Legislature(2001 - 2002)

04/17/2001 09:14 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
     SENATE JOINT RESOLUTION NO. 24                                                                                             
     Proposing amendments to the Constitution of the State of                                                                   
     Alaska relating to the budget reserve fund.                                                                                
                                                                                                                                
                                                                                                                                
This  was the  first  hearing  for  this resolution  in  the  Senate                                                            
Finance Committee.                                                                                                              
                                                                                                                                
Co-Chair Donley  detailed the history  of the CBR. He surmised  that                                                            
this  resolution   would  restore  "the  original   intent"  of  the                                                            
constitutional  language.  He  stated  it  would  also  clarify  the                                                            
conditions  under which  funds  are drawn  from the  CBR and when  a                                                            
three-quarters legislative vote is required.                                                                                    
                                                                                                                                
Co-Chair Donley  explained that currently  a three-quarters  vote is                                                            
determined  by a comparison  of revenue in  the current fiscal  year                                                            
with appropriations  from  the prior fiscal  year. He stressed  that                                                            
this has little  to do with the size of the fiscal  gap. He detailed                                                            
how the proposal  compares revenue and appropriations  from the same                                                            
fiscal year, thus  making a more accurate determination  of a fiscal                                                            
gap.                                                                                                                            
                                                                                                                                
Co-Chair   Donley  informed   the   intent  of   the  existing   CBR                                                            
constitutional  amendment  is  in  years where  the  legislature  is                                                            
proposing to  spend less than in a  previous year, the CBR  could be                                                            
accessed  by  a  simple  majority  vote.  He  continued  that  if  a                                                            
legislature  proposed to  spend more  than in the  previous year,  a                                                            
three-quarters vote would  be necessary to draw from the CBR to fund                                                            
the extra spending.                                                                                                             
                                                                                                                                
Co-Chair Donley  remarked that this  creates a "natural limitation"                                                             
on  the  growth  of  government   by  requiring  three-quarters   of                                                            
legislators agree that the increased spending was necessary.                                                                    
                                                                                                                                
Co-Chair Donley spoke to  court cases dealing with interpretation of                                                            
the  original  constitutional  amendment.  He  said that  the  court                                                            
granted  a  more  expansive   definition  of  funds  available   for                                                            
appropriation  then the  legislature normally  considers during  the                                                            
budget process. As a result,  he said the three-quarters vote is now                                                            
needed even if spending  is not higher than in the previous year. He                                                            
noted that in the past  five years, the spending was not higher, yet                                                            
the three-quarters  vote was required  to access funds from  the CBR                                                            
to balance the spending.                                                                                                        
                                                                                                                                
Co-Chair  Donley asserted  that the  dynamic that  occurred is  "the                                                            
exact opposite  from what was intended  by the Republican  minority"                                                            
when  the  original  constitutional  amendment  was  proposed.  This                                                            
dynamic, he expressed is  that the three-quarters vote has been used                                                            
by  the  current  minority  to  encourage  additional   spending  on                                                            
additional items. He concluded  that the original intent has changed                                                            
from establishing  a method to limit government growth  to a vehicle                                                            
almost requiring growth.                                                                                                        
                                                                                                                                
Co-Chair Donley continued  that the situation was even worse because                                                            
of a "sweep provision"  included in the original CBR  language. This                                                            
provision  he detailed, stipulates  that even  if the CBR funds  are                                                            
not required  to balance  the budget in a  particular year,  such as                                                            
when oil revenues  were high, money borrowed in previous  years must                                                            
be paid back into the CBR  and a three-quarters vote is needed to do                                                            
so. He stressed  that because the legislature has  withdrawn several                                                            
billion dollars  from the CBR in the  past, the three-quarters  vote                                                            
is required  each year  to avoid  the sweep  provision, which  would                                                            
confiscate  all non-general fund revenues  for deposit into  the CBR                                                            
as payment toward the debt.                                                                                                     
                                                                                                                                
Co-Chair Donley opined  that although the CBR has been successful as                                                            
a savings account,  the mechanism  to access this account  is flawed                                                            
and does not operate as originally intended.                                                                                    
                                                                                                                                
Co-Chair  Donley  addressed  the  resolution,   explaining  that  it                                                            
revises the  CBR constitutional amendment  clarifying that  in years                                                            
with proposed  spending less than  the prior year, the CBR  could be                                                            
accessed with  a simple majority vote and also eliminates  the sweep                                                            
provision. He  noted that the three-quarters legislative  vote would                                                            
still be necessary in years of increased spending.                                                                              
                                                                                                                                
Co-Chair Kelly asked what  would happen if the three-quarter vote to                                                            
appropriate  money  from  the  CBR  failed,  but  the appropriation                                                             
legislation passed.                                                                                                             
                                                                                                                                
Co-Chair  Donley replied that  the sweep  provision would apply.  He                                                            
stressed  that   while,  "a  lot  of  people  would   not  like  the                                                            
consequences of the sweep, life would go on."                                                                                   
                                                                                                                                
Co-Chair Kelly  remarked the reason  for hearing this resolution  at                                                            
this time  is to  begin debate  on the  issue. He  did not want  the                                                            
legislature  to be allowed  to have  "a runaway  budget" and  opined                                                            
that future legislatures  would benefit from the restraint exercised                                                            
in the past few years.                                                                                                          
                                                                                                                                
Senator Austerman  stated that the  entire CBR has been "a  thorn in                                                            
my side" since  he was first elected to the legislature.  He did not                                                            
think the current method  operates as it was originally intended and                                                            
instead functions  as a savings  account used  to balance the  state                                                            
budget each  year. He surmised  that the intent  of the fund  was to                                                            
provide a  buffer for years  of hardship, such  as in 1986  when the                                                            
oil prices  dropped. He  understood that  each year the legislature                                                             
would be required  to prepare and  approve a budget and would  argue                                                            
over it,  but suggested  that at  least guidelines  could be  put in                                                            
place.                                                                                                                          
                                                                                                                                
Co-Chair Kelly  stated that SJR 23 was an appropriate  first step in                                                            
getting the public to consider different funding sources.                                                                       
                                                                                                                                
Senator Ward  shared recent discussions  on the CBR he participated                                                             
in while  in his  district.  He said  the conversation  expanded  to                                                            
include future  revenue from oil development  and other sources.  He                                                            
stated that the public must know that there is a spending plan.                                                                 
                                                                                                                                
Co-Chair Kelly ordered the resolution HELD in Committee.                                                                        
                                                                                                                                

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