Legislature(2003 - 2004)
05/09/2003 01:25 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HJR 9 - CONST AM: APPROPRIATION/SPENDING LIMIT Number 0990 CHAIR McGUIRE announced that the final order of business would be HOUSE JOINT RESOLUTION NO. 9, Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit. She noted that the version before the committee was CSHJR 9(STA). REPRESENTATIVE GARA indicated that he has a lot of questions about this constitutional spending limit. CHAIR McGUIRE predicted that the discussion on HJR 9 would be thorough. Number 0907 VIRGINIA BLAISDELL, Staff to Representative Bill Stoltze, Alaska State Legislature, on behalf of Representative Stoltze, sponsor, said that regardless of whether HJR 9 passes this session or next, its constitutional amendment would not go on the ballot until 2004. She acknowledged that adoption of the constitutional amendment proposed by HJR 9 would be a serious change to the Alaska Constitution; thus, she relayed, the sponsor appreciates the committee taking the time to thoroughly deliberate the resolution. She then turned attention to a document she'd prepared for the committee that provides an analysis of CSHJR 9(STA) and answers to commonly asked questions. MS. BLAISDELL, referring to that document, said: The first question is, "[What's] the difference between an appropriation and spending?" ... Appropriation is the amount that you are allowed to spend, and that's the legislative prerogative saying the governor ... can spend up to a particular limit. Spending is the cash part; spending is actually writing the checks and promising financial commitment. On page 3 it says, ["Doesn't Alaska already have a constitutional appropriation and spending limit?"]. Yes. It's not working now. It has grown exponentially faster than the state's use. Right now, the constitutional appropriation/spending limit would allow us about $6.4 billion in state funds. We're at about $3.4 billion, so it's kind of an unrealistic limit to ourselves. REPRESENTATIVE GARA asked where the present spending limit is located. Number 0657 MS. BLAISDELL said it is in Article IX, Section 16, adding that that's what HJR 9 would repeal and readopt with new language. She went on to say: We also have a statutory spending limit that most of us have never taken the time to follow because it's included with the statutory budget reserve fund, which ... most of think of [as] the constitutional budget reserve fund. But it says, statutory budget reserve fund and appropriation limit. It's not a cumulative calculation, but it just adds inflation and population growth. And that one we actually have over- appropriated last year, in FY [fiscal year] 03, and one other time in the late '80s. So we've actually broken our own statutory spending limit. Most of the time, we're [$80 million to $90 million] below. It allows about a $250-million-a-year growth. And then I have [some] pages that describe how this appropriation limit is different from the existing limit. The existing limit was developed before the permanent fund dividends [PFDs], before ... most of the state corporations were established and then [became] financially successful. There were no GO [general obligation] bonds. And at this point, calculating that base year by which we grow the limit is really up to interpretation, and you can get a wide variety of how to calculate that starting year. The existing appropriation limit is based on population and inflation growth, sometimes as great as 13 percent annually. MS. BLAISDELL continued: And when I looked back at probably 20 years' worth of people trying to calculate that growth, I had as many as eight different variations in the dollar amount in one given year, depending on who was using which index and which population figure. And what the statutory ... appropriation limit actually identified, you had to use [the Department of Labor and Workforce Development's] population growth, and you had to use the Anchorage CPI [Consumer Price Index]. They tried to correct that, but we've never really followed it. It also required that one-third of all state appropriations be spent on capital projects; the term that's ... not incorrect but difficult there is that a capital project can be anything that has a term date that goes beyond one fiscal year. Number 0502 And if it had said capital improvements, those are more of our infrastructure - ... highways, buildings, that kind of thing - but a capital project can be anything that has a continued lapse date. So, for example, is a long-term contract for software design really a capital improvement? No, but I think the intention there was, we needed more infrastructure in [the] ... early '80s. [House Joint Resolution 9] provides for a steady but limited appropriation growth over time. ... [Subsection] (a), which is the first [subsection], allows a 2-percent cumulative growth based on a two-year prior budget. That comes to ... about $66 million. If you look at it one year to the next, it's a $33-million growth - $33 [million], $34 million - each year. CHAIR McGUIRE asked what the rationale is behind 2 percent. MS. BLAISDELL replied: We looked at ... the rate of inflation, we looked at population growth, and it was fairly sporadic. And what was happening is that when we took a number of years of appropriations and just said, ... level them out and see if we're decreasing [or] increasing, [at] about what percent ... over time, ... it was approximately 2 percent. ... And depending on how you wanted to calculate, what exclusions and what inclusions, it was actually between 2 and 4 percent. CHAIR McGUIRE asked whether any other states have a percentage in their constitution and, if so, what that percentage is. MS. BLAISDELL said that she contacted the National Conference of State Legislatures (NCSL), and according to their 1996 document on state tax and expenditure limits, all states with such limits have an expenditure limit based on taxation; thus, those states would not overtax their population groups in order to grow state government, and the limits were put in effect because of taxation. Therefore, no other state has anything that would clearly equate to Alaska's scenario. CHAIR McGUIRE observed, "Our scenario of handing out money when we don't have it and not taxing anybody except corporations." REPRESENTATIVE GARA, referring to what other states do, asked: "So if they regulate theirs by trying to keep the growth in taxes down, how much do they allow their growth in taxes to go up? Do you know?" Number 0296 MS. BLAISDELL, indicating that she was reading from a document, replied: Tax and expenditure limits are designed to curtail growth in government spending by placing constitutional or statutory restrictions on the amount a government entity can spend or tax its citizens. Limits may be imposed on both state and local governments. MS. BLAISDELL commented: Only state limits, however, are discussed in this report, and most of them required a supermajority requirement - even up to three-fifths majority; voter approval was on a number of them; and ... [one referred to] 7.23 percent of personal income tax without regard to sales tax. Some of these are spending limited to growth of population and inflation, requiring voter approval; some were personal income growth; one was 98 percent of estimated revenue. It's just all over the board, and they [have] really chosen a variety of ways to calculate it. REPRESENTATIVE OGG referred to page 1, line 8, and asked: "Am I clear in saying that ... this year, we would use the base year [that] would be ... 2001? Or 2002? MS. BLAISDELL replied that it would be 2002, since it would be two years behind 2004. Number 0169 REPRESENTATIVE OGG posed the following example: "Let's say that last year, or in 2002, we had a budget of $100 - just for simple numbers - and then two years before we had a budget of $100. So this next year we think we would like to grow our government a little bit - and so we grow it to $102 dollars - next year, because we need some increases in services and stuff, and we would like to take advantage of growing another 2 percent, we couldn't. MS. BLAISDELL said, "That's correct. REPRESENTATIVE OGG surmised: So ... we would have to maintain that. And then, should we go into a period where, for some reason, we wanted to decrease the size of government or the amount of appropriations for some anomaly, you go down 10 percent, that having gone down that 10 percent in every other year, just because [that] was an anomaly, now ... you would have pegged in a drop [of] 10 percent, even though it may not have been realistic. MS. BLAISDELL replied: "It would be 2 percent of 10 percent. But, eventually, if you just kept going like that, you could end up with little, small spikes on the graph." REPRESENTATIVE OGG surmised: So, actually, if the government, [if] you wanted it to proceed along in a steady fashion if it wanted to, under the way this is written, you could actually end up going like this, which is something you're trying to avoid. Would it not be better to just say [it] should not exceed 2 percent of the preceding [fiscal] year? Is there a reason why you didn't go that way? TAPE 03-59, SIDE A Number 0001 MS. BLAISDELL replied that such could not be done because of appropriations that occur late in the year, for example, emergency appropriations or adjustments. A fiscal year really isn't finalized until June 30th, the day before the day the next budget would start. She posited that the legislature wouldn't want to adjust its appropriation bills on a daily basis because of other appropriation changes. REPRESENTATIVE OGG remarked: My point is, ... if you're putting this into the constitution, you have to start somewhere. So it's enshrined on day one. That's the two preceding years right there, the ones that have gone by, perhaps the one that you're in. And while it goes in, you decide, "Well, heck, I'm going to take advantage of it all - raise it up," and you could increase that, and so you could start this gyration you couldn't get out of for quite some time. But once you set it in, even if you did the preceding fiscal year, that would set your trigger. So even ... if you have supplemental appropriations, they couldn't exceed that 2 percent. MS. BLAISDELL said, "That's true." REPRESENTATIVE OGG remarked, then, that he didn't see the reasoning for going back two years. REPRESENTATIVE SAMUELS, however, referring to a previous meeting's discussion involving percentage of market value, noted that the current year had to be skipped "for the same reason ..., because you don't know what you're going to spend this year until you get the supplemental." REPRESENTATIVE OGG pointed out, though, that HJR 9 "isn't doing a running average; this is setting yourself to a year, two years, preceding." REPRESENTATIVE HOLM said: In essence, it's going act like a tax cap, or a revenue cap if you will. That works well at the Fairbanks North Star Borough - worked well in all the areas that I know where it's being worked. It certainly wouldn't ... [become] a problem. If we had an emergency or something [of] that order, that's a different issue; ... we're talking about just the appropriations. ... I was going to ask [Ms. Blaisdell] ... to talk about the difference between enacted and appropriated, because ... it deals somewhat with this idea of setting a limit of growth. Number 0203 MS. BLAISDELL responded: Actually, when you get to the portion of the [resolution] that says that the governor will restrict spending and reduce appropriations by line item veto, the reason that that came up is because, typically, at the end of a legislative session, Legislative Finance [Division] and OMB [Office of Management & Budget] will calculate how much money has been enacted for that year. And that comes out somewhere in May, whenever the legislature passes those [budget] bills and after the governor signs them. We take that enacted number. By the time you get to July 1, there's a significant difference because the agencies then put a value to "language appropriations" that had no monetary accountability at the time [of] passing the [budget bills]. And so, for instance, the example I gave in [the House State Affairs Standing Committee] yesterday was that for FY 03, there is approximately a [$90 million] increase from the enacted number of what the legislature believed they passed, ... by the time it [came] into effect on July 1st. And that had to do with language appropriations, primarily. ... The [portion] of the [resolution] that would address that is [subsection] (c) that says if appropriations for a fiscal year exceed the amount that may be appropriated under this Act, the governor shall reduce expenditures by line item veto to avoid spending more than the amount that was appropriated. MS. BLAISDELL concluded that the governor would have to choose where to use a line item veto to keep it under the appropriation limit. Number 0342 REPRESENTATIVE GARA remarked: We have a tax cap in Anchorage too; it tends to work, except there's one problem with it that ... a lot of the folks are ... silent about because they would be grilled if they talked about it. Our tax cap, the way it works in Anchorage, links your expenditure rate to last year's rate, very strictly. So in Anchorage, one year we received a big, unforeseen amount of cash, and the mayor said, "Gosh, we have all this extra money, we can reduce your taxes this year." ... But the next year we didn't have that extra money and we couldn't bring ... our spending level back to where it was two years ago. And of course that was linked to the taxed amount, and this is linked to the spending amount. So, let's say one year, for example, we just have so much less in the way of maintenance costs, and we say, "Well, shoot, we don't have to spend last year's amount of money on maintenance costs, we don't have to spend last year's amount of money on a couple of things because this year things look okay." Will a reduction in one year have a ripple effect and require ... us to base our budget ... on that reduced budget in the future? So we couldn't get back to the [prior year's] spending level? Or is there a way to ... MS. BLAISDELL interjected to respond: It's similar to Representative Ogg's question. There's two approaches, probably, to resolve a spike in your ... "stability growth line." First of all, 2 percent from two years prior is a pretty conservative amount of growth. I would imagine that that would typically be appropriated. That's why the next [portion] of the bill says [that] with a three- quarters vote, you can add an additional 2 percent. Still conservative, controls the growth, but gives you a little bit to bounce above that, that is not included in that cumulative growth factor; it gets excluded later. So, let's say you have a 2 percent accumulative growth: the other thing that a legislature can do is, if they do not want to see a downward spike, they can always appropriate the maximum first 2 percent, and you keep that constant line. It does not mean the governor has to spend it; the governor can spend less than that. So, that would be more of his choice of saying, "This agency is going to have a severe reduction." The legislature can choose to keep their appropriation line consistent. Number 0551 Your situation with the tax issue, I'm not sure why it said that you can't ... build the tax back in or increase it again, but to me that sounds more like a revenue issue. This is strictly appropriation, it has nothing to do with how much money are we going to collect, and it's only one side of a balanced budget. REPRESENTATIVE SAMUELS remarked that Anchorage has both a tax cap and a spending cap, adding, "you never hear about one because you never can generate enough revenue." MS. BLAISDELL, returning to the document she'd prepared, said: This chart right here gives you a quick view of the last couple of years, where it ... was very spiky, and then a projected ... 2-percent growth. And what I did was I wrote out FY 01 to FY 04 and showed you significant increases and decreases, approximately $200-million fluctuation in the last three years. If you had done just the 2-percent growth factor starting with the same four years, ... for FY 04, [it] would be about [a] $30-million increase, rather than having that huge $100-million cut in [FY] 03. You still show a consistent increase, it's just managing the money a little bit differently. Following that ..., I restate the exemptions and give a vary brief ... lay description of how the exemption works. There have been a lot of questions about how does Alaska's government grow ... fast enough to accommodate and attract future economic growth. I gave a couple of examples on how we can grow economics. I would say probably the strongest example would be through bonding-type issues, [to] help get their infrastructure built up. If it doesn't work, under the [House State Affairs Standing Committee] version, you would have to go through this process again and reintroduce a new "constitutional spending limit" bill. Number 0698 MS. BLAISDELL continued: And then I said, now that I understand the appropriation side, how does the spending side work? And basically, the governor can line item [veto] to keep us within the appropriation level, ... and the governor is instructed specifically to not overspend and put the legislature in a position of having to break their own appropriation limit. And, yes, the governor can spend less than what was appropriated; it's just like not pushing your credit card limit to the end, every single month. ... The other question I got was what constitutes a disaster, and I could only find three provisions that really describe what a disaster was. And this is one thing that is an excluded provision in here, and so there are a number of scenarios where a governor could increase spending above the appropriation limit. And that gives you an overview of [HJR 9]. [HJR 9 was held over.]
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