Legislature(2003 - 2004)

02/18/2003 02:18 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                    February 18, 2003                                                                                           
                         2:18 PM                                                                                                
                                                                                                                                
 TAPE HFC 03 - 21, Side A                                                                                                       
 TAPE HFC 03 - 21, Side B                                                                                                       
                                                                                                                                
 CALL TO ORDER                                                                                                                
                                                                                                                                
 Co-Chair Harris called the House Finance Committee meeting                                                                     
 to order at 2:18 PM.                                                                                                           
                                                                                                                                
 MEMBERS PRESENT                                                                                                              
                                                                                                                                
 Representative John Harris, Co-Chair                                                                                           
 Representative Bill Williams, Co-Chair                                                                                         
 Representative Kevin Meyer, Vice-Chair                                                                                         
 Representative Richard Foster                                                                                                  
 Representative Mike Hawker                                                                                                     
 Representative Reggie Joule                                                                                                    
 Representative Carl Moses                                                                                                      
 Representative Bill Stoltze                                                                                                    
 Representative Jim Whitaker                                                                                                    
                                                                                                                                
 MEMBERS ABSENT                                                                                                               
                                                                                                                                
 Representative Eric Croft                                                                                                      
 Representative Gary Stevens                                                                                                    
                                                                                                                                
 ALSO PRESENT                                                                                                                 
                                                                                                                                
 Senator Bettye Davis; Corina Eckl, Fiscal Program Director,                                                                    
 National Conference of State Legislators                                                                                       
                                                                                                                                
 PRESENT VIA TELECONFERENCE                                                                                                   
                                                                                                                                
 None                                                                                                                           
                                                                                                                                
 GENERAL SUBJECT(S):                                                                                                          
                                                                                                                                
 PRESENTATION BY NATIONAL CONFERENCE OF STATE LEGISLATORS                                                                     
                                                                                                                                
The following overview was taken in log note format.  Tapes                                                                     
and handouts will be on file with the House Finance                                                                             
Committee through the 23rd Legislative Session, contact 465-                                                                    
2156. After the 23rd Legislative Session they will be                                                                           
available through the Legislative Library at 465-3808.                                                                          
                                                                                                                              
                                                                                                                                
                                                                                                                                
 LOG SPEAKER              DISCUSSION                                                                                        
                                                                                                                              
      TAPE HFC 03 - 21                                                                                                        
      SIDE A                                                                                                                  
0130                     Presented information from the National                                                                
     CORINA ECKL, FISCAL                                                                                                      
                         Conference of State Legislatures (NCSL).                                                               
     PROGRAM DIRECTOR,                                                                                                        
                         She  explained  that  this  report was                                                                 
     NATIONAL CONFERENCE                                                                                                      
                         previously given  at a  national press                                                                 
     OF STATE LEGISLATORS                                                                                                     
                         event in  Washington, D.C. and received                                                                
                         considerable attention, and used  as a                                                                 
                         talking point in  Congress.  She noted                                                                 
                         that   the  NCSLS   was  a   bipartisan                                                                
                         organization, founded in 1975,  serving                                                                
                         all states and territories, and located                                                                
                         in Denver and Washington DC.  While the                                                                
                         Denver office focuses on state services                                                                
                         and  problem solutions, the  Washington                                                                
                         office focuses on state-federal relations                                                              
                         and  lobbies Congress on behalf of the                                                                 
                         states.                                                                                              
327 Ms. Eckl             Outlined the resources available through                                                               
                         NCSL (handout on file).  She referred to                                                               
                         Bob Boerner as the liaison to the State                                                                
                         of Alaska.  Ms. Eckl is assigned to state                                                              
                         of Hawaii.                                                                                           
414 Ms. Eckl             Summarized the FY 2003 Budget Gaps,                                                                    
                         originally  projected at  $49.1.   She                                                                 
                         explained  that the  budget  gaps were                                                                 
                         defined  as  a  combination of  revenue                                                                
                         falling below  projections and spending                                                                
                         overruns.  State budget gaps have grown                                                                
                         50%  in just two  months, growing to a                                                                 
                         current $25.7 billion, over 5% of state                                                                
                         general fund spending.  36 states report                                                               
                         budget  gaps.   She referred to  a map                                                                 
                         indicating the level of budget gaps in                                                                 
                         states around the  country.  She noted                                                                 
                         that, of the 15 states not facing budget                                                               
                         gaps, several had solved previous budget                                                               
                         problems.                                                                                            
557 Co-Chair Harris      Asked whether any other states had a                                                                   
                         permanent fund similar to Alaska, or that                                                              
                         paid any dividends.                                                                                  
614 Ms. Eckl             Noted that some state have funds but do                                                                
                         not  pay  dividends. For  example, she                                                                 
                         pointed out that  Wyoming uses earnings                                                                
                         from  a trust  fund to  apply to their                                                                 
                         General  Fund, and  clarified that the                                                                 
                         funds were not  marked for any specific                                                                
                         purpose.                                                                                             
713 Ms. Eckl             Noted that most states fiscal years began                                                              
                         July 1,  so figures represent the first                                                                
                         six months of the year.   She explained                                                                
                         that most state budget problems had built                                                              
                         up  over several years and were largely                                                                
                         due to  a lack of revenue growth.  She                                                                 
                         also noted that, since this is an ongoing                                                            
                          problem, a number of states have reviewed                                                             
                          and adjusted their revenue projections.                                                               
                          Still,  some  states  failed  to  meet                                                                
                          projected revenues.  She also noted that                                                              
                          entering  FY  2003,  states  projected                                                                
                          revenue growth of 2% above prior year tax                                                             
                          collections, but it  was unlikely that                                                                
                          this projection would be met.  40 states                                                              
                          collected less revenue in FY 2002 than in                                                             
                          FY 2001. Responding to a question by Co-                                                              
                          Chair Harris, she explained that states                                                               
                          collected less  revenue  from personal                                                                
                          income  taxes.      For  example,   in                                                                
                          California, personal income tax income                                                                
                          was largely driven by capital gains taxes                                                             
                          and   thus    experienced  significant                                                                
                          reductions.  She also noted that income                                                               
                          from  corporate  business  taxes   has                                                                
                          reduced.                                                                                            
 1007 Co-Chair Harris     Asked if other states balanced their                                                                  
                          budget based on a reserve.                                                                          
 1023 Ms. Eckl            Responded that many states periodically                                                               
                          tap into their reserves to bring their                                                                
                          budgets into balance.  She also pointed                                                               
                          out that it was unusual for a state to                                                                
                          tap into its reserve on a regular basis.                                                            
 1048 Co-Chair Harris     Asked if other states with a mechanism to                                                             
                          maintain a  level budget received more                                                                
                          commercial investment from corporations.                                                            
 1058 Ms. Eckl            Responded that states have achieved                                                                   
                          balanced budgets by various methods, such                                                             
                          as cutting  spending and raising fees.                                                                
                          Arkansas uses ABC budgeting, prioritizing                                                             
                          categories of spending.  If revenues do                                                               
                          not   meet   projections,  the   lower                                                                
                          categories are cut.   This  results in                                                                
                          predictability in agency spending levels.                                                           
 1238 Co-Chair Harris     Suggested that in Alaska, perhaps more is                                                             
                          not invested by  corporations into the                                                                
                          State due  to fiscal uncertainty.   He                                                                
                          maintained that a process that generated                                                              
                          more    certainty   would    encourage                                                                
                          corporations to invest more heavily in                                                                
                          Alaska.                                                                                             
 1324 Ms. Eckl            Mentioned that in 1982 a report had been                                                              
                          developed, called the Principals of  a                                                                
                          High  Quality  State  Revenue  System,                                                                
                          outlining  the  ideal  tax  structure.                                                                
                          Exceptions  were   made   for   unique                                                                
                          circumstances, such as for Alaska in its                                                              
                          mineral endowments.  Among the principals                                                             
                          were   sufficient  revenue  generating                                                                
                          ability,  as  well  as  stability  and                                                              
                         predictability.                                                                                      
1432 Ms. Eckl            Referred to a chart illustrating State                                                                 
                         Own-Source Revenue, such as income and                                                                 
                         sales taxes.   She noted the  questions                                                                
                         about   the   long-term  viability  of                                                                 
                         corporate  taxation.   She  noted that                                                                 
                         corporations went through legal routes to                                                              
                         avoid  corporate  taxation, making  it                                                                 
                         difficult for policy makers to  prevent                                                                
                         such avoidance.                                                                                      
1642 Representative      Questioned if avoiding corporate taxation                                                              
     Hawker              created a revenue problem.                                                                           
1656Ms. Eckl             Elaborated that, in addition to that                                                                   
`                        problem, internet sales and catalogue                                                                  
                         sale are prohibited from taxation due to                                                               
                         interstate commerce  laws.   There are                                                                 
                         efforts to streamline state sales taxes                                                                
                         through a special project.  Discussion in                                                              
                         Washington DC proposes that giving states                                                              
                         ability to  tax from  internet vendors,                                                                
                         might be more productive than focusing on                                                              
                         corporate income taxes.                                                                              
1816 Representative      Referred to the 14.1% of selected sales                                                                
     Hawker              taxes.                                                                                               
1845 Ms. Eckl            Explained that these refer to alcohol,                                                                 
                         tobacco and motor fuel taxes.                                                                        
1902 Ms. Eckl            Referred to the outline of revenue                                                                     
                         outlook for FY 2003.  30 states expressed                                                              
                         concern,  including Alaska.   She also                                                                 
                         discussed expenditure updates.  37 states                                                              
                         reported  overrun spending.   She also                                                                 
                         noted that 32 states reported Medicaid or                                                              
                         other  health care  programs were over                                                                 
                         budget.   A  FFIS study examined state                                                                 
                         spending and discerned that if Medicaid                                                                
                         spending  was   extracted, that  state                                                                 
                         spending  remained fairly level.   She                                                                 
                         noted that  she could make this report                                                                 
                         available.                                                                                           
2120 Ms. Eckl            Referred to a map indicating states with                                                               
                         Medicaid overrun.  A few states were able                                                              
                         to  contain costs  in Medicaid  and to                                                                 
                         better project of expenses.  She noted                                                                 
                         that more details were available through                                                               
                         another report.   She  stated that, in                                                                 
                         general, many  states had cut  back on                                                                 
                         optional programs, such as cervical and                                                                
                         breast cancer screening, raising concern                                                               
                         that  recent program advances were now                                                                 
                         being reversed.   Massachusetts had cut                                                                
                         over  50,000 people  from its  Medicaid                                                                
                         rolls by  changing eligibility, but was                                                                
                         still experiencing spending overruns.                                                                
 2250 Co-Chair Harris     Requested to see a copy of the report                                                                 
                          regarding Medicaid cost containment.  He                                                              
                          also referred  to the  Federal medical                                                                
                          assistance match, and noted that Alaska                                                               
                          was previously higher in its match than                                                               
                          its current reduced rate.                                                                           
 2337 Ms. Eckl            Noted that one proposal made by NCSL to                                                               
                          Congress was  to  allow former  F  map                                                                
                          members stay in place during this time of                                                             
                          economic difficulty.  She confirmed that                                                              
                          changes in F mapping was causing problems                                                             
                          for many states.                                                                                    
 2411 Representative      Noted states that did not have overruns                                                               
      Hawker              seemed to have other factors that                                                                     
                          differed.   He  wondered if  they  had                                                                
                          commonalities.                                                                                      
 2444 Ms. Eckl            Explained that these states had tightened                                                             
                          requirements to contain Medicaid issues.                                                            
 2519 Representative      Asked if these states had simply funded                                                               
      Hawker              the demand for projected Medicaid needs.                                                            
 2545 Ms. Eckl            Discussed that Wisconsin experienced many                                                             
                          budgetary challenges.  She  noted that                                                                
                          they   implemented   significant   tax                                                                
                          increases,   partially   to    tobacco                                                                
                          settlement money.                                                                                   
 2642 Ms. Eckl            Outlined actions taken by states to deal                                                              
                          with  shortfalls.   One of  the  first                                                                
                          actions taken was to cut spending, for up                                                             
                          to 36 states.  She also explained that                                                                
                          some states went into special legislative                                                             
                          sessions to cut spending levels.   She                                                                
                          pointed out that using tobacco settlement                                                             
                          funds to stop budget gaps had met with                                                                
                          some controversy among health advocates,                                                              
                          who proposed that these funds should be                                                               
                          used for related health care programs.                                                                
                          She also mentioned that there had been                                                                
                          some expectation that one-time revenues                                                               
                          could be used for economic recovery, but                                                              
                          that this had not proved to be effective,                                                             
                          leading to other more permanent actions.                                                              
                          She stated that nearly half of the states                                                             
                          had tapped their rainy day funds.                                                                   
 3012 Ms. Eckl            Noted that at the end of FY 2001, nearly                                                              
                          half of state balances were comprised of                                                              
                          rainy  day funds.    These funds  were                                                                
                          depleted by FY 2002 by over half.   FY                                                                
                          2003 projections for rainy day funds were                                                             
                          $11.4 billion, but indications are that                                                               
                          this number will be lower.                                                                          
 3118 Ms. Eckl            Referred to a map illustrating states                                                                 
                          with rainy day  funds.  Concern exists                                                                
                          among  investors regarding state  bond                                                              
                         ratings, which are determined partially                                                                
                         by the kind of financial cushion states                                                                
                         have  in  place.    She  noted that  a                                                                 
                         representative from the Standard and Poor                                                              
                         explained that it was expected for states                                                              
                         to use their reserve funds, but that they                                                              
                         discouraged using  one-time monies for                                                                 
                         long term expenditures.                                                                              
3235 Ms. Eckl            Spoke to a chart illustrating state year-                                                              
                         end  balances, tracked from  1978 till                                                                 
                         2003.    She  noted that  balances had                                                                 
                         decreased in the early 90's, as well as                                                                
                         the early 80's.  Currently, balances were                                                              
                         at 3.8%                                                                                              
3339 Ms. Eckl            Most states were making cuts in school                                                                 
                         funding.  For example, Oregon was cutting                                                              
                         its K - 12 spending.  She also noted that                                                              
                         higher education was  also experiencing                                                                
                         cuts, with  the perception among policy                                                                
                         makers   that   higher  education  had                                                                 
                         alternative sources  of  income.   She                                                                 
                         pointed  out that  nearly half  of the                                                                 
                         states   were   also    cutting  their                                                                 
                         corrections budgets; some  states were                                                                 
                         also  cutting  Medicaid  by  tightening                                                                
                         eligibility.  She also noted that state                                                                
                         employees received cutbacks, as well as a                                                              
                         delay in capital projects.                                                                           
3633 Ms. Eckl            Noted that 18 states raised taxes last                                                                 
                         year  by  more than  1%.   Many states                                                                 
                         focused on  sales and use  taxes.  She                                                                 
                         noted that these actions were taken even                                                               
                         in  an  election  year.    Most states                                                                 
                         continue to  have sizable budget gaps.                                                                 
                         Hawaii was the only state to cut taxes by                                                              
                        more than 1%.                                                                                         
3749 Ms. Eckl            Referred to the chart tracking tax                                                                     
                         changes  since 1989.   She  noted that                                                                 
                         during  1991, taxes increased by $15.4                                                                 
                         billion.  She maintained that this kind                                                                
                         of   increase  seemed  unlikely  given                                                                 
                         campaign  promises made  in  the  past                                                                 
                         election.  She observed that the largest                                                               
                         increase was  in cigarette and  tobacco                                                                
                         taxes.                                                                                               
3922 Ms. Eckl            She pointed out that the total projected                                                               
                         budget gap was $68.5 billion, which she                                                                
                         noted was likely too low, since 12 states                                                              
                         had not  yet provided information.  She                                                                
                         also referred to a map indicating states                                                               
                         with  budget gaps, and  pointed out 18                                                                 
                         states with gaps 10% and higher.                                                                     
4026 Ms. Eckl            Noted that 25 states have tax proposals                                                              
                          under consideration.   Early proposals                                                                
                          focus on  cigarette and alcohol taxes,                                                                
                          although some states, like California,                                                                
                          are looking to increase personal income                                                               
                          tax.                                                                                                
 4119 Ms. Eckl            Also pointed out some examples of budget                                                              
                          balancing techniques in  other states.                                                                
                          She maintained that there was no magic                                                                
                          formula, and that each state was looking                                                              
                          for a method that worked for them.  She                                                               
                          explained  that  a   few   states  had                                                                
                          communicated their methods to NCSL.                                                                 
 4212 Ms. Eckl            Discussed the methods used in various                                                                 
                          states to balance budgets.  She cited a                                                               
                          number of examples:   in Arizona, they                                                                
                          delayed K-12 costs; Connecticut used tax                                                              
                          amnesty programs; Iowa  shifted $304.3                                                                
                          million in expenditures from General Fund                                                             
                          to non General Fund  sources; Louisiana                                                               
                          uses   tax   amnesty,   as   well   as                                                                
                          circumventing     surplus      revenue                                                                
                          limitations;  Michigan   shifted   the                                                                
                          collection date of state education tax;                                                               
                          New Jersey created an alternative minimum                                                             
                          assessment   provision,   shoring   up                                                                
                          corporate income tax, as well as raising                                                              
                          fees,  flat funding  a  formula school                                                                
                          programs, and offering early retirement                                                               
                          programs.  She  asserted   that  early                                                                
                          retirement programs might produce short-                                                              
                          term savings, but long term costs.  Rhode                                                             
                          Island gave each department a single line                                                             
                          item in budget and gave them flexibility                                                              
                          to operate within those levels.   Utah                                                                
                          changed disbursement to higher education                                                              
                          to a  six month period, and  sold some                                                                
                         state assets                                                                                         
                                                                                                                                
                          TAPE HFC 03 - 21, Side B                                                                         
 4537 Ms. Eckl            Referred to the February 2003 issue of                                                                
                          Governing Magazine, highlighting a report                                                             
                          that  described  state   tax  sources,                                                                
                          including a  report  on Alaska.    She                                                                
                          recommended that legislators utilize this                                                             
                         publication.                                                                                         
 4555 Representative      Asked whether NCSL had a report comparing                                                             
      Hawker              budget gaps to another measure of a                                                                   
                          state's economic level. He followed up                                                                
                          that this  might indicate how a  state                                                                
                          stood up to its capacity for increased                                                                
                          revenues.                                                                                           
 4523 Ms. Eckl            Stated that such a report did not exist.                                                              
                          The NCSL bases their budget gaps based on                                                             
                          the ratio of revenues to spending.                                                                  
4439 Ms. Eckl            Referred to a report created some years                                                                
                         ago   by  the  Advisory  Commission on                                                                 
                         Intergovernmental Relations (ACIR).   The                                                              
                         ACIR spent time compiling information on                                                               
                         state tax capacities and efforts.  They                                                                
                         were interested in asking what kind of                                                                 
                         effort was made by a  state compared to                                                                
                         its potential.  She noted that this study                                                              
                         was discontinued.                                                                                    
4351 Co-Chair Harris     Asked if any statistics were available                                                                 
                         reflecting Alaska's per capita  General                                                                
                         Fund  spending  as  compared to  other                                                                 
                         states.                                                                                              
4328 Ms. Eckl            Stated that she would research this data.                                                            
4249 Representative      Commented that the method of giving                                                                    
     Foster              agencies a line item budget would require                                                              
                         a great deal of trust in the agencies.                                                               
4212 Ms. Eckl            Conceded  that   danger  existed  that                                                                 
                         legislative intent would be overstepped                                                                
                         with  such flexibility.   However, she                                                                 
                         stated  that  in   Rhode  Island, with                                                                 
                         oversight,  the  method seemed  to  be                                                                 
                         working.                                                                                             
4133 Co-Chair Harris     Asked   if  other   states  experienced                                                                
                         challenges with extended rural areas such                                                              
                        as in Alaska.                                                                                         
4111 Ms. Eckl            Noted that the geographic challenge of                                                                 
                         Alaska was unique.   She also mentioned                                                                
                         that some other states, such as North and                                                              
                         South   Dakota,  experienced   somewhat                                                                
                         similar   concerns,  although  not  as                                                                 
                         extreme.    She   mentioned the  Rural                                                                 
                         Legislators' Caucus in Congress.  This                                                                 
                         Caucus discussed rural  development and                                                                
                         actions taken  to address common rural                                                                 
                         concerns, such a lack of quality health                                                                
                         care.  She committed to sending a copy of                                                              
                         the  results  of  the  caucus  to  the                                                                 
                         Committee.                                                                                           
3943 Senator Davis       Asked if Alaska was represented in this                                                                
                         group and if the group was ongoing.                                                                  
3922 Ms. Eckl            Stated that the group was open to all                                                                  
                         states,   but  that  Alaska   was  not                                                                 
                         represented.  She noted that the group                                                                 
                         was not ongoing at this time.                                                                        
                         The meeting was adjourned at 3:14 PM                                                                 
     ADJOURNMENT                                                                                                            
                                                                                                                                

Document Name Date/Time Subjects