Legislature(2001 - 2002)
10/19/2001 11:11 AM House JUD
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* first hearing in first committee of referral
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+ teleconferenced
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SJR 23 - CONST AM: APPROPRIATION/SPENDING LIMIT Number 0326 CHAIR ROKEBERG announced that the next order of business would be CS FOR SENATE JOINT RESOLUTION NO. 23(FIN) am, Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit. Number 0331 SENATOR DAVE DONLEY, Alaska State Legislature, testified as the sponsor of SJR 23. Senator Donley informed the committee that when the Senate passed SJR 23 he promised to work with Legislative Legal Services and the Legislative Finance Division on defining the concept of a constitutional spending limit. The aforementioned group has been working on that and developed the proposed committee substitute (CS) that is before the committee today. Number 0361 REPRESENTATIVE MEYER moved to adopt proposed HCS CSSJR 23, version 22-LS0734\P, Cook, 9/4/01, as the working document before the committee. There being no objection, Version P was before the committee. SENATOR DONLEY turned to his slide presentation that is included in the committee packet. He remarked, "Most Alaskans agree that development of a long-range fiscal plan is one of the greatest challenges facing our state." He felt that it is surprising to look at where [the state] is today versus where it was with the constitutional budget reserve (CBR). He pointed to a chart that illustrated that the CBR didn't follow the projection that it would be exhausted in 2000. Legislative Finance reviewed why the result was drastically different than what was projected several years ago. There were four major reasons for the difference. The second largest reason was lower general fund (GF) spending while the largest reason for the difference was that there were more settlements coming into the CBR. CHAIR ROKEBERG clarified that the CBR is higher because of $711.9 million in spending cuts, $1.3 billion in greater settlements, as well as greater than projected earnings and oil revenue. REPRESENTATIVE DAVIES explained that the $711.9 million is partly because of budget cuts and partly because the budget didn't grow by that much. He pointed out that there was an assumption that the budget would grow by a certain percent and since it didn't, there was a difference. SENATOR DONLEY agreed. CHAIR ROKEBERG asked, "It's not the actual savings from the elimination of the monies, then?" SENATOR DONLEY answered that it's the elimination from projected budget growth. He explained that the original graph illustrates where the state would be with the CBR based on the projections in 1995. The next graph explains why the CBR didn't move/expire as projected in 1995. SENATOR DONLEY said, "The Senate Majority believes that before considering major new taxes on Alaskans, first we need to make sure that ... state government is running as well as possible." He pointed out that in the U.S. constitutions are the basis for government. Therefore, the first step should be to review the state constitution and determine whether it is functioning properly. He felt that there are two parts, which deal with fiscal policy, of Alaska's constitution that aren't functioning properly. Those are the existing constitutional appropriation limit and the existing constitutional budget reserve provision. The resolution before the committee addresses the existing constitutional appropriation limit. SENATOR DONLEY stated that the current constitutional appropriation limit provision isn't working, the language is misleading and unclear, and the limit has grown too large. He explained that the limit was set in 1982 with an escalator based on population and inflation that has driven it to an unrealistically high amount of over $6 billion. However, the definition of what is included in the constitutional appropriation limit would lead to spending of about $3 billion. He reminded the committee that the discussion revolves around spending, as defined by the constitutional provision. SENATOR DONLEY turned to the overwhelming rejection of the last fiscal plan proposal in September 1999. He interpreted that rejection as the public not wanting to give the government a blank check; the public wanted some assurance that additional revenues wouldn't merely fuel more spending. Therefore, having reasonable limits on government spending would seem to be acceptable to the majority of Alaskans and thus is the proposal embodied in SJR 23. SENATOR DONLEY moved on to the next slide that has a graph illustrating the current spending limit versus recent appropriations. The graph illustrates that [the state] is spending about half what [the limit] allows. Senator Donley reiterated that the constitutional appropriation limit isn't working and has never worked. Furthermore, the language in the provision leads one to believe that one-third of the spending has to be towards capital projects, but an attorney general's opinion has stated otherwise. Again, an average citizen would be confused and thus the language should be simplified. The interpretation has been that the one-third spending towards capital projects would only occur if the $6 billion spending occurs, which won't happen. "To correct this, the proposed committee substitute proposes to base any allowable increases on previous year's budgets and to limit those increases to only 2 percent," he explained. The [CS] also clarifies what is and is not included in the appropriation limit. SENATOR DONLEY continued with the slide that includes a graph illustrating the effect of Version P. He noted that there is a safety valve in that in years when there is the need to spend more money, a super majority concurrence allows an additional 2 percent to be appropriated. He clarified that the [additional 2 percent appropriation via a super majority concurrence] ensures that it is based on what is being spent in the current year. Therefore, there wouldn't be a growth rate that is higher than the out years. He specified that it is always based on the amount of the prior two years, which he saw as a big improvement to the 1982 amendment. This amendment will base the appropriation limit on the two previous years' budgets and thus there is a greater relationship between the two. SENATOR DONLEY announced that these artificial limits on spending aren't his first choice. He preferred that the legislature and the executive branch come together and limit spending, which is very difficult. He felt that an artificial restraint would be the best option right now. This artificial restraint provides the public with a constitutional mandate that any money, in addition to the 2 or 4 percent, would go towards reducing the fiscal gap. Number 0553 REPRESENTATIVE OGAN inquired as to whether Senator Donley was concerned that this would send a signal to legislators that it is acceptable to increase the budget by 2 percent every year, and 4 percent if the votes are obtained. SENATOR DONLEY acknowledged that there may be a tendency to think that way. However, this [proposal] is vastly superior to the current malfunctioning [limit]. This proposal is a realistic limit because going over 2 percent could only occur with a super majority vote and going over 4 percent would require some other provisions. Furthermore, Version P requires that this automatically return to the voters in four years in order to assess whether it's working or not and whether there is the desire to take it out of the constitution. After the first four years, the opportunity to remove this from the constitution would automatically occur every six years. Number 0583 REPRESENTATIVE OGAN posed a situation in which there is an emergency need for increased spending that exceeds the 4 percent. He asked if there is any circuit breaker to deal with that possibility. SENATOR DONLEY pointed out that there are ten exceptions, including appropriations to the permanent fund, dividend program, disasters, the railroad, general obligation (GO) [bonds], and revenue bonds. He emphasized that if there was ever a real problem that didn't meet other definitions, such as a disaster or war, then the capital budget could be placed on a GO bond and placed before the voters. There could be a contingent budget based on voter approval. Under the existing budget, there is over $100 million of emergency leeway and the general operating dollars would be replaced with the GF for the capital budget. Number 0628 REPRESENTATIVE DAVIES pointed out that a contingent budget couldn't be passed because that would be tantamount to the people appropriating. SENATOR DONLEY indicated agreement with Representative Davies, but noted that [the legislature] could be prepared to deal with it if the people didn't approve it. TAPE 01-83, SIDE A SENATOR DONLEY noted the option of bonding for some expenses that are currently dealt with through GF. Senator Donley continued with the exceptions. Money that is appropriated from the federal government is excluded from the [constitutional appropriation] limit as are obligations on bonds, certificates of participation, reappropriations, transfers between state agencies, and appropriations under the super majority provision. Senator Donley felt that [HCS SJR 23] is a vastly superior definition in regard to what is included and not included in the calculation of the appropriation limit versus the 1982 version. Number 0010 REPRESENTATIVE COGHILL inquired as to how [HCS SJR 23] addresses capital. SENATOR DONLEY explained that non-federal capital expenditures are included in this appropriation limit while federal money isn't included. REPRESENTATIVE COGHILL referred to the one-third portion for capital spending that is currently in the constitution. SENATOR DONLEY interjected that it's deleted. REPRESENTATIVE BERKOWITZ asked if this resolution would eliminate the three-quarters (indisc.) line item. SENATOR DONLEY replied no. Number 0025 DAVID TEAL, Director/Legislative Fiscal Analyst, Legislative Finance Division, Alaska State Legislature, referred to [Article IX] Section 16 of the Alaska Constitution, and explained that the limit can be exceeded for permanent fund bills and appropriation bills for capital projects if approved by the governor. The entire discussion regarding a portion being used for capital budget spending [is deleted] while [the current constitutional language] refers to bills passed by the governor or an override of a capital bill. REPRESENTATIVE BERKOWITZ inquired as to the section in the constitution where the three-quarter override of an [appropriation] veto is located. SENATOR DONLEY answered that the three-quarter override language is located in the primary part of the constitution under Executive Powers. MR. TEAL quoted from Article IX, Section 16 of the Alaska Constitution as follows: "The legislature may exceed this limit in bills for appropriations to the Alaska permanent fund and in bills for appropriations for capital projects, whether of bond proceeds or otherwise ...." [This resolution] says that bills that appropriate money to the permanent fund or appropriate money for any capital projects that are passed by the governor or overridden by the legislature are outside the limit. SENATOR DONLEY interjected that the three-quarters override requirement for a budget item is contained in the original constitution. MR. TEAL noted that all appropriation bills have a three-quarter super majority override while a two-third override is required for nonappropriation bills. Mr. Teal clarified, "What it really says is that if you exceed the limit, you can go to the voters and ask them if it's OK to exceed the limit." Number 0077 REPRESENTATIVE BERKOWITZ posed a hypothetical situation in which there was a federal mandate, a large population increase, or a large increase in inflation. In such a situation, how would this spending cap operate? SENATOR DONLEY answered that the ordinary growth would be limited to 2 percent, while any federal funding for the situation would be outside of the limit. Furthermore, with a super majority, the [appropriation] could be increased to 4 percent in additional spending. If inflation or population growth was over 4 percent, then the actual per capita spending would be forced to decrease. REPRESENTATIVE BERKOWITZ posed a situation in which there was 10 percent inflation and a large population increase while the federal government says that funding must be changed pursuant to federal standards. He asked if the state would have to "eat that difference." SENATOR DONLEY answered that the next step would be to review GO bonding, a portion of the capital, in order to free up additional GF for operating, which would require a vote of the people. He emphasized that for most states, when there isn't enough money for their operating budget, they don't have a large capital budget. The second step would be the automatic review by the voters after four years, and then again in six years. If this [appropriation limit] wasn't functioning properly, then it could be taken out of the constitution. The ability to vote to take the provision out of the constitution is something the 1982 provision doesn't have. REPRESENTATIVE BERKOWITZ inquired as to why 4 percent was chosen. SENATOR DONLEY explained that the original proposal was one-half of population and inflation growth. However, the past seemed to support 2 percent as a reasonable amount of growth. He further explained that he was trying to tie it to a close previous year rather than a fixed point in time. However, a reasonable amount of increase is open for debate. REPRESENTATIVE BERKOWITZ related his understanding then that the 4 percent relates to historic inflation and historic population growth. SENATOR DONLEY answered, "Somewhat." However, Senator Donley noted that one of the intents of this resolution is to work towards lower per capita spending. "So, while it allows real spending increases by only allowing a 2 percent increase, in years where you may even have a bigger inflation and so you need to go to 4 [percent], you're still working towards reducing our overall per capita spending," he clarified. Number 0094 CHAIR ROKEBERG pointed out that if there is high inflation, a 4- 6 percent increase, then there may actually be a diminishment of spending in real terms. Therefore, it is possible to move into a negative growth situation that may or may not be good. CHAIR ROKEBERG inquired as to where the state stands in regard to the [actual appropriated] GF. MR. TEAL answered that [the actual] GF [appropriated] is $2.4 billion. CHAIR ROKEBERG noted that there is about a $770 million distinction in definition between what is called GF now and what the definition is [in this resolution]. SENATOR DONLEY noted that there is an existing definition in the constitution for the existing appropriation. Therefore, Version P revises that existing definition. MR. TEAL added that what happens over time is a shifting of expenditures from the general fund to the other fund's column. He explained that [Version P] looks at all state expenditures rather than looking at straight GF appropriations, which is what the constitution did. With this new approach, one must also review what is excluded. For example, [the language in the constitution for the appropriation limit] excluded permanent fund dividends, but it didn't exclude permanent fund inflation- proofing or special appropriations to the permanent fund both of which are excluded in Version P. Furthermore, bond proceeds were already excluded from the limit, but with Version P debt service on bonds is also excluded. The Alaska Railroad Corporation is excluded because it is off-budget and there is no desire to include them even if the corporation became part of the budget at some time. MR. TEAL agreed with Chair Rokeberg's earlier remark that there is about $700 million of other state spending that is subject to the limit, not just GF. MR. TEAL, in response to Representative Davies, confirmed that the other state spending does include the Alaska Housing Finance Corporation (AHFC) and the Alaska Industrial Development and Export Authority (AIDEA). Mr. Teal indicated agreement that AHFC and AIDEA are included because they are subject to the Executive Budget Act. He explained that the operating expenses of AIDEA and AHFC are appropriated. Number 0150 REPRESENTATIVE MEYER remarked that this proposal reminds him a lot of the tax cap the Municipality of Anchorage (MOA) has. He recalled that the MOA's tax cap is based on increases in the CPI and a five-year average of the population. He asked if an approach like that of the MOA would be better than specifying 2 percent. SENATOR DONLEY said that such models had been reviewed and he was open to such a proposal. However, he noted that he was pleased with his resolution because of its simplicity, and because of its ultimate result of reducing capital expenditures if inflation and population increases continue. One of the biggest faults with the 1982 amendment was that whatever the population and inflation, the growth was allowed. MR. TEAL remarked that simplification is really the answer. He recalled that the discussion over the resolution moved to the question of how much money is involved. That discussion [resulted] in the determination that this limit allows budget growth of $64 million with a simple majority vote and $128 million with a two-thirds majority. Therefore, if one is attempting to limit expenditures, what number would one choose. Rather than try to figure out inflation and population growth, a number was chosen. Two percent is about half of the long term ... However, Mr. Teal mentioned that if one is interested in making this [appropriation limit] last forever, without any modifications, then the actual growth rates should be included because it would better keep pace. Number 0198 REPRESENTATIVE MEYER inquired as to why the amendment [embodied in SJR 23] would go before the voters every six years. SENATOR DONLEY reiterated that the 1982 amendment has never worked. He wished that there had been an automatic opportunity to get rid of [the 1982 amendment] because it's difficult to reach the consensus necessary in the legislature to place it on the ballot. The amendment goes before the voters in order to ensure that the issue is reviewed in a meaningful way. This automatic placement before the voters forces honest review of the amendment by the legislature. Although Senator Donley acknowledged the argument that too many items on the ballot [make the voter complacent], he felt that the largest problem facing [the state] is the fiscal gap. The number one way to solve the fiscal gap is to ensure the public, through the constitutional guarantee, that [the legislature] won't go crazy if additional revenue is found. Number 0226 REPRESENTATIVE BERKOWITZ inquired as to the appropriation limits that were in place prior to 1982. SENATOR DONLEY replied none, save the constitutional provision to balance expenditures to revenue. CHAIR ROKEBERG pointed out that there could be deficit spending. REPRESENTATIVE BERKOWITZ remarked on the simplicity of that approach and thus he suggested going back to that provision. MR. TEAL pointed out that in 1982 people expected $100 per barrel of oil and revenues that exceeded expenditures. Therefore, the purpose of the limit was to try to force [the legislature] to not spend some of that excess revenue. Although the $100 per barrel of oil never came, [the legislature] managed to get through the budget process. Therefore, some would argue that an [appropriation] limit isn't necessary because public opinion and limited revenue are the appropriation limit. However, that is a political argument. REPRESENTATIVE BERKOWITZ highlighted the other limit that is in place, an election. Elections take place every two years, and therefore if people are unhappy with the appropriations that legislators make, then the public can vote the legislator in or out. Representative Berkowitz expressed concern that the fundamental purpose of this appropriation limit is to reduce per capita spending, which he didn't believe to be the primary obligation of a legislator. The primary obligation of a legislator is to fulfill the constitutional mandates for education, public safety, and transportation. Although that obligation is different, it does overlap [with per capita spending]. Number 0268 SENATOR DONLEY commented that he believes it's a political question. Senator Donley said, "My first choice is ... that we would have the discipline to prioritize our budget, to live within our means, and still fulfill those constitutional directives and mandates. Unfortunately, government in a democracy is driven just the opposite direction." Our system of government doesn't lend itself well to dealing with deficits because there is always this great demand for additional spending without additional taxation. [Alaska] is almost to the point of crisis and it's time to start doing something about it. This proposal is a positive step forward. Furthermore, all that is really being done here is allowing the people to vote as to whether they think the current constitutional appropriation limit should be revised to this proposal. REPRESENTATIVE BERKOWITZ stated his belief that allowing people to vote is always a good plan. MR. TEAL pointed out that the appropriations or expenditures of most states are limited by revenue. However, Alaska has the CBR, which is essential to the state as a shock absorber or budget stabilizer because oil prices and revenue fluctuate a lot. The difficulty is that there are projections that the CBR will not exist in five years because of the fiscal gap. Without the CBR, the state would be in real trouble. Number 0307 REPRESENTATIVE BERKOWITZ inquired as to how this amendment would impact the CBR evaporation. MR. TEAL answered by pointing out that there is some feeling that the revenue side of the problem can't be addressed until the blank check is taken away. Therefore, this proposal restricts expenditures, although he didn't have an exact amount of the restriction. This proposal has the probability of being more effective than the existing limit. The fact that the limit exists may help the legislature address the revenue side as well. REPRESENTATIVE BERKOWITZ said that in looking at a spending restriction, there is still a revenue gap. Therefore, he felt that the public should have a complete picture, and be told how the revenue gap is simultaneously filled. That is, the entire package. SENATOR DONLEY responded that such an approach is problematic because the public doesn't know what will and will not pass. Furthermore, a package of these proposals can't be created. Therefore, an [incremental approach] must be taken, which begins by fixing the foundation. Number 0337 CHAIR ROKEBERG inquired as to what would happen to the base if there was an extraordinary natural disaster that necessitated a $300 million spending appropriation. SENATOR DONLEY clarified that things that are outside the base don't count towards the next year's base, which he felt was an improvement [over the 1982 amendment]. CHAIR ROKEBERG remarked that, in a certain sense, artificial caps create artificial problems. However, he acknowledged that the exceptions included in this resolution seem to offer some flexibility. SENATOR DONLEY pointed out that the super majority vote for a 4 percent increase, the public review, and the bonding option are safety valves for a limited amount of time. Number 0380 REPRESENTATIVE DAVIES remarked that originally he understood this [2 percent] to be based on the previous two years and averaged; however, [now he understood] it to be based on the two years preceding. Therefore, "it's just looking back two years." SENATOR DONLEY interjected, "Because we don't have the numbers for the prior year to be able to prepare the budget for the next year. So, we had to go back two years to base it on." REPRESENTATIVE DAVIES surmised that if there was a situation in which the budget was reduced and "you went out a couple of years," then there might be a large step function that got limited. He offered one solution: a funding average over a few years. If there was a year in which [the budget would really be reduced], then there wouldn't be such an impact in the next two years. CHAIR ROKEBERG noted the possibility of making it open-ended [with the super majority vote to break the 6 percent] rather than having the 2 percent. However, he questioned what would happen in regard to budget discipline. The public would be left to determine whether the super majority vote was valid. REPRESENTATIVE BERKOWITZ remarked, "I'm sure when the time is right, our friends in the Republican minority won't ... withhold their votes for anything." Number 0417 SENATOR DONLEY suggested that the chance of reducing the amount of money that falls under this appropriation by more than 2 percent in one year would be fairly slim. If a 2 percent cut was achieved, it would automatically be made up. CHAIR ROKEBERG mentioned the possibility of underfunding the growth effect. If there was extraordinarily fast growth, then [the budget] may not be keeping up with public services appropriately. Therefore, he questioned how that would be addressed when there are static numbers. Chair Rokeberg noted that such could be the reason for a public policy that makes the assumption that overspending is occurring currently, and therefore the spending cap would need to be limited in order to deal with it underneath it. SENATOR DONLEY answered that if forced, some prioritizing decisions could be made to shift funds to education, public safety, and transportation in order to ensure those areas are addressed. Number 0461 SCOTT GOLDSMITH, Economist, University of Alaska - Anchorage, related an observation from the public's perspective in regard to whether a 2 percent growth limit would convince the public that the legislature was "taking the cure." Mr. Goldsmith pointed out that an average of the growth rate on the chart [included in the committee packet] would probably average 2 percent. Therefore, one could argue that this proposal merely puts in place what is already being done and thus [the problem isn't really being addressed]. Furthermore, the argument could continue in the vein of the public - the general public who doesn't understand real dollars versus nominal dollars - wanting "real cuts." However, Mr. Goldsmith felt that [Senator Donley] is on the correct path in saying that the public needs to understand that working to reduce the budget has to happen first. Mr. Goldsmith asked, "What's to stop the legislature, on the first day of the session, from just all pledging that this year the budget is going to be no bigger than it was last year?" MR. GOLDSMITH informed the committee that he had done an analysis of the earlier version of SJR 23, and therefore it's not directly relevant to Version P. However, a number of the changes encompassed in Version P responded to some of his thoughts on the earlier version of SJR 23. Number 0518 CHAIR ROKEBERG commented that by going to a 4 percent solution, then there is a static number. However, the prior version did include population growth and inflation. Chair Rokeberg expressed concern that if there is a stipulated amount of 4 percent or even 6 percent, it would have a potential negative impact on economic growth in this state. He noted the need to keep in mind the impact of the state government on the gross state product and how much economic activity state government generates. To him, even the status quo is not a very satisfying prospect, as a matter of economic policy. MR. GOLDSMITH said that it seems that [the state] faces a trade- off. On one hand, everyone recognizes that there is a severe fiscal problem and there have been no solutions. However, if holding the line on spending can be a first step to providing a solution, then serious thought should be given to that. At the same time, one should recognize that when one ties [the state's] hands and limits the growth to a fixed percent per year, there will potentially be some consequences that may be adverse in the future. He felt that the most obvious potential adverse consequence is the one that [Chair Rokeberg] suggested. MR. GOLDSMITH pointed out that the amendment begins by going into effect for four years. In his opinion, the growth rate of the population and inflation over the next four years would be 1 percent a year and 2-3 percent, respectively. He felt that those projections would be consistent with [2] percent growth in the state budget, which would mean that the budget would get a little smaller in real per capita terms. However, that is also a continuation of the trend line that the state has been on for the last few years. On the other hand, the Alaska economy is very difficult to predict. If there is one year when population growth is higher [than his aforementioned projection], then it isn't so bad, as long as it falls again. However, if there is a longer period, 5-10 years of sustained rapid growth of the population or inflation, then there would likely be faster growth of the economy. The most obvious situation that would trigger such a scenario would be a gas line or the opening of the Artic National Wildlife Refuge (ANWR). Such was the case in the 1970s when the annual growth in population was 3 percent and the annual rate of inflation was 7.6 percent. He noted that those figures were taken from the Anchorage CPI and thus are lower than the U.S. CPI. If there was another decade like the 1970s, then a 2 percent limit would result in a reduction in real per capita spending of 8 percent every year for ten years. TAPE 01-83, SIDE B MR. GOLDSMITH continued by saying that one must recognize the difficulty in predicting these rates of growth, and a stipulated percent ties the state's hands in terms of flexibility and how one can respond to situations. Furthermore, there are some things that lay outside the GF budget, but are tied into economic growth such as the operation of the airport, and the non-GF portion of the university budget. He posed a situation in which there is an influx of students. Such a situation would be great for the state, but he surmised that their tuition would be included in the cap and would place a squeeze on the GF. Number 0013 MR. TEAL responded, "That is one of the weaknesses here." However, there are ways to maneuver around having too much decline and limited flexibility in responding to high inflation. For instance, a third provision could be added that the cap would be 6 percent [to an] unlimited [percent] with a 75 percent vote. CHAIR ROKEBERG said he liked that idea. MR. TEAL returned to the earlier example in which university enrollment increases, let's say that enrollment doubles in the next five years. In such a situation, the university's tuition receipts would double, and tuition receipts aren't exempt from spending limits. Therefore, something will suffer if the 2 percent is used on funds that one doesn't really want to consider, however there is no way to write them out. He guessed university funding could be exempted. Mr. Teal clarified that the more exemptions there are, the less the limit accomplishes. Although one can argue that any agency or program, such as the university, that generates its own revenue shouldn't be subject to the limit, "we can't figure a way out of it." Number 0038 REPRESENTATIVE COGHILL inquired as to the lag time when determining population and inflation growth. MR. GOLDSMITH remarked that inflation [growth] would be easier to pin down. As mentioned earlier, Anchorage has a CPI, which comes out in May of the next year. Therefore, there would be a five-year delay. However, the U.S. CPI is calculated monthly. In regard to Alaska's population growth, he suggested asking the Department of Labor & Workforce Development. REPRESENTATIVE COGHILL related his view that if the [appropriation] limit is tied to per capita, then it could grow with the per capita while limiting spending. Perhaps an artificial cap may place undue pressure on areas where such isn't desired. However, [there could be a] combination of inflation and population growth with a year-and-a-half average. He felt that such a formula could be sold [to the public] more easily. MR. GOLDSMITH recalled a problem with the Anchorage cap due to the lag, in that the additional amount in expenditures is based on the population change and inflation from the last year. However, what one would want to do is spend to the population and inflation change that is expected for the upcoming year. If the population went down last year but is expected to increase [this year], the spending [still] has to be based on what happened in the prior year. Such a "squeeze" occurred in the late 1980s. SENATOR DONLEY said he would agree with that if he felt that government was operating at maximum efficiency. However, he felt that there is greater flexibility in the numbers rather than following exactly what population and inflation does. MR. TEAL noted that although the moving average does stabilize things, it causes "you" to respond slower. CHAIR ROKEBERG interjected that a U.S. city average, which is published on a monthly basis, would have to be adopted. MR. TEAL stated that having the "latest, greatest data doesn't do any good. He pointed out that the Office of Management & Budget (OMB) and the agencies are preparing the 2003 budget, and thus they need to know what the 2003 numbers are now. Furthermore, the expenditures for 2002 can't even be dealt with because the 2002 expenditures are unknown and thus the expenditures are based on 2001, which is why there would be a two-year lag. Therefore, the population and inflation [data] may as well be behind a year as well. In his opinion, "it's just not that critical." Number 0092 REPRESENTATIVE DAVIES mentioned the tendency to mix appropriations and expenditures. He pointed out that the resolution refers to the appropriation, not the expenditure, for the two years preceding. Therefore, he questioned why there needs to be a two year lag if it's based on the appropriation, which is a known. MR. TEAL pointed out that the supplemental [appropriations] aren't complete. He reiterated that the appropriations for 2002 would be unknown. REPRESENTATIVE DAVIES interjected that such could be known. SENATOR DONLEY remarked that people could be enticed to short fund the budget if the desire was to not encourage fiscal discipline. He predicted that such a situation would result in a larger supplemental [budget]. REPRESENTATIVE DAVIES said that the supplemental [budget] in a given year would have to be included. MR. TEAL, in regard to Representative Davies' suggestion, said that FY02 supplemental [appropriations] could be counted as FY03 spending. CHAIR ROKEBERG asked if anyone else wanted to testify on SJR 23. There being no one, the public hearing on SJR 23 was recessed. CHAIR ROKEBERG remarked that he was [less] skeptical now, after recognizing that [SJR 23] may be a symbolic political act that is necessary for the state's long-range fiscal plan. REPRESENTATIVE DAVIES estimated that the portion of the population that this proposal would appeal to represents about one-third of the population. In his experience, those people want 40 percent cuts on an annual basis, real Draconian cuts. Therefore, he questioned whether [this proposal] would satisfy those people to which it attempts to speak. He asked if this [proposal] will really address the problem, so that the legislature can move on to solving the real problem of the fiscal gap. SENATOR DONLEY responded that he would like to put forth his best effort to make [this proposal] a realistic restraint without being Draconian, if for no other reason than eliminating what is currently in the constitution. CHAIR ROKEBERG recessed the hearing on SJR 23. [SJR 23 was held over.]
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