Wednesday, 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 have been discussed recently; I- Fuel Tax (See Article Here), II- BP Settlement (See Article Here), III- Prison Construction (See Article Here), IV- Appropriations (See Article Here), and today’s article, V- Other Legislation of Interest, concludes the series.
Today….Other Legislation of Interest
The Alabama public pension system administered by the Retirement Systems of Alabama will require a taxpayer (employer) contribution for FY17 of approximately $945 million, of which, nearly $750 million will be for the teacher’s pension (TRS) and another $195 million for state agencies pension (ERS). Of the $945 million, $131 million is attributable to current retiree (“normal”) obligations and a whopping $814 million is needed to offset the accrued liabilities of the system. The system is currently funded at 67.5% (TRS) and 63.2% (ERS) of its liabilities.
Of the nearly $750 million needed for the TRS, $413 million comes from the state education appropriations, with an estimated $351 million of that amount, attributed to offset accrued liabilities. In other words, $351 million could have been spent on educational uses (teacher’s salaries, books, transportation, etc.) but was used instead to offset management decisions made by RSA that have resulted in excess liabilities.
RSA has been criticized for adopting an investment strategy referred to as “economically targeted investments (ETI)” that involves investing in Alabama companies, real estate and golf courses that exhibit lower returns for beneficiaries but positively affect local economies. RSA claims that the “net” benefit to the state outweighs the lower returns to the beneficiaries.
HB468, introduced by Representative Phil Williams (R- Huntsville) and SB387, introduced by Senator Larry Stutts (R- Tuscumbia) and co-sponsored by Senators Paul Bussman (R- Cullman) and Trip Pittman (R- Montrose), attempted to bring the RSA investment strategy in-line with the private sector by requiring RSA to follow Section 19-3B-802 of the Alabama Uniform Trust Code. This section is entitled “Duty of Loyalty” and subsection (a) simply sets forth that a trustee (RSA) shall administer the trust solely in the interests of the beneficiaries (public employees). Essentially, this bill would preclude RSA’s ETI investment strategy, unless the investments were in the best interest of the pension system’s beneficiaries.
RSA opposed the bills and they did not get favorable consideration from their respective commitees.
In the interest of transparency, Representative Phil Williams (R- Huntsville) and Senator Paul Bussman (R- Cullman) introduced HB467 and SB376 respectfully that would, among other things, require the RSA to provide in its annual reports the performance of investments for all asset classes, including separate reporting for public equity, fixed income, private placements, private equity and real estate over time periods of one, three, five, ten and twenty years.
Many members of the legislature are frustrated that current reporting practices make it quite difficult to determine the performance of RSA by these separate classes. RSA opposed these bills and they never made it out of committee.
Senator Tom Whatley (R- Auburn) introduced SB283 which would effectively preclude new employees from non-governmental agencies from participating in the state’s public pension system and the state health insurance plan. Currently employees of the Alabama Education Association, the Alabama High School Athletic Association, the Alabama Association of School Boards, School Superintendents of Alabama, the Alabama State Employees Association and many other private organizations are able to participate in the pension system and the Public Employees’ Health Insurance Plan. This bill did not make it out of committee.
Finally, with respect to the RSA, Representative Lynn Greer (R- Rogersville) introduced HB346 which would have required all new state public employees to contribute monthly to individual retirement accounts (like a 401K) administered by the RSA in lieu of the defined benefit pension system primarily offered by the RSA. The legislation would allow an opt-out provision for employees after being in the plan after 90 days. RSA opposed this legislation and it never was addressed in committee.
Senator Cam Ward (R- Alabaster) introduced SB15 which would have removed the “earmarks” for certain taxes and direct their payment into the General Fund for distribution pursuant to the General Fund Appropriation’s bill by the legislature on an annual basis. Approximately $500 million in tax revenues would be freed up including the tax revenues generated by the forest products severance tax that are currently directed to the Alabama Forestry Commission. Ward’s bill passed committee but was not passed by the full Senate.
Senator Arthur Orr (R- Decatur) introduced SB122 on behalf of the AFA’s affiliate organization, ForestFund. This legislation would have simply limited an employer’s liability for permanent total disability benefits after the age 65 and would limit the obligation of an employer to pay medical benefits if an employee does not seek medical attention for a claimed work injury within two years of the injury. The bill passed out of committee but was never addressed on the floor of the Senate.
Senator Vivian Figures (D- Mobile) introduced SB136 that would increase statewide ad valorem taxes by 5 mills in order to raise revenue for Medicaid. The bill passed committee but was never addressed by the full Senate.
Representative Ralph Howard (D-Greensboro) passed a local bill, HB418, which will allow a referendum in Sumter County to raise ad valorem taxes by 6 mills be distributed 35% to the York Health Care Authority, 25% to the Sumter County Commission for ambulance service, roads and bridges, 20% to the Sumter County Volunteer Firefighters Association, 15% to the Sumter County Sheriff’s Department and 5% to Sumter County Board of Education.
Representative Donnie Chesteen (R- Geneva) nearly passed a local bill, HB539, which would have allowed Geneva County to conduct a referendum to allow the Geneva County Commission to levy a five cents/gallon fuel tax for road and bridge construction. The bill passed both houses of the legislature but died in the basket on the last day.
Representative Paul Lee (R- Dothan) introduced a local bill, HB540, which would have allowed Houston County to conduct a referendum to allow the Houston County Commission to levy a five cents/gallon fuel tax for road and bridge construction. The bill did not get considered in its committee.
HB68, sponsored by Representative Danny Garrett (R- Trussville), would prohibit an agency of the Executive Department of the state that receives appropriations from the General Fund or the Educational Trust Fund from entering into or renewing a contract with a lobbyists or lobbying firm. The bill passed the House and a Senate committee but died before being addressed by the full Senate.