2017 Legislative Update: Week 5

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The legislative session is officially one third over, with 10 of the permitted 30 meeting days having been used. The House and Senate met on Tuesday and Thursday this week, and both chambers plan to meet three days next week prior to recessing for a two-week break.

The Budgets

It was widely expected that both budgets would begin to move this week. That expectation was only half met, as the General Fund budget was debated and then favorably reported from the House Ways & Means General Fund Committee on Wednesday. The General Fund budget, along with several budget-related bills, will be taken up by the full House on Tuesday of next week. The Education Trust Fund budget did not receive a committee hearing in the Senate. It is expected to be addressed by the Senate Finance & Taxation Education Committee this coming week, and it could be voted on by the full Senate as early as Thursday.

General Fund Budget

Most state agencies would be level funded this coming year under the $1.843 billion General Fund budget approved by the House committee. In most respects, the budget tracks the one proposed by Governor Robert Bentley. There are, however, some exceptions. The Governor’s budget had called for a 4% cost of living adjustment for state employees, at a cost of approximately $19 million annually. The approved budget removed that adjustment. State employees last received such a raise in 2008. The overall budget is actually almost $5 less than last year’s, although some agencies receive slightly higher appropriations. In particular, the Alabama Law Enforcement Agency would receive $3.3 million to hire an additional 30 troopers.

Medicaid Funding

The committee-approved General Fund budget funds the state's Medicaid Agency at a level about $42 million short of the Governor’s request of $849 million. Under the budget to be voted on by the House next week, Medicaid would receive $701 million from the General Fund, plus $105 million that the Legislature set aside from the BP settlement during last year’s special session.

Of particular interest in this year’s budget, Chairman Steve Clouse (R–Ozark) has set aside $97 million in funds for the next fiscal year—a rare but very wise move. The reasons behind this set aside are manifold, but mostly relate to the Medicaid program. First, there is tremendous uncertainty both here and in Washington about what will become of federal funds available to the State under the Medicaid program. This week, Republicans in Washington unveiled their plan for the repeal and replacement of the Affordable Care Act, also known as Obamacare. Under that plan, state funding would be capped on a per person basis, which could create a shortfall at the state level depending on the cost of care. Second, as Chairman Clouse noted, next year Alabama will not have the $105 million in BP funds available this year to prop up the Medicaid budget.

Traveling alongside the General Fund budget in the House is the renewal of the Hospital Assessment. Alabama is unique among the states in that the entire hospital portion of its Medicaid program is actually funded by the hospitals themselves through an assessment—and not with state General Fund dollars. Last year the assessment was renewed for just one year, based on the uncertainty surrounding the State’s ongoing plan to transform Medicaid to a managed care system relying on Regional Care Organizations (“RCOs”). This year, with continued uncertainty with respect to both RCOs and the Obamacare replacement plan, the assessment would again be renewed for just one year.

Education Trust Fund Budget

The Education Trust Fund budget is expected to be heard in committee this coming week, though as of this writing a meeting has not been posted. As with previous years, the Education Trust Fund is likely to find itself in a significantly better position from a revenue perspective than the General Fund. Nevertheless, both the House and Senate Education budget chairs—Representative Bill Poole (R–Tuscaloosa) and Senator Arthur Orr (R–Decatur)—have begun warning members that “better” does not necessarily mean “good.” Last year’s Education Trust Fund budget was $6.3 billion. Although there is growth in the Education Trust Fund, the additional amount that can be appropriated this coming year is capped under the Rolling Reserve Act at $90 million. Increases in insurance and retirement costs likely will eat up about $40 million of that amount. Pre-kindergarten programs are also likely to receive an increase, possibly as much as $20 million. The committee’s discussions will help to define further the state’s education spending plan.

Prison Construction Plan

The Governor’s proposed prison construction plan underwent some remodeling itself this week, as SB59, by Senator Cam Ward (R–Alabaster), was voted out of the Senate Judiciary Committee. As originally conceived, the Governor’s proposal would have permitted approximately $800 million in bonds to be issued to construct four mega-prisons, three to house male inmates and one to replace the Tutwiler women’s facility in Wetumpka, Alabama.

The bill that emerged from Committee on Wednesday would authorize $775 million in bonds to build three new male facilities. Instead of a new facility for female inmates, the Tutwiler prison would undergo significant renovation. The substituted legislation also dropped the Governor’s plan to use a design–build contract where the same entity would design the project and then oversee its construction. While the Governor argued that proceeding with design–build would be cheaper, some legislators were concerned that it would leave many Alabama companies unable to compete for the work. Additionally, there were concerns that deviating from the State’s ordinary bidding process might somehow lead to corruption. As substituted, SB59 would also allow counties to build prisons that could be leased to the State. The bill can now be brought before the full Senate for a vote, although it is not certain when that will occur.

Historic Tax Credits

Also on Wednesday, the Senate Finance & Taxation Education Committee gave its approval to a substitute version of Senator Jabo Waggoner’s (R–Vestavia Hills) bill to re-institute the state’s Historic Tax Credit. This popular—and effective—program was allowed to expire last year. A study conducted by University of Tennessee economists at the request of Senate President Pro Tem Del Marsh (R–Anniston) and the Alabama Department of Revenue rated the program a “B” and recommended some changes to improve it.

As substituted, SB262, which is sponsored in the House by Representative Victor Gaston (R–Mobile), would reinstate the program for a period of five years. The credits would remain capped at $20 million per year. However, the credits would be refundable under the latest version of the legislation—meaning that the holder would receive cash back from the state in the event that its income tax liability was less than the amount of the credit. SB262 would also restrict transfer of the credits to one time only, and would prohibit transfer at a price less than $0.85 per $1.00 of credit. Finally, as recommended by the UT study, the bill would create a committee to evaluate proposed projects to ensure that the state was receiving the best value for the credits. The substitute also includes two changes sought by Senator Orr. First, for the first three months of the year available finds would be set aside in equal amounts for each of Alabama’s seven Congressional Districts. Second, the age for eligible structures would be increased from 50 years—as it was under the prior law and is under the federal historic tax credit program—to 75 years.

Health Insurance Mandates

A bill that would require all Alabama businesses and individuals to purchase insurance coverage for Autism Spectrum Disorder received a public hearing in the House Insurance Committee this week. HB284, by Representative Jim Patterson (R–Meridianville), would require all those purchasing health insurance in Alabama to pay for coverage for a particular type of Autism treatment as well. Advocates seek to require the purchase of this coverage by all Alabamians for the same reason some business groups oppose the mandate—the treatments, and thus the coverage, are expensive. As introduced, Representative Patterson’s bill would not require the state to pay for or provide this coverage for children covered by Medicaid or through the Children's Health Insurance Program, known as ALL Kids.

State’s Role in Retail Sale of Alcohol

The Senate Fiscal Responsibility & Economic Development Committee approved a bill on Wednesday that would phase out the state’s retail alcohol operations. Alabama currently has more than 600 privately owned and operated liquor stores. These stores compete with the approximately 175 state-owned ABC stores. But the private stores must purchase their inventory from the state stores—giving the state-run stores a built-in pricing advantage. SB260, by Senator Orr, would phase out the Government stores over a five-year period. The state would remain the sole wholesaler for spirits. The taxes and mark-ups on liquor currently required under state law would remain the same. The bill received a vote of 10–3 in Committee with one abstention.

Impeachment Proceedings

Speculation regarding impeachment of the Governor increased significantly this week as both the House and Senate proceeded with what could be seen as preparatory activities. Following a heated debate in the House Judiciary on Tuesday morning, the committee voted unanimously the next day to authorize their special counsel to resume his investigation into the Governor. That investigation had been placed on hold last November at the request of the Attorney General’s office. Meanwhile, on the Senate side, a subcommittee of the Senate Judiciary Committee led by Senator Phil Williams (R–Rainbow City) moved closer to proposing rules by which the Senate would conduct an impeachment trial. The subcommittee has essentially decided to use the rules put in place by the State of Illinois. The subcommittee recommended the adoption of the Alabama Rules of Evidence for any proceeding.

Under a combination of constitutional provisions and rules adopted last year, the House Judiciary Committee, Chaired by Representative Mike Jones (R–Andalusia), is investigating the possible impeachment of the Governor. The Committee will make a recommendation to the full House. If it recommends articles of impeachment, it would require 63 votes to bring that recommendation to the floor of the House. Once before the House, though, a vote on articles of impeachment would only require a simple majority to pass. If the House approves the articles of impeachment, the Governor would be immediately suspended from office, and the Senate would conduct a trial. Permanent removal from office by impeachment would require a two-thirds vote of the Senate. That Senate trial would be presided over by the acting Chief Justice of the Alabama Supreme Court.

Conclusion

The Legislature is expected to meet three days next week, on Tuesday, Wednesday, and Thursday. The House convenes on Tuesday, March 14 at 1:00 p.m. The Senate will begin its session at 2:00 p.m. on the same day. As noted above, after this week the Legislature plans to take a two week break, reconvening on April 4th.

If you have any questions or would like to reach out for more information, please contact Edward A. "Ted" Hosp or Edward A. O'Neal. To read more about Maynard's Governmental and Regulatory Affairs Practice, please click here.

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