2015 Legislative Update: Week 1

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The Governor’s State of the State and Agenda

On Tuesday, Governor Robert Bentley delivered his State of the State address. In it, he outlined his goals for this year’s legislative session. Governor Bentley opened the address with his economic development goals. He plans to support a package of five bills to modernize Alabama’s economic incentive program for recruiting and retaining business. Governor Bentley also discussed his revenue raising proposals. He plans to support a package of eight measures that would help to fill the significant hole in Alabama’s General Fund. Since the Governor first announced the details of the plan on February 27th, Republican leadership has indicated that the Legislature will give the package careful consideration. Both of these legislative packages are discussed in more detail below.

Finally, Governor Bentley announced the formation of the Alabama Health Care Improvement Task Force, comprising thirty health care experts that will make recommendations for improving health care in the state with a particular focus on lower income groups.

The Legislative Session Begins

Earlier on Tuesday, the Alabama Legislature convened for its 2015 Regular Session. Tuesday’s Session was pro forma in nature, allowing bills to be introduced and receive their first reading. The legislature went to work in earnest on Wednesday, however, moving bills from committee and to the floor where some are now in position to be approved by their original body this coming Tuesday.

Governor’s Economic Development Package

The House Committee on Economic Development & Tourism met on Wednesday and first addressed three of the Governor’s economic development bills. The Alabama Jobs Act, House Bill 58, sponsored by Rep. Alan Baker (R-Brewton), is the centerpiece of the Governor’s revamped economic incentives package. The bill would provide companies locating in Alabama with a credit equal to 3% of the payroll for new jobs created. The bill would also provide a capital investment credit of 1.5% for a ten year period. House Bill 57, the Alabama Veterans and Rural Jobs Act, sponsored by Representative Elaine Beach (D-Chatom), would supplement the credits available under Mr. Baker’s bill for projects in rural counties and for projects that hire veterans. The bill originally set the definition of a rural county at those with populations with 50,000 or fewer residents, but a Committee amendment raised the threshold—thereby potentially expanding the availability of the increased incentives—to 70,000. Finally, House Bill 59, the Alabama Reinvestment and Abatements Act, sponsored by Rep. Paul Lee (R-Dothan), would provide tax incentives for reinvestments in existing business and for the abatement of non-educational ad valorem taxes and sales and use taxes. The Committee favorably reported these bills, which are first up on the House Regular Order Calendar on Tuesday. If you are interested in details regarding these bills, how they work, and how they may impact your business, please contact our Government Affairs group for assistance.

The Economic Development Committee, Chaired by Rep. Alan Harper (R-Northport) also addressed two pieces of legislation that would remedy problems created by a recent decision of the Alabama Supreme Court. On Friday, February 27, the Court held that a 2009 law allowing cities of 1000 or more to hold referenda to decide whether to allow the sale of alcohol within their limits to be unconstitutional. The Court held that the so-called “municipal option” law violates the Equal Protection Clause of the United States Constitution, because it specifically excluded three counties from the legislation. Since 2009, however, more than thirty cities have elected to allow the sale of alcohol, and the Court ruling has placed the legality of such sales going forward in doubt. To remedy this issue, Rep. Jimmy Martin (R-Clanton) introduced legislation that would ratify any previously held referenda. Rep. Martin also sponsored legislation that removed the exclusion for the three counties that resulted in the Equal Protection violation. These bills were also favorably reported, and are on the House Regular Order Calendar for passage as early as Tuesday. Simultaneously, companion legislation introduced by Sen. Paul Sanford (R-Huntsville) was reported by the Senate Committee on County and Municipal Government. The Senate bills could be passed by the Senate as early as Tuesday.

General Fund Budget and Governor’s Revenue Package

Without question, the main issue that will occupy the Legislature this session will be the General Fund budget and Governor Bentley’s proposed revenue package to remedy the shortfall in that budget.

On Thursday, the Chairman of the House General Fund Budget Committee, Steve Clouse (R-Ozark), introduced the Governor’s budget proposal, House Bill 135. Thus far, only two of the underlying tax bills proposed by the Governor have been introduced.

House Bill 142, introduced by Rep. Mike Hill (R-Columbiana), would move the state to Unitary Combined Reporting for corporate income taxes. The Governor has stated that this legislation would prevent corporations doing businesses in Alabama from avoiding corporate income tax liability based on operations in other states. The Governor has estimated the revenue generated by this proposal at $20 million, though others have guessed that the actual impact would be much greater.

House Bill 139, introduced by Rep. Steve McMillian (R-Bay Minette), would increase tax on sales of tobacco products. The bill would increase the tax on cigarettes to $1.25 per pack—an increase of $0.825 per pack. It would also increase tax on other tobacco products proportionately. The Governor has estimated the increase in revenue from this measure at $205 million.

The remainder of the Governor’s tax package has not yet been introduced. In his February 27 speech, he listed the following additional measures that he planned to introduce:

Financial Institution Excise Tax
Remove the credit that financial institutions receive for sales taxes paid
Estimated increase in revenue – $1 million

Insurance Premium Tax
Remove the credit for state privilege tax paid by insurance companies
Remove the credit for ad valorem tax paid by insurance companies
Remove the office facilities and real property investment credits made by insurance companies
Estimated increase in revenue – $25 million

Public Utilities License Tax
Remove exemption that applies to municipal utilities
Estimated increase in revenue – $47 million

Individual Income Tax
Eliminate income tax withholding exemption certificates
Estimated increase in revenue – $12 million

Sales Tax for Automobiles
Increase the rate for automobile sales to 4%
Estimated increase in revenue – $200 million

Rental Tax for Automobiles
Increase the automobile rental tax to 4%
Estimated increase in revenue – $31 million

Other Items of Note

Among other legislation of note, the Senate Judiciary Committee held a public hearing on Wednesday on the legislation implementing the recommendations of the Prison Reform Task Force. This comprehensive legislation, Senate Bill 67, sponsored by Sen. Cam Ward (R-Alabaster) seeks to address the overcrowding in Alabama’s prisons by a variety of means. The hearing on Monday generated a great deal of comment regarding the legislation, but the Committee has not scheduled a vote.

Public Charter School legislation, a major piece of the House and Senate Republican Caucus agendas, cleared its first hurdle on Wednesday when the Senate Education Policy Committee, Chaired by Sen. Dick Brewbaker (R-Montgomery), favorably reported the legislation by a vote of 4-3. The Senate Legislation is sponsored by Senate President Pro Tem Del Marsh (R-Anniston) and could be voted on by the full Senate on Tuesday.

Schedule

The Legislature reconvenes on Tuesday, March 10 in Montgomery. The Senate convenes at 2:00, and the House convenes at 1:00. The bodies are expected to meet three (3) days next week—on Tuesday, Wednesday and Thursday. The Alabama Legislature can meet for a total of thirty days over a one hundred five-day period. If the House and Senate meet three days next week, they will have used five of the thirty available days.