Legislature(2003 - 2004)
04/29/2003 07:07 AM House W&M
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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 TAPE 03-16, SIDE B Number 4625 CO-CHAIR WHITAKER announced that the next 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. [CO-CHAIR WHITAKER determined earlier in the meeting that no one wished to testify on HJR 9.] Number 4505 CO-CHAIR WHITAKER reminded the committee that [Version D] of HJR 9 is before it and a proposed committee substitute (CS) will be distributed tomorrow. He emphasized that every piece of legislation before the committee falls in the context of an overall financial plan. He reiterated that HJR 9 will be discussed in greater length tomorrow. Number 4422 REPRESENTATIVE OGG stated that he appreciates the triggering mechanisms included for potential inflation, deflation, or drastic economic growth. Alaska has been a boom-and-bust society for many decades. He said he is concerned about [the budget increase being dependent on] a three-quarters vote because he is not sure that a 2 percent increase would adequately cover instances of gross inflation or dramatic economic growth. Representative Ogg suggested that a higher number might be more appropriate. He didn't want to see the legislature truncate its ability to respond to these circumstances. He proposed a tentative 5 percent increase [instead of the second 2 percent increase]. CO-CHAIR HAWKER stated that Representative Ogg has bracketed one part of dialogue - the upper end, the most difficult [budget] to achieve because a three-quarters vote is truly a significant hurdle. In the current committee substitute, the very base itself is flat; it does not have any level of incremental spending that could be passed by a simple majority. As written, a 2 percent increase would take a two-thirds vote; another 2 percent increase would require a three-quarters vote. He proposed a limited increment for inflation and for the formula- driven components of the budget such as education and Medicaid. CO-CHAIR WHITAKER noted that Representative Ogg's concern is on the high end of the budget while Co-Chair Hawker's point focuses on the lower end of the budget. Number 4041 REPRESENTATIVE WILSON said that sometimes a three-quarter vote inadvertently causes more spending. Historically, an effort to obtain a three-quarters vote required spending a lot more than what was originally intended, she commented. CO-CHAIR WHITAKER noted that tomorrow's proposed committee substitute will have a balancing mechanism. A simple majority can pass a budget that is flat or one that has a modest increase of 2 percent. He said for those who want to leverage a three- quarter vote, the message is, "Forget it, you have a flat budget, and the majority will allow for that." It's a balancing mechanism. He said that HJR 9 represents a major change in the way the legislature produces a budget. The committee's decision [on HJR 9] will not be final. Ultimately, the voters will decide if the constitutional amendment is good enough. Number 3814 REPRESENTATIVE HEINZE asked several questions about when the committee will present its work product. CO-CHAIR WHITAKER stated that the committee must have the votes necessary to move legislation, and that's done one step at a time, one committee at a time. The legislature must put a constitutional amendment before voters in 2004 or the state will face an economic crisis of the magnitude of the one experienced in 1985 and 1986. He confirmed the committee's work must be completed before adjournment this year. REPRESENTATIVE OGG spoke about the three-quarters vote. He said the present circumstances are different than the future that this [constitutional amendment] will affect. The legislature is trying to trim the budget, but cannot because of political pressure; it's spending more money than it's actually making. He said he believes this constitutional amendment is designed for a time when the budget is balanced and the state has more money than it's actually spending. He proposed the following increments: flat or 1 percent, 2 percent, then 2 to 5 percent. He asked if this would allow for fixed cost increases. Number 3447 CO-CHAIR HAWKER agreed with Representative Ogg's ideas on incremental increases. He suggested a base of 1 or 2 percent that is compounded and becomes a new base. He said the specific exemptions enable the state to respond to emergencies. He said if there were an emergency that required a three-quarter vote to spend some exorbitant amount, it would fit under a governor- declared disaster, which is an allowable exemption. REPRESENTATIVE OGG commented that there needs to be a [spending] limit because without it, the legislature has not changed anything. Number 3251 REPRESENTATIVE MOSES observed that a two-thirds vote is hard enough to get. He said the longer the legislature delays, the more problems accelerate. He said he's concerned with a spending limit because the state's deferred maintenance exceeds the state's annual budget, which is a terrible situation. In the rural areas, public safety, education, and the correctional systems are substandard. It's time to do something, he stated. REPRESENTATIVE WILSON told the members that when looking at limiting growth, it's important to be realistic. If the budget is ratcheted down too tightly, if there's only flat funding, the state will fall behind. The state needs a mechanism in place so inflation does not [eat into state programs]. She agreed that deferred maintenance needs to be looked at, and that economic growth will create additional expenses. Number 2904 CO-CHAIR HAWKER concurred that the state has huge amounts of deferred maintenance on public facilities, particularly schools, public safety facilities, ports, and harbors. This will require a significant investment. He pointed out that the mechanism [in HJR 9] assures the public that the legislature won't take all the new money [from permanent fund earnings and taxes] and funnel it to rural Alaska to rebuild its infrastructure and leave the large population areas such as Anchorage with nothing. This measure says the legislature will deal with the problems in the Bush, but within the constraints of a balanced budget, not an excessive spending program. CO-CHAIR HAWKER continued by saying that one of the exemptions from the spending cap in HJR 9 is the appropriation of the proceeds from general obligation and revenue bonds. He said the legislature does use leveraging or debt financing wisely. The legislature is issuing general obligation bonds this year, putting the money into schools and facilities across the state. The debt service must still come in under the cap, but the initial appropriation does not. He said he believes the legislature can manage within the budget in a responsible way and not spend more than is necessary to pay the debt service. It is possible to accomplish these needed projects. There's a "synergistic" mechanism within HJR 9 that accommodates both concerns. Number 2629 CO-CHAIR HAWKER said that as the state uses the last of its cash reserves, it must develop a new fiscal structure. He supported the idea of maintaining the sunset clause in HJR 9. After the passage of the constitutional amendment, the state has a window that extends through 2010, after which this limitation would go away. Hopefully, he said, the legislature will balance the budget for six years, and then the state could look at more significant public infrastructure development across the state. This would demonstrate that the legislature can manage the resources well and get [the state] back on the right track, he said. [HJR 9 was held in committee.]
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