MONTGOMERY, March 29, 2016 – Without question, the last two weeks in Alabama politics have been, to say the least, eventful. But in the midst of all of the chaos involving the executive branch, the Alabama Legislature’s 2016 Regular Session crossed its actual (the 15th legislative day) and perceived (the start of the Legislature’s “spring break” week) halfway points. In the second half of the session, which begins April 5, several legislative items will likely dominate State House discussion.
First, Gov. Robert Bentley has publicly stated that he will veto the FY 2017 State General Fund budget, which the Legislature passed last Wednesday, because it provides the Medicaid Agency an additional $15 million instead of an additional $100 million, as the governor proposed. More than likely, the Legislature will have more than enough votes to override the veto. If that happens, the governor has threatened to call a special session this summer to focus exclusively on Medicaid funding. Second, debate over the governor’s prison construction bill will take center-stage, first on the Senate floor. Sponsored by Sen. Trip Pittman (R-Montrose), the bill, Senate Bill 287, would pave the way for the state to issue $800 million in bonds to build four new prisons. The measure has already passed out of a Senate committee, and its proponents argue that new prisons are desperately needed and that maintenance cost savings realized by the new prisons would pay the resulting debt service. Third, in light of recent events, legislators are likely to seriously debate a constitutional amendment that would allow Alabama voters to recall elected officials. One such bill that has already been introduced, Senate Bill 371, sponsored by Sen. Clyde Chambliss (R-Prattville), would allow a recall election to be conducted on a state elected official if a recall petition that has been signed by electors equaling at least 40 percent of the vote cast for the office at the last preceding election is submitted to the secretary of state. For example, a petition to recall Gov. Bentley would need more than 472,000 signatures. Several legislators have publicly stated that they will support recall legislation or sponsor a recall bill of their own.
The last few weeks have been pretty hectic on the banking front as well. In February, the Department of Revenue proposed changing how multi-state financial institutions (banks as well as other lenders) would apportion and allocate income to determine how much of that income was taxable in Alabama. According to the department’s calculations, the overall net increase in Financial Institution Excise Tax (FIET) collections would be nearly $10 million, all of which would be paid by banks. Though some banks would not be affected by the proposal at all, and while the proposal might have even resulted in a tax decrease for some banks, the association’s position was that this regulatory proposal negatively affected Alabama’s banking industry. Consequently, we worked alongside the department and the Legislative Council (a 20-member body of representatives and senators who can act on agency regulatory proposals) to delay the effective date of the proposal and, during the delay, to discuss other apportionment formula options that might be available to Alabama. Additionally, the association worked to have legislation introduced that would pave the way for the department and the legislature to at least consider other apportionment formula options; a current statute requires the state to adopt whatever formula is suggested by a D.C.-based group called the Multistate Tax Commission. That bill, House Bill 451, sponsored by Rep. Oliver Robinson, will be a major focus for the association during the session’s second half.
At the end of the 18th legislative day, 476 bills have been introduced in, and 114 have been passed out of, the House of Representatives, while 374 bills have been introduced in, and 115 have passed out of, the Senate. Some of the measures that could impact Alabama banks include the following:
Senate Bill 67, sponsored by Sen. Cam Ward (R-Alabaster), and House Bill 395, sponsored by Rep. Chris Pringle (R-Mobile): This bill, the “Alabama Consumer Lawsuit Lending Act,” 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 such agreements (currently capped at 10 percent APR). The Senate bill is in position to be approved by the full Senate, and the House bill is in position to be approved by the full House.
Senate Bill 90, sponsored by Sen. Arthur Orr (R-Decatur), and House Bill 217, sponsored by Rep. Alan Baker (R-Brewton): This bill, the “Thompson Apprenticeship Tax Credit Act,” would provide an income tax credit of $1,000 to an employer for each qualified apprentice of an employer, based on Department of Labor standards of “qualified apprentice.” Thanks to an amendment the association worked to add to this bill, banks can qualify for this tax credit. The Senate bill is in position to be approved by the full House.
Senate Bill 91, sponsored by Sen. Arthur Orr (R-Decatur): This bill makes significant changes to laws related to payday loans, including a provision that caps the annual finance rate at 45 percent. The bill was favorably reported by the Senate Banking and Insurance Committee last week, but could still face significant opposition on the Senate floor.
Senate Bill 144, sponsored by Sen. Cam Ward (R-Alabaster) and House Bill 113, sponsored by Rep. Matt Fridy (R-Montevallo): This bill makes a declaratory finding that the term “transfer” in the Alabama Fraudulent Transfer Act includes transfers made pursuant to a divorce settlement or domestic settlement. While the bill merely seeks to clarify, rather than amend existing law, this bill is written as a response to a recent ruling of the Alabama Court of Civil Appeals that could potentially have a negative impact on banks. The Senate bill is in position to be passed by the House Judiciary Committee.
Senate Bill 164, sponsored by Sen. Rodger Smitherman (D-Birmingham) and House Bill 269, sponsored by Rep. Juandalynn Givan (D-Birmingham): This bill would adopt the Revised Uniform Fiduciary Access to Digital Assets Act, which would extend the traditional power of a fiduciary to manage tangible property to include the management of digital assets. The Senate bill is in position to be passed by the full Senate.
Senate Bill 202, sponsored by Sen. Linda Coleman (D-Birmingham): This bill would amend the corporate income tax law to require the operations of all related entities involved in a unitary business to file one corporate income tax return on a combined based, known as combined reporting. ABA, as well as other business advocacy groups, will undoubtedly oppose this measure if it ever makes it onto a committee agenda.
Senate Bill 209, sponsored by Sen. Bill Holtzclaw (R-Huntsville) and House Bill 367, sponsored by Rep. Ken Johnson (R-Moulton): This bill would make substantial, but mostly technical, revisions to Alabama’s Credit Union statute. The Alabama Credit Union Administration drafted the 51-page bill, which includes specific provisions about the appellate rights of persons affected by a suspension of operation of a credit union. These changes, and others, were likely prompted in the wake of the ACUA’s actions towards the Tuscaloosa-based Alabama One Credit Union. Working with the Credit Union industry, ABA was able to persuade the Senate Banking and Insurance Committee to adopt an amendment that alleviated our concerns about this mostly technical bill. The Senate bill passed the House last week and now awaits Gov. Bentley’s signature.
Senate Bill 238, sponsored by Sen. Arthur Orr (R-Decatur), and House Bill 291, sponsored by Rep. Connie Rowe (R-Jasper): This bill, the “Alabama Information Protection Act,” would provide for the protection of sensitive personally identifying information and notice to individuals whose personal information has been breached. Working with Attorney General Strange, ABA was able to have language included in the bill that exempts financial institutions subject to the privacy provisions of the Gramm-Leach-Bliley Act. The Senate bill is in position to be voted on by the full Senate.
Senate Bill 262, sponsored by Sen. Shay Shelnutt (R-Trussville), and House Bill 299, sponsored by Rep. David Faulkner (R-Mountain Brook): This bill would standardize several insurance-related laws as they apply to “transportation network companies” such as Uber. The association worked to have an amendment added in the Senate and the House that improved a bank’s positions if it is a lienholder on a vehicle used by an Uber driver. Each bill is in position to be passed out of its house of origin.
Senate Bill 288, sponsored by Sen. Bobby Singleton (D-Greensboro): This bill would cut in half, from 6 years to 3 years, the statute of limitations for actions to recover money due by open or unliquidated account, “including a credit card or other revolving credit account.” Proponents claim this bill merely brings clarity to a situation that has been confused by several court rulings. Senate Bill 288 was carried over last week and is not likely to be brought up again this session.
Senate Bill 327, sponsored by Sen. Quinton Ross (D-Montgomery), and House Bill 412, sponsored by Rep. Juandalynn Givan (D-Birmingham): This bill would forbid every public agency, as well as a private employer employing four or more employees, from inquiring into or considering a job applicant’s conviction history until after the applicant has received a conditional offer. Because this bill potentially conflicts with Section 19 of the Federal Deposit Insurance Act (which prohibits banks from hiring any employee who has been convicted of crimes related to dishonesty, money laundering, or breach of trust), the association is working to have the bill amended in committee so that this potential conflict is eliminated. The Senate Judiciary Committee will consider this bill next week.
House Bill 36, sponsored by Rep. Kyle South (R-Fayette): This bill, the “Alabama Small Business Jobs Act,” would, as introduced, give businesses, including banks, an income/FIET tax credit under certain conditions. Specifically, a bank headquartered in Alabama with 75 or fewer employees would receive a one-time tax credit valued at $1,500 for each employee hiring that results in a “net employee growth” from one tax year to the next. Working with Sen. Jim McClendon (R-Springville), the ABA was able to persuade the Senate Fiscal Responsibility and Economic Development Committee to adopt an amendment that re-inserted banks and FIET taxpayers into the bill. The amended bill is now in position to be voted on by the full Senate.
House Bill 62, sponsored by Rep. Victor Gaston (R-Mobile): This bill would authorize a seven-year extension of the tax credit against the tax liability of certain taxpayers, including banks with an FIET liability, for the substantial rehabilitation of qualified structures. Currently, up to $20,000,000 in tax credits are available each year for rehabilitation projects involving certified historic structures (credit equals 25 percent of the qualified rehabilitation expenditures, up to $5,000,000 per project) or qualified pre-1936 non-historic structures (credit equals 10 percent of qualified rehabilitation expenditures, up to $5,000,000 per project). The tax credit program, which expires in April, would under this legislation be renewed until 2022. The bill is now in a position to be voted on by the full House.
House Bill 341, sponsored by Rep. Patricia Todd (D-Birmingham): This bill would double the fee for the recording of mortgages, deeds of trust, contracts of conditional sales, or other similar instruments recorded to secure the payment of debt. The current recording fee is effectively $150 for every $100,000 worth of debt, with two-thirds of the fee revenue distributed to the State General Fund (SGF) and one-third distributed to the county in which the tax is collected. Under this bill, the recording fee would be $300 for every $100,000 worth of debt, with 3 percent distributed to the county Judge of Probate, 35 percent to the SGF, 23 percent to the Alabama Housing Trust Fund, 23 percent to the Alabama Homebuyer’s Initiative, and 16 percent to the county in which the tax is collected.
House Bill 370, sponsored by Rep. A.J. McCampbell (D-Demopolis): This bill would improve the lien position of the Federal Home Loan Banking system in the event an member insurance company goes into receivership. By improving the lien position, FHLB members could potentially see higher rates of return. This bill passed out of committee last week and is now in a position to be voted on by the full House.
House Bill 390, sponsored by Rep. Chris Pringle (R-Mobile): This bill, the “Alabama Innovation Act,” would provide for a tax credit to certain Alabama companies, including banks, to offset qualified research expenses incurred to conduct qualified research for new or improved products or services.
House Bill 400, sponsored by Rep. Chris Blackshear (R-Phenix City): This bill, as introduced, would impact tax credits earned by banks against their Financial Institution Excise Tax (FIET) liability. Under current law, FIET receipts are distributed to the State General Fund, to cities, and to counties. Additionally, some current FIET tax credits can be used to reduce the State General Fund liability only, while other FIET tax credits can be used to reduce the entire tax liability. As introduced, this bill would allow all past and future FIET tax credits to limit a bank’s State General Fund FIET liability only. Working with the sponsor and several key legislators, the association was able to persuade the House County and Municipal Government Committee to amend the bill so that it applies to any FIET tax credits enacted after January 1, 2016. The bill, as amended, is now in position to be passed by the full House.
House Bill 451, sponsored by Rep. Oliver Robinson (D-Birmingham): This bill would allow the Department of Revenue to have more flexibility in prescribing regulations that address how multi-state financial institutions calculate their taxable income in Alabama. Current law requires such a regulation to be “substantially the same” as the allocation and apportionment regulation recommended by a group known as the Multistate Tax Commission. This bill, introduced at the association’s urging, eliminates this particular requirement.
Counting bills and joint resolutions, 97 measures have been enacted into law since the beginning of the session. The Legislature has met for 18 legislative days as of this writing. A Regular Legislative Session can contain no more than 30 legislative days, and all legislative days must take place on or before May 16, which is 105 days after the beginning of the session. The House of Representatives and Senate are on spring break this week. They will convene for the 19th legislative day on Tuesday, April 5. The House and Senate are expected to meet for two legislative days that week.
Questions or comments? Email Jason Isbell, vice president of legal and governmental affairs.
