Legislature(2017 - 2018)SENATE FINANCE 532

03/15/2018 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 321(FIN) AM Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 196                                                                                                           
     "An Act relating to an appropriation limit; and                                                                            
     providing for an effective date."                                                                                          
9:11:03 AM                                                                                                                    
Co-Chair MacKinnon invited Senator  Micciche and Senator von                                                                    
Imhof to present SB 196.                                                                                                        
Senator Micciche shared a quote  by Thomas Tusser related to                                                                    
fools  quickly being  separated  from their  money. He  read                                                                    
from a Sponsor Statement:                                                                                                       
     The State  of Alaska  relies on  a single  commodity to                                                                    
     fund more  than 85% of our  government services. Today,                                                                    
     with  declining  production  and lower  prices,  Alaska                                                                    
     continues  to face  a significant  budget deficit.  The                                                                    
     Legislature has  cut the operating and  capital budgets                                                                    
     by over  $3 billion in  the last four fiscal  years but                                                                    
     has  continued to  draw from  our  savings accounts  to                                                                    
     fill the gap between revenue and expenditures.                                                                             
     Senate Bill 196 sets a  $4.1 billion statutory limit on                                                                    
     how  much the  legislature can  appropriate every  year                                                                    
     with regard  to agency  operating budget  expenses. The                                                                    
     limit  would be  adjusted annually  for inflation.  The                                                                    
     appropriation  limit does  not apply  to appropriations                                                                    
     for the  payment of  permanent fund  dividends, capital                                                                    
     projects,   state   debt   obligations,   and   receipt                                                                    
     supported  services  such  as receipts  of  the  Alaska                                                                    
     Marine Highway System.                                                                                                     
     Alaska  must control  its spending  in order  to refill                                                                    
     our savings accounts and  sustain the programs Alaskans                                                                    
     rely on  in their  everyday lives.  Senate Bill  196 is                                                                    
     the  needed framework  to help  guide the  Governor and                                                                    
    the Legislature through the budget making process.                                                                          
     Now  is  the  time   to  pass  an  effective  statutory                                                                    
     appropriation limit.                                                                                                       
Senator   Micciche  pointed   to  the   document,  "SB   196                                                                    
Appropriation Limit vs. Appropriations  -"(copy on file). He                                                                    
explained that  the blue line  represented the  deflation of                                                                    
today's spend back, while the  green line inflated spending,                                                                    
using  Anchorage  CPI,  from FY  1999  spending  levels.  He                                                                    
declared that if the bill had  been in place in the past the                                                                    
state would have  $15 billion in savings and be  in a better                                                                    
financial position.                                                                                                             
9:14:56 AM                                                                                                                    
Senator von  Imhof said that  one of the questions  that the                                                                    
bill raised was,  "What is the best way  to calculate moving                                                                    
forward,  inflation  or  population?" She  said  that  other                                                                    
states  sometimes combined  the two,  while adding  a broad-                                                                    
based tax for  their spending cap. She said  that Alaska had                                                                    
a stabilized  population and the CPI  was relatively stable.                                                                    
She said  that the  CPI, extrapolated  to 2030,  reflected a                                                                    
predictably growing  and stable spending cap.  She felt that                                                                    
the cap would allow for people to budget with confidence.                                                                       
Senator Micciche  added that the  key reason for  a spending                                                                    
cap was to  keep the state form creating  spending habits at                                                                    
the  height of  revenue.  He believed  that  the bill  would                                                                    
preserve savings for the long term.                                                                                             
9:17:18 AM                                                                                                                    
Co-Chair Hoffman  queried why the sponsor  believed that the                                                                    
proposal would work.                                                                                                            
Senator  Micciche believed  that the  spending limit  in the                                                                    
State Constitution was too lenient  and the proposal, had it                                                                    
been introduced  in the past,  would have meant  there would                                                                    
have been money in savings today.                                                                                               
Co-Chair  Hoffman   believed  it   was  necessary   to  keep                                                                    
expenditures    under    control.    He    referenced    the                                                                    
constitutional  limit   of  a   120-day  session,   and  the                                                                    
statutory change to  a 90-day session; which  he thought was                                                                    
not working.  He wondered why  the proposal would  work when                                                                    
there was an existing constitutional limit.                                                                                     
Senator  von  Imhof opined  that  the  current limit  had  a                                                                    
growth  rate that  was connected  to 100  percent change  of                                                                    
population, plus  100 percent change  of CPI, which  did not                                                                    
match  actual state  revenues. She  said that  recalculating                                                                    
using only 100 percent CPI change worked.                                                                                       
9:20:21 AM                                                                                                                    
Senator  Micciche  addressed  the  question as  to  why  the                                                                    
legislature would  not ignore the  statutory change.  He did                                                                    
not  support  the  level  that  was  suggested  earlier.  He                                                                    
thought  much  of  the  spending   was  due  to  demands  of                                                                    
communities.  He  thought  a   spending  limit  would  allow                                                                    
members to bring a framework to constituents.                                                                                   
Vice-Chair Bishop referenced  the graph and asked  if it was                                                                    
strictly  operating expenses  across  agencies  and did  not                                                                    
include capital expenditures.                                                                                                   
Senator Micciche answered in the affirmative.                                                                                   
Co-Chair MacKinnon commented that  the bill was sponsored by                                                                    
the  committee  and noted  that  the  Senate had  previously                                                                    
passed  a spending  limit  inside  other legislation.  Since                                                                    
other legislation  was currently  stalled, she  thought that                                                                    
the public deserved  a fair vetting of a  spending limit and                                                                    
how spending limits would work or not work.                                                                                     
9:23:03 AM                                                                                                                    
Senator Micciche  addressed the Sectional Analysis  (copy on                                                                    
     *Section  1:  Removes  the  reference  to  the  current                                                                    
     statutory appropriation limit                                                                                              
     *Section 2: Statutory Appropriation limit:                                                                                 
     ?  Unrestricted  General  Fund appropriations  may  not                                                                  
     exceed $4.1 billion                                                                                                        
    ? Adjusts for inflation using known inflation data                                                                        
     ? Inflation  adjustment is based on  the Consumer Price                                                                  
     Index  for  Anchorage  prepared by  the  United  States                                                                    
     Bureau of Labor                                                                                                            
     Appropriation Limit excludes appropriations:                                                                               
     ? To the Alaska Permanent Fund;                                                                                          
     ? For Permanent Fund Dividend payments;                                                                                  
     ? For payment of Debt  obligations of the state (e.g. -                                                                  
     Obligation  Bonds and  Certificates of  Participation);                                                                    
     ? Capital projects                                                                                                       
     ? Capital project;                                                                                                       
     ? Program Receipts; and                                                                                                  
     ? Unrestricted general fund                                                                                              
     *Section  3:  Repeals current  statutory  appropriation                                                                    
     limit language                                                                                                             
     *Section 4: Effective date of July 1, 2018                                                                                 
Co-Chair  MacKinnon  referenced  the  exceptions  that  were                                                                    
addressed in  the Sectional Analysis. She  asked Senator von                                                                    
Imhof to explain why the items had been excluded.                                                                               
Senator  von Imhof  stated that  inside SB  26, which  was a                                                                    
Percent  of  Market  Value (POMV)  bill,  the  dividend  was                                                                    
addressed by taking a structured  draw on the permanent fund                                                                    
earnings,  separate from  the spending  cap.  She said  that                                                                    
there was agency  spending and then there  was the dividend,                                                                    
which was addressed  in a different bill.  She stressed that                                                                    
the bill addressed agency spending only.                                                                                        
Co-Chair  MacKinnon  asked  Senator  Micciche  whether  debt                                                                    
service was not  included in the bill because  it would need                                                                    
to be  approved by the  public and  was beyond the  reach of                                                                    
the legislature.                                                                                                                
Senator  Micciche  relayed that  the  bill  was a  statutory                                                                    
guideline for areas that were  most difficult to control. He                                                                    
reiterated  that   the  bill  was  statutory   language  for                                                                    
operating budget discipline. He  said that excluded from the                                                                    
bill was  the public's  ability to  demand a  larger Capital                                                                    
Budget through general obligation bonds.                                                                                        
9:26:48 AM                                                                                                                    
Co-Chair   MacKinnon   asked   whether   Public   Employees'                                                                    
Retirement  System (PERS)  and  Teacher's Retirement  System                                                                    
(TRS) were debts of the state.                                                                                                  
Senator Micciche replied in the affirmative.                                                                                    
Co-Chair MacKinnon  understood that tax credits  were a debt                                                                    
to the state.                                                                                                                   
Senator Micciche responded that  under the bill, tax credits                                                                    
were a debt of the state.                                                                                                       
Co-Chair MacKinnon  understood that  the tax credits  were a                                                                    
debt  of  the state  by  both  legislative finance  and  the                                                                    
Senator Micciche agreed.                                                                                                        
Vice-Chair Bishop asked  about Section 3 of  the bill, which                                                                    
pertained  to the  governor's  ability  to execute  disaster                                                                    
Senator  Micciche felt  that the  governor  already had  the                                                                    
authority for emergency spending, which  was why it had been                                                                    
left outside  of the appropriation  limit. He said  that the                                                                    
authority would come in the form of a supplemental.                                                                             
9:28:24 AM                                                                                                                    
AT EASE                                                                                                                         
9:30:06 AM                                                                                                                    
LAURA CRAMER, STAFF, SENATOR  ANNA MACKINNON, clarified that                                                                    
the  repeal  section  of  the   bill  repealed  the  current                                                                    
statutory   appropriation  limit.   She   relayed  that   an                                                                    
exemption of emergency or  disaster declaration could easily                                                                    
be incorporated into the bill.                                                                                                  
Co-Chair  MacKinnon  stated  that   the  language  would  be                                                                    
incorporated  by amendment.  She noted  that amendments  for                                                                    
the bill were due by 5 PM.                                                                                                      
Ms. Cramer pointed out that  there would be clarification of                                                                    
the effective date  of the bill, as the intent  was to apply                                                                    
the bill to the FY 20 budget proposal.                                                                                          
Senator  Micciche  appreciated   the  clarification  on  the                                                                    
emergency spending.                                                                                                             
Ms.  Cramer clarified  that a  supplemental budget  could be                                                                    
subject to  the appropriation  limit; if there  were capital                                                                    
items in the supplemental, they  would not be subject to the                                                                    
Co-Chair  MacKinnon  lamented  the  growth  in  governmental                                                                    
agency  spending. She  said that  the bill  was intended  to                                                                    
hold   the  administration   accountable  in   general  fund                                                                    
spending a to limit growth.                                                                                                     
Co-Chair MacKinnon OPENED public testimony.                                                                                     
9:33:50 AM                                                                                                                    
MICHELLE HALE, SELF, JUNEAU, testified  in opposition to the                                                                    
bill. She  related that she  was a third  generation Alaskan                                                                    
and  spent her  whole life  in the  state. She  pondered the                                                                    
meaning of defining  the state; what sets  Alaska apart. She                                                                    
offered that  we were a  very large  state with a  huge land                                                                    
area and  a small  population. She  asserted that  the needs                                                                    
across the  state were not bet  in the same was  as needs in                                                                    
other areas  of the  country.  She  had observed  that there                                                                    
had been a descent into a  hatred of government that was not                                                                    
in  accordance   with  the  functions  of   government.  She                                                                    
stressed that  the savings  account could  not be  filled by                                                                    
only making cuts  - new revenues needed to be  brought in to                                                                    
the state. She argued that  spending caps and arbitrary cuts                                                                    
were  blind  and  blunt  tools.   She  felt  that  when  the                                                                    
legislature  forced  agencies  to  cut  an  additional  $100                                                                    
million   from   their   budgets  it   was   unloading   its                                                                    
responsibility to the  state and the people of  the State of                                                                    
Alaska. She  stated that  there was not  basis for  the cap.                                                                    
She  said the  legislature made  the laws  and the  agencies                                                                    
implemented  the  laws;  if the  legislature  did  not  want                                                                    
agencies to  do something specifically  - it needed  to tell                                                                    
agencies  those  specifics.  She  felt that  the  state  was                                                                    
immature  and  failed  to  take care  of  its  people  while                                                                    
limiting  spending when  necessary. She  did not  think that                                                                    
the legislature  was doing a  good job handling  the current                                                                    
fiscal crisis.                                                                                                                  
9:38:30 AM                                                                                                                    
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
Co-Chair MacKinnon discussed housekeeping.                                                                                      
Co-Chair   MacKinnon   commented   that  there   were   many                                                                    
perspectives  and   frustrations  surrounding   the  current                                                                    
fiscal climate in the state.  She said that certain advocacy                                                                    
groups  heavily affected  the operations  of  the state  and                                                                    
sometimes made it impossible,  through statutory changes, to                                                                    
reduce  the  budget.  She believed  that  the  appropriation                                                                    
limit  provided a  balance between  supporting agencies  and                                                                    
controlling spending.  She understood that inflation  was an                                                                    
erosion to  the baseline  of the budget  and noted  that the                                                                    
proposal  tried to  inflation  proof  budget going  forward,                                                                    
while capping spending.                                                                                                         
SB  196  was  HEARD  and   HELD  in  committee  for  further                                                                    

Document Name Date/Time Subjects
SB 196 Support Leavitt.pdf SFIN 3/15/2018 9:00:00 AM
SB 196
SB 196 Support Taviliero.pdf SFIN 3/15/2018 9:00:00 AM
SB 196
SB 196 - NFIB Support.pdf SFIN 3/15/2018 9:00:00 AM
SB 196
SB 196 MultiYearAgencySummary-1.pdf SFIN 3/15/2018 9:00:00 AM
SB 196
SB 196 Public Testimony Neumann.pdf SFIN 3/15/2018 9:00:00 AM
SB 196
SB 196 Inlfation Graph.pdf SFIN 3/15/2018 9:00:00 AM
SB 196