2016 Legislative Wrap Up- Part II of V- BP Settlement

bpWednesday, May 4th, marked the close of the 2016 Alabama Legislature’s Regular Session.  Legislators passed the constitutionally required appropriations bills fairly early in the session which left time for debate on several high profile issues.  Many of these issues were not resolved which causes speculation that a special session may be called later in the year.

A detailed analysis of several legislative initiatives will be discussed over the next couple of days; Part I- Fuel Tax (see www.alaforestrygovtaffairs.org/2016-legislative-wrap-up-part-i-of-v-fuel-tax-legislation/), Part II- BP Settlelment (today), Part III- Prison Construction, Part IV- Appropriations, and Part V- Other Legislation of Interest.

Today…. The BP Spill Settlement.

Alabama, pursuant to a settlement agreement negotiated by Attorney General Luther Strange, will receive $1 billion from BP over a 20 year period (approximately $50 million per year).  Legislators are concerned that there is a prospect that, for whatever reason, BP will not honor this agreement for its full term.  So there is a strong desire to “monetize” the payment stream through a bond issue.  Analysts estimate that such a bond issue would generate approximately $650-$700 million immediately (the difference between the $1 billion and the amount actually received is due to the uncertainty of the payment stream).

Once the decision was made to monetize the payment stream, the next question was how to spend this one-time money.  Several alternatives were considered, but none of them could gain the support necessary for passage during the Regular Session.

The whole process got started when the Senate originated a bill by Senator Bill Hightower (R- Mobile).  This bill, Option One, would have paid the $161 million debt to the Alabama Trust Fund borrowed in 2009 to prop up the General Fund.  This payback is required by the Constitution and must be paid by 2018.  The remainder of the funding would be used for road construction with the coast getting a vast majority of the funding.  Though it passed the Senate on a 30-5 vote, the bill ran into a brick wall in the House.

Powerful Chairman of the House Ways & Means General Fund Committee, Representative Steve Clouse (R- Ozark), introduced a separate bill that represented Option Two.  This option would pay back the $161 million and also would pay back the remaining amount owed from taking an additional $435 million out of the Alabama Trust Fund, once again to prop up the General Fund in 2013, 2014 & 2015.  Repayment of the $435 million is statutorily required over the next 20 years ($407 million currently remains on this debt).  Option Two would also repay funds owed by Alabama Medicaid to the federal government.  Any excess beyond that would go to the General Fund for appropriation.

As Option Two moved to consideration by the Ways & Means General Fund Committee, the Mobile and Baldwin county legislative delegations, not liking this option, proceeded to work together to shut down activity in the House through filibusters.  In order to appease the coastal legislators, Representative Clouse offered a compromise substitute to his bill that became Option Three.

Option Three would pay back the $161 million constitutional requirement and an additional $287 million that would be paid towards the original $435 million debt.  The $287 million would fast forward the payment stream required statutorily and would then leave approximately $120 million that would still be owed to the ATF.  The remaining amount of the funds, a little over $200 million would go to Mobile and Baldwin counties to be used for road projects.

Paying the $287 million to the ATF would “free up” $15 million that had been allocated for repayment in the 2017 FY general fund appropriation bill.  Additionally, $55 million (from previous BP payments) had been set aside for prospective debt repayment that could now be also be available.  This combined $70 million would be used for a one-time payment to Medicaid for the FY15 budget.

Clouse’s compromise bill, Option Three, then passed out of committee and the full House on an 82-12 vote.  At the same committee hearing, Senator Hightower’s bill was also given favorable consideration.

Clouse’s bill then moved upstairs to the Senate and was referred to the Finance & Taxation General Fund Committee.  At this point, two legislative days remained; the minimum amount of time necessary to pass the bill.  The Senate Finance & Taxation General Fund Committee is chaired by Baldwin County’s Senator Trip Pittman (R- Montrose).  Senator Pittman brought Clouse’s compromise bill, Option Three, up for discussion and it became immediately apparent that there was a great deal of disagreement over the bill.

Senator Arthur Orr (R- Decatur) an equally powerful chairman of the Senate’s Finance & Taxation Education Committee offered a substitute that became Option Four.  This option involved paying back the $161 million constitutional requirement and paying the remaining $407 million owed to the ATF in full, leaving approximately $100 million for road construction projects throughout the entire state’s nine ALDOT districts.  Each district would receive $10 million, while the Mobile/Baldwin district would receive $20 million.

In this option, Medicaid would also get the additional $70 million.  Orr’s Option Four was favored by a good number of legislators in central and north Alabama.  After explaining his substitute, Orr moved for passage.  Pittman then moved to table Orr’s motion.  Pittman’s tabling motion failed and then Pittman immediately moved to adjourn the meeting before any action could be taken on Orr’s substitute.  Senators then frantically met several times trying to come up with an acceptable compromise.  Ultimately, Pittman did not call another meeting of the committee and the 29th legislative day ended effectively killing the legislation.

Or maybe not…

On the final legislative day, in literally the final hour, a couple of Mobile House members tried a last ditch effort to resurrect Hightower’s bill (remember, Option One?  It had passed the Senate and was out of House committee) and tried to substitute it with Clouse’s bill, Option Three.  Due to the late hour, and maybe other unknown reasons, the motion to substitute failed on 37-50 vote.

So what does all this mean?

Well clearly there is no consensus on what to do with the $650 million available from the BP Settlement.  Equally clear, however, is that absent doing anything, the legislature will essentially fritter away $50 million per year as the BP payments will continue to go directly into the General Fund and be spent on ongoing operations.

AFA Position:

AFA supports a policy of having all one-time payments in excess of $5 million be placed into the Alabama Trust Fund.  The BP payments meet this criteria.  In addition, AFA supports a policy of the state repaying its debts out of the ongoing operational appropriations of general fund agencies through savings generated by reducing the size of overall government.

Recognizing that our position is not universally supported by the legislature and knowing that, absent a consensus plan, the BP payments will not be used in a fiscally responsible manner,  AFA does support the monetization of the BP payment stream for the purposes of retiring state debt and the remainder being placed in the ATF in perpetuity.



One thought on “2016 Legislative Wrap Up- Part II of V- BP Settlement

  1. Pingback: 2016 Legislative Wrap Up- Part IV of V- Appropriations | From the Weeds

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