Legislature(1993 - 1994)
02/22/1994 10:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 22, 1994
10:05 a.m.
TAPES
SFC-94, #16, Side 1 (000-575)
SFC-94, #16, Side 2 (575-359)
CALL TO ORDER
Co-chair Drue Pearce convened the meeting at approximately
10:05 a.m.
PRESENT
In addition to Co-chair Pearce, Senators Jacko, Rieger, and
Sharp were present. Co-chair Frank and Senator Kerttula
arrived later in the meeting. Senator Kelly did not attend.
ALSO ATTENDING: Senator Salo; Senator Little; Tam Cook,
Director, Legal Services, Legislative Affairs Agency; Jim
Baldwin, Assistant Attorney General, Dept. of Law; Jack
Kreinheder, Office of Management and Budget; Joe Thomas,
State Accountant, Dept. of Administration; Mike Greany,
Director, Legislative Finance Division; Fred Fisher, fiscal
analyst, Legislative Finance Division; and aides to
committee members and other members of the legislature.
SUMMARY INFORMATION
HB 58 - ADMINISTRATION OF BUDGET RESERVE FUND
Discussion was had with Tam Cook and Jim
Baldwin. Amendments 1, 3, and 4 were adopted
for incorporation within SCS CSHB 58
(Finance) which was REPORTED OUT of committee
with a "do pass" recommendation and zero
fiscal notes from the Dept. of Administration
and Dept. of Law.
Upon convening the meeting, Co-chair Pearce directed that
CSHB 58 (Fin)am(efd fld) be brought on for discussion. She
then referenced file materials including a bill history,
voter pamphlet statements on the ballot measure when it was
before the public, and a copy of Sec. 17 budget reserve
language from the state constitution.
TAM COOK, Director, Legal Services, Legislative Affairs
Agency, came before committee. Senator Rieger directed
attention to page 2, line 8, and asked if "enacted" refers
to the effective date of a bill or the date of passage in
the House and Senate and signature by the Governor. Ms.
Cook responded, "I think that it's the latter . . . when the
Governor either signs or does not veto it, and the period to
veto runs."
Senator Rieger next directed attention to page 2, line 18,
and asked if there was a reason for use of "restricted by
law" rather than "appropriated." Is there a technical
difference between appropriated funds and moneys restricted
by law? Tam Cook deferred formal response to the Dept. of
Law. She suggested that "restricted by law" might be
broader language. As an example, she pointed to federal
funds that are restricted by federal rather than state law.
Further, some funds may be restricted by prior agreements
but not necessarily appropriated per se.
Senator Rieger asked if "restricted by law" includes moneys
that have been appropriated. Tam Cook voiced her belief
that it is intended to include money that has been
appropriated to an account that can be used only for a
restricted purpose. Senator Rieger asked if it would cover
an unexpired general appropriation from the general fund.
Ms. Cook acknowledged that the language is not as inclusive
as it could be. It does not specifically address prior year
appropriations. Senator Rieger suggested that "not
previously appropriated or restricted by law" would be more
clear.
JIM BALDWIN, Assistant Attorney General, Dept. of Law, next
came before committee. He explained that "the intention of
the provision is to cover amounts that have already been
appropriated." He pointed to page 2, lines 16 through 20,
and noted that amounts already appropriated are considered
restricted funds. The intent is not to bring already
appropriated funds into the calculation.
Co-chair Pearce referenced the Alaska Science and Technology
account within the general fund and voiced her understanding
that moneys in the account would be restricted by the
foregoing definition. Mr. Baldwin concurred that since the
funding has a purpose assigned by law, it is not generally
available because of that restriction. The intent is to
only reach revenues attributable to a particular fiscal year
and to pick up the cyclical swings in that revenue. The
Dept. of Law found support for that in constitutional
wording that refers to the amount available for a fiscal
year. That approach is further bolstered by the manner in
which the amendment was portrayed in the official pamphlet
and on the ballot itself.
Co-chair Pearce next inquired concerning pass-through
moneys. She noted over $1 billion in authorizations for
federal highway funds, should the funds materialize. Mr.
Baldwin explained that, under the intent of CSHB 58 (Fin)am
(efd fld), they would not be figured in the calculation in
either the previous or current year. They are accounted for
as restricted funds in that they are trust or custodial
receipts and should not be part of the calculation. If
included, the U.S. Congress would then, in effect, be
setting the agenda for when the state may access the budget
reserve fund to meet a shortfall in state revenues.
Co-chair Pearce asked if PL 874 educational funds would be
considered restricted, and Mr. Baldwin responded
affirmatively.
Senator Rieger directed attention to page 1, and voiced his
understanding that Sec. 37.10.420 attempts to define
"revenues" as the ongoing operating revenues and any
undesignated carry-forwards. Subsection (2) on page 2,
effectively ties the spending limit for the next year back
to the amount which was spent the prior year. In doing so,
it excludes "any appropriation of money which doesn't
count." That ensures that the base is not artificially
inflated for the next fiscal year.
Senator Rieger next noted that what is missing from the
foregoing is that in any year in which the constitutional or
statutory budget reserve fund is used to stabilize spending,
that amount is not described in subsection (2) as part of
the base for the next year. The stabilizing purpose of
establishing a process by which the legislature could
ordinarily spend up to the amount of the prior year but
under which it would be extraordinarily difficult to spend
beyond the prior year would not be achieved. The Senator
acknowledged that the Dept. of Law had prepared an amendment
to address the issue, and he asked that Mr. Baldwin speak to
the amendment. Mr. Baldwin concurred that the foregoing
could be perceived as a "possible problem with the version
that was passed by the House." Directing attention to page
2, lines 3 through 5, Mr. Baldwin concurred that the
definition of the amount appropriated for the previous
fiscal year "only includes amounts that were appropriated
from the same revenue sources used to calculate the money
available for appropriation for the current fiscal year . .
. ." That would not include budget reserve amounts
authorized by the legislature. That is consistent with the
philosophy of the bill that the calculation does not pick up
reserve funds (budget reserve funds, railbelt energy
intertie reserve funds, or other statutory reserve funds).
The amendment requires that in calculating the previous
year's amount available for appropriation (the base year),
amounts appropriated from the constitutional and statutory
budget reserve funds would be included in the base. The
House Finance approach reflects a comparison of the same
funding sources year after year. Inclusion of amounts from
constitutional and statutory budget reserve funds skews that
comparison but interjects a "spending limit-type aspect."
That is a policy rather than a legal call. Mr. Baldwin
suggested that the committee also hear from the Office of
Management and Budget regarding the impact of the amendment
on "the bottom line" available from the budget reserve fund.
Senator Rieger voiced his belief that moneys from the
statutory budget reserve fund should be included within and
listed under subsection (1) while appropriations from the
constitutional budget reserve should be included in
subsection (2). Funds from the statutory reserve fund
should be used before the constitutional reserve. Language
relating to the statutory reserve should thus be included as
(D) under subsection (1), which would then list four sources
of amounts available for appropriation. If the
constitutional reserve is used to stabilize spending, those
expenditures should be part of the carry-forward base for
the next year. If that is not the case, the purpose of the
constitutional budget reserve fund would not be achieved,
and there would merely be a one-year delay before the same
problem that use of the fund sought to cure would occur
again.
Discussion followed between Co-chair Pearce, Senator Rieger,
and Mr. Baldwin regarding placement of the Dept. of Law
amendment within the House version of the bill. Mr. Baldwin
referenced an additional policy call to be made by
committee, noting that the second part of the amendment
references Art. IX, Sec. 17(b) of the constitution. That
does not include amounts appropriated by three-quarter vote
under 17(c). As drafted, language would only pick up the
majority vote appropriation. Senator Rieger said that the
restriction should apply to all of Art. IX., Sec. 17.
Co-chair Pearce noted that the House Judiciary version of
the bill contained a section defining administrative
proceedings involving taxes. She then asked why the section
was removed. Mr. Baldwin explained that part of the
language defined what constitutes amounts received through
settlement or administrative proceedings. Subparagraph (b)
spoke to receipts that were not attributable to any
particular proceeding. House Finance elected not to include
any provisions currently involved in litigation. The House
bill only deals with matters upon which issue was not joined
in either the superior or supreme court. That strategy was
urged by the Dept. of Law and adopted by House Finance.
In response to a question from Co-chair Pearce concerning
the status of litigation, Mr. Baldwin said that subsection
(b) of the Judiciary version relates to recovery of taxes
that were not due at the time the administrative proceeding
was ongoing. That issue is being argued this week on an
expedited basis. An expedited decision by the supreme court
is subsequently expected.
Co-chair Pearce directed that the meeting be briefly
recessed pending arrival of staff from the Office of
Management and Budget.
RECESS - 10:35 A.M.
RECONVENE - 10:50 A.M.
Senator Rieger distributed Amendment No. 1 and MOVED for
adoption. He explained that the amendment contains language
offered by Mr. Baldwin, but with one change. While Dept. of
Law language referred to the statutory budget reserve fund
as something that could be calculated as part of the base
carried forward from the prior year, it did not go far
enough. Senator Rieger voiced need to clarify that the
statutory budget reserve fund should be used before the
constitutional budget reserve is tapped. Inclusion of
language relating to the statutory reserve as a new
subsection (D) under Sec. 37.10.420 clarifies the priority
of the two funds.
At the request of Co-chair Pearce, JACK KREINHEDER, Office
of Management and Budget, joined members at the committee
table.
Mr. Baldwin voiced need to ensure that amounts from the
statutory budget reserve are counted in both the amount
available in the current year as well as the amount
available from the previous year.
(Co-chair Frank arrived at this time.)
In response to a question from Co-chair Pearce concerning
the status of an AHFC dividend, Mr. Baldwin explained that
dividends flow to the general fund without restriction.
Senator Rieger noted the distinction between AHFC earnings
and equity which has been appropriated. Mr. Baldwin pointed
to annual budget language that reappropriates AHFC earnings
for the corporation's uses and purposes. Those moneys are
appropriated funds and would not be considered available.
Senator Rieger voiced his understanding that should the
legislature elect to appropriate a portion of AHFC's
underlying equity, it would not become part of the carry-
forward base to the next year's spending limit for use of
the budget reserve fund with a simple majority. Mr. Baldwin
concurred. He agreed that the legislature's ability to make
such an appropriation would not be impaired and that such an
appropriation would not affect the calculation that
determines when amounts may be expended from the budget
reserve fund. The legislature is not forced to spend from
restricted revenue sources before it can spend from the
constitutional budget reserve fund.
Co-chair Pearce called for objections to Amendment No. 1.
No objection having been raised, it was ADOPTED.
Senator Sharp MOVED for adoption of Amendment No. 2 for
discussion purposes. Mr. Baldwin explained that language
comprising the amendment was taken from the House Judiciary
version of the bill. Section (A) of the amendment defines
terms in the constitutional amendment referring to funds
received as a result of settlement or termination of an
administrative proceeding. Section (B) is new language
prepared at the request of House Finance at the end of the
last legislative session but which was not added to any
bill. It describes recoveries not attributable to any
administrative proceeding. This issue is presently pending
before the supreme court in arguments over when and where
the line should be drawn for when the state is involved in
an administrative proceeding. The state contends the line
should be drawn when a formal administrative proceeding is
convened. The court contends that it may be at the level of
informal conference. Arguments are ongoing concerning
whether the line should be set further back to when the
assessment is issued. The proposed language establishes the
line at the informal conference level.
Discussion followed between Co-chair Pearce and Mr. Baldwin
concerning the application of Section (B). Mr. Baldwin
pointed to contract interpretations associated with royalty
oil settlements and stressed that moneys received as a
result of those interpretations should not flow to reserves.
Only amounts in actual dispute through that proceeding
should accrue to reserve funds.
Mr. Baldwin acknowledged that Section (B) has a restricting
impact on amounts that would be considered covered by
administrative proceedings, but it is more liberal than the
demarkation line advanced in the state's "opinion of 92."
Discussion followed between Senator Rieger and Mr. Baldwin
regarding when taxes are technically due. Mr. Baldwin said
they are due when the return is filed.
Co-chair Drue Pearce pointed to clarity problems in the last
three lines of Amendment No. 2. Discussion followed
regarding corrective wording. The Co-chair subsequently
directed that the meeting be briefly recessed for rewriting
and clarification of the language.
RECESS - 11:25 a.m.
RECONVENE - 11:35 a.m.
(End, SFC-94, #16, Side 1)
(Begin, SFC-94, #16, Side 2)
Senator Rieger voiced discomfort with Amendment No. 2 since
it refers only to taxes and not royalties. He further noted
that there had not been sufficient time to consider all "the
ramifications of what's being swept in or excluded."
(Senator Kerttula arrived at this time.)
(At this point in the meeting, a call was placed upon the
Senate, and the Sergeant-at-Arms and a page escorted
committee members to the Senate Chambers.)
RECESS - 11:40 a.m.
RECONVENE - 12:10 P.M.
The meeting was reconvened at approximately 12:10 p.m. with
all members but Senator Kelly in attendance.
Senator Sharp MOVED to WITHDRAW his MOTION for adoption of
Amendment No. 2. No objection having been raised, the
motion was WITHDRAWN. He then MOVED for adoption of
Amendment No. 3. Mr. Baldwin explained that Sections (A)
and (B) of Amendment No. 2 are included in Amendment No. 3,
but Section (B) has been rewritten. It no longer commences
with qualifying phrases but instead incorporates qualifying
language within subsections (1), (2), and (3). The intent
is to make the language more easily understood.
Senator Rieger questioned whether language relating to lack
of a request for an informal conference should be added to
subsection (3). Mr. Baldwin noted that notice of appeal is
made on a form that includes a request for an informal
conference or formal proceeding. Senator Kerttula requested
a copy of the form.
In further discussion with Senator Rieger, Mr. Baldwin
clarified that Section (B) language seeks to cover
situations wherein ongoing proceedings are eventually
settled and "then other years are brought in as well." It
seeks to clarify that those other years are not budget-
reserve-fund eligible.
Co-chair Pearce called for objections to adoption of
Amendment No. 3. Senator Kerttula objected. The Co-chair
called for a show of hands, and Amendment No. 3 was ADOPTED
on a vote of 5 to 1.
Senator Rieger distributed Amendment No. 4 and MOVED for
adoption for discussion purposes. He then referenced bill
language at page 2, line 7, dealing with when the
constitutional budget reserve fund may be used.
Constitutional language allows use of the reserve "to go up
to the level of appropriations made in the previous calendar
year." That level is too broad and too high for actual
intent. The intent was that the budget reserve fund could
be used only "to go up to the level of general fund,
unrestricted spending in the prior year, plus any budget
reserve fund moneys which were used in the prior year . . ."
The amendment would restrict the amount to which the budget
reserve could be used to that level defined in (2), page 2,
lines 3 through 5, to bring it up to the prior year's base.
Mr. Baldwin said he had no objection to Amendment No. 3
since it appears to be clarifying in nature and does not
drastically alter the philosophy of the bill.
Co-chair Pearce called for a show of hands on adoption of
Amendment No. 3. The amendment was ADOPTED on a vote of 6
to 0.
Senator Kerttula requested additional explanation of Section
(B) of Amendment No. 3. Mr. Baldwin said that provisions
are intended to cover circumstances wherein the state
receives amounts from taxpayers in connection with
administrative proceedings but which amounts are not
directly in dispute at the time. Sometimes, as a
consequence of a dispute with a taxpayer, the state receives
amounts for additional years or on additional issues. The
amendment lists three circumstances under which such amounts
would not be considered received as a result of termination
of an administrative proceeding and therefore would not flow
to the budget reserve fund. Mr. Baldwin cited royalty
settlement interpretations extending into future years as an
example. Senator Rieger voiced his understanding that
disputes over royalties do not include an informal
conference proceeding. They go directly to litigation.
Although the amendment does not speak to that issue, it is
implied that royalty proceeds will clearly flow to the
budget reserve fund if there is any dispute at all. He said
that without that clear understanding, he would object to
Amendment No. 3.
Senator Rieger next noted that the amendment is not all
inclusive. Issues on which the language is silent remain
for resolution at a later time. Mr. Baldwin said that
language within Amendment No. 3 was drafted at the time the
Dept. of Law was attempting to draft legislation consistent
with the opinion issued by Former Attorney General Cole.
The language advances an interpretation different from the
department opinion. Language in Section (A) is consistent
with the manner in which the supreme court interpreted the
constitutional amendment. Mr. Baldwin concurred that not
every circumstance that could arise has been considered.
Language in Section (B) is new ground, yet to be argued
before the supreme court.
Co-chair Pearce directed that the three amendments be
incorporated within a Senate Finance Committee Substitute
for the bill. She then queried members regarding
disposition. Co-chair Frank MOVED that SCS CSHB 58 (Fin)
pass from committee with individual recommendations and
accompanying zero fiscal notes. Senator Kerttula OBJECTED.
Co-chair Pearce called for a show of hands. The motion
CARRIED on a vote of 5 to 1, and SCS CSHB 58 (Fin) was
REPORTED OUT of committee with zero fiscal notes from the
Dept. of Administration and the Dept. of Law. Co-chairs
Pearce and Frank and Senators Jacko, Rieger, and Sharp
signed the committee report with a "do pass" recommendation.
Senator Kerttula signed "Do not pass, violates
constitution."
ADJOURNMENT
The meeting was adjourned at approximately 12:30 p.m.
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