3/21/25 Legislative Update: Tax Cut Plan with PERS Tier 5 Headed to Governor

Things are moving quickly in these last weeks of the legislative session. Click here for our latest bill tracking spreadsheet which reflects action on those bills we are tracking as of 3:00 p.m. yesterday, March 20. Conferees have been appointed for numerous conference committees. As a reminder, if a bill goes to conference, three House members and three Senate members are appointed to a conference committee on that bill to try to negotiate an agreed upon version of the bill.

Tax credit voucher bills:  As shared in our March 18 legislative update, HB 1902, a tax credit voucher bill, failed in the Senate that afternoon by a vote of 23-26 but was held on a motion to reconsider. Senator Josh Harkins, Chairman of Senate Finance, skipped HB 1902 on the Senate calendar Wednesday morning, but then tried to have the rules suspended to go back to the bill later that day. Suspending the rules requires a 2/3 vote which Senator Harkins could not get, so HB 1902 could not be reconsidered Wednesday. Senator Harkins did not bring the bill up yesterday, so it died on the calendar with last night’s motion to reconsider deadline. The Senate has invited conference on SB 3126, SB 3165 and SB 3167, the three bills House Ways & Means Committee Chairman Trey Lamar inserted the tax credit voucher language into.

Tax Cut: The Senate sent its amended version of HB 1, the House’s tax cut plan, back to the House Wednesday. The Senate amendment for HB 1 decreases the income tax rate by .25% each year until 2030 and then reduces it at specified rates if certain triggers are met; reduces the sales tax on groceries from 7% to 5%; increases the gas tax by 9 cents over three years; and creates a new Tier 5 for employees who become members of PERS on or after March 1, 2026, but does not include the recurring $100 million funding stream for PERS that was included in the House tax cut plan. In a surprise development, the House concurred with the Senate amendment yesterday morning rather than inviting conference on the bill but then held the measure on a motion to reconsider. It was discovered later yesterday that a decimal error in the bill meant very small revenue growth would trigger large income tax cuts thereby phasing out the income tax at a much faster rate than the Senate intended. Tax experts said this mistake could have extremely harmful consequences for our state’s economy. 

The House tabled the motion to reconsider this morning, even while acknowledging the decimal error, so HB 1 is now headed to Governor Reeves for his consideration.  He tweeted shortly after the House tabled the motion to reconsider that he plans to sign the bill.

The legislature needs to fund PERS. As we have shared multiple times throughout the session, MPE has significant concerns that a new Tier 5 that provides reduced guaranteed benefits will negatively impact teacher recruitment and retention. Shortly after the House agreed to the Senate’s amendment yesterday, a veteran educator shared that his high school senior who wants to be a math teacher said she will teach in Alabama when he informed her Tier 5 had passed.