman of the Senate committee in charge of the education budget, will for the first time oversee the formation of a General Fund budget.

Conclusion

The Alabama Legislature has met for seven days of its 30 day regular session. The House of Representatives will reconvene at 1:30 PM Tuesday, February 23rd. The Senate will reconvene at 2:00 PM on the same day.

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