Legislative Report – June 3, 2019

Volume 20 Number 10 – June 3, 2019

25th, 26th, 27th & 28th legislative days

Legislature Approves Constitutional Amendment for Appointed State School Board, Adjourns Sine Die

Late Friday afternoon, the Alabama legislature adjourned sine die for the 2019 legislative session.

On the final day, the House approved an amendment to the state constitution to replace the state’s elected Board of Education with an education commission appointed by the governor and confirmed by the state Senate.

Under the plan, the governor would appoint at least one member from each of the state’s seven congressional districts for a total of nine members. The bill says the membership of the commission would reflect the diversity of the enrollment in state public schools based on race, gender and geography.

The commission would appoint a Secretary of Elementary and Secondary Education, a position that would replace the current position of state Superintendent. The bill would also require the commission to adopt course of study standards “in lieu of common core.”

The bill was a priority for the sponsor, Senate President Pro Tem Del Marsh (R – Anniston), and Governor Kay Ivey. Voters will have the final say on the measure, which will be on the March 2020 ballot.

Notable Legislation Considered this Session

Rebuild Alabama Act

This year’s legislative session started with the gasoline tax for roads, clearly established as the top priority for leaders in the Republican-controlled legislature and Governor Kay Ivey. The legislation quickly passed with bipartisan support during a special session Ivey called to focus on the issue.

The tax on gasoline and diesel will increase by six cents a gallon after August 31 and by two cents each of the next two years.

The 10-cent increase is projected to raise more than $300 million a year for roads. The state gas tax was last raised in 1992. Advocates for the increase said the state could not build and maintain a road system to handle traffic volume and economic demands without more revenue.

Abortion Ban

Rep. Terri Collins (R – Decatur) sponsored legislation that has been signed by the Governor to effectively ban abortions at any time during the pregnancy.

The law, which goes into effect in November, allows an exception to protect the woman from a serious health risk but no exception for pregnancies caused by rape or incest. Providing an abortion would be criminalized, and doctors who perform an abortion could face up to 99 years in prison.

The American Civil Liberties Union (ACLU) and Planned Parenthood have already filed suit against the law. The legal action comes as no surprise to the bill’s authors and sponsors in the state legislature, who have stated that the goal of their legislation is to challenge Roe v. Wade.

“We not only expected a challenge to Alabama’s pro-life law from ultra-liberal groups like Planned Parenthood and the ACLU, we actually invited it,” Rep. Collins said in a statement. “Our intent from the day this bill was drafted was to use it as a vehicle to challenge the constitutional abomination known as Roe v. Wade.”

Prison Reform

A bill to make the executive director of the Alabama Board of Pardons and Paroles an appointee of the Governor passed over the objections of Democrats, who said it would politicize the parole system. Governor Ivey and Attorney General Steve Marshall backed the legislation, which came after a parolee with a long criminal record was charged with killing two women and a child in Guntersville last year. The bill puts limits on early parole consideration into state law.

The legislature also passed a bill to increase pay and bonuses for correctional officers to help hire and keep more on the job. Prisons have about one-third the number of officers needed. The General Fund budget also includes a $40 million increase for prisons.

The Governor is expected to call a special session later in the year to address the state’s overcrowded prison system.

Medical Marijuana

The legislature approved a bill to set up a 15-person commission to develop recommendations on the implementation of medical marijuana. The bill was sent to Governor Ivey for her signature.

The commission must present recommendations by December 1, 2019.

The legislation also renews Carly’s Law, which would have expired July 1, for another year. Carly’s Law, passed in 2014, authorizes a study of cannabidiol (CBD) oil at UAB. Several families of children who suffer major seizures have said their children have made significant progress after taking CBD oil.

The bill is a step back from the original Senate-passed bill which would have authorized physicians to prescribe the use of marijuana in 2021 for a dozen different medical conditions, including cancer, ALS, opioid addiction and post-traumatic stress disorder (PTSD).

Sen. Tim Melson (R – Florence), the sponsor of the bill, and a practicing physician, said he would work to bring a medical marijuana authorization bill in the 2020 session.

Equal Pay

Lawmakers approved a bill to prohibit employers from paying employees differently based only on race or sex. The legislation clarifies what factors employers can use to justify paying employees differently. It says those factors include seniority, a merit system, a system based on quality or quantity of production, or a differential based on factors other than sex or race. Employees would have up to one year from the time of the discrimination to file a civil action.

The bill exempts businesses with 50 employees or less from the provisions of the law.

Lottery

A constitutional amendment to allow for a lottery passed the Senate but stalled in the House.

The amendment would have restricted lotteries to paper-based games and was forecast to bring in $167 million a year. 75 percent of the money would have gone to the General Fund and 25 percent to the Education Trust Fund (ETF). As a constitutional amendment, the lottery would have needed voter approval.

Alabama Incentives Modernization Act

The Alabama Incentives Modernization Act will create new incentives for tech companies in the state, add to the incentives available for rural counties, and create further benefits for Opportunity Zones in the state.

Under the legislation, incentives in the form of investment and tax credits will be awarded to companies that bring at least 10 new jobs to a county that has had sluggish job growth and a declining population.

The measure also creates specific incentives for technology companies, which would only need to create a minimum of five jobs to qualify for the investment and tax credits.

In order to attract technology companies to Alabama, the bill eliminates the tax on capital gains for investors and employees of technology companies that move to Alabama, with the caveat that the companies must relocate to the state at least three years before being sold and stay in the state five years after the company is sold.

The same restriction applies for the company’s employees to realize zero capital gains tax. For investors, the break on capital gains tax only occurs if the investors reinvest the funds in other Alabama companies for the following five years after the original company is sold.

Christie Strategy Group Client Interests

Broadband

HB 400 by Rep. Randall Shedd (R – Cullman), which was signed into law by Governor Ivey, will allow electric co-ops, municipal electric companies, and Alabama Power Company to offer broadband service.

Christie Strategy Group (CSG) client, the Alabama Cable and Broadband Association (ACBA), worked extensively with stakeholders throughout the entire process to ensure that protections were included in the bill. The primary protections include

• Strengthened cross subsidization language that prevents utilities from charging higher prices for one group of consumers (electric) to artificially lower prices for another group (broadband).

• Pole attachment language that mandates the electric provider apply uniform rate methodology to determine pole attachment rates and terms and conditions.

• Electric providers engaged in broadband must also provide an annual report to the Legislature detailing their pole attachment rates.

SB 90 by Sen. Clay Scofield (R – Guntersville), which was also already signed into law, makes changes to the Alabama Broadband Accessibility grant program.

ACBA proposed several changes to the Senate-passed legislation, which were incorporated into the House-approved bill.

The updated Act expands the definition of an “unserved area” eligible for grant funding and increases the percentage of project costs available from the grants. It also allows for “middle mile” projects, which are broadband projects that do not serve a customer, and projects that serve a hospital, public school, public safety, or economic development site in a rural area. Forty percent of the total grant program can be used on these projects.

The ETF budget includes $20 million for the grant program, up from $7 million last year.

Craft Beer Legislation

SB 404 by Sen. Rodger Smitherman (D – Birmingham) would allow a small craft brewery to own a brewpub in Alabama, but would only permit the transfer of alcoholic beverages from the manufacturer to the brewpub through a wholesaler. It would also provide that the privilege or excise tax on beer is levied at the time the beer is allocated by the brewery or brewpub for the purpose of retail sale before being dispensed for consumption. This provision provides a significant tax cut for all breweries/brewpubs and assists both the industry and state regulators by simplifying when beer is taxed.

The bill was sent to the Governor for her signature.

Monday Night Brewing, a craft brewery based in Atlanta and client of Christie Strategy Group, has signed a contingent lease as part of the Denham Building project in downtown Birmingham. This bill is necessary to allow Monday Night Brewing to move forward with the development.

Budgets

The legislature approved a $7 billion Education Trust Fund (ETF) budget, which is the largest in state history.

The budget included a four percent pay raise for teachers and other public school employees and an additional $27 million for the state’s pre-k program. Other increases include $28 million for the state community college system, $6.5 million for the Alabama Reading Initiative, $79.5 million for the state’s four-year colleges, and $1.25 million for the Alabama Math, Science, and Technology Initiative (AMSTI).

The legislature also approved a $2.1 billion General Fund budget, which included a two percent pay raise for state employees. The General Fund pays for most non-education programs in the state. The budget derives much of its revenue from revenue sources that post flat growth, and the General Fund has struggled to deal with the rising costs of programs in the past.

Increases in the General Fund budget include $9 million for the Department of Mental Health, $40 million for the Department of Corrections, and $6 million for the Alabama Law Enforcement Agency. Medicaid will receive approximately $50 million less this year due to money it is expected to carry over because of savings on prescription drugs and other factors.

CSG client, the Alabama Service Providers Association, sought line items in both budgets to fund a rate increase for residential habilitation service providers. The ETF included $960,000 and the General Fund included $1,037,025 for these rate increases. Residential service providers have not received a rate increase in many years, and these increases will help providers hire and retain quality direct care workers to care for our state’s most vulnerable citizens.

Railroads

Several bills that would significantly affect Alabama railroads were introduced this year.

The Alabama Railway Association (ARA) sought language in HB 400, the broadband bill previously mentioned, to ensure that all permitting processes are followed by electric utilities and broadband companies when operating in the railroad right of way.

HB 457 by Rep. Rod Scott (D – Fairfield), which has been sent to the Governor for signature, would allow a tax credit against the state income tax of a short line railroad’s reconstruction or replacement expenditures.

HB 484 by Rep. Napoleon Bracy (D – Mobile) would mandate two-man crews for all freight railroads in the state. The ARA opposed this legislation and testified in opposition during the House committee hearing. The bill was approved by the committee on a voice vote as a courtesy to the sponsor, but never came to a vote on the floor of the House.

HB 70 by Rep. David Standridge (R – Hayden) and SB 159 by Sen. Donnie Chesteen (R – Geneva) would allow fiber companies to cross railroad right-of-way by short-circuiting the engineering review process and capping fees railroads could assess in order to recoup costs. The ARA strongly opposed the legislation due to safety and property rights concerns.

The House committee approved the bill, despite compelling testimony in opposition, but it did not go any further. The Senate committee also heard testimony from rail experts and did not take action on the legislation.

Fantasy Sports

Lawmakers have proposed legislation to approve fantasy sports contests for several years after a ruling by then-Alabama Attorney General Luther Strange saying the contests violated Alabama gambling laws.

HB 361 by Rep. Kyle South (R – Fayette), which legalizes the contests, was sent to the Governor during the final week of the session.

CSG sought an amendment on behalf of the Choctaw Resort Development Enterprise to clarify that fantasy sports contests are games of skill, not chance. The amendment was accepted in House committee and maintained in the legislation throughout the process.

Lease Tax

A potential legal challenge concerning the proper method of determining which taxing jurisdictions should receive leasing/rental taxes (lease tax) on motor vehicles caused the Automobile Dealers Association of Alabama (ADAA) to introduce legislation clarifying that the current method has in the past and will in the future be legal.

This legislation, which was sponsored by Sen. Clay Scofield (R-Guntersville) and Rep. Steve Clouse (R-Ozark), was signed into law by Governor Kay Ivey on April 30.

CSG sought language to ensure that JM Family Enterprises is following the law but not adversely affected by this new legislation. The language was accepted and maintained throughout the legislative process.

Occupational Tax Ban

A proposal to require cities to gain passage of a local act prior to adopting an occupational tax gained unexpected momentum in the final days of the legislative session.

SB 305 by Sen. Jimmy Holley (R – Elba) passed the Senate early in the session with little fan fair and was bottled up in the House County and Municipal Government Committee. Unfortunately, the bill came out of committee after being held for a period of several weeks.

This legislation was specifically designed to prevent the city of Montgomery from adopting an occupational tax under a new Administration after the elections later this summer.

Although the bill was placed very high on two separate calendars by the House leadership, CSG was able to get the bill carried over on one occasion and overwhelmingly defeated the budget isolation resolution on another.

Container Ban

Legislation was introduced in both the House and Senate on behalf of the plastic bag industry and NFIB to eliminate the ability of city governments to either regulate or tax the use of auxiliary containers including plastics, paper, Styrofoam, cardboard, or other materials.

CSG worked with representatives of the Big 5 cities, governments on the gulf coast, and the Alabama League of Municipalities to defeat this legislation in both the House and Senate where it was either carried over or the budget isolation resolution was defeated, killing the bill for this session.

Direct Shipment of Wine

CSG worked with sponsors of legislation in both the House of Representatives and the Senate to amend legislation to allow for the direct shipment of wine by manufacturers to consumers in Alabama.

While many wholesalers and distributors of alcohol in Alabama vigorously fight these bills as an affront to the three-tier system (manufacturers, distributors/wholesalers and retailers), CSG worked on behalf of our client International Wines and Craft Beers to achieve a compromise, which would allow direct shipment to occur in Alabama.

CSG specifically worked to craft a more reasonable compromise on the amount of wine that could be directly shipped to a consumer, limiting the amount to twelve cases per household from each manufacturer annually, rather than the twenty-four cases to each legal consumer, which was included in the original bill.

HB 350 by Rep. Terri Collins (R – Decatur) passed the House with the CSG amendment, but the Senate did not consider the bill. This issue will be studied in the off season and we anticipate that a bill will be introduced and possibly passed next year.

Pharmacy Benefit Managers

SB 73 by Sen. Arthur Orr (R – Decatur) deals with the operation and oversight of pharmacy benefit managers (PBMs) in Alabama. The legislation is a compromise bill that provides oversight of and transparency about PBMs operating in Alabama that work with both chain and independent pharmacies.

Among other provisions, the bill requires PBMs to register and be licensed by the Department of Insurance. It bans the use of “gag clauses” and “claw back” provisions in PBM contracts with pharmacies, protecting both consumers and pharmacists.

Most importantly, the bill allows PBMs to continue to provide services to private employer and public health plans that help control rising pharmaceutical drug costs.

Working with Sen. Orr and Blue Cross Blue Shield of Alabama, CSG helped achieve passage of this important legislation.

Hospital Liens

HB 11 by Rep. Connie Rowe (R – Jasper) would prevent hospitals from placing liens on patients who have health insurance after receiving medical treatment following an accident.

This important legislation is consistent with current contractual agreements between hospitals, health insurance providers, and the state of Alabama.

These agreements provide that when a policy holder receives treatment at an in-network hospital, the hospital is required to submit all claims to the insurance provider and is prohibited from directly billing the policy holder for covered services.

HB 11 codifies the language contained in these agreements and protects the interests of health insurance policy holders and their families throughout Alabama.

Looking forward

The Department of Justice released a report in early April alleging Alabama’s prisons violated the Eighth Amendment of the U.S. Constitution.

In other words, the DOJ says the Alabama department of corrections is failing to protect inmates from prisoner-on-prisoner sexual abuse and prisoners are living in unsafe conditions.

Because legislators did not fully address the issues with the state prison system during the regular legislative session, Gov. Ivey is expected to call a special session devoted primarily to prisons.

There is no specific date set at this time, but the special session is expected to be held during the fall.

The 2020 legislative session will begin in February.