00 SENATE BILL NO. 331 01 "An Act making appropriations to and from the constitutional budget reserve 02 fund under art. IX, sec. 17(c), Constitution of the State of Alaska, for operating 03 and capital expenses of state government for fiscal year 1994; and providing for 04 an effective date." 05 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 06 * Section 1. FINDINGS AND INTENT. (a) Following ratification by the voters, art. IX, 07 sec. 17, of the Constitution of the State of Alaska, took effect on January 2, 1991. This 08 amendment 09 (1) created a constitutional budget reserve fund; 10 (2) required that the proceeds of certain tax and mineral revenue disputes be 11 deposited into that fund; and 12 (3) established limitations on the legislature's ability to appropriate money 13 from that fund. 14 (b) That amendment dedicates to the constitutional budget reserve fund money from 01 mineral lease bonuses, rentals, royalties, royalty sale proceeds, federal mineral revenue sharing 02 payments or bonuses, and taxes imposed on mineral income, production, or property received 03 by the state after July 1, 1990 "as a result of the termination, through settlement or otherwise, 04 of an administrative proceeding or of litigation in a State or federal court." 05 (c) Following the ratification of the budget reserve amendment, the Department of 06 Revenue requested that the attorney general determine whether the term "administrative 07 proceeding" in art. IX, sec. 17, of the Constitution of the State of Alaska, applied to informal 08 conferences and audits or only to formal hearings. On April 24, 1992, the attorney general 09 issued a formal opinion concluding that informal conferences do not constitute "administrative 10 proceedings" for the purposes of art. IX, sec. 17, of the Constitution of the State of Alaska. 11 The attorney general reasoned that sec. 17 applied to administrative actions that were similar 12 to litigation, such as the formal hearings held by the Department of Revenue. The opinion 13 concluded that informal conferences held for purposes of discussion and negotiation "fall 14 outside the ambit of the common understanding of litigation or legal contests." 15 (d) Since July 1, 1990, the state has engaged in several formal administrative hearings 16 and judicial proceedings to resolve oil and gas tax and mineral royalty disputes. Revenue 17 from the termination of these disputes has been deposited into the constitutional budget reserve 18 fund. During this period, the state also received oil and gas or mineral tax revenue from audit 19 assessments in the informal conference phase. In conformance with the April 24, 1992 20 opinion of the attorney general, the Department of Revenue deposited in the general fund all 21 revenue resulting from settlement of informal tax conferences. 22 (e) During the 1993 legislative session, the legislature passed several appropriation 23 bills. For example, HB 45, the education budget, was passed by the House on February 22, 24 1993, by a vote of 36-0, and was passed by the Senate on March 15, 1993, by a vote of 15-4. 25 Senate Bill 60, regarding school construction grants, was passed by the Senate on April 24, 26 1993, by a vote of 12-8, and by the House on May 11, 1993, by a vote of 39-1, and the 27 Senate concurred in the final version by a vote of 17-3 on May 11, 1993. Other 28 appropriations passed by the legislature in 1993 include HB 55, the operating budget; SB 183, 29 the capital budget; and SB 126, intertie loans and grants and power cost equalization fund. 30 For fiscal year 1994, the legislature approved appropriations from the general fund in excess 31 of $3,163,100,000. 01 (f) In passing the appropriation bills in 1993, the legislature authorized the expenditure 02 of anticipated revenue in the general fund, including amounts deposited in that fund as a result 03 of settlement of informal tax conferences. At the time the legislature passed those 04 appropriations for fiscal year 1994, revenue forecasts showed a surplus in the general fund. 05 Thus, the legislature did not anticipate that all money derived from the settlement of informal 06 tax conferences would be spent. Due to the unanticipated decrease in state revenue, the state 07 treasury has less money than was anticipated at the time that the legislature made its 08 appropriations in 1993. Because of this shortfall, any anticipated surplus representing 09 settlements of informal tax conferences, and amounts received from informal tax conference 10 settlements occurring after July 1, 1994, must be expended to fully fund the capital and 11 operation appropriations enacted in 1993. 12 (g) On July 12, 1993, the Senate Majority filed suit challenging the Department of 13 Revenue action of depositing into the general fund revenue resulting from informal tax 14 conferences. Halford v. Hickel, (3AN-93-6297 CI). On July 27, 1993, former Governor Steve 15 Cowper filed a similar complaint captioned Cowper v. Hickel (3AN-93-6848 CI). The cases 16 were consolidated. 17 (h) On November 19, 1993, the court issued its decision which concluded that sec. 17 18 applied to informal tax conferences. On November 29, 1993, the state presented evidence that 19 retroactive application of the court's ruling, requiring transfer of over $940,000,000 from the 20 general fund, would disrupt state finances and put at risk the justifiable reliance interest of 21 Alaskans and municipalities throughout the state. 22 (i) The superior court dismissed the state's request that the ruling be applied 23 prospectively only. The court found the evidence of hardship "very compelling," but noted 24 that the hardship could be relieved if the legislature reappropriated the money for fiscal year 25 1994. The court ordered the governor to fully restore the constitutional budget reserve fund 26 with interest and to comply with its decision by the end of the 1994 legislative session. The 27 superior court noted "it is not clear that the Governor could legally remove the improperly 28 placed funds from the general fund [to the Budget Reserve Fund] without an appropriation 29 authorizing it." 30 (j) Following appeal to the Alaska Supreme Court, that determined that all income that 31 resulted from the settlement or other termination of informal administrative proceedings 01 involving certain taxes since July 1, 1990, should have been deposited into the budget reserve 02 fund created by art. IX, sec. 17, of the Constitution of the State of Alaska. 03 (k) The Alaska Supreme Court ordered the governor to restore the constitutional 04 budget reserve fund, with interest from the date of receipt by the state of money described in 05 (j) of this section. 06 (l) The amount required to restore the constitutional budget reserve fund consistent 07 with judicial interpretation is $945,636,778.27, plus interest that would have been earned upon 08 investment of this money, calculated from the date of receipt by the state. 09 (m) As of February 1994, there is not sufficient unappropriated money in the general 10 fund to allow the governor to unilaterally transfer the money needed to fully restore the 11 constitutional budget reserve fund. 12 (n) It is the intent of the legislature to provide a funding source for restoration of the 13 constitutional budget reserve fund in order for the governor to satisfy the order of the Alaska 14 Supreme Court. The legislature finds that this court order can be complied with by an 15 appropriation from the general fund to the constitutional budget reserve fund, retroactive to 16 July 1, 1993, of the principal and interest that should have been deposited into that budget 17 reserve fund. It is the intent of the legislature that this appropriation will restore all money 18 to the constitutional budget reserve fund that should have been deposited there since July 1, 19 1990 under the provisions of art. IX, sec. 17, of the Constitution of the State of Alaska. This 20 Act also appropriates, under art. IX, sec. 17(c), of the Constitution of the State of Alaska, that 21 same amount of money from the constitutional budget reserve fund to the general fund. 22 (o) Alaskans have relied on appropriations made during the 1993 legislative session. 23 Financial uncertainty is costly for municipalities, state agencies, and the people of the state. 24 Continued uncertainty makes financial planning impossible. Further litigation concerning the 25 capital and operating expenditures authorized by the appropriations made in 1993 for fiscal 26 year 1994 would create greater uncertainty. The importance of finality and stability in 27 government requires that the governor and the legislature take immediate action to restore the 28 constitutional budget reserve fund and appropriate money from that fund under art. IX, sec. 29 17(c), of the Constitution of the State of Alaska. Although it might be possible to make the 30 appropriations by simple majority vote of the legislature under art. IX, sec. 17(b), of the 31 Constitution of the State of Alaska, this Act makes the appropriations under art. IX, sec. 17(c), 01 of the Constitution of the State of Alaska, which requires a three-fourths majority vote of each 02 house of the legislature. This action provides finality and ensures that there will be no 03 successful challenge to the validity of the appropriations made by secs. 4, 5, and 6 of this Act. 04 (p) Making these appropriations retroactive to July 1, 1993 will provide a valid 05 funding source for appropriations made in 1993, in effect ratifying expenditures under those 06 appropriations. 07 (q) The appropriations made by secs. 4, 5, and 6 of this Act are for a public purpose 08 as required by art. IX, sec. 17(c), Constitution of the State of Alaska. 09 * Sec. 2. The sum of $945,636,778.27 is appropriated from the general fund to the budget 10 reserve fund established by art. IX, sec. 17, Constitution of the State of Alaska, to comply 11 with the judgment in Hickel v. Halford (Supreme Court No. S-6124/6134) (Alaska Jan. 27, 12 1994). 13 * Sec. 3. An amount equal to the interest that would have been earned on money received 14 by the state after June 1, 1990, as a result of termination through settlement or otherwise of 15 an informal administrative proceeding involving taxes imposed on mineral income, production, 16 or property, and subsequently deposited in the general fund, is appropriated from the general 17 fund to the budget reserve fund established by art. IX, sec. 17, Constitution of the State of 18 Alaska, to comply with the judgment in Hickel v. Halford (Supreme Court No. S-6124/6134)(Alaska Jan. 27, 1994). 19 * Sec. 4. (a) The sum of $416,600,000 is appropriated under art. IX, sec. 17(c), of the 20 Constitution of the State of Alaska, from the budget reserve fund established by art. IX, sec. 21 17, of the Constitution of the State of Alaska, to the general fund. 22 (b) The appropriation made by (a) of this section is to fund the portion of the fiscal 23 year 1994 appropriations enacted in 1993 that was anticipated as being funded from amounts 24 deposited in the general fund representing a portion of the revenue received from informal tax 25 conference settlements. 26 (c) The sum of $529,036,778.27 is appropriated under art. IX, sec. 17(c), of the 27 Constitution of the State of Alaska, from the budget reserve fund established by art. IX, sec. 28 17, of the Constitution of the State of Alaska, to the general fund. 29 (d) The appropriation made by (c) of this section is to fund the portion of the fiscal 30 year 1994 appropriations enacted in 1993 that was anticipated as being funded from the 31 general fund but, due to shortfalls created by declining state oil revenue, requires expenditure 01 of revenue received from informal tax conference settlements. 02 * Sec. 5. The amount appropriated by sec. 3 of this Act is appropriated under art. IX, sec. 03 17(c), Constitution of the State of Alaska, from the budget reserve fund established by art. IX, 04 sec. 17, Constitution of the State of Alaska to the general fund. 05 * Sec. 6. In addition to the amounts appropriated by secs. 4 and 5 of this Act, if the 06 unrestricted state revenue available for appropriation in fiscal year 1994 is insufficient to cover 07 the fiscal year 1994 general fund appropriations, the amount necessary to balance revenue and 08 general fund appropriations is appropriated under art. IX, sec. 17(c), Constitution of the State 09 of Alaska to the general fund. 10 * Sec. 7. This Act is retroactive to July 1, 1993. 11 * Sec. 8. This Act takes effect immediately under AS 01.10.070(c), only if secs. 4, 5, and 12 6 of this Act receive the three-fourths majority vote of each house required by art. IX, sec. 13 17(c) of the Constitution of the State of Alaska.