Legislature(2001 - 2002)

10/19/2001 11:11 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SJR 24 - AMEND CONSTITUTIONAL BUDGET RESERVE FUND                                                                             
Number 0151                                                                                                                     
CHAIR ROKEBERG  announced that the  last order of  business would                                                               
be  CS  FOR  SENATE  JOINT   RESOLUTION  NO.  24(RLS),  Proposing                                                               
amendments to  the Constitution of  the State of  Alaska relating                                                               
to the budget reserve fund.                                                                                                     
Number 0153                                                                                                                     
SENATOR  DAVE  DONLEY,  Alaska State  Legislature,  testified  on                                                               
behalf of the Senate Finance Committee,  sponsor of SJR 24.  This                                                               
resolution would amend the  current constitutional budget reserve                                                               
(CBR)  amendment.   Although the  CBR  is functioning  well as  a                                                               
fiscal shock  absorber, it  isn't functioning  well in  regard to                                                               
helping control spending and enforcing  fiscal discipline.  Under                                                               
the  current situation,  small groups  of  legislators can  force                                                               
increased  spending by  withholding CBR  votes.   If one  were to                                                               
count  all   the  proposed  floor  amendments   that  were  made,                                                               
rejected,  and eventually  included  in the  budget  in order  to                                                               
obtain the  three-quarters vote, it  would sum $150  million this                                                               
year.   Senator Donley agreed  to provide the delineation  of the                                                               
$150 million.                                                                                                                   
SENATOR  DONLEY informed  the committee  that  the packet  should                                                               
include  the  language that  the  voters  saw  when the  CBR  was                                                               
adopted in  1990.  The  lieutenant governor's description  of the                                                               
CBR said  that the fund  could be  used when money  available for                                                               
appropriation in the year is less  than the year before, but only                                                               
if the shortfall  is made up.  However,  the legislative affairs'                                                               
summary specified  that appropriations may  be made from  the CBR                                                               
only if the money available for  the fiscal year is less than the                                                               
amount  appropriated  for  the   prior  year.    The  proponents'                                                               
statement  says  that the  CBR  is  an  effective first  step  to                                                               
controlling state spending  and that is party due  to the ability                                                               
to  use  CBR  funds  when  revenues  are  less  than  the  amount                                                               
appropriated  in the  previous  year, in  which  case the  amount                                                               
appropriated from  the CBR couldn't  exceed the shortfall.   Even                                                               
the opponents'  explanation said  that a  simple majority  of the                                                               
legislature  could borrow  funds  from  the CBR  to  make up  any                                                               
shortfalls  in revenues  up  to the  amount  appropriated in  the                                                               
previous year.   Everyone agreed that money [from  the CBR] could                                                               
be accessed with  a simple majority vote in order  to make up for                                                               
the  shortfall, up  to the  amount that  was appropriated  in the                                                               
previous year.                                                                                                                  
SENATOR  DONLEY  said that  didn't  happen,  however.   Once  the                                                               
amendment  was adopted,  the  legislature  adopted the  statutory                                                               
explanation  of  the  language,   which  the  court  subsequently                                                               
overruled  as  being in  conflict  with  the court's  meaning  of                                                               
"being  available  for appropriation".    Whether  the court  was                                                               
correct  or   not,  that  wasn't   what  the  people   voted  on.                                                               
Therefore,  this resolution  is an  attempt to  restore what  was                                                               
meant by Ballot  Measure No. 1 with regard to  accessing the CBR.                                                               
Thus, SJR  24 proposes to  correct the problem identified  in the                                                               
court case and clarify that in  a year in which revenues are less                                                               
than the previous  year, the legislature may access the  CBR by a                                                               
simple  majority  vote for  funding  up  to the  previous  year's                                                               
appropriation.    This  resolution  also  deletes  the  so-called                                                               
"sweep provision," which requires  a three-quarters vote to repay                                                               
the money taken from the CBR in the previous year.                                                                              
Number 0217                                                                                                                     
REPRESENTATIVE DAVIES noted that  [SJR 24] has been characterized                                                               
as  fixing a  budget,  a "blackmail"  situation.   Although  that                                                               
argument can  be made, the other  side is that in  other areas of                                                               
the budget  the Majority short  funds the budget, relying  on the                                                               
Minority to force  limits that the Majority wants,  but for which                                                               
they don't want to take credit or blame.                                                                                        
CHAIR ROKEBERG said that there is some truth to that statement.                                                                 
REPRESENTATIVE BERKOWITZ  commented that he noticed  that Senator                                                               
Donley's  budget report  to the  public took  credit for  funding                                                               
that "we"  [the Minority] insisted  on as  part of the  CBR vote.                                                               
He cited the funding for education and the troopers as examples.                                                                
Number 0248                                                                                                                     
MR.  TEAL,   in  response  to  Chair   Rokeberg,  explained  that                                                               
typically  each year  the appropriation's  bill contains  what is                                                               
called "the  reverse sweep"  section.   That section  is included                                                               
because  the  constitution  specifies   that  if  there  are  any                                                               
outstanding borrowings  from the  CBR, then  every June  30th all                                                               
the subaccounts of  the general fund (GF) are swept  into the CBR                                                               
in  order to  repay it.    He estimated  that there  is about  $3                                                               
billion in debt.                                                                                                                
SENATOR   DONLEY  pointed   out   that  it   is  a   year-to-year                                                               
forgiveness, and therefore there is  no outstanding debt that has                                                               
to be  handled by a  three-quarters vote on  the $3 billion.   He                                                               
clarified that the debt is only for the debt of the prior year.                                                                 
MR. TEAL  estimated that approximately  $100 million a  year from                                                               
the GF  subaccounts is swept into  the CBR.  The  language in the                                                               
appropriation's  bill  says that  the  money  taken from  the  GF                                                               
subaccounts is replaced by withdrawing  from the CBR.  Therefore,                                                               
that is  a withdrawal  from the  CBR and  would require  a three-                                                               
quarter vote.   In essence, [the language] says that  in order to                                                               
make  the  [GF]  subaccounts  whole,   a  three-quarter  vote  is                                                               
required.  That  is part of SJR 24 because  if the super majority                                                               
vote is trying to be avoided in  order to just have a budget that                                                               
is  the same  as last  year, then  the $100  million sweep  super                                                               
majority requirement must be eliminated.                                                                                        
CHAIR  ROKEBERG  related  his   understanding,  then,  that  this                                                               
resolution maintains the CBR while modifying how it functions.                                                                  
SENATOR  DONLEY explained  that the  resolution modifies  how the                                                               
CBR  is  accessed  and  eliminates  the  sweep  provision.    The                                                               
original intent  of the amendment  is restored, in that  a three-                                                               
quarter vote is  only required for those funds that  are over and                                                               
above what was appropriated for  the previous year.  Therefore, a                                                               
three-quarter  vote  would  be  required  if  the  desire  is  to                                                               
increase spending and  obtain the [increase] from the  CBR.  Only                                                               
a simple majority vote is required  to access money that is equal                                                               
to what was appropriated in the previous year.                                                                                  
Number 0292                                                                                                                     
REPRESENTATIVE  DAVIES asked  if that  would have  any cash  flow                                                               
MR. TEAL noted that the opinion  on that differs.  Currently, the                                                               
Department of Revenue  doesn't believe the cash flow  issue to be                                                               
a  large problem.    In fact,  borrowing  $50-$100 million  isn't                                                               
really an appropriation  from the CBR because it  is being repaid                                                               
before the  end of  the year.   In other words,  in FY01  the CBR                                                               
draw wasn't necessary at all  because $300-$400 million was taken                                                               
from  the  CBR, but  repaid  before  the end  of  the  year.   In                                                               
response to  Chair Rokeberg,  Mr. Teal said  that no  interest is                                                               
paid on the draw.                                                                                                               
CHAIR ROKEBERG  expressed his concern  with the lack  of interest                                                               
MR.  TEAL turned  to FY01,  when the  legislature did  take money                                                               
from  the CBR.   Of  course, the  interest earnings  that the  GF                                                               
recovered stays in the GF, and thus  the year ends and there is a                                                               
GF surplus  of $80 million.   The  sweep provision says  that the                                                               
$80  million goes  into the  CBR, which  happened.   However, the                                                               
reverse sweep only applies to the  subaccounts of the GF, not the                                                               
GF itself.  Therefore, the interest was returned.                                                                               
CHAIR ROKEBERG  characterized [a draw  from the CBR] as  a single                                                               
appropriation rather than an installment.                                                                                       
SENATOR DONLEY  explained that if  this resolution was  placed on                                                               
the  ballot  and approved  by  the  voters, the  situation  would                                                               
change  such that  the legislature  could access  the CBR  with a                                                               
simple  majority   for  an   amount  up   to  the   prior  year's                                                               
expenditures.   However, there is  much pressure to do  more than                                                               
that.    Senator Donley  felt  that  the three-quarters  vote  is                                                               
appropriate since that was the original intent.                                                                                 
Number 0352                                                                                                                     
REPRESENTATIVE BERKOWITZ  pointed out  that [Article  IX] Section                                                               
17 says, "(c)  An appropriation from the budget  reserve fund may                                                               
be made  for any public  purpose upon affirmative vote  of three-                                                               
fourths of  the members of  each house  of the legislature."   He                                                               
understood that language to refer to any appropriation.                                                                         
MR. TEAL informed the committee  that there are two sections that                                                               
refer to removing  money.  One section  requires a three-quarters                                                               
vote  for any  purpose.    The other  section  requires a  simple                                                               
majority vote,  as long  as the  withdrawal is  no more  than was                                                               
spent in the prior year.                                                                                                        
REPRESENTATIVE  BERKOWITZ   said  that  under  law   that  is  in                                                               
conflict,  the  default  is  to   the  [language]  that  is  more                                                               
SENATOR DONLEY  disagreed and  explained that  the default  is to                                                               
try to read  the [sections in conflict] jointly in  an attempt to                                                               
make sense.                                                                                                                     
MR.  TEAL clarified  that the  three-quarters vote  [is required]                                                               
when the prior year's budget has been exceeded.                                                                                 
Number 0373                                                                                                                     
SENATOR DONLEY posed  the possibility that the  court is correct.                                                               
Even if  that were the  case, the  court's ruling isn't  what the                                                               
voters thought they were voting for  nor was it the intent of the                                                               
sponsors or  the opponents.   Therefore, he felt that  the voters                                                               
should have  the opportunity  to restore  what they  thought they                                                               
were voting  for.  Senator Donley  went on to point  out that the                                                               
court   case  centered   around  the   language  "available   for                                                               
appropriation".   As  a  lawyer, he  felt that  the  court had  a                                                               
defensible  conclusion.   However, it  doesn't make  it the  best                                                               
public policy or what the public thought it was getting.                                                                        
CHAIR  ROKEBERG  recalled that  there  have  been resolutions  to                                                               
repeal the entire  section regarding the CBR.  He  inquired as to                                                               
why  Senator  Donley  chose  to  take  the  tact  he  did  versus                                                               
repealing the entire section.                                                                                                   
SENATOR DONLEY answered  with his belief that the  CBR is working                                                               
well and was a wise step  as a fiscal shock absorber.  Therefore,                                                               
he felt that the well-functioning parts should be kept.                                                                         
CHAIR  ROKEBERG  asked  whether Legislative  Legal  Services  had                                                               
provided an opinion that [Article  IX, Section 17] subsection (c)                                                               
doesn't need to be modified to  be crystal clear in regard to the                                                               
SENATOR DONLEY  informed the committee  that the  version adopted                                                               
by the Senate Rules Committee accomplishes that goal.                                                                           
CHAIR  ROKEBERG  asked whether  anyone  else  wished to  testify.                                                               
[There being no one, the hearing on SJR 24 was recessed.]                                                                       
[SJR 24 was held over.]                                                                                                         

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