Legislature(1999 - 2000)
03/22/2000 01:50 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE March 22, 2000 1:50 P.M. TAPE HFC 00 - 78, Side 1 TAPE HFC 00 - 78, Side 2 TAPE HFC 00 - 79, Side 1 RECONVENED Co-Chair Therriault called the House Finance Committee meeting to order at 1:50 p.m. PRESENT Co-Chair Mulder Representative Foster Co-Chair Therriault Representative Grussendorf Vice Chair Bunde Representative Moses Representative J. Davies Representative Phillips Representative G. Davis Representative Williams Representative Austerman was absent from the meeting. ALSO PRESENT Representative Lisa Murkowski; Mike Tibbles, Staff, Representative Therriault; Ken Freeman, Executive Director, Resource Development Council; Steven Daugherty, Assistant Attorney General, Department of Law Patrick Galvin, Director, Division of Governmental Coordination, Office of Management and Budget, Office of the Governor; Jack Kreinheder, Senior Policy Analyst, Office of Management and Budget; Barbara Frank, Director, Division of Administrative Services, Department of Environmental Conservation; Karen Brand, Vice President, Alaska State Chamber of Commerce, Juneau; Jack Fargnoli, Policy Analyst, Office of Management and Budget; Ginger Blaisdell, Fiscal Analyst, Legislative Finance Division; Traci Carpenter, Fiscal Analyst, Legislative Finance Division; Tamara Cook, Director, Legislative Legal and Research Section, Legislative Affairs Agency; Karla Schofield, Deputy Director, Administrative Services, Legislative Affairs Agency. TESTIFIED VIA TELECONFERENCE Karen Cowart, General Manager, Alaska Support Industry Alliance (The Alliance), Anchorage: Janice Adair, Director, Division of Environmental Health, Department of Environmental Conservation; Cheryl Fresca, Alaska Policy Council, Anchorage; Sharon Young, State Recorder, State Recorder's Office, Department of Natural Resources, Anchorage; Linda Kesterson, Assistant Attorney General, Department of Law; Donald Rapson, Drafting Committee on Article IX; Jerry Kurtz, Attorney, Anchorage; Mark Langland, President, Fiscal Policy Council, Anchorage; SUMMARY HB 239 "An Act relating to the Uniform Commercial Code; relating to secured transactions; amending Rule 79, Alaska Rules of Civil Procedure; and providing for an effective date." CSHB 239 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with fiscal impact note by the Department of Natural Resources, publish date 2/11/00. HB 265 "An Act extending the termination date of the Alaska regional economic assistance program; and providing for an effective date." HB 265 was postponed. HB 350 "An Act repealing the statutory bars to the State of Alaska's prosecution of a criminal act that resulted in a conviction or acquittal by the United States, another state, or territory." HB 350 was postponed. HB 361 "An Act relating to charges for state services; requiring that fees levied by resource agencies for designated regulatory services be based on the actual and reasonable direct cost of providing the services, except in the case of certain negotiated or fixed fees; relating to negotiated or fixed fees of resource agencies; relating to invoices for designated regulatory services; establishing a petition process regarding fees charged by resource agencies for regulatory services; and providing for an effective date." CSHB 361 (FIN) was REPORTED out of Committee with a "do pass" recommendation. HJR 2 Proposing amendments to the Constitution of the State of Alaska relating to a biennial state budget, to the appropriation limit, and to appropriations from the budget reserve fund. HJR 2 was heard and HELD in Committee for further consideration. HOUSE BILL NO. 361 "An Act relating to charges for state services; requiring that fees levied by resource agencies for designated regulatory services be based on the actual and reasonable direct cost of providing the services, except in the case of certain negotiated or fixed fees; relating to negotiated or fixed fees of resource agencies; relating to invoices for designated regulatory services; establishing a petition process regarding fees charged by resource agencies for regulatory services; and providing for an effective date." Co-Chair Therriault provided members with Amendment 2 (copy on file). MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT provided information on Amendment 2. He observed that the amendment was drafted in response to concerns expressed by the Department of Environmental Conservation, Department of Natural Resources and the Department of Law. Mr. Tibbles discussed amendment 2. On Page 2, line 10 "sales" was deleted and "sale or lease" inserted. The change makes sure that the limitation on fees does not apply to the state of Alaska's interest in leases on property. This was in response to concerns of the Department of Natural Resources. On page 4, line 3 "serve upon" was deleted and "provide to" inserted. This was in response to concerns expressed by Representative J. Davies. This clarifies that the determination would be provided to the applicant. A new subsection was added on page 4, line 10: "(f) No action taken by a resource agency or the Office of Management and Budget under (c) of this section is subject to AS 44.62 (Administrative Procedure Act)." This assures that no one is required to establish fees in regulations. On page 7, line 16 "for" was added before "associated with" to clarify that if there is a pipeline right-away-lease that other fees associated with the lease would not be included. The last change was on page 8, line 31. The Office of Management and Budget was added to section 4, which gives each agency involved the authority to adopt regulations to implement the act. Co-Chair Therriault reiterated that the amendment addresses concerns by the Department of Natural Resources, Department of Law and by Representative J. Davies. Co-Chair Therriault MOVED to ADOPT Amendment 2. KEN FREEMAN, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT COUNCIL (RDC) observed that RDC is in support of the amendment. In response to a question by Representative Williams, Co- Chair Therriault explained that the Office of Management and Budget was given the authorization to adopt regulation at the request of the Department of Law. STEVEN DAUGHERTY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW explained that the legislation previously referenced only the natural resource agencies and gave them the authority to adopt regulations. The Office of Management and Budget was given responsibility, but was not included under the definition of a natural resource agency and therefore did not have regulation adoption authority. He emphasized that regulation adoption authority is needed for implementation of the bill. Co-Chair Therriault clarified that the regulation adoption authority is only given for implementation of HB 341. PATRICK GALVIN, DIRECTOR, DIVISION OF GOVERNMENTAL CORDINATION (DGC), OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR explained that DGC would carry out the petition portion of the Office of Management and Budget's functions that are recognized in the legislation. He spoke in support of Amendment 2 and noted that DGC was uncertain if regulations would be needed to fulfill their legislative mandate. He stated that he would be uncomfortable if DGC were precluded from adopting regulation through omission of regulatory authority. JACK KREINHEDER, SENIOR POLICY ANALYST, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR observed that the Office of the Governor did not submit an updated fiscal note. The original fiscal note requested two positions at $157.6 thousand dollars. Contractual costs of $20 thousand dollars were also included. He acknowledged that the committee substitute would reduce their fiscal cost by authorizing appeals at the agency level. He emphasized the difficulty of predicting the workload. There being NO OBJECTION, Amendment 2 was adopted. Representative Phillips MOVED to ADOPT Amendment 3: Page 6, line 31: Delete " or" Page 7, line 2, following "provided;" Insert "or (G) travel expenses for inspecting businesses having not more 6 than 20 employees;" Representative Phillips explained that the amendment is an attempt to help small miners in Alaska, who are located in very remote, rural areas. Co-Chair Therriault expressed concern that the amendment would carve out one section of the regulated industry, but emphasized small operations would have had to pay for the cost of flying someone to remote sites and that he is sensitive to the needs of small placer miners. Vice Chair Bunde observed that small mining operations pay only 20 percent of what it actually costs the state to permit and supervise them. He questioned if more expenses would be put on large mining operations to exempt the small miners. Co-Chair Therriault stated that the amendment would retain the status quo for small miners. Vice Chair Bunde pointed out that the status quo is being changed for the rest (of the mining operations). He questioned how long miners would be subsidized. There being NO OBJECTION, Amendment 3 was adopted. Representative J. Davies MOVED to ADOPT Amendment 4: insert on page 6, line 12 "food, drugs, and cosmetics under AS 17.20." He explained that the amendment would bring the inspection of restaurants under the legislation. He maintained that the amendment fits under the legislation. The Department of Environmental Conservation could implement the amendment with a minimal of additional work. Co-Chair Therriault pointed out that drugs and cosmetics would be added. Representative J. Davies explained that drugs and cosmetics were included because they are part of the statutory site. Mr. Freeman stated that the Resource Development Council would have difficulty supporting the amendment. He stated that he had envisioned the bill as a model that could be applied to other programs. He maintained that the best approach would be to look at the four programs that are currently within the regulatory services. These are the programs that RDC has worked with. He stressed that there would be complexities with the addition of restaurant and hair salon inspections. He spoke in support of addressing restaurant inspections in other legislation. Co-Chair Therriault spoke against the amendment. He emphasized that the food industry had not had sufficient time to respond to the amendment. Representative J. Davies spoke in support of the amendment. He felt that the food industry would support the amendment. Co-Chair Therriault stressed that resource industries have good associations for collecting and disseminating information. He did not think that there was sufficient time to disseminate the information to the restaurant industry. He stated that he would like to see more participation by the restaurant industry. Representative J. Davies pointed out that significant budget impacts were made on the industry, in increasing fee rates while decreasing service, without their input. He stressed that the amendment would level the playing field and give them the same kind of protections in terms of the development of fees. He felt that the food industry would be supportive. JANICE ADAIR, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH, DEPARTMENT OF ENVIRONMENTAL CONSERVATION testified via teleconference. She observed that the amendment would result in lower permitting fees for food facilities in the state. The food industry is currently assessed a flat fee. She clarified that the department does not charge fees to hairdressers or salons. The amendment would eliminate some of the items that are currently included in fees from the fee structure. Co-Chair Therriault questioned if the hospitality industry had reached a unified decision on which direction they wish to pursue. Ms. Adair stressed that she had not heard from a single business that did not support the reduction of fees. She noted that there is recognition, in the food industry, that state oversight of food service and processing is needed. There is also a strong desire to see fees reduced. Mr. Freeman acknowledged that fees need to be addressed from a broader perspective, but emphasized that it has taken two years to get to the current point with the four programs included in the legislation. He expressed concern that additional programs would inhibit the legislation's chance to be enacted. In response to a question by Representative J. Davies, Ms. Adair pointed out that the Department of Environmental Conservation's overriding concern with the bill is the issue of equity. She acknowledged that there needs to be an overriding policy on setting fees. The restaurant industry has a lot of small operators that are paying as much as 93 percent of the cost to the state to oversee the industry. There should be a rational basis for any inequity in fee structures. This would be the only other program in the Department of Environmental Conservation that would not be covered. She did not think that the inclusion of the food industry would be difficult to administer. Representative J. Davies maintained that inclusion of the food industry would round out the bill and bring all aspects that are under the Department of Environmental Conservation under the legislation. He observed that the legislation was limited to the Department of Environmental Conservation and the Department of Fish and Game. He maintained that the food industry is the only obvious piece, left out, that fits in the purview. Co-Chair Therriault questioned the impact of the amendment on the fiscal note. Ms. Adair responded that the fiscal cost would be approximately $300 thousand dollars with the adoption of Amendment 3 and $250 thousand dollars without Amendment 3. Representative G. Davis observed that restaurant fees are a problem throughout the state. He felt that the industry would support the amendment. Co-Chair Therriault clarified that there were no discussions with the food industry. He observed that the addition would increase the fiscal cost. In response to a question by Representative G. Davis, Ms. Adair reiterated that the Department of Environmental Conservation does not have authority for fees on drugs or cosmetics. A roll call vote was taken on the motion to adopt Amendment 4. IN FAVOR: Davies, Foster, Grussendorf, Moses OPPOSED: Phillips, Williams, Bunde, Therriault The MOTION FAILED (4-5). BARBARA FRANK, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF ENVIRONMENTAL CONSERVATION observed that the fiscal note would have to be reviewed and resubmitted to reflect changes made in the committee substitute. She noted that there would be different sets of fees for small and large facilitates (based on Amendment 3). There would be no change in the first year. Support for a paralegal would be reduced by approximately $55 thousand dollars. The revenue projections would reflect a loss of $75 thousand dollars. In the water quality program $256 thousand dollars in statutory designated program receipts would be changed to general fund program receipts. She noted that the department could not anticipate the mix between fixed fees, time and materials, and negotiated agreements. Co-Chair Therriault suggested that the legislation could be moved from committee and that the updated fiscal notes could follow. Vice Chair Bunde MOVED to report CSHB 361 (FIN) out of Committee with individual recommendations. CSHB 361 (FIN) was REPORTED out of Committee with a "do pass" recommendation. There being NO OBJECTION, it was so ordered. HOUSE BILL NO. 239 "An Act relating to the Uniform Commercial Code; relating to secured transactions; amending Rule 79, Alaska Rules of Civil Procedure; and providing for an effective date." Co-Chair Therriault provided members with proposed committee substitute, work draft 1-LS0455\K, 2/17/00 (copy on file). Vice Chair Bunde MOVED to ADOPT work draft 1-LS0455\K, 2/17/00. There being NO OBJECTION, it was so ordered. REPRESENTATIVE LISA MURKOWSKI testified in support of the legislation. She explained that the committee substitute incorporates minor technical changes submitted by the National Conference of Commissioners on Uniform State Laws. She observed that it is the first time that the code has been updated in 25 years. She maintained that all interested parties reviewed the legislation. The legislation accommodates electronic filing and centralized filing systems, expands the scope of property for secured transactions, and updates the uniform commercial code (UCC). The bill would take affect July 1, 2001. The House Labor and Commerce and Judiciary committees passed the legislation with "do pass" recommendations. SHARON YOUNG, STATE RECORDER, STATE RECORDER'S OFFICE, DEPARTMENT OF NATURAL RESOURCES, ANCHORAGE testified via teleconference in support of the legislation. She maintained that the legislation would simplify and modernize the filing system and would benefit users with a modest fiscal cost. Most of the operational impacts could be handled internally. (TAPE CHANGE, HFC 00 - 78, SIDE 2) Ms. Young review the contractual expense. Programming changes would be needed to bring the system into compliance with the legislation. The central filing system would need to implement the usage of check digits, as a means to verify accuracy of a file number. The contractual costs in FY01 would be $10.5 thousand dollars. There would be additional programming costs of $20 thousand dollars in the second year, related to electronic filing of applications. In response to a question by Representative J. Davies, Ms. Young explained that procedures for the secured transactions would be largely the same. The legislation changes where the filings occur. Alaska currently has a convoluted system of filing. The bulk of filings are done in the central filing office. Many lenders also file at the local level due to their uncertainty regarding filing requirements. This results in unnecessary dual filings and duplication. The legislation would eliminate the bulk of local filings. There are 35 local filing locations. The legislation includes a lengthy transition period. She did not think that any policy issues were addressed in the legislation. Representative J. Davies questioned who makes the filings and if the legislation would make filings easier. Ms. Young noted that the user groups are principally financial institutions, including out-of-state lending institutions. Ms. Young explained that the system is currently paper based. Electronic filing would do away with signature requirements. Lenders in and out-of-state could do electronic filings. Representative Foster questioned if the legislation would affect the Nome Office. Ms. Young stated that most of the rural offices do not do a lot of UCC filings. She did not think that the remote offices (with the possible exception of Bethel) would be significantly impacted. The major impact would be in urban areas. Vice Chair Bunde observed that the entire component generates more than it takes for operation. Ms. Young clarified that their agency does not receive the benefit of the funds that they generate. LINDA KESTERSON, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW testified via teleconference. She stated that the only policy decision is to change filings from local areas around the state to a central location. She noted that there has been a general policy shift around the country toward the use of central filing locations. Changes to the UCC are to bring it up to date; there are no substantive changes beyond an attempt to make it easier and better to use. She reviewed the articles affected by the legislation. She maintained that there are no significant legal shifts in any of the articles. She observed that the intent is for the changes to be enacted throughout the nation by July 1, 2001. Representative J. Davies questioned if the legislation has been reviewed in depth. Ms. Kesterson assured him that the Department of Law reviewed the legislation in depth. JERRY KURTZ, ATTORNEY, ANCHORAGE testified via teleconference in support of the legislation. He gave a brief review of his credentials. He was Alaska's representative to the National Conference of Commissioners on Uniform State Law. The legislation gives security for lenders and debtors. He maintained that no major policy changes have been made by the legislation. He stressed that the balance between creditors and debtors has not been changed. Some additional protections were added for debtors. Creditors must act in good faith. DONALD RAPSON, DRAFTING COMMITTEE ON ARTICLE IX, NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAW testified via teleconference in support of the legislation. He explained that he has been involved with this body of law for 50 years. He observed that the body of law has been in existence for a long time. The law serves the needs of business: lenders and debtors. The legislation updates the law to take advantage of new technology, such as financial software. It allows the use of healthcare insurance receivables as a form of collateral. He agreed that there have been no major policy changes and observed that all sides discussed the changes with care. He stressed that the legislation requires a bank or lending company with offices in multiple locations throughout the United States to file only in the state in which it is incorporated. Currently, filings are required in every state in which the entity is in business. Representative Foster MOVED to report CSHB 239 (FIN) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. Vice Chair Bunde maintained that since the filing fees generated more than they cost that they could be reduced. CSHB 239 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with fiscal impact note by the Department of Natural Resources, publish date 2/11/00. HOUSE JOINT RESOLUTION NO. 2 Proposing amendments to the Constitution of the State of Alaska relating to a biennial state budget, to the appropriation limit, and to appropriations from the budget reserve fund. Representative Phillips, Sponsor, spoke in support of the legislation. She noted that HJR 2 proposes an amendment to Alaska's Constitution to allow for biennial budgeting, and authorizes the governor to present the legislature with a budget encompassing two fiscal years. As written, the first session of the Legislature would be dedicated to writing a two-year budget. Supplemental budgets could address necessary adjustments, when needed. Representative Phillips maintained that Alaska's annual budget cycle is an arduous process, taking up most of the year. "Every year hundreds of people from State agencies spend countless hours preparing for budget presentations to the Legislature through hearings, debates and closeouts. There is no doubt that the budget is the single most important piece of legislation that legislators produce for the people of Alaska." "Changing this process to a biennial budget cycle would be very beneficial to our State. Significant cost savings for the Legislature, Administration and the agencies could be achieved as well as far greater efficiencies and productivity by all. Savings are measured in actual dollars and employee productivity. Costs savings are realized in travel and per diem dollars. Significant productivity savings will be achieved in time that can be utilized for programs rather than budget preparation." "A biennial state budget system would allow us to address the budget in the first year of session and focus primarily on legislation in the second year. A biennial state budget process would also work hand-in-hand with the results-based budget concept pursued by the legislature. State agencies would have a chance to initiate advance-planning efforts - something, which is very difficult under the present annual state budget system. Alaska would not be unique in adopting a biennial legislative budget cycle." "Research demonstrates that twenty other states operate under a Biennial State Budget system. Systems of other states could be used as a viable guide for Alaska's transition into a biennial budget process. The Legislature loses no control over the budget process by changing to a biennial budget cycle." Representative Phillips continued: "Sound public policy is paramount to a smooth transition into a new state budget system. Legislative control over the process is mandatory in a biennial state budget system. This may suggest a legislative transition team composed of joint member legislators, and the Administration." "In my opinion and as proven in other states where the biennial cycle is already in place, the greatest benefit of a biennial budget process is the increased efficiency and productivity that can be achieved by State agencies. Alaskans statewide constantly implore us to become more efficient and increase our productivity. Besides achieving these goals, and the actual costs savings of approximately (and very conservatively, I might add) $2.5 million dollars, associate with a shortened session in the second year, the proposed biennial budget system is a win-win concept for Alaska." She concluded that the biennial system would be in keeping with the restructuring of government: cutting waste, privatization, results based budgeting, consolidation of and services. She maintained that biennial budgeting would enjoy greater efficiencies and provide major savings in time and money." Vice Chair Bunde observed that there are fluctuations in Alaska's oil based income and questioned how a biennial legislature could cope with changes in the price of oil. Representative Phillips pointed out that there are other states that have biennial budgets. Representative G. Davis suggested that biennial budgeting would give legislators more time in the field to verify what the departments are telling them. Representative Grussendorf suggested that states with a biennial system have static conditions without gigantic shifts in the market. He added that a first term governor would inherit the budget of his predecessor. Co-Chair Therriault questioned if each odd year would be the 120-day session. Representative Phillips clarified that each new legislature would have a 120-day session on their first year. Representative Phillips stressed the need to stabilize Alaska's economy with a long-range plan. Representative J. Davies expressed concern that the legislature would not have enough time to really understand budgets. He suggested that budgets be divided: half of the budget would be addressed each year. He observed that there has not been sufficient time to review data in the current subcommittee process. He observed that his father, who was an official in the state of Washington, found that he spent all most as much time preparing supplemental budgets in the off year as the regular budget. He questioned if the savings were overstated. Representative Phillips pointed out that some states have allowed their finance committees to meet during the interim. She observed that teleconferencing could be utilized. KAREN COWART, GENERAL MANAGER, ALASKA SUPPORT INDUSTRY ALLIANCE (THE ALLIANCE), ANCHORAGE testified via teleconference in support of HJR 2. She read from a prepared statement: The Alaska Support Industry Alliance is a non-profit trade association representing over 350 members engaged in business within the oil, gas, and mining industries. Collectively, we represent over 29,000 employees. Our mission is to foster and promote the safe and environmentally sound development of Alaska's natural resources. We believe state government should do business like a business and investigate new ideas that would allow government to do more with less - be more efficient and effective in planning and executing our state budget and budget process. Budgetary efficiency would send a message to potential investors that we have a solid and sound fiscal plan, and our "House is in order - a good place to do business". (TAPE CHANGE, HFC 00 - 79, SIDE 1) We believe a two-year budget cycle could result in the following: á An opportunity for agency planning - proactive spending habits instead of reactive spending dialogue; á The opportunity to analyze state programs based on performance and results prior to yearly budget appropriations: á The potential for a shortened legislative session, thereby saving state dollars and resources; and á A greater utilization of all 60 legislators and their expertise. Traditionally, the Senate/House Finance Committees are made up of the more senior members of each body. The House Finance Committee members serve on no other committee. In many cases, we are missing their valuable input, wisdom and vast experience in legislation creation due to physical time restraints. A two-year process would give all legislators a chance to voice their opinions in the early stages of legislation and budget development. But, what about emergency needs or supplemental requirements? A biennial budget process would not preclude supplemental budget considerations due to circumstances of need. These could be addressed on a case-by-case need. Nevertheless, the process would free up legislators to focus attention - one year on budget, one year on legislation. Twenty states have already adopted a biennial budget process. That's a good indication that other states are "thinking outside the box". We believe Alaska needs to embrace a new way of thinking. We must look at new and innovative ways to conduct business. We encourage the dialogue on a biennial budget process to continue. MARK LANGLAND, PRESIDENT, FISCAL POLICY COUNCIL, ANCHORAGE testified via teleconference in support of the legislation. He maintained that biennial budgeting would create efficiencies and fit nicely with a long-range fiscal plan. He felt that a biennial budget would benefit the fiscal process. He pointed out that the Constitutional Budget Reserve would provide a funding source to pick up the slack. He maintained that biennial budgeting would force the legislature to protect the Constitutional Budget Reserve in order to maintain a shock absorber that can provide for the fluctuation of earnings. Planning gives more credibility and comfort to the business community and provides better opportunity for efficiencies. CHERYL FRESCA, ALASKA POLICY COUNCIL, ANCHORAGE testified via teleconference in support of the legislation. She observed that she spent 17 years working with the state's budget as legislative staff and in the Office of Management and Budget. She emphasized the amount of time required for executive branch agencies to prepare their annual budget requests to the legislature and the work that is necessary to close out a fiscal year. A two-year budget cycle would provide significant productivity savings for administrative and program staff involved in the various stages of budget work. The challenge would be to free up resources and give managers flexibility. The objections to a two-year budget are no longer relevant. Fluctuations in the annual budget are not a reason not to do biennial budgeting. The use of the Constitutional Budget Reserve has changed the importance of the revenue forecast. She maintained that biennial budgeting would shift the legislature's function to evaluating results. Vice Chair Bunde observed that there are only a few years left to the Constitutional Budget Reserve. He questioned if a consequence of biennial budgeting would be to force the state into a long-range plan. Ms. Fresca agreed that biennial budgeting would encourage long-range planning. She noted that fluctuations in revenue would still determine the amount of revenues from the Constitutional Budget Reserve, but pointed out that withdraws would be taken annually. KAREN BRAND, VICE PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE, JUNEAU testified in support of the legislation. In response to a question by Co-Chair Therriault, Ms. Brand noted that the state Chamber is on an annual budget cycle. JACK FARGNOLI, POLICY ANALYST, OFFICE OF MANAGEMENT AND BUDGET spoke in support of the legislation. He maintained that a biennial budget approach would encourage longer planning timeframes for fiscal and program planning, work well with performance measures, give a emphasizes for long- term planning within programs, and allow for targeted depth of treatment by the legislature and program managers for policy needs within program areas. The Office of the Governor has looked at the cost and savings. Mr. Fargnoli stated that the greatest savings would be in the shortening of legislative sessions in terms of employees. Savings in employee productivity could be redirected to other areas. There would also be savings in travel and per diem. Mr. Fargnoli stated that the Administration's only concern is in regards to timing. The legislation provides for the ballot question to come before voters in November. He pointed out that departments and agencies begin budget development as soon as the legislative session adjourns. Agencies would need to know the outcome in order to create their budgets. He observed that there are a number of ways the issue could be addressed. A few departments could be selected to begin the process. He noted that there could be discussion during the interim on implementation. Mr. Fargnoli added that there would always be a need for a supplemental. He suggested that additional provisions be considered to deal with other economic or social changes of magnitude required during the second year of the biennial process. He observed that the Constitutional Budget Reserve fund helps to stabilize and regulate the flow. He reiterated that the Administration would look forward to further discussions regarding implementation. Vice Chair Bunde asked the project longevity of the Constitutional Budget Reserve fund. Mr. Fargnoli did not know but added that the fund has continued through projections of its demise. Vice Chair Bunde emphasized that the supplemental can be a significant amount of work. Mr. Fargnoli observed that other states have handled their supplemental in a variety of ways. There are states that have a session every other year and that have their finance committees meet on the second year. There are other states that meet two years in a row. The only consensus, according to the National Conference of State Legislators, is that the amount of legislative activity in a biennial regime was somewhat more than the ideal theory. Representative J. Davies summarized that according to the Administration that the primary savings would stem from the fact that the legislature would be around less. Co-Chair Therriault observed that the Department of Health and Social Services' budget has large general fund portion built on formulas and caseload. He stated that it would be impossible to estimate the cost over a two-year period. He maintained that the subcommittee chairman for the department would have to go through the same process on the second year. He did not see any savings in the Department of Health and Social Services' budget. The legislature would not have the department under its control on the second year. He observed that if the department doesn't operate a program the way the legislature directs than their only option would be to cut the funding in a supplemental after it has already been appropriated. He did not see that biennial budgeting would work well for the Department of Health and Social Services. Representative Phillips argued that the legislature establishes the policy. Savings would be derived from freeing agency personnel from work on the budget. Representative J. Davies noted that the substantial savings would come from a shortening of the time the legislature spends working on the budget. He maintained that the time the legislature spends on the budget is already insufficient. He expressed concern that there would be less legislative oversight. Representative Phillips maintained that the legislature could spend more time on the budget if it determined it was necessary. Representative J. Davies pointed out that the bill would reduce the amount of time in session. Representative J. Davies observed that the National Conference of Legislators found that the expected savings from the agencies is generally overrated. The real savings comes from the legislature being out of session. Mr. Fargnoli agreed that the savings have generally been across the board less than expected. He pointed out that the legislature has a lot of latitude for designing and implementing a program. GINGER BLAISDELL, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION noted that Representative Phillips had requested an analysis of the legislation. She provided members with a memorandum on biennial budgeting dated 1/25/00 (copy on file). The memorandum compared the biennial budget process of other states. She noted that most of the states contacted had transitioned from an annual to a biennial budget or had always had a biennial budget. No states had transitioned from a biennial to annual budget in the last 20 years. All the states began with a biennial budget. Biennial budgets were adopted to allow citizen legislators. Most states that transitioned to annual budgets did so as state budgets and issues became more complex. States that transitioned back to a biennial budget did so to encourage long term planning and to reduce legislative sessions. Ms. Blaisdell noted that fiscal analysts of five states were contacted. She reviewed opinions of the fiscal analysts that were contacted. Analysts noted that there was less stress on the legislature. In Arizona, the governor is allowed to submit adjustments to the appropriation measure. Only technical corrections, non-general fund increments and caseload driven changes are accepted. Formula funded programs could be adjusted any year. The interim year adjusted bill took only three weeks from the time it was introduced to the time it was passed due to the restrictions placed on it. Ms. Blaisdell observed that the state of Connecticut began budget reform in 1981. At that time they had a 20 percent deficit of $961 million dollars. Their reform bill included an income tax proposal, multi year budgeting, and a spending cap. The off budget year was intended to focus on performance measure. The fiscal analyst contacted stated that the focus on performance measures had not occurred due to significant changes in the off year and interest in performance measures had waned. Ms. Blaisdell observed that in Oregon, the biennial budget tends to be slightly more conservative if the budget is limited to the revenue forecast. If revenues drop lower than the forecast a special session is called. If revenues increase than a savings is realized, since the budget is locked in. The biennial budget is fairly constant and developed over an 18-month period. The governor has more time to review agency requests. Complete budget information is provided one month prior to the start of the legislative session. Ms. Blaisdell reviewed the biennial process in Texas. She noted that the resource impact is smaller than Alaska's. The fiscal analyst in Texas recommended that future needs should be estimated three and a half years from preparation to full implementation. She observed that the fall forecast of 1999 would be forecasting revenues through the year 2002. He also recommended provisions to allow the legislature to meet in times of crisis: some states call special sessions; some offer a supplemental bill; and some have emergency boards (similar to the Legislative Budget and Audit Committee). Texas found that two-year budgets force agencies to plan and prioritize for the long-term; outcome based budgeting process places even greater emphasize on long range planning and discourages tinkering and micro management of one year budgets; and gives agencies the flexibility to concentrate on how best to produce results, whether than how to justify spending needs. Ms. Blaisdell reviewed the comments of the state of Washington's fiscal analyst. Timesaving within an agency allows that agency to focus on the issues at hand rather than budget preparation. The downside of biennial budgeting is that the cost of starting new programs is more tempting. If a new program is presented to the legislature and they agree to fund it for the second of the two-year cycle, the following budget will require an increment to full-fund the program for a complete two-year cycle. Vice Chair Bunde questioned if most new programs occurred on the second year of the cycle. Ms. Blaisdell did not know, but stated that construction projects that were budgeted to be built may not be budgeted to be fully staffed. She added that an agency, such as Office of Management and Budget, would have to be more diligent about planned spending in a two-year process. Representative J. Davies observed that the Texas legislature, in terms of general funds, only has control over approximately 17 percent of the budget. Ms. Blaisdell noted that the state of Texas has a larger amount of dedicated funds, similar to Alaska's statutory designated program receipts. There are also municipal revenues that are paid on a local level, which made it difficult to compare to Alaska. TRACI CARPENTER, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION she stated that the Division attempted to calculate the amount of time spent by agency staff on budget preparation, presentation, and travel. These costs were divided into first and second years. She concluded that the real savings would be in terms of the shorter legislative session. (TAPE CHANGE, HFC 00 - 79, SIDE 2) Ms. Carpenter noted that the estimates by the Legislative Finance Division were within a million dollars of the Office of Management and Budget's. Representative J. Davies questioned where the savings would be realized. Ms. Carpenter responded that real savings would be in travel and per diem. Productivity savings would be on the administrative services directors' level. Uncompensated overtime couldn't be quantified. TAMARA COOK, DIRECTOR, LEGISLATIVE LEGAL AND RESEARCH SECTION, LEGISLATIVE AFFAIRS AGENCY provided information on the legislation. She explained that the House Judiciary version added section 1, which contains provisions addressing the length of the sessions. In addition, the Judiciary Committee looked at two provisions in the Constitution that are difficult to deal with in the context of developing a biennial budget constitutional amendment. The appropriation limit was drafted on the premise that a single fiscal year would be compared to a single fiscal year. It would have to be amended to address two fiscal years. A similar provision is contained in subsection (b) of the Constitutional Budget Reserve, which contains a formula under which the legislature can access CBR funds based on what money was available from the proceeding year to the current year. This provision would have to be amended. To prevent the legislature from being prohibited access to the fund. She explained that the Judiciary Committee decided not to address the issues due to concerns over the Bess opinion, which addresses the number of subjects that a proposed constitutional amendment can include. The original bill doubled the appropriation limit and repealed subsection (b) of the Constitutional Budget Reserve based on Bess concerns. KARLA SCHOFIELD, DEPUTY DIRECTOR, ADMINISTRATIVE SERVICES, LEGISLATIVE AFFAIRS AGENCY provided information on the legislation. She observed that there would be a $20 thousand dollar savings for each day the legislative session was shortened. Session per diem totals $9,500 dollars a day; reduced legislative staff would account for the majority of the rest of the savings. The Legislative Affairs Agency did not prepare a fiscal note. A 60-day session would result in a $1.6 million dollars savings every other year. HJR 2 was heard and HELD in Committee for further consideration. ADJOURNMENT The meeting was adjourned at 4:25 p.m.
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