02/04/2021 03:30 PM Senate STATE AFFAIRS
| Audio | Topic | 
|---|---|
| Start | |
| SJR5 | |
| SJR7 | |
| Adjourn | 
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 53 | TELECONFERENCED | |
| *+ | SJR 6 | TELECONFERENCED | |
| *+ | SJR 5 | TELECONFERENCED | |
| *+ | SJR 7 | TELECONFERENCED | |
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE STATE AFFAIRS STANDING COMMITTEE                                                                           
                        February 4, 2021                                                                                        
                           3:34 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Mike Shower, Chair                                                                                                      
Senator Lora Reinbold, Vice Chair                                                                                               
Senator Mia Costello                                                                                                            
Senator Roger Holland                                                                                                           
Senator Scott Kawasaki                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present.                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE JOINT RESOLUTION NO. 5                                                                                                   
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to  an appropriation limit;  and relating to  the budget                                                               
reserve fund.                                                                                                                   
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
SENATE JOINT RESOLUTION NO. 7                                                                                                   
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to prohibiting the establishment  of a state tax without                                                               
the approval  of the  voters of  the state;  and relating  to the                                                               
initiative process.                                                                                                             
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 53                                                                                                              
"An Act relating  to use of income of the  Alaska permanent fund;                                                               
relating to the  amount of the permanent  fund dividend; relating                                                               
to  the duties  of the  commissioner of  revenue; relating  to an                                                               
advisory vote on  the permanent fund; providing  for an effective                                                               
date  by repealing  the effective  date of  sec. 8,  ch. 16,  SLA                                                               
2018; and providing for an effective date."                                                                                     
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
SENATE JOINT RESOLUTION NO. 6                                                                                                   
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to the Alaska permanent fund, appropriations from the                                                                  
permanent fund, and the permanent fund dividend.                                                                                
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SJR  5                                                                                                                  
SHORT TITLE: CONST. AM: APPROP LIMIT; BUDGET RESERVE                                                                            
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/22/21       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/22/21       (S)       STA, JUD, FIN                                                                                          
02/04/21       (S)       STA AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: SJR  7                                                                                                                  
SHORT TITLE: CONST. AM: STATE TAX; VOTER APPROVAL                                                                               
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/22/21       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/22/21       (S)       STA, JUD, FIN                                                                                          
02/04/21       (S)       STA AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
CAROLINE SCHULTZ, Chief Policy Analyst                                                                                          
Office of Management and Budget                                                                                                 
Office of the Governor                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Introduced SJR 5 on behalf of the                                                                         
administration.                                                                                                                 
                                                                                                                                
MIKE BARNHILL, Deputy Commissioner                                                                                              
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Co-presented SJR 7 on behalf of the                                                                       
administration.                                                                                                                 
                                                                                                                                
BILL MILKS, Assistant Attorney General                                                                                          
Labor and State Affairs Section                                                                                                 
Civil Division                                                                                                                  
Department of Law                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Co-presented SJR 7 on behalf of the                                                                       
administration.                                                                                                                 
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:34:05 PM                                                                                                                    
CHAIR  MIKE  SHOWER  called the  Senate  State  Affairs  Standing                                                             
Committee meeting  to order at 3:34  p.m. Present at the  call to                                                               
order were  Senators Kawasaki,  Holland, Costello,  Reinbold, and                                                               
Chair Shower.                                                                                                                   
                                                                                                                                
CHAIR  SHOWER stated  that several  committee members  have asked                                                               
him to highlight once again that  work on SB 39 began three years                                                               
ago and he  filed the first version a little  more than two years                                                               
ago. He  clarified that SB 39  was not introduced because  of the                                                               
last election.                                                                                                                  
                                                                                                                                
         SJR  5-CONST. AM: APPROP LIMIT; BUDGET RESERVE                                                                     
3:36:57 PM                                                                                                                    
CHAIR  SHOWER   announced  the  consideration  of   SENATE  JOINT                                                               
RESOLUTION NO. 5 Proposing amendments  to the Constitution of the                                                               
State of Alaska relating to  an appropriation limit; and relating                                                               
to the budget reserve fund.                                                                                                     
                                                                                                                                
3:37:09 PM                                                                                                                    
CAROLINE SCHULTZ, Chief Policy Analyst,  Office of Management and                                                               
Budget,  Office  of  the  Governor,  Juneau,  Alaska,  began  her                                                               
presentation  with some  background on  the appropriation  limit.                                                               
She   explained  that   Alaska  already   has  a   constitutional                                                               
appropriation limit that voters  ratified in 1982. That provision                                                               
had  a  sunset  clause  and   in  1986,  voters  re-approved  the                                                               
constitutional   appropriation   limit.   Also   in   1986,   the                                                               
legislature enacted a statutory  spending limit and the statutory                                                               
budget reserve  as a rainy  day savings account. In  1990, voters                                                               
ratified  the Constitutional  Budget Reserve  Fund (CBR)  in Art.                                                               
IX, Sec. 17, Constitution of the State of Alaska.                                                                               
                                                                                                                                
MS. SCHULTZ  said SJR  5 amends the  appropriation limit  in Art.                                                               
IX, Sec. 16,  of the constitution. Importantly, SJR  5 amends the                                                               
calculation of  the appropriation  limit. It provides  that state                                                               
spending  may not  exceed the  prior three-year  average by  more                                                               
than the  greater of inflation  or population growth. SJR  5 also                                                               
clarifies  the  definition  of   appropriations  subject  to  the                                                               
spending  cap. It  includes all  undesignated general  fund (UGF)                                                               
and  designated  general  fund  (DGF)  spending.  The  exceptions                                                               
include the PFD,  bond proceeds and debt  service costs, deposits                                                               
to  state  savings  accounts, disaster  response,  and  non-state                                                               
funds for a specific purpose.                                                                                                   
                                                                                                                                
3:39:39 PM                                                                                                                    
SENATOR REINBOLD  highlighted that  disaster relief money  is not                                                               
included.                                                                                                                       
                                                                                                                                
MS.  SCHULTZ  explained  that  state or  federal  funds  used  to                                                               
respond to  a disaster,  as defined  by state  disaster statutes,                                                               
would not be included in the appropriation limit                                                                                
                                                                                                                                
SENATOR REINBOLD  asked how much  disaster funding had  come into                                                               
the state  since March 2020  and if the resolution  excludes that                                                               
from the cap.                                                                                                                   
                                                                                                                                
MS. SCHULTZ said she would follow  up with the exact numbers. She                                                               
clarified that most federal funds  would not be counted under the                                                               
cap  and state  funds expended  for  a disaster  would not  count                                                               
toward the cap.                                                                                                                 
                                                                                                                                
3:41:03 PM                                                                                                                    
MS. SCHULTZ  continued the presentation.  She explained  that the                                                               
second part of SJR 5 amends  Art. V, Sec. 17, Constitution of the                                                               
State of Alaska. It changes  how the legislature accesses the CBR                                                               
by removing  the three-fourths vote  requirement. SJR  5 provides                                                               
that appropriations from  the CBR may be made by  a majority vote                                                               
if  there   are  insufficient  general  fund   revenues  to  meet                                                               
expenditures. Further,  it removes the general  fund liability to                                                               
the  CBR.  She noted  that  this  is  known  as the  CBR  "sweep"                                                               
provision.                                                                                                                      
                                                                                                                                
CHAIR  SHOWER asked  what the  governor's intent  is in  changing                                                               
those two provisions.                                                                                                           
                                                                                                                                
MS. SCHULTZ explained that the first  of the two gates of the CBR                                                               
says  that  if  the  amount available  for  an  appropriation  is                                                               
insufficient to  meet the budget  and the budget is  smaller than                                                               
the  previous year,  the legislature  can access  the CBR  with a                                                               
majority vote. Importantly, in 1994  the court ruled in Hickel v.                                                               
Cowper that  the amount  in the  permanent fund  earnings reserve                                                               
counts as available for appropriation.  She said that is billions                                                               
of dollars  so the bar  is too high  to qualify for  the majority                                                               
vote  provision to  access the  CBR for  a traditional  rainy day                                                               
fund.   Instead,  the   three-fourths  rule,   which  allows   an                                                               
appropriation from the CBR for any state purpose, applies.                                                                      
                                                                                                                                
MS.  SCHULTZ  said  a  provision  in  the  current  CBR  language                                                               
requires that  if the state  has made expenditures from  the CBR,                                                               
it must pay that  back at the end of the fiscal  year. At the end                                                               
of FY  2020, there was  approximately a $10 billion  liability to                                                               
the CBR. SJR 5 eliminates  the requirement to repay the liability                                                               
and  the  three-fourths vote  for  access,  which eliminates  the                                                               
year-end political problem of the reverse sweep.                                                                                
                                                                                                                                
CHAIR SHOWER  commented that these  are significant  changes that                                                               
the body will need to consider very carefully.                                                                                  
                                                                                                                                
MS. SCHULTZ said the idea is  to make the CBR a traditional rainy                                                               
day account.                                                                                                                    
                                                                                                                                
She said  the next slides  model quantitatively what  the funding                                                               
cap would look like under different scenarios.                                                                                  
                                                                                                                                
3:44:22 PM                                                                                                                    
MS. SCHULTZ turned to the line  graph on slide 3 that illustrates                                                               
that the  appropriation limit articulated in  the constitution is                                                               
ineffective.  The   heavy  black  line  represents   the  current                                                               
appropriation limit.  She pointed out  that the heavy  black line                                                               
that starts  in FY1982, when  voters approved  the constitutional                                                               
appropriation  limit,  grows beyond  the  scope  of either  state                                                               
revenue or  state general fund expenditures.  UGF revenue matched                                                               
the  current  cap   just  two  years,  and   UGF  spending  never                                                               
approached  the limit.  While  there was  an  awareness that  the                                                               
appropriation  limit was  ineffective,  voters  reapproved it  in                                                               
1986. She  said the concept is  still popular but the  math needs                                                               
fine-tuning.                                                                                                                    
                                                                                                                                
CHAIR SHOWER  mentioned the extensive  work that  several members                                                               
did on this topic several years  ago and asked why this model did                                                               
not include revenue in addition to inflationary factors.                                                                        
                                                                                                                                
MS. SCHULTZ answered that this version  intends to be as close as                                                               
possible to the measure from two years ago.                                                                                     
                                                                                                                                
3:46:17 PM                                                                                                                    
SENATOR  REINBOLD   asked  if  she  was   recommending  that  the                                                               
approximately $10 billion liability to the CBR not be paid back.                                                                
                                                                                                                                
MS.  SCHULTZ  confirmed  that  SJR  5  proposes  to  remove  that                                                               
liability.                                                                                                                      
                                                                                                                                
SENATOR  REINBOLD  said she  liked  the  idea of  tightening  the                                                               
budget and  paying the liability  back because she thinks  it was                                                               
the result of overspending. She  also pointed out that the three-                                                               
fourths  vote  and reverse  sweep  can  be  a  big deal  and  her                                                               
preference would be for the legislative branch to discuss this.                                                                 
                                                                                                                                
CHAIR SHOWER said that is why it  is under debate and he was open                                                               
to changes if that was the will of the committee.                                                                               
                                                                                                                                
3:48:17 PM                                                                                                                    
SENATOR COSTELLO asked whether the  $10 million liability affects                                                               
the state's bond rating and if so, how it is affected.                                                                          
                                                                                                                                
MS.  SCHULTZ said  she  would  follow up  with  a response  after                                                               
consulting the bond manager.                                                                                                    
                                                                                                                                
3:48:55 PM                                                                                                                    
MR.  BARNHILL,   Deputy  Commissioner,  Department   of  Revenue,                                                               
Juneau,  Alaska,  added  that  he did  not  believe  that  rating                                                               
agencies  account for  that  liability but  he  would check  with                                                               
DOR's debt manager and follow up with the answer.                                                                               
                                                                                                                                
3:49:28 PM                                                                                                                    
SENATOR COSTELLO asked  if the administration could  look back to                                                               
see  how much  the bargaining  to get  the three-fourths  vote to                                                               
access the CBR increased the budget over time.                                                                                  
                                                                                                                                
MS SCHULTZ  said she would  try to  get the information  but that                                                               
kind  of  analysis would  require  a  level of  subjectivity  and                                                               
perhaps offline calls with former co-chairs.                                                                                    
                                                                                                                                
3:50:54 PM                                                                                                                    
MS SCHULTZ  clarified that while  she was modeling  UGF spending,                                                               
the appropriation limit applies to  a broader definition of state                                                               
spending  than just  UGF. For  ease of  the presentation  and the                                                               
historical lookback, she used UGF  as a proxy for state spending.                                                               
She added  that when she shows  the finer points within  a three-                                                               
year timeframe,  she would  use the  actual amount  defined under                                                               
the appropriation limit.                                                                                                        
                                                                                                                                
She pointed to the black dotted  line on the graph that shows the                                                               
spending cap if  the voters had approved SJR 5  in FY1982 instead                                                               
of starting with $2.5 billion  and letting it grow with inflation                                                               
and population. If SJR 5 had  gone into effect in 1982, about $35                                                               
billion of unrestricted general funds  would not have been spent.                                                               
It is speculation to say what  would have happened to those funds                                                               
but if  $35 billion  was put  into the  permanent fund  over that                                                               
timeframe,  the fund  would be  valued  at $100  billion and  the                                                               
percent  of market  value (POMV)  would  be enough  to cover  the                                                               
current structural deficit.                                                                                                     
                                                                                                                                
3:52:48 PM                                                                                                                    
CHAIR  SHOWER  commented that  the  chart  was worth  a  thousand                                                               
words.  UGF  expenditures  nearly  doubled since  2006  and  when                                                               
revenue started to become an  issue, the legislature did not act.                                                               
Now this  legislature has to make  the hard choices so  the state                                                               
is not in the same position 14 years from now.                                                                                  
                                                                                                                                
3:54:30 PM                                                                                                                    
SENATOR  KAWASAKI  pointed to  the  large  expenditure spikes  in                                                               
2008-2010 and asked how much  of that was capital spending versus                                                               
operating expenses.                                                                                                             
                                                                                                                                
MS. SCHULTZ said  she did not have the exact  numbers but capital                                                               
expenditures drove the majority of the increase.                                                                                
                                                                                                                                
CHAIR SHOWER pointed  out that while the capital  spend was high,                                                               
there were also significant payments to PERS and TRS.                                                                           
                                                                                                                                
SENATOR  KAWASAKI asked  to  see a  chart  that also  represented                                                               
operating  expenses  because the  years  with  spikes in  capital                                                               
spend were to  fill potholes that were unfilled for  20 years. He                                                               
said he agrees with paying back  the billions owed to the CBR but                                                               
there were also billions of  dollars in deferred maintenance that                                                               
normal operation  and maintenance  does not address.  There needs                                                               
to be  a recognition that some  of those big spending  years were                                                               
to catch up, he said.                                                                                                           
                                                                                                                                
3:56:41 PM                                                                                                                    
CHAIR SHOWER said it was a  valid point but the problem today was                                                               
how to balance the budget when capital budgets are minimal.                                                                     
                                                                                                                                
He asked Ms. Schultz to get that data to the committee.                                                                         
                                                                                                                                
3:57:25 PM                                                                                                                    
SENATOR REINBOLD  commented that the  governor has 95  percent of                                                               
the  budget  so he  has  whatever  cap  he wants.  Regarding  the                                                               
deferred maintenance  issue, she said the  administration must be                                                               
held accountable for bloated budgets  and not using the funds the                                                               
legislature gave for specific things.                                                                                           
                                                                                                                                
3:58:52 PM                                                                                                                    
MS.  SCHULTZ turned  to the  next  slide and  explained that  the                                                               
green line  in the background is  for UGF revenue and  the orange                                                               
line  is for  UGF expenditures.  She  noted that  the graph  only                                                               
looks at FY2000 through FY2022 because  she wanted to show that a                                                               
positive aspect of using the  three-year rolling average was that                                                               
the spending cap could adjust. She  said what is modeled with the                                                               
various  blue  lines is  the  retrospective  notion of  what  the                                                               
spending cap  would look like  if SJR  5 had been  implemented in                                                               
FY2005.  She pointed  out that  the  blue line  follows a  fairly                                                               
linear progression with some growth  for the greater of inflation                                                               
or  population.   She  noted  that   recent  history   in  Alaska                                                               
chronicles inflation as a higher growth factor than population.                                                                 
                                                                                                                                
CHAIR SHOWER  commented that  there had been  a net  outflow from                                                               
the state for the last three years.                                                                                             
                                                                                                                                
MS. SCHULTZ  agreed. Continuing,  she pointed out  that if  SJR 5                                                               
had been implemented in FY2005,  the line tracks along the FY2000                                                               
line. However, if  SJR 5 had been implemented during  a period of                                                               
higher spending,  such as  FY2010, that  higher period  of budget                                                               
growth  allows for  a larger  spending  cap but  then it  adjusts                                                               
down. It  would have  been the  same for FY2015.  It starts  at a                                                               
very high  level because  it is factoring  in those  prior record                                                               
budget years into  the three-year average, but it  tapers to meet                                                               
the  fiscal  reality  of  the  situation. She  said  that  is  an                                                               
important  notion  when you  consider  what  calculation to  use.                                                               
Something that  auto corrects  versus the  current Art.  IX, Sec.                                                               
16, limit. She observed that the latter grows and grows.                                                                        
                                                                                                                                
4:01:14 PM                                                                                                                    
CHAIR  SHOWER asked  her  to  talk briefly  about  the effect  of                                                               
factoring in  revenue and what  the legislature decides  to spend                                                               
versus what is available to spend.                                                                                              
                                                                                                                                
MS. SCHULTZ said  it would depend on how revenue  is weighted. It                                                               
can mean that  the spending limit calculation  is more responsive                                                               
to a  changing revenue environment,  but periods of  high revenue                                                               
spikes can allow  the spending cap to grow more  than if spending                                                               
alone were the basis.                                                                                                           
                                                                                                                                
CHAIR  SHOWER  said  he  brought   it  up  because  part  of  the                                                               
discussion  two years  ago was  about including  factors such  as                                                               
CPI, inflation, or  some combination and he wanted  that still to                                                               
be part of the discussion.                                                                                                      
                                                                                                                                
MS. SCHULTZ said  she would be happy to  provide more information                                                               
if she visits the committee again on this topic.                                                                                
                                                                                                                                
4:03:19 PM                                                                                                                    
SENATOR  KAWASAKI   asked  if  the  graphs   include  the  annual                                                               
permanent fund dividend (PFD) payments.                                                                                         
                                                                                                                                
MS. SCHULTZ  answered no; the  orange UGF spending line  does not                                                               
include PFD payments  because the dividend is not  subject to the                                                               
appropriation limit.                                                                                                            
                                                                                                                                
CHAIR SHOWER commented that the  language changed in 2017 to make                                                               
it a  government expense so  including it  over time would  be an                                                               
unreliable representation.                                                                                                      
                                                                                                                                
MS. SCHULTZ  said SJR 5  specifically excludes the  dividend from                                                               
the cap.                                                                                                                        
                                                                                                                                
4:04:15 PM                                                                                                                    
MS.  SCHULTZ  said  the  last  graph  was  forward  looking.  She                                                               
explained  that  the  OMB  forecast  is  based  on  some  assumed                                                               
reductions in the  next few fiscal years along  with an inflation                                                               
factor and  the DOR forecast is  based heavily on the  POMV draw,                                                               
of  which are  relatively  stable growth  factors.  She said  the                                                               
small dotted green  line represents UGF revenue  going forward if                                                               
it were to grow as it did in FY2005 through FY2013.                                                                             
                                                                                                                                
MS. SCHULTZ directed attention to  the solid lines. The gray line                                                               
shows the  cap if spending  follows the Office of  Management and                                                               
Budget (OMB) 10-year  plan and the black line shows  the cap with                                                               
maximized spending.  She said she  was highlighting  this because                                                               
she did  not want to create  the notion that SJR  5 overly limits                                                               
spending or does  not allow responsiveness. She  also pointed out                                                               
that  the highest  possible cap,  based on  normal inflation  and                                                               
population  measures,  is  higher  than  the  projected  revenue.                                                               
However,   if  revenue   were  to   increase  in   a  year,   the                                                               
appropriation could be more than it might otherwise be.                                                                         
                                                                                                                                
4:06:22 PM                                                                                                                    
CHAIR SHOWER mentioned the amendment  to this provision two years                                                               
ago that created  a waterfall fund. The notion was  that in years                                                               
with high revenue,  capital expenses could be  increased to catch                                                               
up on  things like infrastructure  projects. The question  is how                                                               
to do that without going in the hole again, he said.                                                                            
                                                                                                                                
MS. SCHULTZ  responded that specifying  where revenue  beyond the                                                               
cap would  be directed  is an  important policy  conversation for                                                               
this committee to have.                                                                                                         
                                                                                                                                
CHAIR  SHOWER said  he would  like that  provision worked  into a                                                               
graph to help  the committee see how that may  play out and where                                                               
it may be appropriate.                                                                                                          
                                                                                                                                
4:07:53 PM                                                                                                                    
MS.  SCHULTZ said  she  would  be happy  to  work with  committee                                                               
members and  staff outside  of meetings to  look at  modeling and                                                               
the spreadsheets.                                                                                                               
                                                                                                                                
4:08:06 PM                                                                                                                    
CHAIR SHOWER held SJR 5 in committee.                                                                                           
                                                                                                                                
           SJR 7-CONST. AM: STATE TAX; VOTER APPROVAL                                                                       
                                                                                                                                
4:08:06 PM                                                                                                                    
CHAIR  SHOWER   announced  the  consideration  of   SENATE  JOINT                                                               
RESOLUTION NO. 7 Proposing amendments  to the Constitution of the                                                               
State of  Alaska relating to  prohibiting the establishment  of a                                                               
state tax  without the approval of  the voters of the  state; and                                                               
relating to the initiative process.                                                                                             
                                                                                                                                
4:08:13 PM                                                                                                                    
MIKE  BARNHILL,  Deputy   Commissioner,  Department  of  Revenue,                                                               
Juneau,  Alaska,  stated that  SJR  7  amends  Art. IX,  Sec.  1,                                                               
Constitution of  the State  of Alaska  to require  voter approval                                                               
for any  new tax enacted  by the  legislature. It was  similar to                                                               
Senate  Joint Resolution  4 that  this  committee considered  two                                                               
years ago.                                                                                                                      
                                                                                                                                
He reminded members that the  Alaska Constitution already has two                                                               
forms  of  direct democracy.  These  are  the people's  power  to                                                               
initiate  laws  through  initiative  and the  people's  power  to                                                               
repeal laws enacted by the  legislature through referendum. SJR 7                                                               
adds  a  new  form  of  direct  democracy  to  the  constitution,                                                               
functionally authorizing  an automatic  referendum on  new taxes.                                                               
The people  already have  the power to  initiate a  referendum to                                                               
repeal a tax  measure enacted by the legislature and  SJR 7 makes                                                               
it automatic by placing it in the constitution.                                                                                 
                                                                                                                                
MR BARNHILL  said the second  part of  SJR 7 amends  the people's                                                               
constitutional  power  of  initiative  by  requiring  legislative                                                               
approval with  a majority vote  in joint  session of any  new tax                                                               
enacted by initiative.  Functionally, it is a form  of checks and                                                               
balances.  He described  this as  a new  partnership between  the                                                               
people and the legislature.                                                                                                     
                                                                                                                                
4:11:10 PM                                                                                                                    
SENATOR COSTELLO asked if the  majority vote requirement means 31                                                               
votes  regardless of  the votes  in  the individual  bodies or  a                                                               
majority of the votes in each body.                                                                                             
                                                                                                                                
MR. BARNHILL replied  he reads it as  a majority vote of  31 in a                                                               
joint session.                                                                                                                  
                                                                                                                                
4:11:53 PM                                                                                                                    
SENATOR  REINBOLD  pointed  out  that Alaska's  government  is  a                                                               
representative  republic,  which  means  that  the  voters  elect                                                               
people to  make decisions on things  such as taxes. She  said she                                                               
does not  like taxes  but she feels  that this  administration is                                                               
tying the hands and reducing the power of the legislature.                                                                      
                                                                                                                                
CHAIR SHOWER  referred to the  last sentence in the  proposed new                                                               
subsection (c)  and asked if  this would be interpreted  to apply                                                               
to  only  this provision  for  a  tax  increase that  the  voters                                                               
approve by initiative  or if the judiciary could  interpret it to                                                               
apply to any initiative.                                                                                                        
                                                                                                                                
4:13:43 PM                                                                                                                    
MR. BARNHILL directed  attention to the language on  page 2, line                                                               
7   that  confines   the  application   to  an   initiative  that                                                               
establishes a state tax. He  said that triggers the legislature's                                                               
ability to approve the initiated law  by a majority vote in joint                                                               
session.                                                                                                                        
                                                                                                                                
CHAIR  SHOWER  expressed  concern   about  how  the  court  might                                                               
interpret that and said the committee would take a harder look.                                                                 
                                                                                                                                
4:14:50 PM                                                                                                                    
MR. BARNHILL said  that in 1955 the direct  democracy elements of                                                               
initiative  and  referendum  were  added  to  the  representative                                                               
democracy in  the Alaska Constitution.  That is part  of Alaska's                                                               
legal  heritage  and the  governor  is  proposing to  automate  a                                                               
referendum in  the sole  instance of  legislative enactment  of a                                                               
new tax.                                                                                                                        
                                                                                                                                
4:16:22 PM                                                                                                                    
MR.  BARNHILL proceeded  to slide  7 and  described other  states                                                               
that  have  similar  constitutional  provisions  regarding  voter                                                               
approval of new or increased taxes.                                                                                             
                                                                                                                                
Colorado, in 1992,  amended its constitution to  add the Taxpayer                                                               
Bill of  Rights (TABOR).  He noted that  TABOR was  essentially a                                                               
combination of  SJR 5 and  SJR 7.  It requires voter  approval of                                                               
any new tax or increase to  existing taxes at the state and local                                                               
level. Notably, Colorado voters approved  a marijuana tax in 2013                                                               
and certain tobacco tax increases in 2020.                                                                                      
                                                                                                                                
4:17:55 PM                                                                                                                    
SENATOR COSTELLO asked if he had a definition of tax.                                                                           
                                                                                                                                
MR. BARNHILL  said the  Department of Revenue's  view was  that a                                                               
tax includes a  broad-based sales tax, a  broad-based income tax,                                                               
and an excise  tax. It does not include user  fees, such as court                                                               
filings tied  to a specific  service to  defray the cost  of that                                                               
service.                                                                                                                        
                                                                                                                                
4:19:23 PM                                                                                                                    
SENATOR  COSTELLO asked  if  a reduction  in  the permanent  fund                                                               
dividend (PFD) would be considered a tax.                                                                                       
                                                                                                                                
MR. BARNHILL answered no.                                                                                                       
                                                                                                                                
CHAIR SHOWER  asked Mr. Milks  if he had  anything to add  to the                                                               
definition.                                                                                                                     
                                                                                                                                
4:19:51 PM                                                                                                                    
BILL MILKS,  Assistant Attorney General, Labor  and State Affairs                                                               
Section, Civil Division, Department  of Law, Juneau, Alaska, said                                                               
the framers put the term "tax"  in the constitution and the basic                                                               
definition came  from dictionaries  used at that  time. It  was a                                                               
charge  levied by  the government  on persons  or property  for a                                                               
public purpose. He  agreed with Mr. Barnhill that  user fees were                                                               
different and would not be considered a tax.                                                                                    
                                                                                                                                
4:21:27 PM                                                                                                                    
SENATOR KAWASAKI  relayed that years  ago in  Fairbanks, property                                                               
taxes paid  for the  garbage utility.  Then the  assembly changed                                                               
that tax  to a  fee so it  would be outside  of the  revenue cap.                                                               
There was vigorous debate because  residents inside the city were                                                               
required to  get the garbage  utility but apartment  complexes of                                                               
more than  four could contract  with a private vendor.  He asked,                                                               
under that circumstance, if that was a fee or hidden tax.                                                                       
                                                                                                                                
MR. BARNHILL  said it was difficult  to assess but from  a policy                                                               
perspective, it sounded  more like a fee than a  tax. It was tied                                                               
to a specific function and the  purpose was to defray the cost of                                                               
that  specific function.  That is  different from  revenue raised                                                               
broadly for the purpose of  funding public services generally. He                                                               
added  that  he  could  see  the argument  going  both  ways.  He                                                               
deferred further explanation to Mr. Milks.                                                                                      
                                                                                                                                
4:23:29 PM                                                                                                                    
MR. MILKS said  Mr. Barnhill's explanation was  reasonable but it                                                               
was difficult to assess the example.                                                                                            
                                                                                                                                
SENATOR  KAWASAKI posed  the hypothetical  example of  increasing                                                               
the cost  of what  the Division of  Motor Vehicles  (DMV) charges                                                               
far more than the cost to  operate the division. He asked if that                                                               
would be considered a tax.                                                                                                      
                                                                                                                                
MR. BARNHILL said it would  be difficult to say categorically one                                                               
way or the other in that situation.                                                                                             
                                                                                                                                
MR. MILKS agreed with Mr. Barnhill.                                                                                             
                                                                                                                                
4:27:09 PM                                                                                                                    
SENATOR  REINBOLD asked  how  SJR 7  answers to  Art.  IX of  the                                                               
Alaska  Constitution  that says,  "The  power  of taxation  shall                                                               
never  be  surrendered. This  power  shall  not be  suspended  or                                                               
contracted away, except as provided in this article."                                                                           
                                                                                                                                
MR.  BARNHILL  replied  the  resolution  proposes  to  amend  the                                                               
constitution so it  would fall under the  existing words, "except                                                               
as provided in this article."                                                                                                   
                                                                                                                                
CHAIR SHOWER asked if he was  saying that the resolution would be                                                               
constitutional because  it would amend  [Art. IX, Sec. 1]  of the                                                               
Alaska Constitution.                                                                                                            
                                                                                                                                
MR. BARNHILL agreed.                                                                                                            
                                                                                                                                
SENATOR REINBOLD  questioned whether it  made sense to  allow and                                                               
not allow something in the same sentence.                                                                                       
                                                                                                                                
CHAIR  SHOWER  asked Mr.  Milks  to  give  a more  precise  legal                                                               
definition of the process.                                                                                                      
                                                                                                                                
4:29:16 PM                                                                                                                    
MR.  MILKS explained  that the  constitution currently  says that                                                               
the power  of taxation shall  never be surrendered  or contracted                                                               
away except  as provided in [Art  IX, Sec.1]. SJR 7  adds two new                                                               
subsections to  that article that  address the  separate question                                                               
of establishing a state tax.                                                                                                    
                                                                                                                                
SENATOR  REINBOLD asked  him to  read the  constitution with  the                                                               
addition of the two new subsections.                                                                                            
                                                                                                                                
MR. MILKS directed attention to page  1, line 9 of the resolution                                                               
and  explained that  the new  subsections would  fall immediately                                                               
after  the  existing  language  in  Art.  IX,  Sec.  1.  The  new                                                               
subsections set the rules regarding establishing a state tax.                                                                   
                                                                                                                                
SENATOR REINBOLD  observed that it  sounds like, "it's  shall not                                                               
and then we're going to."                                                                                                       
                                                                                                                                
4:31:29 PM                                                                                                                    
MS. SCHULTZ said  an example in the constitution  appears in Art.                                                               
IX,  Sec  7,  the  anti-dedication  fund  clause.  As  originally                                                               
drafted, it  prohibited the dedication  of state funds.  That was                                                               
amended in  1976 to  add "except  as provided  in Sec.  15, which                                                               
allowed the creation of the permanent fund.                                                                                     
                                                                                                                                
SENATOR REINBOLD said  the people voted to  support the permanent                                                               
fund and  the dividend and  now it is  being taken. She  said she                                                               
appreciated Senator Costello's question  about the permanent fund                                                               
because many people feel the reduction  in the dividend is a tax.                                                               
She said  she was not  a fan of  taxes, but this  resolution gave                                                               
her pause.                                                                                                                      
                                                                                                                                
CHAIR  SHOWER asked  if the  Department  of Law  could provide  a                                                               
written  explanation,  with  examples,  about  how  it  was  done                                                               
before.                                                                                                                         
                                                                                                                                
MR. MILKS agreed to do so.                                                                                                      
                                                                                                                                
4:34:14 PM                                                                                                                    
SENATOR  HOLLAND asked  how many  tax  proposals Colorado  voters                                                               
rejected after the passage of TABOR.                                                                                            
                                                                                                                                
MR. BARNHILL  said he  would follow up  with the  information. He                                                               
recalled that a  number of taxes in Colorado failed  from 1992 to                                                               
the present.                                                                                                                    
                                                                                                                                
CHAIR SHOWER  asked him  to provide the  information by  the next                                                               
hearing on the resolution.                                                                                                      
                                                                                                                                
4:35:17 PM                                                                                                                    
MR.  BARNHILL continued  the presentation  on  slide 7  regarding                                                               
states that require voter approval  of new or increased taxes. He                                                               
said he included  Missouri and Washington to  show the variation.                                                               
The constitutional provision in  Missouri requires voter approval                                                               
of tax increases of $50  million or more, adjusted for inflation.                                                               
In  2018,  voters defeated  Proposition  D  to increase  gasoline                                                               
taxes by $400 million.                                                                                                          
                                                                                                                                
He explained  that the state  of Washington has  a constitutional                                                               
provision that  requires voter approval  of certain  increases to                                                               
real  and  personal  property  taxes referred  to  as  "levy  lid                                                               
lifts." In recent  years, voters approved 75  percent of proposed                                                               
levy  lid   lifts.  Further,  California  has   a  constitutional                                                               
provision  that requires  voter approval  of general  local taxes                                                               
and special local taxes.                                                                                                        
                                                                                                                                
CHAIR  SHOWER  asked him  to  provide  information on  any  other                                                               
states that have enacted similar constitutional provisions.                                                                     
                                                                                                                                
MR. BARNHILL  replied that  these four are  the states  that have                                                               
amended their  constitutions; there may  be more examples  at the                                                               
local level.                                                                                                                    
                                                                                                                                
4:37:13 PM                                                                                                                    
MR. BARNHILL displayed slide 8  and highlighted that the National                                                               
Council of  State Legislatures has  summarized the pros  and cons                                                               
of  the experiences  of states  from a  policy perspective.  They                                                               
call  the  amendments proposed  in  SJR  5  and  SJR 7  "tax  and                                                               
expenditure limitations."  He noted that  the link to  the entire                                                               
article was  on slide 10.  It exhaustively lists  and categorizes                                                               
the states, the nature of the tax, and expenditure limitations.                                                                 
                                                                                                                                
A  sample  of  the  pros  of a  tax  and  expenditure  limitation                                                               
includes make  government more accountable and  efficient; foster                                                               
public  prioritization  of  programs   and  services;  and  voter                                                               
consent to  new taxes may  increase tax compliance. He  noted the                                                               
latter was from a study  of Eastern Bloc countries post communism                                                               
and the  use of the referendum  to engage voters and  improve tax                                                               
compliance. The researchers found a positive relationship.                                                                      
                                                                                                                                
A  sample  of  the  cons  of a  tax  and  expenditure  limitation                                                               
includes: more difficulty raising  new revenue; waiting for voter                                                               
consent can  delay implementation and collection  of new revenues                                                               
(which may be  an issue for Alaska that needs  revenue soon); and                                                               
it   shifts   fiscal   decision    making   away   from   elected                                                               
representatives (as Senator Reinbold pointed out).                                                                              
                                                                                                                                
MR. BARNHILL advised that slides 9  and 10 are cut and paste from                                                               
the National Council  of State Legislatures webpage  of more pros                                                               
of  "Tax  and  Expenditure  Limitations"  for  policy  makers  to                                                               
consider.                                                                                                                       
                                                                                                                                
4:40:25 PM                                                                                                                    
SENATOR  KAWASAKI  mentioned  discussions  in  past  years  about                                                               
locking  in the  price  of  natural gas.  He  described  it as  a                                                               
contingency that  the legislature did  over a number of  years so                                                               
oil companies  could figure  out on  the books  how the  gas line                                                               
would  work in  the  future. He  asked  what SJR  7  does to  the                                                               
situation in which the legislature  enacts a longer-term tax that                                                               
the industry  agreed to but  is then subject  to the will  of the                                                               
people.                                                                                                                         
                                                                                                                                
MR. BARNHILL  clarified that Senator  Kawasaki was  talking about                                                               
locking  in the  tax  rate for  a  number of  years  to make  the                                                               
economics of  the gas line  predictable over a longer  period. He                                                               
offered   his   understanding   that  three   attorneys   general                                                               
considered  this at  separate times  and rendered  three opinions                                                               
expressing  different views  on  the  time a  tax  rate could  be                                                               
locked in. He deferred further discussion to Mr. Milks.                                                                         
                                                                                                                                
4:42:04 PM                                                                                                                    
MR.  MILKS  said the  constitutional  provision  on taxing  power                                                               
would still be  there so the question is  whether the legislature                                                               
can  agree to  limit  potential to  adjust a  tax  for a  certain                                                               
period.  He offered  to follow  up with  more information  if the                                                               
chair wished.                                                                                                                   
                                                                                                                                
CHAIR  SHOWER said  he would  rather have  more information  than                                                               
less even if it leads down a bit of a rabbit hole.                                                                              
                                                                                                                                
SENATOR REINBOLD asked if it  would be considered a statewide tax                                                               
if the  legislature applied  the same tax  formula on  all mining                                                               
products;  if SJR  7  would limit  the  legislature's ability  to                                                               
establish such  a tax; and  if such a limitation  would undermine                                                               
the representative republic.                                                                                                    
                                                                                                                                
MR. BARNHILL  opined that a new  tax on mining products  would be                                                               
subject to SJR 7.                                                                                                               
                                                                                                                                
SENATOR REINBOLD asked if SJR  7 would prevent the administration                                                               
from raising fees in  any way or if it was  just another step for                                                               
revenue.                                                                                                                        
                                                                                                                                
MR. BARNHILL replied nothing in  the resolution controls costs or                                                               
reduces the  budget. With respect  to raising fees, he  said that                                                               
state  agencies that  have regulatory  authority  to assess  fees                                                               
would still be able to do so.                                                                                                   
                                                                                                                                
SENATOR REINBOLD asked Mr. Milks  to state for the record whether                                                               
the administration believes Alaska  is a representative democracy                                                               
or a representative republic.                                                                                                   
                                                                                                                                
4:47:52 PM                                                                                                                    
MR. MILKS  explained that the  Alaska Constitution sets  out that                                                               
both the legislature  and the people can enact laws  and both can                                                               
repeal laws  enacted by either one.  The people can repeal  a law                                                               
through referendum  and the legislature  can repeal a  law passed                                                               
through initiative after two years. SJR 7 follows that model.                                                                   
                                                                                                                                
CHAIR SHOWER  asked whether Alaska is  a representative democracy                                                               
or a representative republic.                                                                                                   
                                                                                                                                
4:49:37 PM                                                                                                                    
MR. MILKS replied Alaska has  a representative form of government                                                               
by having a legislative branch  and a direct democracy component,                                                               
which is  the people's  power to  enact laws  through initiative.                                                               
Laws  are made  through  a representative  republic  model and  a                                                               
direct democracy model. He advised  that Art. 1, Sec 2 identifies                                                               
the source of government.                                                                                                       
                                                                                                                                
MR.  BARNHILL added  that the  US  Constitution Art.  IV, Sec.  4                                                               
states that,  "The United States  shall guarantee to  every State                                                               
in this Union a Republican Form  of Government." He said he views                                                               
the  terms representative  democracy and  representative republic                                                               
as  synonymous. Importantly,  multiple states  have added  direct                                                               
democracy  features to  their  constitution  and those  additions                                                               
have  never   been  found  to   violate  the  guarantee   of  the                                                               
constitutionally required republican form of government.                                                                        
                                                                                                                                
4:52:24 PM                                                                                                                    
SENATOR  KAWASAKI asked  if  Section 2  of  the resolution  would                                                               
apply  to  modification of  an  existing  tax. For  example,  the                                                               
mining license tax that was  created in 1959 was modified several                                                               
years ago to change the progressivity in each of the tiers.                                                                     
                                                                                                                                
MR.  BARNHILL  answered  no;  a tax  modification  would  not  be                                                               
covered.                                                                                                                        
                                                                                                                                
SENATOR KAWASAKI  listed the  existing taxes  on fish  and mining                                                               
licenses  and  asked  if  he  was  saying  that  changes  to  the                                                               
percentages on those existing taxes  would not be included in the                                                               
proposed Art. IX, Sec. 1(b).                                                                                                    
                                                                                                                                
MR. BARNHILL said yes.                                                                                                          
                                                                                                                                
CHAIR SHOWER asked if this could  be interpreted to apply to more                                                               
things than intended.                                                                                                           
                                                                                                                                
4:54:42 PM                                                                                                                    
MR. BARNHILL replied, "It clearly just applies to a new tax."                                                                   
                                                                                                                                
SENATOR  REINBOLD said  she had  a  real problem  with Section  2                                                               
based  on  concerns  about a  representative  republic  versus  a                                                               
representative democracy.                                                                                                       
                                                                                                                                
MR. BARNHILL said he believes subsection  (c) in Section 2 of the                                                               
resolution  should  help the  concern  about  a direct  democracy                                                               
taking  away  from the  elements  of  a representative  republic,                                                               
because  it  essentially  restores that  legislative  power  with                                                               
respect to initiated taxes.                                                                                                     
                                                                                                                                
SENATOR  REINBOLD  emphasized  that   this  was  not  transparent                                                               
government and it caused her pause.                                                                                             
                                                                                                                                
4:58:24 PM                                                                                                                    
CHAIR  SHOWER said  he had  some of  the same  concerns, but  the                                                               
legislature   has  recourse   when  laws   are  enacted   through                                                               
initiative.                                                                                                                     
                                                                                                                                
[SJR 7 was held in committee.]                                                                                                  
                                                                                                                                
4:59:52 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair  Shower   adjourned  the  Senate  State   Affairs  Standing                                                               
Committee meeting at 4:59 p.m.                                                                                                  
| Document Name | Date/Time | Subjects | 
|---|---|---|
| 01.19.21 Permanent Fund; Dividend TL - Senate.pdf | SSTA       2/4/2021 3:30:00 PM | SB  53 | 
| 01.1921 Permanent Fund; Income; Dividend TL - Senate.pdf | SSTA       2/4/2021 3:30:00 PM | SB  53 | 
| SB0053-1-2-012521-GOV-Y.PDF | SSTA       2/4/2021 3:30:00 PM | SB  53 | 
| SB0053-2-2-012521-REV-N.PDF | SSTA       2/4/2021 3:30:00 PM | SB  53 | 
| SB0053-3-2-012521-REV-Y.PDF | SSTA       2/4/2021 3:30:00 PM | SB  53 | 
| SB0053A.PDF | SSTA       2/4/2021 3:30:00 PM | SB  53 | 
| 01.19.21 Approp Limit; Budget Reserve TL.pdf | SSTA       2/4/2021 3:30:00 PM | SJR  5 | 
| SJR005A.PDF | SSTA       2/4/2021 3:30:00 PM | SJR  5 | 
| SJR005-1-2-012221-GOV-N.PDF | SSTA       2/4/2021 3:30:00 PM | SJR  5 | 
| SJR006-1-2-012221-GOV-N.PDF | SSTA       2/4/2021 3:30:00 PM | SJR  6 | 
| SJR006A.PDF | SSTA       2/4/2021 3:30:00 PM | SJR  6 | 
| 01.19.21 Taxation Limitation TL - Senate.pdf | SSTA       2/4/2021 3:30:00 PM | SJR  7 | 
| SJR007-1-2-012221-GOV-N.PDF | SSTA       2/4/2021 3:30:00 PM | SJR  7 | 
| SJR007A.PDF | SSTA       2/4/2021 3:30:00 PM | SJR  7 | 
| SJR 7 Sectional Analysis.pdf | SSTA       2/4/2021 3:30:00 PM | SJR  7 | 
| SJR 5 Sectional Analysis.pdf | SSTA       2/4/2021 3:30:00 PM | SJR  5 | 
| SJR5 and SJR7 - OMB and DOR presentation.pdf | SSTA       2/4/2021 3:30:00 PM | SJR  5 SJR 7 |