Legislature(2005 - 2006)BUTROVICH 205
02/08/2005 08:30 AM JUDICIARY
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SJR 1-CONST. AM: APPROPRIATION LIMIT CHAIR SEEKINS announced SJR 1 to be up for discussion. SENATOR FRED DYSON, sponsor, said that SJR 1 and SJR 4 are a "matched pair and need to go forward together." SJR 1 is a significant improvement over the resolution introduced last year, but it raises some profound public policy issues that need to be discussed at length. He explained the state has had a constitutional spending cap since 1981 that has proved to be ineffective. It was not based on appropriations or actual spending. The limit could go up as high as $6 billion at this point. SJR 1 multiplies the two escalators, population growth and consumer price index (CPI), instead of adding them. Although this method makes a very small difference, experts say it's a wiser and more economically sound way to go. It also limits debt service to 6% of GF funding, an idea copied from the California Legislature. Debt service in Alaska now approaches 10% and limiting the state's ability to increase indebtedness and the resulting debt service at a key time in the state's development is a judgment call for the Legislature. He explained that the California Legislature was concerned about incurring future debt and the resulting debt service payments that become a huge component in a budget. He left the 6% number in as a starting point, but was not convinced it is the best for Alaska. 8:44:01 AM SENATOR DYSON said SJR 1 contains a better definition of "emergency." Also, he realized the legislature wanted to define what happened to excess revenues and repay the constitutional budget reserve (CBR). Legislative Legal and Research Services says leaving those provisions in a spending limit bill leaves the state open to the challenge of it not being single-purpose legislation. To remedy that, he has proposed Amendment 1, which strips the CBR deposit provision out of SJR 1. SJR 4 covers what happens with the CBR and excess money. It sets a prudent cap on the CBR at $5 billion, which experts say is a good number to have in the fund to take care of extraordinary events or shortfalls. Experts say having funds available to cover the financial peaks and valleys is very wise. SJR 4 provides that excess revenues will go into the CBR until the amount reaches $5 billion. After that, 50% goes into the Permanent Fund principal, 25% goes to citizens in the form of dividends and 25% goes to deferred maintenance. In two years, escalators will end up being in the $70 million to $80 million category with present assumptions of CPI and population growth. 8:48:19 AM SENATOR DYSON said Amendment 1 to SJR 1 provides for emergencies, but also for extraordinary events, i.e., more money if the gas pipeline goes forward. 8:49:12 AM SENATOR DYSON reviewed the sectional analysis as follows. Lines 4-5 on page 1 repeal the existing limit and replace it with the new appropriations limit. Lines 6-8 define what the base is and bases it on the actual amount appropriated in the preceding fiscal year as opposed to a cumulative escalation. Lines 10-11 keep the limit for the annual percent change in line with the population and the CPI, but the CPI limit can't go up more than personal income. 8:51:33 AM SENATOR DYSON explained that the requirement for providing public services is ongoing and this formula multiplies, instead of adds, the two escalators. Deflation seldom impacts the cost of providing state services for a long time and the population is increasing. SJR 1 is not in lock step with the CPI and that is another policy call. 8:53:08 AM Language on page 2, lines 11-29, is from last year's resolution. It takes enterprise-type state activities out from under the cap and doesn't force a reduction in state spending if there is an increase in revenue in another area. Line 12 on page 3 requires the commissioner of the Department of Revenue to provide quarterly reports on expenditures and revenues. If Amendment 1 is adopted, line 20 on page 4 will be removed and covered in SJR 4. Line 14 addresses a special session. If spending exceeds the cap or if a significant change in revenue occurs, a special session would be required. If the governor and the legislature can't resolve the spending issues, both of them lose their salaries after 10 days, which was taken from the California law. Page 5, lines 8-20, contain the 6% debt service provision. Lines 23-30 create a smooth transition to the new spending limit. Amendment 1 deletes language relating to constitutional budget reserve (CBR). 8:56:36 AM SENATOR THERRIAULT referred to the language on page 3, lines 30- 31, and asked if a shortfall occurs and the Legislature must expend money out of CBR, why that wouldn't count in the next year's base if it just makes the funding level. MR. SHULTZ explained that is part of the CBR language that will be deleted with Amendment 1. 8:57:53 AM CHAIR SEEKINS asked how percentage shifts with federal funding could affect the spending limit. MR. SHULTZ directed him to the exemptions on page 2, line 21, that exempt federal funds from the cap. CHAIR SEEKINS asked if the state has to pick up a larger percentage if there is a reduction in federal funds and whether SJR 1 makes it clear that would be an increase that would not otherwise have to be approved. MR. SHULTZ indicated yes. 8:58:46 AM SENATOR THERRIAULT disagreed and was concerned if the federal government is going to give the state millions less, the state would have to "eat that." CHAIR SEEKINS said that is what he is trying to figure out. SENATOR THERRIAULT said he thought if federal funding goes up, the state could spend those funds. CHAIR SEEKINS countered, "But if they go down, the state eats it?" MR. SHULTZ said that Senator Therriault is correct. 8:59:31 AM SENATOR FRENCH said one of his concerns is that Alaska has enjoyed federal largesse due to Senator Ted Stevens who has defended the state against Washington, D.C. attacks because Alaska's infrastructure is behind other states. And now SJR 1 freezes state funding in place and a time may come when there are still great needs, but not as many federal dollars. CHAIR SEEKINS responded that needs to be clarified. 9:01:15 AM SENATOR DYSON said SJR 1 does not limit the amount of money the state can spend when other revenue sources are coming in and it does not mandate that the state continue a certain level of effort. But it does provide a significant incentive to find out- of-the-box ways to provide for Alaskans. This could limit the amount of services because it limits the amount that can be spent from the general fund to meet those needs. Most jurisdictions find that a tax cap forces government to look for alternative ways to meet public needs. 9:02:55 AM CHAIR SEEKINS mused that they come to the state to ask for money and then that forces the state to go to the federal government. SENATOR DYSON said he asked Arliss Sturgulewski last spring what the thinking was behind the Permanent Fund and was it a return on investment to the people of Alaska for expenditure of its resource or as a way to fund an endowment that would support the cost of government when the oil fields decline. Ms. Sturgulewski answered that it was a mechanism to get the money off the table so that one generation of Alaskans couldn't spend all of it. It was a way to preserve money for future generations. SENATOR DYSON said he believed oil prices would be $30 in the foreseeable future, with gas at over $5, providing steady revenues to the state. This is an attempt to be disciplined and wise and not waste this significant revenue stream. 9:05:18 AM His understanding of the Statehood Act is that the founding fathers anticipated that frontier areas would trade natural resources for infrastructure for a long time. The U.S. Senate was afraid Alaska could not support itself and would be a drain on federal coffers. Alaska is in the process of trading natural resources for infrastructure and services. Eventually Alaska will have a large enough tax base that it won't be so dependent on the expenditure of its natural resources. This is an attempt to smooth out spending and investment for the long haul and create long-term economic stability. 9:07:29 AM CHAIR SEEKINS said the many variables that can affect the amount of money that comes in from natural resources and other sources like the federal government need to be clear. If a cap is in place, an unavoidable consequence might be to shift funding from one place to another or change the threshold for the qualification limit. 9:09:29 AM SENATOR DYSON said 80% of the State of Idaho's budget is spent on education and health and human services. Soon it will have to make a choice between the two. Those two areas tend to be formula-driven in both Idaho and Alaska. A spending limit will force the Legislature to make tough decisions in those two areas. 9:10:43 AM CHAIR SEEKINS said a legislator from Colorado told him that this year the state would have the shortest school year in its history and the university is going without state funding because that battle is already taking place there. SENATOR FRENCH said the Colorado spending limit was enacted in 1992; the Bell Policy Center researched that issue and found th that Colorado had fallen to 50 in K-12 spending per $1,000 of personal income. Even during the '90s, the state fell behind in per capita spending in higher education and public health. By 2000, Colorado spent less than other states on public health care services, was at the bottom on on- time immunization rates, was at the bottom in prenatal care, had the highest rate of uninsured low-income children in the nation, was almost last among states in high school graduation rates, ranked almost last in higher education and the arts, and had a growing list of unfunded highway projects. One Republican senator said he wouldn't vote for it again. 9:12:22 AM SENATOR FRENCH expressed concern about locking in a system that proves inadequate for future needs. The Legislature talked about a spending cap in statute, because it would be easier to change; it also talked about exempting education. 9:13:15 AM CHAIR SEEKINS said SJR 1 has some safeguards that Colorado doesn't have. It has a no-ratchet-down provision and the ability for the Legislature to meet emergency circumstances with a two- thirds vote. SENATOR DYSON said another significant difference is that Colorado's Taxpayers' Bill of Rights (TABOR) requires voter approval for any tax increases, but SJR 4 doesn't do that; it is only a spending cap. Colorado is limited as much by its revenue stream as by its cap. 9:14:27 AM MR. SHULTZ said he had information from the January 2005 issue of State Legislatures that talked about how Colorado's Amendment 23 excluded schools from the spending cap and provides for annual spending increases in both primary and secondary education. This is causing a problem because the increases occur regardless of the cap. The cap, therefore, is not reducing spending. Colorado's troubles have been manageable compared to what California faced recently when it continued to spend money to take care of its programs. Part of the language in SJR 1 comes from the California citizens' initiative to get out of debt. The question is how Alaska would cover federal funding shortfalls now and two or three years into the future. Also, Legislative Finance indicates the need to look at that impact two to five years out. Federal funds are expected to dwindle as well. 9:16:57 AM SENATOR HUGGINS said the spending cap sounds good to many people, but when you look at other states, you wonder if it's a good idea. He expressed concern that trying to put it into the Constitution is trying to save us from our lack of self- discipline. He asked if there were any corners they were painting themselves into. SENATOR DYSON replied that he thought it was constitutionally appropriate for a republic to bind itself with constitutional law. Critics point out that Alaska spends more per person than any other state in the nation. Solving people's problems by spending more money doesn't get to the heart of the issue. He didn't agree with the implied principle of the state supporting an activity the federal government quit supporting. He hoped to empower people to do more for themselves and rely on government less. 9:21:37 AM MR. SHULTZ commented that President Bush is proposing to eliminate 160 programs because the federal government is looking at duplicative services. Forty different agencies within the federal government deal with teenage pregnancy. The concern is that as Alaska prospers, people will want more services. He pointed out that the Permanent Fund would be a lot larger now if there had been a spending limit. 9:23:58 AM CHAIR SEEKINS said he applied for a river permit years ago and found that three different agencies were looking over the same fish. "Why can't one agency take care of that same fish rather than three?" Eliminating the competition for funding creates an economy in itself and the probability that any legislature would short-fund education is unlikely. 9:27:16 AM SENATOR DYSON commented that Legislative Legal told the legislature last year that a statutory spending limit is of little value because if a sitting legislature exceeds it, the courts will hold that it was done deliberately and supersedes what was in statute. You can't bind future legislatures. He also understands that of the states with spending caps, almost all have seen significant investment activity. Industries that want to invest in an area are worried about being subjected to deep- pocket taxes so they are comforted by a spending cap. 9:29:41 AM CHAIR SEEKINS moved Amendment 1. 24-LS0292\A.1 Cook 11/3/05 A M E N D M E N T 1 OFFERED IN THE SENATE BY SENATOR DYSON TO: SJR 1 Page 2, line 29: Delete ", (g), or (k)" Page 3, line 7: Delete "persons an" Insert "persons or" Page 3, line 20, through page 4, line 13: Delete all material. Reletter the following subsections accordingly. Page 4, line 29: Delete "(h)" Insert "(g)" Page 5, line 6: Delete "(h)" Insert "(g)" Page 5, line 14: Delete "many" Insert "may" Delete "not-self-liquidating" Insert "non-self-liquidating" Page 5, line 15: Delete "general - fund-supporting" Insert "general-fund-supported" Page 5, line 16: Delete "(k)" Insert "(j)" Page 5, following line 20: Insert a new subsection to read: "(l) The legislature may, upon the affirmative vote of at least two-thirds of the members of each house, adopt an appropriation that exceeds the limit under (a) of this section if the governor requests the appropriation in response to extraordinary circumstances. The governor's request must include at least the following information: (1) identification of the specific extraordinary circumstances; (2) the amount requested for appropriation; (3) the period of time over which the appropriation is intended to be used; and (4) a plan for recovering the amount of money appropriated under this subsection. An appropriation made under this subsection may not be used for the payment of bonds, notes, or other evidences of indebtedness. For purposes of this subsection, "extraordinary circumstances" shall be defined by law adopted by at least two-thirds of the members of each house." MR. SHULTZ explained that most of the changes are typos, but lines 20-21 on page 2 introduce a new section for extraordinary circumstances that allows the limit to be exceeded under certain circumstances. The gasline indebtedness is an example of one. CHAIR SEEKINS asked if there were any objections to Amendment 1. There were none and it was adopted. He announced that the bill would be held for further discussion.