04/24/1995 01:12 PM House JUD

 HJR 40 - REPEAL BUDGET RESERVE FUND (ART IX SEC 17)                         
                                                                               
 Number 700                                                                    
                                                                               
 JOHN BITNEY, Legislative Assistant, Representative Terry Martin,              
 sponsor of HJR 40, introduced the resolution.  This started off in            
 the Senate as a major fiscal reform package that included other               
 changes to the Constitution as well as various amendments to                  
 statute.  As the package was moving through the body, and through             
 discussions on all facets of the package as a whole, some of the              
 portions became amended and some of them dropped off.  What finally           
 went through the last night of the legislative session in 1990, was           
 the language that we have now in the Constitution which creates the           
 constitutional budget reserve (CBR).  That concept was placed on              
 the ballot last year and was passed by the voters.  Once we                   
 actually tried to apply the language that was in the constitutional           
 budget reserve, it quickly became apparent that there was a lot of            
 ambiguity in the language in terms of how it was to be applied.               
 Immediately, the question came up over Section (a) of the amendment           
 which described which proceeds were to go into the constitutional             
 budget reserve.  There was a key phrase in there called "all                  
 proceeds from an administrative proceeding."  The question                    
 immediately came up as to what exactly an administrative proceeding           
 meant.  This became a matter of contention until we received an               
 Attorney General's Opinion from Charlie Cole which said that we did           
 not take the proceeds from any administrative proceeding until it             
 got to the point of adjudication, where we had to go in front of a            
 hearing officer or the court system to resolve a dispute between              
 the state and a company.  However, within statute, we have a                  
 process by which most claims are settled between the state and a              
 company, called an informal conference.  This was, by far, where              
 most of the settlements that come to the state actually occur.                
 Under the Attorney General's Opinion at the time, he decided that             
 the informal procedures could go into the general fund.  Shortly              
 afterward, we had a lawsuit on that matter, and they construed that           
 term "administrative proceeding" a little bit more liberally than             
 the attorney general had.  The result was that last session, the              
 legislature was faced with returning some substantial sums that had           
 come into the state's treasury under that informal process.                   
                                                                               
 MR. BITNEY said we had a bill last year that attempted to define              
 some of the terms in subsection (b) of the constitutional reserve             
 in regards to what is available for appropriation, and how we                 
 access the CBR under subsection (b) with a majority vote.  The                
 legislature passed a vote trying to define those terms.  Again we             
 were taken to court, and then now we have another decision from the           
 Alaska Supreme Court.  Section (c) of the CBR states that the                 
 legislature may appropriate from the constitutional budget reserve            
 with a three quarters vote for any public purpose.  Subsection (d)            
 states that you have to pay it back.                                          
                                                                               
 MR. BITNEY said that what he was getting at is that Representative            
 Martin feels that we basically have a section of our Constitution             
 that is unworkable, and that what was given to the voters turned              
 out not to be entirely true, in practice.  It is his hope,                    
 realizing that this resolution would require a two thirds vote in             
 both the House and the Senate, as well as approval by the voters.             
 We realize this is an interim project, and will probably take a lot           
 of discussion with the public to present what has happened and what           
 we would like to do.  It is his hope to work on it in the House               
 Finance Committee over the interim to discuss what steps need to be           
 taken to clear up the language within the constitutional budget               
 reserve, and perhaps look at taking a measure to the voters in next           
 fall's election.                                                              
                                                                               
 JACK FARGNOLI, Senior Policy Analyst, Office of Management and                
 Budget, Office of the Governor, opposed HJR 40.  Part of our                  
 concern about the bill is that it would tend to pre-empt a Fiscal             
 Planning Commission which is going to be looking at long-range                
 reserve funds and policies, and this one in particular.  That, of             
 course, would be mitigated by holding it over with the commission             
 trying to complete its charge.  The second concern we have is that            
 a simple repeal would leave us, in the absence of any such                    
 mechanism -- if you recall, the whole intent that is universally              
 accepted about what this fund was supposed to do is to, in some               
 sense, take money off the table to help avoid the shock of putting            
 it on the table in lumps as it came in.  If we were to remove it,             
 we would have that situation again.  That is the other part of our            
 concern about it.                                                             
                                                                               
 REPRESENTATIVE FINKELSTEIN asked Mr. Fargnoli if in his opinion has           
 this resulted in money being taken off the table that is coming in            
 from settlements and making it harder to get at that money for use            
 in a current budget.  Have those two goals that were explained to             
 the public been met?                                                          
                                                                               
 MR. FARGNOLI answered that in general those goals have been met.              
 Selective litigation has created complication, but in general, it             
 has kept money off the table and has made it harder to get money              
 out of the fund and make it useful.  To some degree that was the              
 purpose of it, and that has happened.                                         
                                                                               
 TAPE 95-51, SIDE B                                                            
 Number 000                                                                    
                                                                               
 REPRESENTATIVE TOOHEY asked if basically our costs are over and               
 above last year, and we do not have the funds.                                
                                                                               
 MR. FARGNOLI answered basically that is correct.                              
                                                                               
 REPRESENTATIVE TOOHEY asked what would happen if we could not pay             
 this money back and the fund goes away.                                       
                                                                               
 MR. FARGNOLI answered that if this were repealed, there would need            
 to be language saying that prior obligations would become void, and           
 that money in the fund would lapse to the general fund.  That would           
 be their proposal.                                                            
                                                                               
 REPRESENTATIVE TOOHEY asked if Mr. Fargnoli had a crystal ball                
 telling him how much money would be coming into this account in the           
 next ten years, in terms of future settlement money.                          
                                                                               
 MR. FARGNOLI had no idea.                                                     
                                                                               
 REPRESENTATIVE FINKELSTEIN stated that prior to this previous                 
 settlement, it was up to $4,000,000,000, and now it is around                 
 $3,000,000,000.                                                               
                                                                               
 MR. FARGNOLI said the reason he says he has absolutely no idea is             
 because that number has gone up and down more than one or two                 
 billion a year, in the last couple of years, so it is not like we             
 do not know what settlements are out there, but it is difficult to            
 tell how much there will be from time to time.  The Department of             
 Law also has confidentiality restraints.                                      
                                                                               
 CHAIRMAN PORTER asked Mr. Fargnoli if in order to get into this               
 constitutional budget reserve fund, without a three quarters vote,            
 with just a majority vote, would we have to spend the earnings                
 reserve, the permanent fund, and all of those other funds first.              
                                                                               
 MR. FARGNOLI said yes, that is what would be required.                        
                                                                               
 NEIL SLOTNICK, Department of Law, stated he had been asked to come            
 to the hearing in case there were questions for him.  He was also             
 asked to comment on whether they saw any legal problems with this             
 resolution.  The Department of Law does not see any legal problems            
 with this resolution, and that it would do what it purports to do.            
 There are a couple of potential ambiguities that could be clarified           
 by transitional language.  For example, the question of where does            
 the money that is now in the constitutional budget reserve go if              
 this repeal is adopted by the voters.  He would argue that it would           
 lapse into the general fund; that could be stated specifically in             
 a transitional statement.  A similar question is, what happens to             
 the repayment obligation that is specified in Section 17(d)?  In              
 his view, that repayment obligation would be extinguished, and it             
 could be specified in a transitional statement.                               
                                                                               
 CHAIRMAN PORTER closed the public hearing on HJR 40.  He asked John           
 Bitney if the motion of more clear transitional language might be             
 something that the Finance Committee would want to look at.                   
                                                                               
 MR. BITNEY answered that in introducing the bill, the sponsor had             
 preferred not to put that in at this time just for the sake of not            
 trying to get the discussion focused on that at this point.  It is            
 his intent in introducing it, to try to focus in on the CBR                   
 language and the amendment itself, and then, yes, to actually do              
 transitional language as we go through the process.  The question             
 remains out there as to what to do with the general funds and the             
 permanent funds.                                                              
                                                                               
 Number 400                                                                    
                                                                               
 REPRESENTATIVE TOOHEY moved to pass the resolution out of committee           
 with the zero fiscal note and individual recommendations.                     
                                                                               
 REPRESENTATIVE FINKELSTEIN objected. A roll call vote was taken.              
 Representative Finkelstein voted no.  Representatives Toohey, Green           
 and Porter voted yes.  HJR 40 passed out of committee with a three            
 to one vote.                                                                  
                                                                               
 REPRESENTATIVE FINKELSTEIN moved to rescind the vote.                         
                                                                               
 CHAIRMAN PORTER stated that when we have a full committee, we will            
 move to rescind the motion and take another vote.                             
                                                                               
 HJR 40 - REPEAL BUDGET RESERVE FUND (ART IX SEC 17) (CONTINUED)             
                                                                               
 CHAIRMAN PORTER announced they had a motion to rescind their action           
 on failing to adopt HJR 40.  Hearing no objection, that motion                
 passed.                                                                       
                                                                               
 REPRESENTATIVE GREEN moved to pass HJR 40 out of committee with               
 individual recommendations and attached fiscal notes.                         
                                                                               
 REPRESENTATIVE FINKELSTEIN objected and a roll call vote was taken.           
 Representatives Vezey, Toohey, Green and Porter voted yes.                    
 Representative Finkelstein voted no.  HJR 40 moved with a four to             
 one vote.