00 CS FOR HOUSE BILL NO. 505(FIN) 01 "An Act making appropriations to the constitutional budget reserve fund 02 established under art. IX, sec. 17, Constitution of the State of Alaska; making 03 an appropriation to the Department of Education for support of kindergarten, 04 primary, and secondary education and community schools programs and for school 05 construction debt retirement; amending certain appropriations for education 06 programs and school construction debt retirement for fiscal year 1994 and for 07 educational facilities maintenance and construction; making appropriations from the 08 constitutional budget reserve fund under art. IX, sec. 17(c), Constitution of the 09 State of Alaska; and providing for an effective date." 10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 11 * Section 1. FINDINGS AND INTENT. (a) Following ratification by the voters, art. IX, 12 sec. 17, of the Constitution of the State of Alaska, took effect on January 2, 1991. This 13 amendment 14 (1) created a constitutional budget reserve fund; 01 (2) required that the proceeds of certain tax and mineral revenue disputes be 02 deposited into that fund; and 03 (3) established limitations on the legislature's ability to appropriate money 04 from that fund. 05 (b) That amendment dedicates to the constitutional budget reserve fund money from 06 mineral lease bonuses, rentals, royalties, royalty sale proceeds, federal mineral revenue sharing 07 payments or bonuses, and taxes imposed on mineral income, production, or property received 08 by the state after July 1, 1990," as a result of the termination, through settlement or otherwise, 09 of an administrative proceeding or of litigation in a State or federal court." 10 (c) Following the ratification of the budget reserve amendment, the Department of 11 Revenue requested that the attorney general determine whether the term "administrative 12 proceeding" in art. IX, sec. 17, of the Constitution of the State of Alaska, applied to informal 13 conferences and audits or only to formal hearings. On April 24, 1992, the attorney general 14 issued a formal opinion concluding that informal conferences do not constitute "administrative 15 proceedings" for the purposes of art. IX, sec. 17, of the Constitution of the State of Alaska. 16 The attorney general reasoned that sec. 17 applied to administrative actions that were similar 17 to litigation, such as the formal hearings held by the Department of Revenue. The opinion 18 concluded that informal conferences held for purposes of discussion and negotiation "fall 19 outside the ambit of the common understanding of litigation or legal contests." 20 (d) Since July 1, 1990, the state has engaged in several formal administrative hearings 21 and judicial proceedings to resolve oil and gas tax and mineral royalty disputes. Revenue 22 from the termination of these disputes has been deposited into the constitutional budget reserve 23 fund. During this period, the state also received oil and gas or mineral tax revenue from audit 24 assessments in the informal conference phase. In conformance with the April 24, 1992, 25 opinion of the attorney general, the Department of Revenue deposited in the general fund all 26 revenue resulting from settlement of informal tax conferences. 27 (e) The money in the general fund was available for appropriation by the legislature 28 and would be applied as necessary to meet any fiscal need. 29 (f) In passing the appropriation bills in 1993, the legislature authorized the expenditure 30 of anticipated revenue in the general fund, including amounts deposited in that fund as a result 31 of settlement of informal tax conferences. At the time the legislature passed those 01 appropriations for fiscal year 1994, revenue forecasts showed a surplus in the general fund. 02 However, due to the unanticipated decrease in state revenue, the state treasury has less money 03 than was anticipated at the time that the legislature made its appropriations in 1993. Because 04 of this shortfall, any anticipated surplus representing settlements of informal tax conferences, 05 and amounts received from informal tax conference settlements occurring after July 1, 1994, 06 must be expended to fully fund the capital and operation appropriations enacted in 1993. 07 (g) On July 12, 1993, the senate majority filed suit challenging the Department of 08 Revenue action of depositing into the general fund revenue resulting from informal tax 09 conferences. Halford v. Hickel, (3AN-93-6297 CI). On July 27, 1993, former Governor Steve 10 Cowper filed a similar complaint captioned Cowper v. Hickel (3AN-93-6848 CI). The cases 11 were consolidated. 12 (h) On November 19, 1993, the court issued its decision which concluded that art. IX, 13 sec. 17, of the state constitution applied to informal tax conferences. On November 29, 1993, 14 the state presented evidence that retroactive application of the court's ruling, requiring transfer 15 of over $940,000,000 from the general fund, would disrupt state finances and put at risk the 16 justifiable reliance interest of Alaskans and municipalities throughout the state. 17 (i) The superior court dismissed the state's request that the ruling be applied 18 prospectively only. The court found the evidence of hardship "very compelling," but noted 19 that the hardship could be relieved if the legislature reappropriated the money for fiscal year 20 1994. The court ordered the governor to fully restore the constitutional budget reserve fund 21 with interest and to comply with its decision by the end of the 1994 legislative session. The 22 superior court noted "it is not clear that the Governor could legally remove the improperly 23 placed funds from the general fund [to the Budget Reserve Fund] without an appropriation 24 authorizing it." 25 (j) Following appeal to the Alaska Supreme Court, the court determined that all 26 income that resulted from the settlement or other termination of informal administrative 27 proceedings involving certain taxes since July 1, 1990, should have been deposited into the 28 budget reserve fund created by art. IX, sec. 17, of the Constitution of the State of Alaska. 29 (k) The Alaska Supreme Court ordered the governor to restore the constitutional 30 budget reserve fund, with interest from the date of receipt by the state of money described in 31 (j) of this section. 01 (l) The amount required to restore the constitutional budget reserve fund consistent 02 with judicial interpretation is $945,636,778.27, plus interest that would have been earned upon 03 investment of this money, calculated from the date of receipt by the state. 04 (m) As of February 1994, there was not sufficient unappropriated or unrestricted 05 money in the general fund to allow the governor to unilaterally transfer the money needed to 06 fully restore the constitutional budget reserve fund. 07 (n) It is the intent of the legislature that the order of the Alaska Supreme Court be 08 complied with by an appropriation from the general fund to the constitutional budget reserve 09 fund, retroactive to July 1, 1993, of the principal and interest that should have been deposited 10 into that budget reserve fund. This appropriation will restore all money to the constitutional 11 budget reserve fund that should have been deposited there since July 1, 1990, under the 12 provisions of art. IX, sec. 17, of the Constitution of the State of Alaska. 13 * Sec. 2. The sum of $945,636,778.27 is appropriated from the general fund to the budget 14 reserve fund established by art. IX, sec. 17, Constitution of the State of Alaska, to comply 15 with the judgment in Hickel v. Halford (Supreme Court No. S-6124/6134) (Alaska Jan. 27, 16 1994). 17 * Sec. 3. An amount equal to the interest that would have been earned on money received 18 by the state after June 1, 1990, as a result of termination through settlement or otherwise of 19 an informal administrative proceeding involving taxes imposed on mineral income, production, 20 or property, and subsequently deposited in the general fund, is appropriated from the general 21 fund to the budget reserve fund established by art. IX, sec. 17, Constitution of the State of 22 Alaska, to comply with the judgment in Hickel v. Halford (Supreme Court No. S-6124/6134) 23 (Alaska Jan. 27, 1994). 24 * Sec. 4. (a) The sum of $696,357,088 is appropriated from the constitutional budget 25 reserve fund and from other funds in the amounts listed to the Department of Education for 26 the purposes expressed and allocated in the amounts listed for operating expenditures for the 27 fiscal year ending June 30, 1995: 28 FUND SOURCE AMOUNT 29 Budget reserve fund (art. IX, sec. 17, 30 Constitution of the State of Alaska) $635,149,688 31 General fund/mental health trust income account 01 (AS 37.14.011) 7,916,600 02 Public school trust fund (AS 37.14.110) 6,816,600 03 School fund (AS 43.50.140) 2,668,100 04 P.L. 81-874 21,806,100 05 Federal receipts other than 06 P.L. 81-874 22,000,000 07 PURPOSE ALLOCATION AMOUNT 08 Foundation program $629,938,000 09 Child nutrition/student lunch program 22,000,000 10 Cigarette tax distribution 2,668,100 11 Tuition students 1,887,600 12 Boarding home grants 355,000 13 Youth in detention 800,000 14 Pupil transportation 31,638,148 15 Schools for the handicapped 3,277,500 16 Community schools 600,000 17 Additional district support 3,192,740. 18 (b) The amount allocated under (a) of this section for additional district support is 19 further allocated to the following school districts in the amounts listed: 20 SCHOOL DISTRICT ALLOCATION AMOUNT 21 Annette Island School District $166,530 22 Cordova School District 217,160 23 Craig City School District 151,890 24 Dillingham City School District 250,100 25 Galena City School District 156,160 26 Hoonah City School District 126,270 27 Hydaburg City School District 102,480 28 Kake City School District 136,640 29 Kashunamiut School District 206,180 30 Klawock City School District 158,600 31 Nenana City School District 164,090 01 Nome City School District 264,740 02 Pelican City School District 56,730 03 Petersburg City School District 199,470 04 St. Mary's School District 119,560 05 Skagway City School District 115,290 06 Tanana City School District 122,000 07 Unalaska City School District 200,690 08 Wrangell City School District 151,890 09 Yakutat City School District 126,270. 10 * Sec. 5. (a) The sum of $103,345,252 is appropriated from the budget reserve fund (art. 11 IX, sec. 17, Constitution of the State of Alaska) to the Alaska debt retirement fund 12 (AS 37.15.011). 13 (b) The sum of $103,345,252 is appropriated from the Alaska debt retirement fund 14 (AS 37.15.011) to the Department of Education for state aid for costs of school construction 15 under AS 14.11.100. 16 * Sec. 6. (a) Section 1(a), ch. 5, SLA 1993, is amended to read: 17  Section 1. (a) The sum of $674,531,870 is appropriated from the 18 constitutional budget reserve [GENERAL] fund and from other funds in the amounts 19 listed to the Department of Education for the purposes expressed and allocated in the 20 amounts listed for operating expenditures for the fiscal year ending June 30, 1994: 21 FUND SOURCE AMOUNT 22 Budget reserve fund (art. IX, sec. 17, 23 Constitution of the State of Alaska) 24 [GENERAL FUND] $615,783,070 25 General fund/mental health trust income account 26 (AS 37.14.011) 7,489,700 27 Public school trust fund (AS 37.14.110) 8,452,700 28 School fund (AS 43.50.140) 2,721,000 29 Interagency receipts 100,000 30 P.L. 81-874 21,885,400 31 Federal receipts other than 01 P.L. 81-874 18,100,000. 02 PURPOSE ALLOCATION AMOUNT 03 Foundation program $615,723,100 04 Child nutrition/student lunch program 18,100,000 05 Cigarette tax distribution 2,721,000 06 Tuition students 2,012,600 07 Boarding home grants 230,000 08 Youth in detention 800,000 09 Schools for the handicapped 3,077,500 10 Pupil transportation 28,975,900 11 Community schools 600,000 12 Additional district support 2,291,770. 13 (b) Section 2(a), ch. 5, SLA 1993, is amended to read: 14  Sec. 2. (a) The sum of $99,795,200 is appropriated from the budget reserve 15 [GENERAL] fund (art. IX, sec. 17, Constitution of the State of Alaska) to the 16 Alaska debt retirement fund (AS 37.15.011). 17 * Sec. 7. (a) Section 38, ch. 65, SLA 1993, page 14, line 27, is amended to read: 18 APPROPRIATION GENERAL OTHER 19 ITEMS FUND FUNDS 20 Additional district support 1,066,300 [1,066,300] 1,066,300 21  (b) The appropriation made by sec. 38, ch. 65, SLA 1993, page 14, line 27, 22 as amended by (a) of this section, is funded from the budget reserve fund (art. IX, 23 sec. 17, Constitution of the State of Alaska). 24 * Sec. 8. Section 1, ch. 83, SLA 1993, is amended to read: 25  Section 1. Contingent upon the establishment of an educational facilities 26 maintenance and construction fund by the Eighteenth Alaska State Legislature, the sum 27 of $192,408,894 is appropriated from the budget reserve [GENERAL] fund (art. IX, 28 sec. 17, Constitution of the State of Alaska) to the educational facilities maintenance 29 and construction fund (AS 37.16.010). 30 * Sec. 9. The appropriations from the constitutional budget reserve fund (art. IX, sec. 17, 31 Constitution of the State of Alaska) contained in this Act are made under art. IX, sec. 17(c), 01 Constitution of the State of Alaska. 02 * Sec. 10. Sections 1 - 3, 6, 7, and 9 of this Act are retroactive to July 1, 1993. 03 * Sec. 11. Section 8 of this Act is retroactive to July 17, 1993. 04 * Sec. 12. Sections 1 - 3 and 6 - 11 of this Act take effect immediately under 05 AS 01.10.070(c). 06 * Sec. 13. Sections 4 and 5 of this Act take effect July 1, 1994.