Legislature(2019 - 2020)GRUENBERG 120
05/02/2019 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Building Divestment with the Division of Facilities Services (dot&pf) | |
| HJR18 | |
| HJR7 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 28 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HJR 5 | TELECONFERENCED | |
| += | HJR 6 | TELECONFERENCED | |
| += | HJR 7 | TELECONFERENCED | |
| += | HJR 18 | TELECONFERENCED | |
HJR 7-CONST AM:APPROP. LIMIT; RESERVE FUND
3:47:39 PM
CO-CHAIR KREISS-TOMKINS announced that the final order of
business would be HOUSE JOINT RESOLUTION NO. 7, Proposing
amendments to the Constitution of the State of Alaska relating
to an appropriation limit; relating to the budget reserve fund
and establishing the savings reserve fund; and relating to the
permanent fund.
3:48:45 PM
CORI MILLS, Senior Assistant Attorney General, Labor and State
Affairs Section, Department of Law (DOL), on behalf of the House
Rules Standing Committee, sponsor of HJR 7, by request of the
governor, began the PowerPoint presentation, entitled "House
Joint Resolution 7 Appropriation Limit." She reviewed slide 2,
entitled "Current Constitutional Spending Limit (Article 9,
Section 16)," which read as follows:
? Limit set at $2.5 billion, plus inflation and
population growth since 1982
? Calculation for FY20 would be about $10.5
billion
? Spending subject to cap includes all UGF operating
and capital expenditures, most statewide items, plus
some DGF items
? Excludes PFDs, bond proceeds, debt service payments,
non-State sources of revenue, public corporation
revenues, and disaster declarations
? At least 1/3 of limit reserved for capital projects
and loans
? Can break the limit for capital projects, if
approved by the voters.
CO-CHAIR FIELDS asked to see a slide showing inflation-adjusted
per capita spending for Alaska.
3:50:20 PM
ED KING, Chief Economist, Office of Management & Budget (OMB),
Office of the Governor, on behalf of the House Rules Standing
Committee, sponsor of HJR 7, by request of the governor,
responded that he has that slide but it is not in the
presentation. He offered to provide that slide to the
committee.
CO-CHAIR FIELDS asked for confirmation that per capita
inflation-adjusted spending is as low today as it was in the
late 70s and early 80s.
MR. KING answered that technically that statement is correct,
but misleading. He stated that the years following that period
were lower, even though the spending today is as low as it was
at the time period mentioned.
CO-CHAIR FIELDS asked for confirmation that on a per capita
inflation-adjusted basis, state spending is now lower than it
has been at most points in time for the last 35 years.
MR. KING responded that the current spending adjusted for
inflation and population is higher now than it was in the late
90s and early 2000s.
CO-CHAIR FIELDS asked if that was true on a per capita basis
deducting for permanent fund dividend (PFD) payments.
MR. KING replied that PFD payments are not historically
considered part of the budget, therefore, are excluded. He said
that he would have to re-think the question before answering
completely.
CO-CHAIR FIELDS stated that today Alaska spends less money on a
per capita inflation-adjusted basis in terms of operations of
the government than in most - if not all - years, since the late
70s and early 80s. It demonstrates that the spending cap has
not been exceeded, because the state has fiscal discipline. He
said that he questions a need for such a cap. Since the high
oil price years 2008-2013, the state has engaged in very large
budget reductions, and the state's spending is very fiscally
constrained.
CO-CHAIR FIELDS added that the information that the governor has
presented is neither inflation-adjusted nor adjusted on a per
capita basis. He maintained that it is misleading to the public
when the governor claims that spending has exploded, when in
fact it has not.
3:53:23 PM
MR. KING proceeded with slide 3, entitled "UGF Spending and
Limit History (Inflation Adjusted)," which illustrates the
history of the state's inflation-adjusted spending of various
types since fiscal year 1975 (FY 75); it includes agency
operations spending, debt service payments, and capital spending
- all adjusted for inflation. He maintained that during the
period FY 05 - FY 13, state government spending increased
significantly in response to an increase in revenue. It
exceeded the level of spending during the early 80s, when oil
revenues first started to flow into the state. The spending
level in the early 80s created the need for the constitutional
amendment in 1982.
MR. KING pointed out that the dotted black line in the graph
represents the spending limit - also adjusted for inflation -
and the green line represents revenues. He noted the
correlation between revenues and spending - as demonstrated on
the graph - and acknowledged that the correlation is associated
more with capital spending than with agency operation spending.
He added that agency operation spending did increase during the
period of high revenues; it has gotten smaller since that time
but is still greater than what it was during the early 2000s.
CO-CHAIR KREISS-TOMKINS asked whether the numbers in the chart
are also adjusted for population.
MR. KING responded that the numbers are not adjusted for
population. He stated that the question of the necessity of
population adjustment is one that should be debated. Increases
in population result in a need for increases in government
services. For example, more cars on the road require more
roads, and more children in school require more teachers;
however, economies of scale do exist. He contended that the
need is not directly proportional to the population increase.
He offered that when population adjustments are made giving
credit to the full rate of population growth, the result is that
the ability for the government to spend exceeds its need to
spend. He pointed out that from FY 85 - FY 05, the spending
limit allowed the growth of government, and the population
almost doubled, but government spending did not grow in response
to the population growth.
CO-CHAIR KREISS-TOMKINS pointed out that the graph gives no
accounting for population growth and asked for the rationale
behind giving zero recognition for population growth.
MR. KING answered that when economists discuss spending, they
are referring to the purchasing power of a dollar - the
inflation-adjusted value of a dollar. The graph shows the cost
of the same level of government services in today's dollars. He
maintained that to adjust for population would be "mixing apples
and oranges"; it could be done and may provide some insight and
value, but it is not instructive on what the level of government
spending should be or what it was. He offered to provide a
chart showing per capita spending but maintained that the trend
is similar.
3:57:23 PM
CO-CHAIR KREISS-TOMKINS referred to Mr. King's statement that
population growth may not be instructive regarding the
appropriate level of government spending. Representative
Kreiss-Tomkins maintained that although there are economies of
scale as population grows, he categorically rejects the notion
that population growth has no role when discussing the
appropriate level of government spending, and he rejects
accepting a pure academic economic outlook dictating that only
inflation-adjusted dollars count and not the population and its
needs. He requested a population-adjusted graph in future
presentations.
REPRESENTATIVE WOOL asked for clarification of the comment in
the chart that states that the current spending limit did not
work. He maintained that the chart shows that the spending
neither exceeded the limit nor the revenue.
MR. KING explained that when oil started to flow and revenues
more than tripled, government spending also increased. In 1982,
the public approved a constitutional amendment to restrict the
government from being able to grow at the same rate as revenue.
He said that the intent was that the spending limit would be
effective in curbing government growth, in the event of future
revenue increases. He stated that during the 20-year period [FY
85 - FY 05] in which spending was far below the limit but the
limit continued to grow, when there were excess revenues, the
limit did not restrict the ability to spend. He said that in
the early 1980s, Alaska saw a 260-plus percent increase in
government spending; in 2004-2013 there was a similar 260-plus
percent increase in government spending. He maintained that if
you accept the premise that the spending limit was put in place
to limit government spending, then it did not work.
4:00:42 PM
MR. KING moved on to slide 4, entitled "What if the Proposed
Spending Cap Passed before Oil Prices Spiked?" and asserted that
if a spending limit had been in place and it was effective in
restricting the government from growing, additional revenue of
about $29 billion would be in the permanent fund today,
generating about $6 billion annually under the current percent
of market value (POMV) calculation. He offered that the draw
would have been more than adequate to pay for the entire state
budget and the permanent fund.
MR. KING turned to slide 5, entitled "Sources of UGF Spending
Growth," to identify the sources of the increase in spending.
The pie chart [top right of the graphic] reveals that in FY 13,
capital spending was $1.8 billion above the FY 05 level,
adjusted for inflation; spending for agency operations was $1.3
billion above the inflation-adjusted FY 05 level; $400 million
was expended to purchase Alaska's Clear and Equitable Share Act
(ACES) credits in FY 05; and the unfunded retirement system
[Public Employees' Retirement System (PERS) and Teachers'
Retirement System (TRS)] liability required an expenditure of
$614 million in FY 05. He concluded that the increase in
government spending was due to a combination of factors; almost
half was due to capital spending; and significant amounts of
growth occurred in agency operations as well.
MR. KING reviewed the sources and increased levels of inflation-
adjusted spending in the FY 19 budget compared with the FY 05
budget, as shown in the pie chart [in the lower right of the
graphic]. He said that agency operations are $750 million above
the FY 05 level after adjusting for inflation.
REPRESENTATIVE STORY asked for confirmation that the investment
in the PERS and TRS retirement systems was about $3 billion.
MR. KING responded that there was a $3 billion transfer in FY
15; because it was a transfer, it does not show up on the
graphic. He explained that because of that transfer, there was
not a retirement contribution in FY 15, and the contribution is
smaller in the years after FY 15 because of the reduction in the
liability.
REPRESENTATIVE VANCE asked why the charts compare spending to
the FY 05 level.
MR. KING referred to slide 3 to point out that in the history of
the state's inflation-adjusted spending, FY 05 is the "low water
mark"; government spending was as low as it had ever been in
inflation-adjusted dollars. He maintained that it is not
unreasonable to revert to that level.
4:04:01 PM
REPRESENTATIVE WOOL maintained that there is a population
component, and although the effect of an increase in population
on the need for increased government services is not one-to-one,
more people are needed to handle the workload of serving more
people in the state. He expressed that there must be a way to
scale that component into the spending calculations.
MR. KING offered to present the numbers on a per capita basis.
He maintained that it would be informative as far as showing how
the level of spending has been changing on a per capita basis
but is not instructive on what government should be spending.
He stated that as the population grows, government spending
would not need to increase $17,000 per person for every new
person coming into the state.
CO-CHAIR KREISS-TOMKINS offered that the difference between
"instructive" and "informative" will be a profound distinction
for the committee going forward. He maintained that it is the
decision of the committee members as to what is instructive and
what is informative, considering that the constitutional
amendment proposed under HJR 7 would directly limit the power of
appropriation of the legislative branch of government.
MR. KING agreed that it was a policy call. He pointed out that
education funding, for example, increased by 19-20 percent
during a period when the population of students increased zero
percent. He maintained that it is a question of not only
someone moving to the state, but the services that person
requires; therefore, it is not an easy question.
REPRESENTATIVE LEDOUX asked whether the proposed amendment is
needed considering the budget passed by the Senate would deplete
the funds available for spending.
MR. KING answered that removing the safety net does eliminate
one of the tools for addressing increased government spending;
however, it would not prevent government growth through
taxation, using PFD funds, or increased revenues. He said that
although that scenario does put downward pressure on the budget,
it doesn't solve the issue addressed under HJR 7.
CO-CHAIR FIELDS referred to HJR 7, page 1, lines 7-11, which
read:
Appropriations made for a fiscal year shall not exceed
the average of the appropriations made in the previous
three fiscal years by more than fifty percent of the
cumulative change in population and inflation since
January 1 of the previous calendar year, derived from
federal indices as prescribed by law, or two percent,
whichever is less.
CO-CHAIR FIELDS asked whether the proposed amendment would lock
the state perpetually into fewer dollars per person in terms of
appropriation.
MR. KING concurred that government spending would not be able to
grow at the rate of inflation and population.
CO-CHAIR FIELDS pointed out that Alaska has an aging population
that will cost more; a percentage of that cost would be to the
state; and the idea that the state would arbitrarily reduce
spending every year regardless of population or needs is
"crazy."
REPRESENTATIVE LEDOUX asked if any other state has a
constitutional appropriations cap.
MR. KING responded that he does not have that information but
would provide it.
REPRESENTATIVE WOOL asked for confirmation as to the period in
which the school population did not increase.
MR. KING responded that the school population in Alaska has been
relatively stable since 1990 at about 130,000 students.
REPRESENTATIVE WOOL asked, "even though the state population's
gone up a few hundred thousand?"
MR. KING answered, "Yes, that's correct."
REPRESENTATIVE WOOL asked, "What about prison population?"
MR. KING replied that he didn't have that information. He
confirmed that the segment of population that is growing is the
aging population.
4:09:35 PM
MS. MILLS referred to slide 7, entitled "Appropriation Limit:
Section 1(a)" to review the sectional analysis for HJR 7. She
pointed out that the decision points in the proposed resolution
relate to the baseline that is established. She mentioned that
the current constitutional limit is $2.5 billion, and the growth
rate is based on population and inflation. She pointed out that
the baseline did not limit spending. She offered that in the
proposed resolution, the baseline is changed from $2.5 billion
to the average of the previous three years of appropriation plus
either 50 percent of the change in population and inflation over
the course of that year, or 2 percent, whichever is less.
MS. MILLS relayed that the next decision point is contained in
Section 1(a)(1)-(8) - the exceptions - those appropriations that
are outside of the cap, therefore, do not have spending
ceilings. She referred to slide 8, entitled "Illustration of
Total Budget and Appropriation Limit," which illustrates those
appropriations under the cap and those outside the cap. The
expenditures outside the cap include federal funding receipts,
PFDs, and other constitutional exceptions. She mentioned that
the appropriations excluded from the cap are the same that exist
in the current constitution as exceptions, except for capital
spending.
CO-CHAIR FIELDS asked for an explanation of "Capital Subject"
and "Capital Not Subject" in the slide 8 chart.
MS. MILLS responded by reviewing the exceptions: 1) the
permanent fund; 2) disasters; 3) obligations for bonds or
general obligation (GO) bonds; 4) re-appropriations; 5)
duplications; and 6) money held in trust by the state or
received from the federal government for a particular purpose.
In response to Representative Fields, she relayed that capital
outside the cap is the revenue received through GO bonds and the
payment on that debt. She stated that capital within the cap
refers to the capital budget items appropriated on an annual
basis.
CO-CHAIR FIELDS commented that states with arbitrary
appropriation limits have circumvented the limit through
bonding; under certain fiscal environments, such as when
interest rates are low, bonding may be beneficial, but under
other circumstances, bonding may add to the cost of
infrastructure, which is one of the absurd outcomes of arbitrary
appropriation caps.
MS. MILLS responded that would be a policy call; the
administration determined that a vote of the people for GO
bonding is the correct way to address large infrastructure
projects. She stated that the Senate [Judiciary Standing
Committee] amended the companion resolution, [SJR 6], to include
an exception for 10 percent up to the cap.
4:14:06 PM
CO-CHAIR KREISS-TOMKINS asked Ms. Mills to explain the types of
designated general funds (DGF) that would be subject to the cap.
MS. MILLS said that DGF generally consists of program receipts -
such as fees and licenses - and most all would fall under the
cap. She said that they are not distinguished by the proposed
appropriation limit; they are not distinguished by the current
constitutional appropriation limit; they are all considered
appropriations. She said that DGF not subject to the cap are
payments of revenue bonds through corporate revenues and
university tuition receipts. She reiterated that most DGF are
designated for a specific purpose and must be appropriated every
year; they would be included under the cap.
CO-CHAIR KREISS-TOMKINS asked for the motivation behind
including DGF under the cap.
MR. KING responded that the motivation behind including DGF
under the cap is to ensure the effectiveness of the cap and
prevent the legislature from circumventing the cap simply by
designating funds. He gave an example: vehicle rental tax is
collected, put into a special account, identified as designated,
and can only be used for parks or tourism. He asked, "What
would stop the legislature from doing that same thing with other
types of taxes and fees?"
MS. MILLS stated that DGF is only mentioned once in the
constitution; it was added in reference to the constitutional
budget reserve fund (CBRF). She maintained that DGF and
unrestricted general funds (UGF) are not terms used in the
constitution, and it is a struggle to discuss revenue using
constitutional and not accounting terms.
REPRESENTATIVE LEDOUX asked whether all GO bonds required
approval by the people.
MS. MILLS answered, yes. She said it is a separate
constitutional provision in Article IX, Section 8, of the Alaska
State Constitution, which read as follows:
No state debt shall be contracted unless authorized by
law for capital improvements or unless authorized by
law for housing loans for veterans, and ratified by a
majority of the qualified voters of the State who vote
on the question.
REPRESENTATIVE LEDOUX asked Ms. Mills to address revenue bonds.
MS. MILLS stated that a separate constitutional provision allows
for revenue bonds; they do not require a vote of the people,
only the revenue to support them.
REPRESENTATIVE LEDOUX asked if the state uses revenue bonds; she
asked for an example of a revenue bond.
MS. MILLS replied, yes, and that the constitution defines them
as a public enterprise or public corporation. She gave
examples: Alaska Housing Finance Corporation (AHFC) issues
mortgage bonds; and Alaska Industrial development and Export
Authority (AIDEA) issues revenue bonds. She said that the
specific requirement [for a revenue bond] is that the debt is
secured by the revenues that the corporation generates; there
must be enough revenue stream to pay them off.
4:18:32 PM
REPRESENTATIVE LEDOUX asked whether the exception of revenue
bonds - bonds that would not require the vote of the people -
constitutes a loophole "that you could drive a truck through"?
She asked whether the legislature could initiate a tax, and
before tax money comes in, support it through a revenue bond.
MS. MILLS replied that the revenues must be revenues that the
public corporation is receiving. The legislature cannot
surrender its taxation power; therefore, a public corporation
could not tax. She stated that there are methods of issuing
revenue bonds for an item or program that will generate receipts
to pay off the bonds. She conjectured that these are possible
opportunities under a stricter spending cap.
REPRESENTATIVE LEDOUX relayed that her point is that if the
constitutional amendment is driven by distrust of the
legislature not to [refrain from] spending, then that
legislature will do whatever possible to finance expenditures
excluded by the cap.
MR. KING noted that in the case of revenue bonds issued by a
public corporation, the corporation must have the authority to
provide a service and generate revenues in the provision of that
service. He stated that the revenues must support the bond;
therefore, "you can't just 'force' the public into the revenues;
you have to sell a product that they're willing to pay for; and
so, it has to be self-sustaining." He added that if the
government is subsidizing that public corporation, that subsidy
would be within the cap. Only to the extent that the
corporation can support itself and the revenue bonds through its
own generation of revenue, would it be excluded.
4:21:57 PM
CO-CHAIR FIELDS suggested that under the revenue bond model,
Alaska could have an Alaska Pioneer Home corporation with
revenue bonds covering 50 percent of the cost with the remainder
subsidized by the state; therefore, only 50 percent of the cost
would be under the cap. He mentioned that all the states with
arbitrary caps end up with convoluted ways of taxing. He
referred to Colorado's response to the taxpayer bill of rights:
In Colorado, local government is much more significant in
providing public services. Local metro districts were
established to tax outside the cap. There were 1,633 metro
districts for a combined net of $19 billion in the State of
Colorado. Many districts in the same jurisdiction tax to the
cap. Consequently, the spending was the same but done in a very
convoluted manner.
MR. KING pointed out that to make such evaluations, one needs to
understand what would have happened without the spending limit
in place and compare outcomes. He expressed his belief that in
all the states with effective appropriation or spending limits,
the spending has been more restrictive than states without
limits. He stated that even when rules are circumvented, the
spending is still limited.
CO-CHAIR KREISS-TOMKINS asked how closely the administration has
analyzed Colorado's Taxpayer Bill of Rights (TABOR) Amendment.
4:24:13 PM
MIKE BARNHILL, Director of Policy, Office of Management & Budget
(OMB), Office of the Governor, in response to Representative
LeDoux, relayed that the National Conference of State
Legislatures (NCSL) website lists 23 states with either a
constitutional or statutory appropriation limit, dated 2010.
The limits are in a variety of forms. Some states use a
percentage of aggregate adjusted gross income within the state
as the limit - such as 8 percent or 10 percent of the adjusted
gross income of individuals; these are states that use an income
tax as a primary form of revenue. Some states, like Alaska,
have a base that is adjusted through inflation. He relayed that
in terms of the Colorado experience, there is a fair amount of
discussion over the efficacy of the limit; one could view
analyses in a variety of ways. The people supporting TABOR -
which includes a requirement of a vote of the people to impose a
new tax as well as an appropriation limit - point to the
economic growth of Colorado since 1992. He maintained that it
is an absolute fact that Colorado has grown enormously since
TABOR was enacted but acknowledged that it is not known whether
that occurred because of TABOR or despite TABOR.
MR. BARNHILL offered that the problem that the administration is
attempting to address [with the proposed constitutional
amendment] is that Alaska's budgeting is volatile because the
revenue source is volatile. There are huge upticks in the price
of oil; the budget chases the huge upticks; when oil resets at a
lower price - such as in 2015 - it is very disruptive to reset
budgeting. He maintained that the state has been in budgeting
turmoil for several years, and the administration is proposing
through HJR 5, HJR 6, and HJR 7 to "smooth out" the volatility
by smoothing out spending.
CO-CHAIR FIELDS cited statistics of the outcomes of an
appropriations cap in Colorado from an article, entitled "A
Formula for Decline: Lessons from Colorado for States
Considering TABOR," by Iris J. Lav and Erica Williams, published
by the Center on Budget and Policy Priorities [document not
provided]. These statistics read in part as follows:
Between 1992 and 2001, Colorado declined precipitously
thth
from 35 to 49 in the nation in K-12 spending as a
percentage of personal income. As of 2006, the state
maintained its low ranking among the states at 48th.
Colorado's average teacher salary compared to average
th
pay in other occupations declined from 30 in the
th
nation in 1992 to a low of 50 in 2001, and edging up
only slightly to 49th in the nation as of 2007.
Under TABOR, higher education funding per resident
student dropped by 31 percent...
Tuitions have risen as a result. Between 2002 and
2005, system-wide resident tuition increased by 21
percent...
rdth
Under TABOR, Colorado declined from 23 to 48 in the
nation in the percentage of pregnant women receiving
adequate access to prenatal care...
thth
Colorado plummeted from 24 to 50 in the nation in
the share of children receiving their full
vaccinations...
At one point, from April 2001 to October 2002, funding
got so low that the state suspended its requirement
that school children be fully vaccinated against
diphtheria, tetanus, and pertussis (whooping cough)
because Colorado, unlike other states, could not
afford to buy the vaccine.
CO-CHAIR FIELDS stated that these are precisely the absurd set
of outcomes that Alaska should seek to avoid.
4:29:05 PM
MR. BARNHILL responded that he has heard two scenarios regarding
Colorado: 1) the spending cap is working and is producing very
difficult outcomes, or 2) the spending cap is not working at
all. He maintained that "you can't have it both ways." He
stated that it either is working, or it is not working.
CO-CHAIR FIELDS offered that what has happened in Colorado is
that an inability to provide adequate revenue has produced the
outcomes he cited. At the local level, governments have
scrambled to adjust to very real needs, and scrambling to adjust
results in highly inefficient and absurd structures like
multiple metro districts taxing within a region. He maintained
that both scenarios can occur at the same time: inadequate
support for core infrastructure investment along with government
scrambling to do the best it can under impossible circumstances.
MR. BARNHILL stated that the administration is looking for a way
- in the context of Alaska - to create control over spending so
that the volatility in the budget-making process is reduced. He
offered that it is inarguable that Alaska's budget, as shown in
the charts, has chased the price of oil. He asserted that
fundamentally Alaska needs to "get away from that."
CO-CHAIR KREISS-TOMKINS asked to know the state with a
constitutional spending limit that is most comparable to the one
proposed under HJR 7.
MR. BARNHILL expressed his belief that there are several states
with bases adjusted by inflation and population.
CO-CHAIR KREISS-TOMKINS reiterated that he is asking for a state
with a spending cap closest to what is proposed under HJR 7,
assuming the administration performed comparative research that
went beyond looking just at a basic spending cap but considered
all relevant details.
MR. BARNHILL stated that he does not have the answer but would
provide the table [from the website] to the committee. He
maintained that the intent of the proposed constitutional
amendment is to update what Alaska already has, which is the
$2.5 billion base, adjusted by inflation and population.
4:32:08 PM
REPRESENTATIVE VANCE asked what Alaska's expenditure would be
for FY 20 under the cap proposed by HJR 7.
MR. KING responded that the spending allowed under the cap would
about $5.3-$5.4 billion; it includes all the UGF and the
restricted DGF. He stated that the proposal under HJR 7 is
below that limit - a function of the past three years generating
a higher average but with a reduced budget. He maintained that
the passage of the spending limit does not force budget cuts to
occur; that remains the prerogative of the legislature. He
added that in this scenario, the limitation would likely be in
excess of what the legislature would spend.
REPRESENTATIVE VANCE offered that there would be a gradual rise
in spending - up to the 2 percent - rather than spiking with the
revenue.
MR. KING responded, "That would be the upper limit." He said
that the limit would not require the legislature to cut the
budget, but if it elected to spend less, the limit would adjust
to the lower level of spending. He added that the limit and the
spending would not be detached from each other as currently
occurs.
REPRESENTATIVE VANCE referred to slide 8 and asked why the PFD
is not included in the cap.
MR. KING replied that the items listed under the cap are
expenditures for which the governor wants to limit growth. He
wants to limit the growth of government; therefore, it is
included under the cap. He does not want to limit the growth of
the PFD, because it is the people's money, should be given to
them, and not be subject to the cap.
MS. MILLS clarified that the administration followed the
existing constitution; the exceptions are based on what the
voters approved in 1982 and reapproved in 1986. She maintained
that the proposed constitutional amendment would adjust the
baseline and change the limit on capital spending.
4:35:42 PM
REPRESENTATIVE LEDOUX pointed out that Alaska is included on the
NCSL list of states with spending caps, [list not included in
the committee packet]. She asked that the states with tighter
spending caps be identified - as opposed to ones with "generous"
caps such as Alaska's.
CO-CHAIR KREISS-TOMKINS added that identifying the state with a
spending cap closest to what is proposed for Alaska under HJR 7
would present an opportunity for him to discuss with that
state's policymakers the outcomes and challenges of the spending
cap in that state.
REPRESENTATIVE LEDOUX suggested that when oil prices are low -
as they are now - the state must forcibly "go on a diet."
Consequently, when prices are high, the pent-up demand from
municipalities, non-profit organizations, and agencies who have
been forced to "go on a diet" results in excess spending. When
the oil prices go down again, the state is faced with the pain
of budget cuts again. She asked if that is the motivation for
the proposed constitutional change.
MR. KING responded, yes. He said that the spending limit would
provide stability; the volatility of oil revenues creates the
dilemma of government spending following the revenues, as
Representative LeDoux described. He maintained that a spending
limit would eliminate the upswing in spending; therefore, when
oil revenues fall, the state does not have to make the difficult
cuts because it did not increase spending originally. He added
that stability also comes from the state being able to afford
its level of spending: when times are good, the money goes into
the savings account; when times are bad, the state can draw on
the savings account. He said that the proposed limit would
smooth out the volubility to avoid having to make the tough
decisions.
4:38:38 PM
CO-CHAIR FIELDS pointed out that a degree of volatility with
respect to capital spending is not a bad thing: 1) the state
may want to make counter-cyclical capital investments to reduce
the negative impacts of unemployment; most capital investments
tend to last a long time, such as the Loussac Library [in
Anchorage] built in the 80s. He offered that building a needed
structure that lasts 40 years is not an indicator of poor
discipline, but of good economic policy.
CO-CHAIR FIELDS stated that his office has received calls from
the [Charles and David] Koch brothers' organization Americans
for Prosperity (AFP) and asked whether that was at the
suggestion or direction of the governor's office or whether AFP
made the calls independently.
MR. KING responded that he has no information on that issue.
CO-CHAIR KREISS-TOMKINS relayed that the people making the calls
were very confused and would benefit from additional information
on HJR 7.
MR. KING stated that there is nothing under the spending limit
that would prevent counter-cyclical capital investments;
however, they would need to occur through bonding. He said that
the bonding process would smooth out the construction cycle.
There are fixed payments on the bonds, and the bonds are issued
according to need.
CO-CHAIR FIELDS relayed that he would support GO bonding
currently due to the [low] interest rates but pointed out that
GO bonding has a much longer timeframe, because it must go to
the voter for approval. Some environments are financially
prudent for GO bonding given low interest rates; in other
environments, borrowing money would not be prudent due to high
interest rates. He maintained that flexibility is important.
CO-CHAIR KREISS-TOMKINS mentioned that there is a robocall
service generating automatic voice mails to the email and
message boxes of the members of the committee. The emails are
being sent from an "alaska.gov" domain. He stated that he has
never experienced this before from the executive branch and
wants more information at the next hearing on how the governor's
office is engaging on the proposed constitutional amendments and
how this activity is being funded.
REPRESENTATIVE LEDOUX maintained that she has no problem with
the legislature or governor asking people to send in support for
an issue. She said that she does have problems with voicemails
from people claiming to be her constituents who are not. She
stated that it would be more effective for those people to
contact their own legislators.
CO-CHAIR FIELDS asserted that he has no objection to the
governor using a "bully pulpit" but does have an objection to
the function [of contacting legislators for support] being
controlled by an outside dark money-funded organization.
4:42:34 PM
REPRESENTATIVE VANCE asked, "Could we please remember that they
are representing the Department of Law (DOL) and probably not
communications of the governor?"
CO-CHAIR KREISS-TOMKINS expressed that he recognized that no one
present has the answer but would like more understanding on the
question.
MS. MILLS referred to slide 9, entitled "Appropriation Limit:
Section 1(b) and (c)," to explain the two new sections under the
proposed constitutional amendment. She stated that when
volatility in government spending is reduced and a more stable
sustainable level of government spending is achieved, the excess
revenues would go into savings. She reviewed the "savings
waterfall" described on slide 7, which read as follows:
• Excess revenues would automatically be deposited into
savings accounts in priority order
Total amount in general fund that is "unexpended,
unobligated, and unappropriated" (i.e., excess
revenues)
Priority #1: Pay back the permanent fund
principal 50% of the income that was deposited
into the ERA that fiscal year
Priority #2: [if money remains after
priority #1] Get savings reserve fund
balance up to appropriation limit (formerly
the CBR)
Priority #3: [if money remains after
priority #2] Put money into permanent
fund principal to continue growing the
fund
CO-CHAIR KREISS-TOMKINS asked for clarification of Priority #1
of the savings waterfall and asked for an example.
MS. MILLS gave an example: The permanent fund produced an
income of $4 billion in the last year. Out of that amount, $2
billion of the excess revenues - or 50 percent of the income
earned by the permanent fund - would be transferred to the
principle of the permanent fund. The intent is to replace the
income that was expended, because the calculation for the PFD is
50 percent of statutory net income.
4:46:20 PM
CO-CHAIR KREISS-TOMKINS asked for confirmation that under the
proposed constitutional spending limit, if high oil prices
resulted in surplus UGF, the extra revenue would go into the
principle of the permanent fund up to $2 billion.
MS. MILLS replied, "That's accurate." She added that if there
was even greater excess, the state would execute Priority #2 -
transfer money to the savings reserve fund - then Priority #3 -
transfer any amount left over to the permanent fund.
CO-CHAIR KREISS-TOMKINS relayed that most years the [stock]
market is favorable; under the proposed constitutional spending
limit, almost all surplus revenue would go back into the
principle of the permanent fund, resulting in ever bigger
dividends.
MR. KING concurred.
CO-CHAIR KREISS-TOMKINS asked what the size of dividend would be
under projected market conditions 20 years from now.
MR. KING stated that the question is challenging because there
are so many variables. He said that under the baseline
assumption, the principle would grow only with inflation,
because there is not a projected surplus in any of the next 20
years. He added that only with volatility would there be
occasional additional revenues subject to the waterfall; and in
most of those instances there would be insufficient funds to
advance beyond Priority #1.
CO-CHAIR KREISS-TOMKINS restated that under the model proposed
by HJR 7, water never "spills" through the waterfall described
on slide 9.
MR. KING agreed that it would be very rare. Only when oil
prices are high and investment returns are low would there be a
deposit in the CBRF.
4:49:02 PM
REPRESENTATIVE VANCE asked why putting money back into the
corpus is prioritized before putting money into savings. She
mentioned that often surplus years are followed by lean years.
She suggested that if savings are replenished only under
Priority #2, the state would not have adequate savings from
which to draw during multiple lean years.
MR. KING responded that it was a policy decision to return
excess revenues to the permanent fund, since the PFDs would be
paid out of the permanent fund. He said that his calculations
reveal that very often the CBRF is insufficient to weather
volatility and suggested that the administration would entertain
an amendment on that point.
REPRESENTATIVE VANCE asked for confirmation that under the
proposed constitutional amendment, any excess revenue would be
subject to the savings waterfall; it would be the only mechanism
for putting money into savings.
MR. KING answered that the prerogative of the legislature would
still prevail; if it chose to put money into savings, it could,
and transfers to savings accounts are excluded from the cap. To
the extent that there are additional funds in excess of the
limit and the legislature did not voluntarily put money into
savings, the excess funds would be subject to the savings
waterfall.
REPRESENTATIVE VANCE asked for confirmation of her understanding
as follows: the legislature spends to the cap; there is excess
money; the legislature could put money into the savings account;
any additional money would by subject to the savings waterfall.
MR. KING concurred.
MS. MILLS referred to page 2, line 13-14, of HJR 7, which states
in part "of money to a State savings account or fund that
requires a subsequent appropriation."
REPRESENTATIVE LEDOUX asked for confirmation that the
legislature could put any amount into the savings account before
putting it into the corpus.
MS. MILLS answered, "Correct." She added that doing so would be
one of the exceptions and could be done before determining the
amount of excess revenues.
4:52:36 PM
CO-CHAIR FIELDS relayed the top solutions identified by business
leaders for balancing the state budget as ascertained through a
recent poll by the Southeast Conference ["Southeast Alaska
Business Climate Survey Results 2019," not included in the
committee packet]: 1)reduce oil tax credits; 2) reduce
individual PFD payments; 3) increase the POMV from the permanent
fund used to pay for state services; 4) institute a state-wide
income tax; and 5) increase corporate taxes.
CO-CHAIR FIELDS referred to a memo from the Anchorage Economic
Development Corporation (ADEC) to Governor Michael J. Dunleavy,
Speaker of the House Bryce Edgmon, and President of the Senate
Cathy Giessel (dated 4/3/19, not included in the committee
packet), which read in part as follows:
We strongly support a balanced approach between
targeted necessary cuts, new board-based sources of
revenue, and the Permanent Fund. The AEDC Board
believes this is the only way that the state and local
economy will achieve the fiscal stability required for
promoting new investment and expansion of existing
business and ask for your consideration.
CO-CHAIR FIELDS noted that HJR 5, HJR 6, and HJR 7 do not
represent a balanced approach, do not align with what the
business groups have requested, and are not consistent with what
the legislature has heard from Alaskans who have participated in
the process of reaching out to the House finance committees.
MS. MILLS clarified that HJR 7 does not prevent the legislature
from taking a POMV approach; it supports the [legislature's]
policy goal of growing the permanent fund to fund PFDs and
government; and it does not address taxes.
CO-CHAIR KREISS-TOMKINS asked for clarification regarding the
use of the permanent fund to pay for government expenditures.
MS. MILLS responded that the assumption under HJR 7 is that
there would be a statutory POMV draw from the permanent fund,
and any draw from the permanent fund would be transferred to
general funds (GF) and subject to the spending cap. She
maintained that HJR 7 would not restrict money spent from the
CBRF.
4:55:03 PM
MS. MILLS referred to slide 10, entitled "Appropriation Limit:
Sections 2, 3, and 5," and relayed the process by which the
proposed resolution would change the CBRF. It would change the
name to "savings reserve fund"; the sources of payments into the
fund would be tax and royalty settlements and the portion of
excess revenues based on priorities in the new appropriation
limit; the "sweep" - return of remaining GF money every year to
CBRF pursuant to Article IX, Section 17(d), of the Alaska State
Constitution - would be repealed; and the "reverse sweep" -
deposit of that money right back into GF by a three-quarters
vote - would be unnecessary. She explained that HJR 7 would
repeal the sweep, because there would be a new way of saving
through the savings waterfall, and it would repeal the three-
quarters vote allowance for any public purpose. She continued
by saying that alternately, HJR 7 would allow the legislature to
access the savings reserve fund by majority vote to the extent
necessary to fill the gap between revenues in GF and the
appropriation limit; the goal would be to have enough money to
pay for one year's budget and avoid the massive cuts of the
previous few years.
CO-CHAIR KREISS-TOMKINS referred to slide 5 and asked for the
distinction between "base operations" and "operations growth."
MR. KING relayed that base operations are the operations that
were in effect in FY 05 and growing with inflation. He
explained that in the chart, the black bars represent the FY 05
operations spending plus inflation over time [FY 05 - FY 19],
and the red bars represent the spending that did occur in excess
of the inflation-adjusted amount.
CO-CHAIR FIELDS asked for the percentage of the spending that
was due to the simple growth in the cost of healthcare.
MR. KING responded that a significant amount of the spending was
attributable to healthcare, although he does not know the
percentage.
5:00:19 PM
REPRESENTATIVE WOOL referred to slide 5 and asked to know the
trend of the average per capita income over the period
represented in the chart.
MR. KING acknowledged that both salary and benefits increased by
more the rate of inflation over the period. He offered to
provide a chart demonstrating the distinction between the growth
of income versus the growth in the number of employees, relative
to population.
REPRESENTATIVE VANCE asked to know what could happen if no
spending cap were enacted.
MR. KING replied that the greatest fear is that government would
continue to grow faster than revenues, and without limitation on
the growth of government, the savings reserve fund and the PFD
would disappear.
CO-CHAIR KREISS-TOMKINS stated that HJR 7 would be held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Property Disposal Presentation to House State Affairs Comm 5.2.2019.pdf |
HSTA 5/2/2019 3:00:00 PM |
|
| HJR005 Amendment A.2 4.30.19.pdf |
HSTA 5/2/2019 3:00:00 PM |
HJR 5 |
| HJR005 Amendment A.2 Legal Opinion 5.1.19.pdf |
HSTA 5/2/2019 3:00:00 PM |
HJR 5 |
| HJR007 Amendment A.1 5.1.19.pdf |
HSTA 5/2/2019 3:00:00 PM |
HJR 7 |
| HJR007 Amendment A.1 Legal Opinion 5.1.19.pdf |
HSTA 5/2/2019 3:00:00 PM |
HJR 7 |
| HJR007 Supporting Document - DOL Memo on SJR 6 re Amendment vs. Revision 5.1.19.pdf |
HSTA 5/2/2019 3:00:00 PM |
HJR 7 SJR 6 |