01/23/2004 01:03 PM House JUD

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ALASKA STATE LEGISLATURE HOUSE JUDICIARY STANDING COMMITTEE January 23, 2004 1:03 p.m. MEMBERS PRESENT Representative Lesil McGuire, Chair Representative Tom Anderson, Vice Chair Representative Dan Ogg Representative Ralph Samuels Representative Les Gara Representative Max Gruenberg MEMBERS ABSENT Representative Jim Holm COMMITTEE CALENDAR HOUSE JOINT RESOLUTION NO. 9 Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit. - HEARD AND HELD PREVIOUS COMMITTEE ACTION BILL: HJR 9 SHORT TITLE: CONST AM: APPROPRIATION/SPENDING LIMIT REPRESENTATIVE(s): STOLTZE 01/31/03 (H) READ THE FIRST TIME - REFERRALS

01/31/03 (H) STA, JUD, FIN 02/11/03 (H) STA AT 8:00 AM CAPITOL 102 02/11/03 (H) Heard & Held 02/11/03 (H) MINUTE(STA) 04/04/03 (H) W&M REFERRAL ADDED BEFORE STA 04/09/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/09/03 (H) Heard & Held 04/09/03 (H) MINUTE(W&M) 04/17/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/17/03 (H) Heard & Held 04/17/03 (H) MINUTE(W&M) 04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/24/03 (H) Heard & Held 04/24/03 (H) MINUTE(W&M) 04/29/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/29/03 (H) Heard & Held 04/29/03 (H) MINUTE(W&M) 04/30/03 (H) W&M AT 8:00 AM HOUSE FINANCE 519 04/30/03 (H) Heard & Held 04/30/03 (H) MINUTE(W&M) 05/02/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 05/02/03 (H) Moved CSHJR 9(W&M) Out of Committee 05/02/03 (H) MINUTE(W&M) 05/02/03 (H) W&M RPT CS(W&M) NT 3DP 2NR 2AM 05/02/03 (H) DP: HEINZE, WHITAKER, HAWKER; 05/02/03 (H) NR: MOSES, GRUENBERG; AM: KOHRING, 05/02/03 (H) WILSON 05/06/03 (H) STA AT 8:00 AM CAPITOL 102 05/06/03 (H) Scheduled But Not Heard 05/06/03 (H) JUD AT 5:30 PM CAPITOL 120 05/06/03 (H) -- Meeting Canceled -- 05/06/03 (H) STA AT 5:30 PM CAPITOL 102 05/06/03 (H) -- Meeting Canceled -- 05/07/03 (H) STA AT 8:00 AM CAPITOL 102 05/07/03 (H) Heard & Held 05/07/03 (H) MINUTE(STA) 05/07/03 (H) JUD AT 1:00 PM CAPITOL 120 05/07/03 (H) <Bill Hearing Postponed> 05/08/03 (H) STA AT 8:00 AM CAPITOL 102 05/08/03 (H) Moved CSHJR 9(STA) Out of Committee 05/08/03 (H) MINUTE(STA) 05/08/03 (H) STA RPT CS(STA) NT 3DP 3NR 05/08/03 (H) DP: SEATON, LYNN, DAHLSTROM; 05/08/03 (H) NR: GRUENBERG, HOLM, WEYHRAUCH 05/08/03 (H) JUD AT 3:30 PM CAPITOL 120 05/08/03 (H) <Bill Hearing Postponed> 05/09/03 (H) JUD AT 1:00 PM CAPITOL 120 05/09/03 (H) Heard & Held 05/09/03 (H) MINUTE(JUD) 05/12/03 (H) JUD AT 1:00 PM CAPITOL 120 05/12/03 (H) <Bill Hearing Postponed to Wed. 5/14/03> 05/14/03 (H) JUD AT 1:00 PM CAPITOL 120 05/14/03 (H) Heard & Held 05/14/03 (H) MINUTE(JUD) 05/15/03 (H) JUD AT 8:30 AM CAPITOL 120 05/15/03 (H) -- Meeting Canceled -- 10/29/03 (H) JUD AT 5:00 PM Anch LIO Conf Rm 10/29/03 (H) Heard & Held 10/29/03 (H) MINUTE(JUD)

01/23/04 (H) WITNESS REGISTER REPRESENTATIVE BILL STOLTZE Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Sponsor of HJR ACTION NARRATIVE TAPE 04-2, SIDE A Number 0001 CHAIR LESIL McGUIRE called the House Judiciary Standing Committee meeting to order at 1:03 p.m. Representatives McGuire, Anderson, Ogg, Samuels, and Gara were present at the call to order. Representative Gruenberg arrived as the meeting was in progress. HJR Number 0014 CHAIR McGUIRE announced that the only order of business would be HOUSE JOINT RESOLUTION NO. 9, Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit. [Before the committee 9(STA).] CHAIR McGUIRE noted that in members packets was a proposed committee substitute (CS) for HJR in which attention was turned to a spending limit, and listed the resolution's past hearings. He relayed that the governor, through his Office of Management & Budget (OMB) staff, has offered some good suggestions regarding the issues of controlling spending and associated economic factors. He noted that one of the complaints he hears from those in his district is, "I'm suffering economically; government sure doesn't the pinch." He remarked: It certainly brings a connectivity that a lot of us can identify with. There's a lot of things that we're going to have to consider in the process; it's a long process of getting 27 and 14 votes, and bringing something that the public can support - that they're going to believe is going to be a meaningful spending document. This committee has certainly had a meaningful role in that process. Number 0306 KELLY HUBER, Staff to Representative Bill Stoltze, Alaska State Legislature, sponsor, relayed that Version X uses the base year that was in the original resolution, "which is two years preceding." She added that the governor's proposal was based on the prior year - one year preceding. In addition, Version X applies, to the base year, the following "economic/limiting factors": 50 percent of the average annual percent change over the last three of four years in personal income plus the average percent change in population over the last three of four calendar years. She noted that those economic/limiting factors were in the governor's proposal as well. MS. HUBER pointed out that appropriations exempted in Version X no longer include the appropriations pertaining to the Alaska Railroad Corporation (ARRC), but do include the Constitutional Budget Reserve (CBR). REPRESENTATIVE STOLTZE indicated that he'd never been convinced that the ARRC ought to have been included in the exemption list to begin with, and so had no problem with having it removed in Version X. CHAIR McGUIRE surmised that if sufficient argument is made in favor of including, in the exemptions list, appropriations pertaining to the ARRC, then those appropriations could be added to the exemption list later [in the process]. REPRESENTATIVE STOLTZE relayed that he might have previously testified, perhaps erroneously, that he thought that the ARRC had been included for the purpose of allowing it to participate in the gas [pipeline] bond proposal, but has since realized that such a possibility is provided for through other mechanisms in the [resolution]. REPRESENTATIVE GARA opined that the legislature would certainly like to have the option of allowing the ARRC to participate in the financing of a [gas] pipeline, and asked for clarification on how such is provided for in Version X. Number 0499 REPRESENTATIVE STOLTZE offered that the mechanism for such is provided for via the language - located in Section 1 of the resolution, that which pertains to altering Article IX, specifically proposed Section 16(b)(5), of the Alaska State Constitution - regarding revenue bonds. CHAIR McGUIRE, in response to a question, offered her belief that the language in proposed Section 16(b)(5) would apply to a "railroad-financed bond." MS. HUBER went on to relay that Version X requires a three- quarter override vote in both houses of the legislature in order to obtain up to an additional 2 percent increase in spending; in contrast, the governor's proposal required a two-thirds majority vote of the legislature in joint session. She mentioned that Version X contains a provision regarding voter reauthorization every six years, with the first reauthorization vote scheduled for 2010. She concluded by noting that Version X includes provisions from both the governor's proposal as well as from prior versions of HJR REPRESENTATIVE OGG asked how the override provision would work. REPRESENTATIVE STOLTZE offered that it would work in the same fashion as the current [three-quarter vote] requirement pertaining to the CBR, but would be for the purpose of approving additional spending beyond any increase [provided for via proposed Section 16(a)]. CHAIR McGUIRE, in response to further questions, indicated that the override provision in Version X is not related to overriding the governor's vetoes; instead, it pertains solely to authorizing additional spending beyond the proposed spending cap. REPRESENTATIVE GARA said he wanted to make sure that the language in Version X would allow for the financing of an unexpected expenditure such as a gas pipeline. He asked whether the funds required to pay back bonds have to fit within the spending cap. REPRESENTATIVE STOLTZE indicated that such funds would have to fall within the cap. REPRESENTATIVE GARA surmised, then, that any such debt would have to be funded at the expense of not funding something else. Number 0887 REPRESENTATIVE STOLTZE offered that absent using the three- quarter override provision in HJR prior committee. Number 2057 REPRESENTATIVE GARA relayed his belief that [the legislature] has done poorly with the school budget over the last few years. In fact, if one were to measure school funding in real dollars, he added, one would find that it has been decreased by over 7 percent in the last six years, with the result being teacher layoffs and increasing class sizes. He asked how that trend could be reversed under this resolution. Turning to proposed Section 16(a), he said that spending has to decrease on a per person basis every year from now on, and highlighted that Anchorage has already laid off over 100 teachers in anticipation of this year's budget. REPRESENTATIVE STOLTZE answered that the passage of this resolution will force the legislature to prioritize and thus there may areas in the budget that may not continue to be funded. He recalled the mid to late 1980s, what he characterized as one of the most extreme [fiscal] times for the state, when oil prices were down to single-digit and low double- digit prices. The aforementioned, he remarked, was one of the last times he recalled that education was fully funded. He relayed his belief that last year more money was put in the education budget, and that he believes education will be a priority for the legislature. REPRESENTATIVE GARA distributed a Legislative Research report, which he said specifies that less was spent on schools last year than the year prior. Furthermore, this reports specifies that approximately 7 percent less has been spent on schools over the past five years and, thus, he disagrees with the argument that the legislature has being doing it right. REPRESENTATIVE GRUENBERG suggested that to really see how this resolution would work it would be necessary to produce a computer model that uses various rates of inflation and other variables. For any spending cap to work, it requires model language and various factual hypothetical scenarios. He posited that for something to work in the constitution, it must work [well] under as many scenarios as possible. CHAIR McGUIRE said Representative Gruenberg's suggestion is a good one. REPRESENTATIVE STOLTZE remarked that that process has been started. The committee took an at-ease from 1:37 p.m. to 1:38 p.m. Number 2301 CHERYL FRASCA, Director, Office of Management & Budget (OMB), Office of the Governor, thanked Representative Stoltze for his work on this issue. Ms. Frasca relayed [the administration's] view that HJR 9 regardless of the fund source, and is therefore "not just a general fund limit." She noted that any time an exemption from the limit is established, there is an incentive to categorize or define spending. However, regardless of what the limit is, there still needs to be revenues to match that level of spending. TAPE 04-2, SIDE B MS. FRASCA pointed out that revenue bonds and revenue proceeds would be excluded from the limit because something external would pay those. Furthermore, proposed or suggested general obligation (GO) bond proceeds would be excluded, although GO debt wasn't excluded because it has to be paid. REPRESENTATIVE SAMUELS relayed his understanding that under the governor's proposal, the proposed Section 16(b)(6) was not included and, thus, the appropriations required to pay the obligations under GO bonds were not excluded from the governor's proposed spending limit calculation. MS. FRASCA agreed and reiterated, "except for revenue bonds ... and also certificates of participation [COPs]." She explained that the administration doesn't want to establish a system that encourages the state to incur debt rather than pay cash when in a position to do so. Ms. Frasca informed the committee that the administration had discussed excluding trust funds because those are monies that won't be used to pay for something else. Furthermore, there are some constitutionally dedicated fund sources [that the administration would suggest excluding]. REPRESENTATIVE GRUENBERG turned attention to page 2, line 11. He recalled Ms. Frasca's indication that the legislature could float a series of GO bonds and the monies to pay those back in subsequent years would be totally outside the proposed spending limit calculation. However, GO bonds are capital bonds and thus a lot of the capital budget would be thrown out. Therefore, he suggested that there would be two different systems under this language [on page 2, line 11]. One system would be for the operating budget, which would be under the cap, while the other system would be for bonded capital expenditures, which are outside the cap. He then turned attention to page 2, line 13, and pointed out that when the federal funds are no longer available, the [system] will be "out of whack" because the program in place is dependent upon federal funds. Therefore, it will automatically be over the cap because the large chunk [of funds] for the existing program is now under the cap. MS. FRASCA agreed, but explained that it meant that [the legislature] would have to prioritize [spending]. REPRESENTATIVE GRUENBERG said that Ms. Frasca's answer is one that could be given to any question and doesn't address how the legislature is going to run state government. Number 2186 MS. FRASCA moved on to the three-fourths vote requirement. She informed the committee that 29 states have an appropriation or spending limit. Twelve of those states have a two-thirds requirement to override the limit, two states have a three-fifth requirement, seven states have a majority requirement, and six states have no provision to waive. No state has a three-fourths requirement. REPRESENTATIVE GARA indicated his understanding that those 29 states had a tax cap rather than a spending cap. MS. FRASCA agreed that some of those appropriation limits apply to revenues. As an example she pointed out that Anchorage's cap is related to how much taxes can increase from one year to the next. REPRESENTATIVE GARA asked for confirmation that in those 29 states, the caps are related to how much people can be taxed. MS. FRASCA answered, "Not all of them." She pointed out that some of the caps in those 29 states do touch on revenue sources while others touch on spending regardless of revenue sources. She explained that those states had caps of some sort, and reviewed how those states could exceed that limit. REPRESENTATIVE GARA asked which of the 29 states were tax cap states and which were spending cap states. MS. FRASCA said she didn't know, but offered to share with the committee the report from which she took the information. She then informed the committee that the ARRC isn't subject to the Executive Budget Act, and that the governor had at one time proposed tying enactment [of a spending limit] to passage of the "POMV legislation" but he is no longer promoting such a provision. She went on to explain that when using the calculation in proposed Section 16(a), one takes 50 percent of the personal income growth and population, which would result in approximately a 3.15 percent increase; this exceeds the rate of inflation, which has been 1-2 percent since 1993. Number 2048 CHAIR McGUIRE asked about any increase in spending that has occurred in the past. MS. FRASCA answered that "it" has been going in the opposite direction in the last two [years]. Although the state hasn't been in a position to come close to this proposed spending limit, the administration's approach is, should there be an influx of revenues, regardless of the source, Alaskans will be assured that [state government] won't go on a spending spree. REPRESENTATIVE GARA commented that it seems that under a responsible budget, the spending would increase based on population growth and inflation. He asked why spending should go along with personal income growth as opposed to inflation. MS. FRASCA responded that she wasn't convinced that all spending has to automatically increase because of inflation or population increases. She pointed out that sometimes there are economies of scale that can be gained in terms of the management of programs. Furthermore, competition in the marketplace drives costs down. She highlighted that one of the challenges is that revenues don't increase with regard to population and inflation. The reason the administration used personal income growth is because it includes an element reflecting inflation; as salaries increase, personal income increases and thus state spending can increase. In contrast, if a situation arises in which the economy isn't doing well and personal income is decreasing, the administration doesn't believe state [spending] should increase. REPRESENTATIVE GARA asked Ms. Frasca if she had a long-term average of the difference between inflation and income growth. MS. FRASCA said she could provide the committee with that data. In further response to Representative Gara, she said she didn't know the difference between inflation and income growth over the last 20 years, but could find out. REPRESENTATIVE GARA asked if his understanding is correct that the state is spending less now, when adjusted for inflation and population growth, than it was before the pipeline boom. MS. FRASCA offered to provide that information. She informed the committee that the state is spending $6,600 per capita, including general funds and other state funds, and that many of the analyses put forward for comparison purposes merely include general funds. Number 1833 MS. FRASCA turned to the 1982 constitutional spending limit and pointed out that if it were actually being followed, the state could spend $6.6 billion [in general funds]. The aforementioned occurred because the limit kept increasing rather than returning to what was actually spent. REPRESENTATIVE GARA questioned whether that was because spending has fallen behind population growth and inflation. MS. FRASCA replied that it was an artificial [number] each time. REPRESENTATIVE OGG noted that the university has receipt authority, which he imagined would be covered under federal funds. He asked what would happen to tuition, which is independent and which has increased 10 percent each of the past two years. MS. FRASCA clarified that under Version X, tuition would be included in the [spending] limit. Just as with the Division of Occupational Licensing, if one obtains a license, it would be included in the limit. The university is a governmental institution and the administration's philosophy is that a student at the university would want to recognize that there is a limit on how much the university can grow each year. Therefore, the university would be subject to the [spending] limit. Number 1765 REPRESENTATIVE OGG turned to the language in Version X pertaining to income and population growth. How does Version X deal with boom and hyperinflation situations, he asked. MS. FRASCA answered that one way would be to exceed the limits. However, under Version X there is a 2 percent limit after an upward adjustment. The administration didn't have a limit as to how much it could be exceeded. She emphasized that hyperinflation doesn't mean that revenues are also inflated; hence there will be added spending pressures, which will lead to [prioritization]. She reiterated that there isn't more money just because the cost for something increases. This is faced at all levels, from individuals to municipalities. REPRESENTATIVE OGG agreed that such will result in tough choices. However, [the state] has a fairly large reserve and some of the [state's] assets have been turned into liquidity. [The state] has the ability to provide the same services regardless of inflation, except for the fact that Version X won't allow such. Therefore, this may not be a path which [the state] may want to go. "You're tying your ability to respond to issues, and the timeline to correct that would be at least two years out because you'd have to correct the constitution," he pointed out. CHAIR McGUIRE asked if any of the 29 states that Ms. Frasca spoke of earlier restricted spending by specifying a certain percentage such as that in Version X. MS. FRASCA replied that some of those states did have some maximums, while others went to the voters for approval of exceeding the limit. CHAIR McGUIRE said she believes that Representatives Ogg, Gara, and Gruenberg all touch on a good point. Even for those who want a spending limit, there is a real concern that there may be something to which [the legislature] can't effectively respond. CHAIR MCGUIRE announced that her staff would work on a committee substitute, and therefore those with ideas or suggestions should approach the committee staff with those. REPRESENTATIVE OGG asked that the university tuition issue be reviewed. MS. FRASCA suggested that the [committee substitute] be very specific because she would expect that there would be all kinds of things referred to as university receipts. "If you really mean tuition, say tuition," she said. Number 1488 REPRESENTATIVE SAMUELS turned to excess revenues and noted that his knee-jerk reaction would be to leave it in the GF, even with the three-fourth vote, because that excess revenue may be necessary just to match last year's limit. He asked why the administration's proposal places excess revenue in the CBR. MS. FRASCA responded that the administration wanted to create an incentive to save money by placing it in the permanent fund or the CBR. REPRESENTATIVE SAMUELS turned attention to proposed Section disaster." He asked whether the governor could call hyperinflation a disaster and whether funds for such would have to go to a three-quarter vote of the legislature. MS. FRASCA answered that there are statutory definitions that must be followed in order to declare a natural disaster. Number 1399 REPRESENTATIVE GARA pointed out that this year in Anchorage over budget similar to last year's education budget. He asked whether the administration has a view with regard to whether class sizes should be reduced in certain areas of the state and whether that could be done under [Version X]. MS. FRASCA pointed out that the spending limit suggests an increase each year if the revenues are there to support it. Therefore, a legislature or governor would have the choice of adding funding to education. However, she pointed out that last year the legislature passed a statute that prescribed how much money the state would give to school districts, which is what was followed when the administration introduced its education budget. She highlighted that there was a decrease in the number of students in Anchorage as well as throughout the state, and therefore there was less of a requirement to provide that level of funding to the school districts. MS. FRASCA noted that some communities have self-imposed limitations, which is the case in Anchorage where there is tax cap that limits how much the municipality is willing to pay for schools. A couple of years ago, legislation was passed which specified that when communities with a property tax, such as Anchorage, experience an increase in the assessed valuation, local school districts are supposed to increase to "4 mils." However, what has happened in recent years in Anchorage is that it pays "3.5 mils" and the state provides the mils." Therefore, some of the local level decisions may want to be revisited in order to determine whether additional dollars could be added to schools. She highlighted that this year, there will be the burden of the PERS [Public Employees' Retirement System] and TRS [Teachers' Retirement System] increase, which is something that the state, school districts, and local governments will have to bear the costs of. MS. FRASCA reiterated that this is a challenging time during which everyone has to balance many competing demands. She emphasized that education is a priority for the governor. Number 1245 CHAIR McGUIRE mentioned the workers' compensation situation and questioned how one could have predicted that as a result of major companies going bankrupt, the state would be put in the position of picking up the pieces. Sometimes the [state] bears costs that are the result of someone else's fiscal mistakes. CHAIR McGUIRE, upon polling the committee with regard to its wishes, announced that HJR 9. name='HJR9' href='/basis/Bill/Detail/23?Root=HJR9'>HJR 9. 9, and responded to questions. 9 - CONST AM: APPROPRIATION/SPENDING LIMIT was CSHJR etail/23?Root=HJR9'>HJR 9, Version 23-LS0435\X, Cook, HJR 9, 9, commented on the governor's recent press conference, feel 9. Detail/23?Root=HJR9'>HJR 9, in such a situation the 16(b)(6), located on page 2, and surmised - contrary to 16(c), it appears that using the three-quarter vote to increase 16(c)] could be drafted better. Noting that the current 16(c), the legislature could vote to spend roughly an extra $50 9 was more of a flat budget, but that was changed in a is a way to control the growth of government 16(b)(3) and asked about the definition of a "state of 100 teachers are being lost and the governor has proposed a additional ".5 ?Root=HJR9'>HJR 9 would be held over. s"> id="docLink">Open document in new windowX ght:100%;min-height:600px" id="docFrame"> width="105" height="107" bills, locate ist-whos-who.php">contact information. g.gov/webmaster.php">help

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