Legislature(2023 - 2024)ADAMS 519
05/12/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HJR2 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 41 | TELECONFERENCED | |
| += | HB 50 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HJR 2 | TELECONFERENCED | |
| += | HB 38 | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
May 12, 2023
2:34 p.m.
2:34:44 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 2:34 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Neal Foster, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
PRESENT VIA TELECONFERENCE
Marie Marx, Legislative Counsel, Legislative Legal
Services, Juneau.
SUMMARY
HJR 2 CONST. AM: APPROP LIMIT
HJR 2 was HEARD and HELD in committee for further
consideration.
HB 38 APPROPRIATION LIMIT; GOV BUDGET
HB 38 was SCHEDULED but not HEARD.
HB 50 CARBON STORAGE
HB 50 was SCHEDULED but not HEARD.
Co-Chair Foster reviewed the meeting agenda.
HOUSE JOINT RESOLUTION NO. 2
Proposing amendments to the Constitution of the State
of Alaska relating to an appropriation limit.
2:35:43 PM
Co-Chair Foster asked Representative Stapp to summarize the
bills.
Representative Stapp explained that both HB 38 and HJR 2
were revisions to the current statutory and constitutional
limits that had been in place since the 1980s. He suggested
that the bills would correct a problem with the existing
appropriations limit which had proved ineffectual. The
existing limit was around $11 billion. He did not think $11
billion could be generated even if the legislature were to
implement every type of tax in existence. He thought the
current appropriation limit was inadequate and did not
serve its purpose. A provision in the state constitution
stated that one-third of the appropriation limit would be
reserved for capital appropriation but as demonstrated by
the Legislative Finance Division (LFD), the provision had
not been followed. He concluded that the purpose of the
bills was to improve upon state processes and procedures.
Representative Josephson asked how the legislature could
ensure that any additional operating expenses would go
towards savings and not towards larger Permanent Fund
Dividends (PFD).
Representative Stapp responded that he would solve the
problem by offering an amendment.
Representative Josephson understood that the proposals were
not directly related to population and inflation but would
be inadvertently impacted through Gross Domestic Product
(GDP). He asked whether Representative Stapp would agree
that population and inflation impacted the private sector
and that there was a correlation.
Representative Stapp agreed that inflation impacted the
private sector and it was also a metric that was calculated
inside of a real GDP. A higher population made for a better
economic output. He did not think that the population
aspect would alter the spending cap. The legislature had
examined modeling population-based spending caps in a
previous session and determined that population made no
difference; however, the inflation aspect was a key driver
of the spending cap.
Representative Josephson noted that he had been told that a
common definition of GDP included government spending. He
asked if Representative Stapp's definition included
government spending.
Representative Stapp responded in the affirmative.
Representative Josephson asked whether the bills were GDP
bills. He understood that the bills were an alternative to
GDP.
Representative Stapp responded that he would not
characterize the bills as such. He elaborated that when
examining a controlled mechanism with limitations, it was
important to factor out a level that acknowledged that the
limitation could be abused. He understood the argument
about government spending correlating directly with a
spending cap. He thought it should be more difficult to
increase the spending cap.
2:41:28 PM
AT EASE
2:44:55 PM
RECONVENED
Co-Chair Foster began the amendment process for HJR 2.
Representative Stapp rolled Amendment 1 to the bottom.
Representative Stapp MOVED to ADOPT Amendment 2, 33-
LS0294\S.5 (Marx 5/9/23)(copy on file):
Page 1, lines 5 - 6:
Delete "for Alaska Permanent Fund dividends,
appropriations to the Alaska Permanent Fund,"
Insert "to the Alaska Permanent Fund [FOR ALASKA
PERMANENT FUND DIVIDENDS],"
2:45:31 PM
Representative Hannan OBJECTED for discussion.
Representative Stapp explained Amendment 2. He explained
that the amendment and most of his forthcoming amendments
would make the adjustments to the spending appropriation
limit to reflect the inclusion of the PFD as subject to the
spending cap as well as increase the spending appropriation
limit. The purpose was to ensure that the constitutional
limit would reflect the incorporation of any type of
Permanent Fund amount. He would explain the idea in more
detail later in the meeting.
Co-Chair Foster invited discussion on the amendment.
Representative Hannan was curious about the thought process
behind the language construction. She thought the word
"dividend" would no longer appear in HJR 2 if Amendment 2
were to pass. She wondered what the intent was of the
change.
Representative Stapp asked if Representative Hannan could
rephrase the question.
Representative Hannan understood that the purpose of
Amendment 2 was to include the PFD in the spending cap. Her
read of the amendment was that the word "dividend" would be
deleted and the words "Alaska Permanent Fund" would be
inserted. She was trying to understand how dividends would
be covered in the amendment.
2:48:19 PM
AT EASE
2:49:23 PM
RECONVENED
Representative Stapp explained that Amendment 2 required
deletion of the language that was not subject to the cap
and would insert language that would include the Alaska
Permanent Fund. He understood that it would effectively
make any appropriation for the PFD subject to the spending
cap.
Representative Ortiz referred to line 5 of Amendment 2. He
understood that the purpose of the amendment was to include
the appropriations for the cost of managing the PFD. He
asked if Representative Stapp had an idea of the general
cost that would be incurred.
Representative Stapp responded that the issue was addressed
by another one of his amendments. The cost of managing the
PFD was about $200 million.
Representative Ortiz asked if the costs were direct general
fund (GF) costs.
Representative Stapp responded that the costs consisted of
the management fees absorbed by the Alaska Permanent Fund
Corporation (APFC) to manage the assets and were not a GF
appropriation.
Representative Ortiz asked if the effect of the amendment
was to exempt the costs.
Representative Stapp responded in the affirmative.
Representative Stapp concluded that the intent of Amendment
2 was to craft better legislation in response to feedback
he had received about the original resolution.
2:51:55 PM
AT EASE
2:55:40 PM
RECONVENED
Co-Chair Foster noted that former Representative Chuck
Degnan was present in the audience.
Representative Josephson understood that Amendment 2 would
mean that PFDs would no longer be excepted from the
spending cap. In the past, there had been a $4 billion PFD
check appropriated from the Earnings Reserve Account
(ERA)to the corpus because the governor had forgotten to
veto it. He understood that appropriation would not be part
of the limit.
Representative Stapp asked for clarification on whether
Representative Josephson was asking about inflation
proofing.
Representative Josephson responded in the affirmative.
Representative Stapp responded that the action would not be
subject to the appropriation limit. He deferred to
Legislative Legal Services for confirmation.
2:57:38 PM
MARIE MARX, LEGISLATIVE COUNSEL, LEGISLATIVE LEGAL
SERVICES, JUNEAU (via teleconference), understood that the
question was whether appropriations for inflation proofing
would be excluded from the spending cap under Amendment 2.
She responded that it would be excluded because it would be
an appropriation to the Permanent Fund.
Representative Josephson asked if an appropriation would be
excepted from the cap if for some reason the budget did not
use the words "inflation proofing" but simply said an
appropriation was made to the Permanent Fund in the amount
of $4 billion.
Ms. Marx responded in the affirmative. Every appropriation
had a "from" and a "to." Under Amendment 2, the language
would indicate that the appropriation was specifically
directed to the Permanent Fund and would therefore be
excepted.
2:59:04 PM
Representative Hannan WITHDREW the OBJECTION.
Representative Tomaszewski OBJECTED.
2:59:21 PM
A roll call vote was taken on the motion to adopt Amendment
2.
IN FAVOR: Galvin, Hannan, Josephson, Ortiz, Coulombe,
Cronk, Stapp, Edgmon, Johnson
OPPOSED: Tomaszewski, Foster
The MOTION PASSED (9/2). There being NO further OBJECTION,
Amendment 3 was ADOPTED.
3:00:14 PM
Representative Stapp MOVED to ADOPT Amendment 3, 33-
LS0294\S.1 (Marx, 5/6/23) (copy on file):
Page 1, line 6, following "dividends,":
Insert "appropriations for the costs of managing
the Alaska Permanent Fund,"
Co-Chair Edgmon OBJECTED for discussion.
Representative Stapp explained that the costs that APFC
took from the fund itself to manage the assets were not
originally exempted from the cap in the original draft of
HJR 2 and Amendment 3 aimed to solve the oversight.
Representative Josephson asked why a cost that was part of
doing business with the state would be excepted in
Amendment 3 while the cost of employing teachers was not,
which was also a cost of doing business with the state.
Representative Stapp responded that the money would not be
appropriated from GF by the legislature. The money was used
by APFC itself to manage the assets and was not subject to
legislative appropriation.
Representative Josephson suggested that the legislature
could change the procedure and make the funds subject to
legislative appropriation. He understood that the concept
of management and equity fees was a new idea that had come
about within the last five years. He asked whether the
amendment would give the corporation an advantage over
every other appropriation outlaid in the appropriating
budget.
Representative Stapp responded that he would not consider
it an advantage. The funds originated from the ERA itself
and the legislature could currently appropriate the
entirety of the account with a majority vote. He noted that
the dividend was not subject to legislative appropriation
for the majority of his life. He would argue that if the
state were to move forward with structural reform,
Amendment 3 would contribute to the forward momentum.
Co-Chair Edgmon understood that because Amendment 2 had
been adopted, the bill would be contradictory on lines 5
and 6. He wondered if the drafter could help him understand
the way the bill would work as amended.
Representative Stapp deferred the question to Ms. Marx.
3:04:38 PM
Ms. Marx responded that Amendment 3 would change page 1,
line 6, of HJR 2 by inserting "appropriations for the costs
of managing the Alaska Permanent Fund," following
"dividends." It would read, "except for appropriations for
the Alaska Permanent Fund Dividend, appropriations for the
cost of managing the Alaska Permanent Fund, appropriations
to the Alaska Permanent Fund," followed by the language in
Amendment 2 and Amendment 3 [if adopted].
Representative Josephson thought that Ms. Marx was one of
the state's most talented attorneys; however, she had
stated that the word "dividends" would be included and he
understood that Amendment 2 had deleted the word.
Co-Chair Edgmon commented that he shared Representative
Josephson's understanding.
Ms. Marx responded that if the committee gave legislative
legal the approval to make conforming and technical
changes, it would ensure that the resolution as amended
would read in a logical and grammatically correct manner.
Co-Chair Edgmon thought the language was missing a
grammatical article such as "for" or "the." He asked
whether legislative legal would insert the appropriate
article.
Ms. Marx responded in the affirmative and reassured the
committee that any necessary aspects of grammar would be
changed to ensure that the legislation read correctly.
Co-Chair Edgmon understood that other elements apart from
grammatical changes would need to be made with the passage
of Amendment 2 in order for the legislation to read in a
logical manner.
Ms. Marx responded that together, Amendment 2 and Amendment
3 would read, "except for appropriations to the Alaska
Permanent Fund, appropriations for the cost of managing the
Alaska Permanent Fund, appropriations of revenue bond and
general obligation bond," and so forth.
3:07:32 PM
AT EASE
3:11:36 PM
RECONVENED
Co-Chair Foster understood that the identified concerns
about Amendment 3 were minor issues that could be fixed. He
asked Representative Josephson if he had any comments.
Representative Josephson was inclined to maintain his
objection.
Co-Chair Edgmon asked Representative Stapp to rephrase the
reason for putting the appropriation for the Permanent Fund
into the constitution.
Representative Stapp explained that it was his intent to
exempt the current structure and management fees that APFC
used to pay its investment bankers. The idea was that if
the fund grew faster than the state's economy itself,
APFC's costs would dismantle the legislature's ability to
appropriate the revenue generated from the corporation. It
could potentially eliminate the legislature's ability to
appropriate its own revenue. The management fees from the
retirement system were also exempt from the spending cap
for the same reason.
Co-Chair Edgmon understood the rationale behind the
argument but was pondering the prescriptive nature of the
language.
Representative Stapp stated that the subject to the
appropriation limit was the language portion of the
constitution. He thought it was beneficial for the fees
incurred to manage the Permanent Fund to not be burdensome.
If the corpus of the fund grew to $200 billion, the fee to
administer the asset would grow as well and he did not want
to limit the ability to appropriate the funds in order to
increase revenue.
3:15:59 PM
A roll call vote was taken on the motion to adopt Amendment
3.
IN FAVOR: Galvin, Hannan, Ortiz, Coulombe, Representative
Cronk, Tomaszewski, Johnson, Stapp
OPPOSED: Edgmon, Josephson, Foster
The MOTION PASSED (8/3). There being NO further OBJECTION,
Amendment 3 was ADOPTED.
3:17:04 PM
Representative Stapp MOVED to ADOPT Amendment 4, 33-
LS0294\S.4 (Marx, 5/9/23) (copy on file):
Page 2, line 3:
Delete "thirteen"
Insert "seventeen"
Page 2, line 7:
Delete "thirteen"
Insert "seventeen"
3:17:09 PM
Representative Josephson OBJECTED for discussion.
Representative Stapp explained that Amendment 4 would
increase the appropriation limit up to 17 percent of GDP.
He thought there would be ample room within the existing
appropriation limit to accommodate for all types of
spending.
Co-Chair Edgmon supported increasing the threshold of the
cap to 17 percent.
Representative Stapp added that the 17 percent limit would
be a total spend of $7.6 billion. As a reference, the
current proposed budget totaled $6.2 billion. He had made
the change in response to the feedback he had received from
committee members.
Co-Chair Edgmon wondered if there would also be a net
increase if the limit was increased to 17 percent but the
PFD was included in the cap.
Representative Stapp responded that there would be a slight
net increase. All of the legislature's recent spending
would fall within the appropriation limit up to the
spending cap. He thought it would ensure that there would
be space left for additional spending without assigning an
arbitrary spending amount for the PFD.
3:21:16 PM
Representative Ortiz understood that the 17 percent
increase was chosen in an effort to incorporate the
addition of the PFD appropriation. He asked if there were
other factors involved in the decision.
Representative Stapp responded that there was an
amalgamation of factors. The upward limit had to be applied
in order to incorporate the PFD, which helped him land upon
the 17 percent figure. He also wanted to alleviate some
concerns that had been raised by Representative Galvin and
Representative Hannan regarding future expenditures that
might come into play. He did not want to make a draconian
cut, but also wanted to ensure that there was an
appropriation limit. He referred to Handout 1 (copy on
file) as a more detailed explanation on the increased
appropriation limit.
Representative Ortiz thought that the original bill used a
2.5 percent inflation rate to make projections. He asked if
the original calculation included an increase in the Base
Student Allocation (BSA) and asked if there was room for
the BSA to continue to grow.
Representative Stapp explained that the version of the
budget that was currently held by the Senate totaled $6.2
billion and the proposed appropriation limit in his bill
capped spending at $7.6 billion. He acknowledged that GDP
and inflation increased over time and were factored into
the calculations. Unless more than $1.5 billion was
incorporated into the current version of the budget, there
would be room for the BSA to continue to grow.
3:24:03 PM
Representative Galvin appreciated the intent of the
legislation. She remained confused as to how the 17 percent
figure was determined. Many communities in the state were
in desperate need of basic utilities such as water and
sewer, which could be unreasonably expensive. Communities
were also struggling with the impacts of climate change,
which would require significant investment. Broadband and
the Alaska State Troopers were also in need of significant
funding. She was concerned that some basic needs would not
be met if the spending cap was reached. She had also heard
that it was important to incorporate some liquidity into
the state's finances and she was not sure the 17 percent
increase was the right choice for the spending cap. She was
also concerned about the state's low bond rating.
Representative Stapp responded that the state's bond rating
was low because of inconsistent appropriations, which he
believed would be fixed by his legislation. He thought it
would help increase the state's credit rating and would add
some stability and predictability. He thought that 17
percent was slightly high because in the event that oil
prices decreased by $15 and the market performed poorly,
Alaskans could not afford to pay enough in taxes to
approach the limit; however, he wanted to ensure that when
oil prices were high, the spending cap remained effective.
He saw the 17 percent figure as a "happy medium."
Representative Galvin responded that Alaska was not
spending even one-tenth of what other states were spending
on early learning. She appreciated that the number had
increased but was not sure that it was the right number.
Her understanding was that liquidity was significant in
determining a state's credit and bond rating and she wanted
to be cautious about incorporating non-liquid assets into
the PFD. She commented that it was difficult for Alaska to
appropriately ascertain GDP because its industries could be
inconsistent. If the state were to lose its hunting
industry or fisheries, the economy would require an influx
of funding. She was not sure the formula incorporated all
of the elements valued by Alaska that might not fit in to
the GDP perspective.
Representative Stapp responded that most of Representative
Galvin's concerns could be accommodated by changes made in
his amendments. He thought it was a fair question but that
GDP was a stable metric. He thought that 70 percent of GDP
was generous and that there was flexibility built into the
formula.
3:31:44 PM
Representative Josephson thought that the idea that the
limit was generous was noteworthy. The money belonged to
the citizens and the argument that the legislature was
being generous with money that already belonged to the
people was curious. He understood that Representative Stapp
had stated that the entire Senate version of the budget
totaled $6.2 billion but was not driven by a statute, while
HJR 2 would be statute-driven. He asked if his
understanding was correct.
Representative Stapp noted that the limit also included
capital expenditures in the Senate's budget. He thought he
could better answer the question when the committee
discussed HB 38.
Representative Josephson understood that Representative
Stapp said that the state could spend whatever it wanted
under HJR 2. He was confused by an included document
entitled "Backup for HJR 2; Amendment 4" (copy on file).
The document depicted a chart showing data from eight years
of legislatures in a row without compliance with the limit.
Representative Stapp asked if Representative Josephson was
referencing years FY 07 through FY 13.
Representative Josephson responded in the affirmative.
Representative Stapp responded that he did not mean to say
generous in the way Representative Josephson interpreted
it, but generous in the way that it was opposite to
draconian. He suggested that "amenable" would have been a
better descriptor. He relayed that the "whatever we want"
amendment was Amendment 1, which had been rolled to the
bottom of the agenda. He noted that between FY 04 and FY
14, the legislature had effectively tripled the state's
budget. He could not think of any other states that had
tripled the operating budget in a single decade. He
suggested that if an appropriation limit had been in place,
the state might not have grown in an unsustainable manner.
Representative Josephson stated that he would not be voting
in favor of HJR 2. Considering that the operating budget
consisted mostly of personnel costs, he thought that
Representative Stapp had suggested that if everyone in
state government simply made less money, the state would
not be in the present financial predicament. The increase
seen in the chart would have constituted scores of
different legislatures coming in and out of office and
coming to the same conclusion that personnel costs were
important and budgets needed to grow. He did not believe in
the thesis of the bill and he did not think all of the
legislatures were wrong to grow the operating budget at the
rate it had grown.
3:36:34 PM
Representative Stapp responded that he did not think that
state employees made too much money. Implementing a
spending cap was not about adding services or paying people
but about the appropriate amount of operational growth. The
state had experienced years of astronomical revenue. For
example, Alaska's operating budget was six or seven times
greater than that of Wyoming in 2013. He concluded that
past levels of state spending were not sustainable
considering the state's current financial situation. He
thought everyone in the state would benefit if spending was
more consistent, including people who worked for state
government.
Representative Coulombe asked what the original percentage
had been before it was changed by the House Ways and Means
Committee.
Representative Stapp responded that it was 14 percent.
Representative Coulombe understood that the number went
from 14 percent to 13 percent and then back up to 17
percent. She thought that the 17 percent figure was chosen
in order to accommodate the Permanent Fund.
Representative Stapp responded that the figure had been
adjusted as a response to feedback he had received. If he
had just accounted for the Permanent Fund, the figure would
have been 16.8 percent but he wanted to remain on the side
of caution and chose 17 percent as the final figure.
Representative Coulombe asked if the spending cap would
increase if the economy started "skyrocketing" and GDP
increased.
Representative Stapp responded in the affirmative.
Representative Coulombe recalled that there was a narrow
exception for emergency declarations and capital
expenditures that would allow the legislature to spend
beyond the cap. She asked for clarification on the
situation.
Representative Stapp responded that HJR 2 focused on the
constitution but HB 38 would address the identified
exception. His next amendment would allow the legislature
to spend "every penny" it ever had. He clarified that a
two-thirds vote would be required in order to allow for
spending beyond the cap but situations like emergencies and
disasters existed outside of the spending cap entirely.
3:41:04 PM
Co-Chair Edgmon understood that the 17 percent figure was
calculated by an organization in another state. He asked
how Representative Stapp would explain to a constituent how
the 17 percent figure was chosen. In previous debates on
other similar legislation, the committee had executed many
Monte Carlo simulations and models in order to determine a
GDP mean and attach it to projected population growth and
spending. He highlighted the comparison because he thought
it explained the overall dilemma the legislature had
encountered when attempting to determine a spending cap.
The explosion of spending from the 1990s to the 2000s was
unexpected and changed the state significantly. There were
98 Alaska State Troopers in the 1990s and there were now
over 400 troopers. He was defensive when the idea that the
legislature was spending recklessly was brought forth
because the state had been saving money effectively for
years. He thought that if HJR 2 went to the Senate, he saw
the Senate conducting extensive third-party analyses of GDP
and projections based on population growth and decline. He
reiterated his question regarding the recommended way to
speak to a constituent about the 17 percent figure.
Representative Stapp responded that there were several
methods that he looked at in order to arrive at the 17
percent figure. He looked at the GDPS of other states with
different types of revenues as well as at the federal
government. He noted that there was a great depression
scenario in which the federal government could take over
spending. He looked at other comparisons and state of
Alaska spending and worked with his staff and concluded
that 17 percent seemed to be the most appropriate number
that would not be too limiting. The purpose behind an
appropriation limit was to ensure that the things the state
ought to fund were sustainable. One of the biggest issues
with education was consistent funding.
3:46:26 PM
Representative Galvin thought it was important to
appreciate that there was an option to spend beyond a
spending cap if a disaster was declared. She struggled with
the definition of disaster because a fiscal disaster would
not be included in the definition. She noted that there was
other legislation in circulation about a lack of mental
health beds and highlighted that the deficiency was also
not considered a disaster. She thought it was a disaster
that 81 percent of kids in kindergarten were two years
behind in education. She was also concerned because getting
a two-thirds vote on any issue was difficult. She had heard
from Representative Stapp and others that it was
undesirable to have too much government; however, many
social, health, and educational problems in the state could
be considered disastrous.
Representative Stapp responded that the limit at 17 percent
provided a generous amount of head room and there was room
for the legislature to prioritize its existing budgetary
needs. He thought it was important to prioritize
encouraging the private sector to grow and thrive. Many of
the items mentioned by Representative Galvin would fall
under HB 38 and would be better discussed in the context of
that bill. In the event that there was not enough "wiggle
room" between the statutory limit and the constitutional
limit, the legislature could raise the constitutional
limit.
3:50:06 PM
Representative Ortiz recalled Representative Coulombe's
comment that if the GDP were to increase, the state would
also be permitted to increase its expenditures. He reminded
the committee that the state could increase its
expenditures only if there was revenue tied to the increase
in economic activity and GDP. The revenue was an integral
piece, and he was concerned about moving forward with the
legislation without considering revenue.
Representative Stapp responded that most problems occurred
when there was a lack in revenue and not when the revenue
was subject to appropriation. He argued that in the event
of a levied tax in the state, it would be preferable to
have a robust private sector to better distribute and
absorb the tax than to have a failing private sector. In
the event that revenues were raised, it would be better to
"tax a healthy person than a sick one."
3:52:23 PM
Representative Hannan highlighted the phrase "real domestic
product" on line 8 of HJR 2. She offered a hypothetical in
which the state had a carbon tax credit program. She asked
if the program would fall under government spending or if
it would fall under private sector GDP.
Representative Stapp responded that if Representative
Hannan was referring to offsets, it would be considered
revenue and not GDP. He asked if he understood the question
correctly.
Representative Hannan confirmed that Representative Stapp
had interpreted the question correctly.
Representative Stapp responded that it would count in favor
of revenue and would not have an impact on the
appropriation limit. A carbon tax credit program would
generate revenue that could be appropriated under the cap.
Representative Hannan noted that in definition, GDP
included government spending. She asked what the meaning of
the term "real" was in relation to GDP.
Representative Stapp responded that real GDP was a
measurement of economic output that incorporated Consumer
Price Index (CPI) inflation.
Representative Hannan asked if the government spend
included qualifying all federal money as government spend
as well. For example, she asked if it would be considered
government spend if the military commissioned $500,000 of
groceries for a troop exercise in Fairbanks.
Representative Stapp responded that consumption spending
was captured within GDP. When the monies were distributed
the state was not considered part of the GDP, but when the
monies were spent it would be considered GDP.
Representative Hannan asked what the situation would be if
a government body was buying a product. For example, the
Alaska Marine Highway System (AMHS) made many local
purchases, such as mechanical parts or groceries. She asked
if the purchases would be considered government spend.
Representative Stapp replied that GDP was defined at the
point of consumption. He did not want to enact a mechanism
that allowed for monies to be counted twice. The purchasing
of goods would qualify as government spend, but money given
by the government to a government employee would not
qualify.
Representative Hannan emphasized that the state was buying
things from the consumer economy. She was not questioning
purchases by individuals but purchases by state agencies.
Representative Stapp explained that a purchase qualified as
Gross Domestic Output (GDO). If the government were to be
appropriated monies and then purchased goods with the
monies, the monies could potentially be counted twice. He
relayed that the only thing that mattered in terms of
private sector GDP output was the actual sale of the good
itself.
Representative Hannan responded that the issue around the
GDP measurement had been problematic to her in the
contemplation of the legislation. For example, local
grocers in small communities did not have consumers to
purchase the products even when consumers were receiving
checks from the government to purchase groceries. The
stores could not keep the shelves filled and no one was
purchasing groceries. She was concerned about the
legislature truncating the government spend from the
economy because the two were tightly connected in Alaska.
3:58:50 PM
Representative Galvin understood that Permanent Fund
expenditures had already been exempted. It seemed to her
that there were significant expenditures from the state to
ensure that it was raising revenue. She wondered if there
was space for other exemptions. She thought that some
carbon projects would require a substantial amount of state
expenditures and if some Department of Natural Resources
(DNR) projects should receive similar exemptions.
Representative Stapp requested that the committee complete
proceedings on Amendment 4 as he would discuss the details
of Representative Galvin's question in Amendment 1, which
had been rolled to the bottom of the agenda.
Representative Tomaszewski commented that some members
thought the cap was too low and some thought it was too
high. He thought there was a happy medium that could be
reached. He heard a lot of discussion about the population
of Alaska and outmigration. He relayed that 2016 was a
population high for the state with 742,575 residents and as
of 2022, the state had 733,583 residents. Over the last six
years, about 9,000 people had left the state, or 1.2
percent of the population. He understood the concern but
thought that the number was close to the average
outmigration numbers over the last ten years. Regarding the
spending cap, he thought that a compromise could be
reached. He argued that revenue could not be managed
without a spending cap. He noted that the cap was one
element of a fiscal policy that the state needed to produce
and stated that he would be supporting HJR 2.
Representative Josephson commented that the fiscal policy
working group were insistent that "things happen
concurrently."
4:03:40 PM
AT EASE
4:12:02 PM
RECONVENED
Co-Chair Foster noted that Representative Jesse Sumner was
present in the audience. He was waiting for a committee
member to rejoin before continuing business.
Representative Josephson was willing to lift his objection
but thought he did not need to lift the objection if the
committee was waiting on a member to rejoin.
Representative Stapp concluded that Amendment 4 would
increase the 13 percent limit to 17 percent to accommodate
greater flexibility to appropriate funds. He suggested that
if the amendment was not adopted, elements of the budget
would need to be cut.
4:14:11 PM
Representative Josephson WITHDREW the OBJECTION. There
being NO further OBJECTION, Amendment 4 was ADOPTED.
4:14:23 PM
Representative Stapp MOVED to ADOPT Amendment 1, 33-
LS0294\S.3 (Marx, 5/9/23) (copy on file):
Page 1, line 5:
Following "Limit.":
Insert "(a)"
Following "Except":
Insert "as provided in (b) or (c) of this
section or"
Page 2, lines 4 - 8:
Delete "Upon an affirmative vote of two-thirds of
the membership of each house, the legislature may
appropriate an additional amount for capital
improvements in excess of the limit under this
section, except that the total amount appropriated
shall not exceed an amount equal to thirteen percent
of the average calculated under this section."
Page 2, following line 30:
Insert a new resolution section to read:
"*Sec. 2. Article IX, sec. 16, Constitution of the
State of Alaska, is amended by adding new subsections
to read:
(b) Upon an affirmative vote of two-thirds of the
membership of each house, the legislature may
appropriate an additional amount for capital
improvements in excess of the limit under (a) of this
section, except that the total amount appropriated
shall not exceed an amount equal to thirteen percent
of the average calculated under
(a) of this section.
(c) Upon an affirmative vote of three-fourths of
the membership of each house, the legislature may
appropriate an amount in excess of the limits under
(a) or (b) of this section."
Renumber the following resolution sections
accordingly.
Representative Josephson OBJECTED for discussion.
Representative Stapp indicated that he was not certain how
he felt about Amendment 1. He summarized that in the event
that two-thirds of both legislative bodies agreed upon
spending as much money as "humanly possible" for capital
appropriation, the amendment would give the legislature the
ability to appropriate as much money as it would like on a
capital project with a two-thirds vote. He thought that a
two-thirds vote was the same as the ratio required to
override a governor's veto [he later corrected himself]. He
was not certain it was a good idea but would like to hear
the thoughts of committee members.
Representative Cronk asked if Representative Stapp meant a
two-thirds vote or three-quarters vote could override a
veto.
Representative Stapp clarified that he meant three-quarters
vote.
Representative Hannan was trying to understand the
amendment. She understood that it would require a two-
thirds vote but the total amount appropriated could not
exceed an amount equal to 13 percent of the calculated
average. She asked if the average changed because the 13
percent figure was changed to 17 percent with the adoption
of Amendment 4.
Representative Stapp responded that the amount would change
due to the previous amendment.
4:16:56 PM
AT EASE
4:17:48 PM
RECONVENED
Representative Stapp agreed that the 13 percent figure
should be changed to 17 percent due to the adoption of
Amendment 4. He indicated that he would propose a
conceptual amendment to Amendment 1.
Co-Chair Foster invited Representative Stapp to propose the
amendment.
4:18:38 PM
Representative Stapp MOVED to ADOPT conceptual Amendment 1
to Amendment 1:
Page 1, line 20:
Delete: "13 percent"
Insert: "17 percent"
Representative Hannan OBJECTED because the language also
appeared on line 11.
Representative Stapp stated he would also make the change
to line 11.
Co-Chair Foster added that he thought the changes would be
covered by allowing Legislative Legal Services to make
conforming changes.
4:19:21 PM
AT EASE
4:19:31 PM
RECONVENED
Representative Stapp noted that the language would be
deleted on line 11.
Representative Hannan WITHDREW the OBJECTION.
There being NO further OBJECTION, conceptual Amendment 1 to
Amendment 1 was ADOPTED.
4:20:00 PM
Representative Galvin wondered if the legislation would
help alleviate problems such as needing 100 more beds in
mental health institutions. She understood that the bill
would not address issues of additional staffing.
Representative Stapp read from Amendment 1: Upon an
affirmative vote of three-fourths of the membership of each
house, the legislature may appropriate an amount in excess
of the limits under (a) or (b) of this section. If adopted,
the amendment would allow the legislature to spend
"whatever you want" if it were able to garner a vote
threshold high enough to override a governor's veto.
Representative Galvin understood that capital spend would
require a two-thirds vote threshold, but a three-quarters
vote would be required to change state employee salaries.
She asked for the reasoning behind the decision.
Representative Stapp clarified that the vote would be to
exceed the constitutional limit which would already require
a three-quarters vote. He could understand Amendment 1
being useful in a situation in which the legislature needed
to make a single and substantial appropriation to the
gasline in an emergency situation. He presumed that the
gasline was the only spending item that would receive a
three-quarters vote.
4:23:34 PM
Representative Josephson referred to the chart 1 provided
by LFD "HB 38 and HJR 2 model" (copy on file). He
understood that according to the chart, the legislature
would not have been able to spend its desired amount on the
operating budget in FY 09, FY 10, and FY 14, without a
three-quarter vote.
Representative Stapp responded that the years mentioned by
Representative Josephson would have exceeded the current
constitutional limit. In order to reach the desired amount
of spending in those years, the legislature would have had
to already have adopted Amendment 1 and obtained a three-
quarters vote.
Representative Josephson thought a legislator who wanted a
particular capital item to move forward might be enticed by
the situation, which would grow the capital budget. He
asked if the situation was possible.
Representative Stapp responded that it would be possible
and was the reason why he was not convinced on the merit of
Amendment 1. He thought the purpose behind an appropriation
limit was to enact a hard cap that could not be exceeded.
However, he wanted to entertain the notion that an
amendment could be adopted that would allow the legislature
to spend whatever it wanted in the event of a three-
quarters vote. He thought it would be a "terrible idea"
because it would incentivize bad behavior. Unlimited
spending had contributed to the state's current financial
situation, but he was curious as to committee members'
thoughts on the amendment.
Representative Josephson noted Representative Stapp's claim
that unlimited spending was the catalyst for the state's
current financial situation. Alaska was the only state
without counties apart from Louisiana, which had parishes,
and the only state without a broad-based tax; both were
contributing factors to the state's situation.
Co-Chair Edgmon commented that there were political
factions that would require more spending to break the
spending cap. He commended Representative Stapp's work, but
thought the complexities underlined why a spending cap had
been so elusive.
4:26:46 PM
Representative Coulombe stated that she did not support
Amendment 1. She thought it could create a lot of issues
within the legislature; however, she supported a hard
spending cap. She supported the cap because she thought it
would ensure that the government was living within its
means. She thought the cap would stabilize and spending
would become dependable, which is how other sectors worked.
She had heard from many constituents that there needed to
be more predictability and stability.
Representative Stapp appreciated the comments. He agreed
that Amendment 1 would incentivize individuals to exceed
the spending limit. He WITHDREW Amendment 1.
4:28:48 PM
Co-Chair Foster recessed the meeting [note: the meeting
never reconvened].
HJR 2 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
4:29:06 PM
The meeting was adjourned at 4:29 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 50 Public Testimony Rec'd by 050923.pdf |
HFIN 5/12/2023 1:30:00 PM |
HB 50 |
| BACKUP HB 38 #1 #3.pdf |
HFIN 5/12/2023 1:30:00 PM |
HB 38 |
| BACKUP HJR2 #4 DATA.pdf |
HFIN 5/12/2023 1:30:00 PM |
HJR 2 |
| BACKUP HJR2 #4.pdf |
HFIN 5/12/2023 1:30:00 PM |
HJR 2 |
| HJR2 Backup for STAPP Amendment #2 and #4.pdf |
HFIN 5/12/2023 1:30:00 PM |
HJR 2 |
| HJR 2 Amendments 1-4 Stapp 051123.pdf |
HFIN 5/12/2023 1:30:00 PM |
HJR 2 |
| HB 38 Amendments 1-4 051123.pdf |
HFIN 5/12/2023 1:30:00 PM |
HB 38 |
| HB 50 Public testimony rec'd by 5-11-23.pdf |
HFIN 5/12/2023 1:30:00 PM |
HB 50 |