Legislative Update: First Special Session Wrap Up

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The General Fund Budget

The first special session of 2015 concluded after a longer than expected final day during which the House of Representatives passed several minor pieces of legislation. In many minds, the session ended yesterday when the House voted to non-concur with the General Fund Budget passed earlier in the day by the Senate. The House vote was overwhelming: 2-93 for a budget that had only barely passed the Senate by a vote of 19-15. The Senate-passed budget in many ways resembled the budget passed by the Legislature during the regular session. However, this budget was $17 million smaller overall because the Legislative Fiscal Office has revised down its projections of the state’s revenues for 2016 due to a decline in oil and gas lease revenues over this summer.

The budget passed by the Senate would have cut Medicaid spending by just under 5% to a level of $653 million. Dr. Williamson, the Chair of the Medicaid Transition Task Force, has said that he would need approximately $100 million more in order to complete the RCO transition process.

Additionally, the Alabama Board of Pardons and Paroles and the Department of Corrections would have received $16 million more than they did in 2015 in order to implement the prison reform measures adopted during the Regular Session. Alabama is under increasing pressure to take steps to relieve its badly overcrowded prisons, which currently house nearly twice as many prisoners as they were designed to accommodate.

The Alabama court system would have been cut by 6%, and all other agencies would have face higher cuts—many as high as 18.5%. During the debates on the budget, though most expressed displeasure, nearly all seemed to believe that they were discussing and voting on a budget that would never actually become law.

In contrast, the House had previously passed a budget that placed most of the cuts on Medicaid—in an effort to isolate the issue of Medicaid funding and focus the discussion on what to do about the growing burden the agency places on the state’s General Fund. As noted above, the House-passed budget was rejected by the Senate.

The Governor’s Position

As many are aware, Governor Bentley quickly vetoed the budget that the Legislature passed in June. It had been generally assumed that the Governor would have taken the same action with regard to either the budget passed by the House or the version approved by the Senate. As it turned out, however, the Governor never got the chance.

Prior to the special session the Governor proposed several revenue raising measures, but all but one were rejected by the Legislature. The one bill that was passed would prohibit individuals from exempting themselves from withholding, and is anticipated to raise approximately $12 million for the Education Trust Fund. Unfortunately, it is the General Fund that actually needs additional revenue. In all, Governor Bentley’s proposed revenue bills would have added approximately $300 million to the General Fund.

What Happens Next

The primary question at this point is when the next special session will begin, and which measures stand a chance of being adopted. At various times during the first special session, the following measures or concepts were considered or discussed, and at times seemed to have some support, though not enough to pass:

• A bill to eliminate the FICA deduction, which was estimated to raise $182 million;
• A bill to raise the maximum amount due under Alabama’s Business Privilege Tax, which was estimated to raise $39 million;
• A bill to raise taxes on cigarettes by $0.25, which was estimated to raise $66 million; and
• Bills to impose provider taxes or assessments on pharmacies and nursing homes to fund Medicaid and draw down additional Federal funds;

The state’s share of the BP settlement will also be in play when the Legislature is brought back into special session. If the settlement is approved, it has been reported that the state would receive an initial mini-lump sum payment of approximately $200 million in year 0, no payments in years 1 and 2, and then would receive approximately $53 million per year for the remaining period of the settlement. It is not known, however, when the first payment might be received.

Finally, the Legislature did not significantly examine or debate Senator Del Marsh’s plan to create an Alabama lottery and to allow casino gaming at the sites of the state’s four existing dog tracks. During the regular session, a study by Auburn University at Montgomery concluded that the measure—at least as it was proposed during the regular session—would raise approximately $325 million for the Education Trust Fund through the lottery and $75 million for the General Fund through the addition of casino gaming. Senator Marsh’s plan would require an amendment to the state’s constitution, and it will likely be re-introduced in the next Special Session.

Because the state lacks a General Fund budget, it is necessary for the Governor to call another Special Session so that a budget can be adopted. Unlike the Federal Government, there is no provision under Alabama law for a continuing resolution, or for a measure that allows “essential” government functions to continue without a budget. If there is not a budget in place by October 1, the State government lacks the authority to spend any money, and is constitutionally prohibited from incurring any debt.