Legislature(2001 - 2002)
04/17/2001 09:14 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
April 17, 2001
9:14 AM
TAPES
SFC-01 # 75, Side A
SFC 01 # 75, Side B
CALL TO ORDER
Co-Chair Pete Kelly convened the meeting at approximately 9:14 AM.
PRESENT
Senator Dave Donley, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Gary Wilken
Senator Alan Austerman
Senator Donald Olson
Senator Lyman Hoffman
Senator Loren Leman
Senator Lyda Green
Senator Jerry Ward
Also Attending: CHRIS CHRISTENSEN, Deputy Administrative Director,
Alaska Court System; ALISON ELGEE, Deputy Commissioner, Department
of Administration; JESSE KIEHL, staff to Senator Elton
Attending via Teleconference: From Fairbanks: PAUL LYLE, partially
exempt State of Alaska Employee; PAM HARTNELL, partially exempt
State of Alaska employee;
SUMMARY INFORMATION
SJR 22-CONST. AM: JUDICIAL OFFICERS' TERMS
The resolution moved from Committee.
SB 180-STATE EMPLOYEE PAY DIFFERENTIALS
The Committee heard from the sponsor, the Department of
Administration, the Alaska Court System and partially exempt State
of Alaska employees. The bill moved from Committee.
SJR 23-CONST AM: APPROPRIATION LIMIT
The Committee heard from the sponsor. The bill was held in
Committee.
SB 50-EXTENDING BOARD OF VETERINARY EXAMINERS
The Committee heard from the sponsor. The bill moved from
Committee.
SJR 24-AMEND CONSTITUTIONAL BUDGET RESERVE FUND
The Committee heard from the sponsor. The bill was held in
Committee.
CS FOR SENATE JOINT RESOLUTION NO. 22(JUD)
Proposing an amendment to the Constitution of the State of
Alaska relating to the retention elections for justices of the
Alaska supreme court and judges of the superior court.
This was the second hearing for this resolution in the Senate
Finance Committee.
Co-Chair Donley reminded that the legislation was held from the
previous meeting to give members an opportunity to review it.
Senator Leman commented that the subject of this resolution
addresses matters that should have been addressed some time ago. He
stated that the resolution promotes "a judiciary that is not only
independent, but also accountable", which he asserted, "Alaskans
deserve." He added that the public also deserves a judiciary that
is "speaking for Alaskans" and expressed, "any time we can help
make it more accountable to the people rather than to special
interests that are trying to put people there and control them
while they're there" the legislature should do so.
Co-Chair Donley offered a motion to move CS SJR 22 (JUD) from
Committee with accompanying $20,000 Alaska Judicial Council fiscal
note.
There was no objection and the resolution MOVED from Committee.
AT EASE 9:17 AM / 9:17 AM
SENATE BILL NO. 180
"An Act implementing pay differentials based on geographic
areas for certain state employees and for members of the
Alaska State Defense Force; and providing for an effective
date."
This was the first hearing for this bill in the Senate Finance
Committee.
PAUL LYLE, partially exempt State of Alaska Employee, testified via
teleconference from Fairbanks on his own behalf, that this
legislation is preferable to previous proposals, since it does not
reduce the pay to partially exempt employees currently receiving a
geographical differential. He requested the Committee amend Section
10 (b) the portion regarding freezing the salaries of partially
exempt employees. He did not think it reasonable partially exempt
employees should work for ten years before receiving a pay raise.
He assured that he considered himself well compensated and that he
made a career choice to work as a partially exempt employee.
However, he asked that employees continue to receive pay increases
in accordance with the provisions in effect when they were first
hired. He spoke of the need to support families and the influx of
younger employees as well as the need to provide incentive to
attract employees to remote locations.
PAM HARTNELL, partially exempt State of Alaska employee, testified
via teleconference from Fairbanks on her own behalf to say, "this
is an issue of fairness." She elaborated that while other employees
receive pay raises, partially exempt employees' salaries would be
frozen. She asked that this provision in the bill be changed. She
reiterated many of the points raised by the previous witness.
Co-Chair Donley presented the bill saying it implements the
geographic pay differential currently in place for all collective
bargaining employees of the state for certain non-collective
bargaining employees. He referred to the existing cost of living
variance, pointing out that it has not been changed since 1976. He
said an updated cost of living variance has been implemented for
the majority of state employees.
Co-Chair Donley asserted that this legislation treats employees who
are not covered by a collective bargaining unit almost the same as
those who are covered, using a grandfather clause to implement the
newer geographical pay differential ratio. He pointed out that the
non-covered employees have had the benefit of a "higher than
truthful" geographical pay differential for many years and have
been paid more than covered employees performing the same functions
in other areas of the state where the actual cost of living is
greater.
Co-Chair Donley affirmed the need to treat long-term employees
fairly and opined that this bill does "more than treat them fairly"
because the non-covered employees continue to receive higher
salaries than they would under the updated geographical pay
differential. He said this adjustment is fair to those employees
who have been paid according to the updated geographical
differential.
Co-Chair Donley noted that some exempt employees would receive
higher pay based on the geographical differential changes, while
others would be "held harmless" and would not receive a raise. He
stressed that new employees would be paid at the new geographical
differential ratio, which would result in "significant savings" to
the state over a period of time.
Co-Chair Donley addressed the fiscal notes, showing that the Alaska
Court System fiscal note shows increased expenses for the first two
years after the legislation becomes effective, then decreased
expenses escalating in future years. He described the Department of
Administration fiscal note reflecting expenses for all state
agencies showing savings to the state in excess of $100,000 in the
first year, doubling in the next year and continuing to grow in the
out years. He expressed this savings is a result of action that is
"fundamentally fair" in treating all state employees the same with
regard to geographical pay differentials.
CHRIS CHRISTENSEN, Deputy Administrative Director, Alaska Court
System, testified to the fiscal note stating that the largest
impact would occur in Fairbanks, with a ten-percent differential
and Palmer, with 3.5 percent. He pointed out that the increased
expenses would be realized in smaller communities such as Bethel
with a ten-percent increase, Barrow and Kotzebue with 10.5 percent
increase and Nome with a 2.5 percent increase. He informed that the
Alaska Court System takes no position on this legislation and noted
that half of the employees would be unaffected because they are
located in Anchorage.
Senator Olson asked the witness the effect this would have on the
ability to fill vacancies in rural courts.
Mr. Christensen told of the difficulties in filling vacancies in
courts located in rural communities. He gave one reason as some
borough governments, such as in Barrow, pay a significantly higher
salary than the state. He therefore predicted that if the
geographical pay differential were to increase for these
communities, it could be easier to hire for those positions. He
pointed out however, that there could be some repercussions by
those employees in non-rural communities who have their salaries
frozen through this legislation.
Senator Wilken referred to information showing job growth in
different fields across the state that was used in the
consideration of other legislation. He suggested this information
could be helpful in considering this legislation and requested it
be provided to the Committee.
Senator Wilken said he appreciated the intent to make systemic
changes to the state employee salary procedures but was concerned
that the small amount savings could come at the expense of "people
who have built their lives around their paychecks as almost all of
us do." He recommended investigating the cost of applying the
updated geographical pay differentials only to newly hired
employees and retaining the existing salary structure for current
employees.
Senator Hoffman asked for an explanation of the Department of
Administration fiscal note.
ALISON ELGEE, Deputy Commissioner, Department of Administration,
explained that the fiscal note gives consideration to the assumed
five-percent annual rate of turnover as a result of the frozen
salaries for current employees. She said with this turnover, new
employees are hired at lower salaries. She added that the fiscal
note also makes future assumptions for the current employees when
their salaries are no longer frozen and they receive pay increases.
She estimated that by FY 07, this legislation would result in a
maximum net savings of $446,000. She told of the various funding
sources involved.
Ms. Elgee pointed out that the governor is in support of the
legislation and she noted that he has actually introduced similar
legislation in the past. She relayed his assertion that the issue
is a matter of equity in making the geographical pay differentials
the same for all state employees.
Senator Hoffman referenced the five geographical areas that would
experience salary reductions listed in the fiscal note. He asked
for a detailed analysis.
Ms. Elgee did not have figures to reflect the amounts resulting
from this legislation, noting the limited time the administration
had to prepare for this hearing. She offered to compile this
information.
Co-Chair Kelly asked for a comparison of this bill with one passed
in the previous legislative session then vetoed by the governor.
Ms. Elgee replied that the earlier legislation contained unrelated
amendments to the Supplemental Benefits System (SBS), which
resulted in the governor vetoing the bill. She noted this bill does
not contain these provisions. She explained the provisions
established a two-tiered environment for SBS, reduce the employer
contribution to half of the employee contribution and set a maximum
salary in statute.
Co-Chair Kelly agreed that the information Senator Wilken requested
would be valuable. However, he noted the need to report the bill
from Committee and suggested the information could be provided
before the Senate Rules Committee hearing on the bill.
Co-Chair Donley stated he would not request a hearing for this bill
in the Senate Rules Committee before the information is received.
Co-Chair Donley offered a motion to report from Committee SB 180
with accompanying fiscal notes from the Alaska Court System, Trial
Courts for $94,300, and the Department of Administration, all state
agencies, for a negative $108,000.
The bill MOVED from Committee with no objection.
AT EASE 9:40 AM / 9:42 AM
SENATE JOINT RESOLUTION NO. 23
Proposing amendments to the Constitution of the State of
Alaska relating to an appropriation limit and a spending
limit.
This was the first hearing for this resolution in the Senate
Finance Committee.
Co-Chair Donley gave a history of a previous constitutional
amendment adopted by the legislature in 1981 that established an
appropriation limit. It received voter approval, he said, and is
contained in Article 9 Section 16 of the Alaska Constitution.
Unfortunately, he noted, the appropriation limit "has never worked
the way it was intended." He explained that initially the limit
was set at a level never reached and also contained a clause that
allows an escalation based on cost of living and inflation figures.
As a result, he said the current limit is over $6 billion,
approximately $3 billion greater than the actual spending of the
general fund.
Co-Chair Donley opined that the language of this constitutional
provision is unconstitutional, misleading, confusing and also
contains a provision that should be interpreted to require one-
third of the state budget is for capital expenditures. He noted
this provision has never been implemented and that a court decision
reinterpreted the language as "it didn't really mean what it said"
and that the budget does not have to consist of one-third capital
expenditures.
Co-Chair Donley shared that he has never heard this constitutional
amendment defended but rather has heard that it should be changed.
The resolution before the Committee, he stated, is an attempt to
correct the existing provisions with language that could be more
easily comprehended and by implementing a lower appropriation
limit.
Co-Chair Donley explained the proposed appropriation limit would
use the $3.1 billion general fund appropriation of FY 00 as a
starting base and would allow for population and inflationary
increases. He said an additional provision allows an additional 25
percent increase with two-thirds approval from both legislative
bodies.
Co-Chair Donley referenced a chart entitled, Appropriation Limit.
[Copy on file.] He detailed the variables and shared that others
could be calculated as the Committee desired.
Co-Chair Donley surmised that population and inflationary increases
would have less impact than exists in the current constitutional
amendment.
Co-Chair Donley pointed out that general obligation (GO) bonds are
not included in the appropriation limit and that voters could
approve such bonds if the need arose. He deemed this a "safety
valve" in case of an unforeseen need or economic boom arises. He
compared this to many municipal governments that operate under a
tax cap, but allows the issuance of bonds not constrained in the
spending limits.
Co-Chair Donley added that the resolution also contains automatic
voter reconsideration in 2010. He suggested that the actual date
could be changed. He surmised that the absence of this
reconsideration provision is a fault in the current appropriation
limit. He expressed, "it is so difficult to get a two-thirds vote
of the legislature to get a constitutional amendment on the ballot"
and suggested this is the reason the existing constitutional
amendment has not been corrected. He stressed that if the proposed
constitutional amendment does not work, the voters are guaranteed
an opportunity to eliminate it.
Co-Chair Donley spoke from a political science and public
administration standpoint saying, "democratic institutions are just
not well adapted at controlling spending." He emphasized the
pressures on these institutions to increase spending.
Co-Chair Donley stressed the importance of addressing "the current
fiscal crisis that is looming on the horizon." He expressed
gratitude that the Constitutional Budget Reserve (CBR) fund was
established.
Co-Chair Donley concluded that this resolution is a "useful tool to
help restrain the on-going interest in ever increasing spending and
force the continued consideration of hard decisions regarding how
to make government run smarter with what we already have."
Co-Chair Kelly relayed an earlier conversation he had with Co-Chair
Donley in which Co-Chair Donley stated that the just-completed five
year fiscal plan to reduce or maintain government spending
exercised by the legislative majority is unprecedented and does not
exist anywhere else in the United States. Co-Chair Kelly remarked
that he had not previously supported a constitutional spending
limit because the existing provision does not work and also because
of the unforeseen consequences encountered in utilizing the CBR. He
said this resolution is a "workable" solution, particularly because
of the stipulation requiring reassessment by the voters.
Senator Austerman also supported the idea of modifying the existing
spending limit. However, as a layman, he was unsure if the public
understood the issue. Therefore, he predicted it would be the
legislature's duty to educate the public, including the language in
the resolution. He surmised that most voters would only give the
issue a quick review, which he did not think explains the issue,
and as a result, not support the amendment. He asked how this could
be rectified.
Co-Chair Donley predicted that the voters would only look at the
dollar amounts, which is the reason he selected the FY 00
appropriation as the base. He detailed the calculations necessary
to understand the existing methods. He agreed that a major
education campaign would be necessary to inform voters that
although the proposed base amount is increased from the $2.5
billion currently named in the constitution, the actual
appropriation limit is $6 billion after accounting for inflation
and population growth. He stressed that the resolution proposes a
$3 billion decrease, which would be need to be explained to voters.
Co-Chair Kelly asked if the appropriation limitation includes all
general fund spending, but not permanent fund dividends, Alaska
Railroad expenditures and emergency expenses.
Co-Chair Donley clarified the current constitutional amendment
inclusions are, "a little more exclusive." He stated that
additional information would be provided to the Committee that
would better explain this issue.
Senator Austerman calculated that after removing permanent fund
dividends, federal funds and special appropriations, the operating
and capital budgets contain less than two billion general fund
dollars. He reiterated the need to simplify the resolution warning
that the ballot measure would easily fail if there were any
organized opposition.
Co-Chair Kelly agreed and relayed his experience during his last
campaign for office where his opponent stated that spending had
increased by billions of dollars. Co-Chair Kelly emphasized that
his opponent had been using permanent fund earnings and federal
funding in his calculations.
Senator Austerman suggested that the Appropriation Limit chart
should include an additional column to list the status quo.
Co-Chair Donley responded this could be added, but noted that the
real issue would be predicting the status quo in future years.
Senator Hoffman stated that the requirement to spend one-third of
general fund appropriation on capital projects is not observed and
should be addressed. He opined that establishing a fiscal spending
plan is the next largest issue before the legislature. He asserted
that once such a plan is in place, future spending limits could be
determined. He asserted that the requirement that the legislature
provide a balanced budget each year is appropriate and should
remain. He reiterated that the most important issue to Alaskans is
that there is a fiscal plan.
Co-Chair Kelly countered that with various legislation and proposed
constitutional amendments, "there is a fiscal plan." He expressed
that he would always be in opposition to a "ledger sheet that goes
out in the future" because legislatures are prohibited from
requiring future legislatures to abide by spending guidelines.
Instead he said Co-Chair Donley's proposal is the appropriate
method to bind future legislatures through a constitutional
amendment. Co-Chair Kelly noted that statutory changes, such as SB
180 relating to geographical pay differentials, also are a part of
establishing a fiscal plan.
SFC 01 # 75, Side B 10:05 AM
Senator Green referenced Medicaid as one of several entitlement
programs and asked if under the proposed system, these programs
would take priority over all discretionary expenditures. She warned
that by imposing an appropriation limit, entitlement programs would
be the only expenditures remaining and that there would be no funds
for capital projects.
Senator Green asserted that until the Administration adopts and
practices a fiscal plan, any efforts the legislature makes are
irrelevant.
Co-Chair Kelly agreed and commented that in the seven years he has
served in the legislature, efforts have been made to restrain and
decrease government growth. However, he stressed that the
legislature would never have all the information required to make
this happen. He noted the majority votes required to adopt a
budget. He compared this to "performing surgery in the dark while
wearing mittens." He stated that corporate boards of directors do
not make detailed financial decisions, but rather are presented
with a fiscal plan by the company executives for approval.
Senator Green asked how university funding and mental health funds
are related to the appropriation limitation. She suggested that the
Mental Health Trust Authority (MHTA), through its income earning
capacity, has the potential for future self-sufficiency and she
wondered if developing this ability should be the priority.
Co-Chair Kelly agreed with Senator Green's earlier comments saying,
"Medicaid drives our budget." He shared that he has been disturbed
by the conflicts of funding state-operated programs and that he has
never heard opposition to the importance of education or a capital
project program that meets the needs of a young and growing state.
However, he stressed that funding for these programs are contingent
on the entitlement programs' budgets.
Co-Chair Kelly opined that while the Medicaid program is necessary,
it is a program that gets abused and that along with deserving
recipients, there are "free-loaders." He expressed that these free
loaders "push out" capital projects and university, education, and
public safety funding. He qualified that Medicaid is a federal
program, which the state has little control over.
Senator Green invited Co-Chair Kelly to join the Senate Health,
Education and Social Services Committee subcommittee formed to
research Medicaid spending.
Co-Chair Donley interjected that capital projects would not suffer
since G.O. bonds could be issued. He noted that this was how the
state addressed all capital projects before oil and gas revenues
were generated.
Senator Green shared that before she was a member of the
legislature, she would read a list of proposed capital projects on
the ballot and ask herself, "Why would anyone think I know that
that's the priority and why am I voting on it." She stated that
voters did not have background information on the proposed projects
to enable them to make an informed decision.
Co-Chair Donley suggested that since the 1970s, when G.O. bonds
were last issued on a regular basis, technology has advanced and
that background details could be provided on any proposed projects
included in a G.O. bond package.
Co-Chair Donley assured that the proposed $1.3 billion limitation
does not include many funding sources, such as the Alaska
Industrial Development and Export Authority (AIDEA) dividends and
the Alaska Housing Finance Corporation (AHFC) dividends and
University of Alaska tuition, which would increase the total amount
of general fund spending. He stated that it would be reasonable to
debate the inclusion of these variables to the resolution and
adjust the appropriation limitation accordingly. However he
recommended keeping the language broad to allow for unforeseen
circumstances, such as a major natural disaster, and the Alaska
Railroad, which functions independently.
Co-Chair Kelly suggested inserting language in the resolution to
allow earnings from future public corporations to be excluded from
the spending limit by a two-thirds legislative vote at the
formation of that corporation.
Co-Chair Donley stated this would be consistent with other
constitutional requirements to "fine tune" new public corporations
through statute.
Senator Austerman added that the constitution should not be "micro
managed" and become too specific to allow for future decisions.
Co-Chair Kelly commented that discussions such as this are
important to hold when considering constitutional amendments.
Co-Chair Donley invited further discussions and suggestions for
improvements.
Co-Chair Kelly ordered the bill HELD in Committee.
SENATE BILL NO. 50
"An Act extending the termination date of the Board of
Veterinary Examiners."
This was the first hearing for this bill in the Senate Finance
Committee.
JESSE KIEHL, staff to Senator Elton, testified that this bill
extends the sunset date on the Board of Veterinary Examiners. He
informed that the board provides a "valuable public good" insuring
minimum competency of veterinarians before they are granted a
license to practice. He noted the board also provides professional
peer review of complaints against practicing veterinarians.
Mr. Keihl referenced a Division of Legislative Budget and Audit
report citing that the board is operating efficiently.
Co-Chair Donley offered a motion to move SB 50 from Committee with
accompanying zero fiscal note from the Department of Community and
Economic Development, Division of Occupational Licensing.
There was no objection and the bill MOVED from Committee.
SENATE JOINT RESOLUTION NO. 24
Proposing amendments to the Constitution of the State of
Alaska relating to the budget reserve fund.
This was the first hearing for this resolution in the Senate
Finance Committee.
Co-Chair Donley detailed the history of the CBR. He surmised that
this resolution would restore "the original intent" of the
constitutional language. He stated it would also clarify the
conditions under which funds are drawn from the CBR and when a
three-quarters legislative vote is required.
Co-Chair Donley explained that currently a three-quarters vote is
determined by a comparison of revenue in the current fiscal year
with appropriations from the prior fiscal year. He stressed that
this has little to do with the size of the fiscal gap. He detailed
how the proposal compares revenue and appropriations from the same
fiscal year, thus making a more accurate determination of a fiscal
gap.
Co-Chair Donley informed the intent of the existing CBR
constitutional amendment is in years where the legislature is
proposing to spend less than in a previous year, the CBR could be
accessed by a simple majority vote. He continued that if a
legislature proposed to spend more than in the previous year, a
three-quarters vote would be necessary to draw from the CBR to fund
the extra spending.
Co-Chair Donley remarked that this creates a "natural limitation"
on the growth of government by requiring three-quarters of
legislators agree that the increased spending was necessary.
Co-Chair Donley spoke to court cases dealing with interpretation of
the original constitutional amendment. He said that the court
granted a more expansive definition of funds available for
appropriation then the legislature normally considers during the
budget process. As a result, he said the three-quarters vote is now
needed even if spending is not higher than in the previous year. He
noted that in the past five years, the spending was not higher, yet
the three-quarters vote was required to access funds from the CBR
to balance the spending.
Co-Chair Donley asserted that the dynamic that occurred is "the
exact opposite from what was intended by the Republican minority"
when the original constitutional amendment was proposed. This
dynamic, he expressed is that the three-quarters vote has been used
by the current minority to encourage additional spending on
additional items. He concluded that the original intent has changed
from establishing a method to limit government growth to a vehicle
almost requiring growth.
Co-Chair Donley continued that the situation was even worse because
of a "sweep provision" included in the original CBR language. This
provision he detailed, stipulates that even if the CBR funds are
not required to balance the budget in a particular year, such as
when oil revenues were high, money borrowed in previous years must
be paid back into the CBR and a three-quarters vote is needed to do
so. He stressed that because the legislature has withdrawn several
billion dollars from the CBR in the past, the three-quarters vote
is required each year to avoid the sweep provision, which would
confiscate all non-general fund revenues for deposit into the CBR
as payment toward the debt.
Co-Chair Donley opined that although the CBR has been successful as
a savings account, the mechanism to access this account is flawed
and does not operate as originally intended.
Co-Chair Donley addressed the resolution, explaining that it
revises the CBR constitutional amendment clarifying that in years
with proposed spending less than the prior year, the CBR could be
accessed with a simple majority vote and also eliminates the sweep
provision. He noted that the three-quarters legislative vote would
still be necessary in years of increased spending.
Co-Chair Kelly asked what would happen if the three-quarter vote to
appropriate money from the CBR failed, but the appropriation
legislation passed.
Co-Chair Donley replied that the sweep provision would apply. He
stressed that while, "a lot of people would not like the
consequences of the sweep, life would go on."
Co-Chair Kelly remarked the reason for hearing this resolution at
this time is to begin debate on the issue. He did not want the
legislature to be allowed to have "a runaway budget" and opined
that future legislatures would benefit from the restraint exercised
in the past few years.
Senator Austerman stated that the entire CBR has been "a thorn in
my side" since he was first elected to the legislature. He did not
think the current method operates as it was originally intended and
instead functions as a savings account used to balance the state
budget each year. He surmised that the intent of the fund was to
provide a buffer for years of hardship, such as in 1986 when the
oil prices dropped. He understood that each year the legislature
would be required to prepare and approve a budget and would argue
over it, but suggested that at least guidelines could be put in
place.
Co-Chair Kelly stated that SJR 23 was an appropriate first step in
getting the public to consider different funding sources.
Senator Ward shared recent discussions on the CBR he participated
in while in his district. He said the conversation expanded to
include future revenue from oil development and other sources. He
stated that the public must know that there is a spending plan.
Co-Chair Kelly ordered the resolution HELD in Committee.
ADJOURNMENT
Co-Chair Pete Kelly adjourned the meeting at 10:39 AM
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