Legislature(2009 - 2010)HOUSE FINANCE 519
03/19/2010 09:00 AM House FINANCE
| Audio | Topic |
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| Start | |
| HJR8 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HJR 8 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
March 19, 2010
9:04 a.m.
9:04:30 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 9:04 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Vice-Chair
Representative Allan Austerman
Representative Mike Doogan
Representative Anna Fairclough
Representative Neal Foster
Representative Les Gara
Representative Reggie Joule
Representative Mike Kelly
MEMBERS ABSENT
Representative Woodie Salmon
ALSO PRESENT
Representative Mike Kelly; Derek Miller, Staff,
Representative Kelly
PRESENT VIA TELECONFERENCE
Tamara Cook, Director, Legislative Legal Services,
Legislative Affairs Agency
SUMMARY
HJR 8 CONST. AM: APPROP. LIMIT/MINERAL REVENUE
CS HJR 8(FIN) was REPORTED out of Committee
with a no recommendations and with
previously published fiscal note: FN2 (ADM)
9:04:34 AM
HOUSE JOINT RESOLUTION NO. 8
Proposing amendments to the Constitution of the State
of Alaska limiting appropriations from certain mineral
revenue, relating to the balanced budget account, and
relating to an appropriation limit.
9:04:57 AM
REPRESENTATIVE MIKE KELLY presented an overview of the bill
which would replace a mechanism in the Alaska Constitution
to attempt to control state spending. He stressed the need
for fiscal responsibility and stability in the state. This
bill would be a shock absorber using a five year average to
form a balanced budget tank to put money into that could be
accessed in any given year to bring in enough money to meet
the five year average on spending. HE stressed that this is
an averaging mechanism.
Co-Chair Stoltze notified his intent to have a motion to
this bill move out.
9:07:41 AM
Representative Doogan asked about the many revenue sources
in Section 1 and wondered how much of the general revenue
would this account deal with.
Representative Kelly responded in the 80 plus percent
range. It attempts to capture all mineral revenues.
Representative Doogan inquired on page 2, line 12-13 that
it reads Section 7 does not apply and he wondered why.
Co-Chair Stoltze replied that it is the dedicated funds
provision. Representative Kelly agreed that was correct.
Representative Doogan noted that this presumptively makes
this not a dedicated fund. Representative Kelly agreed.
Representative Doogan remarked that on page 2, line 16-17
it reads "that excess amount shall be transferred to the
budget reserve fund..." and wondered if that was what was
being created with this bill. Representative Kelly remarked
that the balanced budget account is the reserve being
referred to so the answer is yes.
Co-Chair Stoltze interjected if that the Section 17 budget
reserve fund is referred to in Article 9 of the Alaska
Constitution. Representative Kelly replied that was
correct.
Representative Doogan wondered in Section 2 of the bill
what this application of mineral revenue amendment
accomplishes. He understood there was something in law that
is being revised here.
9:11:45 AM
DEREK MILLER, STAFF, REPRESENTATIVE KELLY, reported that
the amendment replaced the current appropriation limit in
the Alaska Constitution under Article IX, Section 16. It
applies to appropriations in 2012 and thereafter.
Representative Doogan inquired that if this language is
passed, then this bill will, in 2012, supersede the current
language in Section 16. Mr. Miller replied yes. He
explained that on page 1, line 5-6, it states that "Article
IX, sec. 16, Constitution of the State of Alaska, is
repealed and readopted to read:" Representative Doogan
assumed that all of sec. 16 is out and this new information
would be put in. The funding mechanism switches from the
current sec. 16 to the language in the bill. Mr. Miller
replied that was correct.
9:13:22 AM
Representative Gara remarked that the Constitutional Budget
Reserve (CBR) remains the same; to access it would need the
same number of votes now needed. If the five year average
of money put into mineral lease fund is not enough, then
taking money from the CBR would be the same as is presently
done. Representative Kelly replied that was correct.
Representative Gara surmised the fund looked at to indicate
whether there is enough money so the CBR doesn't have to be
dipped into, is not all the money that comes in that year
only the mineral lease money at roughly 80 percent.
Representative Kelly replied that is correct.
Representative Gara inquired if the five year average
happens to say there is a 20 percent shortfall, but that 20
percent short fall is the money from tuition payments and
business license receipts not yet received, he wondered why
they would not be counted. Representative Kelly noted that
this had been considered, but the purpose was to try to
capture the volatility amount. Other areas which are open
to appropriation were left alone because they are not
volatile.
Representative Gara understood that it seems like that is
the money paying for the service. He questioned why that
money would not be counted. Representative Kelly offered
that this captures the volatile piece and keeps out of the
equation all the new initiatives that might come to Alaska.
This includes all the economic development dreams outside
the mineral revenue equation would be available.
Representative Gara asked what would be the amount of money
not calculated into the equation.
9:17:15 AM
Mr. Miller responded it reflects $400 million to $700
million in the last five to ten years.
Representative Gara inquired in what years the CBR vote
would have been necessary in order to meet the budget over
the past decade. Mr. Miller replied that the graph on page
10 of the PowerPoint presentation shows the State General
Fund Spending FY80-FY10 (HJR 8 Balanced Budget Resolution
House Finance Committee, March 18, 2010 copy on file). The
green line reflects the total General Fund (GF) Revenue
received; the blue line is the actual GF spending spent
that year; the black line is the estimated amount if HJR 8
had been in effect. He noted the difference between the
black line and blue line would be in excess of what would
be spent in any given year from FY 2000 to FY 2009.
Representative Gara noted that starting in FY 2002 through
FY 2008 it would have been necessary to go into the CBR or
cut the budget by $500 million. Representative Kelly
responded that there would have been roughly $4 billion
would be carved out of the process by being disciplined to
use the averaging. Representative Gara observed that gives
a lot of power to those not in the majority.
Representative Kelly indicated that the intention is to
give people the people of Alaska a margin in fiscal
planning to avoid the crash ahead. Representative Gara
agreed that seems to be the intent.
9:20:58 AM
Representative Kelly answered that this is a bipartisan
approach.
Representative Fairclough asked Representative Kelly to
speak to the current Alaska Constitution, Section 16, and
what this provided to the citizens of Alaska and the
difference in this new Section 16. She added not in
relationship to dollars. She stated that Section 16 sets an
appropriation limit, but it also does other things, such as
revenue bonds and cumulative draws. She wanted to know the
specific components of what is being repealed.
Representative Kelly responded that Tamara Cook could
respond better to that question.
Co-Chair Stoltze commented that he did not think they were
spending one third of appropriations on capital budgets. He
believed Representative Kelly was trying to make this more
clear and forcible. Representative Kelly agreed.
9:23:31 AM AT EASE
9:41:07 AM RECONVENED
9:41:16 AM
TAMARA COOK, DIRECTOR, LEGISLATIVE LEGAL SERVICES,
LEGISLATIVE AFFAIRS AGENCY (via teleconference) referred to
the contents of the current Section 16. That appropriation
limit was enacted in 1982, originally to be applied in
1984. It has never been applied. The difference in Section
16 under this bill is that it takes a different approach.
Instead of simply identifying sources of mineral revenue as
HJR 8 does, the original section lists a number of critical
exceptions based on the purpose of the appropriation that
are out from under the limit.
Representative Fairclough asked the provisions inside of
the current Section 16 so there can be a comparative
analysis between the two bills.
Ms. Cook responded that in the existing Section 16 the
appropriation limit takes the track of first exempting out
from the formula. HJR 8 does not have the exemption. She
explained that the exemptions in the existing Section 16
are appropriations for Alaska Permanent Fund Dividends,
Appropriations of Revenue Bonds proceeds, appropriations to
pay the principle and interest on Government Obligation
(GO) bonds and appropriations of money received from a non
state source in trust for a specific purpose. The current
Section 16 sets a hard number. Appropriations from the
treasury made for a fiscal year shall not exceed $2.5
billion. That number is increased by the cumulative change
derived from the federal indexes as prescribed by law in
population and inflation since July 1, 1981. She understood
the inflation proofing part of Section 16, that has the
$2.5 billion figure, has grown to such an extent that the
state has never reached it. Section 16 also contains a
provision that says within the appropriation limit, once
calculated, that one third of the appropriation has to be
reserved for capital projects and loan appropriations.
There is no similar provision in HJR 8. She continued that
a mechanism whereby the legislature can exceed the existing
appropriation limit for bills that make appropriations to
the Permanent Fund and for bills that make appropriations
for capital projects, if the bill is approved by the
governor or passed by affirmative vote of three-fourths of
the membership of the legislature over a veto. The existing
Section 16 is considerably different from the HJR 8 under
discussion.
9:46:58 AM
Representative Fairclough asked for the exemption in the
current formula that specifies that Permanent Fund
dividends would take precedence over other expenditures.
She also inquired how that was relevant to the new bill and
the proposed ballot measure would secure the people's
Permanent Fund Dividend.
Ms. Cook replied that the HJR 8 does not speak to the
Permanent Fund Dividend at all. The existing Section 16
simply exempted out from the appropriation limit the amount
of money the state spends on the Permanent Fund Dividend.
That appropriation was never part of the original
calculation.
Representative Gara wondered how this would change the
Permanent Fund Dividend. Representative Kelly replied that
the statement before, relative to the Permanent Fund and
its entire operation, would not change it. There would also
be no different access to the permanent fund than currently
exists.
9:49:15 AM
Representative Doogan noted there are circumstances when
the permanent fund ends up with more money after inflation
proofing and paying dividends and wondered if that amount
of money would be affected by this proposal.
Representative Kelly stressed that it would not be because
this mechanism is different mechanism from the existing
one. This is a five year average only of the mineral
income.
Representative Doogan contended then that neither the
amount put in the permanent fund nor the investment income
would be affected. Representative Kelly responded that was
correct.
9:50:40 AM
Representative Austerman asked if the five year averaging
is implemented, would it step back four years to pick up
the average. Representative Kelly responded that it looks
back four fiscal years and one forward.
9:51:45 AM
Co-Chair Stoltze asked if there was any public testimony.
Co-Chair Stoltze closed public testimony for the committee.
Representative Fairclough inquired that when looking back
at all appropriations had there been consideration in this
concept bill to look at the flexibility of a year when
there is no revenue. A common problem is that there is
always the anticipation that money will be made and not
lost. She wondered if there has been a discussion with
legal in that regard. She asserted that if taking all
appropriation, instead of just the operating budget, that
may restrict the legislature in a way not wanted.
Representative Kelly replied that since the only focus is
the five year average of the mineral revenue, then it is a
ramp into and out of higher and lower oil prices. It does
not touch the revenue outside of the equation.
Representative Fairclough inquired if the language should
reflect all the operating budgets appropriations versus the
capital budget which is volatile up and down. The state has
the most control on the operating budget. She remarked that
in her community and throughout Alaska that Alaska's
capital budget when invested is an economic engine in
different communities. If oil revenues at 80 percent will
be invested in capital projects it might hamper some
projects that in a given year Alaska needs more investment
in a capital project. She wondered how that will affect an
operating budget given those restraints.
9:55:27 AM
Representative Kelly responded that this bill only looks at
the revenue side and does not affect the legislature's
ability to factor between operating budgets and capital
budgets in any given year. It also does not control the
amount that the legislature can take from the mineral
revenue except to average it. This bill would place $4
billion in addition to current savings into the bank. Since
oil price spikes do not necessarily coincide with the
capital needs, he believed that by putting money into this
tank it could fill up to two times the annual
appropriation, then it could be accessed for times when
revenue fall below the line will be better there is
discipline to put something in it. When the money is in
excess of the balance budget account overflows it would go
directly into the CBR. There could also be access to this
money with a three quarter vote. It would not prejudice
between the capital and operating budgets only dampen down
the ups and downs with a shock absorber.
Representative Fairclough remarked it is an appropriation
limit so it will cap spending which she understood that was
intent. She noted the downturn in the United States economy
and remarked that the University of Alaska budget was one
of few universities in the nation that received an
increase. She asked if the appropriation limit is on those
mineral revenues and if there is money elsewhere then this
will limit the investments since that are where most of the
money comes from. This might restrict spending in
communities in the future.
9:58:49 AM
Representative Austerman asked about the non renewable
resources extraction in Alaska as what the budget will be
based on. He believed that Alaska has already seen the peak
of funding source through that and a non renewable revenue
source; he believed would continue to go down. He
questioned how the state would adjust for this.
Representative Kelly agreed. He offered that this mechanism
cannot create any wealth for the state only discipline the
spending. The inevitable crash between the growth in state
budget and a decline in the non renewable resource
approaches. He maintained that this bill along with other
efforts will go toward stability and predictability in and
out of price changes. He stressed the state's goal to find
other ways to create wealth to pay for the state's services
are out of this equation. Representative Austerman agreed
on the issue that Representative Kelly is only indicating
the maximum amount from these mineral sources of revenue so
that then would drive the state to get other sources of
revenue to pay the bills. Representative Kelly agreed with
him.
10:02:18 AM
Representative Doogan reflected that this mechanism will
operate a lot like the averaging in the Permanent Fund. The
amount that goes in will go up or down depending on revenue
and spending. Representative Kelly agreed that is directly
on point. This bill would be an averaging method.
Representative Austerman clarified that under (d) the
amounts placed in the Alaska permanent fund under Section
15 and the amounts placed in the budget reserved under
Section 17(a) is excluded. Representative Kelly stressed
that was correct.
10:05:08 AM
Representative Joule noted Section 15 of Alaska
Constitution as it relates to the Alaska Permanent Fund
states the amount of mineral lease, rentals and royalties
that goes into the Alaska Permanent Fund. At one time,
through statute, it was fifty percent. It seems that it
might be easier to enact a statute. It would leave the
legislature the option of looking at it as an option on how
it could be done while considering some of the long term
options of how to move forward in trying to determine some
of the questions. A few years ago the statue was repealed
and it went back down to twenty five percent.
Representative Kelly divulged that there had been
discussion on using the statute because there is a lower
effort to get there. He noted that it was hard to figure
how to do within statute and he believed that the people of
Alaska should have a say on this.
Representative Joule remarked that if looking at some way
to base the budget, on not just the value of a barrel of
oil, but on the wealth of the state. If all funds were put
into the Permanent Fund and then did a percent of market
value and then lived off of that, there might be some
stumbling blocks ore rework. A statute gives permission to
do something in the interim with a longer view in mind. The
legislature does not deal with budgets, but with request
for increments.
Representative Kelly commented that HJR 8 would operate
only on the mineral wealth; it would put up no barrier
different from today in regard to the Percent of Market
?Value (POMV) or income tax. This bill is a shock absorber
that does not create wealth or take it away.
Representative Joule voiced his concern that issues need to
be picked very carefully when going to the public to change
the Alaska Constitution.
10:11:33 AM
Representative Kelly MOVED to ADOPT Amendment 1, 26-
LS0388\A.1, Cook, 3/18/10 (copy on file):
Page 1, line 12, through page 2, line:
Delete all material
Insert "amounts received by the state from these
sources during the five fiscal years that immediately
precede the current fiscal year divided by five."
Co-Chair Stoltze OBJECTED for discussion.
Representative Kelly explained Amendment 1. It was
determined to go to fiscal years over calendar years as the
easier way to go.
Representative Austerman noted that this removes the
looking forward year and is now looking at the past five
years. Representative Kelly responded that was not exactly
correct. Mr. Miller explained that the graph on page 15
describes what it does. For example in the FY10 budget,
this amendment would still project the next four or five
months of revenue to the legislature. It would still be
projected out, but not a full year as it would be with a
calendar year.
Representative Austerman remarked that in the amendment on
line 4 it says it immediately "precedes" the current. He
believed this related to FY 2009. Mr. Miller contended that
the current fiscal year is FY 2011. Representative
Austerman believed that needed to be stated more clearly.
Ms. Cook responded that on page 1, subsection (a) it states
on line 10 that the maximum amount that may be appropriated
from the mineral sources was for a current fiscal year.
This entire amendment is structured with the notion that it
will be looking at a specific fiscal year and the money
appropriated for that year is being limited. Consequently
in the current fiscal year, there is an appropriation for
FY 2011, but under the amendment it would look at FY 2010
and the preceding four fiscal years in order to apply the
limit amount. Representative Austerman further that on line
11, page 1, when referring to the current fiscal year, the
amendment says immediately "precedes" the current year. He
expressed further confusion. Ms. Cook replied that in order
to determine the amount that would be available for the
current year, the five fiscal years that immediately
precede it must be averaged. If the current year is FY
2011, then the five fiscal years immediately recede FY 2011
will include FY 2010.
10:16:43 AM
Representative Kelly agreed that something is lost jumping
from calendar year to fiscal year, but retain about six
months worth of looking forward. Ms. Cook declared that was
correct.
Co-Chair Stoltze WITHDREW his OBJECTION to Amendment 1.
There being NO further OBJECTION, Amendment 1 was adopted.
Co-Chair Stoltze talked to the fiscal note. He indicated
that the debate will continue on this bill.
10:18:23 AM
Representative Austerman stated that this appears to be a
good working tool and part of the discussion over the
interim will tie back to the long term discussion on how
budgets will be funded in the future. He thanked
Representative Kelly for bringing this forward.
Representative Fairclough shared that during discussions on
the fiscal subcommittee level, there was a presentation
from Scott Goldsmith who emphasized that the state needs to
save every penny coming in right now as there is the
predicted loss of oil and gas production over the years to
come.
10:20:02 AM
Representative Doogan thanked the sponsor and staff for
their work on this bill to help level out spending in the
state.
Co-Chair Hawker MOVED to report CS HJR 8(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HJR 8(FIN) was REPORTED out of Committee with a no
recommendations and with previously published fiscal note:
FN2 (ADM)
ADJOURNMENT
The meeting was adjourned at 10:22 AM
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