Legislature(2001 - 2002)

04/23/2001 09:12 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 second  hearing for  this bill in  the Senate  Finance                                                            
Co-Chair Donley testified  this resolution would reform the language                                                            
governing  the  Constitutional  Budget  Reserve  fund (CBR)  in  the                                                            
Alaska Constitution  (Article IX,  Section 17). He stated  that when                                                            
the constitutional  amendment  creating this  section was  initially                                                            
proposed, the intent was  that the CBR could be accessed by a simple                                                            
majority  vote of  the  legislature  in years  where  the amount  of                                                            
general  fund  spending was  not  higher  then the  previous  year's                                                            
spending. However, in a  series of rulings, he pointed out the court                                                            
"misinterpreted   the  meaning  of   the  language  of  'all   funds                                                            
available'  or 'unrestricted funds'".  The resulting definition,  he                                                            
said,  requires  a  three-quarters   vote  every  time  the  CBR  is                                                            
Co-Chair  Donley opined, "This  turned the  intent of the  amendment                                                            
effectively  on  its head"  and transformed  it  from  a vehicle  to                                                            
restrain  state spending  into  "a vehicle  that  actually  promotes                                                            
increased  state spending."  He explained  any group of legislators                                                             
constituting   at   least  one-forth   of   either   the  House   of                                                            
Representatives  or the Senate could  "force additional spending  to                                                            
occur"  by refusing  to vote  for the  CBR draw  until their  budget                                                            
requests are included.  He stated this reverses the  original intent                                                            
of the constitutional amendment approved by the voters.                                                                         
Co-Chair Donley  informed this resolution clarifies  the language in                                                            
the constitution  to allow the provision  to function as  originally                                                            
intended. He detailed  that in years of spending higher  than in the                                                            
previous year, the three-quarters  vote would be necessary to access                                                            
the CBR.                                                                                                                        
Co-Chair  Donley noted  the "sweep  provision" is  removed from  the                                                            
constitution  by this resolution.  He defined the provision,  saying                                                            
that  without a  specific three-quarters  vote,  non-general  funds,                                                            
such as from  the Marine Highway System  and Aerospace development,                                                             
are used to repay  the CBR for previous withdrawals.  He stated that                                                            
this  provision  is "unpalatable"  to  those  working  in the  state                                                            
government  as well as most  Alaskans, who  would be "injured"  from                                                            
reductions to the affected programs.                                                                                            
Co-Chair  Donley   summarized  that   the  resolution  corrects   an                                                            
"erroneous   court   interpretation   of   amounts   available   for                                                            
appropriation  language." He remarked  this would help restrain  the                                                            
current practice  of a small group of legislators  forcing increased                                                            
spending,  resulting in  a "more  fiscally responsible  system  that                                                            
reasonably allows access"  to the CBR in those years the legislature                                                            
"exercises  fiscal discipline" and  does not spend more than  in the                                                            
previous year.                                                                                                                  
Co-Chair  Kelly  asked  for clarification  of  how  this  resolution                                                            
addresses the sweep provision.                                                                                                  
Co-Chair  Donley   answered  the  provision  is  removed   from  the                                                            
constitution  thereby eliminating  the necessity of a three-quarter                                                             
vote to prevent "the sweep."                                                                                                    
Senator Austerman  understood the  current system requires  a three-                                                            
quarter vote  to draw from the CBR.  He cited language deleted  from                                                            
the constitution  shown on  page 2, lines 5  and 6 of the  committee                                                            
substitute,  "less than  the amount  appropriated  for the  previous                                                            
fiscal year, an  appropriation may be made". He asked  if the amount                                                            
were higher  than the previous  year, would  the three-quarter  vote                                                            
still be necessary.                                                                                                             
Co-Chair Donley  responded if the  legislature adopts a budget  that                                                            
spends  more than the  amount of  general funds  available for  that                                                            
fiscal year,  a three-quarters  vote would  be required in  order to                                                            
withdraw the remaining amount from the CBR.                                                                                     
Senator  Austerman  asked for  the section  in the  resolution  that                                                            
addresses the three-quarter vote.                                                                                               
Co-Chair   Donley  referred   to  the  existing   language   in  the                                                            
AT EASE 9:20 AM / 9:25 AM                                                                                                       
Co-Chair Kelly  understood the resolution allows the  legislature to                                                            
draw from the  CBR without a three-quarter vote if  the general fund                                                            
spending  is no more than  that of the previous  year. He  continued                                                            
that if  the spending  were higher,  a three-quarter  vote would  be                                                            
necessary.  He explained  funds  could be  withdrawn  from the  CBR,                                                            
without  a three-quarter  vote, to  pay the  difference between  the                                                            
amount of general  funds available  and the total spending  from the                                                            
previous  year. He commented  that this would  eliminate "the  dance                                                            
that we go through down  here" to secure necessary votes for the CBR                                                            
Co-Chair  Kelly opined  the sweep  provision is  "probably the  most                                                            
threatening"   aspect  of   the  CBR  language   currently   in  the                                                            
Senator Olson  spoke to concerns that in a few years,  the CBR would                                                            
be exhausted.  He asked how this resolution guarantees  cost savings                                                            
or increases the longevity of the fund.                                                                                         
Co-Chair Donley  noted the CBR had  been expected to decline  in the                                                            
past few  years, but that  it actually has  grown to a projected  $3                                                            
billion at  the end of the current  fiscal year. He agreed  the fund                                                            
is still  projected to decrease  in the upcoming  several years  and                                                            
remarked this resolution  would protect the CBR in multiple ways and                                                            
would  "reverse the  whole presumption  of  access to  the CBR."  He                                                            
reiterated  the current  system "forces  more  spending" and  larger                                                            
withdrawals   from  the  CBR  because   "certain  elements   in  the                                                            
legislature"  "blackmail" the  majority until  their spending  items                                                            
are  included  in the  budget.  Under  the proposed  constitutional                                                             
amendment,  he continued,  this  practice  could only  occur  during                                                            
years  of increased  general fund  spending. He  read language  from                                                            
page  2,  lines  7  through  12  of  the  committee   substitute  to                                                            
demonstrate:  "However, the amount  transferred from the  fund under                                                            
this subsection  may not exceed the amount necessary,  when added to                                                            
other  funds  available  for appropriation,   to provide  for  total                                                            
funding equal to the amount  of appropriations made for the previous                                                            
fiscal year."  He stated spending  could "fill in the gap"  from the                                                            
previous year  but that a three-quarters vote would  be required for                                                            
any  additional  spending.  This,  he stressed,  would  "hold  down"                                                            
withdrawals from the CBR thus making the fund last longer.                                                                      
Senator Wilken asked for  clarification that the withdrawal from the                                                            
CBR would  be  automatic, provided  the  amount of  spending was  no                                                            
greater then in the previous year.                                                                                              
Co-Chair Donley  specified a majority  vote is required to  pass the                                                            
budget and would  serve as approval to withdraw funds  from the CBR.                                                            
Senator  Green  expressed  that  she  hoped  this  resolution  would                                                            
provide an incentive to spend less.                                                                                             
Co-Chair  Donley  affirmed  it would  by  preventing "a  very  small                                                            
number  of  legislators  to  force  higher  spending"  than  in  the                                                            
previous  year by "utilizing  the courts'  misinterpretation  of the                                                            
original intent of the CBR language."                                                                                           
Co-Chair Kelly emphasized,  "the beauty of it is that we are able to                                                            
fight  over just  the increases,"  which  he said  was the  original                                                            
intent of the constitutional amendment.                                                                                         
Senator  Green  referred  to page  2, lines  12  through  14 of  the                                                            
committee  substitute, "For  purposes of  applying this subsection,                                                             
amounts  available for appropriation  or  appropriated from  federal                                                            
funds, income  of the permanent  fund, or  this budget reserve  fund                                                            
may not be  considered." She asked  if this should include  retained                                                            
earnings,  such as from  the Alaska Housing  Finance Corporation  or                                                            
the  Alaska Development  and  Export  Authority as  exclusions.  She                                                            
noted the court  excluded these earnings  in Hickle vs. Halford  and                                                          
was concerned  whether the court would  reverse itself if  the items                                                            
were left out of the resolution if it was adopted.                                                                              
Co-Chair Kelly  recalled that the  matter of corporate receipts  was                                                            
discussed in  relationship to the  spending limit during  a previous                                                            
meeting. Because  of this, he wanted  to merge this resolution  with                                                            
SJR 23,  Constitutional  Amendment:  Appropriation  Limit, but  that                                                            
there were title restraints preventing this.                                                                                    
Co-Chair  Donley responded  the issue  is addressed  in language  on                                                            
page  2 lines  14  and 15  of  the committee  substitute,  "For  the                                                            
purposes of  this subsection, 'unrestricted  general fund'  shall be                                                            
defined by  law." This he explained,  "leaves it to the legislature                                                             
to, by statute,  have the flexibility  to define that question."  He                                                            
reminded  that  the legislature  had  passed  a law  providing  this                                                            
definition after  the constitutional amendment was  first adopted in                                                            
1990. He stated this law  was consistent with the original intent of                                                            
the amendment  however the  court overturned  it and "adopted  their                                                            
own  interpretation  of  the  definition"  of unrestricted   general                                                            
Senator Hoffman  posed a scenario  of an initial appropriation  that                                                            
is  no greater  than  that of  the previous  year's  spending  until                                                            
supplemental  funds are appropriated  thus raising the total  amount                                                            
above the limit.  He asked if the supplemental budget  would require                                                            
a three-quarter vote in this situation.                                                                                         
Co-Chair Donley  surmised a three-quarter vote would  be required to                                                            
access those CBR  funds because the spending occurs  within the same                                                            
fiscal year and  exceeds that of the previous year.  He noted if the                                                            
original  budget  were  low  enough  to  allow  for  a supplemental                                                             
appropriation, the three-quarter vote would not be required.                                                                    
Co-Chair Kelly shared that he wished the resolution to continue.                                                                
Co-Chair Donley offered  a motion to move SJR 24 from Committee with                                                            
a zero  fiscal note  from the Office  of the  Governor, Division  of                                                            
There was no objection and the bill MOVED from Committee.                                                                       

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