It is nearly universally acknowledged that a major financial crisis is looming for next year’s State General Fund budget. There appears to be no consensus among legislators on how to solve the problem. There are, however, at least three public solutions being considered.
First is Gov. Bentley’s solution. Unveiled during his State of the State address, Gov. Bentley proposed increasing eight different taxes that, combined, would raise $541 million in new revenue for the State General Fund. Coupled with these tax increases is his plan to divert $187 million from other funds to the State General Fund. In the end, Gov. Bentley’s plan would increase State General Fund receipts by $728 million. Presently, no part of the governor’s plan has passed out of its house of origin.
Second is Senate President Pro Tempore Del Marsh’s (R-Anniston) plan. Introduced last week as Senate Bill 453, Marsh’s plan is three-fold. One, his plan would establish a lottery in Alabama, with the proceeds from the lottery being distributed to the State General Fund. Second, his plan would levy a 13 percent gross receipts tax on Class III gambling (i.e., slot machines as well as table games) and horse-racing operations at casinos in Greene, Jefferson, Macon, and Mobile counties. Third, his plan would levy a four percent gross receipts tax on vendors that supply games or equipment for Class III gaming in Alabama. Citing an Auburn University Montgomery study, proponents of this plan estimate that it will raise about $400 million annually for the State General Fund. A Senate committee will debate this plan, which is a constitutional amendment, this week.
Third is the plan offered by Speaker Mike Hubbard (R-Auburn), Rep. Steve Clouse (R-Ozark), and the House Republican Caucus. When the plan was announced last week, proponents indicated that the plan included 13 tax increases of varying amounts, plus an exclusive gaming compact with the Poarch Band of Creek Indians that would immediately generate $250 million for the State General Fund. The tax components of this plan would reap roughly $200 million in savings and revenue for the State General Fund. The full House will debate these taxes this week, and the House Ways and Means General Fund Committee, led by Rep. Clouse, will consider the FY 2015 State General Fund budget on Wednesday.
The association will continue to monitor these plans as the session winds down. But, more than likely, the Legislature will end the session without a State General Fund budget and will have to be called into a special session over the summer.
As of the end of the 20th legislative day, 646 bills have been introduced in the House of Representatives and 467 bills have been introduced in the Senate. A total of 126 measures have been enacted into law since the start of the session, including several joint legislative resolutions.
Some of the measures that could impact Alabama banks include the following:
Senate Bill 29, sponsored by Sen. Linda Coleman (D-Birmingham): This bill is a product of the National Consumer Law Center. Among other things, it would also void provisions in debt agreements related to out-of-state choice of laws, forum selections, and waiver of jury trials. Additionally, where defaulted debts are sold, this bill would require certain items to be included in the sale, and would set forth detailed requirements for collection of the debts. ABA and other groups oppose this legislation. The Senate Banking and Insurance Committee appointed a subcommittee to study the bill this summer. We plan to be involved in that process.
Senate Bill 68, sponsored by Sen. Cam Ward (R-Alabaster), and House Bill 160, sponsored by Rep. Chris Pringle (R-Mobile): Known as the, “Alabama Consumer Lawsuit Lending Act,” these bills would regulate the process of consumer lawsuit lending in the state. The bill includes provisions related to consumer lawsuit lending agreements as well as interest rates applicable to those agreements (10 percent maximum, as currently written). Both bills were substituted and favorably reported in committee this week. The substitute version retained the 10 percent maximum cap. The House bill now awaits a vote by the full Senate.
Senate Bill 83, sponsored by Sen. Jimmy Holley (R-Elba), and House Bill 121, sponsored by Rep. Paul Lee (R-Dothan): These bills would prohibit the state, counties, or municipalities from utilizing the power of eminent domain to acquire mortgages or deeds of trust. In certain states, municipalities have threatened to seize underwater mortgages and then sell them to a third-party investor. National and state banking associations, with the help of realtor and home builder groups across the country, have so far successfully prevented this activity from actually occurring. These and other groups have indicated they will support the association in providing this legislation to ensure that this type of activity never happens in Alabama. Senate Bill 83 was signed into law by Gov. Bentley and has been assigned Act No. 2015-39.
Senate Bill 106, sponsored by Sen. Arthur Orr (R-Decatur): This bill, the “Alabama Information Protection Act,” would enable Alabama to be the 48th state with some sort of data breach notification law. This bill would require specified entities, including governmental entities and third-party agents, to notify the attorney general and the individual owners of personal information upon a data security breach. This bill would also require these entities to provide notice to credit reporting agencies of security breaches of personal information involving more than 1,000 individuals. In its current form, this legislation completely exempts banks and other financial institutions from the provisions of the bill. The bill now awaits a vote by the full Senate.
Senate Bill 124, sponsored by Sen. Greg Reed (R-Jasper), and House Bill 256, sponsored by Rep. Ken Johnson (R-Moulton): As introduced, these bills would reduce from one year to 90 days the period after a foreclosure sale during which the former owner of homesteaded property could pay his debt and redeem his property. The redemption period for any other type of property would remain unchanged. The association is joining with the Alabama REALTORS Association to advocate for the passage of this bill. A Senate amendment reduced the redemption period from one year to 180 days. The amendment also required the mortgagee who forecloses residential property on which a homestead exemption was claimed during the tax year in which a foreclosure sale occurred to notify the mortgagor of his or her right to redeem the foreclosed property. A House amendment requires the redemption notification to be provided with the foreclosure notice that appears in the newspaper as well as via certified mail. Senate Bill 124 was signed into law by Gov. Bentley and has been assigned Act No. 2015-79.
Senate Bill 196, sponsored by Sen. Rodger Smitherman (D-Birmingham) and House Bill 269, sponsored by Rep. David Faulkner (R-Birmingham), would make Alabama the first state to adopt the Uniform Asset-Protection Orders Act. Among other things, this Act would make it easier for a plaintiff in a lawsuit to obtain an injunctive order to freeze the assets of the defendant in a lawsuit. Working with the Alabama Law Institute (ALI), the association has proposed numerous changes to the legislation that have been adopted by the sponsors. Both bills have been substituted and favorably reported out of committee. The substitute versions contain the language agreed upon by the association and the ALI. These bills await votes by the full House and Senate.
Senate Bill 220, sponsored by Sen. Bill Hightower (R-Mobile): This bill would allow local governments to finance loans for residential and commercial projects that purport to improve the home or building’s energy efficiency or capacity to withstand a catastrophic event. As a condition of accepting the financing, the local government would place a lien on the property. As currently written, this lien would be given priority status equal to ad valorem taxes. In other words, the lien would take priority over previous or subsequent first mortgages. We have had extensive conversations with the sponsor about this legislation, and expect a substitute version of the bill to be offered this week that applies only to commercial loan transactions, with the aforementioned lien granted super-priority status only upon the consent of the prior lender.
Senate Bill 327, sponsored by Sen. Cam Ward (R-Alabaster): This bill would increase the homestead and personal property exemptions granted to an individual debtor in Alabama. The current homestead exemption of $5,000 would be increased to $30,000, while the current personal property exemption of $3,000 would be increased to $10,000. These amounts would be doubled for married debtors. Nothing in the bill would preclude a financial institution from securing a waiver of these exemptions. The bill was favorably reported by the Senate Finance and Taxation General Fund Committee and now awaits approval by the full Senate. We continue to work with the sponsor and bill advocates to lower these rates to more reasonable levels based on inflation rates rather than some arbitrary figure.
Senate Bill 409, sponsored by Sen. Bill Hightower (R-Mobile): This bill would reduce the state income tax rates paid by individual and corporate taxpayers, and would eliminate substantially all of the income tax exemptions currently available to these taxpayers. The state individual income tax rate would decrease from 5 percent to 2.75 percent, while the state corporate tax rate would decrease from 6.5 percent to 4.59 percent. It is the sponsor’s stated intent that the bill would result in a simpler tax return, but no increase in income tax revenue. The bill is a constitutional amendment and thus cannot be vetoed by the governor. The bill also calls for enabling legislation to be adopted by the Legislature in the future. A supermajority of legislators would have to approve the bill before it can appear on a statewide ballot. As introduced, the bill negatively impacts the banking industry because (1) it subjects banks to the state corporate income tax as well as the state’s Financial Institution Excise Tax, and (2) it increases a bank’s Financial Institution Excise Tax liability because it prevents banks from deducting federal income taxes paid from their state taxable income. The association has worked with the bill sponsor to mitigate the damage caused by the introduced bill. If the bill advances, the sponsor has agreed to add an amendment to the bill that would exempt banks from the provisions of the amendment.
Senate Bill 430, sponsored by Sen. Slade Blackwell (R-Birmingham), and House Bill 16, sponsored by Rep. Paul Beckman (R-Prattville): Known as the “Uniform Certificate of Title for Vessels Act,” this bill would require the owner of a vessel to obtain a certificate of title on the vessel. This bill applies to transactions on or after Jan. 1, 2017. This bill is the product of extensive work done by the Alabama Law Institute. The House effectively killed the House bill recently, when a procedural vote on the House floor failed by some 18 votes. The Senate bill was amended in committee to reduce the title application fee from $50 to $25. The Senate bill awaits a vote by the full Senate.
House Bill 141, sponsored by Rep. Patricia Todd (D-Birmingham): This bill would double the fee paid to record a mortgage with a probate judge. The current fee is 15 cents for every $100 of indebtedness included on the recorded document. Receipts are currently distributed to the probate judges, the counties, and the State General Fund. If this legislation passes, a portion of the additional revenue would be distributed to the Alabama Housing Trust Fund, which was created in 2012 but has yet to receive any funding. Administered by the Alabama Department of Economic and Community Affairs, the Alabama Housing Trust Fund would enable non-profit groups to apply for Housing Trust Fund grants, with the grant funds going toward improving home affordability for low-income Alabamians. Several groups oppose this bill for one reason or another, and it is not likely to pass this legislative session.
House Bill 201, sponsored by Rep. Lynn Greer (R-Rogersville): This legislation, part of Gov. Bentley’s tax package, would repeal Section 40-16-8, a provision of state law that gives banks a tax credit they can use to lower their Financial Institution Excise Tax liability. Established in 1935, the tax credit essentially equals the amount of sales and use taxes that a bank pays on tangible personal property used by the institution. The legislation has been referred to the House Ways and Means General Fund committee. Stopping this legislation is the association’s first priority during this legislative session. The association continues to monitor this legislation. The committee has not indicated when it will consider this legislation, if at all.
House Bill 417, sponsored by Rep. Patricia Todd (D-Birmingham): This bill would codify the creation of a State Banking Department database that tracks the amount of money loaned to a customer in deferred presentment transactions. State law prohibits a customer from having outstanding deferred presentment transactions that cumulatively exceed $500. The department created this database through administrative regulation, but that decision was challenged on the grounds that creating the database in that manner exceeded the department’s legal authority. This legislation would negate that argument. The House Financial Services Committee added two technical amendments to this bill before giving it a favorable report. The bill now awaits approval by the full House. A recent Supreme Court ruling will allow for the continuation of the database created by the department through administrative regulation. Accordingly, the sponsor of this bill has indicated that she will no longer move this bill.
House Bill 454, sponsored by Rep Randy Davis (R-Daphne): This bill would allow credit unions to become qualified public depositories, thus giving those entities the ability to hold public deposits. This legislation has been introduced many times in the past. Each time, the association’s winning argument has been the same: the right to hold public deposits should not be given to a tax-exempt institution. The association will actively work to make sure this legislation never comes up for a vote.
House Bill 509, sponsored by Rep. Jack Williams (R-Vestavia Hills): This bill would regulate the operation of Transportation Network Companies (TNC) in Alabama. A TNC, such as Uber or Lyft, allows individuals to offer taxi-like services without having to comply with the regulatory requirements of operating a taxi. TNC companies are gaining popularity across the country. The association is concerned that this legislation, which is based on a model bill drafted by the TNC industry, does not require sufficient insurance coverage for the automobiles used by the TNC operator, leaving the lien holder on that vehicle vulnerable to financial loss. We have discussed these concerns with the sponsor and Uber’s lobbyists. The House Commerce and Small Business Committee held a public hearing on the bill. We continue to work with the bill sponsor to address our concerns.
So far, the Legislature has met for 20 legislative days. A Regular Legislative Session can contain no more than 30 legislative days, and all legislative days must take place on or before June 15, which is 105 days after the beginning of the session.
The House of Representatives and Senate are expected to meet for two legislative days this week, Tuesday and Thursday.
Questions or comments? Contact Jason Isbell, vice president of legal and governmental affairs, at jisbell@alabamabankers.com.
