Alabama Legislature Convenes for 2018 Session

The Alabama Legislature came back to town this week and completed their first and second workdays highlighted by Governor Kay Ivey’s State of the State presentation on Tuesday evening.  The Legislature has 105 calendar days in which to conduct 30 legislative workdays.  Generally, the legislative schedule involves workdays on Tuesdays and Thursdays with the principal committee day being held on Wednesday.  Following this schedule, the legislature would be set to adjourn the session on April 23rd.

This year is anticipated to be different, because it is an election year.  The election primaries are scheduled for Tuesday, June 5th.  The legislators running for re-election want to get out of Montgomery as quickly as possible so that they can spend their time campaigning and rumors have it that they will try to be gone by the end of March.

In this first week of action, the House of Representatives introduced 202 bills and the Senate introduced 171 bills.

Of note to forestry is SB131, sponsored by Senator Trip Pittman (R-Montrose) which redistributes 20% of the forest severance tax from the Alabama Forestry Commission to the State’s General Fund.  Pittman’s bill will be taken up in the Senate’s Finance & Taxation General Fund Appropriations committee (which Pittman chairs) on next Wednesday.  AFA is opposed to this bill.

As evidence of the legislature’s desire to move quickly through the session, both the General Fund and Education Trust Fund appropriations bills have already been introduced.  The Alabama Constitution vests one principal responsibility upon the Legislature and that is to pass appropriations bills that result in a balance budget for the state.  This year, the FY19 (begins October 1, 2018) ETF bill (sponsored by Representative Bill Poole) will originate in the House of Representatives and the FY19 GF bill will originate in the Senate (sponsored by Senator Trip Pittman).

The legislature is not anticipated to propose an increase in fuel taxes this session, but advocates are gearing for a substantial increase next year (after the elections).  In anticipation of that future revenue, Senator Gerald Dial (R-Lineville) has introduced SB86 setting up a $2.45 BILLION bond issue for road and bridge construction.  ATRIP II (as its being referred to) would utilize the future fuel tax increase to underwrite the bond issue that is intended to be split evenly between state DOT projects and local (county and municipal) projects.  AFA has developed an Issue Brief regarding fuel taxes that is available by clicking here.

The election season is well underway, but candidates for the legislature and state offices are precluded from raising campaign dollars while the legislature is in session, up until 120 days prior to the primary elections.  This has created a fund raising “dead period” from January 9th through February 5th.

Severance Tax Bill Moves Forward

AFA’s bill to modernize the state’s antiquated and confusing severance tax statute took a major step forward yesterday.  Managed by Elaine Beech (D- Chatom), HB313 passed the Alabama House of Representatives on a unanimous, 103-0 vote.  The bill now moves to the Senate where it is anticipated to get its first reading on the next legislative day, April 11, 2017.  The bill is expected to be referred to the Senate Agriculture and Forestry Committee chaired by Senator Tom Whatley (R- Auburn).  A similar bill, the Senate companion sponsored by Senator Greg Albritton (R- Range), was given a favorable report by this committee earlier in the session.

Please take a moment to express your appreciation to all the members of the House of Representatives that supported the legislation yesterday.  The overwhelming support that was demonstrated on passage is testimony to Representative Beech and the respect that she has within both parties in the House.

The purpose of the legislation is to; (1) change everyone to a weight calculation for severance taxes and to do away with the lumber tally and log scale providing clarity to reflect current industry practices, (2) make sure that there is no double taxation, (3) be revenue neutral, (4) clarify that out-of-state manufacturers are not responsible for paying the Forest Products Manufacturers tax, (5) set forth that the collection of severance taxes is at the point of first delivery, and, (6) codify the legislative intent that forest based wood waste used for energy is to not be subject to severance taxation.

Alabama Legislature Heads into Spring Break

The Alabama legislature will adjourn this week having completed 13 of its allotted 30 days for the 2017 General Session.  They plan to take a couple of weeks off for spring break and will return on Tuesday, April 4.

The number one priority for every legislative session is to pass the appropriation bills necessary to fund state government.  As such, this legislature is moving promptly as the General Fund Appropriations bill (HB155- Clouse) originated in the House and has moved through that body and now awaits consideration in the Senate Finance & Taxation General Fund committee.  The Education Fund Appropriations bill (SB129- Orr) originated in the Senate and has moved from committee and is expected to be considered before the full Senate today.

The General Fund appropriation includes an increase of $800,000 for the Alabama Forestry Commission for FY18 which begins October 1, 2017.  There is also a supplemental funding bill for the AFC (HB157- South) which will allow $550,000 to be drawn from the Emergency Forest Fire Fund to assist in funding for the current year’s (FY17) needs.  We anticipate that an additional bill seeking further supplemental funding for the current fiscal year to be introduced soon.

In the area of fiscal responsibility and limited government, a bill to phase out the state’s involvement of the retail sale of alcoholic beverages (SB160- Orr) passed out of committee and awaits consideration before the full Senate.

A bill to increase the state’s fuel taxes is rumored to be introduced soon.  The current discussion revolves around a 5 cent/gallon increase immediately and 2 cent/gallon increases in 2019 and 2021 for a total of 9 cents/gallon.  Additionally, Washington County has introduced a local bill (HB362- Beech) that will set up a county wide referendum to increase fuel taxes by 2 cents/gallon and the creation of a 1% sales and lease tax.  The proceeds will be earmarked for road and bridge construction.  This bill has passed the House and awaits consideration on the Senate floor.

AFA is proposing legislation to clarify and modernize the forest products severance tax and the forest products manufacturer tax (HB313- Beech, SB244- Albritton).  Both bills have passed out of their respective committees.  We anticipate that HB313 will be addressed by the House during the week of the legislature’s return from spring break.


2016 Legislative Wrap Up- Part V of V- Other Legislation of Interest

RSAWednesday, 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

Public Pensions

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.

Tax Earmarks

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.

Worker’s Compensation

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.

2016 Legislative Wrap Up- Part IV of V- Appropriations

dollars2Wednesday, 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; I- Fuel Tax (see Here), II- BP Settlement (see Here), III- Prison Construction (see Here), IV- Appropriations (today), and V- Other Legislation of Interest.


The Alabama legislature’s primary constitutional responsibility is to pass the appropriation bills necessary to fund the operations of state government for the next fiscal year.  Usually, they wait until the very last days of a session in order to accomplish this requirement, however, this year they passed the two main appropriation bills fairly quickly with the General Fund Appropriations bill passing on the 19th legislative day (out of 30 possible days) and the Education Fund Appropriations on the 25th legislative day.

Of note, once these two bills are passed by both houses and transmitted to the Governor, the Budget Isolation Resolution (“BIR”) is no longer required before addressing other legislation.  This is meaningful because to adopt the BIR, a bill must receive a vote in excess of 2/3 of the members present and voting at the time in order to receive consideration on the floor.  The Republicans hold 26 seats in the Senate and 72 seats in the House, both of which exceed the 2/3 threshold when all members are present.  This is why they are oftentimes referred to as holding a “supermajority.”  If the Republicans are working together as a caucus, the BIR is not a problem.  Absent the “supermajority”, the minority party (in this case the Democrats) could stop legislation from coming to the floor by voting against the BIR.

Enough with the parliamentary procedure lesson….

The Education Appropriations bill, HB117, sponsored by Representative Bill Poole (R- Tuscaloosa) provides $6.327 billion for FY17 education related expenditures.  This is an increase of $337 million in spending over the FY16 appropriations.  The cap imposed by the Rolling Reserve Act for FY17 was $6.432 billion (for more on the cap see this article).  The actual projected funding for FY17 is less than the cap, so therefore, all of the $337 million increase will be spent and nothing will be put into savings.

Included in the $6.327 billion in education spending is the Foundation Program for K-12 students which is funded at $4.033 billion for FY17, an increase of $192 million over the prior year.  By way of comparison, the highest funding for K-12 in the state’s history occurred in the FY08 budget at $4.15 billion and the next highest was $4.036 billion in FY09.  The Education Appropriations were subsidized in FY08 by draining a proration prevention account of $439 million and in FY09 by $437.4 million borrowed from the Alabama Trust Fund.

Though this year’s appropriation for the Foundation program would be the third highest in the state’s history, it is the largest non-subsidized amount.

The Republicans took control of the legislature in the 2010 elections.  Their first regular session in the role of leadership was in 2011 where they addressed FY12 appropriations.  Prior to this change in leadership, proration was declared in education spending in each of the 2008 through 2011 fiscal years.  Since the change of leadership, proration has not been needed.

Why?  One of the first legislative initiatives enacted by the new leadership was passage of the Rolling Reserve Act.  This act places a “cap” on education spending based on the prior 15 years of actual revenues.  Any actual revenue in excess of the “cap” is placed in a reserve account to be utilized during economic downturns and lagging revenues.

The cap has forced the legislature to budget in a fiscally responsible manner and as a result there has not been the need for proration.

The General Fund Appropriations bill, SB125 sponsored by Senator Trip Pittman (R- Montrose) provides for $1.847 billion in funding, an increase of $90.9 million over the FY16 appropriation.

By far, the largest appropriation in the General Fund Appropriations bill goes to Medicaid.  This year Medicaid funding was increased by $15.3 million to $700.4 million over the previous year’s spending authorization.

Ummm….an increase of $15.3 million, yet the media reports that Medicaid is suffering from cuts or is “experiencing a shortfall.”  The “shortfall” is derived from the department’s request of an additional $100 million this year over last year’s funding.

To put this into perspective the FY02 Medicaid appropriation was $231 million, which, when compared to this year’s $700 million, is an increase of over 200% in the last 15 years.

The next largest appropriation in the bill is that for Corrections which was funded at $412 million for FY17 compared to $197 million in FY02.  Again, a nearly 100% increase over the last 15 years.

Meanwhile, the Department of Agriculture & Industries was funded at $8.3 million in FY17 compared to $13.7 million in FY02, a 40% decrease.  Likewise, the Alabama Forestry Commission was funded at $6.7 million in FY17 (a $300,000 cut from last year) as compared to $14.2 million in FY02, a 53% decrease.

The General Fund appropriation for FY02 was $1.2 billion, when compared to this year’s $1.8 billion representing a 50% increase over 15 years.  Clearly, the growth in Medicaid and Corrections has swallowed all the growth in funding, and more, to the detriment of all other non-education functions of state governance.

What message does this send regarding our priorities?  Timber and Agriculture are two of the most important segments to the state’s economy.  At the rate that Medicaid and Corrections are expanding, the other General Fund agencies will soon be completely swallowed up.  To make matters worse, the other agencies are forced to adopt higher fees and earmarked taxes in order to make up their reduced budget appropriations.

2016 Legislative Wrap Up- Part III of V- Prison Construction

prisonWednesday, 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; I- Fuel Tax (see HERE), II- BP Settlement (see HERE), III- Prison Construction (today), IV- Appropriations, and V- Other Legislation of Interest.

Today…. Prison Construction

Alabama prisons are currently occupied by 188% more prisoners than there are beds.  This is defined as “overcrowding.”  The prisons have 13,318 beds to house 25,102 prisoners.

On May 21, 2015, Alabama Governor Robert Bentley signed legislation, SB67 sponsored by Senator Cam Ward, which was intended to provide sweeping changes to sentencing and probation standards with the intent to reduce crowding to a level of 137%.

The changes seek to steer low-level offenders away from prison by creating a new Class D felony category and to reduce recidivism with making changes to probation and supervision.  The legislation was the product of a Prison Reform Task Force.

The Alabama prison system was placed in federal receivership in the 1970’s, which led to a court-ordered release of inmates.  The U.S. Department of Justice is investigating conditions at the state’s only prison for women after accusing the state of failing to protect inmates from sexual abuse and harassment.  The Equal Justice Initiative and the Southern Poverty Law Center have filed separate suits on behalf of state inmates to address safety, health and disability issues.

The changes made by SB67 have only recently begun to be implemented.  In February, 2016, the Alabama Board of Pardons and Paroles announced that it was hiring 100 new officers and another 23 probation and parole specialists.  Additionally, a new Day Reporting Center opened in Birmingham in January and others are expected to be opened throughout the state.  These changes will theoretically allow supervision of all prisoners that are released for parole.

The legislation also provides $4 million in funding to expand substance abuse treatment for probationers and parolees.

Interestingly, the Prison Reform Task Force recommendations make no mention about the need to construct new prisons.  In fact the task force was told that “Alabama cannot build its way out of the chronic overcrowding of state prisons.”

The Governor, however, has apparently come to a different conclusion.  While the changes created by SB67 were still in their formative stages, he proposed to the legislature a massive $800 million prison building plan that would result in the construction of 4 new prisons and the closure of 14 older facilities.

The legislation, SB287 sponsored by Senator Trip Pittman (R- Montrose) passed the Senate on a 23-11 vote.  Only five Republican senators voted against the plan; Bill Holtzclaw (R- Madison), Paul Sanford (R- Huntsville), Shay Shelnutt (R- Trussville), Paul Bussman (R- Cullman) and Clay Scofield (R- Guntersville).

The $800 million in funding is proposed to come from a bond issue that will be result in a $50 million payment requirement over the next 30 years ($1.5 billion repayment).  Proponents of the bill maintain that the $50 million will come from “savings” produced by consolidating the prisons (requiring fewer personnel) and reduced maintenance expense.

No economic study was publicly produced to evaluate whether the savings projection was realistic.  Additionally, no economic study was provided to determine the impact that prison facility closure would have on the local communities where they are currently located.  There was also no study discussing the impact on prison personnel that would be relocated.  In fact, there was no disclosure at all regarding where the new facilities would be constructed.

SB287 also set forth a no bid process for the construction project.

The bill reached the House, passed out of the Ways & Means General Fund Committee and was considered before the full House on April 28th, the 28th legislative day.  During House consideration, the bill became quite controversial.  Several representatives attempted to amend the bill.

Representative Mike Holmes (R- Wetumpka) offered an amendment that would preclude the state from closing an existing prison until the Department of Corrections had conducted an economic impact study to determine the impact of the closure on the region’s employment, economic growth and debt service (many communities have outstanding debt requirements for infrastructure they constructed on behalf of the prisons).

Representative Holmes’ amendment passed on a 49-44 vote and the proponents of the legislation were clearly not pleased.  Voting on the prevailing side were 23 republicans and 26 democrats.  After considerable arm-twisting, the vote was reconsidered and this time the amendment failed on a 54-33 vote.  7 republicans and 9 democrats changed their vote.  The republicans were; Dickie Drake (Birmingham), Mickey Hammon (Decatur), Corey Harbison (Cullman), Steve McMillan (Bay Minette), Barry Moore (Enterprise), Jim Patterson (Meridianville) and Ritchie Whorton (Owens Cross Roads).

Later in the debate, Representative A.J. McCampbell (D- Livingston) offered an amendment that would require the DOC to produce a report by the 25th legislative day of the next regular legislative session and would then allow the legislature to approve or reject the report.  If the report was rejected, no bonds would be let and no project would be built.  Surprisingly, McCampbell’s amendment passed on a 49-35 vote with 23 republicans and 26 democrats supporting it, very similar to the first Holmes’ amendment vote.

With this amendment, the bill then passed the full House and was sent to the Senate to either concur with the changes or to go to conference committee.  Obviously, the bill’s proponents were not happy with the amended bill.

Upon arrival in the Senate, the bill now had 2 legislative days remaining for passage.  Intense negotiations began and it appeared that the senate was posturing for a filibuster of the bill.  The Senate voted to send the bill to conference committee where negotiation proceeded throughout the 29th day and into the 30th day.  Ultimately, late on the 30th day, a compromise substitute was developed.

The substitute would essentially reduce the amount of the bond issue from $800 million to $550 million reducing the number of prisons to be built and added some additional transparency language.  The McCampbell amendment was stripped from the substitute.

The Senate then began a filibuster on the bill on the last legislative day.  The filibuster led by Senators Paul Sanford (R- Huntsville) and Vivian Figures (D- Mobile) lasted until about 10:30 pm when it was ended by a cloture petition that passed on a vote of 23-9.  There are 26 republicans in the senate and 23 of them voted to close debate (3 republicans abstained; Paul Sanford, Shay Shelnutt and Larry Stutts).

The bill received final passage at approximately 10:45 pm and was sent to the House for concurrence.  The House rules allow for debate on this motion and it would have required invoking cloture in order to get it passed prior to the midnight deadline.  The House public viewing gallery was packed with lobbyists holding their collective breaths.

What transpired was quite interesting.  The bill was never brought up for consideration.  House Speaker Mike Hubbard later told reporters that there were not enough votes to stop the debate and so the bill died.  Supposedly, many House members were uncomfortable voting on the hastily negotiated substitute.

The Governor, obviously disappointed, is considering whether to call the legislature back to Montgomery to address the issue.

AFA Position:

The Alabama Forestry Association supports the reforms passed in the 2015 session and believes that adequate time should be given to see if this legislation results in positive improvement in the prison crowding challenge.

With respect to new construction, AFA supports a fiscally responsible and transparent solution.  The original construction bill has a $50 million payback requirement that, if the savings are not generated, will fall back to the state’s General Fund appropriations causing even more stress on an already tight budget.  If new prisons are ultimately determined to be the answer, AFA supports building one at a time, rather than a massive construction project.  Additionally, AFA believes that a “design, bid, build” model for construction is better for Alabama’s taxpayers rather than the proposed “negotiated” no-bid solution offered in the current proposal.

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, 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.



While You Were Sleeping During the General Fund Debate….

save-spendIn 2015, the Alabama legislature made changes to the Rolling Reserve Act that are beginning to have an impact on the Education Appropriations process as the legislature works to finalize education spending plans for the FY17 fiscal year (begins October 1, 2016).

Originally, the Rolling Reserve Act (which was adopted in 2011 shortly after the Republicans gained control of the legislature) set a cap on education spending based on the prior 15 years average of actual education revenues plus 40% of any new revenue measures passed in the previous legislative session.  This was a vast improvement over the previous method of estimating how much revenue might come in for the year and appropriating that amount.

Additionally, the original Rolling Reserve Act would put Excess Funds (actual revenues that exceeded the cap) into a Budget Stabilization Fund (until it reached 20% of the current year appropriations for education spending; approximately $1.2 billion) and then would begin rolling over into the Education Trust Fund Capital Fund (which could be utilized for education related capital projects).

The original Rolling Reserve Act was a fiscally responsible and prudent budgeting tool.

So of course, the legislature had to change it; which they did during the second special session in 2015.  While everyone else was focused on trying to raise taxes to fund Medicaid through an agonizingly long legislative year, this bill changing the Rolling Reserve Act went practically unnoticed.

The new Rolling Reserve Act now sets a cap based on 14 of the 15 highest previously funded years, adds the amount for the Prepaid Affordable College Tuition (PACT) program and adds 100% of newly enacted revenue measures.  The result is a much higher cap.

Additionally, the new Rolling Reserve Act changes the distribution of any Excess Funds.  Now it only puts 1% of the prior year spending amount into the Budget Stabilization Fund (2% for FY15 only) up to 7.5% of the prior year expenditures (which would be approximately $450 million).  The remaining amount is deposited into an Advancement & Technology Fund to be appropriated in the next fiscal year for school related repairs, deferred maintenance, technology and equipment (read…slush fund).

So what’s the impact of these changes?

In FY15 (ended September 30, 2015), Excess Revenues for education were $140.1 million.  All of these funds would have been placed in the Budget Stabilization Fund pursuant to the original Rolling Reserve Act.  However the new distribution resulted in $118.3 million going to the Budget Stabilization Fund and $21.8 million went to the Technology Fund.

We are currently in FY16, but the estimates are that there will be $195 million in Excess Funds based on a cap of $5.95 billion (the amount that was appropriated) and estimated revenue of $6.15 billion.  The distribution, pursuant to the new Rolling Reserve Act will be $59.5 million to the Stabilization Fund and a whopping $135.5 million to be appropriated by the legislature for special projects in 2017.

As the legislature now considers the FY17 Education Appropriations, they are working off a cap of $6.43 billion (thanks to the new Rolling Reserve Act) while expected revenues are $6.33 billion.  Since anticipated actual revenue is less than the cap, there is no expectation of putting any money into the savings account for FY17.

But….spending on education will now go up an incredible $382 million over the prior year (FY16).

Thanks to the new Rolling Reserve Act, we now have a new cap that is higher than expected revenue and no savings will be put away….in spite of having an increase in actual revenue of $186 million.

Fiscal responsibility and prudent budgeting have been tossed aside.

Who was the architect of the new Rolling Reserve Act?


Senator Trip Pittman (R- Montrose) sponsored it in the Senate and Representative Bill Poole (R- Tuscaloosa) sponsored it in the House.  Interestingly, these were the chairmen of the Education Appropriation committees in both houses.

In the Senate, one republican member voted against the bill….Senator Bill Holtzclaw.  Three other republicans “passed” on the vote….Senators Pittman, Scofield and Stutts.  22 Republicans voted for the measure.

In the House, the vote was 88-14.  The only republican members voting against the measure were Representatives Harbison, Henry, Holmes (Mike), Jones, Moore (Barry), Wadsworth, Whorton (Issac) and Wharton (Ritchie).

Good thing the AEA is not as powerful as they once were….right?

Must See Video- Cut Government before Raising Taxes

gastaxUnfortunately, this is not an April’s Fool Joke.

The Alabama House of Representatives is expected to consider raising fuel taxes by $200 million as early as next Tuesday, April 5th.  The legislation, HB394, introduced by Representative Mac McCutcheon (R- Madison) will raise fuel taxes (gasoline and diesel) to the average of the taxes/fees placed on gasoline by the contiguous bordering states.  This will result in an increase of approximately six cents/gallon.

Opponents to the fuel tax increase maintain that there is plenty of opportunity to cut the size of government to address the critical need for infrastructure…without having to raise taxes.  Created by Representative Will Ainsworth (R- Guntersville), a video has been produced that stars fellow conservative members of the House and Senate.  Their message is compelling…..Watch the video below and let us know what you think…..

McCutcheon Introduces $200 Million Fuel Tax Increase

mccutcheonAs expected, Representative Mac McCutcheon (R- Madison) introduced the second bill of a two bill package that will result in an increase in taxes on gasoline and diesel fuel of six cents per gallon.  HB394 was considered and given a favorable report by the House Transportation, Utilities & Infrastructure Committee today.  It will receive its second reading and will be available for full House consideration as early as next week, but most likely will not be addressed until legislators return from Spring Break the first week of April.

HB394 ties the total fuel taxes paid in Alabama to the average taxes/fees placed on gasoline by the contiguous bordering states.  The average of the taxes/fees for bordering states on gasoline is 26.95 cents/gallon, while Alabama is currently at 20.87 cents/gallon.  Therefore, the tax on gasoline will increase by 6 cents per gallon upon passage of this legislation.

Interestingly, the bill also ties the increase in diesel fuel taxes to that of the gasoline average.  The current average of the taxes/fees for bordering states on diesel is 26.31 cents/gallon, while Alabama is currently at 21.85 cents/gallon.  This is a differential of 4 cents/gallon, but since the proposed legislation ties the increase for diesel to the border state gasoline average, diesel will increase 6 cents/gallon which would place Alabama above the border state average on diesel by 2 cents/gallon.

The legislation also has an automatic adjustment mechanism that will re-calculate the border state average once every four years over the next 12 years.  Not coincidentally, the adjustment occurs in the year following the election of the legislature.

The fuel tax increase contemplated by the legislation will result in a $200 million increase in taxes.

Ainsworth Only “No” Vote in Committee

The House Transportation Utilities & Infrastructure Committee is chaired by Representative Lynn Greer (R- Rogersville) and is made up of 9 Republicans and 4 Democrats.  McCutcheon’s bill, along with Senator Gerald Dial’s bill, SB180 (the “Accountability” bill directing how the increased taxes will be spent) were both given a favorable report on voice votes by the committee.  The only “No” vote on the tax increase was cast by Representative Will Ainsworth (R- Guntersville).  If you would like to contact Ainsworth, a rising star in conservative circles, he can be reached at

The other members of the Committee are Representatives Joe Faust (R- Fairhope), George Bandy (D- Opelika), Napoleon Bracy (D- Prichard), Barbara Drummond (D- Mobile), Victor Gaston (R- Mobile), Dexter Grimsley (D- Newville), Nathaniel Ledbetter (R- Rainsville), Phillip Pettus (R- Killen), Chris Sells (R- Greenville), Kyle South (R- Fayette) and Margie Wilcox (R- Mobile).

The committee considered the legislation for approximately 30 minutes and at no time did any committee member acknowledge that the legislation creates a $200 million tax increase.

Lots of Trough Feeders

The list of supporters for the $200 million tax increase is a long one.  Led by the Business Council of Alabama, the coalition of those that will benefit from road construction projects include the Alabama Department of Transportation, the Alabama Roadbuilders Association, the Association of County Commissions of Alabama, contractors, engineers and others.

“Thank Goodness for Mississippi”

The taxes/fees paid by the citizens of the State of Mississippi are 18.79 cents/gallon for gasoline and 18.4 cents/gallon for diesel, representing the lowest of the four contiguous border states.  However, legislators in Mississippi are considering raising their taxes/fees on fuel by a whopping 17 cents/gallon.  If this were to occur, their action, taken in Mississippi, will raise Alabama’s fuel taxes by another 4 cents/gallon or another $130 million.  Alabama’s citizens, in effect, will have their taxes raised without any representation.  Similarly, the State of Florida pays 36.58 cents/gallon in taxes/fees on gasoline, of which 19 cents/gallons are imposed by the various counties.  Again, Alabama’s citizens could be subject to an increase in taxes because of an action taken in a county in Florida.

Stay tuned….