Legislature(2001 - 2002)

04/17/2001 09:14 AM FIN

Audio Topic
* first hearing in first committee of referral
+ 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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