Legislature(2003 - 2004)
04/05/2004 09:04 AM Senate FIN
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* first hearing in first committee of referral
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#sjr3
CS FOR SENATE JOINT RESOLUTION NO. 3(JUD)
Proposing an amendment to the Constitution of the State of
Alaska relating to an appropriation limit and a spending
limit.
This was the tenth hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken specified that this legislation would implement
a Constitutional spending limit.
Senator Dyson moved to adopt the committee substitute, Version
23-LS0296\Z as the working document.
Senator Hoffman asked for confirmation that the Version "Z"
committee substitute encompasses previously adopted amendments.
Senator Dyson responded affirmatively.
There being no objection, the Version "Z" committee substitute
was adopted as the working document.
Senator Dyson, the bill's sponsor, noted that the Administration
has explained that due to four years of "budget restraints,"
there is "an artificial distortion in the application of the
formula in the out years." Therefore, he continued, the
Administration had requested that the base years' numbers be
adjusted "in order to make the formulas smooth and work for the
expected and reasonable expansion of the budget." He attested
that this had been done. Subsequent to that, he continued, the
adoption of Amendment #12 at the previous meeting, "distorted
how the formula works" in that it exempted all University
receipts from the appropriations calculation.
CHERYL FRASCA, Director, Office of Management and Budget, Office
of the Governor, noted that the action of "amending out the
University of Alaska's receipts had the affect of removing" $150
million of spending from the total amounts available for
appropriation for FY 04 and FY 05. Therefore, she recommended
that $150 million be removed from the appropriation calculation
formula base years of FY 2004 and FY 2005 as specified in Sec.
2, subsection Section 30 (1) and (2) on page three, lines 21 and
22 in Version "Z". She specified that this would reduce these
numbers to $3,150,000,000 and $3,250,000,000, respectfully.
Ms. Frasca also noted that a grammatical correction should occur
in Section 1, subsections Section 16 (1) on page one, lines 13
and 15, and Section 16 (2) on page two, line 3, in which the
words "second" and "third" should be replaced with the word
"two." This language currently reads as follows.
(1) the percentage rate of change in the Consumer
Price Index for all urban consumers for the Anchorage
metropolitan area compiled by a federal agency during the
second and third calendar years preceding the calendar year
during which the immediately preceding fiscal year began,
but not to exceed the percentage change in personal income
of State residents during the second and third calendar
years preceding the calendar year during which the
immediately preceding fiscal year begins; plus
(2) the percentage rate of change in the State
population during the second and third calendar years
preceding the calendar year during which the immediately
preceding fiscal year began compiled by a State department.
Co-Chair Green asked whether changing this language would have
an affect on the calculation formula.
Ms. Frasca responded that it would not.
Amendment #13: As a result of exempting University of Alaska
receipts from the appropriations calculation, this amendment
reduces the total FY 04 and FY 05 appropriation amounts
reflected on page three, lines 21 and 22 from $3,300,000,000 to
$3,150,000,000 and from $3,400,000,000 to $3,250,000,000,
respectfully.
Co-Chair Green moved for the adoption of Amendment #13 and
objected for discussion.
Co-Chair Green asked for a review of the calculation formula
from which the original FY 04 and FY 05 base year levels of
$3,300,000,000 and $3,400,000,000 were derived.
BRUCE TANGEMAN, Fiscal Analyst, Legislative Finance Division,
informed the Committee that these amounts were determined by
reviewing the appropriation amounts for several years prior to
FY 2004, as he informed, the FY 2004 and FY 2005 amounts were
unavailable. He stated that the resulting calculation provided a
base to which a growth factor was applied. Therefore, he
concluded that the formula provided "a safe, fairly known
calculation for what's going to happen in 06."
Co-Chair Green understood therefore, that this methodology
provided a "floor" from which to determine future calculations.
Senator Dyson stated that Co-Chair Green's comment is correct.
Continuing, he clarified that this legislation would establish a
"floor on the spending limit, not on our spending."
LUCKY SCHULTZ, Staff to Senator Fred Dyson, noted that another
consideration in the "adjusted base year" calculation was to
determine an amount that would provide adequate growth,
respectful of the funding reductions that occurred over the past
several fiscal years and of how the "no ratchet down provision
is written." He continued that were these adjustments not
incorporated, the end result would have been a "no-growth limit"
for the first several years after the legislation's enactment,
which, he attested, would have resulted in a difficult situation
under which to operate.
Co-Chair Green ascertained therefore, that, rather than
incorporating two formulas, the calculation was adjusted to
provide for FY 04 and FY 05.
Senator Dyson agreed and noted that this is addressed in the
bill via the term "transition."
Senator Hoffman asked whether a chart has been provided to
reflect the funding reductions proposed in this amendment.
Mr. Tangeman responded that a corresponding chart has not, of
yet, been provided.
Senator Dyson pointed out that the slope of line would be the
identical to that depicted in the CS SJR 3 chart [copy on file]
except that the line would be positioned approximately $150
million lower on the graph. He noted that an updated chart would
be provided.
Senator B. Stevens asked what constitutes the $150 million in
University receipts.
Ms. Frasca responded that, originally, the University receipts
category amounted to approximately $200 million. She reminded
that earlier Committee action exempted the University's tuition
revenue, amounting to approximately $50 million, from the
calculation. Therefore, she stated, Amendment #12 served to
exclude the remaining $150 million balance.
Senator Hoffman inquired whether inflation-proofing and
population projections attributed to the decision to exempt
University receipts from the calculation.
Ms. Frasca responded that she could not provide an answer, as
rather than being an amendment proposed by the Administration,
the amendment was proposed by a Committee member.
Co-Chair Green asked for confirmation that the University's
previous years' receipt revenues had been excluded from the
calculation used to determine the adjusted base year levels.
Mr. Tangeman assured that they had been.
Senator Dyson, responding to Senator Hoffman's question,
characterized the University receipts being excluded as
"enterprise activity" receipts generated from such things as
ticket proceeds from hockey programs or book sales. He viewed
these activities as having "no impact on the general fund," and
furthermore, he stated, were the University's economic analysis
to reflect that they should or could charge more for activities,
the Legislature should not restrict them from doing so.
Co-Chair Green asked whether other State entities might request
similar exemptions.
Ms. Frasca responded that no others had opted to make a request
of this nature to the Administration. Furthermore, she stated
that the Administration's "challenge" is to provide sufficient
"general fund dollars to support core responsibilities of
government." Continuing, she noted that several State programs,
such as the Division of Motor Vehicles, generate receipts in
excess of "what it costs to perform their functions." Therefore,
she continued, it would be expected that were excess receipts
generated by a program, that program would not be entitled to
spending the excess funds as some contribution to core
government services, such as the Department of Corrections which
does not generate receipts, should be expected. She stated that
a program's ability to generate revenues does not signify that
the program has "first claim," to spending them. Therefore, she
concluded that every program "should compete to the degree
that's appropriate" for general fund dollars.
Co-Chair Green commented that general fund monies are annually
distributed based on competing needs via the appropriation and
priority process.
Ms. Frasca agreed and stated that a "scrutiny" process evolves
from which a determination of expenditures is made. She noted
that other legislation is pending that proposes to reclassify
designated funds and deposit them into the general fund column.
Co-Chair Wilken reviewed the effects of the amendment on the
amounts detailed in the FY 04 D-24 component, the FY 05 E-24
component, the FY 06 F-24 component, and the FY 07 G-24
component of the "SJR 3" chart [copy on file] that was provided
by Legislative Finance.
Mr. Tangeman replied that the FY 04 D-24 component and the FY 05
E-24 component on the aforementioned chart would each be reduced
$150 million, to $3,150,000,000 and $3,250,000,000,
respectfully; the FY 06 F-24 component would be reduced to
approximately $3,330,000,000; and the FY 07 G-24 component would
change to an undetermined amount.
Co-Chair Green removed her objection.
There being no further objection, Amendment #13 was ADOPTED.
Conceptual Amendment #14: This amendment changes language in
Section 1, subsections Section 16 (1) on page one, lines 13 and
15, and Section 16 (2) on page two, line three, in that the
words "second" and "third" would be replaced with the word
"two." This language would read as follows.
(1) the percentage rate of change in the Consumer
Price Index for all urban consumers for the Anchorage
metropolitan area compiled by a federal agency during the
two calendar years preceding the calendar year during which
the immediately preceding fiscal year began, but not to
exceed the percentage change in personal income of State
residents during the two calendar years preceding the
calendar year during which the immediately preceding fiscal
year begins; plus
(2) the percentage rate of change in the State
population during the two calendar years preceding the
calendar year during which the immediately preceding fiscal
year began compiled by a State department.
Co-Chair Wilken moved to adopt Amendment #14.
There being no objection, Amendment #14 was ADOPTED.
Co-Chair Wilken asked for further information regarding the Fund
Code language that is included as depicted in the handout titled
"Fund Codes Included in Limit" [copy on file]; specifically
whether the reference to such things as the Alaska Marine
Highway (AMH), code 1076, would signify that an increase in the
passenger fares or ridership would be subject to the spending
limit.
Mr. Tangeman confirmed that they would be.
Co-Chair Wilken questioned the rationale for this provision.
Ms. Frasca theorized that an increase in AMH revenue as a result
of increased fares or ridership might result in AMH requiring
fewer general fund dollars as those monies would be deposited
into the AMH fund to fund AMH operation expenses. She
additionally noted that this legislation is a limit on spending
as opposed to limiting fund sources.
Co-Chair Wilken asked whether the $91 million denoted for the
International Airport Fund, Code 1027, is an enterprise fund
comprised of such things as landing fees.
Ms. Frasca affirmed.
Co-Chair Wilken asked the rationale for its inclusion, as he
likened it to "discretionary funding on behalf of the
Legislature."
Ms. Frasca noted that the proceeds from bonds that were sold,
and whose the debt service was paid by the International Airport
Fund, are excluded in the Capital Budget. Continuing, she
pointed out that the Fund Code list includes several fund
sources that would continue into the future. Furthermore, she
stated that the question is how much would they increase from
one year to the next. She exampled that were a new terminal to
open within the next four years and result in a significant
increase in revenue, it might "cause some concern."
Co-Chair Wilken asked regarding the Alaska Aeronautical
Development Corporation (AADC), Fund Code 1101, whose "budget is
characterized by feast or famine" in that it might receive ten
million dollars one year and zero the next.
Ms. Frasca responded that AADC funding primarily consists of
federal receipts, which are exempt from the limit. She noted
that revenue from such things as contracts with private firms
for certain services would also be exempt.
Mr. Tangeman also noted that these fund sources reflect current
funding conditions. He noted that were this legislation to be
adopted, more in-depth analysis would be conducted on the
components of each fund source as he exampled that included in
the AADC Fund Code 1101 might be a combination of revenues such
as private contract revenue.
Co-Chair Wilken asked whether the sale of State land,
specifically Fund Code 1153, would count against the general
fund spending limitation.
Ms. Frasca responded that currently it would. However, she noted
that the proceeds from those sales would normally support
functions within the Department of Natural Resources. Continuing
she noted that general fund dollars have been supplanted with
the State land proceeds. She reiterated that this legislation
addresses how funds are spent rather than how funds are
generated.
Ms. Frasca further noted that the International Airport Fund
Code might consist of contractual relationship between the
airlines and the airport, which she reiterated would be exempt
from the limit.
Senator Dyson commented that this is an informative list as it
"really is the delta between the numbers that we see and what we
generally think of as general fund."
Co-Chair Wilken asked the identity of the Fund Cod 1180 A/D P&T
Fd as listed on the list.
Ms. Frasca identified it as the Alcohol and Drug Prevention and
Treatment Fund.
Co-Chair Wilken asked regarding Fund Code 1168 Tob ED/CES and
Fund Code 1170 SBED RLF.
Ms. Frasca, Mr. Schultz, and Committee Members identified those
Fund Codes as the Tobacco Education and Cessation Fund and the
Small Business Economic Development Revolving Loan Fund.
Senator B. Stevens asked whether any Fund codes were excluded
from the list.
Mr. Tangeman replied that the Fund codes not included in the
list would be those of the university; those that are federally
funded; trust funds; and approximately 15 dedicated fund codes.
Ms. Frasca stated that approximately 20 fund codes not are
included.
Senator B. Stevens asked for confirmation that the fund code
identified as 1179 PFC is the Permanent Fund Corporation.
Ms. Frasca replied that this Fund code pertains to the operation
of the Corporation itself.
Senator B. Stevens asked for further information, such as
whether this Code pertains to billable amounts or is the result
of a formula distribution.
Ms. Frasca responded that it is based on the budget.
SFC 04 # 70, Side A 10:42 AM
Senator B. Stevens asked for specific information regarding how
the amount was determined.
Ms. Frasca responded that in terms of the Corporation itself,
the number is based on the budget approved by the Legislature.
Continuing, she noted that this item might be related to
management fees of the Permanent Fund. She noted that were a
large amount being invested, "there is the potential for it to
be extraordinary." This situation, she stated might require
Legislative action.
Co-Chair Wilken stated that staff has informed him that rather
than Fund Code 1179 pertaining to the Permanent Fund Corporation
it pertains to Passenger Facility Charges.
Mr. Tangeman concurred that Fund Code 1179 is, in fact,
Passenger Facility Charges [PFC] and that Fund Codes 1041 and
1105, which are not included on the list, pertain to the
Permanent Fund Corporation.
Senator B. Stevens asked whether the Passenger Facility Charges
Fund Code is a component of the Alaska Marine Highway System or
the Department of Transportation and Public Facilities.
TRACI CARPENTER, Staff to Senator Green, responded that the
Passenger Facility Charges are airport fees.
Senator B. Stevens questioned therefore, whether the inclusion
of this Fund in the Appropriation Limit would negatively affect
the spending limit were an increase in international or tourism
travel to occur as a result "of success in a non-government
entity."
Ms. Frasca responded that that could occur.
Senator B. Stevens asked, therefore, that the PFC component's
inclusion in the Limit be further reviewed. Continuing, he asked
whether "encouraging non-government enterprise to utilize
renewable resources," such as the Timber Receipts Fund Code
1155, for example, could have the same result as the PFC
component.
Mr. Tangeman concurred that it would.
Senator B. Stevens voiced the understanding that this
legislation is a limit on spending as opposed to a limit on
revenue. However, he voiced concern regarding the process were
an increase in revenue to occur. He asked for verification that
the revenues generated from various Fund Codes would be
deposited into the general fund.
Ms. Frasca responded that while the revenue would be deposited
into the general fund, it would be allocated to these designated
Receipt Funds, which have been established by the Legislature.
Senator B. Stevens surmised therefore that these Fund Source
Codes are established to fund such things as the Department of
Natural Resources "or some other mechanism."
Ms. Frasca affirmed. She stressed that the challenge is how to
place a limit on how much the State could spend regardless of
where the funds generated. She attested that "this is the
spending side of the equation."
Senator Dyson reminded that, in the State's "foreseeable
future," what would be diminished were a spending limit in
place, would be the amount spent from the Constitutional Budget
Reserve (CBR). Continuing, he stated that rather than "limiting
new business and new enterprises and growth" in the future this
legislation would limit the amount of money that the State would
have "to borrow ? while significantly increasing our financial
stability and our wealth."
Co-Chair Wilken asked, for clarification, whether an "available
annual growth" increase of one million dollars from the FY 05
level of $12.4 million to an FY 06 level of $13.4 million in
Fund Code 1179 PFC would decrease the overall FY 06 amount
available for appropriation by the same amount.
Mr. Tangeman responded that this scenario might not be accurate
as he noted that while the FY 05 base is $3.25 billion, it does
not mean that the entire amount would be appropriated. He stated
that were the actual appropriation to be less and were the FY 06
appropriation to be to the limit, then the affect would be an
increase above the FY 05 limit of $86 million. He reminded that
the FY 06 amount is based on estimates for FY 04 and FY 05.
Therefore, he declared that the FY 06 number would be affected
by how much was actually appropriated in FY 04 and FY 05.
Co-Chair Wilken advanced, therefore, to the FY 09 fiscal year
limit specified on the aforementioned CS SJR 3 chart, and noted
that the information depicts that $95 million would be available
in FY 09. Continuing, he asked whether a one million dollar
increase in the PFD Fund Code in FY 09 would serve to reduce the
$95 million to $94 million.
Mr. Tangeman asked that the question be further clarified.
Co-Chair Wilken clarified that it has been experienced in the
past, that when the State received a grant or when the State
"increased the cost of providing government service directly to
the provider," a problem arose in "that that counted as State
spending" with the result being that the State was required to
reduce State spending "somewhere else in the budget an equal
amount." Therefore, he restated his question by asking whether a
one million dollar increase in the PFC Fund would require a one
million dollar reduction somewhere else in the budget such as in
K-12 education.
Mr. Tangeman responded that were the State's spending to be at
the appropriation limit, yes.
Co-Chair Wilken understood, therefore, that were any of the Fund
Code components that are included in the Limit to increase, a
dollar for dollar decrease in the amount available to spend in
that fiscal year would be required.
Ms. Frasca responded that the assumption is that were another
dollar raised, another dollar could be spent by a program.
However, she continued, "the challenge is to say that these
activities don't necessarily have first claim on every dollar
that they bring in. It could be that they also have a general
fund subsidy that is supporting the program." Therefore, she
stated, that general fund subsidy dollar could be replaced with
the excess money raised by the Fund, and the general fund
subsidy could be used, for instance, to support another program
such as K-12 education. That, she attested, is the balance that
could be applied.
Senator Hoffman stated, "therein lies the problem," as he
exampled that were a Legislature's majority party to not support
a certain department's budget, rather than supporting one of the
department's program with excess money the aforementioned
scenario might produce, whatever is determined by the majority
"to be a priority area" would be the area that would receive
that additional funding. This he declared "is a key problem."
Senator Dyson reiterated that for the four-years this
legislation would be in effect, the money that would be reduced
is the money that would be withdrawn from the CBR, and in
addition, he stressed, State debt would be reduced. He declared
that both he and Senator B. Stevens desire that the money that
has been withdrawn from the CBR should be repaid in order "to
rebuild that bridge to the future, and be promise keepers." He
stressed that "the focus" should be that any additional revenues
from these Fund Code sources should "be going to build fiscal
stability, reduce our borrowing, and repay our Rainy Day
accounts. " He declared that, "this is very, very important to a
State that depends so much on the sale of natural resources that
are sold on a world commodity market."
Senator Bunde announced that this legislation "would not result
in a problem that does not already exist," as a Legislative
majority could increase or "attempt to control spending"
regardless of whether a spending limit were in effect. He stated
that were the CBR unavailable then more control might be
exerted, based on "philosophical points of view."
Senator Hoffman responded that "therein lays the argument for
having a spending limit."
Senator Hoffman asked how a one-time emergency or extraordinary
circumstance would be addressed were this legislation enacted,
as he remarked that it is unclear whether the appropriation
language pertaining to emergencies and extraordinary
circumstances, as identified in Section 16, subsection (2)(d)
and (e) located on page two, line 27 through page three, line
five, would be considered a component of the base.
Mr. Shultz pointed out that language in Section 16, on page one,
lines six through ten "is meant to indicate" that emergencies
and extraordinary circumstances would be exempt from the
establishment of a base, and that the base would be the amount
appropriated the previous year.
Senator Hoffman asked whether "the substantial changes" being
made this year to the education budget to address the Public
Employees Retirement System (PERS) /Teachers Retirement System
(TRS) and the student base foundation funding formula would be
considered a component of the base or would, on an annual basis,
be addressed as an extraordinary circumstance.
Mr. Shultz responded that were the expenditure to exceed the
appropriation limit, then it would be required to be considered
as an extraordinary circumstance.
Co-Chair Wilken referred to the aforementioned chart and asked
whether an approximate $50 million dollar PERS/TRS obligation is
included in the FY 06 appropriation limit of approximately $86
million, as identified in Cell (f) (25) of the chart.
Mr. Shultz responded that the base year numbers would allow some
"headroom" for the PERS/TRS obligation for FY 06 and FY 07.
Co-Chair Wilken noted that a $50 million TRS obligation would be
expected for several forthcoming fiscal years. He asked whether
this has been accounted for in the chart.
Mr. Shultz responded in the affirmative. He noted, however, that
the FY 06 number, rather than being the actual number, is
elevated as it is based on an adjusted base year.
Senator Bunde moved to report the committee substitute for SJR
3, Version "Z," as amended, from Committee with individual
recommendations and accompanying fiscal notes.
Co-Chair Wilken objected for discussion.
Senator Hoffman objected. He characterized the Legislature as
being fugal, as it has not budgeted to an established spending
limit in the past. Furthermore, he stated that as priorities are
determined, the Legislature would budget accordingly. While he
understood that this legislation would establish a four-year
spending limit that would be reviewed; he declared, "that the
current system is working quite well." He removed his objection.
Co-Chair Wilken stated that an updated chart and a population
change analysis would be forthcoming to accompany the bill as it
progresses.
Senator Dyson voiced that it would be useful to have "a general
graph" developed to reflect how current spending would be
portrayed were a spending limit in place. He voiced that the
graph should start in the early 1970's in order to reflect the
boom years the State underwent with its oil wealth. However, he
noted that this suggestion has been characterized as being
difficult to produce.
Co-Chair Green asserted that this chart would be "woefully
difficult" to develop as every piece of legislation that
affected the budget would require analysis. She, therefore,
remarked that the current information is adequate.
Co-Chair Wilken remarked that this request would be considered
by Legislative Finance staff.
Senator Hoffman recalled that when the State had a large
quantity of "extraordinary income," and a tremendous amount of
money was available, most votes to use discretionary funds for
such things, as capital projects were unanimous.
Co-Chair Wilken removed his objection.
There being no further objection, CS SJR 3 (FIN) was REPORTED
from Committee with a new $1,500 fiscal note from the Division
of Elections, dated January 28, 2004.
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