Legislature(2019 - 2020)BELTZ 105 (TSBldg)

03/27/2019 01:30 PM JUDICIARY

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Audio Topic
01:32:53 PM Start
01:33:15 PM SJR6
03:21:13 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SJR 6 CONST AM:APPROP. LIMIT; RESERVE FUND TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
           SJR 6-CONST AM:APPROP. LIMIT; RESERVE FUND                                                                       
                                                                                                                                
1:33:15 PM                                                                                                                    
CHAIR HUGHES announced  that the only order of  business would be                                                               
SENATE  JOINT  RESOLUTION  NO. 6,  Proposing  amendments  to  the                                                               
Constitution of the State of  Alaska relating to an appropriation                                                               
limit; relating to  the budget reserve fund  and establishing the                                                               
savings reserve fund; and relating to the permanent fund.                                                                       
                                                                                                                                
CHAIR HUGHES made opening remarks.                                                                                              
                                                                                                                                
1:34:26 PM                                                                                                                    
CORI MILLS,  Senior Assistant  Attorney General,  Civil Division,                                                               
Labor  and  State Affairs  Section,  Department  of Law,  Juneau,                                                               
introduced herself.                                                                                                             
                                                                                                                                
1:34:40 PM                                                                                                                    
MIKE BARNHILL, Policy Director,  Office of Management and Budget,                                                               
Office  of the  Governor,  Juneau, said  SJR 6  is  one of  three                                                               
resolutions  the governor  has  introduced seeking  to amend  the                                                               
Constitution  of the  State of  Alaska.  Each one  is a  critical                                                               
piece for the  governor's plan for fiscal  sustainability for the                                                               
State of Alaska, he said.                                                                                                       
                                                                                                                                
MR. BARNHILL  reviewed slide 2, "Current  Constitutional Spending                                                               
Limit (Article 9, Section 16)."                                                                                                 
                                                                                                                                
     ?  Limit  set  at  $2.5  billion,  plus  inflation  and                                                                    
     population growth since 1982                                                                                               
                                                                                                                                
     ? Calculation for FY20 would be about $10.5 billion                                                                        
                                                                                                                                
     ? Spending  subject to cap  includes all  UGF operating                                                                    
     and  capital expenditures,  most statewide  items, plus                                                                    
     some DGF items                                                                                                             
                                                                                                                                
     ? Excludes PFDs, bond  proceeds, debt service payments,                                                                    
     non-State  sources   of  revenue,   public  corporation                                                                    
     revenues, and disaster declarations                                                                                        
                                                                                                                                
       At least  1/3 of limit reserved  for capital projects                                                                    
     and loans                                                                                                                  
                                                                                                                                
     ?  Can  break  the   limit  for  capital  projects,  if                                                                    
     approved by the voters.                                                                                                    
                                                                                                                                
MR. BARNHILL said  that SJR 6 seeks to amend  Article IX, Section                                                               
16. He offered to introduce the  current proposal and to defer to                                                               
Mr. King and Ms. Mills for more detail.                                                                                         
                                                                                                                                
He  provided a  brief history  that led  up to  the legislature's                                                               
consideration  of  a  spending  limit   in  1981.  Oil  had  been                                                               
discovered,  the Trans-Alaska  Pipeline  System  (TAPS) had  been                                                               
built,  and oil  began  to flow  in 1977.  The  state budget  had                                                               
increased  over 9,000  percent from  1960-1982.  During the  same                                                               
time period, inflation had almost  tripled and the population had                                                               
nearly  doubled. Even  when combined,  the effects  of population                                                               
and inflation  did not come  close to the 9,000  percent increase                                                               
in the budget.                                                                                                                  
                                                                                                                                
MR.  BARNHILL   continued.  By  this   time  other   states  were                                                               
considering adopting  constitutional spending limits.  The Alaska                                                               
legislature  found it  was an  appropriate time  to get  spending                                                               
under  control   as  it  attempted   to  manage  the   influx  of                                                               
substantial new revenues. The legislature  passed a resolution to                                                               
limit  spending, which  came before  the voters  and passed  by a                                                               
wide margin.  One provision in  the resolution required it  to be                                                               
resubmitted to  the voters in 1986.  That vote passed by  an even                                                               
larger margin, he said.                                                                                                         
                                                                                                                                
He  stated  that the  current  spending  limit  has not  been  an                                                               
effective means  to control spending.  The calculation  was based                                                               
on $2.5 billion plus inflation  and population growth. In FY 2020                                                               
this would  be about $10.5  billion, he said. The  population and                                                               
adjustment  for inflation  has  produced  a budget  substantially                                                               
larger than any budget from 1982  until today, so it has not been                                                               
an effective means to limit government spending.                                                                                
                                                                                                                                
MR.  BARNHILL explained  that SJR  6  would limit  the growth  of                                                               
allowable appropriations. He reviewed  the bullet points on slide                                                               
2 that supported the need to change the appropriation limit.                                                                    
                                                                                                                                
1:39:03 PM                                                                                                                    
ED  KING, Chief  Economist for  the  State of  Alaska, Office  of                                                               
Management  and   Budget,  Office   of  the   Governor,  reviewed                                                               
historical  state spending  on slide  4, a  line graph  depicting                                                               
unrestricted general  fund spending (UGF) adjusted  for inflation                                                               
and  population.   He  characterized  it  as   the  "per  capita"                                                               
inflation adjusted government  spending from FY 1975  to FY 2019.                                                               
This data was generated by  legislative finance and it represents                                                               
unrestricted  general fund  monies, including  agency operations,                                                               
statewide  items and  capital items,  but  not transfers  between                                                               
accounts.                                                                                                                       
                                                                                                                                
He explained that  spending increased from FY 1975 to  FY 1982 as                                                               
revenues increased such that the  state was spending over $16,000                                                               
per person  by 1982. The  constitutional amendment was  pegged to                                                               
the highest  level of  spending the  state had  ever experienced.                                                               
Following the  1982 constitutional limit, the  administration was                                                               
seeking ways  to limit spending  during the state's oil  bust and                                                               
boom phase  so downward  pressure was  occurring. This  created a                                                               
gap  between what  the state  was allowed  to spend  and what  it                                                               
needed to spend, he said.                                                                                                       
                                                                                                                                
1:41:06 PM                                                                                                                    
MR. KING  reviewed slide 5,  "UGF Spending History  and Different                                                               
Limits." This  slide presents five spending  scenarios to provide                                                               
a visual line graph comparison. The  black dotted line at the tip                                                               
of the  slide represents  the spending  limit under  current law,                                                               
based on  the 1982 constitutional  amendment. The  spending limit                                                               
was  pegged to  growth  and  limited to  a  fixed  number in  the                                                               
Constitution of  the State  of Alaska of  $2.5 billion.  In doing                                                               
so, it  allowed the limit to  grow from the previous  limit, even                                                               
if the state  actually spent money to the limit.  For example, in                                                               
1991  the limit  was allowed  to  grow from  the previous  year's                                                               
limit, not from  the previous year's spending.  That continued to                                                               
allow the  spending limit  to grow,  he said.  The administration                                                               
considered  that  the  rate  of   growth  was  generous  when  it                                                               
developed SJR 6.                                                                                                                
                                                                                                                                
He directed  attention to the  dotted [black] line in  the middle                                                               
of the slide  that depicts the 1982 spending limit  based on half                                                               
of inflation  and population growth.  The red dotted line  on the                                                               
slide  represents what  the  current  constitutional limit  would                                                               
have  done had  it been  pegged to  a pre  oil level  of spending                                                               
rather  than $2.5  billion. That  line shows  how spending  would                                                               
have   been  allowed   to  increase   just  with   inflation  and                                                               
population,  irrespective   of  the   amount  of   revenue  being                                                               
generated, he  said. He reviewed  the red  line, noting it  was a                                                               
smaller number through  the 80s but caught up in  the early 2000s                                                               
to a figure that is  basically where agency operations are today.                                                               
He  said   the  blue  layer   on  the  slide   represents  agency                                                               
operations,  the  orange  represents statewide  items,  including                                                               
contributions  to retirement,  unfunded  liability, debt  service                                                               
payments, and  oil tax  credit purchases. He  said that  the gray                                                               
portion  represents  the  capital  budget.  Finally,  the  dashed                                                               
[black] line in  the middle represents what  the current language                                                               
in SJR 6 would  have done had it been in place  in 1982, he said.                                                               
It tracks the actual rate  of spending fairly well, updated based                                                               
on actual spending rather than on a fixed amount, he said.                                                                      
                                                                                                                                
1:43:53 PM                                                                                                                    
MR. KING reviewed slide 6, "Considerations."                                                                                    
                                                                                                                                
        ? Not all government spending needs to grow with                                                                        
     population                                                                                                                 
        ? Teachers and troopers, maybe                                                                                          
        ? Regulators and auditors, maybe not                                                                                    
                                                                                                                                
        ? For 20 years, the state did not need inflation                                                                        
     adjustments, even when they were allowed                                                                                   
                                                                                                                                
       ? A high allowed rate of growth from a record high                                                                       
     spending level leads to an ineffective limit                                                                               
                                                                                                                                
MR. KING said that slide  5 shows that the current constitutional                                                               
language  is very  generous  in its  allowance.  He reviewed  the                                                               
bullet  points,   adding  that   during  the  1990s,   the  state                                                               
experienced a period when  inflation-adjustments were allowed but                                                               
not taken  advantage of. It  may call into question  whether full                                                               
inflation adjustments  are actually necessary, he  said. Finally,                                                               
the level  at which  the appropriation limit  would be  pegged is                                                               
important. That level  should be reset according  to actual needs                                                               
of  the state  rather  than a  fixed  point in  time  or a  fixed                                                               
reference, he said.                                                                                                             
                                                                                                                                
1:45:09 PM                                                                                                                    
MR. KING  reviewed slide 8,  "Where does the current  Path Lead?"                                                               
This bar  graph shows that using  the PFDs to balance  the budget                                                               
would lead to turning to savings  and eventually to taxes to fund                                                               
the state  budget. This chart means  to say that without  a check                                                               
in spending, any or all of  those tools will become necessary, he                                                               
said.                                                                                                                           
                                                                                                                                
MR. KING reviewed slide 9, "UGF Spending History."                                                                              
                                                                                                                                
He said  that as  revenues increased in  2005-2013 as  oil prices                                                               
spiked,  the budget  rose alongside  those revenues.  The current                                                               
limit did not limit spending growth when revenues rose.                                                                         
                                                                                                                                
MR. KING reviewed slide 10,  "UGF Spending History." He said that                                                               
this slide  provides an historical  timeline. The impetus  of the                                                               
1982 constitutional amendment  was a 264 percent  increase in UGF                                                               
spending. Although government spending  was not restricted by the                                                               
constitutional amendment, it was  restricted until 2005, when oil                                                               
prices rose. In  1999, oil prices were at the  lowest point at $9                                                               
per barrel and were at their  highest in 2008 at $147 per barrel.                                                               
That rapid increase  in oil prices led to a  tremendous amount of                                                               
money  flowing  into  the  treasury, leading  to  a  261  percent                                                               
increase in  UGF spending from  FY 2005-2014. At that  point, oil                                                               
prices crashed again. Once again,  this put pressure on the state                                                               
to  reduce the  budget. However,  current government  spending is                                                               
still $2 billion  above what it was before oil  prices spiked, he                                                               
said.                                                                                                                           
                                                                                                                                
1:47:32 PM                                                                                                                    
MR. KING  reviewed slide 11,  "What if the Proposed  Spending Cap                                                               
Passed  before Oil  Prices Spiked?"  He suggested  that slide  11                                                               
shows that  a lot of  the growth would  not have been  allowed if                                                               
SJR 6 had passed in 2000.  A. The financial consequences of those                                                               
decisions equaled $29  billion in spending instead  of going into                                                               
savings  accounts to  generate additional  earnings. If  that $29                                                               
billion had  not been  spent, the  state would  be facing  a very                                                               
different situation, he said.                                                                                                   
                                                                                                                                
MR. KING reviewed  slide 12, "Size of Permanent  Fund if Proposed                                                               
Spending Limit  was in Place  before Oil Prices Spiked?"  He said                                                               
that it would have nearly  $140 billion versus the current $65-67                                                               
billion balance.                                                                                                                
                                                                                                                                
1:48:51 PM                                                                                                                    
MR. KING  reviewed slide 13,  "What Actually  Happened?" Instead,                                                               
expenditures have  not been  reduced to  align with  revenues and                                                               
the  state  has  depleted  its   savings  accounts.  The  current                                                               
constitutional  budget  reserve  account (CBR)  balance  is  $1.7                                                               
billion, with the statutory budget  reserve account (SBR) at $172                                                               
million. He pointed out that  the Office of Management and Budget                                                               
expects about  $300 million to  return to the  CBR by the  end of                                                               
2019. Currently the reserves will  be $2 billion, whereas in 2013                                                               
the state had over $16 billion in savings, he said.                                                                             
                                                                                                                                
1:49:32 PM                                                                                                                    
MR.  BARNHILL  reviewed   slide  15,  "Governor    Constitutional                                                               
Amendments."                                                                                                                    
                                                                                                                                
       Three constitutional amendments were introduced to                                                                       
    provide     sustainability,     predictability,     and                                                                     
     affordability for Alaska:                                                                                                  
                                                                                                                                
      ? SJR 6: Set an annual spending and savings rule to                                                                       
     stabilize spending and grow the Permanent Fund.                                                                            
                                                                                                                                
        SJR 5: Changes to the current PFD formula would                                                                         
       require a vote of the people - Alaska is an owner                                                                        
     state.                                                                                                                     
                                                                                                                                
         SJR 4: Require a vote of the people before the                                                                         
     implementation or increase of any tax.                                                                                     
                                                                                                                                
1:50:19 PM                                                                                                                    
MR. KING reviewed slide 16,  "Where Does Governor Dunleavy's Plan                                                               
Lead?"                                                                                                                          
                                                                                                                                
He said that  the permanent fiscal plan  in SJR 4, 5,  and 6 will                                                               
achieve goals the  governor can build on. One of  the primary and                                                               
most important  aspects is to  restrict government growth.  SJR 6                                                               
may or may not allow the government to grow in the future.                                                                      
                                                                                                                                
1:51:17 PM                                                                                                                    
SENATOR SHOWER said  the fiscal plan was  previously discussed in                                                               
the Senate  State Affairs Standing Committee.  The Senate Finance                                                               
Committee  today   indicated  it   could  not  stay   within  the                                                               
governor's  proposed budget.  He  asked whether  OMB could  model                                                               
several alternative plans to illustrate the variables.                                                                          
                                                                                                                                
MR. KING  offered to model  alternate scenarios and  compare them                                                               
to the  governor's plan. He  pointed out that an  infinite number                                                               
of combinations of  tools could be highlighted. He  said that SJR                                                               
6 would limit future growth, but  the chart also assumes that the                                                               
full  budget  reductions  will  occur.  He  cautioned  that  with                                                               
increased budgets,  government growth  would also be  higher, and                                                               
savings will be drawn to cover it.                                                                                              
                                                                                                                                
1:53:06 PM                                                                                                                    
SENATOR  KIEHL asked  if he  could model  an estimated  period of                                                               
economic growth, such  as one in which the gas  line was built or                                                               
if the  state decided on  greater economic development.  He asked                                                               
how that  would affect services.  He noted that earlier  Mr. King                                                               
posited the  services that  need to  rise with  population growth                                                               
and  those that  do  not. He  suggested it  might  be helpful  to                                                               
consider  the impact  [SJR  6]  would have  on  the Article  VIII                                                               
obligations.                                                                                                                    
                                                                                                                                
MR.  KING  answered  that  he  would  be  happy  to  discuss  the                                                               
relationship between  economic growth  and government  growth and                                                               
what  restrictions  SJR 6  would  place  on  the ability  of  the                                                               
economy  to  grow  when restricting  government  growth.  Besides                                                               
economic  questions, a  number of  philosophical questions  would                                                               
need  to  be  answered  as  well, he  said.  He  offered  to  use                                                               
different  assumptions for  inflation  and  population growth  to                                                               
demonstrate  the divergence  between those  levels of  population                                                               
and  inflation adjusted  figures  as compared  to  what would  be                                                               
allowed under SJR 6.                                                                                                            
                                                                                                                                
SENATOR  KIEHL  said that  would  be  helpful. He  recalled  that                                                               
Senator Sullivan once  suggested that the state ought  to be able                                                               
to  sustain 3-3.5  percent economic  growth over  the long  term.                                                               
Obviously  economic  growth and  population  growth  tends to  be                                                               
closely related,  he said.  He said that  he had  questions about                                                               
what effect SJR  6 would have on the state's  ability to meet its                                                               
other constitutional obligations under  normal inflation. He said                                                               
that  the crux  of  the  Judiciary Committee  is  to assess  what                                                               
impact SJR  6 would  have on the  state's responsibility  to meet                                                               
its other constitutional obligations.                                                                                           
                                                                                                                                
1:55:41 PM                                                                                                                    
CHAIR HUGHES  said she too  would be interested. She  referred to                                                               
slide 6,  that shows  that numbers of  troopers and  teachers may                                                               
need  to increase,  but not  the auditors.  She asked  whether he                                                               
could review  the budget and  tease out  a rough estimate  of the                                                               
percentage that would  need to move along  with population growth                                                               
and inflation  and how  much could stay  static. She  referred to                                                               
page 2, to the per capita spending in 2008.                                                                                     
                                                                                                                                
MR. KING  answered that  in 2008,  it was  $16,000 per  person in                                                               
2019 dollars whereas today it is about $8,000 per person.                                                                       
                                                                                                                                
1:57:00 PM                                                                                                                    
CHAIR HUGHES asked whether the chart  on slide 8 accounts for the                                                               
effects the  pension liability would have  on the PFDs or  if the                                                               
PFDs would run out earlier.                                                                                                     
                                                                                                                                
MR. KING  said the obligation  will increase  next year and  as a                                                               
result the POMV  would be completely consumed in FY  2022 with no                                                               
remaining funds available for distribution.                                                                                     
                                                                                                                                
CHAIR HUGHES asked for further  clarification that there would be                                                               
a PFD this year and next year but nothing after that.                                                                           
                                                                                                                                
MR. KING answered that is  an accurate statement in this scenario                                                               
based on  the only  tool the  legislature was  using to  fill the                                                               
$1.6 billion budget gap.                                                                                                        
                                                                                                                                
1:58:11 PM                                                                                                                    
CHAIR HUGHES  asked how many states  have constitutional spending                                                               
caps.                                                                                                                           
                                                                                                                                
MR.  BARNHILL  answered that  the  National  Conference of  State                                                               
Legislatures reported  in 2010  that 30 states  had some  form of                                                               
spending, appropriation,  or revenue limit in  their constitution                                                               
or in statute.                                                                                                                  
                                                                                                                                
1:58:39 PM                                                                                                                    
SENATOR KIEHL  referred to  the historical  charts. He  said that                                                               
significant spending  reductions happened from FY  1985-1989, and                                                               
from  FY 1994-2000  gradual reductions  occurred.  He asked  what                                                               
constitutional provision forced those spending cuts.                                                                            
                                                                                                                                
MR. KING responded that a  constitutional provision did not force                                                               
the  cuts. He  said an  economic  reality happened  in all  three                                                               
cases as  the financial  strength of  the state  deteriorated. In                                                               
the  1980s the  state faced  the greatest  recession it  had ever                                                               
experienced, which drove reductions. In  the late 1990s and early                                                               
2000s,  and  again in  2014  to  the  present,  the state  had  a                                                               
significant reduction in oil prices, he said.                                                                                   
                                                                                                                                
1:59:42 PM                                                                                                                    
CHAIR HUGHES said  she agreed that economic  realities caused the                                                               
budget reductions. There probably was  not the same connection to                                                               
the legislature because of the  lack of technology, she said. She                                                               
was  unsure  of  the  level  of  outreach  or  communication  the                                                               
legislature had with  Alaskans or the number  of protests against                                                               
budget reductions in  the 1980s as compared to now.  She said she                                                               
understands  that  people  currently track  the  legislature  via                                                               
GavelAlaska.  Further, the  legislature now  holds many  meetings                                                               
throughout the state.                                                                                                           
                                                                                                                                
MR. BARNHILL agreed that in the  1980s and 1990s Alaskans did not                                                               
have the same technology, but he  felt they have always been well                                                               
informed.  He said  the level  of reaction  is higher  today, but                                                               
this   administration's   approach   to  the   budget   is   also                                                               
unprecedented.                                                                                                                  
                                                                                                                                
CHAIR  HUGHES  recalled  reading  the  daily  newspaper  and  the                                                               
nightly  news  years ago,  but  she  did  not recall  a  constant                                                               
connection  to  the  legislature.  She  said  it  makes  it  more                                                               
difficult  to   make  changes  with  the   current  pushback  the                                                               
legislature is  experiencing. She pointed out  that Senator Kiehl                                                               
related that years  ago, the budget cuts  naturally occurred when                                                               
the  economics called  for  it. She  did not  wish  to speak  for                                                               
Senator Kiehl,  but she  thought his  point was  that if  it took                                                               
care of itself then, it should  take care of itself now. However,                                                               
she does  not think it  can because people have  become dependent                                                               
on certain  services and  spending and  it is  so much  easier to                                                               
organize  groups  to oppose  the  cuts.  She  did not  think  the                                                               
response to cut  the budget would happen as readily  as it did in                                                               
the 1980s.                                                                                                                      
                                                                                                                                
2:02:35 PM                                                                                                                    
SENATOR SHOWER  asked the  record to reflect  his belief  that if                                                               
the state continues down the  path of passing larger budgets, the                                                               
permanent fund  will be gone  in a  few years. Some  people think                                                               
that the  current budget  level is acceptable  and that  it could                                                               
increase, he  said. He  related his understanding  that if  SJR 6                                                               
were  to   start  on  that   baseline,  the  charts   in  today's                                                               
presentation on SJR 6 show that  outcome. He remarked that he saw                                                               
some nods  of assent in  the audience. He  said he did  not think                                                               
people understand the urgency of  the situation. In the last five                                                               
years,  the  state has  depleted  the  permanent fund's  earnings                                                               
reserve account.  Essentially, the  legislature has  maintained a                                                               
higher standard of  living in Alaska by drawing  down its savings                                                               
accounts,  he said.  The legislature  and administration  did not                                                               
hold the  hard discussions  it is currently  having, he  said. He                                                               
argued  that   [past]  budget   reductions  were   not  naturally                                                               
occurring ones. Instead,  the legislature ran out  of options [in                                                               
the 1980s].  Currently the legislature  has an option  to protect                                                               
the permanent  fund savings or to  use them. In recent  years the                                                               
legislature chose to use them,  he said. Now the legislature must                                                               
do something different.                                                                                                         
                                                                                                                                
2:04:29 PM                                                                                                                    
MR. KING responded that Senator  Shower's comments were accurate,                                                               
and that if the state continues  to spend at the current level of                                                               
the  FY  2019  budget,  it  would  require  a  reduction  in  the                                                               
permanent fund dividend,  implementation of some form  of tax, or                                                               
withdrawal from  savings [to fund  the budget]. Those  "tools" or                                                               
options would  eventually run out.  He predicted that  the option                                                               
to cut  the PFD would run  out next year and  the spending option                                                               
would run  out within  the next  eight years.  At that  point, in                                                               
order  to maintain  its  current level  of  budget spending,  the                                                               
legislature would  need to pass  a tax to raise  revenues because                                                               
there  is  no  other  option.  The  legislature  has  proactively                                                               
reduced spending in the last  five years to counter reduced state                                                               
revenues.                                                                                                                       
                                                                                                                                
He said  that SJR 6 would  seek to prevent increases  in spending                                                               
in the  first place, so  that reductions would not  be necessary.                                                               
He  characterized  it  as the  difference  between  allowing  the                                                               
situation to  solve itself versus proactively  managing the long-                                                               
term fiscal situation by adopting a permanent fiscal plan.                                                                      
                                                                                                                                
2:06:00 PM                                                                                                                    
CHAIR  HUGHES  summarized  Mr.   King's  comments,  that  if  the                                                               
legislature stays on  the current trajectory and  does not reduce                                                               
spending,  that  the PFD  will  run  out  in  two years  and  the                                                               
legislature would  need to  implement taxes  in eight  years. She                                                               
asked if that was an accurate summary.                                                                                          
                                                                                                                                
MR.  KING verified  the information  on the  slide. He  said that                                                               
using  a combination  approach,  the  PFD would  be  gone in  two                                                               
years.  However, because  of  the timing,  he  predicted that  it                                                               
would take  about 20 years before  the state ran out  of savings.                                                               
If the legislature only leaned  on the permanent fund savings and                                                               
did  not cut  the PFD,  the savings  would be  depleted in  about                                                               
eight years, he said.                                                                                                           
                                                                                                                                
2:06:41 PM                                                                                                                    
SENATOR MICCICHE commented,  "There's a lot of  semantics in that                                                               
question" and  it's a  misleading answer  because of  the choices                                                               
that are  given. He  said that  the previous  committee discussed                                                               
this at  length as did  the Finance  committee, but he  would not                                                               
get into those discussions today.                                                                                               
                                                                                                                                
He  offered his  belief that  slide 8  represents the  worst-case                                                               
scenario,   which  no   one  was   talking  about   implementing.                                                               
Conversely, slide 16  represents "the best of  the best." Nothing                                                               
would   go  wrong   and  everything   would  go   perfectly.  The                                                               
legislature  would support  full  budget cuts,  people would  not                                                               
rise  up against  cuts  to government  services,  and oil  prices                                                               
would not drop. He posited  that the state was probably somewhere                                                               
in the  middle. Aside  from these  scenarios, what  is imperative                                                               
about passing  SJR 6,  with some slight  adjustments, is  that if                                                               
the  legislature had  reset spending  to a  reasonable curve,  it                                                               
would have shaved  off billions in excess spending  from FY 2008-                                                               
2010  and  FY 2011-2015.  The  state  would  have been  over  any                                                               
conservative measure of a reasonable spending slope, he said.                                                                   
                                                                                                                                
SENATOR MICCICHE said that passing  the resolution is imperative.                                                               
He  offered  his support  for  SJR  6  because  it would  set  an                                                               
appropriation limit,  one that must  also use a  reasonable level                                                               
of inflation.  He acknowledged that the  committee could continue                                                               
to argue  about when  savings would  run out or  on the  price of                                                               
oil. However,  the details  are less  important than  the overall                                                               
picture,  he  said.  He  said  that  the  current  constitutional                                                               
spending  limit is  inadequate. Further,  what happened  was that                                                               
during  times  of  high   revenues,  constituents  demanded  that                                                               
legislators overspend,  so they  did. Some  of these  same people                                                               
are  now asking  the legislature  to "slash  and burn,"  he said.                                                               
Adopting an adequate appropriation  limit could avoid the tension                                                               
that occurs  during times of  high or  low state revenues  and it                                                               
would regulate  a long-term sustainable budget.  He asked whether                                                               
the administration agreed with his high-level assessment.                                                                       
                                                                                                                                
2:09:39 PM                                                                                                                    
MR. KING  said he  agreed that the  two scenarios  highlight what                                                               
would  happen if  the  legislature  does nothing  or  if it  does                                                               
everything. The  presentation provides the bookends  to show what                                                               
the  future may  look like,  but as  Senator Micciche  stated the                                                               
reality might be somewhere in the middle, he said.                                                                              
                                                                                                                                
CHAIR HUGHES  said it  was important for  people to  realize what                                                               
could  happen  if  the  state  does  not  do  anything.  The  two                                                               
scenarios  presented as  bookends were  important to  understand,                                                               
she said.                                                                                                                       
                                                                                                                                
2:10:33 PM                                                                                                                    
CORI MILLS,  Senior Assistant Attorney  General, Labor  and State                                                               
Affairs  Section, Civil  Division, Department  of Law,  presented                                                               
the sectional analysis of SJR 6.                                                                                                
                                                                                                                                
MS.  MILLS reviewed  slide 18,  "Appropriation  Limit (SJR  6/HJR                                                               
7)."                                                                                                                            
                                                                                                                                
 Big picture:                                                                                                                   
      Current appropriation limit is so high that the limit is                                                                  
    never met                                                                                                                   
                                                                                                                                
    ? Constitutional Amendment changes the current appropriation                                                                
    limit to be more meaningful and impactful over time                                                                         
                                                                                                                                
    ? Deposits excess revenues annually into savings                                                                            
                                                                                                                                
    ? Changes the Constitutional Budget Reserve Fund to the                                                                     
    Savings Reserve Fund and limits spending and fund size                                                                      
                                                                                                                                
She  said   that  the  current  appropriation   limit  was  never                                                               
effective.  She  explained  the  point  of  SJR  6  is  that  the                                                               
administration seeks to bring the  appropriation limit down to an                                                               
effective level.  It would also  create a different  savings rule                                                               
than  the current  Constitutional Budget  Reserve Fund  (CBR) and                                                               
change the  name of the CBR  to a Savings Reserve  Fund. It would                                                               
also limit the spending from the fund in certain ways, she said.                                                                
                                                                                                                                
MS.  MILLS  reviewed  slide  19,  "Appropriation  Limit:  Section                                                               
1(a)."                                                                                                                          
                                                                                                                                
     ?  Appropriation Limit  --   ppropriations  made for  a                                                                    
     fiscal  year  shall  not  exceed  the  average  of  the                                                                    
     appropriations made in the  previous three fiscal years                                                                    
     by more than fifty percent  of the cumulative change in                                                                    
     population  and  inflation  since   January  1  of  the                                                                    
     previous  calendar year,  derived from  federal indices                                                                    
     as  prescribed by  law, or  two  percent, whichever  is                                                                    
     less."                                                                                                                     
                                                                                                                                
     o  Provides  a list  of  exceptions  for spending  that                                                                    
     falls outside the appropriation limit cap                                                                                  
     o Examples:  permanent fund dividends and  money placed                                                                    
     in  the  fund;  money for  disasters;  obligations  and                                                                    
     proceeds from G.O. bonds and revenue bonds                                                                                 
     o  Most substantial  change from  existing exceptions--                                                                    
     capital spending  is not an exception  and falls within                                                                    
     the appropriation limit cap                                                                                                
                                                                                                                                
MS. MILLS  characterized the appropriation  limit as the  crux of                                                               
SJR 6,  since it would  determine the glide path  moving forward.                                                               
It  would start  with  a  baseline of  $2.5  billion  and add  in                                                               
population  and  inflation  [adjustments].   It  would  take  the                                                               
average of  the last three  fiscal year appropriations  to create                                                               
the  baseline.  Appropriations shall  not  exceed  50 percent  of                                                               
population growth  and inflation  over the  previous year  or two                                                               
percent,   whichever  is   less,   she  said.   This  means   the                                                               
appropriation would never  exceed two percent growth  rate in any                                                               
given year. Those  are the two main changes in  Section 1(a), she                                                               
said.                                                                                                                           
                                                                                                                                
SJR 6 would capture the  exceptions in the current constitutional                                                               
appropriation limit, but enumerate them for clarity                                                                             
                                                                                                                                
MS. MILLS  said that  the most  substantial change  from existing                                                               
exceptions   is  for   capital   spending.   Under  the   current                                                               
appropriation limit,  one-third must be for  capital spending and                                                               
the legislature can  go outside the appropriation  cap with voter                                                               
approval and if the projects are  of a similar scope and purpose.                                                               
That  exception  was not  included  in  the appropriation  limit.                                                               
Instead,  the  administration's  approach   was  to  use  General                                                               
Obligation  (GO) bonds  for capital  projects since  that process                                                               
requires voter approval, she said.                                                                                              
                                                                                                                                
2:13:49 PM                                                                                                                    
SENATOR KIEHL asked for the  size of the state's current deferred                                                               
maintenance backlog.                                                                                                            
                                                                                                                                
MR. KING said  he recalls it is  in the $2 billion  range, but he                                                               
would need to confirm that and report back to the committee.                                                                    
                                                                                                                                
SENATOR KIEHL said  that unless the state  incurred bonding costs                                                               
and  bond  interest  payments,   that  any  [appropriations  for]                                                               
deferred maintenance would need to fall under the cap.                                                                          
                                                                                                                                
MS. MILLS answered that is correct.                                                                                             
                                                                                                                                
2:14:31 PM                                                                                                                    
MR.  KING  reviewed  slide  20,  "Illustration  of  Total  Budget                                                               
Appropriation  Limit." He  explained that  the graphic  listed on                                                               
the slide highlights that the state's  budget is in excess of the                                                               
general fund spending commonly discussed.  He said that the total                                                               
state budget is $11-12 billion,  which includes federal funds and                                                               
several  other items  that would  not be  considered part  of the                                                               
spending limit.                                                                                                                 
                                                                                                                                
He directed  attention to  the blue  bars, which  illustrate what                                                               
would  be subject  to the  cap while  the orange  bars illustrate                                                               
what would  be excluded from  the cap. These include  all federal                                                               
funds,  the  permanent  fund dividend  payment,  some  designated                                                               
general  funds (DGF),  and  specifically  those designated  funds                                                               
that  are program  receipts generated  from public  corporations,                                                               
including revenue bond proceeds. He  said some other items in the                                                               
budget would be excluded from  the cap. For example, debt service                                                               
payments, capital  items issued by general  obligation (GO) bonds                                                               
and transfers between accounts would  be outside the cap. He said                                                               
the spending limit  did not mean that the state  was reduced from                                                               
$12 billion  to $5 billion.  Instead, those items subject  to the                                                               
cap would need to remain under the cap.                                                                                         
                                                                                                                                
CHAIR HUGHES  referred to  the DGF  not subject  to the  cap. She                                                               
said some discussion  has occurred with respect to  how the state                                                               
could  continue  Alaska  Marine   Highway  System  services.  For                                                               
example, one option would be to  move it to a public corporation.                                                               
She asked whether  charges to customers traveling  on the ferries                                                               
would  fall under  the  cap. She  further  asked whether  tuition                                                               
increases at  the University of  Alaska would fall under  the cap                                                               
as DGF monies.                                                                                                                  
                                                                                                                                
MS. MILLS answered  that the exceptions were  specific to revenue                                                               
bonds, that is  the obligations and proceeds on  revenue bonds or                                                               
the  debt  service  as  well  as  the  proceeds  received.  State                                                               
revenues received  in other ways,  such as fees or  tuition would                                                               
fall under the cap.                                                                                                             
                                                                                                                                
2:17:25 PM                                                                                                                    
MR. KING reviewed slide 21,  Calculation of Appropriation Limit."                                                               
He  stated that  this slide  provides a  mathematical calculation                                                               
for  the   spending  cap.  Effectively,   over  time   given  the                                                               
population and inflation assumptions, over  time there would be a                                                               
growth  rate   of  approximately  0.8  percent.   The  population                                                               
assumption  used   is  one  percent  growth   and  the  inflation                                                               
assumption used is 2.25 percent, he said.                                                                                       
                                                                                                                                
2:18:51 PM                                                                                                                    
MR.  KING reviewed  slide  22, "Comparison  of  Current Limit  to                                                               
Proposed Limit."                                                                                                                
                                                                                                                                
He said  that this illustrates  visually the  legislative finance                                                               
data set for  unrestricted general funds (UGF). He  said that the                                                               
red  bars represent  the  next three  budgets  assuming that  the                                                               
legislature were  to pass something  in line with the  budget the                                                               
governor proposed.  The first year  would be the FY  2022 budget.                                                               
The calculation for the spending  limit would include the FY 2019                                                               
budget, which is  higher than the proposed budgets,  while the FY                                                               
2022  budget  would be  below  the  cap. The  allowable  spending                                                               
growth converges to less than one percent growth.                                                                               
                                                                                                                                
2:19:46 PM                                                                                                                    
MS. MILLS, in response to  an earlier question from Chair Hughes,                                                               
said she  was remiss in not  pointing out an exception  under the                                                               
current  constitutional appropriation  limit. She  said it  was a                                                               
little broader  than revenue bonds. She  read, "appropriations of                                                               
money received  from a non-state  source in trust for  a specific                                                               
purpose,  including revenues  of  a public  enterprise or  public                                                               
corporation of the state that  issues revenue bonds." She said an                                                               
argument could be made that the  language is a little broader, so                                                               
if the state  created a public corporation for  the Alaska Marine                                                               
Highway System, it  may fall outside the cap.  She specified that                                                               
SJR 6 only speaks to revenue bonds.                                                                                             
                                                                                                                                
CHAIR  HUGHES  asked  if  the   University  of  Alaska  would  be                                                               
considered a public enterprise.                                                                                                 
                                                                                                                                
MS.  MILLS answered  that she  was  unsure, but  she would  think                                                               
about it  and respond back to  the committee. She said  that that                                                               
the university is in a special  status in the Constitution of the                                                               
State  of Alaska  but still  part  of the  executive branch.  She                                                               
thought that  it might fall under  a specific status as  a public                                                               
enterprise, but she wanted to confirm that.                                                                                     
                                                                                                                                
2:21:16 PM                                                                                                                    
CHAIR  HUGHES reviewed  paragraph (7),  on page  2, lines  10-12,                                                               
which read  "of money received by  the State from a  source other                                                               
than  the State  or federal  government that  is restricted  to a                                                               
specific  use  by  the  terms  of  a  gift,  grant,  bequest,  or                                                               
contract; and".  She said  that dedicated  funds are  not allowed                                                               
per the  Constitution of the  State of  Alaska. She asked  for an                                                               
example of when this provision would apply.                                                                                     
                                                                                                                                
MS. MILLS  pointed out  that this  pertained to  determining what                                                               
would   be   calculated,   not  whether   it   was   subject   to                                                               
appropriation. In fact,  that was the reason it  would be outside                                                               
the cap,  she said.  For example, someone  could donate  money to                                                               
the  state  or through  "Pick.Click.Give."  She  noted that  some                                                               
options allow the  person to donate to a state  fund. These funds                                                               
must be used  for a specific purpose but that  does not mean that                                                               
the  funds would  not still  be subject  to appropriation  by the                                                               
legislature.  The  funds  just  cannot  be  used  for  any  other                                                               
purpose, she said.                                                                                                              
                                                                                                                                
CHAIR HUGHES asked  if the legislature could  use funds elsewhere                                                               
if the funds were donated for a specific purpose.                                                                               
                                                                                                                                
MS. MILLS  responded that if  the state were  to do so,  it would                                                               
probably be  in violation of  the purpose the donor  put forward.                                                               
She agreed  that this  could get complicated.  She added  that it                                                               
would fall under a non-state source.                                                                                            
                                                                                                                                
2:23:07 PM                                                                                                                    
MR. BARNHILL stated that a  number of small funds currently exist                                                               
in  statute,  including the  Arctic  Winter  Games Fund  and  the                                                               
Veterans  Memorial Fund.  He  said that  anyone  is permitted  to                                                               
donate  to those  funds. When  the state  receives the  funds, it                                                               
receives them  in trust, and it  would be placed in  the fund for                                                               
that purpose. He  said that those types of  revenue sources would                                                               
be excluded from the cap.                                                                                                       
                                                                                                                                
MS. MILLS recalled that "Killed in  the Line of Duty" was another                                                               
fund.                                                                                                                           
                                                                                                                                
SENATOR KIEHL said  he would like follow-up on  the University of                                                               
Alaska because  it is explicit  in the Constitution of  the State                                                               
of Alaska that  it is the state university. He  asked for further                                                               
clarification on whether  the Alaska Mental Health  Trust Fund or                                                               
the Public School Trust Fund would be subject to the cap.                                                                       
                                                                                                                                
MS. MILLS referred to page 2,  lines 8-9, to paragraph (6), which                                                               
read, "of money  held in trust by the State  or received from the                                                               
federal government for a particular  purpose;". She said that the                                                               
Alaska Mental Health Trust Fund would be outside the cap.                                                                       
                                                                                                                                
MR. BARNHILL  answered that  the Public School  Trust Fund  was a                                                               
trust fund established  in state law that  predates statehood. He                                                               
said  that  it  was money  held  in  trust  by  the state  for  a                                                               
particular purpose.                                                                                                             
                                                                                                                                
2:24:55 PM                                                                                                                    
SENATOR KIEHL asked  if this language includes  moving the corpus                                                               
of these  trusts or  if it  covers the  earnings of  these trusts                                                               
being spent for the purposes of the trusts.                                                                                     
                                                                                                                                
MR.  BARNHILL  referred  to  page   1,  line  12,  and  read  "an                                                               
appropriation". He  referred to page  2, lines  8-9 of SJR  6, to                                                               
paragraph (6), which  read, "of money held in trust  by the State                                                               
or  received  from  the  federal   government  for  a  particular                                                               
purpose;". He  said that when the  legislature appropriates money                                                               
from  the Public  School Trust,  it is  appropriating from  money                                                               
held in trust  so it would be excluded from  the cap. In response                                                               
to  the  question  on  the University  of  Alaska,  Article  VII,                                                               
[Section 2] reads:                                                                                                              
                                                                                                                                
     Section 2. State University                                                                                                
                                                                                                                                
     The University  of Alaska is hereby  established as the                                                                    
     state university  and constituted a body  corporate. It                                                                    
     shall have title to all  real and personal property now                                                                    
     or  hereafter set  aside  for or  conveyed  to it.  Its                                                                    
     property   shall  be   administered  and   disposed  of                                                                    
     according to law.                                                                                                          
                                                                                                                                
He  said that  the university  is  a public  corporation that  is                                                               
established in the Constitution of the State of Alaska.                                                                         
                                                                                                                                
2:25:54 PM                                                                                                                    
SENATOR  KIEHL  referred to  the  lands  of the  Alaska  Railroad                                                               
Corporation  (ARRC) governed  by federal  rules. He  said it  has                                                               
been likened to trust responsibility.  He asked for the status of                                                               
the Alaska Railroad Corporation (ARRC) in terms of SJR 6.                                                                       
                                                                                                                                
MS. MILLS  explained that the Alaska  Railroad Corporation (ARRC)                                                               
is a public corporation that received  lands in a land grant, and                                                               
it manages  those lands. The ARRC  has been seen as  an exception                                                               
since it  does not come  to the legislature for  an appropriation                                                               
unless the corporation has a  specific item that cannot be funded                                                               
by its  own revenue.  The appropriation  limit wouldn't  have any                                                               
effect   because   it   specifically    speaks   to   making   an                                                               
appropriation.                                                                                                                  
                                                                                                                                
SENATOR KIEHL  suggested that  if the  ARRC was  not specifically                                                               
exempted, the constitutional amendment  could raise a significant                                                               
question about  whether a state  corporation must fall  under the                                                               
cap.                                                                                                                            
                                                                                                                                
MS. MILLS  said that  SJR 6 would  not fundamentally  change what                                                               
requires an appropriation under the  Constitution of the State of                                                               
Alaska.  This language  would require  the legislature  to follow                                                               
the  guidelines when  an appropriation  is made.  The calculation                                                               
would consider  everything that is appropriated  and subtract the                                                               
enumerated  items. She  related her  understanding that  the ARRC                                                               
does not  typically receive  appropriations. The  ARRC's revenues                                                               
are not  part of the appropriation  bill, so the limit  would not                                                               
apply.                                                                                                                          
                                                                                                                                
SENATOR KIEHL offered his belief  that it would create a loophole                                                               
to work around funds not being subject to future appropriations.                                                                
                                                                                                                                
2:28:22 PM                                                                                                                    
CHAIR HUGHES  recalled work  being done on  the Canada  rail link                                                               
from Alberta  to Alaska, which  could be a gamechanger.  She said                                                               
if  the  ARRC earned  substantial  revenue,  it is  possible  the                                                               
legislature  could make  adjustments to  allow those  revenues to                                                               
assist the  state. She asked  whether that would  change anything                                                               
since the state would not be appropriating funds to the ARRC.                                                                   
                                                                                                                                
MS. MILLS answered  that SJR 6 would not affect  revenues. If the                                                               
state created another line of  revenue, it would not increase the                                                               
appropriation  limit. It  would  just be  mixed  in with  general                                                               
funds to be spent. She said  she would have to examine whether it                                                               
would change how the ARRC is  treated. The Department of Law does                                                               
not currently  represent the  railroad. She  said she  was unsure                                                               
because it is very complicated  corporation due to the historical                                                               
impact of federal laws.                                                                                                         
                                                                                                                                
CHAIR  HUGHES said  she wanted  to be  sure the  committee thinks                                                               
that through.                                                                                                                   
                                                                                                                                
2:30:13 PM                                                                                                                    
MS. MILLS  reviewed slide 23, "Appropriation  Limit: Section 1(b)                                                               
and (c)."                                                                                                                       
                                                                                                                                
     Section   1(b)  and   (c)  ?   Excess  revenues   would                                                                    
     automatically  be deposited  into  savings accounts  in                                                                    
     priority order                                                                                                             
                                                                                                                                
     Total  amount  in  general fund  that  is  "unexpended,                                                                    
     unobligated,   and    unappropriated"   (i.e.,   excess                                                                    
     revenues)                                                                                                                  
                                                                                                                                
     Priority 1:  Pay back the permanent  fund principal 50%                                                                    
     of  the income  that was  deposited into  the ERA  that                                                                    
     fiscal year                                                                                                                
                                                                                                                                
     Priority  2: [if  money remains  after priority  1] Get                                                                    
     savings reserve fund balance  up to appropriation limit                                                                    
     (formerly the CBR)                                                                                                         
                                                                                                                                
      Priority 3: [if money remains after priority 2] Put                                                                       
        money into permanent fund principal to continue                                                                         
     growing the fund                                                                                                           
                                                                                                                                
MS.  MILLS said  that Section  1(b) and  (c) are  new subsections                                                               
added  to  the  appropriation  limit. Excess  revenues  would  be                                                               
deposited into savings accounts  in priority order. She explained                                                               
that  using priority  number 1,  money  would be  moved into  the                                                               
permanent fund principal  equal to 50 percent of  the income that                                                               
was deposited  into the Earnings  Reserve Account for  that year.                                                               
This would  basically mean  paying back  the principal  for money                                                               
that  was  earned in  income  about  equal  to what  was  usually                                                               
expended for dividends.                                                                                                         
                                                                                                                                
She explained  that the second  priority would be to  the savings                                                               
reserve fund, currently the constitutional  budget reserve, up to                                                               
the appropriation limit. The idea  is to always have enough money                                                               
in  the savings  account to  pay for  a full  year of  government                                                               
expenditures.  The  third  priority   would  be  to  deposit  any                                                               
remaining  money into  the  principal of  the  permanent fund  to                                                               
continue to grow the fund.                                                                                                      
                                                                                                                                
2:31:54 PM                                                                                                                    
CHAIR HUGHES  asked for further clarification  on the recommended                                                               
amount of savings to have in a reserve balance.                                                                                 
                                                                                                                                
MR. BARNHILL said  he was unsure if there is  a best practices on                                                               
reserve funds. He  offered to check with the  National Council of                                                               
State Legislatures (NCSL) for recommendations.                                                                                  
                                                                                                                                
CHAIR  HUGHES   said  it  would   be  helpful  to  know   if  the                                                               
recommendation is to have more than one year in reserves.                                                                       
                                                                                                                                
2:32:30 PM                                                                                                                    
MR. KING said  the amount of funds needed in  the savings account                                                               
to  ensure sufficient  liquidity to  meet  cash flow  needs is  a                                                               
function of several things. First,  it would depend on the amount                                                               
of money  flowing into  the account. Second,  it would  depend on                                                               
the volatility of other revenues.  Third, it would also depend on                                                               
the balance of  the fund. If ways to stabilize  revenues could be                                                               
found, such as  the ones that Senate Bill 26  provided last year,                                                               
or if oil  revenues could be stabilized, a  smaller balance could                                                               
be held  in the reserve  account. Further, if additional  ways to                                                               
refill the fund  were found, the account balance  could be lower.                                                               
This proposal makes  the savings reserve fund  a second priority.                                                               
Given  the current  volatility of  revenue streams,  his analysis                                                               
showed  that  the  CBR  would not  satisfy  the  requirement  for                                                               
liquidity and  it would be  necessary to  use the ERA  to balance                                                               
the budget.  This was especially  true, he said, in  his modeling                                                               
through 2009  and again in  2016. He said  that this issue  has a                                                               
lot of  moving pieces  and it  isn't possible  to provide  an in-                                                               
depth review today, but he would do so in the future.                                                                           
                                                                                                                                
2:33:58 PM                                                                                                                    
SENATOR MICCICHE pointed  out that SJR 6 would  limit the ability                                                               
to spend  to 1.9  percent below  projected inflation.  This would                                                               
mean  that the  state would  spend more  money addressing  the $2                                                               
billion  in deferred  maintenance  at times  when available  cash                                                               
could allow  it to catch up,  such as during the  spending spikes                                                               
shown in the past. The state would  need to bond, but it would no                                                               
longer  be  able to  bond,  and  it  could  no longer  spend  its                                                               
earnings or revenue,  even when excess revenue could  allow it to                                                               
catch up.  Even though  the building  and roofing  material costs                                                               
continue to  rise due to inflation,  the state would be  stuck at                                                               
1.9 percent  below that  inflation. However,  the state  would be                                                               
saving  at the  permanent fund  growth  rate of  6.7 percent.  It                                                               
doesn't make sense, he said.                                                                                                    
                                                                                                                                
He  argued that  the state  should strive  to have  an adequately                                                               
growing  permanent  fund  and  healthy  PFDs,  but  SJR  6  would                                                               
exacerbate and accelerate the growth  of the permanent fund while                                                               
it would  "choke" the  ability to respond  to inflation.  At some                                                               
point the savings would become  unusable. The [permanent fund] is                                                               
perpetually and  adequately funded through  a POMV with  a growth                                                               
rate that  would allow it to  pay all future bills.  However, the                                                               
state would  not be able  to keep up  with needs it  must deliver                                                               
per the Constitution of the State of Alaska.                                                                                    
                                                                                                                                
SENATOR  MICCICHE said  he  strongly  supports the  appropriation                                                               
limit, but  the trick would  be to find  the right slope  to meet                                                               
those requirements and have an  adequate level of savings growth,                                                               
but  limit excess  spending when  earnings are  high. He  did not                                                               
think that SJR  6 built in the right balance.  However, he agreed                                                               
with the overall philosophy, he said.                                                                                           
                                                                                                                                
2:36:41 PM                                                                                                                    
CHAIR HUGHES said the volatility of  oil prices is one reason she                                                               
wondered  whether the  savings would  be adequate  because during                                                               
low prices  when savings were  not adequate, it would  mean using                                                               
the earnings reserve. She said her  question is whether it is the                                                               
right order or amount.                                                                                                          
                                                                                                                                
2:37:14 PM                                                                                                                    
SENATOR  KIEHL  asked  for the  rationale  behind  only  dropping                                                               
windfalls  to the  permanent fund  and  not to  other funds  that                                                               
generate investment  earnings that  would offset  state spending,                                                               
reduce the need for general  fund revenues, and the potential tax                                                               
on resources  or Alaskans. He  said the Public School  Trust Fund                                                               
came up earlier, and there is  a Higher Education Fund, which are                                                               
used  to fund  the state  program. Earnings  from the  Power Cost                                                               
Equalization Fund are used instead of Alaska's dollars.                                                                         
                                                                                                                                
MS. MILLS  said the funds  he mentioned were statutory  funds and                                                               
could change.  She said it  would be  constitutionalizing another                                                               
fund if they were specifically  identified. She cautioned against                                                               
constitutional language that includes statutory references.                                                                     
                                                                                                                                
MR. KING  pointed out  that SJR 6  was an  introductory proposal.                                                               
The  administration  would  expect  it   to  change  as  it  goes                                                               
throughout the legislative process.                                                                                             
                                                                                                                                
2:39:20 PM                                                                                                                    
CHAIR HUGHES  asked if it  was possible to identify  another fund                                                               
that   has  not   been  constitutionalized   or  if   a  separate                                                               
constitutional amendment would be necessary.                                                                                    
                                                                                                                                
MS. MILLS said she thought  Chair Hughes was referencing the Bess                                                               
v. Ulmer case and the question  of whether it would be considered                                                               
an amendment  or a revision and  if a new fund  would create more                                                               
risk. She offered her belief that  it would be permitted, but the                                                               
legislature  must   be  careful  about   how  it  is   done.  The                                                               
legislature must also  decide if it was something  that should be                                                               
memorialized forever in the Constitution of the State of Alaska.                                                                
                                                                                                                                
2:40:13 PM                                                                                                                    
SENATOR  KIEHL said  that the  existing limit  mentions permanent                                                               
fund dividends. The  PFD is not in the Constitution  of the State                                                               
of  Alaska either,  he  said.  He said  he  was  unsure that  the                                                               
argument would  apply. He suggested considering  language related                                                               
to trust  funds but  not to mention  them explicitly.  He pointed                                                               
out that  they are  funds that  generate investment  earnings and                                                               
there  was   a  lot  of   "DFMH"  in  the  Mental   Health  Trust                                                               
appropriation that  could be offset  by more Mental  Health Trust                                                               
receipts.                                                                                                                       
                                                                                                                                
MS.  MILLS  agreed  that  it  was  possible.  She  cautioned  the                                                               
committee  to avoid  referencing the  statutes. She  said Senator                                                               
Kiehl is  correct that the  current appropriation  limit mentions                                                               
the PFD.  It does not  guarantee the permanent fund  dividend, or                                                               
constitutionalizing it, but it does mention it as an exception.                                                                 
                                                                                                                                
SENATOR REINBOLD  said she  loves the limitations  in SJR  6. She                                                               
was unsure why the current  constitutional spending limit did not                                                               
work.  She said  the state  does not  need to  spend billions  on                                                               
education,  the  university,  or  medical care.  She  supports  a                                                               
spending limit  and would like  to pass SJR  6 so the  voters can                                                               
decide. She  offered her belief  that government spending  is out                                                               
of control and needs restraint and limitations.                                                                                 
                                                                                                                                
2:43:21 PM                                                                                                                    
MS.  MILLS reviewed  the flowcharts  on slide  24, "Appropriation                                                               
Limit: Sections 2,3, and 5. She  said that this would replace the                                                               
existing CBR  with a  new Savings Reserve  Fund with  limits. Tax                                                               
and royalty  settlements would flow  in the Savings  Reserve Fund                                                               
(SRF)  based  on  the  priorities  to fill  up  the  SRF  to  the                                                               
appropriation limit.  It would change  how funds could  be spent.                                                               
The CBR  can be accessed  by a  three-fourth vote for  any public                                                               
purpose, but  it has not been  done because of Hickel  v. Cowper,                                                               
that determined  that the amount  available for  an appropriation                                                               
included  the  Earnings  Reserve  Account (ERA).  Since  the  ERA                                                               
contains so  much money, it was  not possible to reach  the level                                                               
where  the  amount  available for  appropriation  was  under  the                                                               
previous year's budget.                                                                                                         
                                                                                                                                
2:44:51 PM                                                                                                                    
CHAIR HUGHES  said that since  Senate Bill 26 passed,  she wanted                                                               
clarification  on  whether  it related  to  the  entire  Earnings                                                               
Reserve  Account and  not just  the earnings  reserve Percent  of                                                               
Market Value (POMV) draw.                                                                                                       
                                                                                                                                
MS. MILLS  answered yes. The  court ruled that the  entire amount                                                               
in  the  ERA must  be  counted.  Therefore, the  legislature  was                                                               
restricted to  use the three-fourths vote.  Under the resolution,                                                               
the Savings Reserve Fund (SRF),  would eliminate the need for the                                                               
three-fourths  vote. It  would repeal  that  provision and  allow                                                               
spending  by  majority  vote,  taking  into  account  the  amount                                                               
available for appropriations  from the general fund,  but not the                                                               
CBR. Thus,  if revenues  were much  lower, the  legislature could                                                               
use a majority vote only to  fill the gap between revenues in the                                                               
general fund and the appropriation  limit. Lastly, because of the                                                               
excess savings rule created in  the appropriation limit, it would                                                               
remove the repayment provision. Instead  of repaying the CBR, the                                                               
legislature would use excess revenues  to fill the permanent fund                                                               
and the  CBR. The remaining provisions  are transition provisions                                                               
for applicability and to place it on the ballot.                                                                                
                                                                                                                                
2:46:33 PM                                                                                                                    
CHAIR  HUGHES asked  whether she  would discuss  the legal  memos                                                               
from the Department of Law and Legislative Legal Services.                                                                      
                                                                                                                                
2:46:57 PM                                                                                                                    
MS. MILLS said  that when amending the Constitution  of the State                                                               
of  Alaska, language  is added  so constitutional  issues do  not                                                               
typically arise.  One legal question  that arose was  whether the                                                               
change can  be made by  amendment, such  as SJR 6.  The amendment                                                               
would go  through the legislature  and must pass by  a two-thirds                                                               
vote of both houses. It would then  be placed on the ballot for a                                                               
vote. A  majority vote  of the people  would approve  it. Another                                                               
way the Constitution  of the State of Alaska could  be amended is                                                               
by  revision.   Revision  must  be   done  by   a  constitutional                                                               
convention. The Alaska  Supreme Court has only ruled  on one case                                                               
to determine the difference between  an amendment and a revision.                                                               
This  relates  to  which  process  must be  used  to  change  the                                                               
constitution, either the  legislative process to amend  it or the                                                               
constitutional  convention to  revise  it, she  said. The  Alaska                                                               
Supreme Court ruled on  three different constitutional amendments                                                               
that  passed the  legislature in  one year  under Bess  v. Ulmer.                                                               
This ruling provides some guidance  on how the court applies this                                                               
test. The court ultimately determined  that it would focus on the                                                               
qualitative  aspects  or  "how  it  changes  the  substance"  and                                                               
quantitative or "how many times it touches it."                                                                                 
                                                                                                                                
2:48:44 PM                                                                                                                    
MS. MILLS  said she found it  helpful to frame the  issue the way                                                               
the  court  did,  such  as whether  the  proposed  amendment  was                                                               
changing the  powers, the authorities, the  relationships created                                                               
by  the original  framers by  fundamentally changing  the organic                                                               
whole of the  Constitution of the State of Alaska  and the way it                                                               
works. The  court found it to  be a hybrid approach,  a balancing                                                               
test,  so something  may quantitatively  be  minimal. This  would                                                               
mean  the qualitative  effect would  need  to be  higher or  vice                                                               
versa. If  the qualitative effect  was minimal,  the quantitative                                                               
would  need to  be higher  in  order for  it to  be considered  a                                                               
revision.                                                                                                                       
                                                                                                                                
2:49:26 PM                                                                                                                    
MS.  MILLS reviewed  the  three  other constitutional  amendments                                                               
that the court  considered under Bess v. Ulmer.  First, the court                                                               
considered the  rights of prisoners  and ruled that  the proposed                                                               
constitutional change would be a  revision. Thus, it could not go                                                               
on  the ballot,  she said.  Basically, the  court found  that the                                                               
rights of prisoners  in Alaska would always be the  same as those                                                               
under the U.S.  Constitution. This meant that any  case law under                                                               
the U.S.  Constitution would  also apply  in Alaska.  The court's                                                               
logic  was  that  the  proposed  constitutional  amendment  would                                                               
substantially  alter  the  substance  and the  integrity  of  the                                                               
Constitution  of the  State of  Alaska. The  court said  that the                                                               
Constitution of the State of  Alaska is a document of independent                                                               
force and effect. The court  also considered other provisions and                                                               
determined it would alter as many  as 11 separate sections of the                                                               
Constitution of the State of Alaska.                                                                                            
                                                                                                                                
2:50:27 PM                                                                                                                    
MS.  MILLS   explained  that  the   Alaska  Supreme   Court  also                                                               
considered  the   marriage  amendment,  which  was   later  found                                                               
unconstitutional  under the  U.S. Constitution,  but at  the time                                                               
the court  allowed it to  go to a vote  of the people.  The court                                                               
considered that  the proposed  constitutional change  was limited                                                               
in both  its scope and effect,  so it allowed this  measure to be                                                               
placed on the ballot for a public vote.                                                                                         
                                                                                                                                
MS. MILLS turned  to the last one, which  was Legislative Resolve                                                               
74. Prior to this constitutional  amendment, the executive branch                                                               
had  the   sole  authority  to   set  the   legislative  district                                                               
boundaries.  This  constitutional  amendment   changed  it  to  a                                                               
neutral board,  appointed by the  governor, the  legislature, and                                                               
the  chief  justice.  Thus,  the board  consisted  of  all  three                                                               
branches of government,  she said. The court ruled  that it would                                                               
only be an  amendment despite that it changed most  of Article VI                                                               
of the Constitution of the  State of Alaska. The court considered                                                               
it  to  be quantitatively  minimal,  stating  that it  would  not                                                               
fundamentally  change the  constitutional role  of any  branch of                                                               
the governmental process.                                                                                                       
                                                                                                                                
MS. MILLS  said that the  Department of Law was  very comfortable                                                               
that SJR 6 would constitute an  amendment and not a revision. She                                                               
said  that the  spending limit  is  already an  amendment to  the                                                               
Constitution of  the State  of Alaska.  This would  merely change                                                               
existing amendments  and furthering the original  intent of those                                                               
amendments.                                                                                                                     
                                                                                                                                
2:52:21 PM                                                                                                                    
MS. MILLS  explained that  the people  voted on  an appropriation                                                               
limit because they wanted spending to  be capped in some way. The                                                               
spending limit  was not  effective and  SJR 6 aimed  to put  in a                                                               
meaningful and impactful appropriation  limit, which is very much                                                               
in line with  the amendment voters originally voted  on when they                                                               
passed  the constitutional  spending  limit. This  could be  said                                                               
about  the   constitutional  budget   reserve  (CBR)   fund.  She                                                               
characterized  it as  a reaction  and desire  to save  during any                                                               
state windfalls. It would ensure  that revenues were removed from                                                               
the general  fund and locked  away in  a manner that  allowed for                                                               
spending with a higher vote,  but it would primarily be deposited                                                               
as savings.                                                                                                                     
                                                                                                                                
The department  used the  same purpose  and goal  in constructing                                                               
SJR 6, so the  department views SJR 6, when taken  as a whole, to                                                               
make neither quantitative nor qualitative  changes. It touches on                                                               
just  two sections  and  it  furthers the  impact  and intent  of                                                               
amendments already in  place in the Constitution of  the State of                                                               
Alaska. In  its current form,  the department believes  the court                                                               
would likely deem SJR 6 as an amendment, she said.                                                                              
                                                                                                                                
2:53:57 PM                                                                                                                    
MS. MILLS  said she cannot  speak for Legislative  Legal Services                                                               
who issued a differing opinion, but  she would point out that the                                                               
court's test  cites to  a Florida Supreme  Court test.  The court                                                               
was  citing  it  to  show  how  the  states  distinguish  between                                                               
amendments and revisions. She said  that Florida uses a four-part                                                               
test, but ultimately the Alaska  Supreme Court did not adopt that                                                               
test. Instead,  it adopted the qualitative  and quantitative test                                                               
as a hybrid approach, she said                                                                                                  
                                                                                                                                
CHAIR HUGHES pointed out the  Legislative Legal services memo [of                                                               
March  29, 2019]  refers  to  four best  factors.  She asked  for                                                               
further  clarification  that Ms.  Mills  considers  them as  four                                                               
Florida factors.                                                                                                                
                                                                                                                                
MS. MILLS  stated that in  her opinion she  did not view  them as                                                               
best  factors,  or Alaska  Supreme  Court  factors, but  as  ones                                                               
related  to  Florida Supreme  Court  factors  that apply  to  the                                                               
Florida constitution.                                                                                                           
                                                                                                                                
2:55:06 PM                                                                                                                    
CHAIR HUGHES  referred to the DOL  memorandum on reapportionment.                                                               
She  viewed  it  as  a   considerable  change  since  it  changed                                                               
reapportionment  from  being  solely assigned  to  the  executive                                                               
branch  to  a  board  that  encompassed  all  three  branches  of                                                               
government.  She  suggested  that  seemed to  be  a  much  higher                                                               
qualitative level than the amendments in SJR 6.                                                                                 
                                                                                                                                
2:55:41 PM                                                                                                                    
SENATOR  KIEHL asked  whether  Legislative  Legal Services  could                                                               
provide a response.                                                                                                             
                                                                                                                                
CHAIR HUGHES  said that the  committee could ask  Meghan Wallace,                                                               
Director, Legislative Legal Services to respond to questions.                                                                   
                                                                                                                                
SENATOR KIEHL  pointed out that he  would like a response  to the                                                               
idea that the  memorandum does not cover the Bess  v. Ulmer test.                                                               
He said he  thought it would be relevant to  understand what test                                                               
was being  applied and  the relevance.  He characterized  them as                                                               
dueling memos.                                                                                                                  
                                                                                                                                
2:56:46 PM                                                                                                                    
SENATOR MICCICHE said  that the four-part test in  1999 seemed to                                                               
set precedent. He  asked for further clarification on  why it was                                                               
not being used in Alaska law.                                                                                                   
                                                                                                                                
MS. MILLS said  she would be interested in  hearing the reasoning                                                               
for Ms. Wallace citing it. In  Bess v. Ulmer, the court discussed                                                               
the difference  between an  amendment and  a revision.  The court                                                               
cited a  number of treatises  and provided a  general discussion.                                                               
She  read, "The  case law  of  other states,  which have  similar                                                               
constitutional  provisions  that distinguish  between  amendments                                                               
and  revisions, is  in accord  with the  scholarly writing."  She                                                               
said  that  the  scholarly  writing  basically  acknowledged  the                                                               
fundamental difference so they must be treated differently.                                                                     
                                                                                                                                
She read, "The  Supreme Court of Florida described  one aspect of                                                               
the distinction by stating  " It  goes on to say, "The same court                                                               
later held that  the power to amend the  constitution as distinct                                                               
from the  power to revise it  includes  " The decision  lists the                                                               
four-factor  test,  but  not because  the  Alaska  Supreme  Court                                                               
wanted to adopt  it as its test. The court  was just showing what                                                               
other  states  had  done,  she  said. The  court  speaks  to  how                                                               
California's test  was applied. One  section in the  decision was                                                               
identified as "The  Alaska Rule and its application  to the three                                                               
challenged ballot measures." Under Section  C of the opinion, the                                                               
court said, "In deciding whether  the proposal is an Amendment or                                                               
a revision,  we must  consider both the  quantity and  quality of                                                               
the proposed constitutional changes.  We agree with the reasoning                                                               
of  the  California  Supreme  Court   ."  It  then  listed  three                                                               
California cases, but it never  cited the Florida case again. She                                                               
said  she was  unsure of  the import  given to  the Florida  case                                                               
because she  did not  view the Alaska  Supreme Court  as adopting                                                               
it, she said.                                                                                                                   
                                                                                                                                
2:59:18 PM                                                                                                                    
SENATOR MICCICHE pointed out that  the Senate State Affairs had a                                                               
different  focus  than the  Senate  Judiciary  Committee when  it                                                               
considered SJR  6. He referred  to the qualitative aspect  in SJR                                                               
6.  For example,  if  it  plotted out  what  would  happen to  an                                                               
interest rate  of .08 percent over  30 years, it would  result in                                                               
life  changing outcomes.  He did  not  agree with  Ms. Mills,  he                                                               
said.  He  suggested  that  taking that  amount  of  dollars  and                                                               
locking  away revenue  earned in  boom years  with a  flat growth                                                               
rate  would  change  the  very  fabric of  how  the  state  would                                                               
operate. He predicted  it would have a more  dramatic effect than                                                               
any change in  the state, even pre-oil. He said  he was unsure it                                                               
was possible  to operate  with a 1.9  percent inflation  rate for                                                               
forty years.  He heard the  analysis and  took it at  face value,                                                               
but he thought  that the impact over time crossed  over to a very                                                               
different place.  It would be  one that would impact  the state's                                                               
ability to meet constitutionally required services, he said.                                                                    
                                                                                                                                
3:01:33 PM                                                                                                                    
MS.  MILLS   agreed  that  significant  policy   questions  arise                                                               
especially  given the  impact and  growth  curve the  legislature                                                               
would  like to  see  over  time. Bess  v.  Ulmer  relates to  the                                                               
Constitution of  the State of  Alaska as  a whole and  the powers                                                               
and authorities, she  said. It does not mean  that changing those                                                               
won't  have a  significant impact,  but the  state already  has a                                                               
constitutional  appropriation limit,  which  was  meant to  limit                                                               
government. She  said it  is important to  consider how  it would                                                               
impact government spending and government overall.                                                                              
                                                                                                                                
CHAIR HUGHES also  agreed. As Senator Reinbold  indicated, it was                                                               
important to have  a spending limit, so she would  like to see it                                                               
hold up constitutionally.                                                                                                       
                                                                                                                                
3:02:55 PM                                                                                                                    
SENATOR KIEHL referred to her memo  of March 25, 2019. He said he                                                               
did not  see much  discussion of  the court  decision in  Bess v.                                                               
Ulmer,  despite   the  second  half  of   the  proposed  marriage                                                               
amendment. He  said that  it was  one sentence  but qualitatively                                                               
colossal.                                                                                                                       
                                                                                                                                
MS. MILLS  agreed. She said  that the court struck  the language.                                                               
In terms of the analysis,  the [marriage amendment] was something                                                               
that  could be  reviewed and  considered.  It just  did not  seem                                                               
foundational  to the  test the  court adopted.  She said  it also                                                               
demonstrated  that the  court  has the  power  to strike  certain                                                               
portions.  She said  she had  no other  comment. She  said it  is                                                               
difficult  to look  into a  crystal ball  and determine  what the                                                               
court  would do  to a  specific amendment,  in terms  of striking                                                               
language. She commented that she may have missed his point.                                                                     
                                                                                                                                
3:04:23 PM                                                                                                                    
SENATOR  KIEHL said  it  is  important to  the  analysis. As  she                                                               
previously  stated,  Bess  v.   Ulmer  addressed  three  proposed                                                               
amendments. He  said he was  trying to assess how  important this                                                               
is  to  the administration.  He  stated  that the  constitutional                                                               
framers put on the popular  direct election of representatives in                                                               
a  participatory   government.  Constraints   on  the   power  of                                                               
appropriation are  pretty different  than changing  the decennial                                                               
redrawing of  lines. In fact,  given the number of  cases related                                                               
to  the power  of appropriation,  he  would be  surprised if  the                                                               
court did not think so, too.                                                                                                    
                                                                                                                                
3:05:51 PM                                                                                                                    
MR. BARNHILL  related his understanding  that SJR 6 was  the most                                                               
important piece  of legislation in  Governor Dunleavy's  plan for                                                               
fiscal stability  for the state.  He offered his belief  that the                                                               
attorney general stated that yesterday.  He reiterated that it is                                                               
of  paramount   importance.  He  suggested  members   review  the                                                               
historical  slides   that  demonstrate  a   distinct  correlation                                                               
between the price  of oil and the amount  of government spending.                                                               
He highlighted  that the  problem is  that the  state ends  up in                                                               
spending traps  created by a high  price of oil. The  whole point                                                               
of SJR  6 is to  help the state  to avoid [overspending].  If oil                                                               
prices were  to rise above  $100, a  spending limit in  this form                                                               
would force the state to save  for when oil prices go down again.                                                               
It  would  help  the  legislature  avoid  these  very  disruptive                                                               
legislative sessions when  the price of oil drops  and it becomes                                                               
very difficult to cut spending.                                                                                                 
                                                                                                                                
SENATOR KIEHL said that the  substantive effect on four different                                                               
provisions of  Article XI, along  with the significant  impact on                                                               
the  Article II  powers of  the legislature,  and Mr.  Barnhill's                                                               
statement  that this  was critically  important,  fails the  best                                                               
test, because it is an attempt at a revision.                                                                                   
                                                                                                                                
3:08:04 PM                                                                                                                    
SENATOR REINBOLD  said she  did not think  that Court  of Appeals                                                               
Judge Burgess had the authority to  do what he did at the federal                                                               
level.   She  disagreed   with   the  decision.   She  said   the                                                               
constitutional amendment was the will  of the people. She offered                                                               
her  belief  that  the  decision   undermined  Alaskans  and  the                                                               
Constitution of the State of Alaska.                                                                                            
                                                                                                                                
She  offered her  belief  that every  dime  for state  government                                                               
comes from the private sector.  In FY 2016, the legislature spent                                                               
$16 billion, of which $3 billion  was for capital projects and $3                                                               
billion was  for the Public  Employees Retirement System  and the                                                               
Teachers Retirement  System. She said  it was the  largest budget                                                               
in the state's history. She  acknowledged the Constitution of the                                                               
State of Alaska prohibits dedicated  funds, except Section 15 and                                                               
for a federal government program.  She reiterated that government                                                               
needs to  be restrained. She said  that she thinks SJR  6 is good                                                               
for the private sector and for  government since it may result in                                                               
innovation.                                                                                                                     
                                                                                                                                
3:10:58 PM                                                                                                                    
CHAIR  HUGHES   referred  to   the  Legislative   Legal  Services                                                               
memorandum [of  March 23, 2019],  in which four factors  were not                                                               
adopted in Bess  v. Ulmer. She asked whether  the sweeping change                                                               
was referring  to the  qualitative test.  She noted  that Senator                                                               
Kiehl mentioned reapportionment and  redrawing of district lines,                                                               
which  has  huge ramifications.  She  referred  to Ms.  Wallace's                                                               
statement that read,  "The Court also suggested in  Bess, that if                                                               
a fundamental  power of one  of the branches of  state government                                                               
is  significantly  altered, this  could  result  in the  type  of                                                               
'sweeping change' that is not  permitted to be accomplished in an                                                               
amendment  to the  state constitution."  After reading  that, she                                                               
wondered   if    the   constitutional   amendment    related   to                                                               
reapportionment should  have been  a revision.  It did  alter the                                                               
fundamental power of all three branches, she said.                                                                              
                                                                                                                                
MS. MILLS  said one  of the  quotes that  she found  most helpful                                                               
was, "We  conclude that a revision  is a change which  alters the                                                               
substance and integrity of our  constitution in a manner measured                                                               
both  qualitatively  and  quantitatively."   She  said  that  the                                                               
sweeping change  could be  one way to  think of  it qualitatively                                                               
and  quantitatively.  The  court  went on  to  develop  a  hybrid                                                               
approach but  considering how  many sections  it touched  and the                                                               
types of  fundamental changes  it made.  She identified  these as                                                               
all factors,  that sweeping change  could be one way  to describe                                                               
it, but  in going  back to  the court's  language, it  found that                                                               
there  were   two  amendments.  These   concepts  of   having  an                                                               
appropriation limit  and the Constitutional Budget  Reserve (CBR)                                                               
were adopted by  a majority vote. That  never really materialized                                                               
due to the  good savings in the ERA, she  said. She characterized                                                               
her comments as a global comment  on how Bess v. Ulmer approached                                                               
these issues.                                                                                                                   
                                                                                                                                
3:13:41 PM                                                                                                                    
CHAIR  HUGHES said  that Ms.  Mill's presentation  indicates that                                                               
she  does not  believe SJR  6 makes  any "sweeping  changes." She                                                               
said that  she does  not think so  either. She  acknowledged that                                                               
SJR 6 would  make some considerable tweaks. She  said she thought                                                               
back  to when  the [original  spending limit]  amendment was  put                                                               
forward and  voters passed it. It  was a matter of  what was more                                                               
important, people's  immediate gratification or putting  away for                                                               
Alaskans'  grandchildren.  She said  that  she  laments that  the                                                               
state  does not  have  the  $29 billion  it  spent. She  wondered                                                               
whether  in 20-30  years if  the state  will have  frittered away                                                               
billions  of dollars  that  could alleviate  a  serious bind  her                                                               
granddaughter could face as an adult.  She said that she does not                                                               
think  it passes  a "sweeping  change" but  rather that  it would                                                               
just adjust the existing spending limit.                                                                                        
                                                                                                                                
3:14:49 PM                                                                                                                    
SENATOR MICCICHE  remarked that he  normally would agree,  but he                                                               
totally disagrees that this would  not be a "sweeping change." In                                                               
fact, the  changes in SJR 6  would be a major  revision, he said.                                                               
He  offered  his support  for  an  appropriation limit.  However,                                                               
noting it  would go from  an appropriation limit that  has almost                                                               
no  effect to  one  that would  severely  limit almost  anything,                                                               
especially using  a 1.9 percent  below projected  inflation rate,                                                               
was not  a mathematically reasonable  approach. He  remarked that                                                               
SJR 6  would make  sweeping changes  and dramatically  change the                                                               
legislature's  ability to  appropriate, even  when those  changes                                                               
were requested by the people.                                                                                                   
                                                                                                                                
He offered his  belief that SJR 6 would not  pass the legislature                                                               
in its current form. He would  like a spending limit, but without                                                               
a reasonable rate and approach  the legislature would not pass an                                                               
appropriation  limit.  He  reminded  members  that  last  year  a                                                               
resolution  was   introduced  for   a  spending  limit   using  a                                                               
reasonable approach, but  it did not receive a  single hearing in                                                               
the  other body.  He said  he  would like  to see  a very  strict                                                               
appropriation limit that could pass  the legislature. Further, it                                                               
should   be  based   on  math   that  works,   that  could   pass                                                               
constitutional muster  and limit  future growth and  spending. He                                                               
remarked that he may have a couple of amendments to offer.                                                                      
                                                                                                                                
3:16:36 PM                                                                                                                    
CHAIR  HUGHES  said she  has  some  concerns,  but when  she  was                                                               
speaking  in general  about tweaking  amendments, it  was at  the                                                               
30,000-foot  level.  She said  she  also  wants a  constitutional                                                               
amendment that could pass the  legislature. She acknowledged that                                                               
a  robust economy  requires a  certain amount  of infrastructure.                                                               
She expressed concern  that the capital budget was so  low at the                                                               
same  time  that  the legislature  cannot  reduce  the  operating                                                               
budget. She has  wondered about the calculation  on the inflation                                                               
rate growth.                                                                                                                    
                                                                                                                                
3:17:22 PM                                                                                                                    
SENATOR  REINBOLD argued  that  SJR  6 would  pass  based on  the                                                               
support the State  Affairs Standing Committee heard  when it took                                                               
public testimony. She  said she thought that  the committee would                                                               
be  defying the  people  by  saying it  would  not  pass and  the                                                               
legislature  would not  be  representing them  fairly  to say  it                                                               
won't pass. She said she thinks  the voters would pass it because                                                               
the majority of people support it.                                                                                              
                                                                                                                                
3:17:52 PM                                                                                                                    
SENATOR MICCICHE  said he  refuses to  make statements  like that                                                               
one. He said  that he was very interested  in limiting government                                                               
growth.  However, it  would  require a  two-thirds  vote of  both                                                               
bodies to  get to  a vote  of the people.  He offered  his belief                                                               
that SJR  6 was  the most  important bill to  pass since  it will                                                               
define the economic future of Alaska.                                                                                           
                                                                                                                                
CHAIR  HUGHES said  she thought  if it  were to  go to  voters it                                                               
would  pass. However,  the legislature  has a  process. She  said                                                               
that the legislature  must obtain two-thirds of the  votes in the                                                               
building.  She said  she firmly  believes  in infrastructure  for                                                               
economic growth, so she has concerns about that piece.                                                                          
                                                                                                                                
3:18:59 PM                                                                                                                    
SENATOR REINBOLD  said the  Constitution of  the State  of Alaska                                                               
does  prioritize  one-third of  the  permanent  fund for  capital                                                               
projects.                                                                                                                       
                                                                                                                                
MR.  BARNHILL said  that  would refer  to  the existing  spending                                                               
limit,  which  provides  a   one-third  reservation  for  capital                                                               
projects. This proposal would eliminate that provision.                                                                         
                                                                                                                                
SENATOR REINBOLD said she would  like to hold further discussions                                                               
on the  one-third provision for  capital projects in  the current                                                               
spending limit.                                                                                                                 
                                                                                                                                
[SJR 6 was held in committee.]                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
SJR 6 Version A.pdf SJUD 3/27/2019 1:30:00 PM
SJR 6
SJR 6 Transmittal Letter.pdf SJUD 3/27/2019 1:30:00 PM
SJR 6
SJR 6 Sectional Analysis.pdf SJUD 3/27/2019 1:30:00 PM
SJR 6
SJR 6 Fiscal Note GOV-DOE.pdf SJUD 3/27/2019 1:30:00 PM
SJR 6
SJR 6 Slide Show Presentation & Analysis.pdf SJUD 3/27/2019 1:30:00 PM
SJR 6