The Alabama Senate had its first “shutdown” day of the 2019 session yesterday, as members of the upper chamber spent a considerable amount of time debating just one bill. Senate Bill 220, sponsored by Sen. Greg Albritton (R-Atmore) is a proposed constitutional amendment that, if ratified, would establish the Alabama Lottery. Though introduced on April 2, the bill had not yet come before the Senate Tourism and Marketing Committee until Wednesday, where it passed by a bipartisan 6-5 vote. It appeared on the Senate floor the very next day.
As introduced, the legislation would have authorized the lottery to be played using paper tickets only – video or electronic lottery formats were expressly prohibited – with lottery revenues being evenly distributed between the Alabama Trust Fund (which includes oil and gas lease and royalty payments; interest earned on these funds is deposited into the State General Fund) and the State General Fund (which funds all non-education expenses of the state).
On the Senate floor, a total of ten amendments were offered on the bill, an extraordinarily high number of amendments for a piece of legislation. Of those, only four were adopted. Two of those four were designed to protect some of all of the “gaming” activity already authorized by local constitutional amendments; the third amendment clarifies that “paper lottery” can be extended to include “electronic tickets” for “non-instant” lottery games; and the fourth amendment modifies how the funds will be allocated between the State General Fund and the Alabama Trust Fund. Some of the defeated amendments would have allowed fantasy sports games, would have distributed a portion of the proceeds to the Education Trust Fund, and would have provided additional, state-wide constitutional protections to “all forms of bingo and pari-mutuel wagering.”
In the end, the bill passed with 21 votes, the minimum amount needed. It will now go to the House of Representatives. Any changes made to the bill by the House would require the legislation to return to the Senate. But interestingly, once a constitutional amendment is passed by the Legislature, the next step is a vote of the people; the governor cannot veto a proposed constitutional amendment. As currently drafted, the vote on the lottery proposal would take place on March 3, 2020, putting it on the same ballot as the presidential preference primary election.
How the House will treat this legislation is anyone’s guess. A minimum of 63 votes will be required to pass the bill, and efforts designed to expand the bill’s gaming options, protect existing gaming options, and modify how revenues are distributed will certainly be heavily debated on the 5th floor of the State House over the coming weeks. So, stay tuned.
As always, Capitol Notes provides readers with a brief summary of legislation that might impact Alabama’s banking industry. Those summaries are as follows:
House Bill 101 by Rep. Kerry Rich (R-Albertville) and Senate Bill 54 by Sen. Shay Shelnutt (R-Trussville) adopts the National Association of Insurance Commissioners’ Insurance Data Security Law. Federal data security regulations already apply to financial institutions, including to those institutions’ insurance-related subsidiaries. To ensure that this legislation did not also apply to those entities, the association, working with the American Bankers Association, drafted an amendment exempting financial institutions from the provisions of this bill. The amendment was unanimously adopted in both the House and Senate versions of the bill. Senate Bill 54 was unanimously passed yesterday by the House and sent to Governor Ivey for her signature. The Association’s amendment, which was added in Senate committee, is still included in the final version of the bill.
House Bill 133 by Rep. Jim Hill (R-Pell City) would require state taxes or fees not already distributed to the Education Trust Fund or State General Fund to be deposited in the State General Fund unless those taxes or fees are constitutionally required to be distributed to a specific fund for a specific purpose. As introduced, this bill would likely divert assessment fees paid by state-chartered banks away from the State Banking Department and into the State General Fund, since assessment fees are not required by the constitution to be distributed to the State Banking Department. The association has historically opposed efforts to divert bank assessment fees away from the State Banking Department. Several other agencies are similarly impacted, and the association is working with them, as well as with the State Banking Department, to amend the legislation. There has been no activity on this bill for some time. The association will continue to monitor this legislation.
House Bill 139 by Rep. K.L. Brown (R-Jacksonville) would require a lender that holds all or part of a payment for an insurance claim to, upon request by the insured for payment, either issue the payment or provide a detailed notice of why the payment is being withheld and the steps the insured needs to take for the payment to be released. As currently written, the lender would have 10 days to provide information to the insured or risk paying 20 percent interest on any insurance proceeds held by the lender. This legislation is allegedly in response to issues that arose in the aftermath of the tornadoes that impacted Jacksonville and the surrounding areas last May. The association is in discussions with the sponsor and other interest groups, such as the Homebuilders Association of Alabama, about the legislation and hopes a compromise can be reached, especially with respect to the timelines and interest rate. The association, working with the Homebuilders Association of Alabama, amended this bill to increase the notice period to 14 days, decrease the interest rate to 10 percent, and clarify that financial institutions retain all rights under current law and under agreements with homeowners, including the right to retain insurance proceeds when distributing them is economically unfeasible.
House Bill 140 and House Bill 420 by Rep. Kyle South (R-Fayette) would allow banks and the Department of Revenue to voluntarily enter into an agreement to share certain identification information for bank customers who have been determined by the department to be delinquent taxpayers. Under current law, over half of all garnishment notices sent to banks are returned because the subject of the notice is not a bank customer. In theory, a data match agreement between a bank and the department would eliminate these “useless” notices. So far, the department has been extremely accommodating in helping the association work out the industry’s causes for concern. Discussions with the department resulted in the introduction of a second bill, House Bill 420. The “new” bill makes clear that the data match agreements are voluntary, allows the department and an institution to include in an agreement the amount of money the department will pay to reimburse the institution for conducting a data match, and removes language that would otherwise have constricted how an institution used information that a customer was potentially subject to a future garnishment. The two bills are in separate committees, but this new, agreed-upon language will be included in any legislation that moves forward. With a vote of 94-5, the House passed House Bill 420 on Tuesday. The bill has been referred to the Senate Banking and Insurance Committee.
House Bill 162 by Rep. Chris Blackshear (R-Phenix City) and Senate Bill 127 by Sen. Shay Shelnutt (R-Trussville) is the Future Advance Mortgage Protection Act. As introduced, the bill would make clear that future advance mortgages are created upon their execution and not, as the state Supreme Court has ruled, when funds are actually advanced. Discussions with the Homebuilders Association of Alabama resulted in additional language being added to the bill to provide clarity on the subject of lien priority for obligatory or optional future advances. A committee substitute to these bills was adopted in the House and Senate last week. Conventional wisdom would hold that the Supreme Court’s ruling from March 29 leaves banks in a better position than these pieces of legislation, meaning these bills will likely not advance any further.
House Bill 304 by Rep. Merika Coleman (D-Birmingham) and Senate Bill 181 by Sen. Shay Shelnutt (R-Trussville) makes clear that certified real estate appraisers can perform a valuation for certain financial transactions involving real estate. While federal law allows valuations to be performed by anyone in certain situations, current state law provides that real estate appraisers can only perform appraisals, effectively eliminating professional real estate evaluators from the current valuations market. Coincidentally, the national Appraisers Standards Board updated the Uniform Standards of Professional Appraisal Practice on Friday, April 5, to allow appraisers to perform evaluations beginning January 1, 2020. The House unanimously approved House Bill 304 on Tuesday. The House bill has been referred to the Senate Banking and Insurance Committee.
House Bill 419 by Rep. Kyle South (R-Fayette), the Financial Institution Excise Tax Reform Act, makes numerous technical changes to the Financial Institution Excise Tax statutes, many of which remain substantially unchanged since being enacted in 1935. The 33-page bill essentially does the following five things: (1) uses the federal definition of “taxable income” as the base calculation for the FIET; (2) repairs constitutional defects related to deductions allowed for subsidiary entities; (3) reduces administrative burdens on financial institutions filing consolidated returns; (4) changes the tax distribution formula from location-based to population-based; and (5) mirrors FIET and federal income tax filing dates and payment schedules. The bill was amended and favorably reported by the House Ways and Means – General Fund Committee on April 17. Working with the Department of Revenue, the Association is in the process of drafting an important House floor amendment that, once added, we believe will alleviate any concerns from the credit union industry, while still allowing the bill to maintain overall revenue neutrality. Our goal is for this bill to come to the House floor as soon as possible.
House Bill 424 by Rep. Joe Lovvorn (R-Auburn), the Alabama Innovation Act, provides a tax credit for research conducted in Alabama. Modeled after the federal research and development tax credit, the tax credit is available to Alabama businesses for qualified research expenses incurred by Alabama companies that spend funds and resources in-house or pay Alabama research companies to conduct qualified research for new or improved products or services. The combined amount of credits cannot exceed $25 million, or $2 million per taxpayer, in a single year. Credits can be issued against the state income tax or the Financial Institution Excise Tax. Approved research activities involve a variety of research and development avenues, including research types approved by the Alabama Department of Commerce. Note that any credits to offset FIET liability will be limited to the state portion of the tax only.
House Bill 487 by Rep. Neal Rafferty (D-Birmingham) and Senate Bill 189 by Sen. Linda Coleman-Madison (D-Birmingham) increases the mortgage recording fee by 33%, from $150 to $200 on every $100,000 of indebtedness. The legislation also changes how the fee revenue would be distributed by providing that a portion of the revenue would be allocated to the Housing Trust Fund, which the Legislature established (but never funded) in 2012 for the purpose of distributing housing grants throughout the state. The Alabama Association of Realtors, the Homebuilders Association of Alabama, and the Mortgage Bankers Association of Alabama, as well as this Association, stand in opposition to this legislation and will continue to work against its passage.
Senate Bill 106 by Sen. Andrew Jones (R-Centre) would allow a member of any branch of the Armed Forces of the United States to contract with a financial institution to obtain a loan or open a checking or savings account. Generally speaking, current state law prohibits anyone under the age of 19 from entering into a contract, including a contract with a financial institution. A person may join the Armed Forces at age 17 with parental consent, or at age 18 or older without parental consent. This bill was amended on the Senate floor to, one, make clear that once a person signs a contract pursuant to this new law, that contract remains valid even if the person subsequently leaves the Armed Services, and two, to permit a financial institution to require a person signing a contract pursuant to this new law to present in person a valid form of military identification. The bill passed the Senate on April 18 and was referred to the House Financial Services Committee.
As of the end of the 11th legislative day, legislators have introduced 849 bills – 520 in the House and 329 in the Senate – and 218 resolutions. So far, 38 of these measures have been enacted into law. The 2019 Regular Session can last for no more than 30 legislative days and must end on or before June 17.
The Legislature will reconvene for its 14th legislative day on Tuesday.
Questions or comments? Contact Jason Isbell, ABA’s VP of Legal and Governmental Affairs, at jisbell@alabamabankers.com.
