Alabama Legislative Update
The Alabama Legislature convened on March 3, 2015 for the first session of this quadrennium. The vast majority of legislators returned to Montgomery after November wins, with several newcomers joining veterans on the floor. Both the House of Representatives and the Senate increased their supermajorities in 2014.
GOVERNOR BENTLEY DELIVERS THE STATE OF THE STATE ADDRESS
On Tuesday night, re-elected Governor Robert Bentley took the podium in the Old House Chamber and laid out his plans for the 2015 Legislative Session, most notably his proposed $541 million revenue increase to shore up the General Fund budget. Governor Bentley stated that while Alabama must live within its means, it must also have “adequate means.” “The problems we face have been years, even decades in the making,” Bentley said. “We cannot cut our way out of this.”
Given that the Governor released his proposal the Friday before his speech, legislative leaders were not surprised. Most, however, reserved judgment. Senate President Pro Tem Del Marsh, R-Anniston, emphasized the need to make sure state government is cut down to essential services before considering tax increases. “He firmly believes we’ve got to raise revenues,” Marsh said. “He’s convinced…Right now, the Legislature I can tell you, by and large, is not convinced of that.”
Speaker of the House Mike Hubbard stated “I like the fact that (the Governor) outlined what we have done collaboratively between the executive and the legislative branch to move Alabama forward over the last four years. We have downsized the size of state government. We made it more efficient. We consolidated, and to be honest we have more we can do. We plan to do that this session.”
Governor Bentley pointed to the economic success Alabama has enjoyed in recent years but said Alabama’s economic incentives laws are now out of date and almost completely dependent on borrowing. He will ask the Legislature to replace those laws with his “Made in Alabama Accelerate Alabama Jobs Incentive Package,” which will target rural areas and small businesses. It will also include incentives for companies that hire veterans and credits to promote research and development. Hubbard agrees with Bentley’s economic development proposal but says the Legislature will likely revise it. “Anything we can do to incentive the private sector to create new jobs, we are going to be open to that,” he said.
The Governor, a retired dermatologist, also spoke about improving healthcare. Through an executive order, Bentley is creating the Alabama Health Care Improvement Task Force, a panel of 30 experts that will give him recommendations on how to improve the quality, accessibility and affordability of healthcare for our people. Bentley stated that Regional Care Organizations (RCOs) are being set up and “will focus on improved outcomes for patients to help lower costs and better manage the health care services given to those served by Medicaid.” While he recognizes that hospitals, especially those in rural areas, are dependent on Medicaid, he maintained “we cannot allow federal bureaucracy and the extremely flawed Patient Protection and Affordable Care Act to derail our efforts to make sure Alabamians have good quality healthcare, especially the poorest and most vulnerable.”
The Governor’s Revenue Proposals:
Corporate Income Tax
Require combined income reporting for corporations that do business in other states.
Estimated increase in revenue – $20 million
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
Cigarette and Tobacco Tax
Increase the tax to $1.25 per pack (increase of $0.825 per pack)
Increase tax on other tobacco products proportionately
Keep wholesalers’ discount the same as current
Estimated increase in revenue – $205 million
Read the Governor’s full speech here. http://governor.alabama.gov/newsroom/2015/03/2015-state-state-address-4
PRISON REFORM TO BE TAKEN DEBATED THIS SESSION
Alabama’s prison systems operate at 195% capacity, the most crowded in the nation. Governor Bentley supports an overhaul of the prison system, and Alabama lawmakers will likely take up a proposal that includes sentencing changes, more resources for probation and 2,000 new prison beds. Sen. Cam Ward, R-Alabaster, who chairs the state’s Prison Reform Task Force, has drafted a bill for the his colleagues’ consideration. Instead of a package of separate bills, Ward and members of the Task Force drafted a single piece of legislation. On Wednesday, it was the subject of a public hearing in the Senate Judiciary Committee. No vote was taken. The bill could include policy reforms and also limited construction – adding on wings to existing facilities – over the next four years. Ward believes those changes could decrease the inmate population to 140 percent capacity in that time frame. Ward acknowledges that funding these measures be challenging, especially in a year when revenue increases are being proposed to shore up the General Fund. The estimated cost of the reforms proposed in the bill would be about $35 million a year. If something is not done, however, federal intervention is possible.
CHARTER SCHOOL BILL PASSES COMMITTEE
Charter schools are one step closer to becoming a reality in Alabama. On Wednesday, the Senate Education and Youth Affairs Committee passed a substitute version of Senate Bill 45. The bill, sponsored by Senate President Pro Tem Del Marsh, R-Anniston, would allow school districts to convert existing public schools to charter schools and authorize the establishment of up to 10 start-up charter schools in the state each year for at least five years. The legislation would also exempt charter schools from a number of education laws, including teacher certification. The substitute bill was changed in part to eliminate a virtual charter option from the legislation; to explicitly require charter schools to participate in state bid laws; and to require a state commission that can override local rejections of charter schools on a majority vote, as opposed to a majority of those present. The bill will now go to the full Alabama Senate for a vote for consideration.
ENERGY SECURITY ACT CLEARS SENATE COMMITTEE
The Senate Transportation and Energy Committee favorably reported SB 52, the Energy Security Act. As put forth in the bill, under existing law, an electric supplier is required to serve its customers and expand its electric system as necessary to fulfill that duty. Recently established federal regulations may prevent an electric supplier from constructing and maintaining the new electric transmission facilities that it needs to expand its system. This bill would specify that an electric supplier would have the right to construct and maintain transmission facilities necessary to expand its system. The bill would provide for the appeal of disputes to circuit court. It now awaits its third reading in the Senate.
BILLS TO LIMIT INNOVATOR LIABILITY INTRODUCED
Innovator liability is a tort theory supported by the Alabama Supreme Court in its 2013 and 2014 Wyeth v. Weeks decisions, which held that a manufacturer could be liable for products that it neither produced nor sold. SB80 and HB 110 would limit that liability. As drafted, the bills would provide that a manufacturer is not liable, under any theory of liability, for damages resulting from a product not designed, manufactured, sold, or leased by the manufacturer. It would also provide that if a manufacturer’s design is copied without express authorization, the manufacturer is not subject to liability for personal injury, death, or property damage caused by the manufacturer’s product even if use of the design is foreseeable. The bills are pending in their respective judiciary committees.
INCENTIVE BILLS PASS HOUSE COMMITTEE
The House Economic Development and Tourism Committee favorably reported three economic development bills. During a public hearing, Alabama Department of Commerce Secretary Greg Canfield stated the new package would be more valuable to industrial targets than the current system and more acceptable to critics because the tax benefits are not paid to the project company until after jobs are created.
Alabama Veterans and Rural Jobs Act, HB57, by Rep. Elaine Beech, D-Chatom, would provide rural Alabama counties facing economic development challenges with the opportunity to offer enhanced incentives and access to capital. The incentives would include lowering the minimum new jobs requirement from 50 jobs to 25 jobs, increasing the jobs credit for qualifying projects from 3 percent to 4 percent, and extending the incentive period for the investment credit an additional five years, for up to 15 years. HB 57 also would create the Accelerate Rural Alabama Fund, which would authorize the State Industrial Development Authority to make loans to fund site preparation for companies in rural counties. Finally, it would allow businesses who employ veterans totaling at least 12 percent of its eligible workforce in the prior year to receive an additional 0.5 percent jobs credit, bringing the total credit to 3.5 percent of the wages paid during the prior year to eligible employees who are veterans.
The Alabama Jobs Act, HB58 by Rep. Alan Baker, R-Brewton, would provide job-credit cash rebate of up to 3 percent of the previous year’s gross pay, including fringes, for new and direct jobs, for up to 10 years, and an investment credit of up to 1.5 percent of the capital investment for the project each year for up to 10 years. The investment credit could be used to reduce income or equivalent taxes, and utility or business privilege taxes. The bill would further provide that for companies in certain manufacturing, engineering, research industries as well as data centers, there would be no minimum number of jobs created in order to qualify for the incentives. For all other industries, a minimum of 50 new jobs would be required to qualify.
Alabama Reinvestment and Abatements Act, HB59, by Rep. Paul Lee, R-Dothan, would provide incentives that promote capital investment and job growth by existing industry. Existing Alabama companies that qualify under the Alabama Jobs Act and have facilities refurbished, upgraded or returned to service with at least $2 million of capital investment, would be eligible for abatements of non-education, construction-related transaction taxes on materials, non-educational property taxes on the incremental increase in assessed value of the property from the improvements, and an exemption from increased utility taxes for up to 10 years.
Throughout the session, the Bob Riley and Associates team will monitor all proposed and pending legislation and maintain a presence in the Statehouse to protect our clients’ interests. Should you have any questions or concerns, please do not hesitate to call on us.
Minda Riley Campbell
Bob Riley and Associates
3530 Independence Drive
Birmingham, Alabama 35209
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