Representative Patricia Todd (D-Birmingham) has introduced HB16, the Alabama Economic Development and Fiscal Accountability Act, for the upcoming legislative session that would make substantial changes to economic development in Alabama. HB16 would cap the total value of economic development incentives at $35,000 per full-time job created and require the Alabama Department of Revenue (the “Department”) to file an annual report with the Legislature that summarizes the yearly expenditures for economic development and includes the name of each recipient of more than $5,000 of economic development incentives, as well as the amount of incentives they received. HB16 would also require each county and municipality that levies a property tax to file a report annually with the Department listing each piece of real property that received property tax abatements and the amount of the reduction in revenue that the abatement caused. The municipalities and counties would be required to file separate annual reports to the Alabama Department of Economic and Community Affairs (“ADECA”) for each project granted incentives. The local governments would also be required to file with ADECA a separate report on the two year anniversary of each project being approved. Under HB16, prior to granting incentives, a company would be required to submit a standardized application that would contain information including the name of the company applying for incentives and the NAICS code for the project. Additionally, HB16 would mandate a statutorily defined recapture period and formula for all incentives and would subject all records required by HB16, including applications for incentives not yet granted, to the Alabama open records law. Finally, HB16 would grant a private cause-of-action, including a fee-shifting provision, to any state income tax payer to enforce any provision of HB16.
Detailed Review of Legislation
Cap on Incentives
HB16 would place a cap on incentives at $35,000 per full-time job at the project. Based on the wording of HB16, it appears that companies could not aggregate part-time jobs toward this cap. Furthermore, business with more than 20 full-time employees or $1,000,000 in gross receipts must pay at least 85% of the average wage to receive subsidies while businesses that fall under those thresholds must pay at least 75% of the average wage.
Department of Revenue Report
The report that the Department must submit under HB16 would include the amount of state tax revenues not collected as a result of the incentives granted, as well as the name of each taxpayer that claimed an incentive valued at $5,000 or more.
List of Property Tax Abatements by Taxing Jurisdiction
HB16 would require that each jurisdiction levying a property tax, whether county or municipal, file a report with the Department that lists the name of the owner of each piece of real property receiving an abatement as well as the address of the property, the duration of the abatement, each specific abatement, reduction and/or exemption for the property and the amount of the reduction in tax revenue related to those abatements, reductions or exemptions. Each jurisdiction’s report must also provide total reductions in tax revenue for that jurisdiction.
Local and Municipal Government Requirements
Before any subsidy can be granted, HB16 would require that each jurisdiction granting incentives track and maintain an extensive list of information through the use of a standardized application developed by ADECA. This information would become public record when the application is filed and would stay so even if incentives are never granted.
Each jurisdiction granting economic development subsidies, at both the municipal and county level, would have to file annual reports for each project that was granted an incentive by February first of a given year with ADECA. In addition to the annual reports, a special two-year report would have to be filed with ADECA on the second anniversary of the incentives grant.
Mandatory Time Frame and Recapture Formula
HB16 would change current law by imposing a two-year time frame within which companies must meet their obligations in project agreements, no matter what type of incentive was granted. The targets must be reached within the initial two years of the project and maintained for the duration of the incentives granted or five years, whichever is longer. Additionally, any corporate parent must maintain at least 90% of its employment within the State of Alabama for the same time frame.
If those requirements are not met, then HB16 establishes a statutory recapture formula based on the pro rata amount by which the unfulfilled jobs, wages, or benefits fall short of the total amount of the incentive. Three consecutive years of falling short will render the entire incentive null and void.
Open Records Law and Private Cause of Action
Possibly most surprising is that HB16 explicitly states all records required to be prepared or maintained under HB16 would be subject to Alabama’s Public Records Law. Under the proposed law, any individual paying income taxes in the state would have the right to file a civil action in state court to compel enforcement of any provision of HB16 and would be entitled attorneys’ fees and costs if they prevail.