03/13/2023 06:00 PM House WAYS & MEANS
| Audio | Topic |
|---|---|
| Start | |
| HJR2|| HB38 | |
| Presentation(s): Responsible Alaska Budget on Spending Limits | |
| Presentation(s): Spending Caps | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 2 | TELECONFERENCED | |
| += | HB 38 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 13, 2023
6:03 p.m.
DRAFT
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Jamie Allard
Representative Tom McKay
Representative Kevin McCabe
Representative Cathy Tilton
Representative Andrew Gray
Representative Cliff Groh
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 2
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit.
- HEARD & HELD
HOUSE BILL NO. 38
"An Act relating to an appropriation limit; relating to the
budget responsibilities of the governor; and providing for an
effective date."
- HEARD & HELD
PRESENTATION(S): RESPONSIBLE ALASKA BUDGET ON SPENDING LIMITS
- HEARD
PRESENTATION(S): SPENDING CAPS
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HJR 2
SHORT TITLE: CONST. AM: APPROP LIMIT
SPONSOR(s): REPRESENTATIVE(s) STAPP
01/23/23 (H) READ THE FIRST TIME - REFERRALS
01/23/23 (H) W&M, FIN
01/30/23 (H) JUD REFERRAL ADDED BEFORE W&M
01/30/23 (H) BILL REPRINTED
02/15/23 (H) JUD AT 1:00 PM GRUENBERG 120
02/15/23 (H) Heard & Held
02/15/23 (H) MINUTE(JUD)
02/27/23 (H) JUD AT 1:30 PM GRUENBERG 120
02/27/23 (H) Moved CSHJR 2(JUD) Out of Committee
02/27/23 (H) MINUTE(JUD)
03/01/23 (H) JUD RPT CS(JUD) 3DP 1DNP 1NR 2AM
03/01/23 (H) DP: C.JOHNSON, CARPENTER, ALLARD
03/01/23 (H) DNP: GROH
03/01/23 (H) NR: GRAY
03/01/23 (H) AM: EASTMAN, VANCE
03/11/23 (H) W&M AT 9:00 AM DAVIS 106
03/11/23 (H) <Bill Hearing Canceled>
03/13/23 (H) W&M AT 6:00 PM DAVIS 106
BILL: HB 38
SHORT TITLE: APPROPRIATION LIMIT; GOV BUDGET
SPONSOR(s): REPRESENTATIVE(s) STAPP
01/19/23 (H) READ THE FIRST TIME - REFERRALS
01/19/23 (H) JUD, W&M, FIN
01/27/23 (H) JUD AT 1:00 PM GRUENBERG 120
01/27/23 (H) Heard & Held
01/27/23 (H) MINUTE(JUD)
02/15/23 (H) JUD AT 1:00 PM GRUENBERG 120
02/15/23 (H) Heard & Held
02/15/23 (H) MINUTE(JUD)
02/27/23 (H) JUD AT 1:30 PM GRUENBERG 120
02/27/23 (H) Moved CSHB 38(JUD) Out of Committee
02/27/23 (H) MINUTE(JUD)
03/01/23 (H) JUD RPT CS(JUD) 3DP 1DNP 1NR 2AM
03/01/23 (H) DP: C.JOHNSON, CARPENTER, ALLARD
03/01/23 (H) DNP: GROH
03/01/23 (H) NR: GRAY
03/01/23 (H) AM: EASTMAN, VANCE
03/11/23 (H) W&M AT 9:00 AM DAVIS 106
03/11/23 (H) <Bill Hearing Canceled>
03/13/23 (H) W&M AT 6:00 PM DAVIS 106
WITNESS REGISTER
REPRESENTATIVE WILL STAPP
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As prime sponsor, presented HJR 2 and HB
38.
BERNARD AOTO, Staff
Representative Will Stapp
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Assisted in presenting HJR 2 and HB 38 on
behalf of Representative Stapp, prime sponsor.
QUINN TOWNSEND, Policy Manager
Alaska Policy Forum
Anchorage, Alaska
POSITION STATEMENT: Gave the PowerPoint presentation, titled
"Responsible Alaska Budget."
ROB CARPENTER, Deputy Director
Legislative Finance Division
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation on
appropriation limits during the scheduled Spending Caps
presentation.
ACTION NARRATIVE
6:03:02 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:03 p.m. Representatives Tilton,
McCabe, McKay, Allard, Groh, Gray, and Carpenter were present at
the call to order.
HJR 2-CONST. AM: APPROP LIMIT
HB 38-APPROPRIATION LIMIT; GOV BUDGET
6:03:56 PM
CHAIR CARPENTER announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 2, Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit. and HOUSE BILL NO. 38, "An Act relating to an
appropriation limit; relating to the budget responsibilities of
the governor; and providing for an effective date." [Before the
committee was CSHJR 2(JUD) and CSHB 38(JUD).]
6:05:05 PM
The committee took a brief at-ease at 6:05 p.m.
6:05:47 PM
REPRESENTATIVE WILL STAPP, Alaska State Legislature, as prime
sponsor, presented HJR 2 and HB 38. He explained that the need
for a spending cap is not new in the state's history. Alaska
had already identified the potential for overspending and
imposed appropriation limits in 1982. However, that decision
was tied to the economy of the time, and he explained that the
problem with this limit is that it does not effectively limit
any kinds of appropriations. He further explained that a decade
ago, Alaska had $10 billion in revenues and $18 billion in the
constitutional budget reserve (CBR) and the statutory budget
reserve (SBR). He said that the House Finance Committee had
been presented 10-year budget forecasts from the Office of
Management and Budget (OMB), and guaranteed to members that in
2012, the 10-year forecasts at that time would not have
predicted that the state spent all of its reserves, or would
make permanent fund draws to pay for state services. He stated
that one of the effective ways to ensure a strong and stable
economy is to apply "common sense solutions to complex
problems." He further stated that such an appropriation limit
would be the first of many commonsense solutions.
6:08:21 PM
BERNARD AOTO, Staff, Representative Will Stapp, Alaska State
Legislature, on behalf of Representative Stapp, prime sponsor of
HJR 2 and HB 38, referred to language from [a portion of Article
IX, Section 16, of] the Constitution of the State of Alaska,
regarding appropriations, which states that "appropriations from
the treasury made for a fiscal year shall not exceed
$2,500,000,000 by more than the cumulative change, derived from
federal indices as prescribed by law, in population and
inflation since July 1, 1981." He explained that one-third of
the income shall be reserved for capital projects and loan
appropriations, and that voter approved projects can exceed the
limit. He said HJR 2 sets out to apply a different metric for
calculating an appropriations limit by using gross domestic
product (GDP). He said that HJR 2 takes a five-year trailing
average of real GDP based on calendar years. The calculation
takes the five-year average, takes 14 percent, which will then
be the spending cap. He advised that if established before
fiscal year 2024 (FY 24), the number would be $6.25 billion. He
explained that the reason for 14 percent is that it would set a
limit near current spending levels and allow stable and
predictable spending in the future.
6:10:20 PM
MR. AOTO drew attention to a PowerPoint presentation [hard copy
included in the committee packet], to slide 3, and presented a
table that depicts which expenditures are and are not subject to
the proposed limit. He said that unrestricted general funds
(UGF) operating expenditures, UGF capital expenditures, and
payments for retirement benefits are all subject to the limit.
He detailed what is not subject to the limit: permanent fund
dividends (PFDs), appropriations to permanent fund/PCE
endowment, appropriations to a state savings account,
appropriations to capitalize state retirement accounts, direct
spending from a disaster declaration, and proceeds of bonds that
are approved by voters.
6:11:24 PM
MR. AOTO presented a graph on slide 4 illustrating current
appropriations subject to the limit as the red lines, the
current constitutional limit as an orange line, the limit
proposed under HB 38 as a black line, and the proposed limit
under HJR 2 as a green line. He noted that the graph accounts
for the administration's amended and supplemental FY 24 budgets.
He pointed out that while HJR 2 exceeds the cap that HB 38
proposes, it does not exceed the current limit as set by the
Alaska Constitution. Mr. Aoto moved to slide 5 and stated that
HJR 2 has one primary goal: to create an effective
appropriations limit to allow stable long term fiscal viability.
6:12:33 PM
MR. AOTO gave the sectional analysis for HJR 2 [included in the
committee packet], which read as follows [original punctuation
provided, with some formatting changes]:
Section 1:
Amends Article IX, sec. 16 of the Constitution of the
State of Alaska to slightly revise appropriations
subject to the limit as well as the conditions that
determine the appropriation limit. Sets a maximum
statutory cap at 14% of Real GDP (not including
government spending).
Exceptions List [Article IX, Sec. 16]
• Adds appropriations to the Alaska permanent fund to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Adds Appropriation of GO Bond proceeds to exceptions
list
o Moved with slight variation from Appropriation
Limit Section to Exceptions List
• Adds payment of principal and interest on revenue
bonds to exceptions list
• Adds 'appropriations to a state account or fund that
requires a subsequent
appropriation from that account or fund as prescribed
by law' to exceptions list.
• Adds 'appropriations to meet a state of disaster
declared by the governor as prescribed by law' to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Removes "Appropriation of Revenue of a public
enterprise or public corporation.
of the state that issues revenue bonds"
Appropriation Limit Conditions [Article IX, Sec. 16]
• Adds (Appropriations Not to Exceed) an amount
prescribed by law equal to a percentage of the average
Real GDP (not including government spending) for the
first five of the last six years. This measure of
Real GDP is estimated by state government as
prescribed by law.
• Removes Old appropriation limit anchored to $2.5
Billion + Pop. and infl. (since 7/1/81)
• Removes language reserving 1/3 for capital projects
and loan appropriations.
• Removes language adding exceptions to appropriations
subject to the limit from this Appropriation Limit
Conditions section and moves these to the exceptions
list. section.
• Removes specific language surrounding Capital projects
exemptions.
Section 2:
Adds a new section to Article XV of the Constitution of
the State of Alaska (Schedule of Transitional
Measures), section 30, which sets an 'effective date'
of the end of the fiscal year immediately following the
next possible opportunity for Alaskans to ratify a
proposed amendment to the constitution.
Section 3:
Includes the provision that the constitutional
amendments proposed by this resolution must be placed
before the voters at the next general election.
6:15:20 PM
REPRESENTATIVE GRAY requested Representative Stapp to state the
purpose of HJR 2.
REPRESENTATIVE STAPP explained that the intent of HJR 2 is to
smooth out the boom and bust cycles in the state's budgeting, in
order to ensure long-term viability and establish fiscal
certainty in Alaska. He said this could also help private
sector performance, where private sector entities are wary of
investing while the state struggles to create the kind of
stability that attracts long-term investment.
REPRESENTATIVE GRAY asked if it is fair to say that HJR 2 would
help control spending, or rather, help to avoid overspending.
REPRESENTATIVE STAPP responded, "That's a fair assessment." In
response to a question from Representative Gray about the reason
the PFD is not included in the spending limit, said there's been
contention in the state over the last eight years over the PFD,
and from his perspective the PFD "needs its own solution." He
said HJR 2 is setting out to solve a larger fiscal problem that
has existed in the state longer than the PFD "tug-of-war." He
pointed out that the struggle over the PFD ebbs and flows.
6:18:00 PM
REPRESENTATIVE STAPP, in response to a question from
Representative Allard, explained that HJR 2 contains an
exception for PFD appropriations. He said the legislature would
have the ability to take funds that are not within the cap and
appropriate them as they so choose whether that be to pay the
dividend or repay draws from the constitutional budget reserve.
6:19:39 PM
REPRESENTATIVE MCCABE brought up the Fiscal Policy Working
Group's recommendations, pointing out that the group had
separated the PFD intentionally, as well as proposed a separate
spending limit. He opined that the PFD does not belong in the
budget. He surmised that Representative Stapp wrote HJR 2 as
is, because there are already solutions to the PFD that are
working.
REPRESENTATIVE STAPP responded, regarding the fiscal policy
working group, that a spending cap was one of the proposals. He
pointed out that a spending cap is not dependent on any other
aspect of the situation. He said that he is not opposed to
people seeking a holistic solution, but when he speaks to the
merits of HJR 2 and HB 38, the bills stand independently.
REPRESENTATIVE MCCABE stressed that the fiscal policy working
group did not want to "cherry-pick," in that the group knew the
proposals were going to be separate but wanted all the proposals
to march together. He noted that the group did state that a
constitutional spending limit is important, and he thanked
Representative Stapp for bringing HJR 2 forward and said the
matter bears investigating.
6:22:24 PM
REPRESENTATIVE TILTON asked Representative Stapp to elaborate on
using the GDP formula over population plus inflation. She also
asked him to explain the funding limit's design.
REPRESENTATIVE STAPP stated that the private sector tie is
important. He said that in various countries in Europe, like
the Nordic countries, there is a strong private economy. He
stated that in Alaska's case regarding historic private sector
growth, the state has had an anemic private sector economy. He
suggested that to get to a holistic economy in Alaska, members
in the house must take measures towards a strong private sector
economy. He commented that it's not so much looking at today
but instead decades ahead.
6:24:13 PM
MR. AOTO relayed that the current population plus inflation
formula needs to be tied to a figure in order to be effective,
and the current figure it is tied to is $2.5 billion dollars.
He said the difficulty with applying the formula with any figure
- especially when enshrining a figure into the constitution - is
that in 10 years the figure could balloon out of control, which
he said is happening now with the current limit set out in the
Alaska Constitution. He pointed to the graph on slide 7 and
said it illustrates how the current constitutional spending
limit formula has led to spending levels the state could not
even hope to achieve at its current economic level. He
explained that a one-year dip in population and inflation could
drastically affect the current formula limit. Alternatively,
the formula that HJR 2 proposes bases the limit on five trailing
years, which allows one bad year to not be an issue. He
surmised that if there were five years of economic decline, the
legislature would try to take action to reverse the decline to
avoid the "shock value" that resulted from a decline in oil
prices in 2015.
6:26:02 PM
REPRESENTATIVE GROH noted the comments around the Fiscal Policy
Working Group. He asked Representative Stapp if he is aware
that the group recommended "revising Alaska's spending limits as
part of a comprehensive solution," but without actually offering
what that solution would be.
REPRESENTATIVE STAPP responded that the answers to those
questions are the prerogative of the committee.
6:27:17 PM
CHAIR CARPENTER commented that if it is being characterized that
that fiscal policy working group had recommended an action item
- whether a bill or spending limit - then that would be a
mischaracterization of the group's report. He said the report
put forward a revision to the concept of Alaska's spending
limits, since the limits are not effective. He asked
Representative Stapp what the relationship is between HJR 2 and
HB 38.
6:27:57 PM
MR. AOTO explained that the connection between HJR 2 and HB 38
is that the bills are designed to coincide with one another and
mimic each other's language. He said this provides an aligning
and stable spending limit, with the main difference being
percentages. He contrasted the current 14 percent and the
proposed statutory 11.5 percent, in that the statutory limit
sets a two-thirds vote requirement for the legislature to exceed
the limit.
CHAIR CARPENTER asked if it is for any need or only for capital
spending.
6:29:00 PM
REPRESENTATIVE STAPP responded that, conceptually, it would be
for capital spending, but money could be appropriated for other
means. He said his intention is to ensure that [the state] has
the ability to maintain a level of revenue that could be
appropriated for capital spending for the future.
6:29:39 PM
MR. AOTO, at the invitation of Chair Carpenter, offered
information regarding HB 38, which he highlighted is the
statutory companion to HJR 2. He explained the current
statutory limit, set under AS 37.05.540(b), mostly aligns with
the appropriations limit under Article IX of the Alaska
Constitution: "Appropriations from the treasury made in a
fiscal year may not exceed appropriations made in the preceding
fiscal year by more than five percent plus the change in
population and inflation since the beginning of the preceding
fiscal year." He further explained that the change in
population is based on an annual estimate by the Department of
Labor & Workforce Development (DLWD) and that the change in
inflation is based on the consumer price index (CPI) as prepared
by the U.S. Bureau of Labor Statistics.
MR. AOTO said HB 38 uses the trailing average of the 5 previous
calendar years of Real GDP for the state as the metric for the
limit. Real GDP would be calculated by taking data for standard
GDP calculations by government agencies, subtracting government
spending, and adjusting for inflation, and 11.5 percent of the
total average is the limit for all appropriations not listed as
exceptions. He noted that if enacted by FY 24, that figure
would be $5.1 billion. He explained that the appropriations
subject to the limit under HB 38 mimic the provisions under HJR
2. The only difference is that HB 38 adds an additional
exemption of appropriations made from the Alaska Mental Health
Trust Authority settlement income account. He said that was put
into HB 38 because of the Weiss v. State case, and the language
was left unaltered at the advice of Legislative Legal Services
that any change to it may subject the legislature to litigation
and re-open litigation in Weiss v. State.
6:32:34 PM
MR. AOTO showed a graph depicting the current statutory limit,
represented by a light blue line, and the [darker] blue lines
represent appropriations subject to the statutory limit. He
said the figure varies when compared to appropriations subject
to the constitutional limit. He offered further details, then
noted that any supplementals that are made in a fiscal year
court toward that fiscal year. Mr. Aoto stated the two primary
goals of HB 38 are to create an effective appropriations limit
to allow the state more stable long-term fiscal viability and to
align Alaska statute with the constitutional proposal. He then
presented a graph with a red bar that represents appropriations
subject to the constitutional limit and a blue bar that
represents appropriations subject the statutory spending limit.
Further, there is an orange line that represents the current
limit, a green line that represents the limit under HJR 2, and a
black line that represents the limit under HB 38. He noted
that, historically, the constitutional limit is stable at an
incline; the statutory limit is volatile due to the metric
designed for the limit.
6:35:09 PM
MR. AOTO explained that Section 1 of HB 38 amends AS
37.05.540(b) to conform to changes made by HJR 2. Changes
affect the list of appropriations subject to the limit as well
as the conditions that determine the appropriation limit. The
bill defines a calculation for an appropriation cap at 11.5% of
a trailing average of Real GDP, not including government
spending. Under exceptions, AS 37.05.540(b), it adds the
following to the exceptions list: appropriation of general
obligation bond proceeds; payment of principal and interest on
revenue bonds; "appropriations to a state account or fund that
requires a subsequent appropriation from that account or fund as
prescribed by law"; and "appropriations to meet a state of
disaster declared by the governor as prescribed by law". Under
appropriation limit conditions, AS 37.05.540(b) it adds
appropriations not to exceed 11.5 percent of the average Real
GDP, not including government spending, for the first five of
the last six years. It removes the following: the old cap of 5
percent more than last year plus the change in population and
inflation since the beginning of the preceding fiscal year;
language describing determination of change in population based
on annual estimate by DLWD; and language describing the change
in inflation based on CPI for all urban consumers for Anchorage.
MR. AOTO explained that Section 2 of HB 38 adds a new subsection
(f) to AS 37.07.020 which requires a comparison of the
governor's budget requests, supplemental requests, and budget
amendments to the calculated appropriation limit. Section 3
repeals AS 37.05.540(e) due to Section 1 of HB 38, adding
disaster response spending to the exceptions list in subsection
(b). Section 4 adds a new section to uncodified law of the
State of Alaska which ensures that this Act is contingent upon
the ratification of an amendment to Article IX, Section 16 of
the Alaska Constitution. Section 5 sets an "effective date" of
the beginning of the fiscal year with the contingent set forth
in Section 4.
6:36:46 PM
REPRESENTATIVE STAPP pointed to the aforementioned blue line on
a graph, the current statutory limit, and characterized it as a
roller coaster. He echoed Mr. Aoto's comments that because of
the design of the current statutory appropriations limit, it can
be violated without even knowing due to the nature of the
supplemental budget process. He further pointed out that due to
how the current statutory limit is calculated, there could be a
$3 billion dollar swing in one fiscal year, which he said he
imagines is not what the legislature wishes to encourage when
trying to find long-term fiscal stability.
6:38:17 PM
REPRESENTATIVE GROH asked Representative Stapp to describe the
theory behind a constitutional and statutory spending limit. He
noted that a constitutional limit is effective, but asked what
the purpose is of the statutory limit with differing metrics.
REPRESENTATIVE STAPP explained that the purpose of the statutory
limit is to have a mechanism to ensure effective capital
spending without reaching the constitutional limit. He
reiterated that the goal is to ensure future fiscal stability,
which he said comes from a sound appropriations process. He
noted that Alaska already has constitutional and statutory
limits, so the idea is to make the current limits effective and
work hand in hand.
REPRESENTATIVE GROH asked if the reason to have a separate
statutory limit is because that is where there is room for
additional capital spending.
REPRESENTATIVE STAPP replied, "Not necessarily." He said there
can be effective capital spending within a statutory limit; it
just depends on how the legislature decides to appropriate
funding. He said there may be years where all spending falls
under the statutory limit when there is year over year private
sector growth.
6:40:13 PM
MR. AOTO noted that the limit also requires two-thirds of the
legislature to go over the 11.5 percent limit. He said that
theoretically, capital spending could be used but would also
still require a two-thirds vote of support from the legislature.
6:40:47 PM
CHAIR CARPENTER announced that HJR 2 and HB 38 were held over.
6:40:54 PM
The committee took an at-ease from 6:40 p.m. to 6:42 p.m.
^PRESENTATION(S): Responsible Alaska Budget on Spending Limits
PRESENTATION(s): Responsible Alaska Budget on Spending Limits
6:42:25 PM
CHAIR CARPENTER announced that the next order of business would
be the Responsible Alaska Budget on Spending Limits
presentation.
6:43:11 PM
The committee took a brief at-ease at 6:43 p.m.
6:43:58 PM
QUINN TOWNSEND, Policy Manager, Alaska Policy Forum, gave the
PowerPoint presentation, titled "Responsible Alaska Budget."
She showed slide 2 and stated that the Alaska Policy Forum (APF)
is a 501(c)(3) nonprofit, nonpartisan state-based think tank,
which does not accept any form of government funding. She
further shared that she has been policy manager for about three
years. Turning to slide 3, she brought up the topic of a
spending limit and how it would affect Alaska's long-term fiscal
health. She pointed out that Alaska is the only state in the
modern era to have repealed its income tax. She said that the
challenge for policy makers is implementing policy based on
economic principles while also considering what makes Alaska
unique. She said that Alaska has a history of high spending
during periods of economic growth, which has led to fiscal
struggles today, and she suggested that reigning in spending
over time would be a meaningful spending cap. She noted that
Alaska currently has state statutory and constitutional spending
limits, but the base of the constitutional limit is meaningless
today; a more effective spending cap would help stabilize future
budgets. Ms. Townsend stated that economic literature shows
that an effective spending cap is beneficial of curbing the
growth of state spending, if it is structured correctly; and
said that research shows that lower state spending - when
coupled with low taxes - has resulted in income, population,
employment, and net cross-state immigration growth, as well as a
higher GDP.
6:47:02 PM
MS. TOWNSEND moved to slide 4 and said that the state with the
best success implementing a spending limit is Colorado. She
explained the taxpayers bill of rights, or TABOR, is the state's
spending cap and is considered the gold standard. She explained
that TABOR is designed to limit state spending and revenue
growth and has a base year of the previous fiscal year and grows
by the sum of inflation plus population. Voters also decide
whether there are increases to the limit. If the state collects
more revenue than TABOR allows, then the money is returned to
taxpayers as a refund. If a public agency in Colorado wishes to
spend the surplus revenue, it must place the request on the
ballot. She recognized that the refund aspect does not apply to
Alaska, since there are individual tax payers in Colorado. She
stated that TABOR has put the "purse strings" back in the hands
of Colorado taxpayers.
MS. TOWNSEND moved to slide 5 to outline the aspects of a
meaningful spending cap. First is enforcement, and she said
that a constitutional limit is more effective than a statutory
limit, in that a constitutional limit would be more resilient to
the "ups and downs" of politics. Second is what the cap
actually limits, in that a cap that allows for spending
loopholes is not what is wanted, and instead the base of
spending limited by the cap needs to be broad and include
supplemental spending. She said that an example of an
expenditure that should be exempt is spending for a disaster or
emergency. She stated that the permanent fund dividend (PFD)
could or could not be included in the cap, but APF does not hold
a position on the PFD; therefore, the materials on the budget
provided by APF do not include the PFD. The third aspect of a
well-designed spending cap is how it limits spending. She said
that most states have a two-step process in the spending cap, in
that there is a base and a calculation that grows the limit.
She said that economic literature acknowledges that Alaska's
economy is unique, and so the state is sometimes excluded from
national analysis. She suggested that using a running average
of GDP minus government services as a way to calculate Alaska's
private sector could be an effective base; however, as it is not
a calculation that other states use, it is not possible to look
at other states to see how effective it is. Further, economic
literature has demonstrated that spending caps that grow via
population plus inflation, rather than by a calculation of
personal income, are typically more effective. She said that an
effective cap should be difficult to override and have few
exceptions, and to allow spending past the limit should require
a vote of residents.
6:51:43 PM
MS. TOWNSEND moved on to slide 7. She related that APF
publishes The Responsible Alaska Budget (RAB) annually; the
fiscal year 2024 (FY 24) RAB is $7.71 billion in state funds.
She said the RAB was calculated by taking the FY 23 enacted
budget, and increasing the figure by 4.87 percent, with the rate
of growth of population and inflation. She clarified that APF
includes the undesignated general funds, designated general
funds, and other state funds as part of the total state funds.
Excluded from the $7.71 billion figure are fund transfers into
the PFD, as well as expenditures or appropriations from the
permanent fund. She said the goal of the paper and accompanying
figure is to provide for what a general spending limit would
look like in Alaska, and to demonstrate how a spending limit
could positively benefit Alaskans.
MS. TOWNSEND said that a true spending limit would differ from
the RAB depending on several factors, such as when the base year
is. She said there are other ways to calculate the base other
than just off the previous fiscal year, such as a running
average of GDP from the previous five years. Also, the RAB does
not look at total state spending, but just state funds within
the enacted budget. She relayed to members that Alaska relies
heavily on supplemental spending above the enacted budget. She
stated that a limit that does not take total state spending into
consideration leaves room for future policy makers to spend
outside the limit, which would make the limit ineffective.
6:54:00 PM
MS. TOWNSEND moved to slide 8. She said that the RAB does not
take into consideration how local funding and spending interact
with state funding. She said that some states include, whether
it be a statutory or constitutional spending limit, specific
requirements on local funding and spending. She stressed that
the RAB is a general example of a broad funding limit. Ms.
Townsend recapped the presentation while on slide 9. She
advised that policy makers consider the following: what is
included in the spending limit; what state spending is; how
local spending is affected; what the base is; whether the limit
should be statutory or within the constitution; how it can be
bypassed; and how the limit grows. She stated that Alaska would
benefit from an effective limit, and every dollar spent by the
state is a dollar not used by the private sector. She said that
Alaska needs a strong private sector, given the recovery of the
COVID-19 pandemic and current workforce shortages. She
reiterated that an effective limit provides stability to
businesses and employers.
6:55:42 PM
REPRESENTATIVE GROH asked Ms. Townsend about the RAB figure, in
that the way it was calculated appears to be same as the current
statutory spending limit. He asked if that is correct.
MS. TOWNSEND shared that she is not familiar with the statutory
limit in Alaska but said he may be correct. She reiterated that
the other states that have a spending cap use the same
calculation APF used. In response to a follow-up question, she
confirmed that other states with spending limits generally use a
population plus inflation calculation, and a formula that uses a
running five-year average of GDP is not a calculation that other
states with a spending cap use currently.
6:58:46 PM
MS. TOWNSEND, in response to a question from Representative
Gray, answered that an effective spending cap can improve net
in-migration because of the stability it brings to the state
budget. She said many business owners do not want to take the
risk of being in a state that is volatile. In response to
another question from Representative Gray regarding consequences
of spending limits in Colorado, said she cannot speak directly
to Colorado but there are always issues [regarding what gets
funded] that policymakers will have to prioritize. In response
to another question, she said she is not sure why spending limit
proposals are not passing in other states, but she will follow
up on the issue with Representative Gray.
7:02:40 PM
MS. TOWNSEND, in response to Chair Carpenter, stated that larger
net in-migration is an indirect effect from the stabilization
that occurs when there is a meaningful spending cap.
CHAIR CARPENTER commented that larger net in-migration is tied
to employment growth, a demand for workers because of the
economic activity. He said this is the connection as he sees
it, as opposed to drawing the conclusion that implementing a
spending cap naturally means in-migration.
7:07:34 PM
The committee took an at-ease from 7:07 p.m. to 7:08 p.m.
^PRESENTATION(S): SPENDING CAPS
PRESENTATION(S): SPENDING CAPS
7:08:43 PM
CHAIR CARPENTER announced that the next order of business would
be the Spending Caps presentation.
MR. CARPENTER said Mr. Rob Carpenter was asked to present on
current constitutional and statutory spending limits in Alaska.
The presentation will also contain HJR 2 and HB 38 modelling, if
the legislation were to pass today.
7:09:54 PM
ROB CARPENTER, Deputy Director, Legislative Finance Division,
Legislative Affairs Agency, began a PowerPoint presentation on
appropriation limits [hard copy included in the committee
packet] and began on slide 3. He said the state's current
limit, as set out in the Alaska Constitution, is $2.5 billion,
and it grows by cumulative change in population and inflation.
He said a key factor in the limit is for a fiscal year rather
than in a fiscal year. The limit currently exempts permanent
fund dividends (PFDs), revenue bond proceeds, service on general
obligation (GO) bonds, federal funding, revenue of public
enterprises/corporations, and school debt reimbursement. He
said the limit in fiscal year 2024 (FY 24) was $11.2 billion,
based on the constitutional formula. Further, there is a
requirement that one-third of the funding within the limit be
reserved for capital projects; therefore, the remaining two-
thirds can go to operations.
7:11:01 PM
MR. CARPENTER presented a graph on slide 4 that shows the
constitutional spending limit since 1983. He explained that the
blue bars represent agency operations, green represents
statewide operations, red represents the capital budget, and the
thin black line is the constitutional spending limit. He
pointed out the limit is high above the current budget.
7:11:31 PM
CHAIR CARPENTER asked why the bars never reached the black line.
MR. CARPENTER answered that the calculation for the spending
limit was never reached.
CHAIR CARPENTER suggested that it is either because the limit
was established so high it could not be reached, or there was
just not enough money to reach the limit.
MR. CARPENTER noted that what is missing from the graph is
transfers to savings.
7:12:48 PM
MR. CARPENTER said that the division has been reviewing the
state's limit calculation. He walked through the equation: 2.5
billion multiplied by the cumulative change in population and
plus one, multiplied by cumulative change in population and plus
one [shown as: $2.5B * (1+P)*(1+I) P = Cumulative change in
Population, I = Cumulative change in Inflation]. He stated that
the language around a spending cap in Alaska's constitution is
not very clear. He said that the word "and" typically denotes
addition in mathematics. He suggested that one could interpret
the calculation to be 2.5 billion times one plus cumulative
change in population plus cumulative change in inflation [shown
as: $2.5B * (1+(P+I))].
7:14:29 PM
MR. CARPENTER moved to slide 6 to show that the wording of the
calculation makes a difference. The slide shows the graph from
slide 4 but with an additional purple line, which denotes the
spending limit under the new calculation. He stressed that the
limit calculation language is subject to interpretation and
would require a court case to determine that this other
calculation is what is intended. He pointed out that if this
alternate calculation was used, the state would have at one
point exceeded the limit. Further, between the two calculation
interpretations, FY 24 would either have a $11 billion limit or
an $8 billion limit.
MR. CARPENTER moved to slide 7 and said that the key difference
with Alaska's statutory spending limit is that it is based on
appropriations made in a fiscal year, versus for a fiscal year.
For example, this limit applies to appropriations made in FY 23
for the FY 24 budget and supplemental appropriations for FY 23.
He noted that the statutory limit uses similar exclusions as the
constitutional limit. He stated that, given the constitutional
power of appropriation, the statutory limit has largely been
ignored.
7:16:29 PM
MR. CARPENTER moved to slide 8 to present a graph depicting
state appropriations as orange bars and the state's statutory
limit as a black line. He said it appears volatile because the
limit is based off the prior budget year. He said that
appropriations made in FY 23 were impacted by what happened in
FY 22, a larger capital budget, and made the statutory limit
this year much higher.
MR. CARPENTER moved to slide 9 to discuss calculations and
modelling assumptions for HJR 2 and HB 38. He pointed out the
applicability of "the five calendar years immediately preceding
the previous fiscal year." He said that if the bills were to be
enacted today for FY 24, the previous fiscal year would be
considered FY 23. He said that HJR 2 and HB 38 take the
previous five calendar years prior to the previous fiscal year;
therefore, the five years would be 2021 "back to 2017." He said
there is firm public GDP data for those fiscal years. Mr.
Carpenter explained how the limit would be calculated under HJR
2 and HB 38: take the average value of real GDP for calendar
years 2017 to 2021; reduce by government spending; then multiply
by the 11.5 percent under HB 38 or the 14 percent under HJR 2.
Under HB 38, the spending limit for FY 24 would be $5.1 billion,
and under HJR 2, $6.2 billion.
7:20:17 PM
MR. CARPENTER presented a graph on slide 11 showing: operating
appropriations as the orange bars; capital appropriations as the
blue bars; the current constitutional limit as the black line;
the current limit reinterpreted as the purple line; the HJR 2
limit as the red line; and the HB 38 limit as the blue line.
The graph spans FY 04 to FY 23 with data from the governor's FY
24 amended budget. Mr. Carpenter moved to slide 12 to show the
same graph as to slide 11 but with data projecting out to FY 33.
The graph assumes inflation at 2.5 percent, GDP growth at 1.5
percent, and budget growth at 1.5 percent. He said that if the
budget is grown at 1.5 percent, then the budget would stay in
line with the proposed 11.5 percent spending limit. He moved to
slide 13 to show a different variation on the graph presented in
the last slide. He explained that the blue shaded area
represents UGF revenue, excluding the percent of market value
(POMV). The green shaded area represents POMV revenue, less
than 50 percent for the PFD. In response to Chair Carpenter, he
said the revenue projections were from the Department of
Revenue's 10-year forecast.
7:23:19 PM
MR. CARPENTER, in response to Representative McCabe, said how
much POMV split revenue the state would receive in the future is
on the table for lawmakers to decide; he was asked to project
the POMV split only at 50 percent. He said that the green
shaded area before the vertical black line is actual POMV split
revenue, and that the projections past the line assume a 50
percent POMV split to the general fund. In response to a
follow-up remark, he commented that the shaded areas are
considered UGF revenue. He said the appropriations subject to
the limit are not just restricted to UGF funds; there are other
funding sources. He said it is assumed that projected capital
spending is accounted for in the orange bars, since he applied
the figure from the FY 24 governor's amended budget and applied
a 1.5 percent growth rate.
7:26:23 PM
MR. CARPENTER, in response to questions from Chair Carpenter,
explained that the vertical bars are the assumed appropriations
that are subject to the limit, both operating and capital
appropriations, and he reiterated that not all the revenue
subject to the spending limit is accounted for in the graph,
just UGF revenue.
7:28:01 PM
MR. CARPENTER moved to slide 14 to show another variation of the
previous graph but with a GDP growth variable set at 2.5
percent. He pointed out that if the state had a growing GDP, it
would have a growing statutory or constitutional spending limit.
He showed the same graph on slide 15 but with GDP growth
projected at 5 percent. He said there is potential that the
budget could grow with the spending cap if there is effective
growth in GDP.
7:28:54 PM
CHAIR CARPENTER, in response to a query from Representative Gray
about the necessity of a spending limit, said the 1.5 percent
growth assumption on the chart may be excessive, but "we have to
start the conversation somewhere."
7:32:13 PM
MR. CARPENDTER confirmed that the previous comment is accurate.
He said he cannot answer as to how behavior would have changed
if a spending limit like the one presented today was implemented
earlier. He said Representative Gray is correct, in that the
state had a self-imposed spending limit in the form of putting
money into savings. He pointed out that Alaska repaid CBR
indebtedness in anticipation of needing it.
CHAIR CARPENTER observed that in FY 08, the legislature had the
revenue to exceed the constitutional spending limit, but
ultimately the limit was not exceeded since the legislature
chose to put the revenue into savings. He said similar actions
took place around FY 11 to FY 13.
7:34:07 PM
REPRESENTATIVE MCCABE highlighted the large shift in UGF revenue
between FY 14 and FY 18, but spending levels never dropped. He
asked if the dates he mentioned are when the state spent out of
savings.
MR. CARPENTER answered that Representative McCabe is correct.
He commented that spending did decline $3 billion from FY 14 to
FY 18.
7:35:18 PM
MR. CARPENTER, in response to a query from Representative Tilton
as to a definition of government spending, answered that local,
state, and federal funding fall under the definition of
government spending. In response to Chair Carpenter, he
confirmed the definition is common. He added that when he
researches GDP figures, the government spending factor can be
removed.
7:36:56 PM
MR. CARPENTER, in response to Representative Groh, indicated he
was not certain why the 11.5 and 14 percent amounts were
selected, but he suggested it had something to do with the
Fiscal Policy Working Group. In response to further questions
from Representative Groh, Mr. Carpenter confirmed that the
spending levels shown on slide 13 are nominal. He proffered
that FY 15 contained $5.8 billion in spending, and FY 24 is at
$5.5 billion. He clarified that energy relief payments were
excluded from the figures being presented. He said he has heard
of a report from Legislative Legal Services showing Alaska's
spending limits since the 1970s but has not seen the report.
7:40:47 PM
CHAIR CARPENTER thanked the presenter.
7:41:41 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:42 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0038B.PDF |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| HB 38_HJR 2 Sponsor Statement Version B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 HJR 2 |
| HB 38 Sectional Analysis B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| HB 38 Summary of Changes B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| W&M HB38.HJR2 BHR.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 HJR 2 |
| HJR002B.PDF |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HJR 2 Sectional Analysis Version B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HJR 2 Summary of Changes B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HB38 anf HJR2 model - Leg Finance.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| HB38.HJR2 W&M.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF_Townsend,Quinn_SpendingLimit.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF state-tax-and-expenditure-limits-april-2021.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF - TABOR-Turns-30.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF-Brief-TELs-50-State-Comparison-02-28-2020.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF Responsible Alaska Budget - Fiscal Year 2024.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF - TEL-Tale-Heart.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| H W&M_Approp Limits_3-13-23.pdf.pdf |
HW&M 3/13/2023 6:00:00 PM |