AFA Legislative Update

capitol.jpgThe Alabama Legislature convenes today for Day 5, the first of an anticipated three day workweek. The pace of activity has been brisk as it appears the members desire to complete their work in an expeditious manner.

Each year, the legislature must address “sunset” legislation by the 10th legislative day. Sunset legislation involves evaluating the need to keep agencies, boards and commissions operational. If the legislature decides that one is not needed, they would simply not vote to extend it or, in effect, “sunset” it. The fact that the legislature is addressing these bills early is indicative of their desire to move quickly through the session.

The only other responsibility the legislature has is the passage of appropriations bills. At this point the General Fund Appropriations (SB125/HB104) and the Education Trust Fund Appropriations (HB117) bills have been introduced but only reflect the Governor’s plan. The legislative versions are expected to be substituted in committee. Currently no committee hearings have been scheduled to address the appropriations bills.

Tax Incentives

A couple of good tax incentive bills are making their way quickly through the process. SB131 creates an income tax for contributions to health savings accounts mirroring what is allowed by federal law. SB131 is sponsored by Senator Paul Sanford (R- Huntsville) and has been given a favorable report out of committee.

HB36 creates a tax incentive for a small business that hires new employees during the course of the year. Sponsored by Representative Kyle South (R- Fayette), the bill has passed the House and has been assigned to the Senate’s Fiscal Responsibility and Economic Development Committee.

Fuel Tax Increase

The plan to increase fuel taxes began its process in the Senate last week. The plan involves the passage of two bills; the first is an “accountability” bill that will determine how the new tax revenue is distributed and spent and the second will be the actual tax increase. SB180, sponsored by Senator Gerald Dial (R- Lineville), was brought up in the Senate’s Transportation & Energy Committee last Thursday. Dial’s bill would allocate 2/3 of the new revenue to the State’s DOT and 1/3 to local entities (counties and municipalities).

Senator Greg Albritton (R- Range) offered a substitute to SB180 that would; (1) distribute the new revenue at 55% to the DOT and 45% to the locals, (2) require any new tax revenues received by the counties to be used to replace/repair structurally deficient bridges first, and (3) allocates the existing diesel tax revenue at 55% to the DOT and 45% to the local entities (currently 98% goes to DOT). If adopted, Albritton’s Substitute would re-prioritize $62 million to counties and municipalities that currently goes to DOT, regardless if whether a tax increase is adopted. AFA is supporting the Albritton Substitute.

The second bill, increasing the fuel tax, is expected to be introduced in the House by Representative Mac McCutcheon (R- Huntsville) only after the Senate has passed the “accountability” bill. The tax increase being discussed is 6 cents/gallon the first year, an additional 3 cents/gallon the second year and an additional 2 cents/gallon the third year. The total 11 cents/gallon increase is equivalent to a $368 million increase.

AFA On the Road to Notasulga

DSC_0033The Alabama Forestry Association will host a Capital District Meeting and Auburn Area Regional Reception on Thursday, February 11th at Coach Pat Dye’s Crooked Oak Lodge in Notasulga.  The District Meeting will begin at 5:00 pm CST and the Reception will last from 6:00 pm CST until 8:00 pm CST.  If you have not already registered, you can do so by going to our website by clicking here.

This is one of our most highly anticipated events and we are very grateful for the generous support provided by our sponsors; First South Farm Credit, Auburn Bank, Southern Loggers Cooperative, King Auto, Daniel & Son, Country & Commercial Properties, Beck’s Turf Farm and Southeastern Land Group.

The world famous and always popular Barbecue House of Auburn will once again cater the event and we expect an excellent turnout just for the purpose of sampling their superb food.

In addition, we appreciate Dave Milton with Southeastern Land Group for being a sponsor and he will have a special presentation to make regarding our late friend and long-time AFA member Mason Dollar.

Please plan on joining us this Thursday to enjoy fellowship, good food, refreshments and to get an update on what AFA is planning for 2016.

 

 

Ala Legislature- Day 2

The Alabama legislature met briefly yesterday to accept committee reports and bill introductions.  The next meeting day will be Tuesday, February 9th.

Of note, both the GF Budget Appropriation (HB104/SB125) and the ETF Budget Appropriation (HB117) bills advanced by the Governor were introduced.  Every indication points to the members wanting to address their constitutional mandate to pass a balanced budget quickly.

sanford2Senator Paul Sanford (R-Huntsville) has introduced several bills to address the funding distribution between the GF and the ETF.

SB130 would direct that 100% of the “use” tax , excise tax and the insurance premium tax be directed to the GF.  This would have the effect of transferring $181 million from the ETF to the GF.  This bill is the Governor’s bill and the foundation for his budget that he delivered to the legislature yesterday.

Alternatively, Sanford has also introduced (again) his bill, SB16 to “pool” all revenues and then distribute them 78% to the ETF and 22% to the GF.  This mechanism would allow the GF to participate in growth taxes.

As a reminder; the FY16 ETF Appropriations (current year) is the largest appropriation for education (other than the federal stimulus years) in the State’s history.  The ETF FY17 appropriation is anticipated to be even larger.

Medicaid continues to be the main problem for the GF.  Last year it was funded at $685 million (out of a total $1.65 billion GF appropriation) and this year the Governor is seeking an additional $100 million increase.  In an effort to address this issue, Senator Vivian Figures (D-Mobile) introduced SB136 yesterday which would increase property taxes by 5 mills to be directed towards Medicaid.  This is not likely to pass.

Other action yesterday:

SB62 by Senator Tom Whatley (R- Auburn) and HB43 by Representative Alan Boothe (R- Troy) both passed out of their respective committees yesterday.  Their bills would eliminate the prohibition of hunting whitetail deer and feral swine over bait.

HB36, The Small Business Act, sponsored by Representative Kyle South (R- Fayette) passed out of committee and is ready for consideration by the House.  This bill, part of the Republican House Caucus agenda, provides a $1,500 tax credit for employers that bring on new employees during the year.

Alabama Legislature 2016 – Day 1

statehouseThe Alabama Legislature convened yesterday for the first day of the 2016 Regular Legislative Session.  Both chambers met briefly and then adjourned to attend the Governor’s State of the State Address.

The first day saw 207 bills introduced, less than a normal first day.  This is most likely indicative that the mood of the body is to pass the budgets and get out of town.  Frankly, the legislators are still worn-out from a contentious 2015 that saw the regular session and two special sessions keep them in Montgomery for a great part of the year.

The good news is that the legislature and the Governor have indicated that they will not be seeking any new taxes.  Clearly, after last year, the members went home and heard a loud and clear message from their constituents that no new revenues are needed in state government.  The focus should be on doing the most with what revenues are available.

The focus this year will be on “zero-based” budgeting.  While many opinions are held regarding what that really means, generally it is understood that state agencies must approach their budgets with first identifying the priorities of the services they provide and then determining what resources are needed to achieve those priorities.  Lower priorities will most likely not be funded.  The current system of budgeting essentially takes last year’s appropriation and adjusting it to reflect increased costs and new programs.  This process does not allow for setting priorities.

Senator Arthur Orr (R-Decatur) introduced SB122, an Alabama Forestry Association sponsored bill that addresses workers compensation reform that will be beneficial to ForestFund, AFA’s sponsored workers compensation self insurance fund.  The bill was assigned to the Senate’s Fiscal Responsibility and Economic Development Committee chaired by Senator Phil Williams (R- Gadsden), who plans to hold a committee hearing to address the legislation as early as next week.  There will be opposition to this bill.

Also of note, Senator Cam Ward (R- Alabaster) introduced SB15 to un-earmark approximately $400 million in taxes to direct them to the General Fund as opposed to specific state agencies.  Included in his bill is the Forest Products Severance Tax and the Forest Product Processor’s Privilege Tax.  These taxes amounted to $5.865 million in FY15 and had previously been directed to the Alabama Forestry Commission.  AFC’s total budget for FY15 was $22.4 million which included the $5.865 earmarked tax and also a $8.757 million General Fund Appropriation.  AFC’s budget for FY16 (the current year) is $25.2 million which includes a $7.042 million General Fund Appropriation.  Potentially losing the earmark for AFC will have a dramatic effect on services provided to Alabama’s timberland owners.  Additionally, by removing the earmark, the bill also removes the statutory requirement that AFC must use 85% of the severance tax for fire protection.

Must See TV- RSA’s Bronner Encourages State Employees to become more “Hostile”

bronnerYellowHammer News reported yesterday that RSA chief David Bronner concedes that nearly $1 billion in taxpayer funding is keeping the Alabama pension system afloat.  See the article by mashing here.

 

The article also references a video of Bronner addressing the Alabama State Employees Association on September 24, 2015.  Part I of his speech can be found here and Part II is here

At the 8:18 minute mark in Part II, Bronner advocates for the State Employees union to become “stronger, tougher, meaner…more hostile” in their advocacy efforts in convincing state legislators and the governor to expand government.

As you will note from watching the videos, Bronner’s presentation included advocating for higher state taxes and expansion of Medicaid under ObamaCare.  He also takes an off-color shot at Donald Trump and attacks a state legislative pension reform committee, the Koch Brothers, Troy University and the Alabama Policy Institute.

According to the Birmingham Business Journal in an April 8, 2015 article “Top of the List:  Alabama’s highest-paid state employees,” Bronner is the highest paid state employee at $572,097.  Nine of the top 25 paid state employees are employed by RSA.  The article can be found here.

Meanwhile, Alabama’s pension system is only 65.9% funded (and that’s using RSA’s own numbers) with a total unfunded liability of $15.2 billion.  This is after the taxpayers have contributed nearly 12% of the entire discretionary budget, nearly $1 billion, in FY16 appropriations.

 

 

2015 2nd Special Session- Wrap Up

skyThe second Special Session of 2015 has finally concluded and the hay is in the barn. The Alabama Legislature passed several measures that allowed them to cobble together a FY16 $1.75 billion appropriation bill for General Fund spending on non-education state agencies.

 

This appropriation level is 4.5% less than the FY15 funding level of $1.84 billion.  According to the mainstream media, state employees and state agencies, the world is going to come to an end. “The Sky is Falling.”

What you don’t hear is that state government in FY16 will be 1.5% bigger than FY15.

sky2The State’s General Fund Appropriation represents only 6% of the total expenditures of the state. In FY16, the state will spend $29.4 billion and, by far (74%), the greatest source of funding is earmarked taxes and federal funds. That means the legislature only has control over 26% of state expenditures. That has to change, but we will address that in the future.

Back to what happened in the second special session, where the legislature essentially passed five meaningful pieces of legislation.

First was the increased tax on cigarettes which is estimated to increase revenue to the General Fund by $66 million. This bill passed in the House by a vote of 52-46. Of the 46 “no” votes, only 17 were Republicans. 48 Republicans in the House voted for the tax increase. In the Senate, the bill passed on a 21-13 vote. Of the 13 “no” votes, 9 were Republicans. 16 Republicans in the Senate voted for the tax increase. The Republican members that supported the tax increase were essentially telling the taxpayers of Alabama that no further reductions in state government were achievable.

The second and third items were referred to as Medicaid “provider” taxes that increase revenue to Medicaid (and thus the General Fund) by $17 million. An increase paid by nursing homes and pharmacies on their services were spread over the entire base of their clients. This additional revenue allows the state to match more federal dollars. Ahem…federal dollars are tax dollars as well, aren’t they?

Pharmacists will pay a “supplemental fee” of $0.15 for every prescription they fill in Alabama. In return, they will receive an increase in the amount of reimbursement they get through dispensing fees approved for Medicaid recipients. According to testimony before the legislature, a pharmacist will need to be serving a clientele composed of 8% Medicaid recipients in order to “break even.” So if they serve over 8%, they will make more money than before. Medicaid beneficiaries are estimated to be 25% of Alabama’s population. No wonder they agreed to this tax increase. The losers will be Alabama’s tax payers that pay federal taxes. Uhhh….isn’t that most of us?

The fourth major item was the transfer of part of revenues derived from the use tax to the General Fund. Previously earmarked for the Education Trust Fund, the use tax is a tax that is put on products purchased out of state to make up for the loss in sales tax from in-state purchases. Prior to the passage of this legislation, the use tax was distributed 25% to the General Fund and 75% to the Education Trust Fund. Now it will be 53% to the General Fund and 47% to the Education Trust Fund. This results in $80 million more to the General Fund and, of course, $80 million less to the Education Trust Fund.  But don’t worry, the education community has been well taken care of.

The fifth and final important item was a change made to the Rolling Reserve Act which sets a cap on education spending. At the end of each fiscal year, any “excess” between actual revenue the state receives and the cap is placed in a “stabilization” account. Prior to the change, all the excess transferred to the stabilization account was to be put into a proration prevention account, up to 20% of the prior year’s education appropriation (approximately $1.2 billion). Once that was filled up, any further excess could be used for any education related non-recurring capital related expense. This legislation changes the cap formula (takes out the lowest year of the prior 15 years appropriations, thus raises the cap allowing more spending) and also changes the distribution to the proration account (instead of 20% and $1.2 billion in protection, it’s now 7.5% or $450 million in protection) and also changes the rate of distribution to the proration account (unlimited previously, now its, for the first year, 2% of prior year education appropriations or an estimated $120 million and 1% each year thereafter).

So what does this mean? Well at the end of this fiscal year (September 30, 2015), there will be an estimated $150 million surplus. Previously, this surplus would have completely gone to fill the proration account. With this legislation, $120 million will go to the proration account and $30 million will be increased spending set forth in a supplemental appropriation that will come in the next Regular Session.

During the special session, education interests were screaming bloody murder about the “raid” to prop up the General Fund. Here’s the truth…after all is said and done, education expenditures increased by 1.42% for FY16. This does not even take into the account what will occur in future years with an increased cap, immediate spending from the surplus and, oh yeah…bills were passed during the 2015 Regular Session that resulted in increases to the ETF of approximately $40 million.

The drumbeat for raising revenue has already begun in anticipation of the 2016 Regular Session which begins next February where work will begin on the FY17 appropriations. We will continue to hear that the state will shut down, state parks will close, troopers will be off the roads and on and on and on….

By the way…did you know that the Alabama Law Enforcement Agency got an increase of 39% for FY16? Hmmm….wonder why they don’t tell us that?

Stay tuned…..