Legislature(2003 - 2004)
02/18/2003 02:18 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 18, 2003
2:18 PM
TAPE HFC 03 - 21, Side A
TAPE HFC 03 - 21, Side B
CALL TO ORDER
Co-Chair Harris called the House Finance Committee meeting
to order at 2:18 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
Representative Eric Croft
Representative Gary Stevens
ALSO PRESENT
Senator Bettye Davis; Corina Eckl, Fiscal Program Director,
National Conference of State Legislators
PRESENT VIA TELECONFERENCE
None
GENERAL SUBJECT(S):
PRESENTATION BY NATIONAL CONFERENCE OF STATE LEGISLATORS
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 23rd Legislative Session, contact 465-
2156. After the 23rd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 03 - 21
SIDE A
0130 Presented information from the National
CORINA ECKL, FISCAL
Conference of State Legislatures (NCSL).
PROGRAM DIRECTOR,
She explained that this report was
NATIONAL CONFERENCE
previously given at a national press
OF STATE LEGISLATORS
event in Washington, D.C. and received
considerable attention, and used as a
talking point in Congress. She noted
that the NCSLS was a bipartisan
organization, founded in 1975, serving
all states and territories, and located
in Denver and Washington DC. While the
Denver office focuses on state services
and problem solutions, the Washington
office focuses on state-federal relations
and lobbies Congress on behalf of the
states.
327 Ms. Eckl Outlined the resources available through
NCSL (handout on file). She referred to
Bob Boerner as the liaison to the State
of Alaska. Ms. Eckl is assigned to state
of Hawaii.
414 Ms. Eckl Summarized the FY 2003 Budget Gaps,
originally projected at $49.1. She
explained that the budget gaps were
defined as a combination of revenue
falling below projections and spending
overruns. State budget gaps have grown
50% in just two months, growing to a
current $25.7 billion, over 5% of state
general fund spending. 36 states report
budget gaps. She referred to a map
indicating the level of budget gaps in
states around the country. She noted
that, of the 15 states not facing budget
gaps, several had solved previous budget
problems.
557 Co-Chair Harris Asked whether any other states had a
permanent fund similar to Alaska, or that
paid any dividends.
614 Ms. Eckl Noted that some state have funds but do
not pay dividends. For example, she
pointed out that Wyoming uses earnings
from a trust fund to apply to their
General Fund, and clarified that the
funds were not marked for any specific
purpose.
713 Ms. Eckl Noted that most states fiscal years began
July 1, so figures represent the first
six months of the year. She explained
that most state budget problems had built
up over several years and were largely
due to a lack of revenue growth. She
also noted that, since this is an ongoing
problem, a number of states have reviewed
and adjusted their revenue projections.
Still, some states failed to meet
projected revenues. She also noted that
entering FY 2003, states projected
revenue growth of 2% above prior year tax
collections, but it was unlikely that
this projection would be met. 40 states
collected less revenue in FY 2002 than in
FY 2001. Responding to a question by Co-
Chair Harris, she explained that states
collected less revenue from personal
income taxes. For example, in
California, personal income tax income
was largely driven by capital gains taxes
and thus experienced significant
reductions. She also noted that income
from corporate business taxes has
reduced.
1007 Co-Chair Harris Asked if other states balanced their
budget based on a reserve.
1023 Ms. Eckl Responded that many states periodically
tap into their reserves to bring their
budgets into balance. She also pointed
out that it was unusual for a state to
tap into its reserve on a regular basis.
1048 Co-Chair Harris Asked if other states with a mechanism to
maintain a level budget received more
commercial investment from corporations.
1058 Ms. Eckl Responded that states have achieved
balanced budgets by various methods, such
as cutting spending and raising fees.
Arkansas uses ABC budgeting, prioritizing
categories of spending. If revenues do
not meet projections, the lower
categories are cut. This results in
predictability in agency spending levels.
1238 Co-Chair Harris Suggested that in Alaska, perhaps more is
not invested by corporations into the
State due to fiscal uncertainty. He
maintained that a process that generated
more certainty would encourage
corporations to invest more heavily in
Alaska.
1324 Ms. Eckl Mentioned that in 1982 a report had been
developed, called the Principals of a
High Quality State Revenue System,
outlining the ideal tax structure.
Exceptions were made for unique
circumstances, such as for Alaska in its
mineral endowments. Among the principals
were sufficient revenue generating
ability, as well as stability and
predictability.
1432 Ms. Eckl Referred to a chart illustrating State
Own-Source Revenue, such as income and
sales taxes. She noted the questions
about the long-term viability of
corporate taxation. She noted that
corporations went through legal routes to
avoid corporate taxation, making it
difficult for policy makers to prevent
such avoidance.
1642 Representative Questioned if avoiding corporate taxation
Hawker created a revenue problem.
1656Ms. Eckl Elaborated that, in addition to that
` problem, internet sales and catalogue
sale are prohibited from taxation due to
interstate commerce laws. There are
efforts to streamline state sales taxes
through a special project. Discussion in
Washington DC proposes that giving states
ability to tax from internet vendors,
might be more productive than focusing on
corporate income taxes.
1816 Representative Referred to the 14.1% of selected sales
Hawker taxes.
1845 Ms. Eckl Explained that these refer to alcohol,
tobacco and motor fuel taxes.
1902 Ms. Eckl Referred to the outline of revenue
outlook for FY 2003. 30 states expressed
concern, including Alaska. She also
discussed expenditure updates. 37 states
reported overrun spending. She also
noted that 32 states reported Medicaid or
other health care programs were over
budget. A FFIS study examined state
spending and discerned that if Medicaid
spending was extracted, that state
spending remained fairly level. She
noted that she could make this report
available.
2120 Ms. Eckl Referred to a map indicating states with
Medicaid overrun. A few states were able
to contain costs in Medicaid and to
better project of expenses. She noted
that more details were available through
another report. She stated that, in
general, many states had cut back on
optional programs, such as cervical and
breast cancer screening, raising concern
that recent program advances were now
being reversed. Massachusetts had cut
over 50,000 people from its Medicaid
rolls by changing eligibility, but was
still experiencing spending overruns.
2250 Co-Chair Harris Requested to see a copy of the report
regarding Medicaid cost containment. He
also referred to the Federal medical
assistance match, and noted that Alaska
was previously higher in its match than
its current reduced rate.
2337 Ms. Eckl Noted that one proposal made by NCSL to
Congress was to allow former F map
members stay in place during this time of
economic difficulty. She confirmed that
changes in F mapping was causing problems
for many states.
2411 Representative Noted states that did not have overruns
Hawker seemed to have other factors that
differed. He wondered if they had
commonalities.
2444 Ms. Eckl Explained that these states had tightened
requirements to contain Medicaid issues.
2519 Representative Asked if these states had simply funded
Hawker the demand for projected Medicaid needs.
2545 Ms. Eckl Discussed that Wisconsin experienced many
budgetary challenges. She noted that
they implemented significant tax
increases, partially to tobacco
settlement money.
2642 Ms. Eckl Outlined actions taken by states to deal
with shortfalls. One of the first
actions taken was to cut spending, for up
to 36 states. She also explained that
some states went into special legislative
sessions to cut spending levels. She
pointed out that using tobacco settlement
funds to stop budget gaps had met with
some controversy among health advocates,
who proposed that these funds should be
used for related health care programs.
She also mentioned that there had been
some expectation that one-time revenues
could be used for economic recovery, but
that this had not proved to be effective,
leading to other more permanent actions.
She stated that nearly half of the states
had tapped their rainy day funds.
3012 Ms. Eckl Noted that at the end of FY 2001, nearly
half of state balances were comprised of
rainy day funds. These funds were
depleted by FY 2002 by over half. FY
2003 projections for rainy day funds were
$11.4 billion, but indications are that
this number will be lower.
3118 Ms. Eckl Referred to a map illustrating states
with rainy day funds. Concern exists
among investors regarding state bond
ratings, which are determined partially
by the kind of financial cushion states
have in place. She noted that a
representative from the Standard and Poor
explained that it was expected for states
to use their reserve funds, but that they
discouraged using one-time monies for
long term expenditures.
3235 Ms. Eckl Spoke to a chart illustrating state year-
end balances, tracked from 1978 till
2003. She noted that balances had
decreased in the early 90's, as well as
the early 80's. Currently, balances were
at 3.8%
3339 Ms. Eckl Most states were making cuts in school
funding. For example, Oregon was cutting
its K - 12 spending. She also noted that
higher education was also experiencing
cuts, with the perception among policy
makers that higher education had
alternative sources of income. She
pointed out that nearly half of the
states were also cutting their
corrections budgets; some states were
also cutting Medicaid by tightening
eligibility. She also noted that state
employees received cutbacks, as well as a
delay in capital projects.
3633 Ms. Eckl Noted that 18 states raised taxes last
year by more than 1%. Many states
focused on sales and use taxes. She
noted that these actions were taken even
in an election year. Most states
continue to have sizable budget gaps.
Hawaii was the only state to cut taxes by
more than 1%.
3749 Ms. Eckl Referred to the chart tracking tax
changes since 1989. She noted that
during 1991, taxes increased by $15.4
billion. She maintained that this kind
of increase seemed unlikely given
campaign promises made in the past
election. She observed that the largest
increase was in cigarette and tobacco
taxes.
3922 Ms. Eckl She pointed out that the total projected
budget gap was $68.5 billion, which she
noted was likely too low, since 12 states
had not yet provided information. She
also referred to a map indicating states
with budget gaps, and pointed out 18
states with gaps 10% and higher.
4026 Ms. Eckl Noted that 25 states have tax proposals
under consideration. Early proposals
focus on cigarette and alcohol taxes,
although some states, like California,
are looking to increase personal income
tax.
4119 Ms. Eckl Also pointed out some examples of budget
balancing techniques in other states.
She maintained that there was no magic
formula, and that each state was looking
for a method that worked for them. She
explained that a few states had
communicated their methods to NCSL.
4212 Ms. Eckl Discussed the methods used in various
states to balance budgets. She cited a
number of examples: in Arizona, they
delayed K-12 costs; Connecticut used tax
amnesty programs; Iowa shifted $304.3
million in expenditures from General Fund
to non General Fund sources; Louisiana
uses tax amnesty, as well as
circumventing surplus revenue
limitations; Michigan shifted the
collection date of state education tax;
New Jersey created an alternative minimum
assessment provision, shoring up
corporate income tax, as well as raising
fees, flat funding a formula school
programs, and offering early retirement
programs. She asserted that early
retirement programs might produce short-
term savings, but long term costs. Rhode
Island gave each department a single line
item in budget and gave them flexibility
to operate within those levels. Utah
changed disbursement to higher education
to a six month period, and sold some
state assets
TAPE HFC 03 - 21, Side B
4537 Ms. Eckl Referred to the February 2003 issue of
Governing Magazine, highlighting a report
that described state tax sources,
including a report on Alaska. She
recommended that legislators utilize this
publication.
4555 Representative Asked whether NCSL had a report comparing
Hawker budget gaps to another measure of a
state's economic level. He followed up
that this might indicate how a state
stood up to its capacity for increased
revenues.
4523 Ms. Eckl Stated that such a report did not exist.
The NCSL bases their budget gaps based on
the ratio of revenues to spending.
4439 Ms. Eckl Referred to a report created some years
ago by the Advisory Commission on
Intergovernmental Relations (ACIR). The
ACIR spent time compiling information on
state tax capacities and efforts. They
were interested in asking what kind of
effort was made by a state compared to
its potential. She noted that this study
was discontinued.
4351 Co-Chair Harris Asked if any statistics were available
reflecting Alaska's per capita General
Fund spending as compared to other
states.
4328 Ms. Eckl Stated that she would research this data.
4249 Representative Commented that the method of giving
Foster agencies a line item budget would require
a great deal of trust in the agencies.
4212 Ms. Eckl Conceded that danger existed that
legislative intent would be overstepped
with such flexibility. However, she
stated that in Rhode Island, with
oversight, the method seemed to be
working.
4133 Co-Chair Harris Asked if other states experienced
challenges with extended rural areas such
as in Alaska.
4111 Ms. Eckl Noted that the geographic challenge of
Alaska was unique. She also mentioned
that some other states, such as North and
South Dakota, experienced somewhat
similar concerns, although not as
extreme. She mentioned the Rural
Legislators' Caucus in Congress. This
Caucus discussed rural development and
actions taken to address common rural
concerns, such a lack of quality health
care. She committed to sending a copy of
the results of the caucus to the
Committee.
3943 Senator Davis Asked if Alaska was represented in this
group and if the group was ongoing.
3922 Ms. Eckl Stated that the group was open to all
states, but that Alaska was not
represented. She noted that the group
was not ongoing at this time.
The meeting was adjourned at 3:14 PM
ADJOURNMENT
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