Legislature(2019 - 2020)ADAMS ROOM 519

04/25/2019 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 131 APPROPRIATION LIMIT TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
+ SB 93 MEDICAL PROVIDER INCENTIVES/LOAN REPAYM'T TELECONFERENCED
Scheduled but Not Heard
<Companion Bill to HB 114>
+= HB 41 SHELLFISH ENHANCE. PROJECTS; HATCHERIES TELECONFERENCED
Moved CSHB 41(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 25, 2019                                                                                            
                         1:31 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:31:09 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Wilson called the House Finance Committee meeting                                                                      
to order at 1:31 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Tammie Wilson, Co-Chair                                                                                          
Representative Jennifer Johnston, Vice-Chair                                                                                    
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Andy Josephson                                                                                                   
Representative Gary Knopp                                                                                                       
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick                                                                                                    
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative   Dan   Ortiz,   Sponsor;   Bruce   Tangeman,                                                                    
Commissioner, Department of Revenue; Caroline Schultz,                                                                          
Staff, Senator Natasha von Imhof.                                                                                               
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 41     SHELLFISH ENHANCE. PROJECTS; HATCHERIES                                                                               
                                                                                                                                
          CSHB 41(FIN) was REPORTED out  of committee with a                                                                    
          "do   pass"  recommendation   and  with   one  new                                                                    
          indeterminate  note from  the  Department of  Fish                                                                    
          and  Game;  one  new  zero  note  from  the  House                                                                    
          Finance Committee  for the Department  of Revenue;                                                                    
          and  one  previously   published  zero  note:  FN1                                                                    
          (DFG).                                                                                                                
HB 131    APPROPRIATION LIMIT                                                                                                   
                                                                                                                                
          HB 131 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HOUSE BILL NO. 41                                                                                                             
                                                                                                                                
     "An Act  relating to management  of enhanced  stocks of                                                                    
     shellfish; authorizing  certain nonprofit organizations                                                                    
     to engage  in shellfish enhancement  projects; relating                                                                    
     to application  fees for  salmon hatchery  permits; and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
1:31:37 PM                                                                                                                    
                                                                                                                                
Co-Chair  Wilson discussed  the  bill  status. She  reported                                                                    
that the  change made by  the bill would enable  the program                                                                    
to become self-sustainable and grow.  She noted there was an                                                                    
updated fiscal note.                                                                                                            
                                                                                                                                
REPRESENTATIVE DAN  ORTIZ, SPONSOR,  supported the  bill and                                                                    
believed it  offered much potential for  the development and                                                                    
growth of the state's fishing industry.                                                                                         
                                                                                                                                
Co-Chair Wilson  reported she had  been discussing  with the                                                                    
Department of Revenue (DOR) whether  it needed to update its                                                                    
system;  there  had been  a  $50,000  fiscal note.  She  had                                                                    
reached  out to  the Department  of Fish  and Game  (DFG) to                                                                    
understand why  it would  take time  before the  state would                                                                    
see any  revenue. She  read from  an email  explanation from                                                                    
Sam  Rabung   [director  of   the  Division   of  Commercial                                                                    
Fisheries] (copy not on file):                                                                                                  
                                                                                                                                
     ADF&G   will   implement    the   regulations,   accept                                                                    
     applications,  process  the   application  through  the                                                                    
     public  process  and  ultimately issue  a  permit.  The                                                                    
     earliest a  permit could possibly be  issued under this                                                                    
     statute if  the bill  was to pass  this year,  would be                                                                    
     the fall  of 2020.  Further, once  a permit  is issued,                                                                    
     the  project would  have to  be developed,  which would                                                                    
     include   building    the   necessary   infrastructure,                                                                    
     collecting  broodstock, producing  juveniles, culturing                                                                    
     those juveniles  to the point  they could  be released,                                                                    
     and allowing them to grow  in the wild to a harvestable                                                                    
     size.  I would  anticipate this  to take,  depending on                                                                    
     the  species  and infrastructure  needs,  approximately                                                                    
     five  years or  more.  In a  best  case scenario,  this                                                                    
     takes  it out  to about  2025. Couple  this with  ADF&G                                                                    
     practice  of  utilizing  a  precautionary  approach  to                                                                    
     permitting  new   enhancement  projects,  in   which  a                                                                    
     project is  first permitted at  a small scale  in order                                                                    
     to evaluate it for  unanticipated consequences prior to                                                                    
     increasing production  to a level that  could support a                                                                    
     targeted  commercial,  common   property  fishery  that                                                                    
     could have a cost  recovery assessment applied. In best                                                                    
     case  scenario,  this  would  likely  take  us  out  to                                                                    
     approximately 2030.                                                                                                        
                                                                                                                                
Co-Chair Wilson referenced the idea  of changing a system in                                                                    
DOR, when one  may not be needed. She thought  a zero fiscal                                                                    
note   better    anticipated   what   was    taking   place.                                                                    
Additionally,  it  was  her   understanding  that  the  cost                                                                    
recovery assessment  was merely  one option a  fishery could                                                                    
take, but not  a requirement. She believed  there were other                                                                    
options a  fishery could choose  that would not  impact DOR.                                                                    
She  communicated  it was  not  her  intent to  require  any                                                                    
agencies to take on any more costs than they already had.                                                                       
                                                                                                                                
1:34:54 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson offered DOR the  opportunity to speak to the                                                                    
fiscal  note [OMB  Component Number  2476].  She lauded  the                                                                    
department for its  work and reported that she  did not want                                                                    
DOR to have to do work that was not necessary.                                                                                  
                                                                                                                                
BRUCE   TANGEMAN,  COMMISSIONER,   DEPARTMENT  OF   REVENUE,                                                                    
believed he  understood what  the chair  was saying,  but he                                                                    
did  not agree  with the  approach  in the  fiscal note.  He                                                                    
pointed  to the  following language  in the  second to  last                                                                    
paragraph  on page  2  of  the note:  "These  costs will  be                                                                    
absorbed by the Tax Division."  He believed the language set                                                                    
bad precedent when  there was a new tax  form and regardless                                                                    
of what  the implementation timeframe  may be, the  bill had                                                                    
an  immediate   effective  date.  He  communicated   it  was                                                                    
imperative   that   the   department  update   the   revenue                                                                    
management system  to be prepared  for taxes to  come online                                                                    
regardless of how they would  be implemented. There had been                                                                    
talk about  interagency receipts  or receipt  authority, but                                                                    
he  did  not  see  that  included in  the  fiscal  note.  He                                                                    
suggested  including  something  to  help in  that  way  for                                                                    
preparation. He reported that DOR  could not absorb upgrades                                                                    
to the revenue management system.                                                                                               
                                                                                                                                
Co-Chair Wilson  thought he was misunderstanding  the fiscal                                                                    
note.  She  pointed  to  language   specifying  it  was  the                                                                    
committee's  intent  that  any   DOR  programming  costs  be                                                                    
absorbed by the  requesting entity. She stated  it would not                                                                    
be DOR, but the fishery requesting the update.                                                                                  
                                                                                                                                
1:37:07 PM                                                                                                                    
                                                                                                                                
Commissioner Tangeman  stated that  if that was  the intent,                                                                    
it would  be better for  the information to be  reflected in                                                                    
the fiscal  note. He  noted the change  in revenue  shown in                                                                    
the fiscal note was zero.                                                                                                       
                                                                                                                                
1:37:26 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:39:37 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Wilson  explained that the fiscal  note would still                                                                    
reflect zero, but  the language would be  updated to specify                                                                    
that  all  costs would  be  charged  to the  fishery  entity                                                                    
requesting the update. She asked if it worked for DOR.                                                                          
                                                                                                                                
Commissioner Tangeman replied, "I believe so."                                                                                  
                                                                                                                                
Co-Chair Wilson specified  the intent to move  the bill from                                                                    
committee with  a Department  of Fish  and Game  fiscal note                                                                    
[two  DFG fiscal  notes]  and a  forthcoming  note from  the                                                                    
Department of Revenue.                                                                                                          
                                                                                                                                
Vice-Chair  Johnston MOVED  to  REPORT CSHB  41(FIN) out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSHB 41(FIN) was REPORTED out  of committee with a "do pass"                                                                    
recommendation and with one new  indeterminate note from the                                                                    
Department  of Fish  and Game;  one new  zero note  from the                                                                    
House Finance  Committee for the Department  of Revenue; and                                                                    
one previously published zero note: FN1 (DFG).                                                                                  
                                                                                                                                
1:40:56 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:43:08 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 131                                                                                                            
                                                                                                                                
     "An Act  relating to  an appropriation  limit; relating                                                                    
     to  the budget  responsibilities of  the governor;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
1:43:14 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson  noted that the  committee did not  have the                                                                    
constitutional  amendment before  it.  The bill  would be  a                                                                    
statute change. She stated that  HB 131 was a committee bill                                                                    
and she  hoped all committee members  would participate. She                                                                    
provided  a PowerPoint  presentation titled  "Spending Cap,"                                                                    
dated April 25, 2019 (copy  on file). She read from prepared                                                                    
remarks:                                                                                                                        
                                                                                                                                
     Why a spending cap? Two  reasons. First, a spending cap                                                                    
     limits how much spending can  increase from one year to                                                                    
     the next. Meaning we don't  want the budget to grow too                                                                    
     big  too  quickly.  Particularly,   we  want  to  avoid                                                                    
     overspending when we have surplus revenue.                                                                                 
                                                                                                                                
     Since Alaska has a history  of large swings in revenue,                                                                    
     this  brings me  to my  next point.  A second  reason a                                                                    
     spending cap  is important is  to force us to  save. My                                                                    
     research shows  that other states,  which we  will see,                                                                    
     with  successful   spending  caps  also   have  savings                                                                    
     mechanisms in place  in order to bridge  the periods of                                                                    
     time when there have been revenue downturns.                                                                               
                                                                                                                                
     A  2010  report from  the  National  Conference of  the                                                                    
     State Legislatures describes  how Colorado's Taxpayer's                                                                    
     Bill  of   Rights  initially  allowed   excess  revenue                                                                    
     collected  above  the cap  to  be  refunded to  voters;                                                                    
     however,  after the  severe economic  downturn in  2001                                                                    
     and   2002,  when   Colorado  experienced   significant                                                                    
     revenue  shortfalls, there  was no  savings account  to                                                                    
     provide a buffer and a  pretty tough economic recession                                                                    
     followed. As  a result,  voters approved  a legislative                                                                    
     referendum in  2005 to  forego the  projected mandatory                                                                    
     tax  refunds and  instead keep  surpluses in  a savings                                                                    
     account  to  provide  a  fiscal  buffer  when  revenues                                                                    
     shrink.                                                                                                                    
                                                                                                                                
     Alaska has  the Constitutional Budget Reserve.  We need                                                                    
     to keep  it and  we need  to fund  it during  the years                                                                    
     when we have excess revenue.                                                                                               
                                                                                                                                
1:45:20 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson moved to slide 2 and continued with                                                                             
prepared remarks:                                                                                                               
                                                                                                                                
     There  are five  decision points  when talking  about a                                                                    
     spending cap:                                                                                                              
                                                                                                                                
        1. starting point                                                                                                     
        2. growth rate                                                                                                        
        3. what is included under the cap                                                                                     
        4. what is excluded outside the cap                                                                                   
        5. what do we do with excess revenue                                                                                  
                                                                                                                                
     The goal today  is to understand the pros  and cons for                                                                    
     each  decision  point.  To think  about  how  different                                                                    
     options   might  sense   under   a   wide  variety   of                                                                    
     circumstances and to understand the  pros and cons of a                                                                    
     spending cap in statute  versus in the constitution. As                                                                    
     you will  see in the next  slide there is a  mix within                                                                    
     the states that  do have tax and  expenditure limits in                                                                    
     place.                                                                                                                     
                                                                                                                                
1:45:59 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson moved to slide 3 titled "What are other                                                                         
states doing?" and read from prepared remarks:                                                                                  
                                                                                                                                
     As of 2015,  28 states had a state  tax and expenditure                                                                    
     limit. These are the blue,  pink, and yellow. The black                                                                    
     square  states  do not  have  a  spending cap.  Of  the                                                                    
     colored   states   on  this   map,   17   are  in   the                                                                    
     constitution,  11  are  in  statute.  Why  does  statue                                                                    
     versus constitution make a  difference? They have found                                                                    
     its  just a  level  of flexibility  over  time. What  I                                                                    
     don't know  at this point  is how many of  them started                                                                    
     in  statute and  then became  part of  the constitution                                                                    
     and were able to prove  themselves out before they took                                                                    
     care of the flexibility of it.                                                                                             
                                                                                                                                
Co-Chair Wilson turned to a chart on slide 4 to illustrate                                                                      
what happened over time:                                                                                                        
                                                                                                                                
     This  is a  historical slide  since 1980,  roughly when                                                                    
     our  current constitutional  spending cap  started, and                                                                    
     oil became  a major  contributor to our  state revenue.                                                                    
     Here the orange line  is the unrestricted general funds                                                                    
     spending  with  the  Permanent Fund  Dividend  and  the                                                                    
     green  line is  the unrestricted  general fund  revenue                                                                    
     with the  Permanent Fund Dividend.  The story  goes for                                                                    
     about 25 years. Revenue  and spending did not fluctuate                                                                    
     much. But then  starting in 2005 we went  on Mr. Toad's                                                                    
     wild  ride and  revenue and  spending experienced  wild                                                                    
     swings.  We  had 13  years  of  chaos: revenues  spiked                                                                    
     really  high and  our spending  jumped up  accordingly.                                                                    
     Then, starting in 2012, our  revenue went on a freefall                                                                    
     for about  6 years and  it took awhile for  spending to                                                                    
     decrease as well.                                                                                                          
                                                                                                                                
     During that time, we spent  over $13 billion out of our                                                                    
     Constitutional  Budget Reserve  account to  help offset                                                                    
     the  budget  deficits. During  most  of  the years  you                                                                    
     would see this swing of  a roller coaster ride where we                                                                    
     would build  up the  Constitutional Budget  Reserve and                                                                    
     then we would go into some  tough times and we would go                                                                    
     back down and about the time  we hit bottom it would go                                                                    
     right back  up. We're not  seeing that now, we're  at a                                                                    
     steady portion,  not just  related to  how much  oil is                                                                    
     coming down, but the price of oil as well.                                                                                 
                                                                                                                                
     As you  can see, there was  a big jump in  revenue from                                                                    
     FY  19. That  is when  we  passed with  the percent  of                                                                    
     market  value, the  structured  draw  on the  Permanent                                                                    
     Fund   Earnings  Reserve   Account  of   5.25  percent.                                                                    
     Calculations  show   that  if  we  have   an  effectual                                                                    
     spending cap in place, we  would have saved more during                                                                    
     the  high  revenue years  and  spent  less out  of  the                                                                    
     Constitutional  Budget Reserve  during the  low revenue                                                                    
     years - to the tune  of about $15 billion extra dollars                                                                    
     we would  have still  had in our  Constitutional Budget                                                                    
     Reserve.                                                                                                                   
                                                                                                                                
     So,  what are  the lessons  learned? It's  important to                                                                    
     have a savings  account to provide a buffer  as well as                                                                    
     an effectual spending cap.                                                                                                 
                                                                                                                                
1:48:55 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson  directed attention  to slide 5  and pointed                                                                    
to the  gray line reflecting  the current spending  cap. She                                                                    
noted that  fortunately spending had  not gone up  that high                                                                    
or the  state would likely  be in  much worse shape  than at                                                                    
present. She continued reading from prepared remarks:                                                                           
                                                                                                                                
     Here's what we have now.  Again, the orange line is the                                                                    
     total  unrestricted  general  fund  spending  with  the                                                                    
     Permanent Fund Dividends,  capital statewide items like                                                                    
     debt, retirement,  and oil and  tax credits.  The light                                                                    
     orange  line shows  just agency  operations. The  green                                                                    
     line is the unrestricted  general fund revenue with the                                                                    
     Permanent Fund  Dividend. The gray  line on top  is the                                                                    
     current  spending  cap.  According to  this  rate,  our                                                                    
     unrestricted  general fund  spending  should be  around                                                                    
     $10 billion in 2020. The  rate is too high. It combines                                                                    
     both CPI  and population.  Population is the  dark gray                                                                    
     line on the  bottom: its been steady  growth except for                                                                    
     the last  couple of years.  The dark blue line  is this                                                                    
     bill's spending  limit. In this  graph, we  modeled the                                                                    
     blue line  both backwards and  forwards to see  what an                                                                    
     effectual spending  cap might  have looked like  had we                                                                    
     had  it in  place. This  growth rate  is the  last five                                                                    
    years trailing the CPI average at about 2 percent.                                                                          
                                                                                                                                
1:50:18 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Johnston looked  at the  green line  on slide  5                                                                    
labeled  UGF revenue  plus  the PFD.  She  thought the  line                                                                    
actually  reflected UGF  and the  structured  draw (not  the                                                                    
dividend).                                                                                                                      
                                                                                                                                
Co-Chair Wilson  agreed and thanked Vice-Chair  Johnston for                                                                    
the clarification.                                                                                                              
                                                                                                                                
Co-Chair Wilson continued reviewing slide 5:                                                                                    
                                                                                                                                
     The green  dotted line is estimated  revenues published                                                                    
     in the  spring Revenue Source  Book. As you can  see it                                                                    
     appears that  revenues are  estimated to  remain steady                                                                    
     for the next five years.                                                                                                   
                                                                                                                                
Co-Chair Wilson  believed the chart illustrated  that during                                                                    
years  the state  was  flush  with money  she  had seen  the                                                                    
budget  increase  during session  with  the  hopes that  oil                                                                    
would  go  up.   She  recalled  that  many   times  oil  had                                                                    
increased. She stated that  unfortunately instead of holding                                                                    
to the budget  it had been increased. She  thought it showed                                                                    
that  in addition  to a  spending cap,  the legislature  may                                                                    
want  to  consider  the possibility  of  a  two-year  budget                                                                    
versus  going through  the process  annually, especially  as                                                                    
the legislature  was looking  for ways  to be  smarter about                                                                    
spending.  She  continued   reading  from  prepared  remarks                                                                    
pertaining to slide 5:                                                                                                          
                                                                                                                                
     The  current  spending  cap illustrates  why  long-term                                                                    
     growth rates  left untouched can  become very  large in                                                                    
     magnitude.  Why? First,  what the  rate is  matters. If                                                                    
     you just  consider the dark  blue line, which  when you                                                                    
     look backwards,  the simple  rate of  five-year average                                                                    
     as the  CPI, seems more  in line with our  revenues and                                                                    
     reasonable expenditures.                                                                                                   
                                                                                                                                
Co-Chair Wilson remarked that Alaska was primarily                                                                              
dependent on oil revenue and its revenue was not as                                                                             
diversified as many other states.                                                                                               
                                                                                                                                
1:52:17 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson moved to slide 6:                                                                                               
                                                                                                                                
     However, the second point,  regardless of whatever rate                                                                    
     we  choose, we  have to  contain with  something called                                                                    
     compound annual  growth rate (CAGR). You  start with $5                                                                    
     billion growth,  grow it by  2 percent  inflation, then                                                                    
     next year you  begin with $5.1 billion, then  you add 2                                                                    
     percent  on  that  and  so  it  goes.  Over  time,  the                                                                    
     compounding  effect yields  a  spending magnitude  that                                                                    
     may or may  not be in line with  revenue. Why? Revenues                                                                    
     and expenditures are not based  on the same things. For                                                                    
     revenue, oil  prices are not  based on  inflation, they                                                                    
     are  based  on  supply and  demand,  technology,  shell                                                                    
     fracking,  and global  politics.  Market  value of  the                                                                    
     Permanent Fund is based on  the value of stocks, bonds,                                                                    
     and  real  estate. Also  based  on  supply and  demand,                                                                    
     consumer confidence, and global market forces.                                                                             
                                                                                                                                
Co-Chair Wilson returned to slide 5:                                                                                            
                                                                                                                                
     For expenditures,  the light green line  is just agency                                                                    
     operations and  the dark green line  is everything UGF.                                                                    
     Remember, that  includes any  general funds  to attract                                                                    
     federal  matching as  well. An  effectual spending  cap                                                                    
     would  have been  extremely  helpful  between 2005  and                                                                    
     2018,  assuming  that  we had  the  political  will  to                                                                    
     follow it.                                                                                                                 
                                                                                                                                
Co-Chair Wilson  believed it  was where  the debate  came in                                                                    
between the difference of having  a cap in statute versus in                                                                    
the  constitution.  She   continued  reading  from  prepared                                                                    
remarks:                                                                                                                        
                                                                                                                                
     But   beware,  compound   annual  growth   rate  is   a                                                                    
     mathematical    calculation     that    has    economic                                                                    
     consequences when  its inside  a spending cap.  I would                                                                    
     recommend periodic reevaluation of  any spending cap we                                                                    
     put in place  and make sure it continues  to make sense                                                                    
     for Alaska.                                                                                                                
                                                                                                                                
Co-Chair  Wilson noted  typically the  concern over  putting                                                                    
something in the  constitution was about making  sure all of                                                                    
the  levers  were  exactly  where   they  should  be  before                                                                    
solidifying them  in the constitution. She  added there were                                                                    
numerous other debates on the subject as well.                                                                                  
                                                                                                                                
1:54:15 PM                                                                                                                    
                                                                                                                                
Co-Chair  Wilson  moved  back  to  slide  6  and  read  from                                                                    
remarks:                                                                                                                        
                                                                                                                                
     This  is  based  on   revenues,  this  is  unrestricted                                                                    
     general funds, money we can  use to spend on all agency                                                                    
     funding, capital, retirement, and  the dividend. I took                                                                    
     these  revenue numbers  directly from  the 2019  spring                                                                    
     revenue  forecast  and  the  Permanent  Fund  financial                                                                    
     statements for  the percent of  market value. I  have a                                                                    
     blue percent  of market value for  FY 17 and FY  18. We                                                                    
     did not  pass the POMV  until 2019, but wanted  to show                                                                    
     an  example of  how  the revenue  would  have been  for                                                                    
     analysis  purposes.  In  this bill,  we  have  excluded                                                                    
     debt,  so  this  is  why I  subtracted  debt  from  the                                                                    
     revenue to get  the total amount of money  that we have                                                                    
     left to spend,  which is green. Then,  as for expenses,                                                                    
     here's what we have spent.                                                                                                 
                                                                                                                                
1:55:07 PM                                                                                                                    
                                                                                                                                
Co-Chair  Wilson advanced  to  expenses as  a comparison  on                                                                    
slide 7. She read from remarks:                                                                                                 
                                                                                                                                
     Here's  what  we  spent  in the  last  few  years  from                                                                    
     unrestricted general  funds. FY  18 and FY  19 exceeded                                                                    
     the hypothetical  spending cap,  which is in  blue, and                                                                    
     all  of  the  last  three  years  exceeded  the  actual                                                                    
     revenues  and  required  us  to  pull  money  from  the                                                                    
     Constitutional  Budget   Reserve,  which  is   the  red                                                                    
     amount.  I excluded  debt from  this slide  as well  so                                                                    
     that we could have the  same side by side [comparison].                                                                    
     The draw on the CBR includes the debt.                                                                                     
                                                                                                                                
Co-Chair Wilson noted  that things had gotten  better as the                                                                    
budget had been decreased; however,  the budget had not been                                                                    
decreased to  where the  state was  spending within  its own                                                                    
means.                                                                                                                          
                                                                                                                                
1:55:49 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson turned to slide 8:                                                                                              
                                                                                                                                
     Anything with UGF included:                                                                                                
     ?Agency spending                                                                                                           
     ?Retirement                                                                                                                
     ?Capital for matching                                                                                                      
     ?Permanent Fund Dividend                                                                                                   
                                                                                                                                
     Excluded from cap:                                                                                                         
     ?Permanent Fund principal (Corpus)                                                                                         
     ?Debt payments                                                                                                             
     ?Disaster funding                                                                                                          
     ?Deposits into savings                                                                                                     
                                                                                                                                
Co-Chair   Wilson    summarized   that    the   presentation                                                                    
highlighted  what  a  spending  cap  could  look  like.  She                                                                    
highlighted various  levers that  could be  manipulated. She                                                                    
had used a  starting point of $5 billion,  which was similar                                                                    
to the  state's current  budget. She highlighted  the growth                                                                    
rate  lever and  noted it  could be  the CPI  or other.  She                                                                    
noted  that if  an  arbitrary growth  rate  was selected  it                                                                    
would  be necessary  to review  whether the  state would  be                                                                    
able to spend within those means.                                                                                               
                                                                                                                                
1:56:53 PM                                                                                                                    
                                                                                                                                
Representative  Sullivan-Leonard  asked   for  a  comparison                                                                    
between the current spending limit and the bill proposal.                                                                       
                                                                                                                                
Co-Chair Wilson  replied that would present  a chart showing                                                                    
the information at the next meeting.                                                                                            
                                                                                                                                
Representative Sullivan-Leonard  looked at the gray  line on                                                                    
slide 5 that  showed a continual increase  across the years.                                                                    
She considered  that it  did not reflect  a plateau,  but an                                                                    
increase. She asked what it was determined by.                                                                                  
                                                                                                                                
1:57:58 PM                                                                                                                    
                                                                                                                                
CAROLINE SCHULTZ,  STAFF, SENATOR NATASHA VON  IMHOF, shared                                                                    
that  the Senate  Finance  Committee had  heard  a close  to                                                                    
identical  bill  a  couple  of   weeks  earlier.  She  asked                                                                    
Representative Sullivan-Leonard to repeat her question.                                                                         
                                                                                                                                
Representative Sullivan-Leonard  asked what was  causing the                                                                    
increase  in  the  current  spending   cap  over  time.  She                                                                    
wondered  why for  example,  it  was not  a  plateau of  $10                                                                    
billion over time.                                                                                                              
                                                                                                                                
Ms. Schultz replied that the  future forecast of the current                                                                    
constitutional spending  limit represented by the  gray line                                                                    
[on slide 5]  was based on a 2  percent inflation assumption                                                                    
as   well  as   the  Department   of  Labor   and  Workforce                                                                    
Development's  (DLWD) official  population projections.  The                                                                    
constitutional  spending limit  was  adjusted for  inflation                                                                    
and  population, which  was the  reason it  showed a  growth                                                                    
rate that appeared to be quite  a bit higher than the bill's                                                                    
proposed spending  limit and population. She  pointed to the                                                                    
dotted   gray   line   that  represented   DLWD's   official                                                                    
population projection.                                                                                                          
                                                                                                                                
Representative   Sullivan-Leonard   asked   if   the   chart                                                                    
reflected the average CPI for Anchorage.                                                                                        
                                                                                                                                
Ms. Schultz replied in the affirmative.                                                                                         
                                                                                                                                
Representative  Knopp  considered  exclusions.  He  observed                                                                    
there were  no federal dollars  factored in. He  assumed any                                                                    
capital money  would come  from under  the cap.  He wondered                                                                    
about  a  provision  for  additional  capital  projects.  He                                                                    
thought   the  spending   cap   should   relate  to   agency                                                                    
operations, debt, general government operations, and so on.                                                                     
                                                                                                                                
Co-Chair Wilson  answered that  the cap  would apply  to UGF                                                                    
and  UGF matching  funds. She  clarified that  federal funds                                                                    
would not be included in the cap.                                                                                               
                                                                                                                                
Representative Carpenter  asked if the cap  included capital                                                                    
spending on deferred maintenance.                                                                                               
                                                                                                                                
Co-Chair Wilson  answered affirmatively. She  clarified that                                                                    
all UGF items would be included under the cap.                                                                                  
                                                                                                                                
Representative  Carpenter asked  for verification  that even                                                                    
though  deferred  maintenance  was  not  in  the  operations                                                                    
budget, it was still accounted for in the cap.                                                                                  
                                                                                                                                
Co-Chair  Wilson agreed.  She  explained that  it would  not                                                                    
fall  under  operating  in total  UGF  because  capital  was                                                                    
included...                                                                                                                     
                                                                                                                                
Representative Carpenter interjected,  "Agency operations on                                                                    
that line."                                                                                                                     
                                                                                                                                
Co-Chair  Wilson replied  in the  negative. She  stated that                                                                    
the orange line showed capital [on slide 5].                                                                                    
                                                                                                                                
Ms.  Schultz confirmed  that the  darker green  UGF spending                                                                    
line included  UGF capital and statewide  items. The lighter                                                                    
orange line represented UGF agency operations.                                                                                  
                                                                                                                                
Representative  Carpenter asked  for  verification that  the                                                                    
dark orange line [on slide 5] included capital spending.                                                                        
                                                                                                                                
Ms. Schultz responded affirmatively.                                                                                            
                                                                                                                                
Representative  Carpenter remarked  that  state revenue  was                                                                    
not generated  by population in  Alaska. He did  not believe                                                                    
it  was a  good  gauge  of where  the  state spending  level                                                                    
should be.  He thought it  was better to consider  what size                                                                    
economy the  state had to  sustain spending for  the desired                                                                    
type of government.  He suggested it would be  better to use                                                                    
GDP - to  have some capacity to measure the  amount of money                                                                    
generated in  the economy, which was  ultimately what funded                                                                    
government. He explained  that the number of  people did not                                                                    
fund the government - Alaska did  not have an income tax. He                                                                    
understood some  people wanted an  income tax, but  that was                                                                    
not the current scenario.                                                                                                       
                                                                                                                                
2:03:32 PM                                                                                                                    
                                                                                                                                
Ms.  Schultz replied  that Senator  von  Imhof's office  had                                                                    
looked at  using GDP as  one of  the inputs to  the spending                                                                    
cap calculation. Based on  Alaska's historic economic growth                                                                    
rate as well  as the considerable impact that  oil price and                                                                    
production  had  on  Alaska's  GDP  calculations,  they  had                                                                    
discovered that GDP  resulted in a growth rate  that was too                                                                    
high and  volatile. She elaborated  the topic  was certainly                                                                    
worthy of discussion, but their  modeling had shown a growth                                                                    
rate that  was too  high. Their  office had  considered that                                                                    
Alaska  was a  relatively  young and  developing state  that                                                                    
historically over the past 40  years had higher growth rates                                                                    
than  the  rest  of  the   country.  She  explained  it  was                                                                    
difficult to say  what the state's GDP growth  rate would be                                                                    
going  forward.  She  added that  given  Alaska's  commodity                                                                    
based  economy, it  was  normal  to expect  quite  a bit  of                                                                    
volatility in  the GDP calculation.  She offered  to provide                                                                    
the graphs from Senator von Imhof's office.                                                                                     
                                                                                                                                
2:04:51 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson  added that the  bill was intended  to start                                                                    
the conversation.  She relayed  there was  no intent  to add                                                                    
any  tax.  She stated  it  was  necessary  to begin  at  the                                                                    
beginning to  determine the starting  point and  the various                                                                    
options. She  wanted to  bring the  bill forward  because of                                                                    
the gray line [on slide  5 representing the current spending                                                                    
cap]. She believed that individuals  who had implemented the                                                                    
current cap had likely thought  it would keep state spending                                                                    
in check  and that  it would prevent  the state  from facing                                                                    
situations  like the  current  one. She  stated  it had  not                                                                    
proven to be effective.                                                                                                         
                                                                                                                                
Representative  Carpenter looked  at  a spike  in the  green                                                                    
line [representing UGF revenue plus  the PFD] in FY 05/FY 06                                                                    
to present. He  observed the spike represented  a 30 percent                                                                    
increase   in  inflation   and   10   percent  increase   in                                                                    
population. He stated that if  the model was used to project                                                                    
inflation  growth  in  the future,  the  increase  would  be                                                                    
drastic. He stated there was no way to get around it.                                                                           
                                                                                                                                
Co-Chair Wilson thought it was  the reason to vet everything                                                                    
out at  present to determine  what would work for  Alaska to                                                                    
avoid spikes  that had historically occurred.  She continued                                                                    
that the  state had always  been dependent on where  the oil                                                                    
prices were  at the end  of the  year for its  budget versus                                                                    
considering whether the budget was  the size it needed to be                                                                    
(and not necessarily how much  money the state had available                                                                    
to spend).                                                                                                                      
                                                                                                                                
Representative Carpenter agreed. He  had seen some documents                                                                    
that  broke  out  the state's  non-oil  revenue  versus  oil                                                                    
revenue.  He detailed  that  the part  of  the revenue  that                                                                    
would spike  wildly was the  oil revenue portion,  while the                                                                    
non-oil revenue was  likely fairly static. He  stated it was                                                                    
a measure of  the non-oil ability to  produce revenue within                                                                    
the state.  He was  interested in  something that  took that                                                                    
into  account.  He  suggested that  perhaps  the  discussion                                                                    
should be  about where things  would start from the  cap. He                                                                    
thought  it would  be  something that  looked  more like  FY                                                                    
05/FY 06 or an  average of the last 25 years  than it was at                                                                    
any point on the spiked portion  of the green line [slide 5]                                                                    
where the state had been on a joy ride flush with revenue.                                                                      
                                                                                                                                
2:07:25 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson  remarked that  the governor  had repeatedly                                                                    
discussed the  importance of making the  lines steadier. She                                                                    
spoke to  a misalignment  between revenues  and expenditures                                                                    
and explained  that companies investing  in the  state (e.g.                                                                    
in technology  or resource development) wanted  a stable tax                                                                    
system. She stated  that a spending cap was one  of the ways                                                                    
to bring stability.                                                                                                             
                                                                                                                                
Vice-Chair  Johnston reported  that  she had  voted for  the                                                                    
constitutional  budget  cap.  She  looked  at  slide  8  and                                                                    
observed the  bill would include retirement  in the spending                                                                    
cap  but   would  exclude  debt   payments.  She   asked  if                                                                    
retirement included the unfunded retirement liability.                                                                          
                                                                                                                                
Ms.  Schultz  answered it  was  her  understanding that  the                                                                    
state   on-behalf   payment   for  the   Public   Employees'                                                                    
Retirement  System (PERS)  and  Teachers' Retirement  System                                                                    
(TRS) unfunded liability would be included in the cap.                                                                          
                                                                                                                                
Vice-Chair Johnston asked  if the debt payment  would be for                                                                    
any state bonding.                                                                                                              
                                                                                                                                
Ms.  Schultz  agreed  and  noted  debt  payment  would  fall                                                                    
outside the cap [under the bill].                                                                                               
                                                                                                                                
Co-Chair Wilson stated  it was a developing  bill that would                                                                    
take collaboration  from the entire committee.  The idea was                                                                    
to reach a sustainable budget.                                                                                                  
                                                                                                                                
2:09:36 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Johnston  reported  that  she had  come  from  a                                                                    
municipal background  where there was a  functional spending                                                                    
cap. She reasoned  that a government that was  closer to the                                                                    
people was  different than one  with degrees  of separation.                                                                    
The Municipality  of Anchorage's  cap was  based on  CPI and                                                                    
population; and  any maintenance and operations  for capital                                                                    
were  bonded. She  shared  that the  cap  had worked  pretty                                                                    
effectively.  She noted  that occasionally  when people  had                                                                    
tried to  remove things out  from under  the cap it  had not                                                                    
worked  as well.  She  reported that  the  basic cap  worked                                                                    
quite well.                                                                                                                     
                                                                                                                                
Vice-Chair Johnston disagreed  on Representative Carpenter's                                                                    
point about  population. She believed population  growth had                                                                    
an  impact on  the  cost of  government, because  government                                                                    
(especially local  government) was  the last stop.  The need                                                                    
of government for  a larger population could  be larger. She                                                                    
noted there  could be a  cost savings  due to the  size, but                                                                    
there  was an  increased need  for government  as population                                                                    
grew. She thought the capital  budget including highways was                                                                    
the best  example - there was  a need as population  grew to                                                                    
have some sort  of transportation to meet  the needs, unless                                                                    
the growth  was only  vertical, but she  did not  think that                                                                    
was something Alaska was looking for.                                                                                           
                                                                                                                                
Vice-Chair Johnston stated that  population had an impact on                                                                    
the cost  of government.  She highlighted the  Department of                                                                    
Environmental Conservation  as an example and  explained the                                                                    
department  protected Alaskans  from unsafe  drinking water.                                                                    
She  elaborated that  people would  want  their children  to                                                                    
have a safe place  to live and to have a  way to reach where                                                                    
they live.  She did  not think  population growth  should be                                                                    
discounted. She thought CPI was also a good mechanism.                                                                          
                                                                                                                                
Vice-Chair Johnston  was familiar  with what had  caused the                                                                    
significant increases in the orange  line [slide 5], much of                                                                    
it was  the capital budget.  She reported that she  had been                                                                    
concerned about  capital budgets for  the past 40  years and                                                                    
she believed  the capital  budget needed  to be  included in                                                                    
the spending  cap. She  believed the state  needed a  way of                                                                    
financing  capital.   She  highlighted  port   projects  [in                                                                    
Anchorage]  that could  be quite  expensive. She  considered                                                                    
whether  the projects  should not  be done  or whether  they                                                                    
were part  of the  Alaskan growth. She  had always  felt the                                                                    
state needed an effective spending  cap and fiscal plan. She                                                                    
believed they were onto a good beginning conversation.                                                                          
                                                                                                                                
2:13:53 PM                                                                                                                    
                                                                                                                                
Representative  Josephson  referenced  the  administration's                                                                    
position to  entice and increase  the attractiveness  of the                                                                    
state's communities. He pointed out  that a number of people                                                                    
including chambers had said the opposite.                                                                                       
                                                                                                                                
Co-Chair Wilson  clarified that her statement  was not about                                                                    
the budget itself.  She explained that if large  gaps in the                                                                    
state's  budget continued  and companies  thought the  state                                                                    
would use their profits to fill  the gap, they would be less                                                                    
likely to  come. She  explained that  her statement  had not                                                                    
been about  how far down  the budget should be.  She pointed                                                                    
out  that  continued gaps  would  mean  companies would  not                                                                    
invest in  Alaska. She  wanted to  avoid a  discussion about                                                                    
where the budget should be.                                                                                                     
                                                                                                                                
Representative  Josephson  emphasized  that if  the  service                                                                    
levels were  at the  governor's proposed level,  he believed                                                                    
those  same  companies would  be  alarmed.  He explained  it                                                                    
moved the bullseye squarely onto  companies when services or                                                                    
sects of the  people stated they could not  tolerate a given                                                                    
class size  or the closure  of the University. He  looked at                                                                    
slide 5  and asked  for verification  that the  light orange                                                                    
line  reflecting  agency  operations   showed  a  number  of                                                                    
approximately $2.3 billion in FY  05. He asked if the number                                                                    
was adjusted for population and inflation.                                                                                      
                                                                                                                                
Ms. Schultz answered that the  numbers were not adjusted for                                                                    
inflation or  population. Only the lines  reflecting the two                                                                    
spending  caps   (the  existing  and  proposed   caps)  were                                                                    
adjusted  for inflation  and  population.  She referenced  a                                                                    
graph  from  the  Legislative  Finance  Division  showing  a                                                                    
similar  pattern   for  revenue  expenditures,   which  were                                                                    
adjusted for  inflation and  population. She  clarified that                                                                    
the dollars were  nominal; the FY 05 number  did not include                                                                    
inflation or population adjustments.                                                                                            
                                                                                                                                
Representative  Josephson  thought  the committee  had  seen                                                                    
from  LFD   that  when  taking   away  state   expenses  and                                                                    
considering only agency operations,  the current budget with                                                                    
the adjustments  was not that off  from FY 05. He  looked at                                                                    
the  dark  orange line  on  slide  5 that  included  capital                                                                    
budgets. He thought it would  mean modest capital budgets of                                                                    
less than $200  million. He thought the  spending cap hemmed                                                                    
the  state  in  very   small  capital  outlay  (historically                                                                    
speaking).                                                                                                                      
                                                                                                                                
Co-Chair  Wilson replied  in the  affirmative  based on  the                                                                    
starting point  used in  the example. She  noted it  was the                                                                    
beginning of the discussion and  considered that perhaps the                                                                    
starting  point  was somewhat  off.  She  reported that  the                                                                    
Fairbanks North Star Borough also  had a spending cap, which                                                                    
excluded debt. She explained that  sometimes the borough had                                                                    
used  a bonding  mechanism to  stay outside  of the  cap and                                                                    
avoid making decreases  in other places to  have the ability                                                                    
to make improvements.                                                                                                           
                                                                                                                                
2:18:34 PM                                                                                                                    
                                                                                                                                
Representative  Josephson discussed  that the  committee had                                                                    
been told  that retirement payments  in FY 21 (to  remain in                                                                    
the 78  percent viability range)  were in the range  of $400                                                                    
million, which represented a sudden  increase. He noted that                                                                    
those  items were  sensitive  and needed  to  be tracked  as                                                                    
well.                                                                                                                           
                                                                                                                                
Co-Chair  Wilson  emphasized that  her  intent  was to  work                                                                    
through the issues  as a committee and  determine a starting                                                                    
point. She  planned to  do more  research about  states that                                                                    
had  spending caps  in statute  versus in  the constitution.                                                                    
She  would find  it interesting  to see  whether states  had                                                                    
started their caps in statute  and after determining success                                                                    
had  put  the  cap  in their  constitution.  She  considered                                                                    
whether  some of  the  other states  had  a steadier  income                                                                    
through taxation or  other in order to  make the adjustment.                                                                    
She  believed the  volatility of  oil made  it difficult  to                                                                    
know what the  price and production would be  in five years.                                                                    
She thought  Representative Josephson had the  perfect point                                                                    
about what the starting point was  and how it would lock the                                                                    
state in.                                                                                                                       
                                                                                                                                
Representative  Josephson  discussed  when  oil  prices  had                                                                    
spiked  during the  Palin  and  Parnell Administrations.  He                                                                    
noted it was true that the  state had spent a huge amount of                                                                    
money, but  it was possible  because the state had  saved an                                                                    
enormous amount  of money. There  had been a window  of time                                                                    
to develop  a fiscal  plan, but lawmakers  had not  taken it                                                                    
up. Predecessors  had given lawmakers the  ability, but they                                                                    
had not exercised it.                                                                                                           
                                                                                                                                
Co-Chair  Wilson replied  it came  back to  the will  of the                                                                    
legislature.                                                                                                                    
                                                                                                                                
Vice-Chair   Ortiz  referenced   discussion  by   Vice-Chair                                                                    
Johnston  that  a  spending  cap had  worked  well  for  the                                                                    
Municipality  of Anchorage.  It was  important to  note that                                                                    
tax  revenue had  increased in  Anchorage as  its population                                                                    
had  grown.  However, at  the  state  level an  increase  in                                                                    
population  did  not  mean  more   revenue  would  come  in.                                                                    
Additionally, an increase  in GDP did not  mean more revenue                                                                    
for  the  most  part.  He   believed  it  was  important  to                                                                    
recognize in  the discussion going  forward. He  stated that                                                                    
until there was  a revenue source the problem  would exist -                                                                    
increasing   population   brought   increase  in   cost   in                                                                    
education,  roads,  and  other,   but  it  would  not  bring                                                                    
increased  revenues. He  pointed  out  that communities  had                                                                    
local taxing authority, but the state currently did not.                                                                        
                                                                                                                                
2:22:16 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson thought it was  a good point. She noted that                                                                    
the  Fairbanks North  Star Borough  only had  property taxes                                                                    
(North  Pole  had  a  sales tax).  She  detailed  that  when                                                                    
population grew  there was new development  outside the cap.                                                                    
She  highlighted  the  construction  of  a  new  mall  as  a                                                                    
hypothetical  example when  population growth  occurred. She                                                                    
stated there had been  a cap for a long time  and it was the                                                                    
first  year the  borough had  come up  against the  cap. The                                                                    
borough had not seen substantial  new growth in terms of new                                                                    
homes or buildings and the tax  base had not grown, but more                                                                    
people  had   come  in  utilizing   some  of   the  existing                                                                    
infrastructure. She thought it  would be a good conversation                                                                    
for the committee  to have with LFD on how  a state spending                                                                    
cap  would   differ  from  municipalities   (with  different                                                                    
revenues - municipalities did not  have the same oil revenue                                                                    
coming in as the state).                                                                                                        
                                                                                                                                
Vice-Chair Ortiz  referenced the  graph [on slide  5] showed                                                                    
that while there  was an increase in  agency operations from                                                                    
year-to-year (shown in light  orange), the largest increases                                                                    
were due to capital spending.                                                                                                   
                                                                                                                                
Co-Chair Wilson interjected that both areas had grown.                                                                          
                                                                                                                                
Vice-Chair  Ortiz agreed,  but noted  that capital  spending                                                                    
had  grown more  than  agency spending.  He  noted that  the                                                                    
increase in capital  spending had resulted in  the growth in                                                                    
private  industry  (private   industry  had  benefited  from                                                                    
capital  budget growth  in the  form of  contracts to  build                                                                    
roads and other work).                                                                                                          
                                                                                                                                
2:24:18 PM                                                                                                                    
                                                                                                                                
Representative  LeBon  looked at  the  dark  green line  [on                                                                    
slide 5] and noted  the peak of revenue in FY  07 and low in                                                                    
FY 17 was buffered by the  CBR draws. He pointed to the dark                                                                    
orange line that  crossed the spending line in  FY 12, which                                                                    
was the  beginning of  the CBR  draws. The  encouraging part                                                                    
was that  at present,  the dark green  and dark  orange bars                                                                    
had moved  close together.  He observed  that the  state was                                                                    
coming close to matching revenues with expenditures.                                                                            
                                                                                                                                
Representative Tilton  suggested considering a  relief valve                                                                    
for  capital improvement  projects  that  could be  accessed                                                                    
with  a three-quarter  vote [by  the legislature]  or other.                                                                    
She   stated  that   the  governor's   constitutional  limit                                                                    
included  an  additional  excess  appropriation  amount  for                                                                    
capital  improvements. She  explained  there were  different                                                                    
ways to write the limit to  avoid cutting off the ability to                                                                    
have  capital  projects  to  help   with  the  economy.  She                                                                    
believed it  was important to discuss  whether relief valves                                                                    
should be considered.                                                                                                           
                                                                                                                                
Representative Knopp  looked at  the spike in  revenue shown                                                                    
in green [on slide 5] in FY  10 to FY 12 resulting from high                                                                    
oil  prices. He  remarked that  the state  had a  history of                                                                    
supporting  all of  its municipalities  and boroughs,  which                                                                    
had  resulted  in  expenditure  spikes  related  to  capital                                                                    
projects.  He  noted that  the  state  had given  money  for                                                                    
everything  communities had  asked  for without  significant                                                                    
vetting in  the past -  some of  the projects had  been good                                                                    
and  others had  not. He  thought it  necessary to  consider                                                                    
whether  the  state  was  going  to  finally  start  telling                                                                    
municipalities there  would be a  cap if revenues  came back                                                                    
and excess  revenues occurred; therefore,  communities could                                                                    
take on the  burden themselves. He noted that  the state had                                                                    
saved just  under $27 billion  between the CBR and  SBR when                                                                    
oil prices had  spiked in the past. He wondered  if that was                                                                    
part of the big spike or part of savings as well.                                                                               
                                                                                                                                
Ms. Schultz  agreed. The difference  between the  green line                                                                    
and orange line reflected what  had been put into savings at                                                                    
the time.                                                                                                                       
                                                                                                                                
Representative  Knopp believed  there  were  many things  to                                                                    
consider  associated with  the idea  of a  spending cap.  He                                                                    
wondered  if a  restriction  on UGF  funds  would limit  the                                                                    
state's  ability to  accept federal  dollars. He  recognized                                                                    
the  importance  of  determining   how  to  reign  in  state                                                                    
spending.                                                                                                                       
                                                                                                                                
2:28:07 PM                                                                                                                    
                                                                                                                                
Co-Chair  Wilson  noted  Representative  Knopp  was  correct                                                                    
about the  levers; the cap  would restrict UGF and  it would                                                                    
not  matter  whether it  was  total  UGF spend  or  matching                                                                    
federal dollars.  It was  important to  consider all  of the                                                                    
levers to determine  how to keep the cap tight  enough so it                                                                    
would not have  to be changed in the future.  She thought it                                                                    
would take some pain to get down to the needed amount.                                                                          
                                                                                                                                
Vice-Chair  Johnston  agreed   with  Representative  Knopp's                                                                    
point  that   "some  of  this  was   depositing  money  into                                                                    
savings." Another  factor in the  dark orange line  was when                                                                    
the  state paid  off $2  billion to  TRS and  $1 billion  to                                                                    
Public Employees'  Retirement System  (PERS). She  stated it                                                                    
was necessary  to keep in  mind that  much of the  big spike                                                                    
[in revenue] was savings.                                                                                                       
                                                                                                                                
Co-Chair  Wilson  clarified  that  Vice-Chair  Johnston  was                                                                    
talking  about  the   Public  Employees'  Retirement  System                                                                    
(PERS) and Teachers' Retirement System (TRS).                                                                                   
                                                                                                                                
Representative  Knopp  noted  that  during  that  same  time                                                                    
period  the legislature  had invested  a  lot of  additional                                                                    
capital  money into  the corpus  of the  Permanent Fund.  He                                                                    
believed it  should be  reflected in the  data on  the chart                                                                    
[on slide 5].                                                                                                                   
                                                                                                                                
Representative  Carpenter  noted  that  there  had  been  an                                                                    
increase  in capital  spending. He  stated that  new capital                                                                    
projects increased  maintenance requirements going  into the                                                                    
future that were  found in the capital  budget. He suggested                                                                    
that  one way  to equalize  the conversation  about how  the                                                                    
state  spent  its money  was  to  pull the  conversation  of                                                                    
maintenance  into agency  operations to  compete with  every                                                                    
other good  idea. He stated  taking care of  maintenance was                                                                    
mandatory  for  buildings  the  state  wanted  to  keep.  At                                                                    
present  it was  a  separate conversation  from  all of  the                                                                    
other things.                                                                                                                   
                                                                                                                                
Representative Carpenter  stated that the future  would look                                                                    
different  related  to  federal funds.  He  highlighted  the                                                                    
large  federal  deficit and  believed  at  some point  there                                                                    
would  have to  be  a conversation  about  what the  country                                                                    
would do with  spending at the federal level.  He assumed it                                                                    
would mean  bringing spending in  line with revenues  at the                                                                    
federal level. He  considered what it would  mean for states                                                                    
where federal  dollars represented one-third of  the budget.                                                                    
He thought  it would be wise  for the state to  consider how                                                                    
it could wean  itself from federal dollars. He  did not want                                                                    
to have  to rely on federal  funds because when there  was a                                                                    
federal fund problem, the state would be insulated.                                                                             
                                                                                                                                
2:31:48 PM                                                                                                                    
                                                                                                                                
Representative  Josephson  countered  that  the  same  would                                                                    
apply to the Eielson Air  Force Base. He stated that dollars                                                                    
were dollars.  He shared that  he had more  familiarity with                                                                    
the  federal constitution  than the  state constitution  and                                                                    
there was no separation in  that respect. He believed it was                                                                    
not  incumbent  on the  700,000  Alaskans  to be  especially                                                                    
heroic  in  that  regard  because   the  other  300  million                                                                    
Americans would stare at Alaska in wonderment.                                                                                  
                                                                                                                                
Co-Chair Wilson stated that the  challenge was that the bill                                                                    
was  the  starting point  and  did  not reflect  a  complete                                                                    
solution.  She offered  members  an  opportunity to  provide                                                                    
input into the  bill. She shared that she would  like to see                                                                    
the  constitutional  issue  come   before  voters,  but  she                                                                    
recognized  time  was running  out  and  the bill  could  be                                                                    
implemented  statutorily prior  to the  end of  session. She                                                                    
reasoned  passage   of  the   legislation  would   give  the                                                                    
legislature  the  chance to  practice  the  cap prior  to  a                                                                    
potential constitutional change.                                                                                                
                                                                                                                                
Co-Chair Wilson considered  that $5 billion may  be too high                                                                    
or low and  perhaps 2 percent was not the  right number. She                                                                    
clarified  that  the  bill  was not  her  project,  but  the                                                                    
committee's project. She noted  that other committee members                                                                    
had looked at their own  appropriation limits, which she was                                                                    
amenable  to  hearing.  She  believed   the  bill  was  long                                                                    
overdue.  She agreed  that federal  dollars  made the  state                                                                    
dependent.  She noted  that during  some of  the peak  years                                                                    
there had  been substantial federal dollars  coming into the                                                                    
state.  She noted  there were  strings  attached to  federal                                                                    
dollars that  she had  not fully realized  in the  past. She                                                                    
highlighted the  need to determine the  efficacy of existing                                                                    
programs. She asked members to provide ideas to her office.                                                                     
                                                                                                                                
2:35:13 PM                                                                                                                    
                                                                                                                                
Representative  Carpenter responded  to  the federal  dollar                                                                    
discussion. He acknowledged there  were federal dollars that                                                                    
would  continue to  come  in related  to  federal troops  in                                                                    
Alaska. He stated it was  not something he would factor into                                                                    
the budget.  He thought  federal dollars for  education were                                                                    
different  and should  be considered.  He  stated that  some                                                                    
federal  funds impacted  the state's  economy,  but not  its                                                                    
budget  and others  that  impacted the  budget  and how  the                                                                    
state operated.                                                                                                                 
                                                                                                                                
Vice-Chair   Johnston   followed    up   on   Representative                                                                    
Carpenter's  statements and  recognized the  expense related                                                                    
to maintenance and operations. She  thought it was important                                                                    
to  consider  how  the  expense   fit  within  UGF  and  the                                                                    
departments.  She  discussed spikes  in  the  budget in  the                                                                    
past, specifically related to  the capital budget. She noted                                                                    
a thorough  vetting system for  the capital budget  had been                                                                    
absent  in  the  past.  Additionally,   a  rush  in  capital                                                                    
projects had  occurred in  the past  without a  workforce or                                                                    
the  ability   to  bring  the  projects   to  fruition.  She                                                                    
elaborated that  the costs of  the projects  had skyrocketed                                                                    
and many of  the projects had been  conducted by contractors                                                                    
and workers who  did not live in Alaska.  She recognized the                                                                    
state had  significant need for capital  investment, but she                                                                    
thought  a  tampered down  capital  budget  was needed  that                                                                    
could  be reflected  and addressed  by Alaska's  population,                                                                    
while continuing to provide growth.                                                                                             
                                                                                                                                
Co-Chair  Wilson  wanted  to   ensure  they  understood  the                                                                    
operating costs of capital items.                                                                                               
                                                                                                                                
2:38:15 PM                                                                                                                    
                                                                                                                                
Representative LeBon looked at slide  5 and pointed out that                                                                    
from FY 00 to FY 03, the  CBR had a rapid growth period that                                                                    
lasted until  about FY  12. He  asked for  verification that                                                                    
the  gap  between  the  dark green  and  dark  orange  lines                                                                    
reflected CBR growth.                                                                                                           
                                                                                                                                
Ms. Schultz agreed.                                                                                                             
                                                                                                                                
Representative LeBon asked if it  would help visually if the                                                                    
chart  had a  shaded color  in  the CBR  growth and  decline                                                                    
periods.                                                                                                                        
                                                                                                                                
Ms. Schultz would be happy to add the detail to the graph.                                                                      
                                                                                                                                
Co-Chair Wilson  noted that when the  legislature took money                                                                    
from  the CBR  it was  required  to replace  the funds.  She                                                                    
remarked   there  were   certain   things   the  state   had                                                                    
fortunately  done and  been mindful  of; although  there was                                                                    
significant  growth [in  expenditures]  when  the state  had                                                                    
money, but  a large amount  had been  put back into  the CBR                                                                    
for use during leaner financial times.                                                                                          
                                                                                                                                
Representative   Tilton  requested   a  slide   showing  the                                                                    
differences in the existing  constitutional limit versus the                                                                    
information included in the bill.                                                                                               
                                                                                                                                
Co-Chair Wilson  agreed. She was  counting on  the committee                                                                    
to do its  part to contribute to the bill.  She did not want                                                                    
to set an  amendment timeline and wanted  members to provide                                                                    
ideas to her office.                                                                                                            
                                                                                                                                
Vice-Chair Ortiz asked for  clarification about her request.                                                                    
He wondered  if Co-Chair Wilson wanted  committee members to                                                                    
provide ideas in writing to her office.                                                                                         
                                                                                                                                
Co-Chair Wilson  agreed. She  stated the  goal was  to bring                                                                    
ideas back to the committee.                                                                                                    
                                                                                                                                
2:41:43 PM                                                                                                                    
                                                                                                                                
Representative  Knopp remarked  his  preference for  capital                                                                    
budgets  over  operating  budgets. He  was  concerned  about                                                                    
putting capital dollars  under a cap. He  was also concerned                                                                    
about putting  supplemental budgets  into a  capital budget,                                                                    
especially since  supplementals usually went  to operational                                                                    
items.                                                                                                                          
                                                                                                                                
Co-Chair Wilson believed the  supplemental would be required                                                                    
to be included in the cap.                                                                                                      
                                                                                                                                
Ms.  Schultz agreed  that  the  cap in  HB  131  and SB  104                                                                    
pertained to  appropriations for  a fiscal year  rather than                                                                    
in a  fiscal year. She  believed the bills  may specifically                                                                    
state that supplementals were included.                                                                                         
                                                                                                                                
Co-Chair  Wilson stated  that supplementals  came after  the                                                                    
budget  had been  completed. She  provided a  scenario where                                                                    
the  legislature  put  together   a  spending  cap  that  it                                                                    
followed in the  coming year. She elaborated  that under the                                                                    
scenario expenditures  provided $100 million in  wiggle room                                                                    
under  the  cap. She  asked  if  there  was a  $200  million                                                                    
supplemental  whether  it would  be  reflected  on the  year                                                                    
before or the budget for the following fiscal year.                                                                             
                                                                                                                                
Ms.  Schultz answered  that the  supplemental count  for the                                                                    
year the spending  cap applied. The bill  included a section                                                                    
asking the  governor's office to calculate  the spending cap                                                                    
and  to specify  whether  the supplemental  fell within  the                                                                    
cap.                                                                                                                            
                                                                                                                                
Co-Chair   Wilson  thought   it   would   make  sense.   She                                                                    
highlighted  concern  about  creating a  budget  within  the                                                                    
state's appropriate expenditure levels  but ending up with a                                                                    
supplemental  the following  year  that  ended up  exceeding                                                                    
those levels.                                                                                                                   
                                                                                                                                
HB  131  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
2:44:26 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:44 p.m.                                                                                          

Document Name Date/Time Subjects
SB 93 HCS WORKDRAFT FIN S.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB 93 AAC 7. 24 Health and Social Services HCPLRand IP 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB093 Explanation of Changes A to U 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB 93 Final Report to Leg 2018 SHARP III 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB 93 SHARP-AKJournal-article 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB093 handout 1-pg 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB093 Sponsor Statement v U 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB093 Support Letters 1 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB093 Support Letters 2 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB093 Support Letters 3 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
SB093 v U Sectional Analysis 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
SB 93
hb 131 - Sectional Analysis.pdf HFIN 4/25/2019 1:30:00 PM
HB 131
HB 131 Sponsor Statement.pdf HFIN 4/25/2019 1:30:00 PM
HB 131
Updated Spending Cap Presentation HB 131 Final_update.pdf HFIN 4/25/2019 1:30:00 PM
HB 131
HB 131 FN Various 4.22.19.pdf HFIN 4/25/2019 1:30:00 PM
HB 131