2017 Legislative Update: Week 6 And Second Half Preview

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04.03.2017

With the Masters golf tournament in Augusta just around the corner, it is appropriate to note that the Alabama legislative session has essentially made what golfers refer to as “the turn.” For non-golfers, the term is used to note that the round is half over, as the players begin the second nine holes of the course.

Technically, the 2017 Session is not half over yet, having used only 13 of the 30 permitted legislative days. But to mix sports metaphors, there certainly has been a halftime-like feeling to this period with the uncommonly long break that spanned from Thursday, March 16 to Tuesday, April 4. Assuming that the House and Senate meet two days this coming week, the session will have in fact reached that halfway point by week’s end. As the second half of the Session begins, there is at least one major disruptive issue that could hang over the remaining days of the Session: the possible impeachment of Governor Robert Bentley.

The Budgets

Both the House and Senate made significant progress on the State budgets in the week prior to the break, though much work remains to be done. The House passed the portion of the General Fund budget that the Legislature controls on Tuesday. The Senate Finance & Taxation Education Committee, chaired by Senator Arthur Orr (R–Decatur), reported an Education Trust Fund budget bill on Wednesday, in the hopes of passing it in the full Senate on Thursday. However, an ongoing and largely unrelated fight that Senator Paul Bussman (R–Cullman) has with Alabama’s colleges and universities appears to have led to a delay in that vote. The Senate will take up the ETF budget when it returns on Tuesday this week.

General Fund Budget

The General Fund budget that was approved by the House—by a 72-28 party-line vote—allocates approximately $1.84 billion to non-education state agencies. Interestingly, this is just a small percentage of the total amount by which those agencies are funded. In fact, when all sources of revenue are considered, the State spends approximately $15 billion on these agencies, or more than eight times the amount over which the Legislature has budgeting authority.

Under HB155, the General Fund budget, most General Fund agencies would be level funded in the next fiscal year. The bill would allocate a total of $805 million to the Alabama Medicaid Agency, an increase of $20 million over the prior year’s appropriation. Even with this increase, though, the amount appropriated is approximately $42 million less than was requested by the Governor in his budget proposal. The Medicaid appropriation includes $105 million in one-time funds from the State’s BP settlement. This source of funds will not be available for the next fiscal year, however. At least in part for that reason, the House decided to set aside $97 million this year to meet coming obligations, some expected and some uncertain. Additional discussion of possible Medicaid Funding issues is below.

HB155 would level fund the Alabama Department of Corrections at $413 million, though costs for construction and possible renovations to existing prison facilities could be allocated in the form of bond funds authorized in prison construction legislation. The status of the prison construction and renovation legislation is discussed in more depth below. It should be noted that the DOC and Medicaid now consume 1.2 billion of the $1.84 billion General Fund budget, or 66%.

Other issues of note in the General Fund budget include the decision by the House not to fund the Governor’s promised 4% raise for State employees, although the budget does include almost $10 million to cover increased employee insurance costs. The House also defeated an amendment proposed by Representative John Knight (D–Montgomery) that would have provided a one-time bonus to state employees of $1,600. The State may see a slight increase in the number of State Troopers if the House version of the budget passes, however, due to a $3 million increase in funding to the Alabama Law Enforcement Agency (“ALEA”). The budget specifies that this increase is to be used to fund a new class of State troopers of at least 30 individuals.

The General Fund budget has moved to the Senate, where it has been assigned to the Senate Finance & Taxation General Fund Committee, chaired by Senator Trip Pittman (R–Daphne). As of late Sunday, the General Fund budget was not yet scheduled for a committee hearing.

Medicaid Funding & Repeal/Replace

As noted above, the General Fund budget as passed by the House funds Medicaid at $805 million for fiscal year 2018. The budget also sets aside $97 million for FY2019—funds that appear more likely now to be absolutely necessary given uncertainty in Washington. Under the proposed—but thus far not passed—American Health Care Act (“AHCA”), Alabama could have received approximately $90 million in additional federal funds essentially as compensation for its decision not to expand its Medicaid program under the Affordable Care Act or Obamacare. State leaders also believed that passage of the AHCA would give the state new flexibility in managing the Medicaid program, which they seemed to believe could allow for reduced costs. With the failure of the AHCA on March 24, federal changes to the Medicaid program are unlikely in the near future. This means the State will probably be forced to find additional funds for the program in FY2019—including replacing the $105 million in BP settlement funds being used to reach the FY2018 funding level of $805 million.

In addition to filling the hole left by the lack of BP settlement funds in the next fiscal year, the State also faces the prospect of having to find an additional $90 million in state dollars to continue funding the popular and successful Children’s Health Insurance Program (“CHIP”) known as ALL Kids. For the past two years, the federal government has assumed the entire cost of the ALL Kids program. But the CHIP program must be reauthorized by Congress no later than September 20, 2017. When that occurs, it is possible that the Congress could vote to revert to prior funding formula, which would require a state match in the range of $90 million.

Prior to the recess, the Alabama House also approved the one-year reauthorization of both the hospital and nursing home assessments, used to fund those portions of Alabama Medicaid spending. The bills would simply leave in place the current assessments—which are essentially taxes—that are imposed on hospitals and nursing homes and used to draw down federal matching funds for the Medicaid program. As noted previously, Alabama is unique among the States in that the entire hospital portion of its Medicaid program is funded by the hospitals through this assessment, not through the state’s General Fund. Both assessment bills passed without a dissenting vote.

Education Trust Fund Budget

On the Thursday prior to recess, the Senate attempted for several hours to pass the Education Trust Fund budget before deciding to put the final vote off until they return this week. The ETF budget is expected to be voted out of the Senate on Tuesday, April 4. Although the Legislature controls a larger percentage of overall state spending on education, it still allocates less than half of the $15 billion total spent in Alabama each year. The ETF budget being debated by the Senate directs spending in the amount of $6.4 billion, or slightly more than 40% of the total amount spent on education in Alabama.

Although the incoming revenue to the ETF was greater this year, and is certainly much better than the available revenue for the General Fund, the Rolling Reserve Act that was passed six years ago caps increased spending in the ETF at $90 million for the coming fiscal year. A large portion of this increase—roughly $24 million—will be consumed by the uncapped veterans’ family scholarship program. Senator Gerald Dial (R–Lineville) has introduced a bill that would impose some reasonable restraints on the veterans scholarship program going forward. The Dial bill would not impact those with current scholarships, but would place some limitations on the program in the future, such as GPA and residency requirements. The Dial bill would also increase the financial assistance available to active members of the Alabama National Guard, a change designed to increase the ability of the Guard to recruit and retain members.

The ETF budget, SB129, which is sponsored by Senator Orr, would provide an additional $46 million to K–12 schools, to be used to hire 150–160 new teachers in grades 4–6. The bill would also increase funding for Pre-K programs by $15 million, to a total funding level of $79 million. This increase would be $5 million less than the amount requested by the Governor, but would allow a 14% expansion of the program. The ETF budget would not include an increase in teacher pay, but it would fully fund any increases in insurance costs for education employees.

As noted above, Senator Bussman slowed consideration of the ETF budget on the Thursday before break, in part based on his stated concerns that higher education was receiving too much from the budget. The split in the budget between higher education and K-12 programs is actually the same as prior years, with funding for K-12 close to three times the level for higher education. Senator Bussman has been in a fight with higher education over a bill he sponsored that would take away the authority of public colleges and universities to set requirements for students to live on campus. Senator Bussman had essentially shut down the Senate on the two previous days in order to bring his bill up for a vote. The Bussman proposal failed by a vote of 14–17.

Prison Construction Plan

As he did in 2016, Governor Bentley proposed an $800 million prison construction plan in his State of the State address this year at the beginning of the Session. The plan would have built four new mega-prisons, replacing nearly all of the existing state facilities. However, the bill, SB59 by Senator Cam Ward (R–Alabaster), did not have enough support to pass. It has been replaced by legislation that is significantly different in concept, though proponents state it will have the same beneficial effects.

SB302, also sponsored by Senator Ward, was introduced on Tuesday, March 14, was voted out of the Senate Judiciary Committee the next day and was passed 23–11 by the full Senate on Thursday, March 16. The bill has been assigned to the House Judiciary Committee, chaired by Representative Mike Jones (R–Andalusia). The bill would allow the construction of three new facilities, but the cost and the entities responsible for the creation of those facilities would be fundamentally different from the Governor’s original proposal. The bill has not yet been scheduled for a House Committee hearing.

SB302 would allow counties to create financing authorities, issue bonds, and bid for the opportunity to construct prisons that would be leased to the State for a 30 year period. The lease payments would be used to pay down the construction debt, and at the end of the 30-year period ownership of the facility would be transferred to the State. If local communities sign up to build the two facilities, then the State would be authorized to construct one, on which it could spend not more than $225 million. The State’s authority to finance and build a facility only kicks in if two communities agree to build prisons, though. If either fewer than two (0 or 1) or more than two (3+) communities sign up to build prisons, then the State would not be allowed to build one. The legislation also allows bonds in the amount of $125 million to be used for renovations to existing facilities—in particular the Tutwiler women’s prison in Elmore County.

Mandatory Unitary Combined Reporting

On Wednesday this week, the Senate Committee on Fiscal Responsibility and Economic Development, chaired by Senator Phil Williams (R–Rainbow City), will hold a meeting that will include discussion of SB62, sponsored by Senator Linda Coleman-Madison (D–Fairfield). SB62 would require Mandatory Unitary Combined Reporting (“MUCR”). Most in the economic development community say MUCR would severely damage Alabama’s ability to recruit and retain companies to the state. Proponents contend that the bill is needed to close loopholes in the tax code used by companies operating in multiple states—loopholes that the State sought to address in prior years through fixes such as “Add-Back” or the “Geoffrey Fix.” Opponents of the bill argue that it would simply amount to a tax increase on multistate businesses. Of note, SB62 is supported by Alabama’s Revenue Commissioner, Julie Magee, and is co-sponsored by Republican Senator Trip Pittman, Chair of the Senate Finance and Taxation General Fund Committee. The committee meeting will be held Wednesday afternoon.

Historic Tax Credits

On Wednesday, March 15, the House Ways & Means Education Committee held a public hearing on HB345, sponsored by Representative Victor Gaston (R–Mobile) and co-sponsored by 86 of the other 103 members of the Alabama House. The bill would re-institute the State’s Historic Tax Credit, a popular—and effective—program that was allowed to expire last year. The committee has scheduled a hearing for this coming Wednesday morning at which the bill could be voted on. The bill incorporates changes recommended by a study conducted by economists with the University of Tennessee at the request of Senate President Pro Tem Del Marsh (R–Anniston) and the Alabama Department of Revenue. The total per-year amount of credits would remain capped at $20 million per year, but under this bill the credits would be refundable, meaning that the holder would receive cash back from the state in the event that their income tax liability was less than the amount of the credit. HB345 would also restrict transfer of the credits to one time only, and would prohibit transfer at a price less than $0.85/$1.00. 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 bill is sponsored in the Senate by Senator Jabo Waggoner (R–Vestavia Hills). A substituted version of Waggoner’s SB262 was approved by the Senate Finance and Taxation Education Committee. The Senate substitute included changes sought by the Chair of the Committee, Senator Orr. For example, during the first three months of the year, available funds would be set aside in equal amounts for each of Alabama’s seven Congressional Districts. Additionally, 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. It is likely that some or all of the Senate changes will need to be incorporated into the House version before final passage.

Children’s Welfare & Religion

The Legislature appears to be taking what amounts to opposite tracks in connection with two child welfare measures before it. In one case, HB277, which is sponsored by Representative Pebblin Warren (D–Tuskegee) and co-sponsored by a broad bipartisan group, would remove a religious exemption in order to improve child protection. The other, HB24 by Representative Rich Wingo (R–Tuscaloosa), opponents argue would hurt the State’s ability to protect children by adding a religious exemption for child placement services.

Warren’s bill, HB277, which was carried over in the House during the week before the recess, would require all childcare facilities in the State to be licensed by the State Department of Human Resources (“DHR”). Under current law, facilities ostensibly operated by a church are completely exempt from inspection and regulation by DHR. This includes requirements that they meet minimal health and safety standards, and that the employees undergo criminal background checks. Representative Warren carried the bill over in order to negotiate terms that would allow it to pass.

HB24, on the other hand, would add a religious exemption to the law that would prohibit DHR from taking any adverse action against a private child placement entity when that entity takes an action that it contends is based on a sincerely held religious belief. It should be noted that no disciplinary action has been threatened to any child placement facility in Alabama for any decisions of this nature. Proponents have argued that states such as Massachusetts and Illinois have denied state funding to religious-based placement businesses based on those businesses’ decisions not to place children in same-sex couple homes. The entities at issue in Alabama do not accept state funding, however.

Most believe that HB24 is driven by an anti-LGBT sentiment that drove North Carolina to adopt HB2, the so-called “bathroom bill” which thus far is estimated to have cost North Carolina as much as $3.76 billion in lost economic growth. Decision-makers in Alabama do not believe, however, that HB24 would result in the same sort of backlash that North Carolina saw in connection with HB2. Opponents have also argued that because the law would prohibit DHR from taking any action to correct a possible inappropriate placement of a child when that placement is based on a religious belief, it is possible that its enactment would violate result in the loss of federal funding for DHR.

Health Insurance Mandates

On its face, HB284, sponsored by Representative Jim Patterson (R–Meridianville), purports to require health insurance policies to cover treatments for Autism Spectrum Disorder. In fact, however, what its proponents generally do not disclose is that its actual purpose is to require virtually all Alabama businesses, whether public or private, as well as individuals with healthcare coverage to purchase insurance coverage for these treatments, regardless of whether they want it or not. In fact, insurance policies in Alabama are currently required to offer coverage for these treatments, but because of its expense few individuals and businesses choose to include it. HB284 would change that, requiring the purchase of this coverage by over 1 million Alabamians. The bill would not require the State to pay for this coverage for those covered by Medicaid or through the Children's Health Insurance Program known as ALL Kids. However, it would require the state’s two largest public plans covering teachers and universities and state employees to pay for the benefit

Proponents of the legislation correctly state that because everyone would be required to pay for the coverage, the per-person cost of the coverage would be somewhat reduced, which is the same argument on which the individual mandate contained in Obamacare was based. That said, based on numbers provided by advocates for the legislation, the cost would still be extremely high. Proponents have stated that as many as 50,000 children are in need of this care in Alabama. They have further noted that the cost of the treatments is as much as $50,000 per year. Thus, under the figures provided by supporters of the legislation, the cost of the proposed required care under HB284 could be as much as $2.5 billion per year.

A public hearing was held on HB284 in the House Insurance Committee on Wednesday, March 15. The bill is expected to come before the committee for a vote on April 12.

Government Owned and Controlled Business

Both the Alabama House and Senate are controlled by filibuster-proof Republican majorities, and the bodies have tended to—correctly in most instances—portray themselves as pro-business and pro-market in philosophy. Despite this fact, or perhaps because of it, two measures in conflict with the concept of small government and the free market are noteworthy.

Government Owned Broadband Networks

Several measures introduced in the Senate by Senator Tom Whatley (R–Auburn), would allow the City of Opelika to expand its operations and offer telecommunications services and broadband connectivity outside of the city limits. Joe Lovvorn (R–Auburn) has filed similar bills in the House. The sponsors argue that private companies are not serving the citizens that the city-owned network would cover. Opponents argue that using taxpayer dollars to fund these services is a bad risk, particularly given how quickly telecommunications technology is changing. Governments are poorly equipped to re-invest or upgrade to the most current technology that consumers want and need. Free-market advocates also oppose the government entering into—and competing with—private service providers. Senator Whatley’s legislation has been placed on the Senate Transportation & Energy Committee agenda for Wednesday at 8:00 a.m.

State Operation of Retail Alcohol Stores

Oddly, the State of Alabama is currently a major player in the retail sale of alcohol, with the 175 or so State-owned stores in competition with hundreds of existing privately operated stores. Alabama currently has more than 600 privately owned and operated liquor stores that must purchase their inventory from the State-run stores, giving the State-run stores a built in pricing advantage. SB260, by Senator Orr, was favorably reported from the Senate Fiscal Responsibility and Economic Development Committee on March 9 by a vote of 10–3. Under Senator Orr’s bill, the State would remain in place as the sole wholesaler for spirits.

Perhaps more important, though, the taxes and mark-ups on liquor currently required under State law would be required to remain the same under SB260. Last week, the Alabama Alcoholic Beverage Control Board voted to increase liquor prices uniformly by 5%, a move that some dispute the ABC Board has the authority to make absent legislative approval.

Impeachment Proceedings

As noted above, the cloud of impeachment hangs over the Legislature as it heads into the second half of this session. During the two-week recess, Jack Sharman, the attorney hired by the House Judiciary Committee to conduct its investigation into whether to recommend impeachment of the Governor, announced a tentative schedule for the remainder of his task. Under this schedule, Sharman would present his findings to the House Judiciary Committee this coming Friday, April 7. The Committee would then hold hearings on impeachment the next week, April 10–14, during which both the Committee’s and the Governor’s counsel would be permitted to call witnesses. A final report would be issued by April 21, and the Governor would be permitted to respond by April 28. The Committee would vote on a recommendation on May 1, and then would forward its report to the full House on May 4.

If the Committee recommends articles of impeachment, the House would vote on that recommendation on May 9 under the proposed schedule. It would require 63 votes to bring impeachment articles to the floor of the House, although the vote on articles of impeachment themselves would only require a majority to proceed. If the House approves the articles of impeachment, the Governor would be suspended from office immediately, and the Senate would conduct a trial. 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. The Governor’s attorneys have objected to this schedule, arguing that it denies the Governor due process of law.

In the meantime, the Alabama Ethics Commission is expected to hold a hearing and hear testimony from witnesses regarding one or more ethics complaints filed against the Governor at its Wednesday, April 5 meeting in Montgomery. That hearing will be held behind closed doors, and it is not known yet whether the Commissioners will vote on the complaint at the meeting or if they will defer a vote to a later date. A vote to proceed by the Commission is not a determination by the Commission that the Governor is guilty of an ethics violation. Rather it is simply an indication that they believe that probable cause exists that a violation of the Ethics Act has occurred. The matter would then be referred to prosecutors, specifically the Attorney General and the District Attorney for the County in which the alleged violation occurred—in this case, likely Montgomery County.

Conclusion

The Legislature is expected to meet two days this week, on Tuesday and Thursday, the 14th and 15th Legislative days of the 2017 Session. Wednesday will be a busy committee day, with many in the Legislature possibly rushing to pass their priority legislation prior to the capital city becoming immersed—and distracted—by impeachment proceedings.

The House convenes on Tuesday, April 4 at 1:00 p.m. The Senate will begin its Session at 10:00 a.m. on the same day.

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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