Legislature(1997 - 1998)
02/04/1997 08:00 AM House STA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HJR 18 - DEDICATED FUNDS: RATE MAY BE CHANGED The next order of business to come before the House State Affairs Standing Committee was HJR 18, "Proposing an amendment to the Constitution of the State of Alaska relating to changing the rate of a tax or license that supports a dedication of its proceeds." CHAIR JAMES called on Representative Ivan Ivan, sponsor of HJR 18, to present the resolution. Number 0713 REPRESENTATIVE IVAN IVAN announced his staff, Thomas W. Wright, was here to answer any technical questions about the resolution. Representative Ivan read the following sponsor statement into the record: "This resolution proposes an amendment to Article IX, Section 7 of the state constitution. The current article allows for the dedication of funds for a specific purpose as long as it existed by April 24, 1956. This resolution would allow a changing of a rate of a tax or license of which the proceeds are dedicated to a special purpose. This proposed amendment would be placed before the voters at the next general election, if approved by the Legislature. "I introduced this resolution because of the differing opinions represented by the attorney general's office and Legal Services in regards to the dedication of a tax increment to a specific purpose. In order to avoid litigation, especially if the proceeds of the tobacco tax are to be placed into the school fund or if the legislature changes any other tax rate or license fee, into which proceeds are to be placed into a dedicated fund, this resolution is a means to resolve that potential problem." REPRESENTATIVE IVAN further stated he would like to see that the proceeds of the tobacco tax go to the maintenance and construction of school facilities. It was an opportunity to assist the government in some of its most important aspects. Number 0860 REPRESENTATIVE ELTON asked how many dedicated funds were there, other than the education fund? Number 0869 CHAIR JAMES replied there was a fish and game fund and a school fund. REPRESENTATIVE ELTON wondered if those were the only two funds that would qualify under this resolution. CHAIR JAMES replied, "Yes." Number 0877 REPRESENTATIVE VEZEY stated he believed that there were more than two funds. He cited the Fishermen's Fund as an example. He could not remember how many there were, but he knew there were more than two. Number 0883 CHAIR JAMES asked Thomas W. Wright, Legislative Assistant to Representative Ivan Ivan, to respond to the question. Number 0879 THOMAS W. WRIGHT, Legislative Assistant to Representative Ivan Ivan, stated the opinion of Mr. Gerald L. Wilkerson, Legislative Auditor, dated November 30, 1982, outlined what dedicated funds existed. He cited the Tobacco Tax (school) Fund, the Fish and Game Fund, the Reserves for Capital Outlay and Energy Facilities Development, the Renewable Resources Fund, the Public Employees Retirement System Fund, the International Airport Funds, the Continuing Debt Service Appropriation, and the Rural Electrification Revolving Loan Fund. Some of those funds, he explained, were out of existence and according to the attorney general's opinion, once a dedicated fund was out of existence it could not be re-instituted. Number 0940 REPRESENTATIVE VEZEY asked was that five funds? CHAIR JAMES replied there were a number of funds listed by Mr. Wright. Some of which were already gone. Number 0948 REPRESENTATIVE BERKOWITZ asked Mr. Wright, if the funds out of existence had been zeroed out in terms of the account, or had they been repealed? Number 0956 MR. WRIGHT replied he understood that they were not funded and considered discontinued programs. He suggested asking the Department of Revenue who had a better understanding. He did not know if they were out of existence in statute. He had not gone that far back, yet. He reiterated he understood that they were in existence, but they were not being funded. Number 0978 CHAIR JAMES responded that according to a legal opinion relating to the tobacco tax that once the tax was taken completely away, it could not be brought back. That was in accordance with the minutes at the constitutional convention. It would need to be re- instituted again. Chair James called on James Baldwin, Department of Law, to address the issue. Number 1016 JAMES BALDWIN, Assistant Attorney General, Government Affairs Section, Civil Division, Department of Law, stated the question of how many dedicated funds there were, was subject to definition. The only true dedicated funds now were the Fishermen's Fund and the Tobacco Tax (school) Fund. Those were the only two that he had been able to confirm. There was, of course, the permanent fund, that was constitutionally dedicated. There was also the Constitutional Budget Reserve Fund. There were also the funds that were required by federal statute. The funds that Mr. Wright referred to were not truly dedicated funds. They were rather segregated funds that were established for bond covenant purposes. They were an exception to the dedicated fund prohibition because the assets were pledged to buy off bond indebtedness. There was an exception allowed in the constitution to allow the state to incur debt for that purpose. Number 1085 CHAIR JAMES stated there were funds that the state used as though they were dedicated funds. She liked the term "segregated fund" that Mr. Baldwin mentioned earlier. The general public thought of these accounts as dedicated funds when technically they were only considered dedicated for political purposes. In addition, funds were also appropriated to get around the issue of dedication. She called it an end-run around the situation. She believed that the legislature should have free reign of the general fund to spend it in the best way. Number 1186 MR. BALDWIN replied the dedicated fund prohibition was put into place so that the power of the legislature would be preserved to the maximum extent possible over revenues coming into the state. Therefore, as long as the legislature retained its ability to appropriate funds, it did not violate the dedicated fund prohibition. Number 1210 CHAIR JAMES replied she understood that. However, "It's a perception, and perception is sometimes reality as far as people are concerned." Number 1217 MR. BALDWIN stated there were many funds that the legislature established by law and then appropriated money to them. That was clearly not a violation of the dedicated fund prohibition. The Governor's bill, he explained, would appropriate the revenues from the tobacco tax to a particular fund rather than dedicate them in the beginning. Number 1246 REPRESENTATIVE ELTON asked Mr. Baldwin if the language in the resolution would not allow the legislature to change the rate of contribution to the permanent fund or to the Constitution Budget Reserve Fund? Number 1279 MR. BALDWIN replied it would not because it only referred to those funds in existence before April 24, 1956. The permanent fund was established after that date. The constitution did allow the legislature to change the rate upwards, but the constitution would have to be amended to decrease the rate. Number 1317 REPRESENTATIVE ELTON asked Mr. Baldwin if the language in the resolution would allow the legislature to bring back a fund that had disappeared, such as, the Renewable Resources Fund? Number 1338 MR. BALDWIN replied he did not think that it did. The language would have to be changed to do that. It did not revive passed repealed dedicated funds. The statutory interpretation would say that "you cannot revive a prior repealed provision unless expressly provided." This resolution did not expressly provide for that. Number 1382 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin if, according to the opinion of Mr. Jack Chenoweth, Attorney, Legislative Legal and Research Services, Legislative Affairs Agency, a change in the rate of the tax by the legislature would not have an impact on the existence of the dedicated fund or undo the legal effect of the dedicated fund? Number 1405 MR. BALDWIN replied the 1959 opinion of the attorney general indicated such an act would nullify a fund. "We didn't explore that, as to what would be the effect. Whether it would destroy the underlying dedication." He read the opinion to say it would be an empty act. It would not accomplish anything. The legislature was without power to do that. It would leave the existing dedication in place. It would not destroy the existing dedication. That, however, was an open question. Number 1455 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin, in his opinion, if there was a change in the tax rate, would it nullify the fund? Number 1469 MR. BALDWIN replied, "No." If the tax rate was increased then the law was nullified. If the tax rate was increased and went to a dedicated fund then that law was nullified. If it was repealed, it was also gone and it could not be revived according to the current wording of the constitution. Number 1490 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin in his opinion if the increase in the tobacco tax in CSHB 1(STA) that the House State Affairs Standing Committee just passed would nullify the fund? Number 1501 MR. BALDWIN replied the opinion of the attorney general indicated there was a good faith legal argument that could be made of Mr. Jack Chenoweth's opinion. It was still an open question for the courts to decide, however. It was the opinion of the attorney general that it was worth testing. He could not say that it was flat out void or unconstitutional. The opinion of the attorney general in 1959 had been in effect for a long time, and the legislature had followed if for a long time. All those factors would be considered by a court. He could not say today that the bill passed out of the committee was flatly prohibited by the constitution. Number 1554 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin if the opinion had ever been tested before in court? He had more faith in the court system than Chair James. Number 1567 MR. BALDWIN replied this particular issue had not been tested in Alaska. He was not aware of a case tested in another state either. There were dedicated funds in other states, but he did not believe that there was a dedicated fund prohibition similar to the one in Alaska. The dedicated fund prohibition had been tested in other aspects, in particular, the breadth of the revenue covered. It was believed at one time that the prohibition only applied to tax and license proceeds. But, in the mid-1980's, it was ruled by the court that it covered all revenues received by the state. The court also ruled that the revenues that went to the ferry proceeds was not a dedicated fund. He was not aware of any other court cases. Number 1659 CHAIR JAMES stated that Mr. Jack Chenoweth's opinion contained the same caveat-that it could be challenged in court. The resolution, however, put the choice to the public as opposed to the courts. Number 1689 MR. BALDWIN explained there was a timing issue involved here as well. The resolution would go before the voters in 1998. And, according to the terms of the constitution it would take effect 60 days after certification. The CSHB 1(STA) indicated the primary tax would take effect in October of 1997. There was a one-year difference. He suggested considering a provision to include retroactivity or somehow linking the two together. Number 1770 CHAIR JAMES thanked Mr. Baldwin for his suggestion. The committee substitute was drafted so that if there was court action that negated it from putting revenues into the school fund, the money would then go into the general fund. It was assumed that the taxes collected before the court case would go to the dedicated fund. The money would be identifiable and the net result would then go to the general fund. She agreed the bill and the resolution should be coordinated. She hoped that the resolution would deter anybody from challenging this issue in court. MR. BALDWIN replied he thought somebody would file as soon as the first return was due. CHAIR JAMES stated it did not deter her determination, however, to move this issue forward. Number 1901 REPRESENTATIVE VEZEY stated the effort of HJR 18 was a bad idea. He called it an attempt to assuage ones conscience over raising taxes. The legislature had a 38 year history of defending its right to appropriate revenues. The hottest issue in terms of dedicating funds was the highway fund. Moreover, "Every time we get into a dedicated fund, it just turns into such a christmas tree that it goes into a hole and stays there the rest of session." That would probably happen to HJR 18 as well. Number 1972 CHAIR JAMES replied during the last legislature, she proposed a bill that addressed a state highway dedicated fund. She believed there needed to be a relationship between a tax and a fund for a connection. There was no connection between a tobacco tax and a school fund. There was a definite relationship between a fuel tax and a road maintenance fund. However, the state currently spent $75 million on road maintenance, but only collected $24 million in gas taxes. Even if the current gas tax was tripled there would not be enough money available to maintain the roads. Therefore, it did not serve the purpose of the dedicated fund. She agreed HJR 18 assuaged her because she had as much passion for spending money to make the schools safe and healthy as the people who supported the tobacco tax. Number 2080 REPRESENTATIVE VEZEY commented that, if all the fees and taxes were added together that were directly contributed to highway and vehicle use, they would amount to approximately $75 million. It just so happened, he explained, that what the legislature appropriated was at about the level that the state taxed and assessed fees at. Number 2111 CHAIR JAMES replied she understood that argument. The general public was concerned about losing federal funding in Alaska if it did not start taking care of its roads. That was a nationwide problem, however. She understood in other states that there was a dedicated highway fund and in other states that a transportation authority took care of the funds. The funds did not go through the legislature. She was not questioning whether the resolution or the bill was a bad idea or not. It was just what she wanted to do. Number 2217 REPRESENTATIVE ELTON said he was concerned because the constitutional convention provided the notion that dedicated funds were not good. He announced he was not prepared to move the resolution today, especially since there was a suggestion to include a retroactivity clause. He asked Chair James to postpone the final disposition of the resolution until Thursday, February 6, 1997, to allow the committee members to review the possible added language. He also wanted more time to ponder the wisdom of the members of the constitutional convention who were adamantly opposed to dedicated funds. Number 2312 CHAIR JAMES replied she did not have a problem with his concerns. The prohibition in the constitution had a rational purpose. It also allowed for the grandfathering of those dedicated funds prior to statehood. That was done for a reason. She did not want to question the reason, however. She believed, if the opinion of the attorney general had not been written in 1959 in its context, then the state would probably still have a highway use fund, for example. She would like to have a fund for the roads and a tax that was directly related to the use of the roads. She would not vote for a school fund if a highway use fund was an issue before the committee. There was no relationship between a tobacco tax and a school fund. But, it was here, it was reasonable, and it was available. That was her rationale and she knew there were holes all through it. She reiterated she would support a dedicated fund for the maintenance of the roads as long as the money going into it had a direct relationship to the use of the roads. This should not be a political issue, it should be a realistic issue.
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