Legislative Report 033018

Volume 19 Number 12 – March 30, 2018

24th, 25th, & 26th legislative days

Legislature Adjourns Sine Die, Approves Economic Development Bill

The legislature adjourned sine die on Thursday, March 29, three weeks earlier than required. Leaving four legislative days unused, legislators returned home to campaign for reelection.

Prior to adjournment, the House approved HB 317 by Rep. Ken Johnson (R – Moulton) after contentious debate. By a vote of 55 – 22, with 22 Representatives abstaining, the House concurred on changes made in the Senate.

The bill would exempt certain economic development professionals from being required to register as lobbyists with the Ethics Commission in order to approach the state about a potential industrial project.

The changes made in the Senate included

  • limiting the exemption to the Executive Branch and, thus, requiring economic developers to register to lobby the Legislature;
  • creating a “revolving door” statute to prohibit lawmakers or other public officials from seeking the lobbying exemption for two years after leaving state service; and
  • setting a one-year expiration date on the measure so that the Legislature could take the matter up again next year when a larger ethics code update is expected.

The bill quickly became political with critics saying it would weaken the current ethics laws. Proponents said that requiring site selectors to register with the government and disclose their confidential clients would jeopardize potential economic development projects in the state.

Governor Ivey has been supportive of the legislation and is expected to sign it.

Legislature Approves SSUT Bill

One of the key issues facing the state of Alabama and local governments is the continuing decline in sales tax revenues as consumers shift their purchasing to online, rather than traditional brick and mortar, retailers.

Without a physical presence (nexus), retailers are not required under federal court rulings to remit sales taxes to state or local governments. The state of Alabama attempted to address this issue in 2015 with the passage of the Simplified Sales and Use Tax (SSUT) program.

SSUT allows online retailers to voluntarily remit 8 percent of retail sales directly to the state. The state keeps 4 percent and remits the other 4 percent to local governments based on a ratio of population. In 2017, the state collected $60 million in voluntary SSUT taxes, with $30 million going to local governments.

While direct figures relating to specific taxpayers are proprietary and not released by the Alabama Department of Revenue, Amazon is considered to be the largest participant in the program, and tax officials confirm that their sales tax remittances are over half of the annual figure.

The 2015 law prevents companies from participating in the program if they establish a physical presence in the state. Amazon’s recent purchase of Whole Foods, which has five stores with physical locations in Alabama, called into question whether they could continue in the program.

Rep. Rod Scott (D – Fairfield) and Sen. Trip Pittman (R – Montrose) introduced legislation to address this issue and allow Amazon and other online retailers who establish a physical presence in the state through the acquisition of an in-state business to continue to participate in the SSUT program.

HB 470 by Rep. Scott was amended in the Senate to include several important changes that were ultimately concurred on by the House. They include:

  • the requirement that marketplace platforms collect and remit sales taxes from all vendors marketing their products through the platform
  • changing the distribution of local governments’ SSUT revenues from the current 50/50 split to 60 percent to cities and 40 percent to counties
  • limiting the sales tax collection discount for online retailers to 1 percent of the first $400,000 in sales

2018 sales tax collections in the SSUT program are estimated to reach the $100 million mark, so this legislation is important to the two state budgets that share the revenue and local governments throughout Alabama. As online sales continue to increase, this program will only grow in importance as the state, cities, and counties continue to search for revenues to fund essential governmental services.

Governor Signs Rural Broadband Bill

On Wednesday, Governor Ivey signed SB 149 by Sen. Clay Scofield (R – Guntersville), the Alabama Broadband Accessibility Act.

The bill, which encourages investment in broadband in rural Alabama, was approved by the legislature last week. It authorizes the creation of a broadband accessibility grant program to be administered by the Alabama Department of Economic and Community Affairs (ADECA) and sets up the Alabama Broadband Accessibility Fund.

This is the third time Sen. Scofield has introduced the legislation this quadrennium, and the bill that was signed by the Governor was significantly changed from the Senate-passed version.

The Senate-passed bill would have exempted broadband telecommunications network facilities from taxation for 10 years, exempted equipment and materials used by those facilities from the state’s sales and use tax, and would have offered an income tax credit equal to 10 percent of the investment in those facilities. Total tax credits would have been capped at $20 million per company.

The final bill offers grants at two tiers to pay for up to 20 percent of a broadband project’s total cost – 1) a cap of $1.4 million per project that offers speeds of 25 megabits per second download and three megabits per second upload or, 2) a cap of $750,000 per project for 10/1 speeds. It also prioritizes un-served areas to receive the grants.

Companies would apply for grants, providing detailed information about what areas and residents would be served. Cooperatives would be eligible for the grants, but government entities could not receive the money, preventing the spread of municipal broadband projects through this program.

Alabama will further be helped by a pilot program, grants, and loans from the federal government.

Last week, Congress, through an effort led by Alabama Congressman Robert Aderholt, included in the $1.3 trillion omnibus spending bill a $600 million Broadband Pilot Program, created by the Secretary of Agriculture, which will enable applicants to finance a project by combining loans and grants to provide broadband to eligible rural and tribal areas.

The newly created federal investment will leverage nearly $1 billion in total new rural broadband projects across the country.

Budgets Approved

Education Trust Fund Budget

The Senate ended the 2018 session by approving the final version of the fiscal year 2019 Education Trust Fund Budget on what turned out to be their last legislative day. The $6.6 billion budget is the largest approved by the legislature since 2008.

It will provide $216 million in additional funding compared to last year’s budget, a roughly 3 percent increase. It also includes a 2.5 percent cost of living raise for teachers and education employees, an increase of nearly $102 million, as well as additional funding for the state’s universities.

The budget will also provide an $18 million increase for pre-kindergarten programs and increases in funding for transportation and the Alabama Reading Initiative.

Other increases include

  • $4.56 billion to K-12 schools (a 3 percent increase of $146 million)
  • $382 million to Community Colleges (a 5 percent increase of $18 million)
  • $1.1 billion to Universities (a 4 percent increase of $42 million)

General Fund Budget

The fiscal year 2019 General Fund Budget, which cleared its last hurdle in the House by a vote of 98 to 1, will appropriate $2 billion, marking it the largest GF budget in a decade. The increase in the budget ($166 million) is attributable to growth in Internet sales taxes and insurance premiums, estimated at about $40 million, and roughly $93 million in carry-forward money from last year’s budget.

The Department of Corrections will receive a $50 million boost in funding. The Alabama Department of Mental Health will see an increase of $8.9 million in the budget, an 8.2 percent raise. The Alabama Department of Human Resources, which administers most anti-poverty programs in the state, will receive an additional $3.1 million, a 5 percent increase. The state’s overworked trial courts will receive an additional $2.8 million, a 2.7 percent increase. A 3 percent pay raise for state employees will also be included and Medicaid will receive an increase of $53 million, a 7.7 percent increase.

The budget will face a harsh reality next year, with no rollover money expected from this year’s budget.

Data Breach Notification Bill Signed Into Law

SB 318, the Alabama Data Breach Notification Act, was signed into law this week, making Alabama the last state in the country to pass legislation regarding data breaches. The law will require notification if data such as Social Security, military and tax identification numbers. and banking records are hacked. It also lays out penalties if notifications are not made.

Beginning June 1, private and public entities must establish reasonable data security measures and notify those affected when personal data has been compromised. Any breached entity that determines the compromised information is “reasonably likely to cause substantial harm” must notify those affected as “expeditiously as possible” but no later than 45 days after discovery.

If more than 1,000 individuals are affected by a breach, the breached entity is also required to notify the attorney general and consumer credit-reporting agencies.

Willful or reckless disregard of the notification requirements could result in penalties of up to $500,000.

Several Notable Bills Die

Despite a fairly uncontroversial session, several bills of note did not reach the finish line. Some of those bills include

  • SB 92 by Sen. Arthur Orr (R – Decatur), which would have reduced the length of time that a recently unemployed individual may have claimed benefits from the state from 26 weeks to between 14 and 20 weeks, depending on the unemployment rate at the time
  • SB 138 by Sen. Orr, which would have would set the term for all payday loans at 30 calendar days. The current term for payday loans is between 10 and 31 calendar days. If passed, the bill would have likely put many payday lenders out of business.
  • HB 345 by Rep. Will Ainsworth (R – Guntersville), which would have allowed some school systems to designate teachers who receive training and approval from local officials to have guns in schools
  • SB 84 by Sen. Rodger Smitherman (D – Birmingham), which would have required law enforcement officers to collect data on race and traffic stops
  • HB 225 by Rep. Jim Hill (R – Springville), which would have limited the number of offenses that put juveniles into Department of Youth Services (DYS) custody and reduced the punishment for probation violations to briefer detention stays
  • SB 213 by Sen. Orr, which would have tracked how often law enforcement authorities used civil actions to seize a person’s property when criminal activity is suspected
  • SB 280 by Sen. Dick Brewbaker (R – Montgomery), which would have required all local superintendents to be appointed rather than elected

Many Legislators Not Returning

Almost 30 legislators will not be returning to their current seats next year. Some of those legislators are running for other offices, but many are retiring.

The following Senators are retiring and will not return next year:

Sen. Trip Pittman (R – Montrose), elected in 2007; Sen. Hank Sanders (D – Selma), elected in 1982; Sen. Phil Williams (R – Rainbow City), elected in 2010; Sen. Bill Holtzclaw (R – Huntsville), elected in 2010; Sen. Slade Blackwell (R – Mountain Brook), elected in 2010; Sen. Paul Sanford (R – Huntsville), elected in 2009; Sen. Harri Anne Smith (I – Slocumb), elected in 1998; Sen. Dick Brewbaker (R – Montgomery), elected in 2010 (elected to the House of Representatives in 2002); Sen. Quinton Ross (D – Montgomery), elected in 2002 (resigned in 2017 to become President of Alabama State University)

The following Senators are running for higher office:

Sen. Bill Hightower (R – Mobile), elected in 2010, running for Governor; Sen. Gerald Dial (R – Lineville), elected in 1982 (elected to the House of Representatives in 1974), running for Commissioner of Agriculture and Industry; Sen. Rusty Glover (R – Mobile), elected in 2006, running for Lt. Governor

The following House members are retiring and will not return next year:

Rep. Mark Tuggle (R – Alexander City), elected in 2010; Rep. Ed Henry (R – Hartselle), elected in 2010; Rep. Ken Johnson (R – Moulton), elected in 2010; Rep. Mike Millican (R – Hamilton), elected in 1990; Rep. Marcel Black (D – Tuscumbia), elected in 1990; Rep. Alan Boothe (R – Troy), elected in 1990; Rep. James Buskey (D – Mobile), elected in 1976; Rep. Randy Davis (R – Daphne), elected in 2002; Rep. Alan Harper (R – Northport), elected in 2006; Rep. Richard Lindsey (D – Centre), elected in 1982; Rep. Patricia Todd (D – Birmingham), elected in 2006; Rep. Phil Williams (R – Huntsville), elected in 2009

The following House members are running for other offices:

Rep. Will Ainsworth (R – Guntersville), elected in 2010, running for Lt. Governor; Rep. Mack Butler (R – Rainbow City), elected in 2010, running for the AL State Senate; Rep. Craig Ford (D – Gadsden), elected in 2000, running for the AL State Senate as an Independent; Rep. John Knight (D – Montgomery), elected in 1992, running for the AL State Senate; Rep. Johnny Mack Morrow (D – Red Bay), elected in 1990, running for the AL State Senate; Rep. Donnie Chesteen (R – Geneva), elected in 2010, running for the AL State Senate; Rep. David Sessions (R – Grand Bay), elected in 2011, running for the AL State Senate; Rep. Jack W. Williams (R – Mobile), elected in 2014, running for the AL State Senate; Rep. Paul Beckman (R – Prattville), elected in 2010, running for Probate Judge; Rep. Isaac Whorton (R – Valley), elected in 2014, running for Circuit Judge; Rep. Jack D. Williams (R – Vestavia), elected in 2004, running for County Commission; Rep. Barry Moore (R – Enterprise), elected in 2010, running for Congress

Rex Reynolds (R – Huntsville) was elected earlier this week to fill Rep. Jim Patterson’s (R – Hazel Green) seat. Rep. Patterson passed away earlier this year. There are vacancies in the seats of Rep. George Bandy (D – Opelika), who passed away in January, and Rep. Micky Hammon (R – Decatur), who resigned after being indicted.

Looking Forward

2018 marks an election year for the entire legislature and all statewide offices. The primaries will be held on June 5, 2018, and the general election will be November 6, 2018.

For more information on the 2018 elections, including dates, voting information, and qualifying candidates, check out the Alabama Secretary of State’s website.