Legislature(2003 - 2004)
05/05/2004 09:04 AM 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 second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill, sponsored by Representative
Stoltze, "asks the voters to adopt a constitutional spending limit
in the 2004 general election."
REPRESENTATIVE BILL STOLTZE testified that the changes contained in
the proposed committee substitute appear simple and acceptable.
Co-Chair Green moved to adopt SCS CS HJR 9, 23-LS0435\G as a
working document.
Without objection the committee substitute was ADOPTED as a working
document.
LUCKY SCHULTZ, Staff to Senator Dyson, listed the changes contained
in the committee substitute. The first change is on page 1, line 6,
where the words "Subject to (b)" were included, adding the "no
ratchet down" provision, and its implementation by law, which is
outlined on page 2, lines 4-8. The second change is on page 3,
lines 9-11, whereas formerly only University of Alaska tuition
would be exempted from the appropriation limit, this committee
substitute would allow for the exemption of the following.
An appropriation of money received as tuition, fees,
contract receipts, or from other sources apart from the
general fund by the University of Alaska.
The third and last change occurs on page 3, lines 28 and 29. The
sum on line 28 is reduced from $3.3 billion to $3.15 billion for
FY 04 in accordance with the change to the University exemptions.
A similar reduction occurs on line 29 for FY 05. In addition,
Amendment #2 passed by the House of Representatives is
incorporated in page 3, line 30. This amendment would require
Section 16 to be repealed on July 1, 2009.
Co-Chair Wilken clarified that the ratchet provision contained in
this committee substitute is the same as the ratchet provision
included in the Senate version of this resolution.
Mr. Schultz responded they are the same.
Co-Chair Wilken asked if the wording of the University receipts
exemptions section is also the same as the Senate version.
Mr. Schultz responded they are the same.
Co-Chair Wilken inquired if the repeal date in this committee
substitute is the same as the Senate version.
Mr. Schultz replied that they are the same.
Co-Chair Wilken asked if the differences between HJR 9 and the
Senate version of this resolution were eliminated with the adoption
of this committee substitute.
Mr. Schultz clarified that there are a number of other changes that
were made to the House version, which were not made to the Senate
version. For example, the formula for determining the appropriation
limit contained in this resolution is different from that in the
Senate version.
Co-Chair Wilken summarized that the Senate only made two changes to
the House version: the no ratchet provision and the change to
University receipts exemptions.
Representative Stoltze emphasized that he was not responsible for
the amendment adopted by the House of Representatives body,
establishing the repeal of Section 16. He asserted that he does not
support the repeal.
Senator Bunde asked how State general obligation bonds would be
impacted if this resolution became law.
Mr. Schultz responded that a slight difference exists between this
resolution and SJR 3, the Senate equivalent of this resolution. On
page 2, line 28, 29, this resolution, like SJR 3, explains that
State general obligation and revenue bond proceeds would be
exempted from the appropriation limit. This resolution would exempt
obligations of both revenue and general obligation bonds as
detailed on page 2, lines 30, 31; however, SJR 3 would only exempt
obligations under revenue bonds, and not obligations under general
obligation bonds. He was unsure of the financial impact these
variations would create.
Representative Stoltze added that members of both the majority and
minority parties in the House of Representatives support the
exemption of general obligation bonds because they were voter
approved.
Senator Hoffman asked if page 1, line 10, contained another
difference between this resolution and SJR 3. This line reads,
"seventy-five percent of the sum of the following," and he had
understood SJR 3 to read "one hundred percent". He also requested a
chart comparing the appropriation limit formula contained in HJR 9
and SJR 3.
Mr. Schultz responded that "seventy-five percent" was included in
the original version of HJR 9, and affirmed that SJR 3 stated "one
hundred percent". Furthermore, this resolution would use a three-
year sum of factors to determine the formula, whereas SJR 3 would
use a two-year sum of factors. Mr. Schultz added that an updated
comparison chart had not been produced.
BRUCE TANGEMAN, Fiscal Analyst, Division of Legislative Finance,
indicated he had not prepared an updated chart as he had just
received the committee substitute.
Senator Hoffman indicated a chart on file.
Mr. Tangeman clarified that the chart being referenced was out of
date. The difference between HJR 9 and SJR 3 would be less dramatic
on a chart reflecting this committee substitute then the difference
demonstrated by the out-of-date chart.
Co-Chair Wilken expressed concern about the sizeable Public
Employees' Retirement System (PERS) and Teachers' Retirement System
(TRS) obligation beginning in 2006. He referenced a chart titled
"CS SJR 3 & CS HJR 9 Compare" dated May 2, 2004 and another chart
titled "CS HJR 9 (FIN)" dated May 5, 2004, in asking why a
difference existed between the annual growth rates for FY 05.
Mr. Schultz attributed the difference to the change made in the
committee substitute allowing for broadened University exemptions.
Co-Chair Wilken asked what the spending limit would be in FY 06.
Mr. Schultz referred to cell F8 of the "CS HCR 9 (FIN)" chart and
stated that the limit would be $3.393 billion.
Co-Chair Wilken questioned how much the FY 06 limit would increase
over the FY 05 spending limit.
Mr. Schultz responded that the increase would be $143 million.
Co-Chair Wilken inquired how far the FY 05 Governor's amended
budget would be under the FY 05 spending limit.
Mr. Schultz replied that the difference would be $525 million.
Co-Chair Wilken asked if the spending limit for FY 06 would be
$668.1 million greater then the FY 05 limit.
Mr. Schultz responded that yes, FY 06 would allow a $668.1 million
spending limit increase above the FY 05 Governor's amended budget.
Co-Chair Wilken understood that if this legislation had been in
place in FY 05 the State legislature would have the authority to
appropriate $525 million more than was actually appropriated. If
the $525 million excess were not spent, it would be added into the
spending limit for FY 06 along with the annual growth rate between
FY 05 and FY 06: $143 million. He then asked if the spending limit
applied to all State spending, or general fund only.
Mr. Tangeman clarified that the limit would apply to all State
spending.
Senator Dyson stated that this spending formula is intended to be
based on the amount spent rather than the previous spending limit.
Mr. Schultz confirmed Senator Dyson's statement was correct, but
explained that a transition period was built into the formula for
FY 04 and FY 05 to set the limit amount. Without a transition
period, the spending limit would have leveled due to reductions in
State spending in recent years.
Senator Dyson added that Co-Chair Wilken was correct in his earlier
statements, but only when considering the transition period.
Co-Chair Wilken commented that the influence of the $525 million
excess in FY 05 would become less and less as the spending limit
would begin to reflect the amount appropriated in FY 06 and FY 07.
Mr. Tangeman responded that, yes, the influence would decrease over
time if State spending in FY 06 and FY 07 would approach the
spending limits established for those years.
Senator Bunde asserted that the influence of the $525 million
excess would not fully diminish until the time this legislation
would be due to sunset.
Co-Chair Wilken set forth that next year the State legislature
would be faced with a $108 million expense to fund PERS and TRS and
potentially a $100 million expense to compensate for the change in
the Federal Medical Assistance Percentage (FMAP). This $208 million
spending increase would be deducted from the $668.1 million
spending limit increase for FY 06 over the FY 05 limit. He added
that a chart detailing the differences between this committee
substitute and SJR 3 would be useful.
Mr. Tangeman offered to prepare the chart.
Senator Hoffman suggested that funding for PERS and TRS be exempted
from the spending limit because the State legislature could not
control those expenses.
Representative Stoltze responded that deciding whether to exempt
PERS and TRS is a judgment call. If too many exemptions were made
the spending limit would become meaningless. This legislation must
consider where the funding to support spending limit growth would
come.
Mr. Schultz communicated that the limit is designed to force the
State to prioritize expenditures given the funds it has available.
More importantly, the limit is intended to establish a process to
guide State spending when the State's revenues suddenly increase.
Co-Chair Green disagreed with some of Mr. Schultz's comments, and
asserted that the State has no control over PERS and TRS.
Co-Chair Green offered some conceptual ideas for discussion. She
directed to page 2, line 30, and pointed out that lease purchase
financing is not included in the exemptions to the spending limit.
She suggested adding to line 30, after the word "under", the words
"lease purchase financing or revenue and general obligation bonds
issued by the State".
Co-Chair Wilken asked if certificates of participation would be
exempted under this resolution.
Mr. Schultz replied that net obligation under certificates of
participation would not be exempted.
CHERYL FRASCA, Director, Office of Management and Budget, Office of
the Governor, stated that the definition of a revenue bond included
lease purchasing. Therefore the exemptions listed in line 30
encompass lease purchase financing.
Co-Chair Green asserted "that is not the information I have been
given." She asked Mr. Tangeman to distinguish lease purchase
financing and revenue bonds.
Mr. Tangeman deferred.
Ms. Frasca suggested that the Department of Revenue could address
the subject.
Co-Chair Green stated that she is opposed to allowing the rising
costs of Medicaid affect the funding and growth of other State
programs and Departments. She offered North Carolina's statutory
spending limit as an example of a limit that takes Medicaid into
consideration by making it an exception to the spending limit when
"Medicaid increases exceed increases in State personal income." She
emphasized the lack of control the State has over the federal
Medicaid program. She encouraged discussion on the subject of
Medicaid and the spending limit.
Co-Chair Wilken mentioned that the State is currently experiencing
federal mandates pertaining to Medicaid that could require
additional State spending.
Ms. Frasca emphasized the relevance of Co-Chair Green's comments
considering that certain federally issued changes to Medicaid would
require an additional $60 million in general fund expenditures in
FY 06, and other that potential Medicaid liabilities also exist.
Co-Chair Wilken suggested that an amendment allowing for exceptions
for Medicaid spending could be presented during this resolution's
hearing on the Senate floor.
Senator Dyson mentioned that he had attended the Western Governors'
Conference last summer during which he spoke with the Governor of
the state of Idaho. The Governor echoed Co-Chair Green's comments,
and communicated that Idaho's education, and health and human
services budget was near 80-percent of the State's overall budget
though many of the programs in those departments were controlled on
the federal level.
Co-Chair Green requested lease purchase financing information from
the Department of Revenue.
Co-Chair Wilken ordered the bill HELD in Committee.
[Note: This bill was again brought before the Committee later in
this meeting.]
CS FOR HOUSE JOINT RESOLUTION NO. 9(FIN) am
Proposing amendments to the Constitution of the State of
Alaska relating to an appropriation limit.
[Note: This bill was heard earlier in the meeting.]
DEVON MITCHELL, Debt Manager, Department of Revenue, informed the
Committee that in a general sense certificates of participation are
lease revenue bonds. However, in a technical sense the State
statues that define revenue bonds are more limited. He recommended
including the words "lease debt" on page 2, lines 29, 30, if the
Committee's intention is to exempt certificates of participation.
Amendment #1: This conceptual amendment inserts "lease debt" into
Section 1, repealing and readopting Article IX, Section 16.
Appropriation Limit., of the Alaska Constitution. The amended
language of Section 16(d)(5) and (6), listing exemptions from the
spending limit calculations, on page 2 lines 28 - 31 reads as
follows.
(5) an appropriation of State general obligation,
revenue bond proceeds, and lease debt;
(6) an appropriation required to pay obligations
under lease debt revenue or general obligation bonds issued by
the State;
Co-Chair Green moved for adoption of the amendment.
Co-Chair Wilken objected.
Senator Dyson expressed concern regarding the amendment. He stated
that certificates of participation do not provide proceeds. He
referenced Ms. Frasca in commenting that including certificates of
participation in the exemption would create an opportunity for an
abuse of the system.
Co-Chair Green clarified that Ms. Frasca had explained that
certificates of participation are encompassed in the term "revenue
bonds", and therefore are already included in the exemptions in
this resolution.
Co-Chair Wilken removed his objection.
With no further objection the amendment was ADOPTED.
Senator Dyson offered a motion to report SCS CS HJR 9, 23-LS0435\G,
as amended, from the Committee with individual recommendations and
accompanying fiscal notes.
There was no objection and SCS CS HJR 9 (FIN) MOVED from Committee
with fiscal note #2 for $1,500 from the Office of the Governor, and
zero fiscal note #3 from all agencies.
AT EASE 10:20 AM
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