Legislature(2003 - 2004)
03/25/2004 01:50 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE JOINT RESOLUTION NO. 9
Proposing amendments to the Constitution of the State
of Alaska relating to an appropriation limit and a
spending limit.
Co-Chair Harris MOVED to ADOPT work draft #23-LS0435\E,
Cook, 3/25/04, as the version of the legislation before the
Committee. There being NO OBJECTION, it was adopted.
PETE ECKLUND, STAFF, REPRESENTATIVE BILL WILLIAMS, explained
the changes made to the work draft. Page 2, Line 19,
incorporates Amendment #1, passed at a previous hearing.
Page 2, Line 23, the previous version had the appropriation
going to the Constitutional Budget Reserve (CBR) and being
exempt, whereas, the current version places it in a reserve
fund established by law. Mr. Ecklund pointed out that there
is a legislative obligation to repay $5.5 billion dollars to
the Constitutional Budget Reserve (CBR), and cannot be
satisfied through direct appropriations but rather through
sweeps. If the Legislature chooses to appropriate that
amount at this time, it will not go to satisfying the debt
obligation. New language would be in place for a future
date at which time the legislature would repay the CBR.
There are on-going revenue surpluses to the State and any
appropriations to the CBR would not be subject to an
appropriation limit.
Co-Chair Harris asked if it was constitutional, not be able
to place money from the general fund back into the CBR. Mr.
Ecklund responded that an appropriation to the CBR would not
count as a repayment of that obligation. If the money was
left in the CBR and was swept, that would count toward the
debt. Co-Chair Harris inquired why it would not count
toward repayment. Mr. Ecklund explained that was the manner
in which the constitutional provision had been constructed.
TAMARA COOK, DIRECTOR, LEGISLATIVE LEGAL AND RESEARCH
SERVICES, LEGISLATIVE AFFAIRS AGENCY, advised that Section
17, Article 9, establishes the amount available should be
deposited into the general reserve fund. Subsection (D)
contains that sweep language. If an appropriation is made
from the Budget Reserve Fund, until the amount appropriated
is repaid, the amount in the general fund available for
appropriation at the end of each fiscal year, shall be
deposited into the General Reserve Fund. She noted the
language used: "Until the amount is repaid". It does
stipulate that the repayment comes from a separate
appropriation or whether the source of money coming into the
sweep may be construed as a growing Budget Reserve Fund.
None of Section 17 was drafted in contemplation that there
would be appropriations into the Budget Reserve Fund nor
does that section specifically prohibit appropriations into
that fund.
Ms. Cook advised that the question is whether the
appropriation is considered to be a repayment or simply a
decision made by the Legislature to add more money to the
Budget Reserve Fund. The repayment structure suggests that
a Court might find that the repayment occurs through a
sweep. There is no obligation to repay it and becomes
automatic. If money is appropriated out, then money flows
back in as it is available.
Co-Chair Williams understood that is why there is a reverse
sweep.
Co-Chair Harris pointed out the information indicates it
would be until the amount was repaid, but does not indicate
how. If the amount is repaid and satisfied, then the
Legislature would not have to do a sweep. Ms. Cook
responded that was plausible but she did not know if the
Court would accept that.
Co-Chair Harris questioned the point made by Ms. Cook that
the Legislature would not be allowed to replenish the CBR
with general funds. Ms. Cook replied that the Legislature
certainly would be allowed to if there were general funds
sitting there. There is no question that anything left in
the general fund on the last day of the fiscal year, could
be swept. The legal question is, if the Legislature does
appropriate it, would the Court find that to be an
independent task that the Legislature did to grow the fund,
but not eliminating the obligation under Section "D". She
agreed that could be a possible argument.
Co-Chair Harris asked what would happen if the Legislature
placed language into the budget to appropriate a certain
amount of money to the Constitutional Budget Reserve to
satisfy the terms and conditions in the constitutional
language under Section 17(D). That is the intent of the
Legislature. Ms. Cook thought that would be a good argument
to put before the Court. If you could clearly indicate that
it is the intent of the Legislature to satisfy the 17(D)
requirement, it would make a good case.
Co-Chair Harris presented a hypothetical situation in which
the State had a natural gas pipeline and the amount of money
coming into the State coffers was more than enough to
satisfy the needs of the government and then that money was
placed into a savings or placed into the CBR to cover the
amount taken out over the years. That could satisfy the
terms that the Constitution requires to sweep and the CBR
could be repaid. Ms. Cook noted that she would be inclined
to agree because she would assume that the Legislature also
has the power to make the choice to make the appropriation
to the CBR or to hold that fund, saying that it is not going
to eliminate the sweeping obligation of the general funds.
It could create a clear expression of legislative intent, in
the particular appropriation act.
Representative Stoltze referenced Page 2, Section 19, asking
the implications of that language in the amendment. Ms.
Cook acknowledged the concerns regarding dueling
constitutional provisions. She suspected that the Court
would not construe it that way. If there were no POMV
amendment, and Section 15 kept the same language, the Court
would find that section to be clear, only income available.
The enactment of the proposed language could not convince
the Court that the Legislature could appropriate from the
Permanent Fund for dividends for anything other than the
income.
Representative Stoltze requested Ms. Cook to research that
further. He noted that he did not have the same confidence
in the five members of the Supreme Court. He thought that
the decisions may be different than what was conceived in
1990. Ms. Cook concurred that the Supreme Court has many
facets that change rapidly. She did not ever want to attempt
to second-guess how they would face any problems. With the
current language, the principal could only be used for
investment and the income shall be put in the general fund
unless provided otherwise by law. The Legislature has in
fact, elected to provide that the income of the Permanent
Fund go into a separate account located in the Permanent
Fund. However, the Legislature could provide by statute
that the income go to an account that is not in the
Permanent Fund, which would only take a statute change. If
confronted with that language, an appropriation from the
Permanent Fund provides payment of the dividends to State
residents. At that point, you could not appropriate from
the Permanent Fund because it does not permit that. If the
Legislature appropriated from the general fund, that
appropriation might not be exempt under that exemption and
the limit might not apply. The problem is the fact that it
might undo the spending limit itself.
Representative Stoltze cautioned that future legislatures
could play chicken with the courts with regards to the use
of the permanent fund earnings. Ms. Cook understood that
Representative Stoltze feared that the language might allow
an appropriation from the principal of the Permanent Fund.
She did not think a Court would reach that decision. A
Court might find that an appropriation from the Permanent
Fund from a different source is not exempt from the spending
limit. Ms. Cook did not see that the Court would find that
if an appropriation occurred, the purposes of the spending
limit would have any authority to actually make the
appropriation. That is not what the language does. The
language only says how to calculate an amount available for
an expenditure for a succeeding fiscal year. The worst case
scenario that could occur is that the State would elect to
set up some program of Permanent Fund payments funded from a
different source and be included within the spending limit
calculation.
Representative Stoltze MOVED conceptual Amendment #3 to Page
2, Line 19, deleting "from the" and inserting "of", to read:
"An appropriation of the Alaska permanent fund for payments
of permanent fund dividends to State residents."
Representative Hawker OBJECTED.
In response to a question by Representative Hawker, Ms. Cook
advised that most likely, a Court would still find it
subject to exclusion if moved to a POMV. If it could be
demonstrated particularly to a specific year that the POMV
formula actually invaded some of the principal, then someone
might be able to present a case to the Court.
Representative Hawker spoke against the amendment,
suggesting that it was more generic verbiage that
encompassed to wide of possible latitudes.
Mr. Ecklund offered alternative language: Page 2, Line 19,
deleting: "From the Alaska Permanent Fund". Representative
Stoltze WITHDREW Amendment #3.
Vice Chair Meyer MOVED to ADOPT new Amendment #3: Page 2,
Line 19, deleting "from the Alaska Permanent Fund". There
being NO OBJECTION, the new Amendment #3 was adopted.
Mr. Ecklund spoke to the next change in the work draft, Page
3, Line 10, Subparagraph (13), adding an exemption to the
limit. That language would describe the reverse sweep, and
would not count against the appropriation limit. He asked
Representative Hawker to describe the change made to Page 1.
Representative Hawker referenced the graph "CS HJR 9 (FIN)
Spending Limit; Base Year of 3 prior year average and 3 year
floating average for variables". (Copy on File). He
discussed the basis for the accommodation of the spending
limit and how much spending increase showed being allowed on
an annual basis.
Representative Hawker stated that in the previous version of
the bill, the index was created from a combination of what
the average rate of change is in the State's population and
personal income. The personal income line has risen
substantially, which has pulled up the spending level line,
if the spending limit was based on the cost of living and
population increase. The committee substitute adopts the
base spending inflator, the average rate in the growth of
the population and the consumer price index and would
provide a slower growth curve. He emphasized the importance
of the personal income line, inflation and that the proposed
limit recognizes the importance of that information. The
work draft proposes to use the base inflation factor; the
average population and the consumer price index (CPI).
However, the manner in which the language is written makes
it limited to the percent of change in personal income.
Representative Croft suggested that would be the most
restrictive approach that could be taken. Representative
Hawker replied that under the economic conditions that have
existed in the past few years, it would not result in the
lowest increment. He had extracted that methodology from
the legislative exchange council's recommendation for
standardized language.
Representative Croft countered, it indicates that the
language was used because we have a tax system that is
generally based on a personal income and we would not want
spending to go up higher than that. Alaska is not based on
that, but instead based on oil. It will be based on
something totally independent from personal income in the
future. He reiterated that other states have radically
different fiscal systems.
Representative Hawker stressed that there is a need to look
to other sources of revenue in the future. Interest is to
provide the greatest assurance and possible protection with
a practiced spending limit. The intent is to not let the
government grow faster than the personal income does.
In response to Representative Croft's query, Representative
Hawker explained that you would need to average the rate of
change in the Consumer Price Index (CPI) and the rate of
change in population.
Representative Croft commented that the reason to tie the
spending limit to personal income is that it would limit the
amount taken from statewide residents. He agreed that there
must be some limit in running government services. He did
not think it would limit, cap, stop or defer any tax, any
use of Permanent Fund earnings or any change in the dividend
structure. It caps what government can do. He emphasized
that he would rather limit the growth of government by how
much is taken from his pocket. Government is limited in
what it can spend, but not in taxation, which limits the
amount that can be put into schools and other services.
Representative Hawker asked if Representative Croft's
concern is the surrender of taxation. He stressed that the
intent is to maintain a growth rate without tying the hands
of future legislatures from appropriation or taxation.
Representative Croft interjected that the hands of future
legislatures are not tied on taxation, but they should be.
Instead, we are binding the hands of future legislatures to
appropriate for schools and public safety. He stressed that
the wrong things would be protected.
Representative Hawker shared Representative Croft's concern.
He voiced concern that there is no way to know the future.
He stressed that nothing should be done to restrict the
future and noted that a forced renewal by the people would
force a review of these issues.
HJR 9 was HEARD and HELD in Committee for further
consideration.
TAPE HFC 04 - 68, Side A
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