00 CS FOR HOUSE BILL NO. 505(JUD) 01 "An Act making appropriations to the constitutional budget reserve fund 02 established under art. IX, sec. 17, Constitution of the State of Alaska; and 03 providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. FINDINGS AND INTENT. (a) Following ratification by the voters, art. IX, 06 sec. 17, of the Constitution of the State of Alaska, took effect on January 2, 1991. This 07 amendment 08 (1) created a constitutional budget reserve fund; 09 (2) required that the proceeds of certain tax and mineral revenue disputes be 10 deposited into that fund; and 11 (3) established limitations on the legislature's ability to appropriate money 12 from that fund. 13 (b) That amendment dedicates to the constitutional budget reserve fund money from 14 mineral lease bonuses, rentals, royalties, royalty sale proceeds, federal mineral revenue sharing 01 payments or bonuses, and taxes imposed on mineral income, production, or property received 02 by the state after July 1, 1990," as a result of the termination, through settlement or otherwise, 03 of an administrative proceeding or of litigation in a State or federal court." 04 (c) Following the ratification of the budget reserve amendment, the Department of 05 Revenue requested that the attorney general determine whether the term "administrative 06 proceeding" in art. IX, sec. 17, of the Constitution of the State of Alaska, applied to informal 07 conferences and audits or only to formal hearings. On April 24, 1992, the attorney general 08 issued a formal opinion concluding that informal conferences do not constitute "administrative 09 proceedings" for the purposes of art. IX, sec. 17, of the Constitution of the State of Alaska. 10 The attorney general reasoned that sec. 17 applied to administrative actions that were similar 11 to litigation, such as the formal hearings held by the Department of Revenue. The opinion 12 concluded that informal conferences held for purposes of discussion and negotiation "fall 13 outside the ambit of the common understanding of litigation or legal contests." 14 (d) Since July 1, 1990, the state has engaged in several formal administrative hearings 15 and judicial proceedings to resolve oil and gas tax and mineral royalty disputes. Revenue 16 from the termination of these disputes has been deposited into the constitutional budget reserve 17 fund. During this period, the state also received oil and gas or mineral tax revenue from audit 18 assessments in the informal conference phase. In conformance with the April 24, 1992 19 opinion of the attorney general, the Department of Revenue deposited in the general fund all 20 revenue resulting from settlement of informal tax conferences. 21 (e) During the 1993 legislative session, the legislature passed several appropriation 22 bills. For example, HB 45, the education budget, was passed by the House February 22, 1993, 23 by a vote of 36-0, and was passed by the Senate March 15, 1993, by a vote of 15-4. Senate 24 Bill 60, regarding school construction grants, was passed by the Senate April 24, 1993, by a 25 vote of 12-8, and by the House May 11, 1993, by a vote of 39-1, and the Senate concurred 26 in the final version by a vote of 17-3 on May 11, 1993. Other appropriations passed by the 27 legislature in 1993 include HB 55, the operating budget; SB 183, the capital budget; and 28 SB 126, intertie loans and grants and power cost equalization fund. For fiscal year 1994, the 29 legislature approved appropriations from the general fund in excess of $3,163,100,000. 30 (f) In passing the appropriation bills in 1993, the legislature authorized the expenditure 31 of anticipated revenue in the general fund, including amounts deposited in that fund as a result 01 of settlement of informal tax conferences. At the time the legislature passed those 02 appropriations for fiscal year 1994, revenue forecasts showed a surplus in the general fund. 03 Thus, the legislature did not anticipate that all money derived from the settlement of informal 04 tax conferences would be spent. Due to the unanticipated decrease in state revenue, the state 05 treasury has less money than was anticipated at the time that the legislature made its 06 appropriations in 1993. Because of this shortfall, any anticipated surplus representing 07 settlements of informal tax conferences, and amounts received from informal tax conference 08 settlements occurring after July 1, 1994, must be expended to fully fund the capital and 09 operation appropriations enacted in 1993. 10 (g) On July 12, 1993, the senate majority filed suit challenging the Department of 11 Revenue action of depositing into the general fund revenue resulting from informal tax 12 conferences. Halford v. Hickel, (3AN-93-6297 CI). On July 27, 1993, former Governor Steve 13 Cowper filed a similar complaint captioned Cowper v. Hickel (3AN-93-6848 CI). The cases 14 were consolidated. 15 (h) On November 19, 1993, the court issued its decision which concluded that art. IX, 16 sec. 17, of the state constitution applied to informal tax conferences. On November 29, 1993, 17 the state presented evidence that retroactive application of the court's ruling, requiring transfer 18 of over $940,000,000 from the general fund, would disrupt state finances and put at risk the 19 justifiable reliance interest of Alaskans and municipalities throughout the state. 20 (i) The superior court dismissed the state's request that the ruling be applied 21 prospectively only. The court found the evidence of hardship "very compelling," but noted 22 that the hardship could be relieved if the legislature reappropriated the money for fiscal year 23 1994. The court ordered the governor to fully restore the constitutional budget reserve fund 24 with interest and to comply with its decision by the end of the 1994 legislative session. The 25 superior court noted "it is not clear that the Governor could legally remove the improperly 26 placed funds from the general fund [to the Budget Reserve Fund] without an appropriation 27 authorizing it." 28 (j) Following appeal to the Alaska Supreme Court, which determined that all income 29 that resulted from the settlement or other termination of informal administrative proceedings 30 involving certain taxes since July 1, 1990, should have been deposited into the budget reserve 31 fund created by art. IX, sec. 17, of the Constitution of the State of Alaska. 01 (k) The Alaska Supreme Court ordered the governor to restore the constitutional 02 budget reserve fund, with interest from the date of receipt by the state of money described in 03 (j) of this section. 04 (l) The amount required to restore the constitutional budget reserve fund consistent 05 with judicial interpretation is $945,636,778.27, plus interest that would have been earned upon 06 investment of this money, calculated from the date of receipt by the state. 07 (m) As of February 1994, there is not sufficient unappropriated money in the general 08 fund to allow the governor to unilaterally transfer the money needed to fully restore the 09 constitutional budget reserve fund. 10 (n) It is the intent of the legislature to provide a funding source for restoration of the 11 constitutional budget reserve fund in order for the governor to satisfy the order of the Alaska 12 Supreme Court. The legislature finds that this court order can be complied with by an 13 appropriation from the general fund to the constitutional budget reserve fund, retroactive to 14 July 1, 1993, of the principal and interest that should have been deposited into that budget 15 reserve fund. It is the intent of the legislature that this appropriation will restore all money 16 to the constitutional budget reserve fund that should have been deposited there since July 1, 17 1990, under the provisions of art. IX, sec. 17, of the Constitution of the State of Alaska. 18 * Sec. 2. The sum of $945,636,778.27 is appropriated from the general fund to the budget 19 reserve fund established by art. IX, sec. 17, Constitution of the State of Alaska, to comply 20 with the judgment in Hickel v. Halford (Supreme Court No. S-6124/6134) (Alaska Jan. 27, 21 1994). 22 * Sec. 3. An amount equal to the interest that would have been earned on money received 23 by the state after June 1, 1990, as a result of termination through settlement or otherwise of 24 an informal administrative proceeding involving taxes imposed on mineral income, production, 25 or property, and subsequently deposited in the general fund, is appropriated from the general 26 fund to the budget reserve fund established by art. IX, sec. 17, Constitution of the State of 27 Alaska, to comply with the judgment in Hickel v. Halford (Supreme Court No. S-6124/6134)(Alaska Jan. 27, 1994). 28 * Sec. 4. This Act is retroactive to July 1, 1993. 29 * Sec. 5. This Act takes effect immediately under AS 01.10.070(c).