Special Session Update

The Alabama Legislature began its second special session of 2015 last Tuesday. Gov. Bentley was forced to call the session because next year’s State General Fund budget, which funds all non-educational expenses, has yet to be enacted. Legislators must pass a budget for fiscal year 2016 by Oct. 1 to avoid a government shutdown.

While conventional wisdom says legislators will produce a budget this session, what that budget looks like is anyone’s guess. Gov. Bentley is pushing a revenue package that raises nearly $300 million for the State General Fund, while representatives are working to coalesce around a revenue package that is considerably smaller. Many senators, on the other hand, have indicated that they will not pass any tax increases whatsoever.

Through four legislative days, a combined total of 85 bills have been introduced in the House and Senate. Though the session is focused on budget-related measures, many of these bills have nothing to do with the State General Fund. There are bills, for instance, that deal with retirement plans for probate judges, marriage licenses, municipal minimum wage laws, three-wheeled motorcycles, and public university chaplains.

But there are four tax bills that are receiving the most attention.

  • HB3 by Connie Rowe (R-Jasper) increases the cigarette tax 25 cents per pack, which will generate $66 million for the State General Fund.
  • HB8 by Elaine Beech (D-Chatom) creates a 15 cent supplemental privilege tax on each prescription filled or refilled during fiscal years 2016 or 2017, generating $8 million for the Medicaid Agency in each of those years.
  • HB12 by Steve Clouse (R-Ozark) adds a supplemental assessment on each bed in a nursing facility in fiscal years 2016 and 2017, generating $8.4 million for the Medicaid Agency in each of those years.
  • HB30 by Bill Poole (R-Tuscaloosa) changes the distribution of state use taxes so that approximately $222.5 million of use tax revenue that is currently deposited into the Education Trust Fund will instead be deposited into the State General Fund.

These bills each passed the House of Representatives on a close vote last week and are now in a position to be considered by the full Senate.

A fifth bill, HB21 by Rep. Mike Hill (R-Columbiana), would increase the business privilege taxes paid by most businesses organized in or doing business in Alabama. Though the bill passed out of committee, proponents have yet to secure enough votes to pass the bill out of the House. The bill, which is estimated to generate approximately $22.5 million for the State General Fund, affects financial institutions in two ways. First, it forces a financial institution to base its business privilege tax calculation on its in-state deposits rather than on its net worth and taxable net income. Second, it increases the tax rates applicable to the in-state deposit calculation method. Combined, it is estimated that this bill will cause financial institutions to annually pay an additional $500,000 to $750,000 in business privilege taxes, with no financial institution paying more than an additional $10,000 annually. The association worked extensively with the governor’s office, the speaker’s office, the executive budget office, and the Department of Revenue to craft language that minimized the bill’s impact on the banking industry, and we will continue to closely monitor this legislation throughout the session.

A version of next year’s State General Fund budget passed the House on Friday, Sept. 11. HB1, sponsored by Rep. Steve Clouse (R-Ozark), appropriates $1.766 billion from the State General Fund next year, not including an additional $49 million in conditional appropriations. Compared to last year’s State General Fund budget, this budget represents a funding cut of nearly $74 million.

The Legislature has met for four legislative days and can meet for no more than eight additional legislative days on or before Oct. 6. The fifth legislative day began today.