Legislature(2003 - 2004)
05/02/2004 12:04 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE JOINT RESOLUTION NO. 9(FIN) am
Proposing amendments to the Constitution of the State of
Alaska relating to an appropriation limit.
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that CS HJR 9 (FIN) am, Version 23-
LS0435\O.A would allow Alaskan voters to decide whether or not to
adopt a Constitutional spending limit amendment in the 2004 General
Election. He noted that following testimony by Representative Bill
Stoltze, the sponsor of this bill, Senator Dyson and his staff
would explain the differences between this bill and the related
bill, SJR 3-CONST AM: APPROPRIATION/SPENDING LIMIT, that they are
sponsoring.
REPRESENTATIVE BILL STOLTZE, the bill's sponsor, stated that this
legislation was introduced "as an independent stand-alone
Constitutional amendment" that is not linked to other legislation.
He noted that in order to address the State's fiscal crisis, a
multitude of ideas including such things as using Permanent Fund
earnings, instituting new taxes, and developing other non-
traditional revenue sources are being discussed. However, he
continued, the intent of this legislation is to assure that the
State proceed in these manners in "a controlled fashion." In
conclusion, he stated that the best action to take in regards to
this bill and the Senate bill, SJR 3, that similarly proposes a
Constitutional amendment pertaining to an appropriation spending
limit would be to understand the differences between the two bills.
LUCKY SCHULTZ, Staff to Senator Fred Dyson, the sponsor of SJR 3,
referred the Committee to a comparison analysis of the two bills
titled "Comparison of HJR 9 and SJR 3" [copy on file]. He pointed
out that one of the four major differences between the two bills is
a "no ratchet down provision" is included in SJR 3 but not in HJR
9. This provision in SJR 3, he explained, specifies that in a year
in which the formula reflects an appropriation decrease, the
spending limit would be retained at the previous year's level. He
disclosed that other states that increase and decrease
appropriations depending on a formula have been negatively impacted
when their appropriation decreases. As a result, he continued,
Colorado and other states have implemented a "no ratchet down
provision."
Mr. Schultz stated that the comparison chart also reflects
provisions that are included in HJR 9 but not included in SJR 3 as
follow: Item #11, which pertains to language in Section 1,
Subsection 16(c) located on page two, lines five through seven of
HJR 9, specifies that in order to exceed the appropriation limit by
up to two-percent, a 2/3 vote of the legislature would be required;
Item # 12 which pertains to language in Section 1, Subsection
16(c), page two, lines seven through ten of HJR 9 that specifies
that in order to exceed the limit above two-percent but less than
four-percent, a 3/4 vote of the legislature would be required; and
Item #13 which pertains to language in Section 1, subsection 16(c),
page two, lines ten through twelve of HJR 9 that would not allow
exceeding the limit by more that four-percent. He explained that
while SJR 3 does not include this limiting language, it does
include provisions through which the limit could be exceeded in
order to address "extraordinary circumstances."
Mr. Schultz noted that both bills include provisions with which to
address disasters or emergencies as declared by the Governor.
Mr. Schultz stated that another difference between the two bills is
addressed in Item #3 on the aforementioned handout regarding how
the appropriations are determined in each bill.
[NOTE: HJR 9 appropriation language being referenced is located in
Section 1, subsection 16 (a) on page one, beginning on line six of
the bill that reads as follows.]
Section 16. Appropriation Limit. (a) Appropriations made for a
current fiscal year shall not exceed the average amount
appropriated for the earliest three of the four fiscal years
immediately preceding that current fiscal year, increased or
decreased by the less of
(1) seventy-five percent of the sum of the following:
(A) the percentage rate of change in the cost of
living for the three calendar years preceding the calendar
year during which the immediately preceding fiscal year began;
plus
(B) the percentage rate of change in the State
population for the three calendar years preceding the calendar
year during which the immediately preceding fiscal year began;
or
(2) the percentage rate of change in the personal incomes
of State residents for the three calendar years preceding the
calendar year during which the immediately preceding fiscal
year began.
[NOTE: The SJR 3 appropriation language being referenced is located
in Section 1, subsection 16 (a) on page one, beginning on line six
of the bill that reads as follows.]
Section 16. Appropriation Limit. (a) Subject to (b) of this
section and except as provided in (d), (e), and (f) of this
section, appropriations made for a current fiscal year shall
not exceed the average amount appropriated for the earliest
three of the four fiscal years immediately preceding that
current fiscal year by more than the sum of the following:
(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.
Mr. Schultz pointed out that the appropriation formula utilized by
HJR 9 would designate 75-percent of the sum of cost of living and
population whereas SJR 3 would use 100 percent of the sum of
inflation and population.
Mr. Schultz also noted that, as identified in Item #7 of the
comparison chart, the HJR 9 appropriation calculation is based upon
the rate of change being the sum of three years whereas SJR 3
specifies the rate of change as being the sum of two years.
Furthermore, he pointed out that these differences would equate to
"a one percent per year increase in HJR 9 on the limit over SJR 3."
He further explained that this would equate to an $85 million
difference between the two bills through FY 09, which is the
termination date identified for both bills.
Senator Dyson asked for confirmation that HJR 9, with its
determining factor of 75 percent of the sum of population and
inflation, "has a steeper" uphill curve because its rate of change
is over a three-year period as compared to SJR 3's two-year period.
Mr. Schultz affirmed. He stated that, according to information
provided by Legislative Finance, the State is projected to annually
experience a three-percent inflation factor and a one-percent
population growth factor for a total factor of four-percent per
year. Continuing, he stated, that utilizing HJR 9's three-year
timeline with this four-percent factor would equate to 12 percent.
Therefore, he calculated that the HJR 9 appropriation calculation
formula would be nine percent based on its 75-percent of 12-percent
formula. In contrast, he continued, the four-percent per year
factor would equate to an eight percent appropriation calculation
utilizing SJR 3's two-year 100-percent formula. Therefore, he
summarized, HJR 9's formula would reflect a one-percent increase
per year over that of SJR 3.
Co-Chair Wilken asked that the graph titled "CS SJR3 & CS HJR9
Compare" [copy on file], dated May 2, 2004, be reviewed as the HRJ
9 numbers it reflects surprised many Senators, including himself,
as they had understood that the provisions of HJR 9 were "more
restrictive." Specifically, he asked for details about how the
University of Alaska receipts factor into the equation, as depicted
on Line #17 of the graph, which states that, " The most significant
difference between the two bills is that HJR9 exempts university
tuition only. SJR3 exempts all non-GF [general fund] university
receipts".
Mr. Schultz affirmed that how University receipts are recognized in
the formulas is one of the four major areas of difference in the
two bills. Continuing, he explained that while SJR 3 would exempt
numerous University receipts including tuition and other receipts
that are not federally or state funded, HJR 9 would only exempt
University tuition receipts. He shared that the differing
approaches to University receipts would amount to a difference
between the two proposals of approximately $150 million, as
reflected in the graph with SJR 3's FY 05 appropriation limit being
approximately $150 million less than that proposed for HJR 9.
Co-Chair Wilken asked for confirmation that the appropriation limit
difference reflected in the graph could be contributed specifically
to University receipts.
Mr. Schultz confirmed.
Co-Chair Wilken understood therefore, that while the comparison
slope of each bill's appropriations as depicted on the graph is
"about the same", the lesser appropriation level shown for SJR 3 is
the result of how University receipts are factored.
Mr. Schultz clarified that the HJR 9 slope is similar to that of
SJR 3 except that it's slope reflects the one percent higher
formula calculation.
Co-Chair Wilken asked for confirmation, therefore, that HJR 9's
slope increase in the out-years is the result of the one percent
factor difference.
Mr. Schultz concurred.
Senator Dyson explained that the difference "in the vertical axis
is the University receipts," and that the out-year slope difference
is the result of the one-percent formula calculation difference.
Co-Chair Wilken acknowledged that explanation.
Co-Chair Green stated that she had expected to view corresponding
numbers somewhere in the comparison charts, perhaps in FY 2000 or
FY 2001, as she expected that there should be a base from which to
begin both bills' calculations. Continuing, she inquired as to the
reason that, FY 02 and FY 03, which reflect actual numbers, are
different.
Mr. Schultz responded that the graph was adjusted to reflect,
"going backwards", exemptions such as the University receipts.
Co-Chair Green asked the reason it was deemed necessary to make
these adjustments when looking at previous years.
Mr. Schultz responded that these adjustments were conducted in
order "to compare apples to apples."
Co-Chair Green argued that only the dollars looking forward from FY
04 should be adjusted to reflect these exemptions. She opined that
previous years' dollars are unaffected and should reflect actuals.
Mr. Schultz responded that in order to calculate the proposed
formulas, it was deemed necessary to exempt the University receipts
in the preceding years.
Co-Chair Green argued that any prior year adjustments would affect
the slopes reflected on the graph.
Co-Chair Wilken understood that, in FY 06, the annual growth
projection for HJR 9 would be $164 million and the growth
projection for SJR 3 would be $112 million. He recalled recent and
separate testimony that specified that the State would be required
to provide $107.6 million for the Public Employee Retirement System
[PERS] and Teachers Retirement Systems [TRS] in FY 06. Therefore,
he asked whether these PERS and TRS obligations must be provided
for from these projected amounts.
Mr. Schultz affirmed that this would be required. Continuing, he
clarified that some funding for the PERS and TRS obligation was
included "in the fixed base for FY 04 and FY 05, both to smooth the
chart but also for transition" purposes.
Co-Chair Wilken concluded therefore that PERS and TRS obligations
for FY 07, FY 08, and FY 09 must be subtracted from the
projections. In summary, he surmised that the annual growth for the
forthcoming four years would be "more than consumed" by the
projected PERS and TRS obligation.
Mr. Schultz agreed.
Co-Chair Wilken informed the Committee that he had requested the
Division of Retirement and Benefits to provide "official" FY 06
PERS and TRS projections.
Co-Chair Green asked whether "the transition language" in HJR 9 is
similar to that of SJR 3.
Mr. Schultz responded that the transition language is "very
similar" with the exception of the differing base numbers due to
the University receipt exemptions.
Senator B. Stevens observed that in Section 30, which is the
transition language section of each bill, reference is made, on
page three, line 21 of HJR 9, to Section 16 (D) of Article IX of
the Constitution, whereas in SJR 3's Section 30, on page three,
line 19, the reference is to Section 16 (C) of Article IX in the
Constitution. He stated that this appears to be a technical error
as, otherwise, the language in each section is identical.
Mr. Schultz understood that the language should be identical.
Senator B. Stevens stated that this discrepancy should be examined.
Mr. Schultz agreed.
Senator Dyson asked regarding the base year adjustment that was
required in order to apply the proposed formulas.
BRUCE TANGEMAN, Fiscal Analyst, Legislative Finance Division,
responded that, while it is too early to determine the budget
outcomes of FY 04 and FY 05, the numbers utilized would provide the
$120 to $150 million "headroom" necessary for projected budgetary
requirements for such as PERS and TRS in FY 06.
Senator Dyson specified that, in light of the State's "recent
budget reductions … a cushion" of approximately $150 million was
built into the projections "in order to make the formulas work."
This, he continued, would provide a floor from which to expand to
provide for projected PERS, TRS, and Medicare and Medicaid
increases.
Senator Bunde expressed the understanding that the State's deficit
would exceed $10 billion in ten years as the result of inflation,
PERS, TRS, Medicare and Medicaid expenses.
CHERYL FRASCA, Director, Office of Management and Budget, Office of
the Governor, affirmed that, based on the FY 05 budget projections
and going forward, the Department of Revenue projects that there
could be a one billion dollar budgetary shortfall in approximately
six or seven years based on a $22 per barrel of North Slope crude
oil price.
Senator Bunde understood therefore that the deficit amount he had
shared was "in the ballpark."
Ms. Frasca replied that, "they could be."
In response to Senator B. Stevens earlier question regarding the
differing articles identified in Section 30, Mr. Schultz clarified
that the language is correct, as the adoption of either bill would
change the Constitution in that were HJR 9 adopted, the language in
the Constitution being referenced would be Section 16(d) of Article
IX, and were SJR 3 adopted, the language in the Constitution being
referenced would be Section 16(c) of Article IX.
Representative Stoltze affirmed that this is a complicated process.
Co-Chair Wilken complimented the efforts being undertaken in this
endeavor and ordered the bill HELD in Committee.
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