Legislature(1999 - 2000)
04/08/1999 08:05 AM House CRA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HJR 23 - COMMUNITY DEVELOP FUND/PFD/BUD RESERVE Number 0030 CO-CHAIRMAN HALCRO announced that the first order of business before the committee would be HOUSE JOINT RESOLUTION NO. 23, Proposing amendments to the Constitution of the State of Alaska relating to the community development fund, the permanent fund, and the budget reserve fund. REPRESENTATIVE DAVIS, Sponsor of HJR 23, Alaska State Legislature, noted that House Finance has zeroed out municipal assistance, safe communities, and revenue sharing. There are efforts to determine if there is money available to place in that account, but it does not look good. This resolution, HJR 23, creates an endowment for safe communities and revenue sharing to all municipalities in the state. The endowment would be created with a $750 million deposit from the Constitutional Budget Reserve Fund (CBR) which would be placed into an account which would draw interest. Payments would be made to municipalities each year from the earnings of that account. REPRESENTATIVE DAVIS expressed the desire for this account to grow in order for municipalities to become less dependent on state government. He explained that to help the account grow, HJR 23 would take two percent of the earnings of the permanent fund each year for 20 years. A spreadsheet in the committee packet illustrates the impact of that on the permanent fund dividend. The endowment would replace municipal assistance and revenue sharing payments from the general fund which is the current practice. Number 0354 REPRESENTATIVE MURKOWSKI noted that prior to this hearing Representative Davis had mentioned that the Alaska Municipal League (AML) is supportive of this. She inquired as to whether AML had reviewed HJR 23 specifically. REPRESENTATIVE DAVIS replied yes. He noted that this legislation was submitted in the last legislature in which the endowment was called the community dividend fund which has been changed to the community development fund. Representative Davis said that he spoke with AML last fall in Fairbanks which had already determined that the name change should occur. The AML, per their brochures, has given this a high priority for their organization. REPRESENTATIVE MURKOWSKI pointed out the ever present concern that if the permanent fund is not utilized specifically for a public purpose there would be federal tax implications. Would the two percent of earnings alleviate the concerns regarding the possibility of federal tax implications on the fund? REPRESENTATIVE DAVIS commented that there have been discussions that the Internal Revenue Service (IRS) has reviewed how Alaska has spent the earnings of the permanent dividend fund. There were also hearings in Washington, D.C. regarding flat-based taxes and changing the entire IRS structure. However, all that discussion dwindled. Representative Davis said he did not know what the IRS is thinking. CO-CHAIRMAN HALCRO pointed out that Representative Davis' proposal calls for an initial deposit of $750 million from the CBR which would take effect 30 days after the general election, if approved in the year 2000. REPRESENTATIVE DAVIS said he believed that to be correct. CO-CHAIRMAN HALCRO inquired as to what would happen if there is not $750 million in the CBR; from where would the funding come? REPRESENTATIVE DAVIS stated that he was convinced that by the end of this session, $750 million would still be in the CBR. He believed the balance of the CBR was currently at $3.5 million. Representative Davis did not want to spend down the large amounts such as this unless the funds offset other expenses which would be the case here. CO-CHAIRMAN HALCRO asked if the community development fund would be entrusted to someone to invest. REPRESENTATIVE DAVIS acknowledged that there are many questions that relate to details regarding the administration of this proposal. Those details have been left open. Representative Davis hoped that AML would develop a group to develop the details and regulations of this proposal. The current formula for distribution of funds for safe communities and revenue sharing is complicated. He envisioned that the AML and the Department of Community & Regional Affairs (DCRA) would work out the details. Number 0845 CO-CHAIRMAN HARRIS inquired as to whether HJR 23 would fall under the proposed All-Alaska Plan. REPRESENTATIVE DAVIS said that it had not been considered in the All-Alaska Plan. CO-CHAIRMAN HARRIS referred to Section 18(b) which states that, "Section 13 of this article does not apply to distributions under this subsection." He asked why Section 13 does not apply. DEB DAVIDSON, Legislative Administrative Assistant for Representative Davis, Alaska State Legislature, explained that Section 13 of the constitution deals with the requirements regarding appropriations and that appropriations cannot force future legislatures to do this. Ms. Davidson said, "So, by saying that Section 13 of the constitution does not apply, it then allows the prior section to say that that income will automatically go to the local governments based on whatever statutes are implemented to layout how that works." The legislature normally has the power to determine the amount of any appropriation. By not applying Section 13, the legislature would appropriate whatever the income is and that amount would automatically be distributed. CO-CHAIRMAN HARRIS stated, "Then Section 7 under dedicated funds--I'm going to guess that having this as a constitutional amendment, it binds all legislatures from now on as long as the constitutional amendment stays in effect. Then Section 7 under dedicated funds, then where does it play into that because the constitution also says that the state may not dedicate funds?" Number 1080 MS. DAVIDSON noted that since dedicated funds are prohibited in statute the community development fund would be created in the constitution as was the permanent fund. When the permanent fund was created it was allowed to be a dedicated fund, but it was not exempted from expenditures which is Section 13 that allows the legislature the ability to spend the income in any manner desired. The community development fund would be created as a dedicated fund, but it is exempted from the expenditures section in order to further specify that all of the income will go to a specific purpose and will not be lowered. REPRESENTATIVE KOOKESH referred to Section 18(b) which only refers to organized boroughs and cities. That would leave out many rural communities. REPRESENTATIVE DAVIS informed the committee that the intent is to be similar to the existing municipal assistance and revenue sharing in order to include all groups currently included. REPRESENTATIVE KOOKESH wanted to ensure, for the record, that the language is understood to include those to which Representative Davis alluded. Representative Kookesh said that if the language of HJR 23 is followed to the letter of the law, it would make him uncomfortable. REPRESENTATIVE DAVIS said that it was his understanding that all those recipients of the existing safe communities and revenue sharing funds are probably acknowledged under Title 29 as recognized state municipalities. Representative Davis understood Representative Kookesh's concern and agreed closer scrutiny could occur. Number 1344 REPRESENTATIVE JOULE inquired as to whether dissolved communities or unincorporated communities would be excluded under HJR 23. REPRESENTATIVE DAVIS stated that he believed state law prohibits the distribution of funds to organizations not recognized under state law. He agreed that the language probably needs to be clarified. Perhaps, someone from the Department of Law could clarify the language. Representative Davis reiterated his intent to include all municipalities currently under the municipal assistance and revenue sharing provisions. REPRESENTATIVE DYSON commented that the House Community & Regional Affairs Standing Committee began a year ago to attempt to make it easier for small communities to organize under state law in order to have a mechanism for the distribution of these type programs. He noted that not much progress has been made in that area. Representative Dyson said that DCRA desperately attempts to get funds to communities that have chosen not to organize under state law. More should be done to address the problem. CO-CHAIRMAN HARRIS referred to Section 2 of Tamara Cook's opinion which is included in the packet. He asked if the two percent taken from the permanent fund earnings each year until the year 2020 would be placed into the $750 million that created the fund. REPRESENTATIVE DAVIS replied yes and clarified that the two percent would be placed in the principle of the endowment. CO-CHAIRMAN HARRIS asked if that was on top of the interest accrued on the $750 million. REPRESENTATIVE DAVIS replied yes and clarified that it would be the interest that accrued on the amount remaining in the fund after annual distributions. Representative Davis stated that was a concern. As previously indicated, Representative Davis wants to see the principle grow which would probably require that 100 percent of the earnings would not be distributed each year. He reiterated that would be left up to those who would benefit from working out the details of the proposal. Number 1655 REPRESENTATIVE MURKOWSKI asked if Representative Davis envisioned the AML and DCRA being involved in the investment of the fund. REPRESENTATIVE DAVIS informed the committee that his intention was for AML and DCRA to select the investment organization whether that investment organization be the Permanent Fund Corporation or the Department of Revenue. CO-CHAIRMAN HALCRO pointed out that if another agency administers the fund, then there would be a management fee. Would the management fee be paid from the fund itself? REPRESENTATIVE DAVIS said that the management fee would be paid from the earnings from the fund which is the current practice in the Permanent Fund Corporation. REPRESENTATIVE JOULE noted that the next committee of referral for HJR 23 is the House Judiciary Committee. Representative Joule suggested that the House Judiciary Committee could address the issue of discrimination. The constitution prohibits discrimination, although by statute discrimination is allowed to occur by not sharing fiscal resources with certain communities on the basis that the community is not a municipality under state code. REPRESENTATIVE KOOKESH commented that those in rural areas do what works with regard to their government. Furthermore, Representative Kookesh emphasized that those in rural areas are Alaskan residents. CO-CHAIRMAN HALCRO reiterated the concern with the language in subsection (b) of HJR 23 which only refers to organized boroughs and cities; where does this leave unorganized boroughs, communities and villages. Co-Chairman Halcro understood Representative Davis' intent was to mirror the distribution of the current municipal revenue sharing assistance. Number 1944 TAMARA COOK, Director, Legislative Legal and Research Services, Legislative Affairs Agency, recalled that there was no mechanism in HJR 23 to distribute money to unorganized areas of the state. This is a municipal funding source. The current revenue sharing and municipal assistance statutes also provide the bulk of their money to organized municipalities. However, there is a small grant that is made under revenue sharing to unincorporated communities. Additionally, some money is distributed to volunteer fire departments which are not in organized areas. REPRESENTATIVE KOOKESH commented that Ms. Cook's statements seem different than the sponsor's stated intent. He understood Representative Davis' intent to be that HJR 23 would follow the current municipal aide guidelines used to distribute funds from the state to municipalities. Representative Kookesh reiterated his concern that the language is very narrow, specifying only organized boroughs and cities. Representative Kookesh expressed the need to ensure that all municipalities under the current system be included as the sponsor indicated was the intent. Representative Kookesh noted that the sponsor had indicated the willingness to work with the language to convey the aforementioned intent. MS. COOK stated that there would not be any drafting difficulty expanding this. As a constitutional provision, there is not much detail in the amendment, which leaves the legislature open to develop how the money would be distributed on a formula basis. As drafted, distributions to unincorporated areas are not allowed. Ms. Cook said that a slight expansion of the language is all that is necessary to allow distribution to unincorporated communities. Therefore, the legislature would be allowed to do what is currently done under revenue sharing and municipal assistance. Ms. Cook reiterated that as drafted HJR 23 would only apply to organized municipalities under the state laws not those municipalities organized under federal law. She noted that if the phrase, "and to unincorporated communities" was included in HJR 23, the legislature would be left to define that term. Ms. Cook acknowledged that the definition of unincorporated community could be included in HJR 23, but if that definition is included in the constitution there is no flexibility as the state grows. Number 2180 CO-CHAIRMAN HALCRO inquired as to how the distribution of current municipal revenue sharing assistance is determined. MS. COOK noted that the municipal revenue sharing statutes typically refer to a collection of statutes of which a large portion goes through the tax equalization formula. The tax equalization formula is based on local tax effort and population. Therefore, a municipality which taxes itself per capita higher than another actually can come out ahead under the tax equalization formula. Another portion of those collective statutes provide municipal assistance for road maintenance which is based on the number of miles of road a municipality maintains. There is also a portion of statute that takes into account the number of hospital beds. The municipal assistance program, which is outside of revenue sharing, is a system that is more closely based on population. Number 2289 CO-CHAIRMAN HALCRO asked how the sponsor would envision that the community development fund would be distributed. MS. DAVIDSON said that the sponsor recognized that there are a number of ways distribution could be determined. Therefore, he preferred developing the fund and leaving the determination of how best to distribute the fund up to the legislature. She believed that Representative Davis discussed a type of population distribution or a combination of population and land mass. Ms. Davidson informed the committee that Representative Davis was concerned that the actual distribution formula could become more of an issue than whether the fund itself was a good idea. Therefore, the legislation was set up to allow the legislature to determine the best way to distribute the fund. REPRESENTATIVE JOULE inquired as to how many communities would not be eligible to participate in the fund created by HJR 23. MS. DAVIDSON offered to provide him with that information, but she did not have a specific number at this time. Further, she pointed out that there are several unincorporated communities that are within a borough. While the community itself may not receive actual funds, the funds the borough receives would take into account that the community is within the borough. She reiterated that she did not have an exact number of the unincorporated communities, but she offered to inquire with DCRA on this matter. Number 2432 KEVIN RITCHIE, Alaska Municipal League, informed the committee that the AML has discussed this issue several times with the various groups interested in a long-term financial plan for the state which would allow a permanent revenue sharing process between the state and its municipalities. Mr. Ritchie stated that the community development concept has been a part of AML's platform and therefore, AML is interested in working with this and other ideas to provide long-term support for all municipal governments. He acknowledged that the general fund is a major issue with a long-term financial plan. Originally, statehood was based on a sharing of natural resource revenues because the Congress and the people of Alaska did not feel that everyone could support themselves on local taxes alone. Mr. Ritchie indicated that this legislation is a furtherance of that concept. CO-CHAIRMAN HALCRO announced that HJR 23 would be held. He encouraged clarification in the following areas: identification of the administrator and investor of the fund, tighter language regarding organized and unorganized boroughs, and projected distribution. Co-Chairman Halcro expressed concern that leaving the disbursement of the fund up to future legislatures would result in the short changing of some communities. REPRESENTATIVE MURKOWSKI asked if Co-Chairman Halcro was suggesting that language defining the distribution process be included in HJR 23 or is the desire just to have that information on the record. CO-CHAIRMAN HALCRO agreed that he wanted the information on the record. As Ms. Cook indicated, this is a constitutional amendment and should not be cluttered with specifics which would not provide flexibility to changes in the future. MS. DAVIDSON said that she would be happy to do that. She reiterated that this amendment was crafted following the creation of the permanent fund. It is envisioned that, as with the permanent fund, the voters approve the fund and in the following years statutes would be enacted regarding who would invest the fund, how the fund would be invested, and how the fund would be distributed. She noted that the first distribution is restricted for the first two years in order to allow adequate time for the legislature to enact the statutes. Subsequent changes to the statutes would be done through the amendment. CO-CHAIRMAN HALCRO stated that he would be more comfortable passing HJR 23 out of committee with the knowledge of how the fund would be distributed as well as ensuring the aforementioned concerns are addressed.
| Document Name | Date/Time | Subjects |
|---|