HB159 HB160

Constitutional Amendment Alabama Job Creation and Retention Act

Review of the bills to use the state income taxcurrently dedicated to educationas cash payments to corporations.

FACTS ABOUT HB159

A proposed constitutional amendment to authorize use of the state income tax, now dedicated for education, as cash payments for corporations. The state income tax is the largest and most important source of education funding in Alabama. The state income tax makes up the majority of funding in every local school budget in Alabama. The state income tax is guaranteed for school use it is dedicated to teacher salaries by the state constitution since 1947. HB159 is a constitutional amendment that removes the dedication of the state income tax to education, allowing the state income tax to be used for non-education purposes, specifically cash payments for corporations as outlined in HB160. If the Legislature approves the amendment, it will then need a vote of the people to remove the dedication of the state income tax to schools. There is no criteria in the bill to safeguard the Education Trust Fund.

FACTS ABOUT HB160

A proposed law for which the governor may provide cash payments for corporations using the state income tax now dedicated to education. HB160 allows corporations to keep, as cash payments, the state income taxes of employees. Corporations receiving cash payments will be chosen at the sole discretion of the governor. The bill uses the term discretion seven times and sole discretion six times. There is no limit to the total amount of dedicated state income taxes the governor can use in HB160. A House Republican Caucus review of a similar bill said the funds taken from the ETF could, in theory, be unlimited. While HB160 is being called a jobs bill, there are no absolute job creation requirements for corporations within the bill. There is no mechanism within the bill to hold corporations accountable if there is no net jobs gain. Enforcement of corporate agreements will be at the sole discretion of the governor. State income taxes paid by current workers going to schools today will be given to corporations to purchase equipment, vehicles, or capital improvements. Existing companies could fire up to 33% of employees and still be given the state income tax of the companys remaining workers as a bailout. There is no legislative oversight of the governors actions. There is no criteria in the bill to safeguard the Education Trust Fund. HB160 becomes law only if HB159 passes the Legislature and a vote of the people.

HB159
TO B NTI development in the state. BE IT ENACTED BY THE LEGISLATURE OF ALABAMA: of Alabama of 1901, as amended: PROPOSED AMENDMENT

A proposed constitutional amendment to authorize use of the state income tax, now dedicated for education, as cash payments for corporations as outlined in HB160. It requires ratification by voters.

To propose an amendment to the Constitution of Alabama of 1901, as amended, to authorize an incentive program which the state may use for the purpose of creating and retaining jobs and promoting economic and industrial

Section 1. The following amendment to the Constitution of Alabama of 1901, as amended, is proposed and shall become valid as a part thereof when approved by a majority of the qualified electors voting thereon and in accordance with Sections 284, 285, and 287 of the Constitution

Part 1. The Legislature makes the following findings: (1) The economic well-being of the citizens of the state will be enhanced by the increased development and growth of industry within the state and it is in the best interests of the state to provide for certain incentives to allow the state to promote such economic development through the recruitment, retention, and expansion of quality projects within the state. (2) The incentives provided in House Bill ___ or Senate Bill ___ 160 of the Regular Session of 2012 of the Alabama Legislature will assist the state in encouraging the retention of existing jobs that may otherwise be terminated or displaced, and the creation of new jobs which may not otherwise exist within the state, and the incentives will help retain and create sources of tax revenues for the state and its political subdivisions.

Authorizes the use of state income tax dedicated to schools as cash payments to corporations. Education dollars can be used for cash payments to existing corporations in Alabama under the retention clause of HB160. Retention is used 13 times in HB160.

(3) The powers to be granted and the purposes to be accomplished by House Bill ___ or Senate Bill ___ 160 of the Regular Session of 2012 of the Alabama Legislature are proper governmental and public purposes and the inducement of the recruitment, retention, or expansion of quality projects within the state is of paramount importance. Part II. Notwithstanding any other provision of this Constitution, the provisions of House Bill ___ or Senate Bill ___ 160 [Act No. 2012- ] of the Regular Session of 2012 of the Alabama Legislature are hereby authorized, validated, enabled, confirmed, and ratified in all respects and, as such, shall be immune from any challenge based on either this Constitution or any other law of the State of Alabama. Section 2. Upon enactment of either House Bill ___ or Senate Bill ___ 160 of the Regular Session of 2012 of the Alabama Legislature, an election upon the proposed amendment shall be held in accordance with Sections 284 and 285 of the Constitution of Alabama of 1901, now appearing as Sections 284 and 285 of the Official Recompilation of the Constitution of Alabama of 1901, as amended, and the election laws of this state. Section 3. The appropriate election official shall assign a ballot number for the proposed constitutional amendment on the election ballot and shall set forth the following description of the substance or subject matter of the proposed constitutional amendment: "Proposing an amendment to the Constitution of Alabama of 1901, to authorize an incentive program which the state may use for the purpose of creating and retaining jobs and promoting economic and industrial development in the state. "Proposed by Act ________." This description shall be followed by the following language: "Yes ( ) No ( )."

Ballot language does not express the fact that the constitutional amendment removes the dedication of state income taxes to schools.

HB160
ENGROSSED A BILL TO BE ENTITLED AN ACT

The mechanism for which the governor may provide cash payments for corporations using the state income tax now dedicated to education.

To provide legislative findings; to provide definitions; to allow Alabama companies which undertake certain qualifying projects to retain a percentage of state income taxes withheld from eligible employees. BE IT ENACTED BY THE LEGISLATURE OF ALABAMA: Section 1. This act shall be known and may be cited as the Alabama Job Creation and Retention Act of 2012. Section 2. The Legislature makes the following findings: (a) The economic well-being of the citizens of the state will be enhanced by the increased development and growth of industry within the state and it is in the best interests of the state to provide for certain incentives to allow the state to promote such economic development through the recruitment, retention, and expansion of quality projects within the state. (b) The incentives provided in this act will assist the state in encouraging the retention of existing jobs that may otherwise be terminated or displaced, and the creation of new jobs which may not otherwise exist within the state, and

Education dollars can be used as cash payments to existing corporations in Alabama under the retention clause of HB160. Retention allows a corporation to receive cash payments even if they have layoffs and net job losses.

the incentives will help retain and create sources of tax revenues for the state and its political subdivisions. (c) The Alabama Development Office and the Department of Revenue shall implement this act and exercise all powers as authorized in this act; however, the application of this act or the offering of any of its incentives as to any particular approved company shall be in the sole discretion of the Governor upon the written recommendation of the ADO Director and the Director of Finance. (d) The powers to be granted and the purposes to be accomplished by this act are proper governmental and public purposes and the inducement of the recruitment, retention, or expansion of quality projects within the state is of paramount importance. (e) Nothing in this act shall be construed to constitute a guarantee or assumption by the state of any debt of any individual, company, corporation, or association nor to authorize the credit of the state to be given, pledged, or loaned to any individual, company, corporation, or association. (f) Nothing in this act gives any approved company any right to the incentives authorized by this act unless the incentives are approved by the Governor pursuant to this act. (g) This act is intended to be revenue-neutral with regard to employee withholdings and potential refunds. Section 3. The following words and phrases shall have the following meanings: (1) ADO. The Alabama Development Office. (2) APPROVED COMPANY. Any company recommended by the ADO Director and the Director of Finance in writing and approved by the Governor in writing pursuant to this act which undertakes a qualifying project.

Selection of corporations and approval of projects is within the sole discretion of the governor. There is no legislative oversight, no check or review of the governors decisions in handing out these funds. The ADO Director and Director of Finance serve at the pleasure of the governor.

(3) CAPITAL COSTS. All costs and expenses incurred by an approved company in connection with the acquisition, construction, installation, and equipping of a qualifying project during the period commencing with the date on which such acquisition, construction, installation, and equipping commences and ending on the date on which the qualifying project is placed in service, including, without limitation, all of the following: a. The costs of acquiring, constructing, installing, and equipping a qualifying project, including all obligations incurred for labor and to contractors, subcontractors, builders, and materialmen. b. The costs of acquiring land or rights in land. c. The costs of architectural and engineering services, including test borings, surveys, estimates, plans and specifications, preliminary investigations, environmental mitigation, and supervision of construction, as well as for the performance of all the duties required by or consequent upon the acquisition, construction, and installation of a qualifying project. d. The costs associated with installation of fixtures and equipment; surveys, including archaeological and environmental surveys; site tests and inspections; subsurface site work; excavation; removal of structures, roadways, cemeteries, and other surface obstructions; filling, grading, paving and provisions for drainage, storm water retention, installation of utilities, including water, sewer, sewage treatment, gas, electricity, communications, and similar facilities; and off-site construction of utility extensions to the boundaries of the property. e. All other costs of a nature comparable to those described. f. Costs otherwise defined as capital costs that are incurred by the approved company where the approved company is the lessee under a lease that: 1. has a term of not less than five years, and 2. is characterized as a capital lease for federal income tax purposes; provided, that if the project is a headquarters facility with a lease term of not less than five years, a research and development facility with a lease

This is a catch-all for a broad spectrum of costs that may be paid for with education dollars.

term of not less than 10 years, or a project at which the predominant trade or business activity conducted is described in the 2007 North American Industry Classification System, promulgated by the Executive Office of the President of the United States, Office of Management and Budget, Sectors 31 (other than National Industry 311811), 32, and 33 with a lease term of not less than 10 years, the lease may be characterized as an operating lease for federal income tax purposes in which event capital costs shall include the net present value of the payments made by the approved company under the lease computed using the applicable federal rate for the month in which the qualifying project is placed in service and for the term most closely approximating the term of the lease. Capital costs shall not include property owned or leased by the approved company or a related company before the commencement of the acquisition, construction, installation, or equipping of the qualifying project unless such property was physically located outside the state for a period of at least one year prior to the date on which the qualifying project was placed in service. g. Costs either paid or incurred by 1. a public entity for the benefit of a qualifying project where such costs are treated as costs paid by an approved company with respect to the qualifying project for federal income tax purposes, such costs shall not include amounts contributed by a public entity to a qualifying project as a capital contribution or gift except to the extent that an approved company has cost basis in the contribution or gift for federal income tax purposes; or 2. a related company to an approved company to the extent such costs are included in or taken into account in determining the approved company's capital expenditures in the qualifying project, whether or not incurred by an approved company. (4) COMPANY. Any corporation, partnership, limited liability company, proprietorship, trust, or other business entity, regardless of form. (5) DATA PROCESSING CENTER. An establishment engaged predominantly in the provision of complete processing and specialized reports from data, the provision of automated data

Even the costs the company doesnt pay may be reimbursed, such as those paid by public entities such as local Industrial Development Boards or the Department of Transportation.

processing and data entry services, the provision of an infrastructure for hosting of data processing services, the provision of specialized hosting activities, the provision of application service provisioning, the provision of general time-share mainframe facilities, or some combination of the foregoing. (6) ELIGIBLE EMPLOYEES. Those persons, as set forth in a qualifying project agreement, a. who are being paid directly by an approved company for working at a qualifying project for not less than 36 hours per work week, whose workday is fully dedicated to the qualifying project, b. who the approved company identifies as its employees to the U.S. Internal Revenue Service, the Department of Revenue, or the Department of Industrial Relations on returns or reports filed with the foregoing, including, but not limited to, IRS Form 941, and c. who are eligible to participate under such benefit plans as are generally applicable to employees holding positions of like kind and character within either the approved company or a related company whose employee benefits are equivalent to or better than, from an employee perspective, the approved company's employee benefits. (7) FAVORED GEOGRAPHIC AREA. The definition in Section 40-18-190, Code of Alabama 1975. (8) HEADQUARTERS FACILITY. Any trade or business described in the 2007 North American Industry Classification System, promulgated by the Executive Office of the President Page 6 of the United States, Office of Management and Budget, National Industry 551114. (9) INCENTIVE PERIOD. The time period set forth in a qualifying project agreement for which an approved company may receive withholding incentives. (10) INDUSTRIAL, WAREHOUSING, OR RESEARCH ACTIVITY. Any trade or business described in the 2007 North American Industry Classification System, promulgated by the Executive Office of the President of the United States, Office of Management and Budget, Sectors 31 (other than National Industry 311811), 32, and 33; Subsectors 423, 424, 493, 511, and 927; Industry Groups 5417, 5415, and 5182 (without regard to the premise that data processing and related services be

There are questions whether a company expanding in one location can receive cash payments on all other locations it owns in the state.

performed in conjunction with a third party); Industries 11331 and 48691; and National Industries 115111, 517110, 541380, and 561422 (other than establishments that originate telephone calls) and includes such trades and businesses as may be hereafter added by an act of the Legislature, reclassified in any subsequent publication of the North American Industry Classification System or other industry classification system developed in conjunction with the United States Department of Commerce, or any process or treatment facility which recycles, reclaims, or converts materials, which include solids, liquids, or gases, to a reusable product. (11) NEW OR EXPANSION PROJECT. A new or expansion project meeting any one of the following requirements: a. A headquarters facility at which the predominant trade or business activity conducted will not be the production of electricity. b. A data processing center. c. A research and development facility. d. A project at which the predominant trade or business activity conducted will constitute industrial, warehousing, or research activity or any other business activity defined in Section 40-18-190, Code of Alabama 1975, without regard to whether the minimum capital costs requirement set forth for the activity is satisfied. (12) PROJECT. Any land, building, or other improvement, and all real and personal properties deemed necessary or useful in connection therewith, whether or not previously in existence, located or to be located in the state. (13) PUBLIC ENTITY. A public industrial development board or authority, municipality, or county, or other public corporation or political subdivision. (14) QUALIFYING PROJECT. Any new or expansion project or retention project to be undertaken by an approved company. Any proposed qualifying project shall be characterized, in the sole discretion of the Governor upon the written recommendation of the ADO Director and the Director of Finance, as either a new or expansion project or a retention project. In making this characterization, the Governor may consider any criteria which he or she considers to be appropriate.

Removes the requirement for minimum investment in the state.

Selection of corporations and approval of projects is within the sole discretion of the governor. There is no legislative oversight, no check on the governors decisions in handing out these funds, and no criteria he must meet.

(15) QUALIFYING RO E T AGREEMENT. An executed (15) Q A FYING PROJECT AGREEMENT An e ecuted agreement entered into between the state and an approved pp company that describes the qualifying project and sets forth company that describes the qua ify ng pro ect and s ts forth the withholding incentives, the incentive p period, the number of eligible employees, any termination provisions or of e igib e emp oye s any termina ion provisions or provisions which allow the state to recapture withholding p p h incentives in the event the approved company f fails to meet pp p certain minimum job or capital investment requirements, or b p both, and any other terms and conditions which the state, in its sole discretion, may require for an approved company to it so e discreti n may require f r an approved company to qualify f f for and receive withholding incentives. h (16) RELATED OM ANY Any company that s under (16) RE ATED COMPANY. Any company that is under common management or control with an approved company. pp p (17) RESEARCH AND DEVELOPMENT FACILITY. An (17) RE EAR H AND DEVE OPMENT FA I ITY An establishment engaged p predominantly in conducting original y investigations undertaken on a systematic basis to gain new knowledge or app ying research findings or other scientific n edge or applying research findings or other c entific knowledge to create new or significantly improved p products or f p processes, or both. pr cesses or both (18) RETENTION PROJECT. A project, to be used as part of an existing facility of a company located in the state, meeting both all of the following requirements: a. The project is described in paragraphs a. through d. of subdivision (11). b. The capital costs of the project are not less than the following: 1. Two million dollars ($2,000,000), if the project is not located in a favored geographic area. 2. Five hundred thousand dollars ($500,000), if the project is located in a favored geographic area. c. The project agrees to retain no less than 80 percent of the total number of eligible employees employed by the approved company as of the date of execution of the qualifying project agreement or, if located within a favored geographic area, no less than 67 percent, for a period of at least five years.

Again, any project requirement is up to the sole discretion of the governor.

There are questions whether a company expanding in one location can gain a cash payments on all other locations it owns in the state.

Education dollars can be used for cash payments to existing corporations in Alabama under the retention clause of HB160. Retention allows corporations to receive cash payments even if they have layoffs and net job losses.

Retention Project requires no jobs being created. Only 80% of workers must be kept, and only 67% of jobs kept if located in a poor area. Under the terms of this provision, a company can fire 20% of its existing workforce and the company may keep the incentive on the remaining 80% of its employees.

(19) WITHHOLDING INCENTIVES. Incentives in the form of the retention by an approved company of a percentage of state income taxes withheld from eligible employees. Section 4. (a) The ADO Director and the Director of Finance shall determine, upon initial application on a form approved by the ADO and the Department of Finance, whether to recommend to the Governor, in writing, that a company be approved as an approved company. In making their determination, the ADO Director and the Director of Finance may consider any criteria which they consider, in their sole discretion, including a financial review of the company to determine financial soundness and the need for a performance bond, to be appropriate. The ADO Director and the Director of Finance, in making their determination, shall conduct a public revenue estimate with respect to a proposed qualifying project and the withholding incentives proposed to be granted by the Governor with respect thereto. (b) After reviewing the recommendation of the ADO Director and the Director of Finance, the Governor, in his or her sole discretion, shall determine whether to approve, in writing, a company as an approved company. In making his or her determination, the Governor shall consider whether approving a company as an approved company serves a valid public purpose and is in the best interests of the citizens of the state. (c) After the Governor approves a company as an approved company, the approved company must enter into a qualifying project agreement with the state in order to qualify for and receive withholding incentives. The state, in its sole discretion, may require that an approved company meet minimum job creation and job retention requirements or capital investment requirements, or both, to avoid the state recapturing withholding incentives or terminating the qualifying project agreement. Section 5. (a) An approved company that meets the qualifications specified in this act shall qualify to receive withholding incentives in an amount equal to: (1) In the case of a new or expansion project, one percent to 90 percent of the amount of state income taxes withheld from eligible new employees. shall be negotiated as part of the agreement as follows:

Again, any project requirement is up to the sole discretion of the governor and his staff. They may create their own criteria.

Under these terms, the governor picks the company, sets the criteria for giving cash payments at his sole discretion, without any form of oversight or requirements. Public interest is determined by the governor alone, no requirements listed in the bill.

The critical word here is may. There are no job or investment requirements within this law. The governor may provide cash payments as he sees fit, regardless if there is job creation or no job creation within the deal he creates at his discretion.

a. For new or expansion projects that are not in a favored geographical area: 1. Up to 50 percent for approved companies that employ 50 to 250 employees. 2. Up to 90 percent for approved companies that employ more than 250 employees. b. For new or expansion projects in a favored geographical area: 1. Up to 50 percent for approved companies that employ 25 to 150 employees. 2. Up to 90 percent for approved companies that employ more than 150 employees. (2) In the case of a retention project, one percent to 75 percent of the amount of state income taxes withheld from eligible employees. (b) The incentive period shall be determined in the sole discretion of the Governor upon written recommendations by the ADO Director and the Director of Finance, except that in no event shall the incentive period exceed 20 years after a qualifying project is placed in service. (c) Withholding incentives shall be reduced or eliminated with respect to a qualifying project at the time the sum of all withholding incentives received with respect to such qualifying project equals 100 percent of the capital costs of such qualifying project, all to the end that the aggregate amount of withholding incentives shall not exceed 100 percent of the capital costs of the qualifying project. (d) An eligible employee is allowed a credit against his or her state income taxes in an amount equal to 100 percent of the withholding incentives retained by an approved company from his or her wages during the tax year. (e) An approved company which enters into a qualifying project agreement for withholding incentives with the state may not claim the capital credit provided in Article 7, Chapter 18 of Title 40, Code of Alabama 1975, with respect to such qualifying project.

This section outlines exactly how much a corporation may receive in cash payments from its employees.

Reduces existing ETF revenues with no criteria or monitoring whether jobs will be lost or displaced.

Cash payments can last as long as 20 years. There are very few projects that have a life of more than 20 years.

ETF provides 100% reimbursement of all costs.

Even though the state doesnt receive the income tax, they are still required to pay refunds to employees.

(f) An approved company shall maintain the minimum number of jobs set forth in the qualifying project agreement. For a retention project, an approved company must maintain no less than 80 percent of the total number of eligible employees employed by the approved company as of the date of execution of the qualifying project agreement or, if located within a favored geographic area, no less than 67 percent. Section 6. (a) Within 90 days after the end of a calendar quarter for which an approved company has qualified to receive a withholding incentive, the approved company shall certify to the Department of Revenue, on a form approved by the Department of Revenue, the actual number of eligible employees for the calendar quarter, the payroll of eligible employees for the calendar quarter, and any other information required by the qualifying project agreement. The Department of Industrial Relations shall verify the actual number of eligible employees employed at the qualifying project during the relevant calendar quarter. If the Department of Industrial Relations is not able to provide such verification utilizing all available resources, the age 13 Department of Revenue may request such additional information from the approved company as may be necessary. The Department of Revenue may audit any approved company periodically to monitor compliance by the approved company with this act. (b) An approved company may receive withholding incentives only in accordance with a qualifying project agreement. If an approved company that is receiving withholding incentives expands a qualifying project, it may apply to the ADO and the Department of Revenue for additional withholding incentives based on the new eligible employees. Section 7. The ADO, the Department of Revenue, and the Department of Finance, with the assistance of other agencies, may adopt rules, in accordance with the Administrative Procedure Act, and application forms and other forms necessary to implement their respective duties and responsibilities under this act.

Again, under these terms, an existing company in Alabama can fire 20% of their workforce and still get cash payments from the Education Trust Fund for each remaining employee. The employee gets nothing, local schools lose funding.

Section 8. Notwithstanding any other provision of this act to the contrary, and in addition to any other requirements included in this act, no withholding incentives shall be provided pursuant to this act for any retention project without the approval of the State Industrial Development Authority. Section 9. If a court of competent jurisdiction adjudges invalid or unconstitutional any clause, sentence, paragraph, section or part of this act, such judgment or decree shall not affect, impair, invalidate, or nullify the remainder of this act, but the effect of the decision shall be 1 confined to the clause, sentence, paragraph, section, or part of this act adjudged to be invalid or unconstitutional. Section 10. Notwithstanding the forgoing, no company within this act shall engage in racial discrimination in employment practices. Section 11. All laws or parts of laws which conflict with this act are repealed. Section 12. This act shall become effective immediately following its passage and approval by the Governor or its otherwise becoming law, and ratification by the people of Alabama of the constitutional amendment proposed by House Bill ____ or Senate Bill ____ [Act No. 2012-____] of the Regular Session of 2012 of the Alabama Legislature. In the event that the constitutional amendment proposed by House Bill ____ or Senate Bill ____ [Act No. 2012-____] of the Regular Session of 2012 of the Alabama Legislature is not ratified by the people of Alabama, then this act shall be null and void.

The State Industrial Development Authority consists of the ADO Director, Finance Director, and Revenue Commissioner, all appointees. There is no oversight mechanism for the decisions of the governor.