Legislature(2001 - 2002)

10/19/2001 11:11 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE JUDICIARY STANDING COMMITTEE                                                                             
                        October 19, 2001                                                                                        
                           11:11 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Norman Rokeberg, Chair                                                                                           
Representative Scott Ogan, Vice Chair (via teleconference)                                                                      
Representative John Coghill                                                                                                     
Representative Kevin Meyer                                                                                                      
Representative Ethan Berkowitz                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Jeannette James                                                                                                  
Representative Albert Kookesh                                                                                                   
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative John Davies                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE JOINT RESOLUTION NO. 15                                                                                                   
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to inflation-proofing the permanent fund.                                                                              
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
CS FOR SENATE JOINT RESOLUTION NO. 23(FIN) am                                                                                   
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to an appropriation limit and a spending limit.                                                                        
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
CS FOR SENATE JOINT RESOLUTION NO. 24(RLS)                                                                                      
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to the budget reserve fund.                                                                                            
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: HJR 15                                                                                                                  
SHORT TITLE:CONST. AM: PERMANENT FUND                                                                                           
SPONSOR(S): RLS BY REQUEST OF LEG BUDGET & AUDIT                                                                                
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
02/14/01     0316       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
02/14/01     0316       (H)        JUD, FIN                                                                                     
02/14/01     0316       (H)        REFERRED TO JUDICIARY                                                                        
10/19/01                (H)        JUD AT 11:00 AM Anch LIO Conf                                                                
                                   Rm                                                                                           
                                                                                                                                
BILL: SJR 23                                                                                                                  
SHORT TITLE:CONST AM: APPROPRIATION/SPENDING LIMIT                                                                              
SPONSOR(S): SENATOR(S) DONLEY                                                                                                   
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
04/09/01     1013       (S)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
04/09/01     1013       (S)        FIN                                                                                          
04/11/01     1080       (S)        COSPONSOR(S): AUSTERMAN                                                                      
04/17/01                (S)        FIN AT 9:00 AM SENATE FINANCE                                                                
                                   532                                                                                          
04/17/01                (S)        Heard & Held                                                                                 
04/17/01                (S)        MINUTE(FIN)                                                                                  
05/03/01     1462       (S)        FIN RPT CS 4DP 2DNP 3NR SAME                                                                 
                                   TITLE                                                                                        
05/03/01     1462       (S)        DP: DONLEY, GREEN, LEMAN,                                                                    
                                   WARD;                                                                                        
05/03/01     1462       (S)        NR: KELLY, AUSTERMAN, WILKEN;                                                                
05/03/01     1462       (S)        DNP: HOFFMAN, OLSON                                                                          
05/03/01     1462       (S)        FN1: (GOV)                                                                                   
05/03/01     1465       (S)        RULES TO CALENDAR 1OR 5/3/01                                                                 
05/03/01     1471       (S)        READ THE SECOND TIME                                                                         
05/03/01     1471       (S)        FIN CS ADOPTED UNAN CONSENT                                                                  
05/03/01     1471       (S)        COSPONSOR(S): LEMAN, KELLY                                                                   
05/03/01     1471       (S)        ADVANCED TO 3RD READING                                                                      
                                   FAILED Y14 N6                                                                                
05/03/01     1472       (S)        ADVANCED TO THIRD READING 5/4                                                                
                                   CALENDAR                                                                                     
05/03/01                (S)        FIN AT 9:00 AM SENATE FINANCE                                                                
                                   532                                                                                          
05/03/01                (S)        Moved CS(FIN) Out of                                                                         
                                   Committee                                                                                    
05/03/01                (S)        RLS AT 1:45 PM FAHRENKAMP 203                                                                
05/03/01                (S)        MINUTE(FIN)                                                                                  
05/03/01                (S)        MINUTE(RLS)                                                                                  
05/04/01     1502       (S)        READ THE THIRD TIME CSSJR
                                   23(FIN)                                                                                      
05/04/01     1502       (S)        RETURN TO SECOND FOR AM 1                                                                    
                                   UNAN CONSENT                                                                                 
05/04/01     1502       (S)        AM NO 1 ADOPTED UNAN CONSENT                                                                 
05/04/01     1503       (S)        AUTOMATICALLY IN THIRD                                                                       
                                   READING                                                                                      
05/04/01     1503       (S)        PASSED Y14 N6                                                                                
05/04/01     1503       (S)        ELLIS NOTICE OF                                                                              
                                   RECONSIDERATION                                                                              
05/05/01     1526       (S)        RECON TAKEN UP - IN THIRD                                                                    
                                   READING                                                                                      
05/05/01     1526       (S)        PASSED ON RECONSIDERATION Y14                                                                
                                   N6                                                                                           
05/05/01     1559       (S)        TRANSMITTED TO (H)                                                                           
05/05/01     1559       (S)        VERSION: CSSJR 23(FIN) AM                                                                    
05/05/01     1571       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
05/05/01     1571       (H)        JUD, FIN                                                                                     
05/05/01     1571       (H)        REFERRED TO JUDICIARY                                                                        
10/19/01                (H)        JUD AT 11:00 AM Anch LIO Conf                                                                
                                   Rm                                                                                           
                                                                                                                                
BILL: SJR 24                                                                                                                  
SHORT TITLE:AMEND CONSTITUTIONAL BUDGET RESERVE FUND                                                                            
SPONSOR(S): FINANCE                                                                                                             
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
04/09/01     1013       (S)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
04/09/01     1013       (S)        FIN                                                                                          
04/17/01                (S)        FIN AT 9:00 AM SENATE FINANCE                                                                
                                   532                                                                                          
04/17/01                (S)        Heard & Held                                                                                 
04/17/01                (S)        MINUTE(FIN)                                                                                  
04/23/01     1215       (S)        FIN RPT 6DP 3NR                                                                              
04/23/01     1215       (S)        DP: DONLEY, KELLY, GREEN,                                                                    
                                   WILKEN,                                                                                      
04/23/01     1215       (S)        LEMAN, WARD;                                                                                 
04/23/01     1215       (S)        NR: AUSTERMAN, HOFFMAN, OLSON                                                                
04/23/01     1216       (S)        FN1: (GOV)                                                                                   
04/23/01                (S)        FIN AT 9:00 AM SENATE FINANCE                                                                
                                   532                                                                                          
04/23/01                (S)        Moved Out of Committee                                                                       
04/23/01                (S)        MINUTE(FIN)                                                                                  
04/30/01                (S)        RLS AT 11:50 AM FAHRENKAMP                                                                   
                                   203                                                                                          
04/30/01                (S)        <Bill Postponed to 5/1/01> --                                                                
                                   Time Change --                                                                               
04/30/01                (S)        RLS AT 4:45 PM FAHRENKAMP 203                                                                
04/30/01                (S)        -- Meeting Canceled --                                                                       
05/01/01     1401       (S)        RULES TO CAL W/CS 1OR 5/1                                                                    
                                   SAME TITLE                                                                                   
05/01/01     1401       (S)        FN1: (GOV)                                                                                   
05/01/01     1412       (S)        READ THE SECOND TIME                                                                         
05/01/01     1412       (S)        RLS CS ADOPTED UNAN CONSENT                                                                  
05/01/01     1413       (S)        ADVANCED TO 3RD READING                                                                      
                                   FAILED Y14 N6                                                                                
05/01/01     1413       (S)        ADVANCED TO THIRD READING 5/2                                                                
                                   CALENDAR                                                                                     
05/01/01                (S)        RLS AT 12:15 PM FAHRENKAMP                                                                   
                                   203                                                                                          
05/01/01                (S)        -- Time Change --                                                                            
05/01/01                (S)        MINUTE(RLS)                                                                                  
05/02/01     1443       (S)        READ THE THIRD TIME CSSJR
                                   24(RLS)                                                                                      
05/02/01     1444       (S)        HELD IN THIRD READING TO 5/3                                                                 
                                   CALENDAR                                                                                     
05/03/01     1472       (S)        HELD IN THIRD READING TO 5/4                                                                 
                                   CALENDAR                                                                                     
05/04/01     1503       (S)        BEFORE THE SENATE IN THIRD                                                                   
                                   READING                                                                                      
05/04/01     1503       (S)        PASSED Y14 N6                                                                                
05/04/01     1504       (S)        ELLIS NOTICE OF                                                                              
                                   RECONSIDERATION                                                                              
05/05/01     1527       (S)        RECON TAKEN UP - IN THIRD                                                                    
                                   READING                                                                                      
05/05/01     1527       (S)        PASSED ON RECONSIDERATION Y14                                                                
                                   N6                                                                                           
05/05/01     1559       (S)        TRANSMITTED TO (H)                                                                           
05/05/01     1559       (S)        VERSION: CSSJR 24(RLS)                                                                       
05/05/01     1571       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
05/05/01     1571       (H)        JUD, FIN                                                                                     
05/05/01     1571       (H)        REFERRED TO JUDICIARY                                                                        
10/19/01                (H)        JUD AT 11:00 AM Anch LIO Conf                                                                
                                   Rm                                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
CLARK GRUENING, Member                                                                                                          
Board of Trustees of the Alaska Permanent Fund Corporation                                                                      
217 Second Street, Suite 204                                                                                                    
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Testified in support of HJR 15 and                                                                         
responded to questions.                                                                                                         
                                                                                                                                
ROBERT STORER, Executive Director                                                                                               
Alaska Permanent Fund Corporation                                                                                               
Department of Revenue                                                                                                           
PO Box 25500                                                                                                                    
Juneau, Alaska  99802-5500                                                                                                      
POSITION STATEMENT:  Responded to questions regarding HJR 15.                                                                   
                                                                                                                                
MARY GRISWOLD                                                                                                                   
PO Box 1417                                                                                                                     
Homer, Alaska  99603                                                                                                            
POSITION STATEMENT:  Testified in support of HJR 15.                                                                            
                                                                                                                                
JIM KELLY, Research & Liaison Officer                                                                                           
Alaska Permanent Fund Corporation                                                                                               
Department of Revenue                                                                                                           
PO Box 25500                                                                                                                    
Juneau, Alaska  99802-5500                                                                                                      
POSITION STATEMENT:  Responded to questions regarding HJR 15.                                                                   
                                                                                                                                
SCOTT GOLDSMITH, Economist                                                                                                      
University of Alaska - Anchorage                                                                                                
6035 Bluebell                                                                                                                   
Anchorage, Alaska  99516                                                                                                        
POSITION STATEMENT:  Testified in support of HJR 15 and                                                                         
testified on SJR 23.                                                                                                            
                                                                                                                                
SENATOR DAVE DONLEY                                                                                                             
Alaska State Legislature                                                                                                        
Capitol Building, Room 506                                                                                                      
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Testified as the sponsor of SJR 23, and on                                                                 
behalf of the Senate Finance Committee, sponsor of SJR 24.                                                                      
                                                                                                                                
DAVID TEAL, Director/Legislative Fiscal Analyst                                                                                 
Legislative Finance Division                                                                                                    
Alaska State Legislature                                                                                                        
PO Box 113200                                                                                                                   
Juneau, Alaska  99811-3200                                                                                                      
POSITION STATEMENT:  Answered questions on SJR 23 and SJR 24.                                                                   
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 01-82, SIDE A                                                                                                              
Number 0001                                                                                                                     
                                                                                                                                
CHAIR NORMAN ROKEBERG called the House Judiciary Standing                                                                       
Committee meeting to order at 11:11 a.m.  Representatives                                                                       
Rokeberg,   Ogan  (via   teleconference),  Coghill,   Meyer,  and                                                               
Berkowitz were present at the call to order.                                                                                    
                                                                                                                                
HJR 15 - CONST. AM: PERMANENT FUND                                                                                            
                                                                                                                                
[Contains brief  reference to SJR  13, the companion bill  to HJR
15.]                                                                                                                            
                                                                                                                                
Number 0020                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG announced  that the first order  of business would                                                               
be HOUSE  JOINT RESOLUTION  NO. 15,  Proposing amendments  to the                                                               
Constitution  of  the  State of  Alaska  relating  to  inflation-                                                               
proofing the permanent fund.                                                                                                    
                                                                                                                                
Number 0036                                                                                                                     
                                                                                                                                
CLARK  GRUENING,   Member,  Board  of  Trustees   of  the  Alaska                                                               
Permanent  Fund Corporation  ("the board"),  said that  the board                                                               
enthusiastically supports HJR 15.  He  noted that it was upon the                                                               
recommendations  of the  board that  the  Legislative Budget  and                                                               
Audit  Committee   requested  that   the  House   Rules  Standing                                                               
Committee and the Senate Rules  Standing Committee sponsor HJR 15                                                               
and  SJR 13,  respectively.   He relayed  that for  the first  21                                                               
years  of  the permanent  fund's  existence,  the fund  has  been                                                               
governed by a  six-member board of trustees  whose single highest                                                               
priority policy has  been to protect the  fund against inflation.                                                               
The very  first board testified  before the legislature  that the                                                               
greatest  threat to  permanence of  the  fund is  inflation.   In                                                               
response,  the legislature  adopted statutory  inflation-proofing                                                               
in 1982.   In more recent years, he said,  the board has examined                                                               
various  large endowments  and public  funds that  use a  formula                                                               
approach to determine the method and size of payouts.                                                                           
                                                                                                                                
MR. GRUENING  explained that this approach  is generally referred                                                               
to as  the "percentage of  market value payout," or  POMV payout.                                                               
The  purpose of  this endowment-type  formula is  to protect  the                                                               
long-term   viability   of   a  fund   and   provide   consistent                                                               
distributions to the  beneficiary's of that fund.  He  went on to                                                               
say  that after  considerable  review and  discussion, the  board                                                               
recommends the constitutional change that  is proposed in HJR 15.                                                               
The language  of HJR  15 provides  a spending  limit on  what can                                                               
currently   be  appropriated.      The  existing   constitutional                                                               
language, which  established the  permanent fund,  only prohibits                                                               
the  appropriation  of  principal;  in  other  words,  he  added,                                                               
anything that  is not principal  is considered income,  which can                                                               
be spent.   He explained that principal does not  vary or move up                                                               
and  down  with the  market;  instead,  principal is  a  notional                                                               
number  that  simply  equals  the  sum  of  the  constitutionally                                                               
mandated  25  percent  deposit   of  mineral  proceeds,  and  the                                                               
voluntary deposits that the legislature may choose to make.                                                                     
                                                                                                                                
MR.  GRUENING acknowledged  that  two-thirds of  the $21  billion                                                               
deposited to the principal of  the fund has been made voluntarily                                                               
by  the  legislature as  either  inflation-proofing  or as  extra                                                               
deposits  to the  principal; only  one-third of  the $21  billion                                                               
came  from  the  mandated  deposit   of  25  percent  of  mineral                                                               
proceeds.   Over the past  year, he  noted, "we" have  lost three                                                               
former trustees  who had a  great deal  to do with  the formation                                                               
and  success  of the  permanent  fund:   Elmer  Rassmussen,  Hugh                                                               
Malone,  and Oral  Freeman.   He added  that they  were concerned                                                               
with  the  future of  the  fund  and  were totally  committed  to                                                               
inflation-proofing it,  recounting that Elmer Rassmussen  used to                                                               
say, "Inflation is a thief in  the night," which is as true today                                                               
as it was in 1982.                                                                                                              
                                                                                                                                
MR. GRUENING went on to say  that things have changed since 1982.                                                               
For  instance,  the  earnings  reserve  is  now  a  much  greater                                                               
proportion of the  total fund.  Also, the fiscal  position of the                                                               
state  is dramatically  [different].   Mr. Gruening  informed the                                                               
committee that  if all  the deposits to  the fund  from 1977-1992                                                               
were  averaged, the  earnings  reserve  averaged approximately  8                                                               
percent of the fund.  Even  today, with the recent payout and the                                                               
travails  of the  market,  the earnings  reserve  still makes  up                                                               
about  14 percent  of the  fund.   Unlike  the current  statutory                                                               
provision, for which the  legislature has faithfully appropriated                                                               
money, the proposal before the  committee provides for inflation-                                                               
proofing  of  the entire  fund.    Moreover,  the proposal  is  a                                                               
formula  that will  maximize distributions  over  the long  term,                                                               
which  is   significant  due  to   the  state's   current  fiscal                                                               
situation.  "The Alaska permanent  fund has, and will continue to                                                               
be  in the  future,  the  largest single  revenue  source ...  as                                                               
compared to any other Alaska  resource," Mr. Gruening emphasized.                                                               
The Alaska permanent fund will be  larger than oil in the future,                                                               
and larger  than tourism, fishing, and  anything anticipated from                                                               
a natural gas pipeline.   Mr. Gruening explained that the board's                                                               
proposal  for inflation-proofing  doesn't  require any  statutory                                                               
change,  including  the  dividend  statute.    Therefore,  the  5                                                               
percent  payout of  market value  assures complete  and protected                                                               
inflation-proofing  while  providing maximum  sustainable  payout                                                               
over the  long term, regardless  of future decisions made  by the                                                               
legislature or the voters.                                                                                                      
                                                                                                                                
MR. GRUENING concluded by saying that  if Alaska is going to have                                                               
a fund that  is truly permanent, steps to ensure  that have to be                                                               
taken.    Therefore,  there  has  to  be  investment  for  future                                                               
generations  as  well  as  current  generations,  which  requires                                                               
commitment to the  principles of long-term investment.   The long                                                               
term is more  than a business or political cycle.   At a minimum,                                                               
the long  term should  include the time  in which  "our children,                                                               
grandchildren,  and their  children  grow into  adulthood."   Mr.                                                               
Gruening  said,  "The critical  flip-side  of  a sound  long-term                                                               
investment  strategy  is  a sound  and  sustainable  distribution                                                               
payout plan;  a plan that  will sustain and maximize  benefits to                                                               
each generation  of Alaska."   The form  in which  these benefits                                                               
flow will be a subject of debate  in the years to come.  However,                                                               
the fund can't do it all.  Mr. Gruening remarked:                                                                               
                                                                                                                                
     What, I  think we  ..., as Alaskans,  want to  avoid at                                                                    
     all  costs  is  defaulting  to  a  position  where  the                                                                    
     constitutional  budget reserve  is today.   Within  the                                                                    
     next  4-5  years,  the CBR,  without  some  change,  is                                                                    
     destined for extinction.  As  the investment horizon of                                                                    
     the CBR shortens,  it has been and will  continue to be                                                                    
     necessary to keep the assets  of the CBR in very short-                                                                    
     term and  less profitable investments.   As the  day of                                                                    
     the CBR's demise grows near,  the trustees and staff of                                                                    
     your  permanent  fund  will   also  have  to  seriously                                                                    
     consider   a   shorter   investment   horizon   for   a                                                                    
     significant  proportion of  the fund,  unless there  is                                                                    
     something that  changes.  Whether  we liken  an Alaskan                                                                    
     permanent fund  to a whole resource  industry, like the                                                                    
     Alaska  fisheries,   or  to  some  kind   of  perpetual                                                                    
     endowment, one  thing is clear:   the  Alaska permanent                                                                    
     fund imports more money into  the state year after year                                                                    
     than   any  other   revenues   or  natural   resources.                                                                    
     Legislative   passage  and   voter  approval   of  this                                                                    
     amendment would protect  the ability of the  fund to be                                                                    
     managed  for the  long  term and  to  continue to  pour                                                                    
     money  into the  Alaska  economy.   One final  thought:                                                                    
     Your   legislature,    that   is    the   Twenty-Second                                                                    
     Legislature,   has   an   opportunity   to   accomplish                                                                    
     something, I  think, as  significant and  as beneficial                                                                    
     as  the Ninth  Legislature did  25 years  ago with  the                                                                    
     original  constitutional   amendment.     The  trustees                                                                    
     believe that  this proposal for complete  and protected                                                                    
     inflation-proofing  makes   ultimate  good   sense  for                                                                    
     Alaska's permanent fund for Alaska's future.                                                                               
                                                                                                                                
Number 0170                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ remarked  that it  seemed that  most of                                                               
the [proposed] changes could be  done statutorily.  If that isn't                                                               
the case,  are there any  collateral benefits, such  as providing                                                               
Wall Street greater assurance with  regard to the security of the                                                               
permanent fund, that would enhance the state's bond ratings.                                                                    
                                                                                                                                
MR. GRUENING  answered that a  statutory payout rule would  be no                                                               
different,  in terms  of its  impact on  inflation-proofing, than                                                               
the current  statute, which  has been  [saving] the  fund because                                                               
the money  was there.   Much of  the money that  was part  of the                                                               
principal  was   extra  that  wasn't   required.     However,  he                                                               
emphasized that  any appropriation  [that the  legislature makes]                                                               
overrides the  statute.  "Unless  it's in the  constitution, it's                                                               
not  constitutional to  protect it,"  he pointed  out.   When the                                                               
voters hear and understand this,  the public seems to accept that                                                               
the fund can be used for other things than its current use.                                                                     
                                                                                                                                
Number 0193                                                                                                                     
                                                                                                                                
ROBERT   STORER,  Executive   Director,  Alaska   Permanent  Fund                                                               
Corporation,   Department   of   Revenue,   responded   with   an                                                               
unequivocal yes to  Representative Berkowitz's question regarding                                                               
bond  ratings.   He pointed  out that  part of  recognizing one's                                                               
risk tolerance is one's discipline to  stay the course.  The past                                                               
three  years  of  fall  meetings with  the  rating  agencies  has                                                               
illustrated  that  rating  agencies  like to  see  a  disciplined                                                               
spending approach and such an  approach enhances the way in which                                                               
the  rating agencies  view the  State of  Alaska's finances,  and                                                               
therefore the state's credit rating.                                                                                            
                                                                                                                                
Number 0204                                                                                                                     
                                                                                                                                
REPRESENTATIVE MEYER commented on  the challenge of educating the                                                               
voters  on the  issue  and,  therefore, he  asked  if  that is  a                                                               
concern.  Furthermore,  the permanent fund is  a sensitive issue.                                                               
Representative Meyer asked whether any  thought had been given to                                                               
such  concerns   when  reviewing   whether  to  proceed   with  a                                                               
constitutional   proposal   versus   Representative   Berkowitz's                                                               
proposal.                                                                                                                       
                                                                                                                                
MR.  GRUENING related  his belief  that the  public would  feel a                                                               
greater degree of confidence  with [the constitutional proposal].                                                               
Clearly,  this  will  be the  [public's]  most  important  policy                                                               
initiative.  He highlighted his  belief that this is really going                                                               
to be  up to the  legislature, especially since there's  only one                                                               
more  session before  its possible  passage.   The  idea of  this                                                               
matter  being  in the  constitution  has  seemed to  provide  the                                                               
public with  some comfort.  He  noted that he discovered  this in                                                               
the presentations [with which he had taken been part].                                                                          
                                                                                                                                
MR. STORER agreed.   Mr. Storer noted that  the challenge, during                                                               
these presentations, is to distill  this idea into understandable                                                               
terms.  From his speeches, he  has gathered that the public finds                                                               
comfort in seeing a disciplined approach to the permanent fund.                                                                 
                                                                                                                                
Number 0235                                                                                                                     
                                                                                                                                
REPRESENTATIVE  COGHILL returned  to the  issue of  the [state's]                                                               
bond rating.   He asked  if the combination of  the legislature's                                                               
actions with  regard to  the statute and  its authority,  and the                                                               
management of the fund, has lessened [the state's] bond rating.                                                                 
                                                                                                                                
MR. STORER replied no.   He acknowledged that the legislature has                                                               
appropriated  money into  the principal  fund, inflation-proofing                                                               
as  well as  additional  sums.   The  rating  agencies have  been                                                               
comforted by that  action.  He clarified his  perspective that as                                                               
the  state's  finances are  debated  more,  the more  disciplined                                                               
approach  will  provide  continued  solace for  the  bond  rating                                                               
agencies.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  COGHILL expressed  concern with  the notion  that                                                               
since the  fund, under  this proposal, would  be managed  under a                                                               
constitutional protection, it would  provide a better bond rating                                                               
than  if in  statute with  public debate.   He  said that  such a                                                               
situation  would  call in  to  question  the credibility  of  the                                                               
public debate in the legislature.                                                                                               
                                                                                                                                
MR. STORER clarified that the  legislature's actions to date have                                                               
assisted in  the state's high  bond rating.  Therefore,  from his                                                               
perspective, the statute could settle  the issue if [the statute]                                                               
was memorialized in  the constitution, which is,  to some degree,                                                               
a higher  order of  discipline.  The  rating agencies  would find                                                               
solace  in that.   However,  that isn't  to say  that the  rating                                                               
agencies  would   view  some  use   of  the  permanent   fund  as                                                               
[inadequate].                                                                                                                   
                                                                                                                                
Number 0277                                                                                                                     
                                                                                                                                
CHAIR  ROKEBERG  turned to  Mr.  Gruening's  statement that  this                                                               
amendment [HJR  15] wouldn't require  any statutory changes.   He                                                               
found  that  statement troubling  because,  in  his opinion,  the                                                               
current statute is broken and needs  to be fixed.  Chair Rokeberg                                                               
also  expressed concern  with how  the inflation-proofing  design                                                               
fits into the entire model  in terms of the statute, specifically                                                               
related to the sweep effect and down market situations.                                                                         
                                                                                                                                
MR. GRUENING  clarified, "What is meant  by that is that  you can                                                               
adopt  a  constitutional  spending  limit  or  inflation-proofing                                                               
provision and still  administer the dividend statute  in the same                                                               
way."  Mr. Gruening noted that  "we" have indicated that having a                                                               
payout of  the dividend  based on market  value is  probably less                                                               
volatile.  Although  that would be advisable,  it isn't necessary                                                               
for  passage   of  [HJR  15].     However,  the   statute  could,                                                               
undoubtedly,  be  improved  upon  and  that will  be  up  to  the                                                               
legislature to decide how to do so.                                                                                             
                                                                                                                                
CHAIR  ROKEBERG recalled  earlier comments  that CBR  investments                                                               
must be for the short-term  horizon because of the contraction of                                                               
the length  and need for the  funding.  Chair Rokeberg  said that                                                               
he  understood  that  the  perceived  need  for  funding,  market                                                               
conditions, and the amount available  has an impact on the length                                                               
and  quality  of  the investment  instrument  that  [is  chosen].                                                               
However, he  also understood testimony  to indicate that  as time                                                               
passes without any changes, the  same type of policy changes that                                                               
relate  to the  permanent fund  itself will  have to  occur.   He                                                               
said:                                                                                                                           
                                                                                                                                
     I  suspect  that that's  because  ...  if we  kept  the                                                                    
     status quo,  the earnings reserve  is in  the situation                                                                    
     where  it could  be  appropriated  by the  legislature;                                                                    
     therefore,  as  a  matter of  policy,  the  corporation                                                                    
     would have to  shorten the length of  commitment on the                                                                    
     part  of the  investment  vehicle in  the security  you                                                                    
     might buy to make sure  that those funds were available                                                                    
     for  appropriation  on  a near-term  basis  as  we  get                                                                    
     nearer falling of the cliff and go broke.                                                                                  
                                                                                                                                
MR. GRUENING agreed with Chair Rokeberg's understanding.                                                                        
                                                                                                                                
Number 0332                                                                                                                     
                                                                                                                                
MR. STORER  posed the question:   Why 5  percent?  He  noted that                                                               
the staff and  the board have spent much time  reviewing that and                                                               
have determined that  5 percent of a five-year  moving average is                                                               
on the high end of achievable.   He explained that over the long-                                                               
term, the current  asset allocation of the fund  would earn about                                                               
8.25 percent.   Analysis  suggests that  inflation will  be about                                                               
3.25 percent.   Therefore, "we know that we can  afford to payout                                                               
up  to 5  percent  of the  fund  and retain  the  balance of  the                                                               
earnings to  ensure that  the fund  is inflation-proofed  for the                                                               
future,"  he explained.   However,  Mr. Storer  acknowledged that                                                               
markets change and  thus there has been review  of history, which                                                               
has found that  asset allocation similar to the  fund and statute                                                               
have also amounted  to about a 5 percent payout.   This review is                                                               
over about  a 75-year course.   Mr. Storer reiterated  that there                                                               
is  review  of risk,  which  is  measured  by volatility  of  the                                                               
market.   He expressed  the need to  define an  asset allocation,                                                               
within  a risk  tolerance,  that achieves  the  goals while  also                                                               
having  the  discipline  to  stay   the  course.    Without  that                                                               
discipline, one won't achieve his/her goals.                                                                                    
                                                                                                                                
MR. STORER informed  the committee that there  are two components                                                               
of  this fund.    What makes  the fund  unique  is its  principal                                                               
protection  via the  constitution.   However, when  reviewing any                                                               
fund, one would  review the fund's cash flow.   The fund has been                                                               
in a situation whereby it has been  in a negative cash flow for a                                                               
decade.   Although  such  a situation  is fine  and  part of  the                                                               
analysis,  one must  recognize that  and include  it in  the risk                                                               
return  profile.   He explained  that he  mentioned this  because                                                               
most endowment funds  that use this model have  a 4.5-5 [percent]                                                               
payout rule,  although some  payout more.   In response  to Chair                                                               
Rokeberg,   Mr.   Storer   said   that   the   inflation-proofing                                                               
appropriation isn't  part of  cash flow in  his calculation.   He                                                               
explained that "we"  are paying out $1.1 billion  on the dividend                                                               
while receiving about $400 million.                                                                                             
                                                                                                                                
CHAIR ROKEBERG  related his understanding  that although  it's an                                                               
appropriation    to    the   corpus,    the    inflation-proofing                                                               
appropriation isn't considered part of the cash flow.                                                                           
                                                                                                                                
MR. STORER clarified, "I do not  consider it a negative cash flow                                                               
because it's retained in the fund."                                                                                             
                                                                                                                                
CHAIR  ROKEBERG asked  if it's  a positive  cash flow  because it                                                               
moves from the earnings reserve into the corpus.                                                                                
                                                                                                                                
MR. STORER said he would say  no, although he remarked that it is                                                               
a good point.   "If that's the case, we're at  about a push right                                                               
now," he said.   He specified that most would  define it as money                                                               
that  is leaving  the fund  rather than  entering the  fund.   He                                                               
explained, "My point is that if you  look at a Harvard or an MIT,                                                               
they can  afford to take  a greater  risk profile and  the reason                                                               
being  is  they  can  withstand the  near-term  volatility  of  a                                                               
riskier profile ... because they  are continuing to get new funds                                                               
so they can meet their payoff  discipline.  And if their wrong in                                                               
the near term, they know that  they'll have a positive cash flow,                                                               
which allows them ... to take  ... an asset allocation that would                                                               
have a higher expected return,  significantly higher than ours as                                                               
an example."  He explained that  he noted this because if the CBR                                                               
dissipates  and there  are greater  withdrawals on  the permanent                                                               
fund,  ironically,  the  fund  would  have  to  be  managed  more                                                               
conservatively.   Therefore,  the 5  percent discipline  provides                                                               
more effective management.                                                                                                      
                                                                                                                                
Number 0429                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG asked  if the unrealized gains  are now considered                                                               
part of the principal.                                                                                                          
                                                                                                                                
MR. STORER  replied no,  the principal would  be new  oil revenue                                                               
and  contributions to  the fund  by the  legislature, as  well as                                                               
inflation  that  the  legislature  appropriates  into  the  fund.                                                               
Unrealized  gains  and  losses  aren't  part  of  the  principal.                                                               
However,  the  accounting  records  have  changed.    Mr.  Storer                                                               
explained  that the  dividend is  calculated by  realized income,                                                               
which is the  dividend's interest plus the  actual realized gains                                                               
of a buy and sell of  a security.  However, "GAP" accounting says                                                               
that one must book  the gains and losses every day.   "It's not a                                                               
question of principal, it's how you  mark to market the fund on a                                                               
daily basis," he explained.                                                                                                     
                                                                                                                                
CHAIR ROKEBERG  inquired as to  the position of  the corporation.                                                               
He asked, "Which set of books do you use?"                                                                                      
                                                                                                                                
MR. STORER  answered that  the "GAP"  is followed  for accounting                                                               
purposes as well as the annual  report, which says that gains and                                                               
losses are recognized.                                                                                                          
                                                                                                                                
CHAIR  ROKEBERG interjected  that he  disagrees with  that ["GAP"                                                               
accounting].                                                                                                                    
                                                                                                                                
MR.  STORER  continued  by  informing  the  committee  that  [the                                                               
corporation]  does  recognize  realized  income  to  compute  the                                                               
dividend.  Therefore, "you see it both ways."                                                                                   
                                                                                                                                
Number 0496                                                                                                                     
                                                                                                                                
MARY GRISWOLD testified  via teleconference in support  of HJR 15                                                               
because it  provides a  better money  management framework.   She                                                               
said that POMV reduces the  pressure to manage the permanent fund                                                               
for  return  over  value.    "Managing  for  value  is  generally                                                               
considered  a better  fiscal approach.    A 5  percent payout  is                                                               
generally  recognized   by  large   endowments  as   the  highest                                                               
sustainable  payout, beyond  which  the real  value  of the  fund                                                               
would diminish over  time."  She highlighted  a secondary benefit                                                               
of HJR 15  as providing a reasonable money  stream for government                                                               
if the  legislature chooses to use  it.  Currently, the  money in                                                               
the  earnings  reserve  account   is  available  for  legislative                                                               
appropriation for  purposes other  than dividends.   Although the                                                               
legislature  has never  spent it,  she felt  that there  would be                                                               
more  pressure in  the future  for  the legislature  to use  this                                                               
money.  Therefore,  HJR 15 will limit the  amount the legislature                                                               
can use to a predictable and modest amount.                                                                                     
                                                                                                                                
MS.  GRISWOLD  noted  that  it is  important  to  recognize  that                                                               
dividends are  as much as  they are because the  legislature made                                                               
special appropriations  from the earnings reserve  account to the                                                               
principal and  did not  spend the  earnings available.   However,                                                               
any  use  of permanent  fund  earnings  for purposes  other  than                                                               
dividends  will  decrease  the  value  of  the  dividend  because                                                               
whatever is spent won't be available  to earn more money.  Still,                                                               
dividends could be reduced by  much more under the current payout                                                               
system versus  POMV.   The status quo  dividend formula  could be                                                               
preserved with a 5 POMV,  an 80 percent allocation for dividends,                                                               
and a  20 percent allocation  for government.  However,  one must                                                               
realize that a 20 percent transfer  from the fund will reduce the                                                               
fund's  future income-producing  potential.    Ms. Griswold  said                                                               
that  she believes  it is  time to  allocate some  permanent fund                                                               
earnings to government  and she saw a  5 POMV as the  best way to                                                               
do  so.   More importantly,  Ms.  Griswold saw  the 5  POMV as  a                                                               
better money  management tool that  will keep the  permanent fund                                                               
permanent for future generations.                                                                                               
                                                                                                                                
MS.  GRISWOLD, in  response to  Chair Rokeberg,  agreed that  her                                                               
understanding  was  that   there  would  have  to   be  an  80:20                                                               
allocation in  order to maintain  the permanent fund  dividend at                                                               
its current level.                                                                                                              
                                                                                                                                
Number 0546                                                                                                                     
                                                                                                                                
ARLISS  STURGULEWSKI, former  Senator, Alaska  State Legislature,                                                               
remarked that  she is really proud  of the Board of  Trustees and                                                               
its  management of  the  fund.   She  felt  that  there has  been                                                               
extraordinarily good management of the  fund, and that has placed                                                               
the state in its current  position.  Furthermore, the legislature                                                               
has been [helpful as well].   Ms. Sturgulewski announced that she                                                               
is in  strong support of this  proposed constitutional amendment.                                                               
Ms. Sturgulewski commented that  Hugh Malone and Elmer Rasmussen,                                                               
as well  as people from around  the country who dealt  with large                                                               
foundations  really  developed  the idea  of  inflation-proofing.                                                               
She  informed the  committee that  last year,  32 percent  of the                                                               
amount of the  dividend came from inflation-proofing.   There was                                                               
also a  substantial portion  of the dividend  that came  from the                                                               
dollars  that   the  legislature   put  into   the  fund.     Ms.                                                               
Sturgulewski related  her feeling  that the permanent  fund would                                                               
be the  target if the fiscal  gap isn't answered, which  she felt                                                               
would be  a mistake.  Ms.  Sturgulewski noted that she  serves on                                                               
the  University  of  Alaska  foundation,  the  Board  of  Sheldon                                                               
Jackson,  and the  local  board of  the YMCA,  all  of which  use                                                               
similar principles  [to that of inflation-proofing  the permanent                                                               
fund].                                                                                                                          
                                                                                                                                
TAPE 01-82, SIDE B                                                                                                              
                                                                                                                                
MS. STURGULEWSKI  highlighted the  fact that  [even with  HJR 15]                                                               
the  legislature would  maintain its  authority.   The resolution                                                               
merely protects a  pot of money that will  afford the legislature                                                               
the  ability to  appropriate  money  from this  pot  in times  of                                                               
pressure.  She hoped the committee would move ahead with this.                                                                  
                                                                                                                                
Number 0009                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG remarked  that one of the problems with  HJR 15 is                                                               
that  it requires  the legislature  to place  a de  facto cap  or                                                               
stipulate an allocation.                                                                                                        
                                                                                                                                
MS. STURGULEWSKI  [agreed] that HJR  15 doesn't solve  the fiscal                                                               
planning, although it  provides a tool:  money.   The legislature                                                               
still has to make the decision.                                                                                                 
                                                                                                                                
CHAIR ROKEBERG surmised then  that [the constitutional amendment]                                                               
would have to proceed one step  further in order to impact any of                                                               
the long-range fiscal gaps.                                                                                                     
                                                                                                                                
MS. STURGULEWSKI agreed.                                                                                                        
                                                                                                                                
CHAIR  ROKEBERG  expressed  concern  with the  adoption  of  this                                                               
amendment without the ability of  the legislature to deviate from                                                               
the 5 percent constitutional rate,  in the event of an emergency.                                                               
He said  that flexibility  would probably  give this  amendment a                                                               
boost.                                                                                                                          
                                                                                                                                
MS. STURGULEWSKI  echoed earlier statements  that it would  be up                                                               
to the legislature  to make the determination.   Furthermore, the                                                               
earned income account would still be available.                                                                                 
                                                                                                                                
CHAIR ROKEBERG  interjected that  with the  adoption of  [HJR 15]                                                               
the earned income account would go away.                                                                                        
                                                                                                                                
MR. GRUENING remarked that the  only thing that would be limiting                                                               
would  be the  concept of  principal.   He posed  a situation  in                                                               
which [HJR  15] was  in place  and there  was a  large emergency,                                                               
which would result in the reordering of priorities.                                                                             
                                                                                                                                
MS.  STURGULEWSKI  said  that  everyone  should  understand  that                                                               
currently  "we"   have  the  components  of   the  constitutional                                                               
appropriation and  there is the  amount that the  legislature has                                                               
placed in the corpus.  Furthermore, there are the earnings.                                                                     
                                                                                                                                
Number 0044                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG restated his question  that deals with the circuit                                                               
breaker  concept.    He  saw  this  amendment  as  allowing  [the                                                               
legislature access to] only the 5  POMV funds.  Therefore, he was                                                               
concerned that the  legislature has no provision to  allow for an                                                               
emergency allocation.                                                                                                           
                                                                                                                                
MR.  GRUENING said,  "Without amending  the  constitution."   Mr.                                                               
Gruening  pointed out  that  such an  argument  was made  against                                                               
establishing  the permanent  fund in  the first  place.   Senator                                                               
Radar  said  to   the  Senate  that  it   shouldn't  tell  future                                                               
legislatures that it can't spend it all.                                                                                        
                                                                                                                                
CHAIR ROKEBERG  commented that  such was taken  care of  with the                                                               
creation of  the statutory earnings  reserve, although  he wasn't                                                               
sure that was fully understood at the time the fund was created.                                                                
                                                                                                                                
MR.  STORER  pointed  out  that there  is  5  percent,  $1.2-$1.3                                                               
billion,  available per  year under  this program.   However,  it                                                               
would  mean  spending  the  dividend.     In  response  to  Chair                                                               
Rokeberg, Mr.  Storer said that  this year  it was just  short of                                                               
$1.1 billion.  Therefore, the  legislature would have about $1.25                                                               
billion  to address  an  emergency.   He  noted  that usually  an                                                               
emergency of the magnitude [that  would be addressed by the $1.25                                                               
billion] would take years to address.                                                                                           
                                                                                                                                
CHAIR ROKEBERG questioned whether $9  [a barrel for] oil would be                                                               
considered an emergency.                                                                                                        
                                                                                                                                
MR. GRUENING  facetiously pointed  out that a  three-quarter vote                                                               
could be taken.                                                                                                                 
                                                                                                                                
CHAIR  ROKEBERG expressed  concern with  the potential  $800-$900                                                               
million  annual gap  and the  availability of  [only] about  $200                                                               
million [to address that gap].                                                                                                  
                                                                                                                                
MS. STURGULEWSKI commented that  such difficulties illustrate why                                                               
the  permanent  fund  is  a  target.    She  asked  whether  [the                                                               
legislature] wants to have [the 5  POMV of the permanent fund] as                                                               
one of its tools on an ongoing basis [as proposed under HJR 15].                                                                
                                                                                                                                
Number 0089                                                                                                                     
                                                                                                                                
REPRESENTATIVE COGHILL turned to  the mechanics, the timing, that                                                               
would take  place if HJR  15 were to pass  and be adopted  by the                                                               
voters.  He inquired as to  the timing in relation to overlapping                                                               
the statute with  regard to the earnings reserve  account and the                                                               
determination of  advisory averaging  while moving into  a market                                                               
base.                                                                                                                           
                                                                                                                                
MR. STORER  answered that  he believes  there is a  60 or  90 day                                                               
lag.   However, the  computation would use  the prior  five years                                                               
and thus one would immediately know how much is available.                                                                      
                                                                                                                                
Number 0100                                                                                                                     
                                                                                                                                
JIM  KELLY, Research  & Liaison  Officer,  Alaska Permanent  Fund                                                               
Corporation, Department  of Revenue,  clarified that it  would be                                                               
less than 90 days; it would  be some time prior to February 2003.                                                               
At  that time,  the projections  show  a 5  percent payout  being                                                               
around  $1.3  [billion].    He  pointed  out  that  in  terms  of                                                               
emergencies, the  legislature has a  solution in the form  of the                                                               
CBR,  which has  $3 billion  and that  is as  much as  is in  the                                                               
earnings reserve account.   Mr. Kelly remarked that  if one wants                                                               
to think  about a long-term solution  to a problem, one  wants to                                                               
keep  a constitutional  budget reserve.   However,  the permanent                                                               
fund should  be looked  at as  a growing source  of income.   Mr.                                                               
Kelly reviewed the forecast over time  in regard to the growth of                                                               
the   [earnings  reserve   account]  and   emphasized  that   the                                                               
legislature wants to  ensure that it has this  resource.  Without                                                               
[the earnings  reserve account], there  is not only  no resource,                                                               
there is no solution to the problem.                                                                                            
                                                                                                                                
Number 0125                                                                                                                     
                                                                                                                                
REPRESENTATIVE  COGHILL referred  to  lines 9-11  of  HJR 15  and                                                               
asked if  that was taken care  of in [subsection] (b).   He asked                                                               
whether that language [on lines 9-11] was necessary.                                                                            
                                                                                                                                
MR. KELLY  explained that  when the  constitution was  created 20                                                               
years  ago, all  the income  from the  permanent fund  was to  be                                                               
deposited  into the  general fund,  unless otherwise  provided by                                                               
law.  Therefore,  the permanent fund was the principal  only.  In                                                               
1980, with the  passage of the Alaska  Permanent Fund Corporation                                                               
Act, the  law was changed  to provide  that income stayed  in the                                                               
permanent fund  in an  earnings reserve  account.   Therefore, it                                                               
was clear in statute that the  income was included as part of the                                                               
permanent fund.  This constitutional  change clarifies the matter                                                               
further  by   placing  [the   aforementioned  language]   in  the                                                               
constitution and thus the income  of the earnings reserve account                                                               
is part of  the permanent fund.  Therefore, the  5 percent of the                                                               
income is paid plus the principal.                                                                                              
                                                                                                                                
MS. STURGULEWSKI clarified, "On top of that."                                                                                   
                                                                                                                                
Number 0157                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG requested that Mr.  Storer or Mr. Kelly comment on                                                               
his  belief that  the  statute is  broken as  it  relates to  the                                                               
Mother of all Models (MOMA) and  thus [the state] finds itself in                                                               
a negative market situation.   He recalled that particular run of                                                               
the model  was based on  the 1970s.   He also  requested comments                                                               
regarding what  would happen  in relation to  the statute  with a                                                               
Nikkei market that was 10-year down or flat-lined.                                                                              
                                                                                                                                
MR. STORER said that without using  the MOMA but rather a simpler                                                               
model he [researched] the type  of market impacts that would have                                                               
an  adversarial effect  on  the  permanent fund.    He found,  in                                                               
reviewing the  size of  the fund  now back to  1971, there  was a                                                               
lag.   In about 1977 he  found that the dividend  ceased to exist                                                               
and  it was  difficult  to fund  inflation-proofing  for about  a                                                               
year, after  which it went back  up.  That was  the most negative                                                               
scenario  he  could   find.    He  mentioned   that  he  actually                                                               
[reviewed] the Depression era, where he found no impact.                                                                        
                                                                                                                                
CHAIR  ROKEBERG  recalled testimony  from  the  corporation at  a                                                               
Senate  Finance Committee  hearing that  if the  large amount  of                                                               
monies  in  the  earnings  reserve  hadn't  been  available,  the                                                               
dividend  wouldn't have  been  paid.   He  mentioned a  timeframe                                                               
[during which the market] was on the downside.                                                                                  
                                                                                                                                
MR. STORER agreed that the  earnings reserve does allow a cushion                                                               
in really negative environments such as is the case currently.                                                                  
                                                                                                                                
CHAIR ROKEBERG  surmised then  that if all  the money  people had                                                               
wanted to take  from the earnings reserve to place  in the corpus                                                               
had  been done,  there may  not have  been the  money to  pay the                                                               
dividend, even in the near term.                                                                                                
                                                                                                                                
MR. STORER  agreed.  He noted  that in the late  1980s some money                                                               
did  go  into  the  principal,  which  replenished  the  earnings                                                               
reserve  very  quickly.   Although  that  cushion  [the  earnings                                                               
reserve] is  down, it still  constitutes about 15 percent  of the                                                               
fund.    Mr. Storer  indicated  agreement  with Chair  Rokeberg's                                                               
statement  that in  the 1980s  almost  everything was  inflation-                                                               
proofed.                                                                                                                        
                                                                                                                                
CHAIR ROKEBERG  expressed concern  with the allocation  issue and                                                               
reiterated  his  concern with  the  circuit  breaker issue.    He                                                               
related  his belief  that  if  [HJR 15]  is  adopted, then  there                                                               
should be a statutory scheme in  place that goes along with it so                                                               
that voters understand  what will happen.  He  explained that the                                                               
threat of  an untoward  allocation on  the PFD  could be  used by                                                               
opponents of  the amendment.   For instance,  there [could  be] a                                                               
50:50 split between  the GF and the PFD that  would lower the PFD                                                               
to the point that this amendment  [HJR 15] would be defeated.  On                                                               
other hand,  having a  residual of $100-$200  million for  the GF                                                               
seems to  "lock up" the  permanent fund for perpetuity  and would                                                               
also lead to  the defeat of [HJR 15].   Therefore, Chair Rokeberg                                                               
felt  that  the  statute  has   to  be  changed  along  with  the                                                               
amendment,  and also  there  needs  to be  some  sort of  circuit                                                               
breaker even if that is the three-quarter vote.                                                                                 
                                                                                                                                
Number 0242                                                                                                                     
                                                                                                                                
SCOTT  GOLDSMITH, Economist,  University of  Alaska -  Anchorage,                                                               
spoke in  support of this amendment,  HJR 15.  He  felt that [HJR
15] would achieve  three very important objectives.   First there                                                               
is always the potential, under  the current structure, that there                                                               
may  be conflicting  management  objectives.   On  the one  hand,                                                               
there  is the  objective  of maximizing  long-term  real rate  of                                                               
return on the  fund.  On the other hand,  there is the short-term                                                               
objective of meeting any dividend  payment target, which would be                                                               
eliminated with a 5 percent  annual automatic draw from the fund.                                                               
Furthermore,  Mr. Goldsmith  felt that  the 5  [POMV] would  free                                                               
management to  look to the  long-term and maximize the  real rate                                                               
of return of the fund.   Second the current annual flow of income                                                               
off  the  fund is  somewhat  unstable.    Although the  5  [POMV]                                                               
wouldn't completely eliminate  that instability, the fluctuations                                                               
from year  to year  would be  significantly reduced,  he thought.                                                               
Such  would be  useful in  regard to  long-term fiscal  planning.                                                               
Finally, this amendment would  solidify the inflation-proofing of                                                               
the principal  so that there would  be no chance of  having years                                                               
without inflation-proofing.                                                                                                     
                                                                                                                                
Number 0276                                                                                                                     
                                                                                                                                
REPRESENTATIVE DAVIES explained  that the inflation-proofing [the                                                               
5 POMV]  is built in  to the calculation, assuming  the long-term                                                               
rate of return  and the long-term inflation rate.   Therefore, he                                                               
questioned how "good" those numbers are.                                                                                        
                                                                                                                                
MR. GOLDSMITH  noted that he isn't  an expert in how  other funds                                                               
have performed.   However, in speaking with others  that are more                                                               
knowledgeable,  he  understood that  5  percent  is a  reasonable                                                               
target  that can  be achieved  over the  long-term.   He said  he                                                               
wouldn't recommend going higher than 5 percent.                                                                                 
                                                                                                                                
CHAIR ROKEBERG  pointed out  that [the 5  percent] is  the payout                                                               
and isn't necessarily the real rate  of return, which is based on                                                               
the level of inflation.                                                                                                         
                                                                                                                                
MR. GOLDSMITH  clarified that he  has the understanding that  a 5                                                               
percent rate  of return  isn't unreasonable  over the  long term.                                                               
In response  to Chair Rokeberg,  Mr. Goldsmith remarked that  a 6                                                               
percent rate of return would be "stretching it a little bit."                                                                   
                                                                                                                                
MR. GOLDSMITH, in response to  Chair Rokeberg's concern regarding                                                               
a  circuit breaker  for emergencies,  noted that  the legislature                                                               
would probably have other sources  available in an emergency.  He                                                               
felt  that turning  to  the  permanent fund  should  be the  last                                                               
resort.   He echoed earlier  testimony that the CBR  or temporary                                                               
taxes could be options.                                                                                                         
                                                                                                                                
CHAIR ROKEBERG announced that the  public hearing on HJR 15 would                                                               
be recessed until some time in January.                                                                                         
                                                                                                                                
[HJR 15 was held over.]                                                                                                         
                                                                                                                                
CHAIR ROKEBERG  called for a recess  at 1:06 p.m.   He called the                                                               
meeting back to order at 1:45 p.m.                                                                                              
                                                                                                                                
SJR 23 - CONST AM: APPROPRIATION/SPENDING LIMIT                                                                               
                                                                                                                                
Number 0326                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG  announced that the  next order of  business would                                                               
be  CS FOR  SENATE  JOINT RESOLUTION  NO.  23(FIN) am,  Proposing                                                               
amendments to  the Constitution of  the State of  Alaska relating                                                               
to an appropriation limit and a spending limit.                                                                                 
                                                                                                                                
Number 0331                                                                                                                     
                                                                                                                                
SENATOR DAVE  DONLEY, Alaska State Legislature,  testified as the                                                               
sponsor of  SJR 23.   Senator Donley informed the  committee that                                                               
when  the  Senate  passed  SJR   23  he  promised  to  work  with                                                               
Legislative Legal  Services and the Legislative  Finance Division                                                               
on defining the concept of  a constitutional spending limit.  The                                                               
aforementioned group has  been working on that  and developed the                                                               
proposed committee  substitute (CS) that is  before the committee                                                               
today.                                                                                                                          
                                                                                                                                
Number 0361                                                                                                                     
                                                                                                                                
REPRESENTATIVE  MEYER  moved  to  adopt proposed  HCS  CSSJR  23,                                                               
version  22-LS0734\P,  Cook,  9/4/01,  as  the  working  document                                                               
before the  committee.  There  being no objection, Version  P was                                                               
before the committee.                                                                                                           
                                                                                                                                
SENATOR DONLEY turned to his  slide presentation that is included                                                               
in the committee packet.   He remarked, "Most Alaskans agree that                                                               
development of  a long-range fiscal  plan is one of  the greatest                                                               
challenges facing our  state."  He felt that it  is surprising to                                                               
look at where  [the state] is today versus where  it was with the                                                               
constitutional budget reserve (CBR).   He pointed to a chart that                                                               
illustrated that  the CBR  didn't follow  the projection  that it                                                               
would be  exhausted in  2000.   Legislative Finance  reviewed why                                                               
the  result was  drastically  different than  what was  projected                                                               
several  years  ago.   There  were  four  major reasons  for  the                                                               
difference.   The second  largest reason  was lower  general fund                                                               
(GF) spending  while the  largest reason  for the  difference was                                                               
that there were more settlements coming into the CBR.                                                                           
                                                                                                                                
CHAIR  ROKEBERG  clarified that  the  CBR  is higher  because  of                                                               
$711.9  million  in  spending   cuts,  $1.3  billion  in  greater                                                               
settlements, as well  as greater than projected  earnings and oil                                                               
revenue.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  DAVIES  explained  that  the  $711.9  million  is                                                               
partly  because of  budget  cuts and  partly  because the  budget                                                               
didn't  grow by  that much.   He  pointed out  that there  was an                                                               
assumption that  the budget would  grow by a certain  percent and                                                               
since it didn't, there was a difference.                                                                                        
                                                                                                                                
SENATOR DONLEY agreed.                                                                                                          
                                                                                                                                
CHAIR  ROKEBERG asked,  "It's  not the  actual  savings from  the                                                               
elimination of the monies, then?"                                                                                               
                                                                                                                                
SENATOR DONLEY answered that it's  the elimination from projected                                                               
budget growth.  He explained  that the original graph illustrates                                                               
where the  state would be with  the CBR based on  the projections                                                               
in 1995.  The next graph  explains why the CBR didn't move/expire                                                               
as projected in 1995.                                                                                                           
                                                                                                                                
SENATOR DONLEY  said, "The Senate  Majority believes  that before                                                               
considering major  new taxes on  Alaskans, first we need  to make                                                               
sure that ...  state government is running as  well as possible."                                                               
He pointed out  that in the U.S. constitutions are  the basis for                                                               
government.   Therefore, the first  step should be to  review the                                                               
state  constitution  and  determine  whether  it  is  functioning                                                               
properly.   He felt  that there  are two  parts, which  deal with                                                               
fiscal policy,  of Alaska's constitution that  aren't functioning                                                               
properly.   Those are  the existing  constitutional appropriation                                                               
limit and  the existing constitutional budget  reserve provision.                                                               
The  resolution  before  the  committee  addresses  the  existing                                                               
constitutional appropriation limit.                                                                                             
                                                                                                                                
SENATOR   DONLEY   stated   that   the   current   constitutional                                                               
appropriation  limit provision  isn't  working,  the language  is                                                               
misleading and  unclear, and the limit  has grown too large.   He                                                               
explained that the limit was set  in 1982 with an escalator based                                                               
on  population   and  inflation   that  has   driven  it   to  an                                                               
unrealistically high  amount of  over $6  billion.   However, the                                                               
definition   of   what   is  included   in   the   constitutional                                                               
appropriation limit would  lead to spending of  about $3 billion.                                                               
He  reminded the  committee that  the discussion  revolves around                                                               
spending, as defined by the constitutional provision.                                                                           
                                                                                                                                
SENATOR DONLEY turned  to the overwhelming rejection  of the last                                                               
fiscal  plan proposal  in September  1999.   He interpreted  that                                                               
rejection  as the  public not  wanting to  give the  government a                                                               
blank  check; the  public wanted  some assurance  that additional                                                               
revenues wouldn't  merely fuel more spending.   Therefore, having                                                               
reasonable  limits  on  government  spending  would  seem  to  be                                                               
acceptable to the  majority of Alaskans and thus  is the proposal                                                               
embodied in SJR 23.                                                                                                             
                                                                                                                                
SENATOR  DONLEY moved  on  to the  next slide  that  has a  graph                                                               
illustrating   the   current   spending   limit   versus   recent                                                               
appropriations.    The  graph illustrates  that  [the  state]  is                                                               
spending  about half  what [the  limit] allows.   Senator  Donley                                                               
reiterated  that  the  constitutional appropriation  limit  isn't                                                               
working and has  never worked.  Furthermore, the  language in the                                                               
provision leads  one to  believe that  one-third of  the spending                                                               
has to  be towards  capital projects,  but an  attorney general's                                                               
opinion has  stated otherwise.   Again, an average  citizen would                                                               
be  confused and  thus the  language should  be simplified.   The                                                               
interpretation  has  been  that the  one-third  spending  towards                                                               
capital  projects would  only occur  if the  $6 billion  spending                                                               
occurs,  which won't  happen.   "To  correct  this, the  proposed                                                               
committee substitute proposes to  base any allowable increases on                                                               
previous year's  budgets and to  limit those increases to  only 2                                                               
percent," he explained.   The [CS] also clarifies what  is and is                                                               
not included in the appropriation limit.                                                                                        
                                                                                                                                
SENATOR DONLEY  continued with  the slide  that includes  a graph                                                               
illustrating the effect  of Version P.  He noted  that there is a                                                               
safety valve  in that in  years when there  is the need  to spend                                                               
more money, a  super majority concurrence allows  an additional 2                                                               
percent to be appropriated.   He clarified that the [additional 2                                                               
percent appropriation  via a super majority  concurrence] ensures                                                               
that it  is based  on what  is being spent  in the  current year.                                                               
Therefore, there  wouldn't be a  growth rate that is  higher than                                                               
the  out years.   He  specified that  it is  always based  on the                                                               
amount of the prior two years,  which he saw as a big improvement                                                               
to  the   1982  amendment.     This   amendment  will   base  the                                                               
appropriation limit on  the two previous years'  budgets and thus                                                               
there is a greater relationship between the two.                                                                                
                                                                                                                                
SENATOR  DONLEY   announced  that  these  artificial   limits  on                                                               
spending  aren't  his  first  choice.    He  preferred  that  the                                                               
legislature  and the  executive  branch come  together and  limit                                                               
spending, which  is very difficult.   He felt that  an artificial                                                               
restraint would  be the best  option right now.   This artificial                                                               
restraint provides the public with  a constitutional mandate that                                                               
any money,  in addition to the  2 or 4 percent,  would go towards                                                               
reducing the fiscal gap.                                                                                                        
                                                                                                                                
Number 0553                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGAN inquired  as to  whether Senator  Donley was                                                               
concerned that  this would send  a signal to legislators  that it                                                               
is acceptable  to increase  the budget by  2 percent  every year,                                                               
and 4 percent if the votes are obtained.                                                                                        
                                                                                                                                
SENATOR  DONLEY acknowledged  that  there may  be  a tendency  to                                                               
think that way.   However, this [proposal] is  vastly superior to                                                               
the  current   malfunctioning  [limit].    This   proposal  is  a                                                               
realistic limit  because going  over 2  percent could  only occur                                                               
with  a  super majority  vote  and  going  over 4  percent  would                                                               
require some  other provisions.  Furthermore,  Version P requires                                                               
that this  automatically return  to the voters  in four  years in                                                               
order to assess whether it's working  or not and whether there is                                                               
the desire to  take it out of the constitution.   After the first                                                               
four years, the opportunity to  remove this from the constitution                                                               
would automatically occur every six years.                                                                                      
                                                                                                                                
Number 0583                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGAN  posed a  situation  in  which there  is  an                                                               
emergency  need  for  increased   spending  that  exceeds  the  4                                                               
percent.  He  asked if there is any circuit  breaker to deal with                                                               
that possibility.                                                                                                               
                                                                                                                                
SENATOR  DONLEY  pointed  out  that  there  are  ten  exceptions,                                                               
including   appropriations  to   the  permanent   fund,  dividend                                                               
program,  disasters,   the  railroad,  general   obligation  (GO)                                                               
[bonds],  and revenue  bonds.   He emphasized  that if  there was                                                               
ever a real  problem that didn't meet other  definitions, such as                                                               
a disaster or  war, then the capital budget could  be placed on a                                                               
GO  bond  and  placed  before  the voters.    There  could  be  a                                                               
contingent budget  based on voter  approval.  Under  the existing                                                               
budget, there  is over $100  million of emergency leeway  and the                                                               
general operating dollars  would be replaced with the  GF for the                                                               
capital budget.                                                                                                                 
                                                                                                                                
Number 0628                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAVIES  pointed  out  that  a  contingent  budget                                                               
couldn't  be  passed because  that  would  be tantamount  to  the                                                               
people appropriating.                                                                                                           
                                                                                                                                
SENATOR  DONLEY indicated  agreement with  Representative Davies,                                                               
but noted that  [the legislature] could be prepared  to deal with                                                               
it if the people didn't approve it.                                                                                             
                                                                                                                                
TAPE 01-83, SIDE A                                                                                                              
                                                                                                                                
SENATOR  DONLEY noted  the option  of bonding  for some  expenses                                                               
that  are  currently  dealt  with through  GF.    Senator  Donley                                                               
continued with the  exceptions.  Money that  is appropriated from                                                               
the  federal  government  is excluded  from  the  [constitutional                                                               
appropriation] limit  as are  obligations on  bonds, certificates                                                               
of  participation,  reappropriations,   transfers  between  state                                                               
agencies, and appropriations under  the super majority provision.                                                               
Senator  Donley felt  that  [HCS  SJR 23]  is  a vastly  superior                                                               
definition in regard to what is  included and not included in the                                                               
calculation of the appropriation limit versus the 1982 version.                                                                 
                                                                                                                                
Number 0010                                                                                                                     
                                                                                                                                
REPRESENTATIVE COGHILL inquired as to  how [HCS SJR 23] addresses                                                               
capital.                                                                                                                        
                                                                                                                                
SENATOR  DONLEY explained  that non-federal  capital expenditures                                                               
are  included in  this appropriation  limit  while federal  money                                                               
isn't included.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  COGHILL referred  to  the  one-third portion  for                                                               
capital spending that is currently in the constitution.                                                                         
                                                                                                                                
SENATOR DONLEY interjected that it's deleted.                                                                                   
                                                                                                                                
REPRESENTATIVE   BERKOWITZ  asked   if   this  resolution   would                                                               
eliminate the three-quarters (indisc.) line item.                                                                               
                                                                                                                                
SENATOR DONLEY replied no.                                                                                                      
                                                                                                                                
Number 0025                                                                                                                     
                                                                                                                                
DAVID  TEAL,  Director/Legislative  Fiscal  Analyst,  Legislative                                                               
Finance Division, Alaska State  Legislature, referred to [Article                                                               
IX] Section  16 of  the Alaska  Constitution, and  explained that                                                               
the  limit  can   be  exceeded  for  permanent   fund  bills  and                                                               
appropriation  bills  for capital  projects  if  approved by  the                                                               
governor.  The  entire discussion regarding a  portion being used                                                               
for  capital  budget spending  [is  deleted]  while [the  current                                                               
constitutional language]  refers to bills passed  by the governor                                                               
or an override of a capital bill.                                                                                               
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  inquired  as  to the  section  in  the                                                               
constitution   where    the   three-quarter   override    of   an                                                               
[appropriation] veto is located.                                                                                                
                                                                                                                                
SENATOR DONLEY answered that  the three-quarter override language                                                               
is  located  in  the  primary  part  of  the  constitution  under                                                               
Executive Powers.                                                                                                               
                                                                                                                                
MR.  TEAL  quoted from  Article  IX,  Section  16 of  the  Alaska                                                               
Constitution as follows:  "The  legislature may exceed this limit                                                               
in bills for  appropriations to the Alaska permanent  fund and in                                                               
bills for  appropriations for capital  projects, whether  of bond                                                               
proceeds or  otherwise ...."   [This resolution] says  that bills                                                               
that  appropriate  money to  the  permanent  fund or  appropriate                                                               
money for  any capital projects  that are passed by  the governor                                                               
or overridden by the legislature are outside the limit.                                                                       
                                                                                                                                
SENATOR  DONLEY  interjected  that  the  three-quarters  override                                                               
requirement  for  a budget  item  is  contained in  the  original                                                               
constitution.                                                                                                                   
                                                                                                                                
MR. TEAL noted that all  appropriation bills have a three-quarter                                                               
super majority  override while a  two-third override  is required                                                               
for nonappropriation bills.  Mr.  Teal clarified, "What it really                                                               
says is that  if you exceed the  limit, you can go  to the voters                                                               
and ask them if it's OK to exceed the limit."                                                                                   
                                                                                                                                
Number 0077                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ posed a  hypothetical situation in which                                                               
there was  a federal mandate,  a large population increase,  or a                                                               
large  increase in  inflation.   In such  a situation,  how would                                                               
this spending cap operate?                                                                                                      
                                                                                                                                
SENATOR  DONLEY  answered  that  the  ordinary  growth  would  be                                                               
limited  to  2  percent,  while   any  federal  funding  for  the                                                               
situation would  be outside  of the limit.   Furthermore,  with a                                                               
super  majority,  the [appropriation]  could  be  increased to  4                                                               
percent  in  additional spending.    If  inflation or  population                                                               
growth was  over 4 percent,  then the actual per  capita spending                                                               
would be forced to decrease.                                                                                                    
                                                                                                                                
REPRESENTATIVE BERKOWITZ posed a situation  in which there was 10                                                               
percent  inflation  and a  large  population  increase while  the                                                               
federal government says that funding  must be changed pursuant to                                                               
federal standards.   He  asked if  the state  would have  to "eat                                                               
that difference."                                                                                                               
                                                                                                                                
SENATOR DONLEY answered that the next  step would be to review GO                                                               
bonding,  a  portion  of  the   capital,  in  order  to  free  up                                                               
additional GF  for operating, which  would require a vote  of the                                                               
people.   He emphasized  that for most  states, when  there isn't                                                               
enough money for their operating  budget, they don't have a large                                                               
capital budget.   The second  step would be the  automatic review                                                               
by the voters after four years, and  then again in six years.  If                                                               
this [appropriation  limit] wasn't functioning properly,  then it                                                               
could be taken  out of the constitution.  The  ability to vote to                                                               
take the provision out of  the constitution is something the 1982                                                               
provision doesn't have.                                                                                                         
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  inquired  as  to  why  4  percent  was                                                               
chosen.                                                                                                                         
                                                                                                                                
SENATOR DONLEY explained that the  original proposal was one-half                                                               
of population and inflation growth.   However, the past seemed to                                                               
support 2 percent  as a reasonable amount of growth.   He further                                                               
explained that he  was trying to tie it to  a close previous year                                                               
rather than a fixed point in  time.  However, a reasonable amount                                                               
of increase is open for debate.                                                                                                 
                                                                                                                                
REPRESENTATIVE BERKOWITZ related his  understanding then that the                                                               
4 percent  relates to historic inflation  and historic population                                                               
growth.                                                                                                                         
                                                                                                                                
SENATOR  DONLEY answered,  "Somewhat."   However, Senator  Donley                                                               
noted  that one  of the  intents of  this resolution  is to  work                                                               
towards lower  per capita  spending.  "So,  while it  allows real                                                               
spending  increases by  only allowing  a 2  percent increase,  in                                                               
years where you may even have  a bigger inflation and so you need                                                               
to go to  4 [percent], you're still working  towards reducing our                                                               
overall per capita spending," he clarified.                                                                                     
                                                                                                                                
Number 0094                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG pointed out that if  there is high inflation, a 4-                                                               
6 percent increase, then there  may actually be a diminishment of                                                               
spending in real  terms.  Therefore, it is possible  to move into                                                               
a negative growth situation that may or may not be good.                                                                        
                                                                                                                                
CHAIR ROKEBERG  inquired as to  where the state stands  in regard                                                               
to the [actual appropriated] GF.                                                                                                
                                                                                                                                
MR. TEAL  answered that  [the actual]  GF [appropriated]  is $2.4                                                               
billion.                                                                                                                        
                                                                                                                                
CHAIR  ROKEBERG  noted  that  there   is  about  a  $770  million                                                               
distinction in definition between what  is called GF now and what                                                               
the definition is [in this resolution].                                                                                         
                                                                                                                                
SENATOR DONLEY noted that there  is an existing definition in the                                                               
constitution for the existing  appropriation.  Therefore, Version                                                               
P revises that existing definition.                                                                                             
                                                                                                                                
MR.  TEAL added  that what  happens over  time is  a shifting  of                                                               
expenditures from  the general fund  to the other  fund's column.                                                               
He explained  that [Version  P] looks  at all  state expenditures                                                               
rather than looking at straight  GF appropriations, which is what                                                               
the  constitution did.   With  this new  approach, one  must also                                                               
review  what is  excluded.   For  example, [the  language in  the                                                               
constitution  for  the  appropriation limit]  excluded  permanent                                                               
fund dividends,  but it didn't exclude  permanent fund inflation-                                                               
proofing or special appropriations to  the permanent fund both of                                                               
which  are excluded  in Version  P.   Furthermore, bond  proceeds                                                               
were already  excluded from  the limit, but  with Version  P debt                                                               
service  on  bonds  is  also   excluded.    The  Alaska  Railroad                                                               
Corporation is excluded because it  is off-budget and there is no                                                               
desire to  include them  even if the  corporation became  part of                                                               
the budget at some time.                                                                                                        
                                                                                                                                
MR. TEAL agreed  with Chair Rokeberg's earlier  remark that there                                                               
is about $700 million of other  state spending that is subject to                                                               
the limit, not just GF.                                                                                                         
                                                                                                                                
MR. TEAL,  in response to  Representative Davies,  confirmed that                                                               
the other state spending does  include the Alaska Housing Finance                                                               
Corporation  (AHFC) and  the  Alaska  Industrial Development  and                                                               
Export  Authority (AIDEA).   Mr.  Teal  indicated agreement  that                                                               
AHFC  and AIDEA  are included  because  they are  subject to  the                                                               
Executive Budget Act.   He explained that  the operating expenses                                                               
of AIDEA and AHFC are appropriated.                                                                                             
                                                                                                                                
Number 0150                                                                                                                     
                                                                                                                                
REPRESENTATIVE MEYER  remarked that  this proposal reminds  him a                                                               
lot of the  tax cap the Municipality of Anchorage  (MOA) has.  He                                                               
recalled that the MOA's tax cap  is based on increases in the CPI                                                               
and  a five-year  average  of the  population.   He  asked if  an                                                               
approach like that  of the MOA would be better  than specifying 2                                                               
percent.                                                                                                                        
                                                                                                                                
SENATOR DONLEY  said that  such models had  been reviewed  and he                                                               
was  open to  such a  proposal.   However, he  noted that  he was                                                               
pleased  with  his  resolution because  of  its  simplicity,  and                                                               
because of  its ultimate result of  reducing capital expenditures                                                               
if  inflation and  population  increases continue.    One of  the                                                               
biggest  faults with  the 1982  amendment was  that whatever  the                                                               
population and inflation, the growth was allowed.                                                                               
                                                                                                                                
MR. TEAL remarked  that simplification is really the  answer.  He                                                               
recalled that  the discussion  over the  resolution moved  to the                                                               
question  of  how  much  money  is  involved.    That  discussion                                                               
[resulted]  in the  determination that  this limit  allows budget                                                               
growth  of $64  million  with  a simple  majority  vote and  $128                                                               
million  with  a  two-thirds  majority.   Therefore,  if  one  is                                                               
attempting to  limit expenditures, what number  would one choose.                                                               
Rather than try to figure  out inflation and population growth, a                                                               
number was  chosen.  Two percent  is about half of  the long term                                                               
...   However, Mr. Teal  mentioned that  if one is  interested in                                                               
making  this  [appropriation  limit] last  forever,  without  any                                                               
modifications, then  the actual  growth rates should  be included                                                               
because it would better keep pace.                                                                                              
                                                                                                                                
Number 0198                                                                                                                     
                                                                                                                                
REPRESENTATIVE MEYER  inquired as to why  the amendment [embodied                                                               
in SJR 23] would go before the voters every six years.                                                                          
                                                                                                                                
SENATOR  DONLEY  reiterated that  the  1982  amendment has  never                                                               
worked.  He  wished that there had been  an automatic opportunity                                                               
to  get rid  of [the  1982 amendment]  because it's  difficult to                                                               
reach the consensus  necessary in the legislature to  place it on                                                               
the ballot.   The amendment  goes before  the voters in  order to                                                               
ensure that  the issue  is reviewed  in a  meaningful way.   This                                                               
automatic  placement before  the voters  forces honest  review of                                                               
the  amendment  by  the legislature.    Although  Senator  Donley                                                               
acknowledged  the argument  that  too many  items  on the  ballot                                                               
[make the  voter complacent],  he felt  that the  largest problem                                                               
facing [the  state] is  the fiscal  gap.  The  number one  way to                                                               
solve  the  fiscal gap  is  to  ensure  the public,  through  the                                                               
constitutional guarantee,  that [the legislature] won't  go crazy                                                               
if additional revenue is found.                                                                                                 
                                                                                                                                
Number 0226                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ inquired as  to the appropriation limits                                                               
that were in place prior to 1982.                                                                                               
                                                                                                                                
SENATOR DONLEY  replied none,  save the  constitutional provision                                                               
to balance expenditures to revenue.                                                                                             
                                                                                                                                
CHAIR ROKEBERG pointed out that there could be deficit spending.                                                                
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  remarked  on the  simplicity  of  that                                                               
approach and thus he suggested going back to that provision.                                                                    
                                                                                                                                
MR.  TEAL pointed  out  that  in 1982  people  expected $100  per                                                               
barrel   of  oil   and  revenues   that  exceeded   expenditures.                                                               
Therefore, the  purpose of  the limit  was to  try to  force [the                                                               
legislature] to not spend some  of that excess revenue.  Although                                                               
the $100 per barrel of  oil never came, [the legislature] managed                                                               
to get through  the budget process.  Therefore,  some would argue                                                               
that  an [appropriation]  limit  isn't  necessary because  public                                                               
opinion  and   limited  revenue  are  the   appropriation  limit.                                                               
However, that is a political argument.                                                                                          
                                                                                                                                
REPRESENTATIVE BERKOWITZ  highlighted the other limit  that is in                                                               
place, an  election.  Elections  take place every two  years, and                                                               
therefore  if people  are unhappy  with  the appropriations  that                                                               
legislators make, then  the public can vote the  legislator in or                                                               
out.    Representative  Berkowitz   expressed  concern  that  the                                                               
fundamental purpose of this appropriation  limit is to reduce per                                                               
capita  spending,  which he  didn't  believe  to be  the  primary                                                               
obligation  of  a  legislator.    The  primary  obligation  of  a                                                               
legislator  is   to  fulfill  the  constitutional   mandates  for                                                               
education,  public safety,  and  transportation.   Although  that                                                               
obligation  is  different,  it  does  overlap  [with  per  capita                                                               
spending].                                                                                                                      
                                                                                                                                
Number 0268                                                                                                                     
                                                                                                                                
SENATOR  DONLEY  commented  that  he believes  it's  a  political                                                               
question.  Senator  Donley said, "My first choice is  ... that we                                                               
would  have the  discipline  to prioritize  our  budget, to  live                                                               
within  our   means,  and  still  fulfill   those  constitutional                                                               
directives  and   mandates.    Unfortunately,  government   in  a                                                               
democracy is driven just the  opposite direction."  Our system of                                                               
government  doesn't lend  itself  well to  dealing with  deficits                                                               
because  there  is  always  this   great  demand  for  additional                                                               
spending without additional taxation.   [Alaska] is almost to the                                                               
point of crisis and it's time  to start doing something about it.                                                               
This proposal is a positive  step forward.  Furthermore, all that                                                               
is really  being done here is  allowing the people to  vote as to                                                               
whether  they  think  the  current  constitutional  appropriation                                                               
limit should be revised to this proposal.                                                                                       
                                                                                                                                
REPRESENTATIVE BERKOWITZ  stated his belief that  allowing people                                                               
to vote is always a good plan.                                                                                                  
                                                                                                                                
MR. TEAL pointed  out that the appropriations  or expenditures of                                                               
most  states are  limited by  revenue.   However, Alaska  has the                                                               
CBR,  which is  essential to  the state  as a  shock absorber  or                                                               
budget  stabilizer because  oil  prices and  revenue fluctuate  a                                                               
lot.  The  difficulty is that there are projections  that the CBR                                                               
will not exist in five years  because of the fiscal gap.  Without                                                               
the CBR, the state would be in real trouble.                                                                                    
                                                                                                                                
Number 0307                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ inquired as  to how this amendment would                                                               
impact the CBR evaporation.                                                                                                     
                                                                                                                                
MR.  TEAL answered  by pointing  out that  there is  some feeling                                                               
that the  revenue side  of the problem  can't be  addressed until                                                               
the  blank  check  is  taken  away.    Therefore,  this  proposal                                                               
restricts expenditures,  although he didn't have  an exact amount                                                               
of the restriction.   This proposal has the  probability of being                                                               
more effective than the existing limit.   The fact that the limit                                                               
exists  may help  the  legislature address  the  revenue side  as                                                               
well.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  said that  in  looking  at a  spending                                                               
restriction, there  is still a  revenue gap.  Therefore,  he felt                                                               
that the public  should have a complete picture, and  be told how                                                               
the revenue  gap is simultaneously  filled.  That is,  the entire                                                               
package.                                                                                                                        
                                                                                                                                
SENATOR  DONLEY responded  that such  an approach  is problematic                                                               
because  the public  doesn't know  what will  and will  not pass.                                                               
Furthermore,  a  package of  these  proposals  can't be  created.                                                               
Therefore, an [incremental approach]  must be taken, which begins                                                               
by fixing the foundation.                                                                                                       
                                                                                                                                
Number 0337                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG  inquired as to what  would happen to the  base if                                                               
there was  an extraordinary natural disaster  that necessitated a                                                               
$300 million spending appropriation.                                                                                            
                                                                                                                                
SENATOR DONLEY  clarified that things  that are outside  the base                                                               
don't count  towards the next year's  base, which he felt  was an                                                               
improvement [over the 1982 amendment].                                                                                          
                                                                                                                                
CHAIR  ROKEBERG remarked  that,  in a  certain sense,  artificial                                                               
caps create  artificial problems.  However,  he acknowledged that                                                               
the exceptions  included in  this resolution  seem to  offer some                                                               
flexibility.                                                                                                                    
                                                                                                                                
SENATOR DONLEY pointed  out that the super majority vote  for a 4                                                               
percent increase, the  public review, and the  bonding option are                                                               
safety valves for a limited amount of time.                                                                                     
                                                                                                                                
Number 0380                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAVIES  remarked  that originally  he  understood                                                               
this  [2 percent]  to  be based  on the  previous  two years  and                                                               
averaged; however, [now he understood] it  to be based on the two                                                               
years preceding.  Therefore, "it's just looking back two years."                                                                
                                                                                                                                
SENATOR DONLEY  interjected, "Because  we don't have  the numbers                                                               
for the prior year to be able  to prepare the budget for the next                                                               
year.  So, we had to go back two years to base it on."                                                                          
                                                                                                                                
REPRESENTATIVE DAVIES surmised  that if there was  a situation in                                                               
which  the budget  was  reduced and  "you went  out  a couple  of                                                               
years,"  then there  might  be  a large  step  function that  got                                                               
limited.  He offered one solution:   a funding average over a few                                                               
years.  If there was a year  in which [the budget would really be                                                               
reduced], then there  wouldn't be such an impact in  the next two                                                               
years.                                                                                                                          
                                                                                                                                
CHAIR  ROKEBERG noted  the possibility  of  making it  open-ended                                                               
[with  the super  majority vote  to break  the 6  percent] rather                                                               
than having  the 2  percent.  However,  he questioned  what would                                                               
happen in regard to budget discipline.   The public would be left                                                               
to determine whether the super majority vote was valid.                                                                         
                                                                                                                                
REPRESENTATIVE  BERKOWITZ remarked,  "I'm sure  when the  time is                                                               
right, our friends in the  Republican minority won't ... withhold                                                               
their votes for anything."                                                                                                      
                                                                                                                                
Number 0417                                                                                                                     
                                                                                                                                
SENATOR DONLEY suggested  that the chance of  reducing the amount                                                               
of  money that  falls under  this  appropriation by  more than  2                                                               
percent in  one year would  be fairly slim.   If a 2  percent cut                                                               
was achieved, it would automatically be made up.                                                                                
                                                                                                                                
CHAIR  ROKEBERG mentioned  the  possibility  of underfunding  the                                                               
growth effect.   If there  was extraordinarily fast  growth, then                                                               
[the  budget]  may  not  be   keeping  up  with  public  services                                                               
appropriately.    Therefore,  he  questioned how  that  would  be                                                               
addressed when  there are static  numbers.  Chair  Rokeberg noted                                                               
that such could be the reason  for a public policy that makes the                                                               
assumption   that  overspending   is  occurring   currently,  and                                                               
therefore the spending  cap would need to be limited  in order to                                                               
deal with it underneath it.                                                                                                     
                                                                                                                                
SENATOR  DONLEY  answered  that   if  forced,  some  prioritizing                                                               
decisions  could be  made  to shift  funds  to education,  public                                                               
safety, and  transportation in  order to  ensure those  areas are                                                               
addressed.                                                                                                                      
                                                                                                                                
Number 0461                                                                                                                     
                                                                                                                                
SCOTT  GOLDSMITH, Economist,  University of  Alaska -  Anchorage,                                                               
related an  observation from the  public's perspective  in regard                                                               
to whether  a 2  percent growth limit  would convince  the public                                                               
that  the  legislature was  "taking  the  cure."   Mr.  Goldsmith                                                               
pointed  out that  an average  of the  growth rate  on the  chart                                                               
[included  in  the committee  packet]  would  probably average  2                                                               
percent.   Therefore, one could  argue that this  proposal merely                                                               
puts in  place what is already  being done and thus  [the problem                                                               
isn't really  being addressed].  Furthermore,  the argument could                                                               
continue  in the  vein of  the public  - the  general public  who                                                               
doesn't understand real dollars  versus nominal dollars - wanting                                                               
"real cuts."   However, Mr. Goldsmith felt  that [Senator Donley]                                                               
is  on the  correct  path  in saying  that  the  public needs  to                                                               
understand  that  working to  reduce  the  budget has  to  happen                                                               
first.  Mr. Goldsmith asked,  "What's to stop the legislature, on                                                               
the first  day of the session,  from just all pledging  that this                                                               
year the budget is going to be no bigger than it was last year?"                                                                
                                                                                                                                
MR.  GOLDSMITH  informed  the  committee  that  he  had  done  an                                                               
analysis of  the earlier  version of SJR  23, and  therefore it's                                                               
not directly  relevant to Version  P.   However, a number  of the                                                               
changes  encompassed  in  Version  P responded  to  some  of  his                                                               
thoughts on the earlier version of SJR 23.                                                                                      
                                                                                                                                
Number 0518                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG commented  that by going to a  4 percent solution,                                                               
then there  is a static number.   However, the prior  version did                                                               
include  population   growth  and  inflation.     Chair  Rokeberg                                                               
expressed  concern that  if there  is  a stipulated  amount of  4                                                               
percent or  even 6  percent, it would  have a  potential negative                                                               
impact on  economic growth in this  state.  He noted  the need to                                                               
keep in  mind the  impact of  the state  government on  the gross                                                               
state  product and  how much  economic activity  state government                                                               
generates.  To him, even the  status quo is not a very satisfying                                                               
prospect, as a matter of economic policy.                                                                                       
                                                                                                                                
MR. GOLDSMITH said that it seems  that [the state] faces a trade-                                                               
off.   On one hand,  everyone recognizes  that there is  a severe                                                               
fiscal problem  and there  have been no  solutions.   However, if                                                               
holding the line  on spending can be a first  step to providing a                                                               
solution, then serious  thought should be given to that.   At the                                                               
same time, one should recognize  that when one ties [the state's]                                                               
hands and  limits the growth to  a fixed percent per  year, there                                                               
will potentially be some consequences  that may be adverse in the                                                               
future.    He  felt  that  the  most  obvious  potential  adverse                                                               
consequence is the one that [Chair Rokeberg] suggested.                                                                         
                                                                                                                                
MR.  GOLDSMITH pointed  out that  the amendment  begins by  going                                                               
into effect for  four years.  In his opinion,  the growth rate of                                                               
the population and inflation over the  next four years would be 1                                                               
percent  a year  and 2-3  percent,  respectively.   He felt  that                                                               
those projections would be consistent  with [2] percent growth in                                                               
the state  budget, which would mean  that the budget would  get a                                                               
little smaller in  real per capita terms.  However,  that is also                                                               
a continuation of  the trend line that the state  has been on for                                                               
the last  few years.   On the other  hand, the Alaska  economy is                                                               
very difficult to predict.  If  there is one year when population                                                               
growth is  higher [than his  aforementioned projection],  then it                                                               
isn't so bad, as long as it falls  again.  However, if there is a                                                               
longer  period,  5-10 years  of  sustained  rapid growth  of  the                                                               
population  or  inflation,  then  there would  likely  be  faster                                                               
growth of  the economy.   The most  obvious situation  that would                                                               
trigger such  a scenario would  be a gas  line or the  opening of                                                               
the Artic National Wildlife Refuge (ANWR).   Such was the case in                                                               
the 1970s when the annual growth  in population was 3 percent and                                                               
the annual  rate of  inflation was  7.6 percent.   He  noted that                                                               
those  figures were  taken from  the Anchorage  CPI and  thus are                                                               
lower than  the U.S. CPI.   If there was another  decade like the                                                               
1970s, then  a 2  percent limit  would result  in a  reduction in                                                               
real per capita spending of 8 percent every year for ten years.                                                                 
                                                                                                                                
TAPE 01-83, SIDE B                                                                                                              
                                                                                                                                
MR. GOLDSMITH  continued by  saying that  one must  recognize the                                                               
difficulty in predicting these rates  of growth, and a stipulated                                                               
percent ties  the state's hands  in terms of flexibility  and how                                                               
one  can respond  to  situations.   Furthermore,  there are  some                                                               
things  that  lay  outside  the  GF budget,  but  are  tied  into                                                               
economic growth  such as  the operation of  the airport,  and the                                                               
non-GF portion  of the university  budget.  He posed  a situation                                                               
in which there is an influx  of students.  Such a situation would                                                               
be great for the state, but  he surmised that their tuition would                                                               
be included in the cap and would place a squeeze on the GF.                                                                     
                                                                                                                                
Number 0013                                                                                                                     
                                                                                                                                
MR.  TEAL  responded,  "That  is one  of  the  weaknesses  here."                                                               
However,  there  are ways  to  maneuver  around having  too  much                                                               
decline and limited flexibility  in responding to high inflation.                                                               
For  instance, a  third provision  could  be added  that the  cap                                                               
would be 6 percent [to an]  unlimited [percent] with a 75 percent                                                               
vote.                                                                                                                           
                                                                                                                                
CHAIR ROKEBERG said he liked that idea.                                                                                         
                                                                                                                                
MR.  TEAL returned  to the  earlier example  in which  university                                                               
enrollment increases,  let's say  that enrollment doubles  in the                                                               
next five years.   In such a situation,  the university's tuition                                                               
receipts would  double, and tuition  receipts aren't  exempt from                                                               
spending  limits.   Therefore,  something will  suffer  if the  2                                                               
percent  is  used  on  funds  that one  doesn't  really  want  to                                                               
consider, however there is no way  to write them out.  He guessed                                                               
university funding  could be exempted.   Mr. Teal  clarified that                                                               
the more exemptions  there are, the less  the limit accomplishes.                                                               
Although one  can argue that any  agency or program, such  as the                                                               
university, that  generates its own revenue  shouldn't be subject                                                               
to the limit, "we can't figure a way out of it."                                                                                
                                                                                                                                
Number 0038                                                                                                                     
                                                                                                                                
REPRESENTATIVE  COGHILL   inquired  as  to  the   lag  time  when                                                               
determining population and inflation growth.                                                                                    
                                                                                                                                
MR. GOLDSMITH  remarked that inflation  [growth] would  be easier                                                               
to pin  down.  As mentioned  earlier, Anchorage has a  CPI, which                                                               
comes out in May  of the next year.  Therefore,  there would be a                                                               
five-year delay.   However, the  U.S. CPI is  calculated monthly.                                                               
In regard to Alaska's population  growth, he suggested asking the                                                               
Department of Labor & Workforce Development.                                                                                    
                                                                                                                                
REPRESENTATIVE   COGHILL   related   his   view   that   if   the                                                               
[appropriation] limit is  tied to per capita, then  it could grow                                                               
with  the  per  capita  while  limiting  spending.    Perhaps  an                                                               
artificial  cap may  place  undue pressure  on  areas where  such                                                               
isn't  desired.   However,  [there  could  be a]  combination  of                                                               
inflation and  population growth with a  year-and-a-half average.                                                               
He felt  that such a formula  could be sold [to  the public] more                                                               
easily.                                                                                                                         
                                                                                                                                
MR. GOLDSMITH  recalled a problem  with the Anchorage cap  due to                                                               
the lag, in  that the additional amount in  expenditures is based                                                               
on  the  population change  and  inflation  from the  last  year.                                                               
However, what  one would want  to do  is spend to  the population                                                               
and inflation change that is expected  for the upcoming year.  If                                                               
the population  went down last  year but is expected  to increase                                                               
[this  year],  the spending  [still]  has  to  be based  on  what                                                               
happened in  the prior year.   Such  a "squeeze" occurred  in the                                                               
late 1980s.                                                                                                                     
                                                                                                                                
SENATOR DONLEY  said he  would agree  with that  if he  felt that                                                               
government  was operating  at maximum  efficiency.   However,  he                                                               
felt  that there  is greater  flexibility in  the numbers  rather                                                               
than following exactly what population and inflation does.                                                                      
                                                                                                                                
MR. TEAL  noted that although  the moving average  does stabilize                                                               
things, it causes "you" to respond slower.                                                                                      
                                                                                                                                
CHAIR ROKEBERG  interjected that  a U.S.  city average,  which is                                                               
published on a monthly basis, would have to be adopted.                                                                         
                                                                                                                                
MR. TEAL  stated that having  the "latest, greatest  data doesn't                                                               
do any  good.   He pointed  out that the  Office of  Management &                                                               
Budget (OMB) and the agencies  are preparing the 2003 budget, and                                                               
thus  they  need   to  know  what  the  2003   numbers  are  now.                                                               
Furthermore, the expenditures  for 2002 can't even  be dealt with                                                               
because  the   2002  expenditures   are  unknown  and   thus  the                                                               
expenditures are  based on 2001,  which is  why there would  be a                                                               
two-year  lag.   Therefore, the  population and  inflation [data]                                                               
may as  well be  behind a year  as well.   In his  opinion, "it's                                                               
just not that critical."                                                                                                        
                                                                                                                                
Number 0092                                                                                                                     
                                                                                                                                
REPRESENTATIVE   DAVIES    mentioned   the   tendency    to   mix                                                               
appropriations  and  expenditures.    He  pointed  out  that  the                                                               
resolution refers to the appropriation,  not the expenditure, for                                                               
the  two years  preceding.   Therefore, he  questioned why  there                                                               
needs to  be a two year  lag if it's based  on the appropriation,                                                               
which is a known.                                                                                                               
                                                                                                                                
MR.  TEAL  pointed  out that  the  supplemental  [appropriations]                                                               
aren't complete.  He reiterated  that the appropriations for 2002                                                               
would be unknown.                                                                                                               
                                                                                                                                
REPRESENTATIVE DAVIES interjected that such could be known.                                                                     
                                                                                                                                
SENATOR DONLEY  remarked that  people could  be enticed  to short                                                               
fund  the  budget if  the  desire  was  to not  encourage  fiscal                                                               
discipline.  He  predicted that such a situation  would result in                                                               
a larger supplemental [budget].                                                                                                 
                                                                                                                                
REPRESENTATIVE DAVIES  said that  the supplemental [budget]  in a                                                               
given year would have to be included.                                                                                           
                                                                                                                                
MR. TEAL,  in regard to  Representative Davies'  suggestion, said                                                               
that FY02 supplemental [appropriations]  could be counted as FY03                                                               
spending.                                                                                                                       
                                                                                                                                
CHAIR ROKEBERG asked if anyone else  wanted to testify on SJR 23.                                                               
There being no one, the public hearing on SJR 23 was recessed.                                                                  
                                                                                                                                
CHAIR ROKEBERG remarked  that he was [less]  skeptical now, after                                                               
recognizing that  [SJR 23] may  be a symbolic political  act that                                                               
is necessary for the state's long-range fiscal plan.                                                                            
                                                                                                                                
REPRESENTATIVE  DAVIES   estimated  that   the  portion   of  the                                                               
population that  this proposal would  appeal to  represents about                                                               
one-third of  the population.   In  his experience,  those people                                                               
want 40  percent cuts  on an annual  basis, real  Draconian cuts.                                                               
Therefore, he  questioned whether  [this proposal]  would satisfy                                                               
those people  to which it  attempts to speak.   He asked  if this                                                               
[proposal]  will   really  address  the  problem,   so  that  the                                                               
legislature  can move  on  to  solving the  real  problem of  the                                                               
fiscal gap.                                                                                                                     
                                                                                                                                
SENATOR  DONLEY responded  that he  would like  to put  forth his                                                               
best  effort  to  make  [this  proposal]  a  realistic  restraint                                                               
without being Draconian, if for  no other reason than eliminating                                                               
what is currently in the constitution.                                                                                          
                                                                                                                                
CHAIR ROKEBERG recessed the hearing on SJR 23.                                                                                  
                                                                                                                                
[SJR 23 was held over.]                                                                                                         
                                                                                                                                
SJR 24 - AMEND CONSTITUTIONAL BUDGET RESERVE FUND                                                                             
                                                                                                                                
Number 0151                                                                                                                     
                                                                                                                                
CHAIR ROKEBERG  announced that the  last order of  business would                                                               
be  CS  FOR  SENATE  JOINT   RESOLUTION  NO.  24(RLS),  Proposing                                                               
amendments to  the Constitution of  the State of  Alaska relating                                                               
to the budget reserve fund.                                                                                                     
                                                                                                                                
Number 0153                                                                                                                     
                                                                                                                                
SENATOR  DAVE  DONLEY,  Alaska State  Legislature,  testified  on                                                               
behalf of the Senate Finance Committee,  sponsor of SJR 24.  This                                                               
resolution would amend the  current constitutional budget reserve                                                               
(CBR)  amendment.   Although the  CBR  is functioning  well as  a                                                               
fiscal shock  absorber, it  isn't functioning  well in  regard to                                                               
helping control spending and enforcing  fiscal discipline.  Under                                                               
the  current situation,  small groups  of  legislators can  force                                                               
increased  spending by  withholding CBR  votes.   If one  were to                                                               
count  all   the  proposed  floor  amendments   that  were  made,                                                               
rejected,  and eventually  included  in the  budget  in order  to                                                               
obtain the  three-quarters vote, it  would sum $150  million this                                                               
year.   Senator Donley agreed  to provide the delineation  of the                                                               
$150 million.                                                                                                                   
                                                                                                                                
SENATOR  DONLEY informed  the committee  that  the packet  should                                                               
include  the  language that  the  voters  saw  when the  CBR  was                                                               
adopted in  1990.  The  lieutenant governor's description  of the                                                               
CBR said  that the fund  could be  used when money  available for                                                               
appropriation in the year is less  than the year before, but only                                                               
if the shortfall  is made up.  However,  the legislative affairs'                                                               
summary specified  that appropriations may  be made from  the CBR                                                               
only if the money available for  the fiscal year is less than the                                                               
amount  appropriated  for  the   prior  year.    The  proponents'                                                               
statement  says  that the  CBR  is  an  effective first  step  to                                                               
controlling state spending  and that is party due  to the ability                                                               
to  use  CBR  funds  when  revenues  are  less  than  the  amount                                                               
appropriated  in the  previous  year, in  which  case the  amount                                                               
appropriated from  the CBR couldn't  exceed the shortfall.   Even                                                               
the opponents'  explanation said  that a  simple majority  of the                                                               
legislature  could borrow  funds  from  the CBR  to  make up  any                                                               
shortfalls  in revenues  up  to the  amount  appropriated in  the                                                               
previous year.   Everyone agreed that money [from  the CBR] could                                                               
be accessed with  a simple majority vote in order  to make up for                                                               
the  shortfall, up  to the  amount that  was appropriated  in the                                                               
previous year.                                                                                                                  
                                                                                                                                
SENATOR  DONLEY  said that  didn't  happen,  however.   Once  the                                                               
amendment  was adopted,  the  legislature  adopted the  statutory                                                               
explanation  of  the  language,   which  the  court  subsequently                                                               
overruled  as  being in  conflict  with  the court's  meaning  of                                                               
"being  available  for appropriation".    Whether  the court  was                                                               
correct  or   not,  that  wasn't   what  the  people   voted  on.                                                               
Therefore,  this resolution  is an  attempt to  restore what  was                                                               
meant by Ballot  Measure No. 1 with regard to  accessing the CBR.                                                               
Thus, SJR  24 proposes to  correct the problem identified  in the                                                               
court case and clarify that in  a year in which revenues are less                                                               
than the previous  year, the legislature may access the  CBR by a                                                               
simple  majority  vote for  funding  up  to the  previous  year's                                                               
appropriation.    This  resolution  also  deletes  the  so-called                                                               
"sweep provision," which requires  a three-quarters vote to repay                                                               
the money taken from the CBR in the previous year.                                                                              
                                                                                                                                
Number 0217                                                                                                                     
                                                                                                                                
REPRESENTATIVE DAVIES noted that  [SJR 24] has been characterized                                                               
as  fixing a  budget,  a "blackmail"  situation.   Although  that                                                               
argument can  be made, the other  side is that in  other areas of                                                               
the budget  the Majority short  funds the budget, relying  on the                                                               
Minority to force  limits that the Majority wants,  but for which                                                               
they don't want to take credit or blame.                                                                                        
                                                                                                                                
CHAIR ROKEBERG said that there is some truth to that statement.                                                                 
                                                                                                                                
REPRESENTATIVE BERKOWITZ  commented that he noticed  that Senator                                                               
Donley's  budget report  to the  public took  credit for  funding                                                               
that "we"  [the Minority] insisted  on as  part of the  CBR vote.                                                               
He cited the funding for education and the troopers as examples.                                                                
                                                                                                                                
Number 0248                                                                                                                     
                                                                                                                                
MR.  TEAL,   in  response  to  Chair   Rokeberg,  explained  that                                                               
typically  each year  the appropriation's  bill contains  what is                                                               
called "the  reverse sweep"  section.   That section  is included                                                               
because  the  constitution  specifies   that  if  there  are  any                                                               
outstanding borrowings  from the  CBR, then  every June  30th all                                                               
the subaccounts of  the general fund (GF) are swept  into the CBR                                                               
in  order to  repay it.    He estimated  that there  is about  $3                                                               
billion in debt.                                                                                                                
                                                                                                                                
SENATOR   DONLEY  pointed   out   that  it   is  a   year-to-year                                                               
forgiveness, and therefore there is  no outstanding debt that has                                                               
to be  handled by a  three-quarters vote on  the $3 billion.   He                                                               
clarified that the debt is only for the debt of the prior year.                                                                 
                                                                                                                                
MR. TEAL  estimated that approximately  $100 million a  year from                                                               
the GF  subaccounts is swept into  the CBR.  The  language in the                                                               
appropriation's  bill  says that  the  money  taken from  the  GF                                                               
subaccounts is replaced by withdrawing  from the CBR.  Therefore,                                                               
that is  a withdrawal  from the  CBR and  would require  a three-                                                               
quarter vote.   In essence, [the language] says that  in order to                                                               
make  the  [GF]  subaccounts  whole,   a  three-quarter  vote  is                                                               
required.  That  is part of SJR 24 because  if the super majority                                                               
vote is trying to be avoided in  order to just have a budget that                                                               
is  the same  as last  year, then  the $100  million sweep  super                                                               
majority requirement must be eliminated.                                                                                        
                                                                                                                                
CHAIR  ROKEBERG  related  his   understanding,  then,  that  this                                                               
resolution maintains the CBR while modifying how it functions.                                                                  
                                                                                                                                
SENATOR  DONLEY explained  that the  resolution modifies  how the                                                               
CBR  is  accessed  and  eliminates  the  sweep  provision.    The                                                               
original intent  of the amendment  is restored, in that  a three-                                                               
quarter vote is  only required for those funds that  are over and                                                               
above what was appropriated for  the previous year.  Therefore, a                                                               
three-quarter  vote  would  be  required  if  the  desire  is  to                                                               
increase spending and  obtain the [increase] from the  CBR.  Only                                                               
a simple majority vote is required  to access money that is equal                                                               
to what was appropriated in the previous year.                                                                                  
                                                                                                                                
Number 0292                                                                                                                     
                                                                                                                                
REPRESENTATIVE  DAVIES asked  if that  would have  any cash  flow                                                               
implications.                                                                                                                   
                                                                                                                                
MR. TEAL noted that the opinion  on that differs.  Currently, the                                                               
Department of Revenue  doesn't believe the cash flow  issue to be                                                               
a  large problem.    In fact,  borrowing  $50-$100 million  isn't                                                               
really an appropriation  from the CBR because it  is being repaid                                                               
before the  end of  the year.   In other words,  in FY01  the CBR                                                               
draw wasn't necessary at all  because $300-$400 million was taken                                                               
from  the  CBR, but  repaid  before  the end  of  the  year.   In                                                               
response to  Chair Rokeberg,  Mr. Teal said  that no  interest is                                                               
paid on the draw.                                                                                                               
                                                                                                                                
CHAIR ROKEBERG  expressed his concern  with the lack  of interest                                                               
payments.                                                                                                                       
                                                                                                                                
MR.  TEAL turned  to FY01,  when the  legislature did  take money                                                               
from  the CBR.   Of  course, the  interest earnings  that the  GF                                                               
recovered stays in the GF, and thus  the year ends and there is a                                                               
GF surplus  of $80 million.   The  sweep provision says  that the                                                               
$80  million goes  into the  CBR, which  happened.   However, the                                                               
reverse sweep only applies to the  subaccounts of the GF, not the                                                               
GF itself.  Therefore, the interest was returned.                                                                               
                                                                                                                                
CHAIR ROKEBERG  characterized [a draw  from the CBR] as  a single                                                               
appropriation rather than an installment.                                                                                       
                                                                                                                                
SENATOR DONLEY  explained that if  this resolution was  placed on                                                               
the  ballot  and approved  by  the  voters, the  situation  would                                                               
change  such that  the legislature  could access  the CBR  with a                                                               
simple  majority   for  an   amount  up   to  the   prior  year's                                                               
expenditures.   However, there is  much pressure to do  more than                                                               
that.    Senator Donley  felt  that  the three-quarters  vote  is                                                               
appropriate since that was the original intent.                                                                                 
                                                                                                                                
Number 0352                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ  pointed out  that [Article  IX] Section                                                               
17 says, "(c)  An appropriation from the budget  reserve fund may                                                               
be made  for any public  purpose upon affirmative vote  of three-                                                               
fourths of  the members of  each house  of the legislature."   He                                                               
understood that language to refer to any appropriation.                                                                         
                                                                                                                                
MR. TEAL informed the committee  that there are two sections that                                                               
refer to removing  money.  One section  requires a three-quarters                                                               
vote  for any  purpose.    The other  section  requires a  simple                                                               
majority vote,  as long  as the  withdrawal is  no more  than was                                                               
spent in the prior year.                                                                                                        
                                                                                                                                
REPRESENTATIVE  BERKOWITZ   said  that  under  law   that  is  in                                                               
conflict,  the  default  is  to   the  [language]  that  is  more                                                               
restrictive.                                                                                                                    
                                                                                                                                
SENATOR DONLEY  disagreed and  explained that  the default  is to                                                               
try to read  the [sections in conflict] jointly in  an attempt to                                                               
make sense.                                                                                                                     
                                                                                                                                
MR.  TEAL clarified  that the  three-quarters vote  [is required]                                                               
when the prior year's budget has been exceeded.                                                                                 
                                                                                                                                
Number 0373                                                                                                                     
                                                                                                                                
SENATOR DONLEY posed  the possibility that the  court is correct.                                                               
Even if  that were the  case, the  court's ruling isn't  what the                                                               
voters thought they were voting for  nor was it the intent of the                                                               
sponsors or  the opponents.   Therefore, he felt that  the voters                                                               
should have  the opportunity  to restore  what they  thought they                                                               
were voting  for.  Senator Donley  went on to point  out that the                                                               
court   case  centered   around  the   language  "available   for                                                               
appropriation".   As  a  lawyer, he  felt that  the  court had  a                                                               
defensible  conclusion.   However, it  doesn't make  it the  best                                                               
public policy or what the public thought it was getting.                                                                        
                                                                                                                                
CHAIR  ROKEBERG  recalled that  there  have  been resolutions  to                                                               
repeal the entire  section regarding the CBR.  He  inquired as to                                                               
why  Senator  Donley  chose  to  take  the  tact  he  did  versus                                                               
repealing the entire section.                                                                                                   
                                                                                                                                
SENATOR DONLEY answered  with his belief that the  CBR is working                                                               
well and was a wise step  as a fiscal shock absorber.  Therefore,                                                               
he felt that the well-functioning parts should be kept.                                                                         
                                                                                                                                
CHAIR  ROKEBERG  asked  whether Legislative  Legal  Services  had                                                               
provided an opinion that [Article  IX, Section 17] subsection (c)                                                               
doesn't need to be modified to  be crystal clear in regard to the                                                               
intent.                                                                                                                         
                                                                                                                                
SENATOR DONLEY  informed the committee  that the  version adopted                                                               
by the Senate Rules Committee accomplishes that goal.                                                                           
                                                                                                                                
CHAIR  ROKEBERG  asked whether  anyone  else  wished to  testify.                                                               
[There being no one, the hearing on SJR 24 was recessed.]                                                                       
                                                                                                                                
[SJR 24 was held over.]                                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
Number 0412                                                                                                                     
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Judiciary Standing Committee meeting was adjourned at 3:23 p.m.                                                                 

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