Legislature(2001 - 2002)
02/04/2002 01:57 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
February 4, 2002
1:57 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chair
Representative Scott Ogan, Vice Chair
Representative Jeannette James
Representative John Coghill
Representative Kevin Meyer
Representative Ethan Berkowitz
Representative Albert Kookesh
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
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
HOUSE JOINT RESOLUTION NO. 15
Proposing amendments to the Constitution of the State of Alaska
relating to inflation-proofing the permanent fund.
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
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 (S) FIN AT 9:00 AM SENATE FINANCE
532
04/23/01 (S) Moved Out of Committee
04/23/01 (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)
04/30/01 (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 (S) RLS AT 12:15 PM FAHRENKAMP
203
05/01/01 (S) -- Time Change --
05/01/01 (S) MINUTE(RLS)
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 1401 (S) RULES TO CAL W/CS 1OR 5/1
SAME TITLE
05/01/01 1401 (S) FN1: (GOV)
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 1571 (H) READ THE FIRST TIME -
REFERRALS
05/05/01 1571 (H) JUD, FIN
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)
10/19/01 (H) JUD AT 11:00 AM Anch LIO Conf
Rm
10/19/01 (H) Heard & Held
10/19/01 (H) MINUTE(JUD)
02/04/02 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
SENATOR DAVE DONLEY
Alaska State Legislature
Capitol Building, Room 506
Juneau, Alaska 99801
POSITION STATEMENT: Presented SJR 24 on behalf of the Senate
Finance Committee, sponsor.
JAMES BALDWIN, Assistant Attorney General
Governmental Affairs Section
Civil Division (Juneau)
Department of Law (DOL)
PO Box 110300
Juneau, Alaska 99811-0300
POSITION STATEMENT: Presented the department's position on SJR
24 and responded to questions.
BRAD PIERCE, Senior Economist
Office of the Director
Office of Management & Budget (OMB)
Office of the Governor
PO Box 110020
Juneau, Alaska 99811-0020
POSITION STATEMENT: During discussion of SJR 24 responded to
questions.
DAVID TEAL, Legislative Fiscal Analyst
Legislative Finance Division
Alaska State Legislature
PO Box 113200
Juneau, Alaska 99811-3200
POSITION STATEMENT: During discussion of SJR 24 responded to
questions.
ACTION NARRATIVE
TAPE 02-9, SIDE A
Number 0001
CHAIR NORMAN ROKEBERG called the House Judiciary Standing
Committee meeting to order at 1:57 p.m. Representatives
Rokeberg, Ogan, Coghill, and Meyer were present at the call to
order. Representatives James, Berkowitz, and Kookesh arrived as
the meeting was in progress.
SJR 24 - AMEND CONSTITUTIONAL BUDGET RESERVE FUND
Number 0065
CHAIR ROKEBERG announced that the committee would hear 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 0073
SENATOR DAVE DONLEY, Alaska State Legislature, speaking on
behalf of the Senate Finance Committee, sponsor, noted that the
House Judiciary Standing Committee held a hearing on SJR 24
during the interim. To recap, he explained that SJR 24 would
amend the [Alaska State] Constitution [in order] to restore the
original intent of the constitutional budget reserve [fund]
(CBRF) section, providing that in a year where spending was not
more than the previous year, the legislature could access the
constitutional budget reserve (CBR) with a simple majority vote.
With a simple majority vote, the legislature could access the
[CBR] for funds "to make up the difference up to the amount of
last year's spending." He offered that this was the original
intent, and noted that research has indicated that the voter's
guide, the lieutenant governor's statement, the legislative
affairs [agency's] legal statement, the proponents' statement,
and the opponents' statement all said that in a year where the
legislature did not develop a budget that spent more than the
previous year, the legislature could access "up to that amount"
if there was a revenue shortfall.
SENATOR DONLEY said that subsequent to "that," the legislature
attempted to define some of the terms in the [Alaska State]
Constitution, specifically "available for appropriation". He
explained that a court subsequently said that the legislature's
definition was not good enough and that in the court's view,
"available for appropriation" meant something different than
what either the legislature or the folks who developed the
[CBRF] intended, and changed "it" so that now a [three-fourths]
vote is needed to access the [CBRF] for virtually "any
function." He said that SJR 24 would restore the original
intent as was told to the voters of Alaska in the voter's guide
"when they pretty much overwhelmingly approved adding the [CBR]
portion to the [Alaska State] Constitution. He noted that SJR
24 also does away with so-called "sweep" provision; "to make it
work logically, you pretty much have to do away with that too."
Number 0333
SENATOR DONLEY explained that the sweep provision is a provision
in the existing [CBR] section of the [Alaska State] Constitution
which says that in any year "where there was not a [three-
fourths] vote not to, then all funds that are available for
appropriation - subject to appropriation - in any accounts that
may be held by state government would be removed and put into
the [CBR]." He listed accounts such as the "marine highway
fund, science and technology fund, power cost equalization
fund"; all those would be subject to the sweep and would be
zeroed out to replace the money that was owed to the CBR, as
that debt may exist from year to year. So to really make the
"simple majority to access for no more than the previous year's
spending" work, the sweep provision would have to be eliminated
as well, he said, "or you're going to lose all those accounts."
SENATOR DONLEY said, "I think in the court's world of looking at
what the words 'available for appropriation' meant, it might
have been a reasonable conclusion to reach the conclusion they
did." Unfortunately, he added, it wasn't what was intended, it
wasn't what the voters were told they were getting when they
voted for the CBR. Instead of being a tool to help enforce
fiscal discipline, it turned into a tool that did just the
opposite, where, unlike any American government that he is aware
of, to create a budget now, a [three-fourths] vote is required,
he observed. And unless a tremendous amount is going to be cut
out of the [spending budget] each year, it is a very difficult
situation. Regardless of whether the legal conclusion of the
court was correct, it's not what the voters of Alaska were told
they were getting when they voted for "this" provision, he said.
REPRESENTATIVE MEYER noted that he found it interesting that the
House "passed the budget at a certain amount, and then the
Senate passed a budget at a certain amount, and then somehow the
number that came back to the body ended up being a much larger
number." He said he was mystified how that happened and was
told that it was because of the [CBR] and the requirement of
getting a [three-fourths] vote. He surmised that [SJR 24]
"would certainly help in that matter." He asked when [the
provisions of SJR 24] would go into effect.
Number 0609
SENATOR DONLEY explained that [the provisions of SJR 24]
wouldn't go into effect until after "it" was approved by the
voters and then it would apply to the subsequent fiscal year.
If the legislature placed SJR 24 on the ballot [at the next
election] and the voters approved it, it would be in effect for
the 2004 fiscal year (FY).
REPRESENTATIVE BERKOWITZ asked: "At current rates, what's the
projected amount in the CBR at that time?"
SENATOR DONLEY said it depends on who's making the projections;
there's a whole series of assumptions that have to be made
before any projection can be made. "First of all, you have to
assume revenue - and of course that's more of an art than a
science because nobody really knows what's going to happen out
there in the geopolitical world." And second, he said, "you
have to assume a particular level of expenditure," and while the
governor has a proposed level of expenditure, that isn't
necessarily the level of expenditure that the legislature may
end up finally approving. With all the assumptions the
Department of Revenue (DOR) is making - which, he said, he did
not necessarily agree with - it is projecting a $1.2 billion
deficit in [FY] '03. He opined that many people would have a
different projection of what the fiscal gap may be.
Representative BERKOWITZ said: "Regardless, the CBR will be
substantially smaller than it is today, at that point."
SENATOR DONLEY offered that it is undisputed that there will be
a draw on the CBR for the next fiscal year. Although the CBR is
earning money each year, he added, so that offsets that to some
[degree], and there may be some additional settlements come in,
[though] the [DOR] has relayed that they won't be anywhere near
the magnitude of the past years.
Number 0786
JAMES BALDWIN, Assistant Attorney General, Governmental Affairs
Section, Civil Division (Juneau), Department of Law (DOL), said
that he'd had the educational experience of representing the
state - during the time when "this provision" was adopted by the
voters and enacted - in the Hickel et al. v. Cowper [Alaska
Supreme Court] case, which was decided in two parts. "The first
part dealt with other provisions of the constitutional budget
reserve amendment, [and] the second case dealt with the meaning
of the term 'available for appropriation', which I think is the
reason that spawns [SJR 24]," he said.
MR. BALDWIN said that in that case, "we" attempted to define the
meaning of the amendment via statute, and "we" were attempting
to put forward a little bit different meaning from what is being
put forward in [SJR 24], though a similar idea. "We" were
trying to limit the meaning of "available for appropriation" to
meaning the amount of the unrestricted general fund (GF) that
was available for appropriation, and that was done in the form
of a statute, he said. He said that [the DOL] took that statute
to the [Alaska] Supreme Court and argued that it should be given
great weight in interpreting the [Alaska State] Constitution.
The court did not agree with that interpretation, however; he
noted that in putting that interpretation forward at that time,
[the DOL] and the legislature were convinced that it was the
meaning intended for the [Alaska State] Constitution.
MR. BALDWIN remarked that those statutes are still on the books
although they've been stricken, in part, by the court. Those
appear at "AS 37.10, approximately 430, I believe, is where they
begin in the statutes," he said. "They" are slightly different
than what is being proposed via SJR 24, he said, pointing out
that one of the aspects in which "they" are different is that
what that statute sought to do is to say that the amount
available for appropriation means only amounts in the
unrestricted (GF), whereas [SJR 24] indicates that when "you
take money from the budget reserve fund (BRF), it may only be
used to fund appropriations that are funded by the legislature
out of the unrestricted [GF]." That's a different twist being
put to it than what was originally put forward in 1994 and 1995,
when this litigation began, he noted.
MR. BALDWIN said that the effect of this change in approach
could have some unintended results; the effect could be that "if
you could only expend money on unrestricted general-fund funded
appropriations," it may be that the legislature would not be
able to apply - using this provision - amounts for what would be
something funded by program receipts or some other funding
source. "If that's your intent, fine; if it's not your intent,
you can understand that this would work in a way that would be
contrary to that intent," he added. He remarked that the other
thing he worries about with "this" approach is that now "we have
general fund appropriations, we have designated program-receipts
appropriations, and we have general fund program-receipts
appropriations, and some of us tend to think of them all as
being general fund appropriations." With the ability to define
"unrestricted general fund" by statute, he added, it might be
possible to effectively dedicate "some of these other funding
sources," and that may not be something that the legislature
wants to do.
Number 1078
MR. BALDWIN said: "If that's something that you want to do,
then keep in mind that this opens the door for that; if it's
something you don't want to do, then I would say, 'Look very
hard at that language and find some way to protect against
that.'" He said that the final legal point he wanted to make
regarding [SJR 24] is that the so-called sweep provision has
been remedied every year by something that is euphemistically
referred to as the "roundtrip appropriation" - meaning that the
legislature replaces the money that would be swept, in an
offsetting appropriation. The problem that's left in "this
section," he noted, is that over the years, an on-the-books type
of liability has been built up that is a substantial sum of
money and is reported in the state financial report, which is
considered by "Wall Street and the other financial institutions
that we do business with."
MR. BALDWIN opined that what "this provision" does is good: it
gets rid of the sweep provision, and Senator Donley is to be
commended for his purpose in that regard. He added, however,
that the way "this" is worded, because constitutional amendments
are considered to be prospective only - they operate from "this
day forward" - it doesn't answer what's happens to that
liability that has built up. Therefore, he opined, it would be
a valuable provision to have, in an "amendment like this,"
something that says that the past indebtedness is forgiven or
dealt with in some way, so that there is no question about it.
REPRESENTATIVE OGAN asked Mr. Baldwin to clarify his concerns
regarding the creation of dedicated funds. He asked: "If, in
your opinion, it does that, does that not put tension in the
[Alaska State] Constitution with respect to the ban on dedicated
funds - except for ones that were in place during statehood?"
Number 1187
MR. BALDWIN offered that it is "by implication that causes my
worry." He said that the language that he is looking at is on
[page 1] line 16, where it says that the legislature can define
the meaning of "unrestricted general fund" by law. He also
opined that on [page 1] lines 8 and 9, [SJR 24] says that
amounts taken from the [BRF] by a majority vote can be used only
to fund unrestricted [GF] appropriations. "Right now, in Title
37, there are things known as designated program receipts, and
then there's also a category known as general fund program
receipts," he said. As an attorney approaching this problem, he
said he looks at that all as general fund dollars, surmising
that the legislature, "in its heart of hearts," does too.
MR. BALDWIN noted, however, that over time, fences have been
built around some of these funding sources that in people's
minds - not in the law - have attained the status of being
almost de facto dedications of those revenue sources. He said:
I fear that with the ability - in the [Alaska State]
Constitution - to be able to point to a constitutional
power to define what is known as unrestricted general
fund, that that power could be used to make these
barriers around these other funding sources have the
strength of constitutional significance.
REPRESENTATIVE OGAN said that in his heart of hearts he has had
problems in the past with program receipts and "the various
things that we do" because he thinks it is a de facto way of
creating a dedicated fund [that bypasses] the intent of the
[Alaska State] Constitution. So if [SJR 24] passed and that
issue was ever raised in court, "do you think ... that maybe it
would cause the legislature to disband that practice and make
everything GF, or do you think it might ... [result in] further
exacerbating the problem with the ... dedicated fund," he asked.
MR. BALDWIN opined that if [SJR 24] is adopted, it will heighten
the distinctions that can be made between GF and program
receipts, and that it would further exacerbate the problem; "I
think it's a natural consequence of it."
REPRESENTATIVE OGAN restated his question regarding tension in
the [Alaska State] Constitution between the "non-dedicated fund
section and this section."
Number 1353
MR. BALDWIN opined that it would introduce some uncertainty; "if
that's tension, in your mind, then I think its possible."
REPRESENTATIVE OGAN asked: "Does not, when you amend one
section of the [Alaska State] Constitution, by implementing that
section, it actually [affect] other sections by the simple fact
that it's there?" For example, "the limited entry [section]
affects [the] no-exclusive-fisheries section, ... because while
the constitution says there is no exclusive fishery, in another
section of the constitution we said there is." He asked Mr.
Baldwin to expand on his assessment of what [SJR 24] might do.
MR. BALDWIN said that in his opinion, the court will try very
hard to harmonize the provisions that are in the [Alaska State]
Constitution, to the extent that it can.
REPRESENTATIVE BERKOWITZ said that [SJR 24] is touted as being a
way of reducing spending, "but it seems to me that it's a way of
accelerating spending because it allows access to the CBR with a
simple majority [vote] as opposed to a [three-fourths] vote."
He noted that in his experience, the [three-fourths-vote
requirement] has been "a fairly effective brake on spending."
He offered:
Hypothetically, next year, there's a majority in power
which is inclined to spend more money than the
minority, ... and yet next year it's fairly certain
that we're going to need CBR monies. Isn't the
failure to require a [three-fourths] vote -- doesn't
it accelerate the spending of money?
MR. BALDWIN said he did not think he could answer that.
Number 1465
BRAD PIERCE, Senior Economist, Office of the Director, Office of
Management & Budget (OMB), Office of the Governor, said he
didn't know.
CHAIR ROKEBERG said that the problem with the [three-fourths]
vote is that it "depends on which perspective the power that had
the majority was in, in terms of their proclivities for spending
or reducing budgetary monies."
REPRESENTATIVE BERKOWITZ remarked:
Senator Donley has widely published what he claims is
a $150 million extra money added to the budget last
year because of CBR negotiations; I've never seen any
evidence of that. I negotiated on it; that was
clearly not part of our package. I think if we're
going to change the [Alaska State] Constitution based
on a faulty premise, we ought to tread carefully.
CHAIR ROKEBERG mentioned that he thinks it is very clear that
historically, there have been increases in the budget.
REPRESENTATIVE BERKOWITZ stated that Senator Donley claims that
last year's legislation regarding "breast cancer coverage" was a
CBR item, whereas he, Representative Berkowitz, thought the
entire House of Representatives voted for that legislation. He
remarked that debate on [Senator Donley's claims] is pertinent
because at issue is whether to change the [Alaska State]
Constitution.
MR. PIERCE, referring to SJR 24, remarked: "We've seen
proposals like this in the past that the administration has not
opposed; this one has a few more moving parts to it, though,
than those we've seen previously." That's cause for concern
regarding potential mischief down the road, he added. Every
year when the spring revenue forecast comes out, he said, he is
usually asked to make the calculation of whether a [three-
fourths] vote will be required to access the CBR. What [the
OMB] does is compare the amount appropriated in the previous
calendar year so that "supplementals" from the previous year are
included, and that would include money appropriated from the
earnings reserve account of the permanent fund for inflation-
proofing and dividends. Then, in calculating what is available
for appropriation in the current year - or the prospective year
- the net income from the permanent fund is included in that
calculation, [as well as] the balance in the earnings reserve
account (ERA).
Number 1624
MR. PIERCE said:
Because of the balance in the earnings reserve
account, that's usually why a [three-fourths] vote is
required - because you have more money available for
appropriation in the current year than you ...
appropriated in the previous calendar year.
CHAIR ROKEBERG said: "Because the earnings reserve was
available for appropriation."
MR. PIERCE said: "Because the earnings reserve is available for
appropriation, and that's exactly what the court did; they put
the crosshairs square on the earnings reserve account in their
decision."
CHAIR ROKEBERG said: "If only the rest of the public in the
state would understand that. That the legislature's had the
ability to appropriate from the earnings reserve from the get go
but really never has."
MR. PIERCE said:
That's the concern here is that if we're saying with
this amendment that that income of the permanent fund
is excluded from this calculation - well, what about
the balance in the earnings reserve account? The
court clearly thought that that should be front and
center, and so I'm not quite sure what the intent is
here with the earnings - ERA - balance, but it's an
issue and it's going to be, probably, the cornerstone
of any fiscal plan ... that we come up with in the
future, here. So that's just one concern here that I
think we should clarify before ... proceeding with
something as serious as a constitutional amendment....
The other [concern], ... that [Mr. Baldwin] already
talked about somewhat, is the "unrestricted general
fund revenue versus other funds" distinction. In
budgeting, we move stuff back and forth quite often
between general fund and other funds. Sometimes it's
... tobacco settlement revenues become other funds,
when they started out as general funds, because we've
dedicated - or we've set aside - the money for debt
service to build schools and so forth. Sometimes it's
one-time monies that are other funds that we replace
with general funds.
Number 1760
MR. PIERCE:
And this flexibility that we have to do this - it
benefits everybody. It benefits the administration in
trying to build a budget, it benefits the legislature
in trying to move money around and come out with a
budget in the end. And so I think that when you start
drawing these lines, like [Mr. Baldwin] referred to,
of unrestricted general fund and [that] the CBR draw
can only be applied to that part of the budget - well
... that might make trouble down the road for other
legislatures. I'm sure that the law of unintended
consequences here will ... drive OMB and [Legislative
Finance Division] crazy down the future, and it's very
likely that we'll have to go through all kinds of
gyrations to spend this money legally. And it's just
a complication, I think, that concerns me....
And finally, [there's] the issue that [Mr. Baldwin]
referred to about the bookkeeping entry on the books.
There's $3.8 billion that we owe the CBR right now,
and every time we go to Wall Street, that shows up and
we have to explain why it really isn't a debt; it's
only a debt that we owe ourselves and doesn't mean any
thing in a fiscal sense. So, if we're going to go to
the trouble of amending the constitution here, then
maybe we ought to get rid of that entry on our books.
REPRESENTATIVE OGAN remarked: "Assuming we spend all the CBR,
which is probably going to happen in the next couple of years,
it's kind of a moot point anyway, right?" "We're not going to
get anymore settlements that I'm aware of," he added. So
wouldn't it be a simpler approach to avoid all these gyrations
by repealing "this whole provision" of the Alaska State
Constitution, he asked. Other than California, he noted, Alaska
is the only state, that he is aware of, that requires more than
a simple majority vote; "it seems to me [that] if we just repeal
that whole section we'd have a simple majority budget, and
that'd be the end of it."
MR. PIERCE said he has never given the concept of repealing the
CBR provision] any thought; he has always "just been trying to
deal with the complications of the thing."
Number 1886
REPRESENTATIVE JAMES, after noting that she was not a legislator
"when this passed," recounted that she voted in favor of a
budget reserve account. She said that she was sold on the
concept because Alaska had the potential of receiving a lot of
windfalls and there was a general attitude that windfalls
generally just get spent. And so with the budget reserve
account, any windfalls could be set aside "to help us out of the
difficult times." She noted that she was a legislator when "we
first started to implement this" provision, and there was debate
about "what it really meant." She said that when she voted for
this [provision], it was her understanding that it meant that
"if we had less money this year than we had the previous year,
... we could spend up to that amount of money with a simple
majority vote, and if we wanted to spend more money than we did
the year before, we had to have a [three-fourths] vote."
REPRESENTATIVE JAMES said, "That's what I voted for; I thought
that's a good idea because that way, if we've got some things we
need to spend money for, in order to ... do it, we'd have go to
a [three-fourths] vote." The language, however, was not
sufficient, and the net result of the court decision was that
the permanent fund earnings were considered available for
appropriation when "it was whether or not we needed a [three-
fourths] vote, but when it came to the sweep of moving
everything ... back in to pay it back, it's not." So it really
has been kind of a cobbled up mess of things, she opined. She
mentioned that [at one point] she had a bill to repeal that
constitutional provision, so perhaps it would be better to just
repeal it; "we don't really have any of those windfalls coming,
so the whole purpose of it [has] gone away." She added, "We
wouldn't have this debt hanging over us, because we don't get
rid of that debt until we get rid of this [CBR]."
CHAIR ROKEBERG said that's a policy call.
MR. PIERCE noted that he could not speak for the governor on
that issue.
CHAIR ROKEBERG asked: "Mr. Baldwin, you brought forward the
question of the definition and the problems about using
unrestricted general fund as -- is that currently defined in
statute?"
MR. BALDWIN indicated uncertainty on that point.
Number 2023
DAVID TEAL, Legislative Fiscal Analyst, Legislative Finance
Division, Alaska State Legislature, answered: "Yes, at [AS]
37.05.146."
MR. BALDWIN pointed out that [AS 37.05.146] is the statute that
defines the designated program receipts. In [AS] 37.10.430, he
added, is where "we" were attempting to define it during the
Hickel Administration - define the terms "available for
appropriation"; he noted that he'd testified earlier that there
was a slightly different approach taken regarding how the
operation of the BRF amendment is defined.
CHAIR ROKEBERG said he appreciates Mr. Baldwin's concern "about
the problematic," but added that [SJR 24] allows the legislature
to establish the definition via statute if there is confusion
regarding implementation.
MR. BALDWIN acknowledged that that does solve the problem "we"
ran into the first time around, where the court said that the
legislature didn't quite get there in attempting to put forward
an interpretation that would carry the day. He said that what
he is trying to relay is that the interpretation that was put
forward at that time is different in some important respects
than the interpretation that is put forward [via SJR 24]. There
was nothing in that approach, taken back then, about limiting
what could be spent - what kind of appropriations "you could
support with the [CBRF] balance ... being freed up by the
majority vote"; that's a new concept here, he added.
MR. BALDWIN noted that "the way it was gone at," at that
particular time, was to define the term "the amount available
for appropriation" to only refer to unrestricted general fund
sources as being available for appropriation; "we were trying to
narrow it and limit it just to those kinds of sources." He
added that that's where "we" got into getting crossed up with
the court, where the court said, "No, the language should be
interpreted broader to include not only unrestricted general
fund sources, but also permanent fund sources and other 'general
fund group fund' sources." And so those kinds of things were
all added into the mix, and then the equation became hard to
meet in order to provide for majority-vote access to the [CBRF].
REPRESENTATIVE BERKOWITZ asked Mr. Baldwin if he had "suggested
language for that proposed amendment."
Number 2161
MR. BALDWIN said: "No, I don't, but if it's the desire of the
committee, we could help you with that." He added that with
regard to [Article IX, Section 17(d)], there are a couple of
approaches that could be taken.
SENATOR DONLEY remarked that a question raised by the press is:
"If you're trying to create something that helps with fiscal
discipline, wouldn't this backfire if ... a fiscally
conservative group was in the minority; wouldn't you want to
maintain that authority?" He said that his response to that
question is, "No, it doesn't do that, because it only runs one
way." The original intent was: "Before you could access with a
simple majority, you had to be exercising fiscal discipline and
not spend more than the previous year." So by going back to
that, he offered, it actually does just the opposite of giving
up the authority of a fiscally disciplined minority; it would
say that the majority has to impose fiscal discipline before it
would be able to use a simple majority [vote] to access this.
SENATOR DONLEY noted that language in Section 1(b) of SJR 24
specifies that the definitions used therein apply to that
subsection. He said that the intent of using such language is
to ensure that those definitions do not spill over to any other
section of the [Alaska State] Constitution; the definitions are
intended to only deal with the CBR in that subsection. He
opined that such language is "crystal clear" though if the
legislature so chooses, a letter of intent could be added. He
noted that he would be willing to entertain any suggestions from
the DOL, and would check with the drafter to see whether any
other clarifying language was needed to prevent any spill over.
Number 2229
SENATOR DONLEY said that another question that has been raised
is: "What has been the cost of the CBR vote to the budget
process, getting to the [three-fourths] requirement." He said:
This is a very complex issue; this is not a simple
issue by any means, and it's become more complex.
Obviously, it's been the subject of legislation that
was overturned by the [Alaska] Supreme Court. This is
not simple business here. So in trying to convey to
the public this issue and why it may be important,
we've tried to do our best to balance between
understandability and complexity - you know, the full
details. One of the standards that we tried to find -
to try to [quantify], somehow, what kind of an impact
this has - was to go back and look at what floor
amendments were proposed by the minority in the House
and the Senate that did not pass, where subsequently
that money was placed within the final operating
budget document. And those were the quantities that
the Representative referred to.
We've tried to clarify that that was what we did, and
... there's a good argument that maybe those things
would have been done anyway, because you can see a
pattern over the four or five years. You go back five
or six years, it starts about $5 million, and then it
grows up to about $150 million last year. Now, would
some of that money been included anyway in a final
gasp to get some sort of consensus on the budget?
Possibly. But even if you were [to] discount it by 50
percent - those numbers - you'd still have a very,
very significant number, even if you discount it by 75
percent, you'd have a very, very significant number
given the budget situation we're in.
So this was just an attempt to quantify what the
impact's been, and to make that attempt you got to put
some parameters on it. So, with full acknowledgement
that ... those numbers may vary, we did the best we
could to try to not overlap and ... say, "Oh, there
were two motions here," and try to use apples and
apples as much as possible. But I recognize ... it's
a speculative number, and by its very nature, it's
going to be, because that's the political process. So
I recognize that but I would suggest that even if ...
you discount it, which ... could be fair, it's still
going to be a significant number and in no way would
it go the other direction.
SENATOR DONLEY continued:
[Mr. Teal and I] spent quite a bit of time this summer
examining this question of the ongoing debt - the
liability that was owed to the constitutional budget
reserve. ... It was our impression that this was good
the way it was because as we vote year to year, we're
eliminating that ongoing debt.
Number 2420
MR. TEAL said:
We did discus that issue with Legal [and Research]
Services [Division]; the final answer was that once
[subsection] (d) is gone, then all the legislature
needs to do is appropriate the $3.8 billion from the
general fund into the constitutional budget reserve,
and the debt will be met - the liability will be met -
and then the money is simply drawn out again. So it's
the same kind of roundtrip issue; we do owe ourselves,
and it's simply removing it from the books. It would
require a [three-fourths] vote to do that.
CHAIR ROKEBERG asked: "What if we didn't have the [$3.8
billion]?"
MR. TEAL said: "We don't."
CHAIR ROKEBERG asked: "Wouldn't that cause a slight accounting
problem if we try to sweep and balance?"
MR. TEAL replied: "Well, I suppose it does but no more of an
accounting problem than we have now with the CBR vanishing."
"All of these definitions are difficult," he added, and if the
money is appropriated, then "we don't have it ... - we don't
have any cash - but we're simply crossing liability off the
books by making that appropriation, because we'd grab it from
the place that we just paid it to."
TAPE 02-9, SIDE B
Number 2478
REPRESENTATIVE BERKOWITZ commented that it sounds to him as
though Senator Donley is retreating a little bit from the
assertions he made in "this magazine that was passed out, where
you explicitly said the cost [of] this [provision to] access the
CBR with a [three-fourths] supermajority vote to balance the
budget was nearly $150 million, period." "No caveats, no
qualifications, nothing," he added, asking, "Is this statement
accurate or inaccurate?"
SENATOR DONLEY replied: "I believe ... it's accurate; I think
that's what it actually costs, using that measure that we
utilized." "Now, I believe [there's room] for disagreement
there - reasonable, honest disagreement - but I do believe - no
question - that it cost more this year than it had the year
before, and ... that it's gotten more expensive," he added. He
opined that some way to quantify it has to be figured out, and
that "that's" a reasonable way to quantify it given the
parameters being presented.
REPRESENTATIVE BERKOWITZ said to Senator Donley:
It's hard for me to reconcile that statement; ...
you're taking credit on the first page for the funding
you criticize us for leveraging on the second page,
and it's got to be one or the other - it can't be
both. You either take credit for increasing the
budget or you opposed us trying to increase the
budget. Which one is it?
CHAIR ROKEBERG noted that the document Representative Berkowitz
is referring to is not before the committee.
SENATOR DONLEY said that he thinks there is no question that the
CBR vote has inflated the budget over the years.
REPRESENTATIVE JAMES asked: "Senator Donley, how many savings
accounts do you think we need to have?" She said she thinks
there should be a reserve account somewhere, but questions
whether more than one is needed.
SENATOR DONLEY said it would depend on how they're structured.
He offered:
If you had one big savings account with different
criteria for accessing under different circumstances,
that might work. If you've got single [criterion] for
accessing a particular account, maybe you need more
than one account for dealing with different types of
situations. Some people would contend that there's
funds out there that could be considered savings
[accounts] that we normally - ... the majority [of]
... bipartisan legislators - wouldn't necessarily
consider to be savings accounts because they kind of
feel those are off limits.
Number 2359
REPRESENTATIVE JAMES said that at the time that she voted on
this issue, she thought it was a good idea for "these windfalls"
to be set aside for some time when there was desperate need to
access the money. With regard to the [three-fourths] vote that
was mentioned at that time, she indicated she thought that
surely if it was a valid reason to use the money, the
legislature could get a [three-fourths] vote because it would be
for an emergency of some sort. She said she thought, further,
that if the money is used, it should be paid back. She said
that it bothers her a lot that now "we're talking about not
paying it back" but still keeping the account.
REPRESENTATIVE JAMES said that she has generally thought that
"we" should just do away with the CBR, period, and put the money
somewhere else. She remarked that according to her
understanding of [SJR 24], it seems to her like "your still
wanting another tool, here, to not use any money from our
savings account without having more than a majority vote," and
then only up to the amount that was spent in the prior year.
"Is that the purpose of this," she asked Senator Donley, or had
he given thought to "any other methodology" without having an
account that the legislature is required to pay back.
SENATOR DONLEY opined that Representative James's analysis of
what people were told and what they thought they were voting for
is "absolutely correct." He continued:
The members that are still here, that were in the
House at that time, that were the actual sponsors of
that, confirm that; it was intended to be a tool for
fiscal discipline and also as a fiscal shock absorber,
so to speak, that could be utilized when necessary.
And while it's worked very well, I think, as a fiscal
shock absorber - a savings account ... to be used when
it's needed - it hasn't worked, as it was intended, as
a tool for fiscal discipline, because of the court's
definition of "available for appropriation."
So that was one reason why I didn't support just doing
away with it, because it's worked well ... to balance
out the high and the low years. And goodness knows,
we have this challenge here, more than any other state
in the nation, since we're so dependent on [the] world
price of oil for our revenue from year to year. And
so I think it was a very wise choice, by the voters,
to have this shock absorber in place to deal with
those radical sweeps in revenue from year to year, but
it came with this unintended consequence of sort of a
reversal of how it was originally intended as far as
the access provision. So I do think that there's a
role for a savings account like that - to balance
things out - and I think it's worked well to do that;
it just hasn't worked as intended on the other end, as
a tool for fiscal discipline.
Number 2231
REPRESENTATIVE JAMES asked: When it is determined that federal
funds, income of the permanent fund, or the budget reserve
account may not be considered available for appropriation, what
would be the net result of that as far as fiscal discipline is
concerned?
SENATOR DONLEY said that for determining the amounts that would
be available for appropriation, first of all, "we" are trying to
exclude funds that didn't logically fit in that category such as
federal funds that are coming in for other sources. "We" don't
have any control over those and most of the time they are
earmarked for specific things so there is not the same sort of
flexibility as there is with general funds. With regard to the
income of the permanent fund, traditionally it is used for other
programs such as inflation-proofing and the dividend program, so
"we" felt it was appropriate to remove that income from
consideration.
REPRESENTATIVE JAMES said:
If we don't count them, and if we used some of the
earnings of the permanent fund in one year and the
next year it's not considered again, then that's the
problem that I have. In other words, we're going to
look at last year's budget and figure out how much we
spent without these monies, and if we don't have that
much money, we can do it. It seems to me like if we
use some earnings of the permanent fund the next year
and you reduce that whole amount and we don't have
that much money without using earnings of the
permanent fund, we can't go in there. Am I misreading
something?
SENATOR DONLEY said he would like some time to follow out that
line of reasoning.
Number 2128
CHAIR ROKEBERG noted that SJR 24 would be held over because he
has some concern about "what did you call it, the 17(d), or the
$3.8 billion clarity; we want to make sure that we have that
included."
SENATOR DONLEY said he thinks that is a reasonable suggestion:
to make it clear one way or the other whether that debt still
exists. It was always just an accounting tool because, in
reality, each year "we" had removed the liability for paying
that debt. Also, the accounts that are out there that are
subject to the sweep "aren't that much money."
CHAIR ROKEBERG said: "It's a fiction and a phantom but if the
financial community recognizes it, then we have to deal with
it."
REPRESENTATIVE OGAN said:
I'm always concerned when we load up the [Alaska
State] Constitution with statutory language that the
public can't understand. I mean, I had to read it a
couple of times - I think I understand it, ... and I
do this for a living ... at least part of the time....
So I'm not sure that the average person is going to be
able to read this and really understand what [he/she
is] voting on. And if the average person can't read
it, that means the lawyers can read what they want
into it....
I want to talk a little bit about the CBR process and
what the net result to public policy [is].... We go
through this whole dog-and-pony show on budget
subcommittee hearings and then the subcommittee
chairman come forth, and then ... we have the budget
process in the finance committees, and then we go out
on the floor and there's a million amendments, and at
the end of the day - at the end of session - all that
just kind of goes out the window. It's really window
dressing, ... and what happens is "let's make a deal
behind closed doors." And something that the public
can't see on Gavel to Gavel ... [is] who's going in
and out of what office and figuring out what deals are
being made.
And the only reason we're doing that is because of the
CBR, and I think just having that leverage by minority
- and I've used it too as [part of a] minority caucus
... for different gain ... - I don't think is good
public policy. That's why I appreciate what you're
trying to do here. But I just think it would be
better if we just got rid of the whole doggone thing,
... I really do, just because we're not getting good
government when some super minority can leverage
somebody else to get their way for schools or for
whatever they've got to have to buy the vote.
Number 1942
REPRESENTATIVE KOOKESH [brought up] a point of order: "I don't
see what the rhetoric here is going to get us."
CHAIR ROKEBERG acknowledged that Representative Ogan was
speaking a little bit off the subject with his debate. He
mentioned that if the legislature were to adopt an endowment
type of [account], it wouldn't be readily accessible as a "shock
absorber cushion" if there were an enormous swing in [Alaska's]
"cash flow position." He also mentioned that the "so-called
rainy day content" of the CBR does allow for a budgetary shock
absorber if there is a significant swing in revenues and
expenditures. He said, "What we have now is two [accounts]: we
have the CBR and we have the earnings reserve. So if we ever
were to change any of that, you could make the argument that
something has to be there." He reminded members that the
legislature has a constitutional mandate to balance the budget
every year.
SENATOR DONLEY said that with such a high threshold of [three-
fourths], "I think you do bear a real risk that small interest
groups can form within the legislature to prevent ever getting
to that level." Now, as time's gone by, he added, groups have
become more and more sophisticated [in] working around the
[three-fourths] vote; [in the] last several years "we've" seen
other groups, not just the majority and the minority, develop on
this issue. As that gets more and more complex and more and
more of those groups form, he opined, it's going to become
virtually impossible for enough agreement to form to get a
[three-fourths] vote, and there are some serious downsides to
not being able to achieve that.
SENATOR DONLEY said number one, the state would have a cash flow
problem; "you" certainly wouldn't have enough to go through the
next fiscal year without access to the CBR. Number two, the
sweep would occur. So in the interest of the citizens of the
state, setting this [three-fourths] threshold is just not good
public policy, he opined.
Number 1819
REPRESENTATIVE JAMES pointed out:
The governor can veto the budget and we have to have
[three-fourths] to override the [veto]; so there is
that there. And historically, when you [raise the]
requirement - even from two-thirds to [three-fourths]
on any issue - what you do is you empower the
minority, and whether that's a good idea or not is a
separate issue.... So I agree with your statement
that it can be very cumbersome and [may] not
necessarily get the best interest of the majority of
the folks met.
REPRESENTATIVE OGAN said: "I've overheard members of the fiscal
planning caucus saying that they're going to withhold their CBR
vote if they don't get taxes, so ... these are the kind of
things that get in the mix with this well-intended but
troublesome provision."
CHAIR ROKEBERG announced that SJR 24 would be held over.
ADJOURNMENT
Number 1741
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:00 p.m.
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