Legislature(2003 - 2004)
05/02/2003 07:13 AM W&M
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HJR 9-CONST AM: APPROPRIATION/SPENDING LIMIT Number 1737 CO-CHAIR WHITAKER announced that the first 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. [Contains discussion of HB 11] CO-CHAIR WHITAKER announced that CS for HJR 9 (W&M), 23- LS0435\D, Cook, 4/30/04, is before the committee. He asked the members to look at the last chart reviewed [titled "State Expenditures with Constitutional Spending Limit HJR 9, 2% Annual Budget Increase"], where a 2 percent increase requires a simple majority vote. If the legislature chooses to exercise that option, then he asked members to look at the chart titled "CBRF End-of-Year Balance" [second chart in the packet], which assumes a 2 percent spending increase and no other new taxes. He pointed out that this chart shows what happens to the CBR given an annual 2 percent increase in spending. Co-Chair Whitaker asked the members to compare this chart to the chart that is being handed out [titled "CBRF End-of-Year Balance, Assumes 5% POMV, $300 Million Annual Sales Tax, and Passage of HB 11", (Assumes House FY 2004 budget as the base, with a 3% spending increase and no other new taxes)] and note what happens when the legislature spends 3 percent. Although 3 percent does not sound like much, this chart shows what happens very quickly [to the CBR]. Co-Chair Whitaker urged the members to keep in mind the assumptions upon which this discussion is based - $300 million of new taxes and HB 11 having been in place a year and a half. Number 1919 REPRESENTATIVE GRUENBERG told the members that there is one other factor that has not been discussed. That factor is the affect of required federal programs and unfunded federal mandates or federal programs that continue with the federal dollars going away after a period of time. He also said that it would be important to consider the "Stevens'" factor, which is what happens when Senator Stevens is no longer in Congress. He asked if Mr. Persily would comment on any or all of those issues. MR. PERSILY said if he understood Representative Gruenberg's point correctly in referring to the constitutional spending limit [HJR 9], federal funds are exempted from the cap. However, it would be a difficulat situation for the legislature if a program that previously received federal funds did not, in a subsequent, year. He noted that there are escape clauses in that a two-thirds vote [of the legislature] can increase [spending] an additional 2 percent, and a three-quarters vote [of the legislature] can increase [spending] another 2 percent. Number 2030 REPRESENTATIVE GRUENBERG clarified his question by asking if the Department of Revenue can estimate the impact that would have on this chart. MR. PERSILY asked Representative Gruenberg which chart would he prefer he use. CO-CHAIR WHITAKER noted that the committee recognizes that there is a factor there; this is only an estimate and it would be difficult to quantify. MR. PERSILY responded that he really could not guess. Of the federal money that comes to Alaska, much of it goes out in grants and federal payroll and a significant amount of federal money is earmarked for transportation projects. Mr. Persily said he could not estimate how much money that goes into the operating budget might have to be replaced by [general fund] money if the federal money stopped [coming in], or how much the legislature might want to replace as opposed to just letting the programs go away. Common sense says that if the federal money is cut back, the state would definitely end up with some holes in its budget, he said. Number 2226 REPRESENTATIVE OGG asked if these calculations included consideration for economic growth, a flat economy, or an economic decline. MR. PERSILY replied that those factors were omitted. He explained that he was thinking with a fiscal note mentally when making up the charts. He explained that fiscal notes do not factor in growth or inflation, they are flat lined. This assumes that a $300 million broad based tax in FY 06 is going to generate $300 million in tax revenue in FY 12. He advised that the Department of Revenue will make up another set of graphs assuming some reasonable growth factor. Looking at this cumulatively, for example, if there were $300 million in annual broad based tax revenues starting in FY 06 and if with inflation, population growth, and economic development it could be increased 3 percent per year, the cumulative result by 2012 would be an additional $200 million. Mr. Persily commented that factoring that in can be a significant gain. Number 2336 CO-CHAIR WHITAKER asked if a growth factor was included in the POMV. He also asked if there was growth factor included in the $300 million in taxes. In response to Mr. Persily's negative response, he asked if the same assumptions were used with regard to growth on [tax revenues], what would the cumulative numbers be. MR. PERSILY replied that by FY 12 it would be cumulatively $200 million in additional revenue for the CBR. CO-CHAIR HAWKER commented that in not including the [growth factor] in some ways it mitigates not including the inflation factor in the base general fund. Number 2415 MR. PERSILY pointed out that the State of Alaska does not have any revenue source that grows with economic activity. If there were a broad base [tax], whether it is a sales tax or an income tax, hopefully there would be increased revenue to meet the increased needs as the population grows, inflation grows, and the demand for services increases. Although there would be some growth in revenue, it certainly would not be enough to cover it all, he said. REPRESENTATIVE OGG asked if there is economic growth factor in the HB 11 option. MR. PERSILY explained that HB 11 is a function of the price of oil and how much oil is pumped out of the ground. These numbers are based on the spring of FY 03 revenue oil forecast which [assumes] a long-term oil price of $22 [per barrel] and production holding steady at about 1 million barrels per day. REPRESENTATIVE OGG asked if there is a growth factor [included in the forecast]. MR. PERSILY replied no growth factor would be included. However, if there were additional discoveries that number would increase. CO-CHAIR WHITAKER pointed out that that number will increase sometime in the future, perhaps even before 2012. Number 2540 REPRESENTATIVE HEINZE asked Mr. Persily to give the members an idea how this picture would look without the $300 million sales tax. What would the impact be on either chart, she asked. MR. PERSILY highlighted that the first chart uses the following assumptions: no spending increase, no sales tax revenue in FY 04 of about $125 million because it is a fraction of a year. Under the aforementioned scenario, the state would not get $300 million per year in FY 05 through FY 12, so there would be $2.5 billion less revenue. If the $300 million broad base tax did not exist and in FY 12 the legislature put 60 percent of the permanent fund distribution into public services and 40 percent into dividends, the CBRF would be more than a billion dollars in the hole instead of ending FY 12 with a $1 billion and a half [in the CBRF]. It would make a significant difference, Mr. Persily commented. Number 2703 REPRESENTATIVE ROKEBERG said he wanted to correct one statement made by Mr. Persily. He said Mr. Persily forgot to indicate that oil and gas production growth does have a positive tax impact. REPRESENTATIVE ROKEBERG asked if there is any way to display these same types of graphics showing the current situation in FY 03 or FY 04. What he would like to see, he said, is a base line start because it would show the impacts of no action on the CBRF and the spending lines would be used as starting points. Also, as Representative Heinze asked, it would be interesting to see the impacts of HB 11 or the lack of that component. He commented that he is not shilling for HB 11, but he said he believes that a chart would show the failure or cumulative impact in 10 years. There would either be no dividends or decreased dividends. This would show the long-term cumulative affect of a small component as well as help to make judgments as to the importance of taxation and spending variables. Representative Rokeberg said another chart he would like to see is a 1 percent decrease in spending. Number 2936 CO-CHAIR HAWKER responded that those charts will be before the committee tomorrow. REPRESENTATIVE HOLM questioned whether the legislature has considered reducing spending and whether the administration plans some kind of reduction in spending. CO-CHAIR WHITAKER commented that is certainly something that the legislature can do. The legislature has reduced the budget in the past and can certainly do it again. REPRESENTATIVE GRUENBERG surmised that the charts take into consideration that as the CBR goes down it will earn less, and therefore there will be some kind of geometric affect. MR. PERSILY responded that is correct. These charts assume that whatever balance is in the CBR generates investment earnings and [those earnings] are put back in for appropriation. The less money in the CBR, the less it earns, and the less is available for appropriation. Number 3147 REPRESENTATIVE BILL STOLZE, Alaska State Legislature, as sponsor of HJR 9, commented on the committee substitute and answered questions from the members. He observed that the CS liberalizes the constitutional spending limit significantly. It allows for three times the increases that the original resolution proposed. He asked why a section was taken out that would have directed the governor to make necessary reductions in expenditures to meet the spending limit. He said he was not involved in the process [of writing the CS]. CO-CHAIR WHITAKER responded that the section that would have required the governor to make necessary reductions in expenditures to meet the spending limit was removed because of concerns that the governor would be constrained and left without the option of spending in a manner deemed appropriate. He said there was the recognition that there would be consequences to that change in terms of budgets ramifications. REPRESENTATIVE STOLTZE said he wanted it noted on record that this is the Co-Chair's choice, and not his. Number 3344 REPRESENTATIVE GRUENBERG, commenting as a lawyer, remarked that the language on page 2, Section 16(c), lines 17-21, would have resulted in allowing the governor to reduce expenditures and divest the legislature of the authority to override those vetoes. He asked if that was Representative Stoltze's intent. REPRESENTATIVE STOLTZE replied that he believed the language was clear and that [his intent] was that he wanted the governor to comply with the spending limit. REPRESENTATIVE GRUENBERG reiterated his belief that a lawyer or judge would interpret the language to mean that it clearly divests the legislature of any participation in the process. REPRESENTATIVE STOLTZE clarified that his intent was that the legislature pass the budget. The governor could call the legislature back into session, or the legislature could demand to come back into session with the requisite number of votes, he said. Representative Stolze said he does not believe there is an abrogation [of powers]. Number 3557 REPRESENTATIVE ROKEBERG moved to adopt a conceptual amendment to CSHJR 9, Version H. He said the amendment would remove language on page 2, lines 11-16. REPRESENTATIVE ROKEBERG objected for purposes of discussion. REPRESENTATIVE ROKEBERG explained the current [work] draft allows for three incremental increases of 2 percent. The proposed amendment would eliminate the second level of 2 percent increase and a two-thirds vote of each house. Therefore, it would limit the cap to 4 percent with a standard 2 percent increase and would require a three-quarter vote for any increase in the budget. Representative Rokeberg said that the 6 percent increase annually really does not look like much of a spending cap to him, and that is the rationale for this amendment. CO-CHAIR WHITAKER stated that Conceptual Amendment 1 to HJR 9 would delete subsection (b), page 2, lines 10-16. Number 3721 REPRESENTATIVE GRUENBERG objected. REPRESENTATIVE WILSON said that she really has a problem with this amendment because in thinking realistically of the future of the state she sees many problems, such as the teacher shortage. This is a crisis situation and she predicted that in order to attract teachers it will be necessary to increase their pay. Representative Wilson said that if the legislature puts itself in too tight of a box, the state will be in big trouble. She emphasized that the legislature needs to think realistically and face the future. REPRESENTATIVE KOHRING asked for the sponsor's reaction to the Conceptual Amendment 1. REPRESENTATIVE STOLTZE responded that it is an improvement [from the committee substitute]. A roll call vote was taken. Representatives Weyhrauch, Rokeberg, Kohring, Heinze, Whitaker, and Hawker voted in favor of Conceptual Amendment 1. Representatives Moses, Gruenberg, and Wilson voted against it. Therefore, Conceptual Amendment 1 passed by a vote of 6-3. Number 3921 CO-CHAIR HAWKER moved Amendment 2 [23-LS0435\H.1, Cook, 5/1/03] which read as follows: Page 2, line 16, following "made": Insert ", excluding appropriations listed in (a)(1) - (10) of this section" Page 2, line 22, following "made": Insert ", excluding appropriations listed in (a)(1) - (10) of this section" Number 3934 CO-CHAIR WHITAKER objected and noted that Amendment 2 was developed by Legislative Legal and Research Services. He explained that Amendment 2 clarifies that if the legislature does obtain the supermajority level for expenditures, it does not become part of the base for future appropriations. REPRESENTATIVE WILSON asked for further explanation of the bill. CO-CHAIR HAWKER told the members that this Amendment 2 adds a line on page 2, line 22, at the end of the paragraph, which says if the legislature makes an appropriation that exceeds the amount allowable under this [constitutional] amendment, it will require three-quarters of each house of the legislature to do it; [Amendment 2] makes it very clear that the amount of the appropriation may not exceed 2 percent. The 2 percent is based on the amount appropriated in the two fiscals years preceding the years for which the appropriations are made. That 2 percent does not apply to those exceptional items in Section 16 (a)(1)- (10), on page 1, lines 10-16 and page 2, lines 1-10. It is strictly a 2 percent increment based on the base level of government expenditures. This would not include the permanent fund distributions, disaster response, general obligation bond issues, reappropriation money, and all the other items listed in (1)-(10). This amendment would clearly restrict the overriding capacity of the legislature to the base amount in the constitutional amendment. The committee took an at-ease from 7:55 to 7:56 a.m. Number 4300 CO-CHAIR WHITAKER withdrew his objection to Amendment 2. There being no objection, Amendment 2 was adopted. Number 4351 REPRESENTATIVE ROKEBERG proposed Amendment 3. He asked the members to look at Version A of HJR 9, which is the original version of the bill as offered by the sponsor. Representative Rokeberg explained that on page 2, lines 17-21, the provision that the sponsor talked about with respect to directing the governor to make a cut in funding if the legislature failed to do so, should be reinserted. He said that he would like to insert that language in as subsection (c) on page 2. Representative Rokeberg read [subsection (c) of Version A] which said: "(c) If appropriations for a fiscal year exceed the amount that may be appropriated under (a) and (b) of this section, the governor shall reduce expenditures by the executive branch for its operation and administration to the extent necessary to avoid spending more than the amount that may be appropriated under (a) and (b) of this section." He commented that this was excised from the original resolution and he would like to reinsert this language. Number 4614 REPRESENTATIVE ROKEBERG moved Amendment 3 as follows: On page 2, line 17, Insert the following: "(c) If appropriations for a fiscal year exceed the amount that may be appropriated under (a) and (b) of this section, the governor shall reduce expenditures by the executive branch for its operation and administration to the extent necessary to avoid spending more than the amount that may be appropriated under (a) and (b) of this section." REPRESENTATIVE GRUENBERG objected. TAPE 03-21, SIDE B Number 4650 REPRESENTATIVE GRUENBERG told the members he is not sure how this amendment would work, and would have no objection to Amendment 3; however, he sees two different ways this language could be interpreted. For example, the language could be interpreted to mean that even though $1 million has been appropriated for the Alaska Department of Fish and Game, the governor does not need to spend all of that money and [the administration] should make its best efforts not to do so. This language could also be interpreted to mean that if the legislature appropriated too much money under the Constitution [under this amendment], the governor could veto the appropriations bill and the legislature would constitutionally have no power to override that veto. Representative Gruenberg highlighted the legal importance of knowing the intent of the amendment. It has got to be clear in the language, he said, and asked for the intent of this language. REPRESENTATIVE STOLTZE commented that he would have a better appreciation for the members' concerns about passing powers to the governor if Representative Gruenberg had not voted for a $20 million unallocated reduction for the governor to make as a budget amendment. Number 4354 REPRESENTATIVE ROKEBERG agreed that Representative Gruenberg raised a very good and interesting point with respect to the amendment and the issue of constitutional separation of powers. REPRESENTATIVE GRUENBERG reiterated that he would have no problem with Amendment 3 if the intent is the first interpretation of the amendment. REPRESENTATIVE ROKEBERG commented that there may be some ambiguity in the amendment and would like to get counsel's opinion on this issue. CO-CHAIR HAWKER responded that he does not have a legal background so his approach is the doctrine of common sense. If the purpose of [HJR 9] is as stated on page 1, line 6, "Appropriations made for a fiscal year shall not exceed", [the word] "shall" seems to be an imperative. He asked the members to look at the proposed additional language which says, "If appropriations exceed". There seems to be a contradiction within the amendment itself, he commented. Co-Chair Hawker said that with all due respect, this is a constitutional amendment proposition and it appears that this language would build a conundrum into the Constitution. Number 4214 REPRESENTATIVE ROKEBERG responded that everyone knows that because of supplemental appropriations [the budget can exceed the spending limit]. The other factor is if there is a legislature or governor that is predisposed to [increase] rather than decrease spending, there could be the problem of a constitutional challenge. He said he looks at this amendment as a further check on that separation of powers. He went on to say that the ability of the legislature to override by veto is an important question. CO-CHAIR WHITAKER pointed out that the next committee of referral is the House Judiciary Standing Committee where he believes that issue will be discussed at great length. Number 4052 REPRESENTATIVE SEATON told the members that he believes there are constraints put on the legislature that prevent the members from living up to this matter in the amount spent on capital expenditures. He noted that he is in favor of this amendment because it inserts a dual requirement that if the legislature does not appropriate the way the Constitution says, which is now the case with the capital budget, then the governor is directed to make these changes. Representative Seaton summarized his comments by saying he thinks the amendment is appropriate. REPRESENTATIVE GRUENBERG commented that his question still remains unanswered, and asked if Ms. Cook would provide an interpretation. Number 4003 TAMARA COOK, Director, Legislative Legal and Research Services, Alaska State Legislature, provided a legal opinion on HJR 9 and proposed amendments, and answered questions from the members. Ms. Cook asked if Representative Gruenberg's question is whether the legislature would retain veto power if the language in subsection (c) from the original bill is reinserted. In response to Representative Gruenberg's affirmative response, she commented that everyone who has touched upon the issue is correct, this is an issue that needs to be addressed. If the issue is not addressed she believes the legislature would not have veto power because the override power applies to vetoes. This is clearly not a veto; it is direction to the governor not to spend money that has, in fact, been appropriated. MS. COOK told the members that she does not know of any mechanism in the Constitution whereby the legislature can veto a decision of the [governor] not to spend money that has been appropriated. She pointed out that the Sheffield case dealt with that situation with the North Star Borough. In that case, then-Governor Bill Sheffield ordered a reduction in certain expenditures due to the state facing a decrease in revenues and a budget that was not balanced. The time for him to veto the appropriation had long since expired. He was not vetoing an appropriation in the sense that the legislature would then have something to override. He was directing the executive branch [of government] not to spend money that had, in fact, been appropriated, she said. That [action] resulted in litigation. She pointed out that the reductions by [the then-Governor Sheffield] were overturned in court. The legislature responded by coming back into session and ratifying those reductions. Ultimately the decisions that then-Governor Sheffield made were upheld by the action of the legislature. She said that as she reads this provision, absence any clarification, she believes [the amendment] would be building that kind of situation into the Constitution. She said that what this does is tell the governor that despite the fact that the money has been appropriated, it will be the governor's decision not to spend it. In fact, the governor must decide not to spend some money that is appropriated to the Executive Branch since he cannot reduce money to the Judicial or Legislative Branches of government. The governor must elect to not spend some money if, in fact, the money appropriated exceeds the spending limit as a constitutional matter. Number 3710 REPRESENTATIVE ROKEBERG withdrew Conceptual Amendment 3. However, he said he hopes it will be considered during the bill's referral to the House Judiciary Standing Committee. Number 3627 REPRESENTATIVE GRUENBERG said he does support a mechanism to get state spending under control; however, he is not sure how it should be done. Representative Gruenberg expressed concern that this measure may tie the hands of the legislature at a time when it is important to have options to make very difficult decisions. He pointed to the 1970s where the state experienced runaway inflation, which is something beyond the control of legislature in the constitutional sense. Another issue might be some kind of situation that does not fall into one of these escape clauses. He expressed concern that the committee adopted Amendment 1 and thus eliminated subsection (b), which would have been helpful. On page 2, line 20, the resolution specifies that the legislature cannot under any circumstances exceed 2 percent of the previous amount. That 2 percent figure is going be grave and in stone. Representative Gruenberg said he would feel more comfortable about this resolution if there were some method of giving the legislature, under some circumstances, the ability to get around that. Representative Gruenberg pointed out that something may occur that no one in this room could have foreseen, something that could require an immediate appropriation; the only way that the legislature would be able to make that appropriation is by amending the Constitution, which could not be done until the next general election. Number 3237 REPRESENTATIVE HEINZE moved to report CSHJR 9, as amended, out of House Special Committee on Ways and Means with individual recommendations and the accompanying fiscal notes. There being no objection, CSHJR 9(W&M) was reported from the House Special Committee on Ways and Means.