Legislature(2017 - 2018)BUTROVICH 205

03/06/2018 03:30 PM STATE AFFAIRS

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Audio Topic
03:30:25 PM Start
03:31:01 PM SB196
04:13:36 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 196 Out of Committee
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                   SB 196-APPROPRIATION LIMIT                                                                               
3:31:01 PM                                                                                                                    
CHAIR MEYER announced the consideration of Senate Bill 196 (SB                                                                  
3:32:08 PM                                                                                                                    
SENATOR PETER MICCICHE, Alaska State Legislature, Juneau,                                                                       
Alaska, sponsor of SB 196, referenced the sponsor statement as                                                                  
     The State  of Alaska  relies on  a single  commodity to                                                                    
     fund more  than 85 percent of  our government services.                                                                    
     Today,  with  declining  production and  lower  prices,                                                                    
     Alaska continues to face  a significant budget deficit.                                                                    
     The  Legislature  has  cut the  operating  and  capital                                                                    
     budgets  by over  $3 billion  in the  last four  fiscal                                                                    
     years  but  has  continued  to draw  from  our  savings                                                                    
     accounts   to  fill   the  gap   between  revenue   and                                                                    
     Senate Bill 196 sets a  $4.1 billion statutory limit on                                                                    
     how  much the  Legislature can  appropriate every  year                                                                    
     with regard  to agency  operating budget  expenses. The                                                                    
     limit  would be  adjusted annually  for inflation.  The                                                                    
     appropriation  limit does  not apply  to appropriations                                                                    
     for the  payment of  permanent fund  dividends, capital                                                                    
     projects,   state   debt   obligations,   and   receipt                                                                    
     supported  services  such  as receipts  of  the  Alaska                                                                    
     Marine Highway System.                                                                                                     
     Alaska  must control  its spending  in order  to refill                                                                    
     our savings accounts and  sustain the programs Alaskans                                                                    
     rely on  in their  everyday lives.  Senate Bill  196 is                                                                    
     the  needed framework  to help  guide the  governor and                                                                    
     the Legislature through the budget making process.                                                                         
     Now  is  the  time   to  pass  an  effective  statutory                                                                    
     appropriation limit.                                                                                                       
3:33:54 PM                                                                                                                    
He addressed previous legislative spending and referenced a                                                                     
chart, "SB 196 Appropriation Limit vs. Appropriations" and                                                                      
detailed as follows:                                                                                                            
     The Legislature  did a fine job  on significant savings                                                                    
     but when revenues were very  high, we spent a dollar or                                                                    
     two   as  well.   You  have   a  chart   provided  from                                                                    
     Legislative  Finance and  there are  two lines  on that                                                                    
     chart:  the  blue  line is  the  [Unrestricted  General                                                                    
     Fund] (UGF) appropriation  limit backing out, deflating                                                                    
     the value  of $4.1 billion  that we are  spending today                                                                    
     down to  FY1999 levels. The  green line is  starting at                                                                    
     the  actual   FY1999  spend  and  inflating   with  the                                                                    
     Anchorage  [Consumer Price  Index] (CPI).  What we  are                                                                    
     demonstrating  there is  had  we  had an  appropriation                                                                    
     limit in  place we  would have spent  approximately $15                                                                    
     billion less  dollars which would  mean we  would still                                                                    
     have a [Constitutional Budget  Reserve] (CBR) in place,                                                                    
     we would  not be  talking about reducing  dividends, we                                                                    
     would be  at a much  more sustainable place  in history                                                                    
     than we are today.                                                                                                         
     Why  are we  doing  this  now? We  are  doing this  now                                                                    
     because as  you can  see the top  spend was  FY2013, we                                                                    
     have brought  that down  to levels  that are  closer to                                                                    
     the FY2008,  FY2009 spending; however, if  we don't set                                                                    
     an appropriation limit moving  forward, we are going to                                                                    
     find ourselves in the same position.                                                                                       
3:35:31 PM                                                                                                                    
CHAIR MEYER asked Senator Micciche to explain what the green                                                                    
line represents in the appropriation-limit chart.                                                                               
SENATOR MICCICHE explained as follows:                                                                                          
     The blue and the green  line are Anchorage CPI overlaid                                                                    
     on the spend.  The blue line is  deflating from current                                                                    
     spend at $4.1  billion down to what it  would have been                                                                    
     in FY1999.  The green  line is  inflating from  what we                                                                    
     actually spent  in FY1999  to where  we would  be today                                                                    
     had we had this in place  in FY1999. Today, we would be                                                                    
     spending about  $3.2 billion or  $3 billion  as opposed                                                                    
     to the  $4.1 billion we  are spending if we  would have                                                                    
     retained that  discipline through that period  of time.                                                                    
     So, it's  just two ways  to look  at it, either  way we                                                                    
     would have  avoided those  high spending  years between                                                                    
     FY2007 and  FY2015 when we  started reducing,  and that                                                                    
     number between the blue line  and the red line would be                                                                    
     in savings  right now had we  observed an appropriation                                                                    
He    summarized   that    the   "Appropriation    Limit   versus                                                               
Appropriations"  chart  shows  how  the  Legislature  could  have                                                               
avoided the  high spending years  between FY2007 and  FY2015 with                                                               
an  appropriations limit.  He noted  that the  area on  the chart                                                               
between the red  and blue lines would currently be  the amount in                                                               
savings had the Legislature observed an appropriation limit.                                                                    
CHAIR MEYER  asked Senator  Micciche how he  arrived at  the $4.1                                                               
billion number as the starting point.                                                                                           
SENATOR  MICCICHE  replied that  $4.1  billion  was the  previous                                                               
year's Unrestricted General Fund (UGF) spend.                                                                                   
CHAIR MEYER asked how emergencies will be dealt with.                                                                           
3:37:25 PM                                                                                                                    
SENATOR MICCICHE  replied that emergencies are  excluded and will                                                               
be addressed in his sectional analysis for SB 196 as follows:                                                                   
   • Section 1: Removes the reference to the current statutory                                                                  
     appropriation limit.                                                                                                       
   • Section 2: Statutory Appropriation limit:                                                                                  
        o Unrestricted General Fund appropriations may not                                                                      
          exceed $4.1 billion.                                                                                                  
        o Adjusts for inflation using known inflation data.                                                                     
        o Inflation adjustment is based on the Consumer Price                                                                   
          Index for Anchorage prepared by the United States                                                                     
          Bureau of Labor Statistics.                                                                                           
        o Appropriation Limit excludes appropriations:                                                                          
             square4 To the Alaska Permanent Fund;                                                                              
         square4 For Permanent Fund Dividend payments;                                                                          
             square4 For payment of Debt obligations of the state                                                               
               (e.g. - General Obligation Bonds and Certificates                                                                
               of Participation);                                                                                               
             square4 Capital projects.                                                                                          
        o Defines:                                                                                                              
             square4 Capital project;                                                                                           
             square4 Program Receipts;                                                                                          
             square4 Unrestricted general fund.                                                                                 
   • Section 3: Repeals current statutory appropriation limit                                                                   
   • Section 4: Effective date of July 1, 2018.                                                                                 
He  noted  that the  current  statutory  appropriation limit  has                                                               
never been triggered and has not been effective.                                                                                
CHAIR  MEYER asked  Senator Micciche  to address  how emergencies                                                               
will be dealt with.                                                                                                             
SENATOR MICCICHE  replied that there  are going to  be occasional                                                               
supplemental issues  that traditionally  have been dealt  with by                                                               
the  Legislature.  He  said  the hope  is  the  Legislature  will                                                               
consider  the  previous  year's supplemental  when  defining  the                                                               
following year's  spend to remain  within the spending  limit. He                                                               
asserted  that the  goal  is to  "keep the  pressure  on" in  the                                                               
upcoming years  for a balanced  budget with growth that  is lower                                                               
than the  governor's 2.25  percent inflation  rate that  is based                                                               
upon the  Anchorage CPI.  He noted that  the actual  inflation is                                                               
generally below  the 2.25 CPI  rate. He summarized that  the rate                                                               
is  appropriately  adjusted  annually  on  cost  changes  in  the                                                               
state's largest city rather than,  "Just plugging in an inflation                                                               
rate that is static out of the air."                                                                                            
3:40:10 PM                                                                                                                    
CHAIR MEYER responded  that he is concerned  with the possibility                                                               
of  the supplemental  getting so  large that  it is  used to  get                                                               
around the spending cap.                                                                                                        
SENATOR MICCICHE  replied that a  growing supplemental  budget is                                                               
one  of the  reasons to  instill discipline  on future  spend. He                                                               
said  an appropriation  limit  will  highlight the  Legislature's                                                               
need to  contain costs;  for example,  Medicaid and  other health                                                               
and social  service programs that are  growing exponentially well                                                               
above the inflation rate.                                                                                                       
CHAIR MEYER recognized Senator Shower for being in attendance.                                                                  
SENATOR  WILSON  noted that  the  committee  has heard  different                                                               
spending   limit   legislation,   one  constitutional   and   one                                                               
statutorial. He  pointed out  that there are  bills in  the other                                                               
body with appropriation limits ranging  from $4.1 billion to $4.5                                                               
billion. He  asked Senator  Micciche how he  arrived at  his $4.1                                                               
billion appropriation limit.                                                                                                    
SENATOR MICCICHE explained that  the appropriation limit is based                                                               
on   the   previous  year's   budget.   He   said  the   proposed                                                               
appropriation limit is  a starting point and  the committee's job                                                               
is  to determine  if  the rate  is the  best  starting point.  He                                                               
emphasized  that  the most  important  issue  is controlling  the                                                               
growth rate versus  the exact starting point.  He summarized that                                                               
his goal is for an appropriation  that is realistic and as low as                                                               
3:42:20 PM                                                                                                                    
CHAIR MEYER pointed out that  Senator Wilson was referring to SJR                                                               
2, a  constitutional amendment with a  $4.3 billion appropriation                                                               
limit. He remarked  that he likes Senator  Micciche's bill better                                                               
because  the  appropriation  limit   is  almost  a  $500  million                                                               
reduction  from  where the  budget  is  now.  He noted  that  the                                                               
governor proposed $4.6 billion.                                                                                                 
SENATOR MICCICHE answered  that Chair Meyer was  correct. He said                                                               
he  was  uncomfortable  with  the current  level  of  UGF  spend,                                                               
excluding  dividends. He  asserted  that  the Legislature's  job,                                                               
particularly  during the  state's difficult  times, is  to ensure                                                               
that costs are  realistically covered at a starting  point as low                                                               
as possible.  He noted that  SB 196 is  a committee bill  that is                                                               
supported by the Senate Finance  Committee with the hope that the                                                               
legislation gets through the system this year.                                                                                  
3:44:13 PM                                                                                                                    
CHAIR MEYER opened public testimony.                                                                                            
3:44:24 PM                                                                                                                    
JEREMY PRICE,  Alaska State  Director, Americans  for Prosperity,                                                               
Anchorage, Alaska,  testified in  support of SB  196. He  said SB                                                               
196 is dovetail-legislation that will  act as a brake on spending                                                               
increases.  He  disclosed that  Americans  for  Prosperity has  a                                                               
history  with  spending  limitations  in Anchorage  and  noted  a                                                               
successful ballot initiative that restored  a tax-cap in 2016. He                                                               
addressed  similar  statewide   spending-limit  initiatives  that                                                               
showed  similar  3:2  voting approval  as  the  Anchorage  ballot                                                               
initiative. He noted that a  recent statewide poll showed that 60                                                               
percent of  Alaskans support a state-spending  cap. He summarized                                                               
that  a  clear  majority  of   Alaskans  support  limitations  on                                                               
CHAIR  MEYER  concurred   with  Mr.  Price  that   he  hoped  the                                                               
constitutional amendment  bill makes  it as  well. He  noted that                                                               
the  approval-hurdle   is  much   higher  for   a  constitutional                                                               
amendment versus a statutory bill.                                                                                              
3:47:41 PM                                                                                                                    
MIKE ALEXANDER,  representing self, Palmer, Alaska,  testified in                                                               
support of  SB 196.  He opined  that the  spending cap  should be                                                               
lower than $4.1 billion.                                                                                                        
3:48:58 PM                                                                                                                    
GARVIN BUCARIA, representing self,  Wasilla, Alaska, testified in                                                               
support of  SB 196.  He suggested  that the  Senate not  pass the                                                               
2019 budget unless  the other body and the  governor reduce their                                                               
3:50:46 PM                                                                                                                    
MIKE  COONS,  representing  self, Palmer,  Alaska,  testified  in                                                               
support of SB 196. He suggested  that the state stop spending and                                                               
start paying off its debt.                                                                                                      
3:53:24 PM                                                                                                                    
BETH  FREAD,  representing  self, Palmer,  Alaska,  testified  in                                                               
support of  SB 196. She  opined that  the state spends  more than                                                               
its population represents.                                                                                                      
3:55:42 PM                                                                                                                    
KATHY WILLIAMS, representing self,  Chugiak, Alaska, testified in                                                               
support of  SB 196. She  said the legislation is  the responsible                                                               
thing to do.                                                                                                                    
3:57:03 PM                                                                                                                    
MICHELLE  SHOWER, representing  self, Wasilla,  Alaska, testified                                                               
in support of SB 196.                                                                                                           
3:58:28 PM                                                                                                                    
CHAIR MEYER closed public testimony.                                                                                            
SENATOR COGHILL referenced  page 2 in the bill  and referenced AS                                                               
37.05.545(c)(3) as follows:                                                                                                     
     "Unrestricted  general fund"  means money  deposited in                                                                    
     the  state  treasury that  has  not  been dedicated  or                                                                    
     designated for use by the  Constitution of the State of                                                                    
     Alaska or by law;  "unrestricted general fund" does not                                                                    
     include program receipts or reappropriations.                                                                              
He asked  if the restrictions  for the UGF  will make for  a "big                                                               
hole in the wall."                                                                                                              
SENATOR MICCICHE explained that the  intent is to make sure money                                                               
that   is  truly   UGF   is  not   encumbered   for  some   other                                                               
"constitutional"  or  "other  use"  and is  the  reason  for  the                                                               
separation from  where the spending  cap does not apply.  He said                                                               
money that  is encumbered could  be a past appropriation  or some                                                               
other use that  the Legislature is not  foreseeing. He emphasized                                                               
that he does not see  a work-around scenario and summarized, "UGF                                                               
is UGF  in agency operations and  I think that is  a fairly clear                                                               
SENATOR COGHILL  explained that he  is suspicious  of "designated                                                               
funds" that  are not  designated. He  noted that  the Legislature                                                               
designates  a fund  to  do a  purpose;  however, the  Legislature                                                               
always  says  in  its  appropriations  that the  fund  is  not  a                                                               
dedicated fund. He pointed out  that the appropriated money could                                                               
go  to things  other than  what the  money was  intended for.  He                                                               
explained as follows:                                                                                                           
     I was trying  to get the hospitals to ramp  up their 9-                                                                    
     1-1 readiness and improve their  trauma rating; we took                                                                    
     some money and we put it  into a fund dedicated to that                                                                    
     issue, but  it was a  non-dedicated fund, it had  to be                                                                    
     dedicated to  that issue,  but general  fund had  to be                                                                    
     appropriated on an annual basis.                                                                                           
     Under  this  language I  just  wondered  if that  would                                                                    
     create  all  of  these  funds  to get  a  free  run  at                                                                    
     appropriations. So,  you might  want to put  that under                                                                    
     your hat and think about it a little bit.                                                                                  
4:02:56 PM                                                                                                                    
SENATOR  MICCICHE  conceded that  "games  have  been played"  but                                                               
explained that the intent is  to eliminate the potential to shove                                                               
things  off  as  a  Designated   General  Fund  (DGF)  for  items                                                               
dedicated by the constitution. He explained as follows:                                                                         
     The example we  use on DGF is the  university. We don't                                                                    
     want  to discourage  them if  they try  to cover  their                                                                    
     cost by increasing student cost  which is a direct-user                                                                    
     fee,  but  it  is  DGF.   We  want  them  to  have  the                                                                    
     flexibility to  do that,  but that  is not  included in                                                                    
     this  appropriation. Even  in  the case  that you  gave                                                                    
     about  creating a  fund for  emergency  response on  an                                                                    
     annual basis, that  happens to be UGF and  that will be                                                                    
     a part of this spending limit.                                                                                             
He  said  the Legislature  is  always  going  to have  to  remain                                                               
diligent for  tricks in the  budgeting process. He  conceded that                                                               
more time will have to be spent  to make sure no one is trying to                                                               
create a work-around on an appropriation limit.                                                                                 
4:04:46 PM                                                                                                                    
CHAIR MEYER  noted a  testifier's comments  on bringing  down the                                                               
appropriation limit.  He asked Senator  Micciche is he  wanted to                                                               
stay at $4.1 billion.                                                                                                           
SENATOR MICCICHE replied that he  agreed with the testifiers that                                                               
would  like to  bring  the  appropriation limit  down  as low  as                                                               
possible. He asserted that passing  SB 196 would be like planting                                                               
a seed  and said,  "You are  never going to  have a  tree without                                                               
planting a seed or sapling."                                                                                                    
He referenced  the appropriation-limit chart and  reiterated that                                                               
exercising  the discipline  in an  appropriation limit  in FY1999                                                               
would have resulted in the CBR having $10 billion or more. He                                                                   
summarized as follows:                                                                                                          
     The more  important aspect of  passing this, if  we try                                                                    
     to  negotiate  the  budget within  this  bill,  I  feel                                                                    
     there's no chance of getting  it across the finish line                                                                    
     and that's  our first priority.  We may not get  to the                                                                    
     number  we want  this  year, but  it  will provide  the                                                                    
     discipline to remain on target in the future.                                                                              
4:06:27 PM                                                                                                                    
SENATOR COGHILL recalled a statute that addressed a "spending                                                                   
triage priority" for prioritizing spending and recommend that                                                                   
the statute be referenced with a spending limit.                                                                                
SENATOR MICCICHE agreed with Senator Coghill and commented as                                                                   
     We have to start somewhere  and the only problem we are                                                                    
     having  with getting  out on  90 days  and having  both                                                                    
     sides shake  hands in  absolute agreement  is something                                                                    
     called  priority  differences.  We  are  attempting  to                                                                    
     address  priorities  that  are  constitutional  at  the                                                                    
     lowest  cost   possible  and  others  have   perhaps  a                                                                    
     different view  on those priorities  and we  are hoping                                                                    
     to  agree in  the statutory  90  days that  we have  in                                                                    
     front of us, but that is always a challenge.                                                                               
     I  think the  first  approach is  a statutory  spending                                                                    
     limit. Perhaps  we are  successful in  a constitutional                                                                    
     spending  limit, and  then we  will take  that priority                                                                    
     battle back  here next year on  what we can do  in that                                                                    
     very situation  and I don't  know that's  a possibility                                                                    
     that  we  don't  run  into.  If  we  run  into  another                                                                    
     significant  reduction  in  oil  prices,  if  for  some                                                                    
     reason we  are challenged on production  in the future,                                                                    
     there are  many issues, returns to  the Permanent Fund,                                                                    
     there  are many  reasons why  we are  going to  have to                                                                    
     look at that prioritization.                                                                                               
     I hope that  we do move into that direction  and I hope                                                                    
     that  we can  find some  agreement between  the various                                                                    
     side  majority-minority,  House-Senate, and  arrive  at                                                                    
     some sort of consensus in the future.                                                                                      
4:09:28 PM                                                                                                                    
CHAIR MEYER said he  saw no reason to hold up  SB 196 anymore. He                                                               
noted that Senator Coghill has  additional information to pass on                                                               
to  the  Senate  Finance  Committee for  making  the  appropriate                                                               
SENATOR  COGHILL remarked  that  he  is always  glad  to be  good                                                               
counsel to the Senate Finance Committee.                                                                                        
CHAIR  MEYER  disclosed  that  a  lot  of  e-mail  testimony  was                                                               
received from  constituents on SB  196. He noted that  the fiscal                                                               
note for the bill is zero.                                                                                                      
4:10:31 PM                                                                                                                    
SENATOR  GIESSEL moved  to report  SB  196, version:  30-LS1022\J                                                               
from committee with individual  recommendations and attached zero                                                               
fiscal note.                                                                                                                    
4:10:44 PM                                                                                                                    
CHAIR MEYER announced  that there being no  objection, the motion                                                               

Document Name Date/Time Subjects
SB196 Sponsor Statement.pdf SSTA 3/6/2018 3:30:00 PM
SB 196
SB 196 Version J.pdf SSTA 3/6/2018 3:30:00 PM
SB 196
SB196 Sectional Analysis.pdf SSTA 3/6/2018 3:30:00 PM
SB 196
SB 196 Fiscal Note.pdf SSTA 3/6/2018 3:30:00 PM
SB 196
SB 196 Support Emails received SSTA 3.6.18.pdf SSTA 3/6/2018 3:30:00 PM
SB 196
SB 196 Approp Limit Graph.pdf SSTA 3/6/2018 3:30:00 PM
SB 196