Legislature(2021 - 2022)SENATE FINANCE 532
08/30/2021 10:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Reinterpretation of Swept Funds | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
THIRD SPECIAL SESSION
August 30, 2021
3:00 p.m.
3:00:55 PM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 3:00 p.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Donny Olson (via teleconference)
Senator Bill Wielechowski (via teleconference)
Senator David Wilson (via teleconference)
MEMBERS ABSENT
Senator Natasha von Imhof
Senator Lyman Hoffman
ALSO PRESENT
Alexei Painter, Director, Legislative Finance Division;
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor; Megan Wallace, Director,
Legislative Legal Services, Alaska State Legislature; Kris
Curtis, Legislative Auditor, Alaska Division of Legislative
Audit.
PRESENT VIA TELECONFERENCE
Cori Mills, Deputy Attorney General, Department of Law,
Juneau.
SUMMARY
^REINTERPRETATION OF SWEPT FUNDS
3:02:43 PM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
discussed, "Constitutional Budget Reserve Sweep Overview;
Senate Finance Committee; August 23, 2021; Legislative
Finance Division" (copy on file). He looked at slide 2,
"CBR Sweep Mechanism":
The CBR sweep provision was established in Article
IX, Section 17 of the Alaska Constitution:
(d) Repayment requirement "If an appropriation is
made from the budget reserve fund, until the amount
appropriated is repaid, the amount of money in the
general fund available for appropriation at the end of
each succeeding fiscal year shall be deposited in the
budget reserve fund. The legislature shall implement
this subsection by law."
Mr. Painter discussed slide 3, "Reverse Sweep":
? The "reverse sweep" is an appropriation from the CBR
that returns swept funds back to the original subfund
or account. The "reverse sweep" is an appropriation
under art. IX, sec. 17(c), and requires a 3/4 vote to
pass.
? The sweep is effective at the end of a fiscal year
(June 30) and the reverse sweep is effective on the
first day of the following fiscal year (July 1).
Co-Chair Stedman clarified that Mr. Painter was referencing
having accounts start with a balance greater than zero. If
the sweep was not reversed, the balance on most of the
funds would be zero. The action basically constituted a
beginning account balance for cash flow purposes.
3:04:55 PM
Mr. Painter looked at slide 5, "How the Sweep Works":
? The Department of Administration's Division of
Finance (DOF) accountants calculate the sweep while
preparing the Annual Comprehensive Financial Report
(ACFR). The sweep represents unreserved, undesignated
fund balances of the general fund subfunds
? DOF accountants calculate the sweep in September as
the ACFR is prepared yet the amount of the sweep is
posted in the financial records as of the end of the
fiscal year (June 30th).
? After the ACFR is prepared (historically by the end
of October), the ACFR is audited by the legislative
auditor. The sweep amount is adjusted as necessary.
Mr. Painter reiterated that the classic view of the sweep
was that the amounts reported in the Annual Comprehensive
Financial Report (ACFR) represented the balances as of June
30, with only adjustments for appropriations that had taken
effect by June 30.
Mr. Painter addressed slide 8, "Impact of Sweep on the
Budget":
? Based on the list of funds swept in FY20 by the
Division of Finance, the FY22 budget uses $367.4
million from sweepable funds. Subtracting the PCE fund
would reduce that to $321.2 million.
? Not all funds are impacted equally, however. LFD
breaks them into three categories:
1. Immediate Impact: No ongoing source of revenue to
support appropriations.
2. Partial Impact: Ongoing source of revenue that is
insufficient to support appropriations.
3. Minimal/No Impact: Ongoing source of revenue fully
covers appropriations.
Mr. Painter addressed slide 9, "Summary of Impacts by
Category," which showed a table. He mentioned the category
of 'Immediate Impact Pending Interpretation,' which was the
Statutory Budget Reserve (SBR), which was still a sweepable
fund. He explained that the fund was still sweepable but
there were suggestions it may not be sweepable based on the
findings of a recent court ruling. He noted that there were
key numbers across the bottom of the table, including the
projected sweep balance of nearly $1 billion. He continued
that $321.2 million was used out of the funds. There was a
projected shortfall of $141.95 million in the various
accounts, where the ongoing revenue was insufficient to
make the appropriations. He relayed that the administration
would speak to how the shortfall might be impacted by its
new interpretation sweep mechanics.
Co-Chair Stedman asked about a brief review of the impacts.
Mr. Painter looked at slide 10, "Immediate Impact," which
showed two tables, with the top showing the impact to the
Alaska Higher Education Investment Fund. The fund had no
ongoing source of revenue other than investment revenue on
the fund balance, and the entire amount of appropriations
made out of the fund would be a shortfall due to the lack
of a reverse sweep. The bottom table showed the impact to
the SBR, which if swept, would leave all the appropriations
out of the fund "hollow."
3:09:35 PM
Mr. Painter pointed to slide 11, "Items Funded with
Statutory Budget":
Reserve in FY22 Budget
? Governor vetoed $320.0 million appropriation for
Permanent Fund Dividends from the SBR, along with
$362.5 million from the general fund.
If the SBR is swept, this would have resulted
in a PFD estimated to be $525. If the SBR is not
swept, the vetoed PFD would have been estimated
to be $1,025.
? SBR also funds $4.15 million for School Debt
Reimbursement in FY22.
? SBR was used to fund $76.5 million of capital
projects, including:
$10 million for Mat Su Borough Pavement Rehab
$9 million for Houston Middle School
$8.5 million for West Susitna Access
$36.5 million of projects in the Department of
Natural Resources, including $10 million for
firebreak construction
$6.3 million of projects in other agencies
Mr. Painter addressed slide 12, "Partial Impact," which
showed a table of funds that had some ongoing revenue that
was insufficient to fully offset the appropriations. The
projected sweep balance of the funds was $104.5 million,
but the amount used in the FY 22 budget was $168.5 million
because of the assumption of ongoing revenue in many of the
funds. The amount available after the CBR sweep was the
ongoing revenue. The numbers were based on the Department
of Revenue's (DOR) spring forecast. The shortfall was the
difference between the ongoing revenue and the
appropriations. The table showed how much of the prior fund
balance was being used in the budget.
Mr. Painter pointed to slide 13, "Minimal/No Impact," and
noted that many of the funds were not used in the FY 22
budget. He used examples including the Vessel Replacement
Fund and the Railbelt Energy Fund. Other funds were used in
the budget, but the amount used was less or equal to the
amount of ongoing revenue. He used the example of the
Technical Vocational Education Program (TVEP) account,
which after a fiscal note was in balance. While there was
some swept balance, the ongoing revenue was sufficient to
pay for all the appropriations out of the listed funds.
Co-Chair Stedman asked the director of the Office of
Management and Budget (OMB) to help with the new
interpretation of the reverse sweep and the accounts, and
asked why there was a sudden change after the presentation
on August 24, 2021. He posited that there had been a
"radical change in direction" shortly after the recent
presentation.
3:13:07 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, recounted that on August 25, the
attorney general had sent a memo to the governor (copy on
file), outlining that appropriations made in HB 69 could be
counted as valid commitments since the bill was signed into
law prior to midnight on June 30. He continued that OMB was
forwarded the memo as well as instructions to implement the
interpretation and release any funds from sweepable funds
appropriated in HB 69. He summarized that the impacts or
shortfalls described by Mr. Painter would no longer impact
the appropriations. The administration had released only
the funds that were "validly" appropriated by HB 69. The
balances of the funds would still be swept per the terms of
the constitution, the only change was what would count as a
valid commitment under the constitutional provision. When
OMB presented to the committee on August 24, it was still
operating under the prior interpretation that the
commitments were not validly committed until the effective
date. The attorney general's opinion had changed the
interpretation.
Co-Chair Stedman asked if Ms. Steininger could recall how
long the state had operated under the previous guidelines.
3:14:56 PM
Mr. Steininger thought the previous interpretation had been
in place since the early 1990s, when the administration
began interpreting the sweep in the ACFR.
3:15:17 PM
Co-Chair Stedman mentioned the SBR and a 2021 Superior
Court ruling related to the Alaska Federation of Natives
(AFN) and Power Cost Equalization (PCE) Fund, which had
found that the PCE Fund was not sweepable and inferred the
SBR could not be swept. He asked why the administration
would not follow the court finding.
Mr. Steininger replied that the AFN case directly ordered
the administration to not sweep the PCE Fund. There had
been reference to the SBR in the footnote of the case, but
there was not a direct order not to sweep the fund. He
furthered that until further direction was given otherwise,
the administration was applying a status quo interpretation
regarding the SBR being sweepable.
Co-Chair Stedman asked if there had been an order to
reinterpret the remaining sweep items other than the PCE
Fund.
Mr. Steininger did not believe there was an order to
reinterpret the other items in the AFN decision. He
deferred to the Department of Law.
Co-Chair Bishop thought Mr. Steininger had mentioned the
administration would continue "until receiving guidance,"
and wondered who or what he was referring to.
Mr. Steininger explained that until the administration
received direction either from the attorney general or the
courts regarding changing the interpretation of the SBR in
terms of "sweepability," it would continue to follow the
status quo from prior years and consider the fund to be
sweepable.
Co-Chair Stedman thought there was a conflict between and
the status quo and otherwise.
Senator Wilson wondered if the PCE Fund decision applied to
all payments from the fund, such as community assistance
payments.
Mr. Steininger stated "yes," and explained that per the AFN
decision, any appropriation from the PCE Fund was allowed
to go forward and was now being implemented in the state
budget. The payments included community assistance, the PCE
Program itself, the cost of managing the fund, and other
appropriations from the fund.
Senator Wielechowski was curious about how the court
decision affected the SBR appropriations.
Mr. Steininger stated that per the attorney general's memo
and direction from the governor, the appropriations were
considered to be validly committed prior to the time of the
sweep, so the appropriations could go forward.
Senator Wielechowski asked about the West Susitna Access
Road Project, the Houston school, and other projects.
Mr. Steininger answered affirmatively, and qualified that
mostly capital projects would go forward.
3:18:37 PM
Co-Chair Stedman remarked that mostly the projects were
concentrated in a specific geographical area. He asked Mr.
Steininger to help the committee with an explanation of the
mechanics of the administration's interpretation of the
sweep. He asked how the cash flow would work, and if the
administration would need to wait to receive revenue before
spending it.
Mr. Steininger stated that the mechanics would operate
similarly to a year in which the reverse sweep occurred.
The departments would be able to execute appropriations,
and the administration would utilize inter-fund borrowing
in situations where revenue may be less in the first
quarter than was necessary for expenditures, but adequate
over the course of the entire fiscal year. In some
situations there would be a lag between expenditures and
revenue, which he thought was normal for operation of a
state budget. In situations where the state relied upon the
balance of the fund, the administration would be able to
expend from the blance. There would be accounting
reconciliation done by the Division of Finance to ensure
that the amount swept into the Constitutional Budget
Reserve (CBR) was accurate. He noted that the
administration would need to work through the process with
the division to ensure that adequate tracking and
accounting happened in the ACFR.
Co-Chair Stedman asked if the committee should expect that
the ACFR would have less complications and flagged issues,
or more.
Mr. Steininger did not want to speculate. He knew the
Division of Finance worked as hard as possible to ensure
there were not issues in the ACFR when it was submitted to
the Legislative Audit Division.
Senator Wielechowski thought it looked like the Matanuska-
Susitna (Mat-Su) Borough rehabilitation payment of $10
million had been approved. He thought some of the funding
went towards paving roads. He was curious if the borough
had road conditions that were worse than other parts of the
state that necessitated the discretionary $10 million, or
if the governor planned to veto the funding.
Mr. Steininger replied that the governor's opportunity to
veto or not veto the appropriation happened when the bill
was signed. The administration had put forward the request,
which was appropriation by the legislature, based upon road
conditions in the region.
Senator Wielechowski thought the discretion for use of the
funds was up to the borough. He asked if it was the
governor's position that the roads in the Mat-Su Borough
were worse than roads in rural Alaska, certain parts of
Anchorage, and other parts of the state.
Mr. Steininger did not mean to imply that there were worse
or better conditions of the roads, simply that the
appropriation was put forward and vetted during the
legislative session and appropriated by the legislature. He
continued that the appropriation was impacted by the memo
by the attorney general as to whether or not the funds from
the appropriation could be put forward to be executed based
on the interpretation on what funds were subject to the
sweep or not. He contended that the interpretation did not
have any bearing on the validity of a project, it simply
looked at legal issues determining what balances were
available for the sweep.
3:23:17 PM
AT EASE
3:23:58 PM
RECONVENED
Co-Chair Stedman clarified that Mr. Steininger was correct
in that the legislature was the appropriating body and had
appropriated the funds. The appropriation had come in as an
amendment from the governor for the capital budget, and the
legislature had not added any projects to the capital
budget. The items were all either recommended for the bond
package or amendments from the administration. All
appropriations in the final budget bill were approved with
a vote of the legislature.
Senator Wielechowski was curious if Mr. Steininger could
explain why the attorney general was interpreting the end
of the succeeding fiscal year to come after the start of
the next fiscal year.
Co-Chair Stedman asked Senator Wielechowski to repeat his
question.
Senator Wielechowski thought the matter was complicated and
noted that the topic was included in the attorney general's
opinion. He was curious if Mr. Steininger was interpreting
the end of the succeeding fiscal year to come after the
start of the next fiscal year.
Co-Chair Stedman thought the question would be best
addressed by the Department of Law.
Senator Wielechowski was curious if the governor believed
that that oil tax credits should be funded at the full or
more statutory level if the Permanent Fund Dividend (PFD)
was funded at less than the statutory level.
Mr. Steininger explained that in the administration's
budget during session, it had put forward the full amount
for oil and gas tax credits and had proposed to pay a PFD
at a 50/50 split based on its proposed fiscal plan.
Senator Wielechowski asked if the governor would support an
amendment that linked the amount of the PFD to the
percentage of oil tax credits.
Mr. Steininger declined to answer the question on behalf of
the governor.
3:27:40 PM
CORI MILLS, DEPUTY ATTORNEY GENERAL, DEPARTMENT OF LAW,
JUNEAU (via teleconference), gave a brief explanation of
the memorandum from the attorney general dated August 25,
2021. She recounted that the Department of Law had been
asked by the governor to look at the question of monies for
which an appropriation for an expenditure had already been
enacted prior to the sweep, were those not available for
appropriation because the funds had already been validly
committed. She commented the one of the things the PCE
endowment fund case highlighted was that there was still a
lot of uncertainty around the interpretation of the CBR.
Ms. Mills referenced the Supreme Court case Hickel vs.
Cowper [a 1994 case regarding funds available for
appropriation], and a case interpreting "available for
appropriation." She thought there were a series of
unanswered questions on the matter, especially as it
related to the sweep and subsection (d), because the Hickel
v. Cowper dealt mostly with subsection (b), which concerned
how to compare the previous year and what monies were
available for appropriation. Additionally, the subsection
concerned if money could be taken out of the CBR by a
majority vote or by a three-quarters vote.
Ms. Mills continued to address the memorandum and relayed
that the department had found that there was a reasonable
argument, based on a reading of Hickel v. Cowper and the
interpretation of "available for appropriation", that funds
that were part of an enacted appropriation had already been
validly committed to be expended for a specific purpose in
the future. Because the funds were validly committed, it
meant the funds were not available for appropriation as of
June 30, at midnight, and should not be swept with the
remainder of the fund.
Ms. Mills referenced two quotes from the Hickel v. Cowper
case that she considered "the crux" of the question. She
detailed that the case defined "available for
appropriation" in the following manner: amounts available
for appropriation, within the meaning of Article 9, Section
17, of the Alaska Constitution, includes all monies over
which the legislature has retained the power to
appropriate, and which require further appropriation before
expenditure. The court also made clear that "monies which
have already been validly committed by the legislature to
some purpose should not be counted as available.
Ms. Mills pondered whether the appropriations in the budget
bill HB 69 (signed into law on June 30) were validly
committed prior to the sweep and therefore should not be
swept and instead used for the purposes intended on the
effective date. Conversely, she pondered whether the
appropriations were not validly committed yet because the
appropriations were not in effect yet. She summarized that
the department believed there was a reasonable argument
that the appropriations were validly committed, and
therefore the action and direction given by the governor
was legally defensible and could be upheld by the court.
She qualified that ultimately the department did not know
what the court would determine.
3:32:27 PM
Co-Chair Stedman wondered how almost thirty years of
precedent did not have any bearing on the issue. He asked
how Ms. Mills had dealt with the issue, or if all the
previous governors, legislators, finance directors, and OMB
directors had misinterpreted the issue.
Ms. Mills replied that she felt that the question had
always been present but it had not been addressed by any
governor. She thought there was always a chance that there
would be different answers to the question once it was
asked. She thought the ongoing policy interpretation did
weigh into the matter but did not mean there was not a
reasonable argument that the process had not been done
correctly. She mentioned the Supreme Court reversing
things, and referenced the PFD, and the State v.
Wielechowski decision [a 2017 case to effectively set aside
the governor's veto of a portion of the appropriation of
funds for PFD distributions in 2016] where the court had
reversed 30 to 40 years of action.
Ms. Mills asserted that the department was always
considering case law and the constitution, and referenced
the recent PCE case decision, which she thought could
change the way the process could be interpreted. She
thought there were reasonable arguments on both sides.
3:34:16 PM
Co-Chair Stedman referenced the closing paragraph of the
August 25th memo from the attorney general, which started
with a reference to "a particular concern." He thought the
attorney general considered that the administration would
be in a tricky situation through the interpretation. He
referenced the second paragraph, which referenced making "a
reasonable argument." He posited that a reasonable argument
could be made about virtually anything in a courtroom.
Ms. Mills agreed that reasonable arguments could be made in
court. She thought there was a question of whether an
argument had a greater than 50 percent chance, and she
thought the interpretation could go either way and the
court had yet to weigh in on the matter. She thought there
were good legal arguments to make before a court, but the
matter would not be decided until the Alaska Supreme Court
made a ruling.
Co-Chair Stedman noted that the constitution provided for
an attorney general and not an elected attorney general. He
was concerned about the disregard for nearly 30 years of
precedent while there was a capital budget substantially
weighted within one area of the state. He thought it was
interesting that the issues coincided. He thought it seemed
as though the interpretations coming from the Department of
Law seemed to be politically motivated.
3:38:00 PM
Senator Wielechowski thought a rationale for the court from
the PCE case was that funds outside the General Fund were
not considered to be sweepable. He was curious about the
rationale regarding the Higher Education Fund and noted the
governor had reversed his decision on the fund. He thought
the fund was within the General Fund.
Ms. Mills agreed. She did not believe the administration
had changed its position on the Higher Education Fund and
its sweepability as a fund. She continued that the reason
the Alaska Performance Scholarship payments could go out
was because there were validly committed appropriations in
the budget bill to pay the scholarship in the current year.
The remainder of the fund was considered swept as of June
30, so there would be no funding to pay scholarships the
following year.
Senator Wielechowski thought it appeared that the attorney
general was interpreting the end of the succeeding fiscal
year to come after the start of the next fiscal year.
Ms. Mills pondered the question of if the funds had been
validly committed. She mentioned Hickel v. Cowper, which
used language that said, "monies which have already been
validly committed by the legislature to some purpose should
not be counted as available." She continued that if the
money had already been validly committed, it was a separate
question from when the appropriation was effective and when
the money could be spent. She cited that the language in
subsection (d) stated that the amount of money in the
General Fund available for appropriation at the end of each
succeeding fiscal year. She questioned if the money that
was already committed to a purpose was available for
appropriation at the end of the fiscal year, or if it had
been validly committed for the next year's budget and set
aside. She thought the question was whether funds had to be
spent as of June 30th, or validly committed through an
enacted bill for the future.
Ms. Mills commented on the role of the department to advise
the governor and other officials within the government,
which she thought was accomplished in the memo from the
attorney general. She asserted that the department was not
claiming there was a clear answer, nor had it taken a
public position on the issue. Rather, the department was
claiming there were reasonable arguments on both sides. She
emphasized that if there were reasonable legal arguments,
there was a policy question for elected officials to make.
Co-Chair Stedman thought it sounded as though Ms. Mills
wanted to take a step back from the position.
3:42:13 PM
Senator Wielechowski recalled that the legislature's budget
control was over FY 22, after the end of the last fiscal
year when the funds were already swept. He asked if the
legislature could make an appropriation or simply transfer
monies from the various funds into the SBR or the PCE Fund,
and then transfer them back in the new fiscal year in order
to avoid the funds being swept.
Ms. Mills addressed the PCE Fund, which was not sweepable
as a whole under the court's reasoning. She considered that
if the legislature were to appropriate money into the PCE
Fund, it would definitely be protected from the sweep. She
considered Senator Wielechowski's question of if there was
an appropriation to take the funds out of the PCE Fund and
asked if he meant after the sweep.
Senator Wielechowski answered affirmatively.
Ms. Mills furthered that she thought the funds would be
protected and noted that the legislature could always
appropriate money from the PCE Fund, and she was not sure
the second step would be necessary. She thought if the
funds were in the PCE Fund, they would not be swept.
Co-Chair Stedman asked about the retroactive effective
dates. He recalled that the administration had threatened
to shut down government for 90 days because of lack of a
two-thirds vote for retroactive effective dates. He asked
if the legislature should delete retroactive dates from
budgets.
Ms. Mills thought Co-Chair Stedman had posed distinct legal
questions. She explained that the department was
interpretating the phrase "available for appropriation,"
for purposes of the CBR, and the Hickel v. Cowper court
considered that the funds been validly committed by the
legislature. She pondered the time component. She thought
retroactivity was a separate question that was not impacted
by the analysis.
3:46:39 PM
Co-Chair Stedman asked if it would be possible to get a
clarification for the next budget cycle. He cited that
there were decades of precedence of interpretation followed
by a 90-degree change, which he thought was due to the fact
that there was political expediency involved. He asked Ms.
Mills to help with any information on the issue of
retroactive effective dates.
Ms. Mills relayed that the department was happy to provide
any guidance it could. She thought the timeline for
appealing effective date litigation was upcoming, and she
thought there was a chance there would be continued
litigation at the Supreme Court level. She thought pursuit
of the litigation would be in aid of gaining clarity and to
avoid a constitutional crisis. She relayed that the
department had looked back in history and could not
identify another time with a similar situation. She
pondered that the court could provide clarity before the
budget process was over and relayed that the department was
happy to weigh in on how the retroactive dates and
effective dates worked together in any given bill.
Co-Chair Stedman thought there would be an opportunity the
upcoming winter. He commented on the expense of litigation.
3:50:05 PM
MEGAN WALLACE, DIRECTOR, LEGISLATIVE LEGAL SERVICES, ALASKA
STATE LEGISLATURE, explained that she would comment on
Legislative Legal Services' (LLS) perspective on the
attorney general's opinion issued the previous week and
whether it changed the historical understanding of how the
sweep worked and any possible risk to the legislature if it
continued to budget under the most recent interpretation.
She agreed that the issue had not been before the Supreme
Court. She pointed out that Ms. Mills noted that there was
no new case law on the issue. There was a recent Superior
Court decision on the sweepability of the PCE Fund, but the
Department of Law's new opinion on how the sweep should be
carried out did not rely on the most recent opinion. She
explained that LLS' framework was based almost exclusively
on Hickel v. Cowper, which was an Alaska Supreme Court
decision from the early 1990's.
Ms. Wallace explained that Hickel v. Cowper was a case
about the definition of "available for appropriation" under
Article IX, Section 17 (b), the provision that indicated
whether a majority vote or three-quarters vote was needed.
She continued that Hickel v. Cowper, in large part, did not
touch on the constitutional sweep in Section 17 (d). She
relayed that there was limited guidance in one small
section at the end of the opinion that referenced the sweep
that said for the purposes of understanding what the
language in the sweep provision is, we will look to the
same interpretation as those terms were used in subsection
(b).
Ms. Wallace contended that the Hickel v. Cowper court
statements that the Department of Law were relying on were
in interpreting Section 17 (b) of the CBR provision and
were not specific to the sweep. She continued to say that
when analyzing and determining whether money was validly
committed by the legislature, the Hickel v. Cowper case was
not specific as to what the provision meant as it related
to the sweep. She pondered looking at what money was
validly committed as of June 30 when the sweep was carried
out, as opposed to looking to see what future
appropriations were going to take effect and whether or not
the appropriations could be considered validly committed.
Ms. Wallace shared that LLS had historically understood and
interpreted the sweep as a snapshot of what was seen on
June 30, and had historically considered that money that
was swept on June 30 would not be available to carry out
appropriations that had been validly enacted for the
upcoming fiscal year. She continued that in other words,
after the sweep occurred if there was not a reverse, the
appropriations would go unfunded. She shared her
perspective that without a change in law or updated
guidance from the Alaska Supreme Court (or even a Superior
Court) specifically taking up the issue, it was difficult
to reach a new conclusion.
3:55:35 PM
Co-Chair Stedman thought there seemed to be some
interpretation differences on the matter of the SBR. He
asked for Ms. Wallace to help clarify the matter for the
committee and the public.
Ms. Wallace explained that before the recent litigation on
the PCE Fund, there had been pretty general consensus that
the SBR was a sweepable fund. The consensus had been based
on language in the Hickel v. Cowper case, in which the
parties had conceded that the money in the SBR was
available for appropriation. There had never been a
suggestion after that time that the fund should not be
considered sweepable. Now there was a case from the
Anchorage Superior Court that, in analyzing whether the PCE
was in the General Fund (which was also a requirement for a
fund to be sweepable), it noted that the legislature had
the constitutional power to create funds outside the
General Fund. In the decision, the court noted that the
legislature had created separate funds and footnoted and
specifically listed certain funds the legislature had
created separate from the General Fund, one of which was
the SBR. She recounted that before the recent case
regarding the PCE Fund, there had never been a court
analysis of whether the SBR was in the General Fund and
whether it was subject to the sweep.
Ms. Wallace continued that based on the AFN case that was
not appealed by the governor, if there were a subsequent
challenge to the sweepability of the SBR, if a court were
to find the Anchorage Superior Court opinion persuasive it
would likely find that the SBR was outside the General Fund
and not subject to the sweep. She noted that the case was a
Superior Court case and unpublished, and therefore would
not serve as precedent in the case of subsequent
challenges. Rather, the opinion could at most be considered
persuasive by another court that analyzed the issue. She
summarized that there was still an open question to the
extent that the Alaska Supreme Court had not heard the
issue; but based on the AFN case the SBR would be
considered outside the General Fund and not subject to the
sweep.
3:59:06 PM
Co-Chair Stedman asked if Ms. Wallace had a recommendation
as to how the committee should proceed in dealing with the
SBR.
Ms. Wallace stated that the only recommendation she could
give was that caution was warranted. She expanded that
there was a Superior Court case that pretty clearly
suggested that the SBR was not sweepable, however the
administration had not changed its position or
recategorized the SBR. She thought the legislature could
face another challenge due to differing opinions as to what
money was available and what money was not, and the topic
could ultimately be something that needed to be decided.
She added that another recommendation would be for the
legislature to conservatively budget so that a new decision
or interpretation on the issue would not disrupt budgeting
assumptions that the legislature was making.
Senator Olson referenced the Superior Court decision
regarding the PCE Fund. He wondered if the ruling would
stand if the issue was appealed to the Supreme Court and if
the legislature should take the matter into consideration.
Ms. Wallace understood that the AFN case would not be
appealed to the Alaska Supreme Court. The only way the
issue could get back to the Supreme Court was through
separate litigation. She noted that the Alaska Supreme
Court did not issue advisory opinions to advise the
branches of government on the position of certain legal
issues. Rather, there had to be a case or appeal to the
Alaska Supreme Court. She thought it was difficult to
predict the action of a court but considered that the
opinion in the AFN case seemed well-reasoned and it seemed
likely the Supreme Court would uphold the decision.
Co-Chair Bishop contended that the PCE Fund had never been
considered sweepable prior to the current administration.
Ms. Wallace understood that the longstanding position was
that the PCE fund was not sweepable, which had changed on
issuance of an opinion by former Attorney General Kevin
Clarkson.
Co-Chair Stedman thought the interpretation was relatively
new and happened with the current administration.
4:03:28 PM
AT EASE
4:04:17 PM
RECONVENED
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, introduced herself and explained that
she was the state legislative auditor responsible for
auditing the Annual Comprehensive Financial Report (ACFR).
Co-Chair Stedman relayed that the committee had concerns
regarding the difficulty in having more timely audits of
financial statements. He mentioned software upgrades and
internal accounting, and the issue of the sweep. He wanted
Ms. Curtis' opinion on the issue of when a fund was swept
and there was an appropriation on the first day of the
fiscal year. He wondered how the committee should be
viewing the matter through the lens of the auditor.
Ms. Curtis addressed the idea of what funding was available
at the end of a fiscal year and emphasized that the balance
sheet was as-of June 30th. She asserted that the idea of
what was available at the end of June 30 had wider
ramifications than the issue of the sweep and mentioned
encumbrances and fund balances. She relayed that one of her
first concerns of a new interpretation of how to interpret
the amount available had farther implications than the
issue of the sweep.
Ms. Curtis emphasized that the issue of what was available
had been vetted by the Department of Law, OMB, the Division
of Finance, and Legislative Audit when the Hickel v. Cowper
decision came out, and that the group had discussed the
issue at length. She did not necessarily agree with the
interpretation that the issue was not well contemplated.
She added that she had not read the PCE Fund-related court
case and did not know if the case would inform her in some
other way of seeing the matter. She offered that from an
audit perspective, it would be difficult to interpret an
appropriation effective after June 30 as constituting a
valid obligation as of June 30. She affirmed that she and
her staff would do a deep dive into the topic, taking a
thorough examination of the justification of the department
of law and would also engage in discussions with the
Division of Finance.
Ms. Curtis noted that there was already a qualification on
the state's financial statement, and there was not a clean
opinion.
4:08:16 PM
Co-Chair Stedman asked Ms. Curtis to expand on the
qualification on the state's financial statement.
Ms. Curtis explained that the Legislative Audit Division
gave an opinion on the state's financial statements as to
whether they were fairly stated and free from material
misstatement. There were five opinions, one of which was on
the General Fund, and one of which was on governmental
activities, which was relevant to the issue. The division
qualified the General Fund partly because of the amounts
that were being deposited into the CBR Fund. The impact was
a $1.4 billion disagreement with the administration that
was leading to a qualified opinion; meaning that the
division believed there was a material misstatement in the
General Fund's financial statement.
Co-Chair Stedman asked Ms. Curtis to re-state her words.
Ms. Curtis reiterated that the division believed there was
a material misstatement in the financial statements for the
General Fund. The misstatement had to do with what the
division believed was defined and what was owed from the
General Fund to the CBR. She continued that the
misstatement had to do with the amounts that were deposited
to the CBR versus the amounts deposited into the General
Fund. The issue was directly related to the same type of
issue regarding the sweep, and how much the General Fund
owed and repaid the CBR. She relayed that the division
already had concerns with interpretations by the
administration, on how it was preparing financial
statements regarding the CBR. Whether or not it was
quantitatively material, the division believed the CBR was
qualifiedly material to residents of Alaska and spent a lot
of time ensuring that financial statements regarding the
sub-fund were accurate. She estimated that the timing of
the division's look into the issue would be late fall or
early winter.
Ms. Curtis shared another concern with testimony she had
heard earlier in the meeting. She thought she had heard it
stated that there may be some looking back into the amounts
available as of the end of FY 21, decided later in the
spring as the monies were balanced, and asserted it could
logistically not happen. She emphasized that the financial
statements were prepared, and balances were decided as of
June 30. She did not understand logistically how the
administration planned to change the balances during the
year.
Co-Chair Stedman assured that the committee would work on
the issue. He thought Ms. Curtis had expressed concerns
that appropriations would be released that should not be
released under the scenario.
Ms. Curtis explained that the division did not focus on the
budgetary aspect of releasing appropriations but were
mainly concerned with the amounts in footnote 2 that
discussed how much had been taken out or the balance of the
CBR, which was the particular area of the financial
statements the division had to determine was correct. She
iterated that the CBR was a part of the General Fund for
financial statement purposes. The discussions did not
impact the accounting of or financial statements of the
state, but mainly had to do with state compliance and
whether the state was following the law. She explained that
footnote 2, which provided the balances, was part of the
footnotes to the financial statements.
4:12:38 PM
Co-Chair Stedman discussed appropriation out of the SBR
being swept, and historical precedent. He asked if the new
interpretation would cause problems for the financial
audit.
4:12:58 PM
Ms. Curtis thought it would be necessary to look to
guidance from the court case and direction from Ms.
Wallace. She considered the SBR appropriation sweep to be a
separate issue from classifying sub-funds as validly
committed as of June 30th. She was not as concerned about
the SBR because she had heard that a court case would
justify the interpretation.
Senator Wilson asked how long the misstatements in the ACFR
had been going on. He asked if it was easy to get a
definitive answer on how the statements should be made.
Ms. Curtis shared that the financial statement opinions had
been qualified starting in FY 18 and had originated under
the prior administration. The new administration came on,
and the concerns were brought up to ensure the new
administration was in agreement with the prior
administration.
Co-Chair Stedman hoped the matters would be cleared up. He
thanked the testifiers.
Co-Chair Bishop thought he had heard that until the matter
was cleared up, the budget appropriations might need to be
doubled for some accounts.
Co-Chair Stedman discussed the schedule.
ADJOURNMENT
4:16:38 PM
The meeting was adjourned at 4:16 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 083021 2021 08 25 Duleavy to Micciche re FY22 Approps.pdf |
SFIN 8/30/2021 10:00:00 AM |
|
| 083021 SFIN CBR Sweep.pdf |
SFIN 8/30/2021 10:00:00 AM |
|
| 083021 Budget Impacts of CBR Vote Failure 8.24.21.pdf |
SFIN 8/30/2021 10:00:00 AM |
|
| 083021 SFIN SB3001 TSS Budget Bill 8.24.21.pdf |
SFIN 8/30/2021 10:00:00 AM |
SB3001 |
| 083021 Funds Available in the SBR 8.31.2021.pdf |
SFIN 8/30/2021 10:00:00 AM |