Legislature(2021 - 2022)SENATE FINANCE 532
09/09/2021 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SJR5 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SJR 5 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
THIRD SPECIAL SESSION
September 9, 2021
9:02 a.m.
9:02:40 AM
CALL TO ORDER
Co-Chair Bishop called the Senate Finance Committee meeting
to order at 9:02 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson (via teleconference)
Senator Bill Wielechowski (via teleconference)
Senator David Wilson
MEMBERS ABSENT
Senator Natasha von Imhof
ALSO PRESENT
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor; Caroline Schultz, Policy Analyst,
Office of Management and Budget, Office of the Governor.
SUMMARY
SJR 5 CONST. AM: APPROP LIMIT; BUDGET RESERVE
SJR 5 was HEARD and HELD in committee for further
consideration.
SENATE JOINT RESOLUTION NO. 5
Proposing amendments to the Constitution of the State
of Alaska relating to an appropriation limit; and
relating to the budget reserve fund.
9:04:22 AM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced himself.
9:04:28 AM
CAROLINE SCHULTZ, POLICY ANALYST, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, introduced herself.
9:04:39 AM
Mr. Steininger discussed the presentation, "State of
Alaska; Office of Management and Budget; Senate Finance
Committee; SJR 5: Constitutional Spending Limit; September
9th, 2021" (copy on file). He addressed slide 2, "Current
Limit: Article IX, Section 16," which showed a graph. The
graph showed the current constitutional spending limit with
a black line. He asserted that the administration proposed
an amendment to the constitutional spending limit because
the current limit was not effective at controlling
expenditures of the state. He pointed out that over the
time limit of the graph where there were no periods where
state expenditures neared or came close to exceeding the
constitutional spending limit.
Mr. Steininger continued to address slide 2. He noted that
the green line represented revenues and the orange line
represented expenditures. He thought it was clear from the
graph that over the time period represented, the amount of
revenues available was what had controlled expenditures. He
pointed out during times low or flat of revenue,
expenditures stayed roughly in line with what was
available, while at the same time the spending limit in the
constitution continued to escalate, which created a gap. He
observed that when revenue started to spike in the early
2000s, expenditures went up at roughly the same rate as the
revenues and there was no meaningful limit on the rate of
growth. He thought the forward-looking need to constrain a
run-up of state expenditures was the reason for the
administration's recommendation of an amendment to the
constitutional spending limit.
Mr. Steininger pointed out the dotted line, which signified
the hypothetical scenario of the proposed limit laid out in
SJR 5 applied at the same time as the current
constitutional limit. He thought the graph showed that the
limit would have applied a lot more constraint on growth of
expenditures during the time of the run-up in revenue.
9:07:22 AM
Co-Chair Stedman remarked that there was a delta between
the dotted line that showed a hypothetical look-back and
where the state expenditures were. He asked how the state
could have reduced from $4.5 billion in state expenditures
down to the $3 billion under the scenario.
Mr. Steininger replied that the slide presented a "what if"
scenario, and if the state implemented SJR 5 today,
spending would not be down at the $3.5 billion level, but
would be more responsive to current expenditures. He
summarized that the administration was looking to implement
a spending limit that would constrain future growth rather
than to implement a spending limit that required roughly $1
billion in reductions immediately. He highlighted that it
was easy to add expenditures when there was state revenue
available, while it was far more challenging to pull
operating costs out of the budget when revenues declined.
He thought you could see a significant revenue drop on the
graph and then stabilization. He summarized that the graph
was to illustrate that the proposed spending limit was more
restrictive than the current constitutional spending limit.
9:09:35 AM
Co-Chair Stedman shared that the subject matter of a
spending limit had been before the committee many times,
and members had all recognized that the constitutional
spending limit was quite a bit above actual expenditures as
illustrated by the graph. He recalled that during the
tenure of the previous administration there had been
discussion about the spending limit with similar
multipliers as proposed. He contended that if the
legislature had implemented some of the proposed spending
caps (including from the governor when he was serving as
senator), it would have resulted in significantly higher
spending than there was currently. He noted that the state
had maintained flat spending over three legislatures. He
mentioned proposals by former Senator Dunleavy. He did not
see the operating budget of the state advancing, and
thought the state had the challenge of trying to meet its
obligation. He thought a significant number of legislators
did not like being up against a spending cap.
Co-Chair Stedman continued his remarks. He was dubious
about the proposal. He questioned whether the new proposal
would be more effective than what was currently
constraining spending growth. He thought there was very
little flexibility with the funds available to do any
escalation in growth. He wanted the chart on the slide to
have a look-back to the beginning of the Walker
Administration or the end of the Parnell Administration. He
acknowledged that the current spending cap was
dysfunctional. He thought that a new spending cap with
additional headroom would garner a great deal of interest
from legislators that wanted to spend up to the limit,
which he thought was the wrong direction to take. He
requested for the slide to be re-modeled with a tighter
time frame, starting between 2015 and the present.
Co-Chair Bishop added that there was another former co-
chair of Senate Finance sitting as a current member. He
mentioned funds that had been banked. He mentioned a great
deal of deferred maintenance. He was curious about capital
spending outside the spending limit. He cited $1 billion in
deferred maintenance in rural Alaska and $2 billion in
deferred maintenance on state assets. He mentioned schools,
water and sewer, and energy infrastructure.
Mr. Steininger stated that there was an upcoming slide that
addressed the reframing the spending limit when it was
implemented in different time periods.
9:16:17 AM
Mr. Steininger pointed to slide 3, "Key Aspects of an
Effective Appropriation Limit":
?Inhibit excess spending in high revenue years
?Practical considerations for calculation
?Timely data availability
?can be calculated in advance of budget deadlines
?Clearly understood formula
?Responsive to long-term and unanticipated changes
?Avoids unintended consequences or disincentives for
short-term savings
9:21:02 AM
Senator Olson thought there were issues that needed
addressing in more detail, such as changes to the
constitution.
Co-Chair Stedman wondered if the presentation would look at
current status of state operating expenditures. He
mentioned a establishing a benchmark spending amount
relative to population and inflation. He cautioned against
making a benchmark error.
Mr. Steininger pointed to slide 2 to address Co-Chair
Stedman's comments. He looked at the dark line that
represented the current spending limit, which started
roughly in line with UGF spending in the first year on the
graph. He qualified that spending during that time was
categorized differently and the example was not a perfect
representation. He noted that the growth of population and
inflation exceeded the growth of expenditures. He added
that where the state was now, adjusted for population and
inflation, was significantly lower than in the early 1980s.
He pondered the appropriate size of the budget for the
current fiscal year and thought the decision was embodied
in the annual budget process. He asserted that the proposed
spending limit was not trying to make judgement calls, but
rather trying to set up a framework in which to set a limit
on what could be added to current expenditures.
9:23:49 AM
Co-Chair Stedman recalled that the early 1980s were in the
oil boom, but the late 1970s were about on par with current
spending adjusted for population and inflation. He
discussed historical spending in the previous three
administrations. He thought there would always be
commentary that expenditures exceeded the ideal, and the
legislature should be able to cut the budget. He thought
the budget had been horizontal since 2016 through four
different legislatures. He mentioned deferred maintenance
and cautioned about backlog and the importance of
maintaining infrastructure.
Co-Chair Bishop asked Mr. Steininger to go back to slide 2.
He pointed out revenue versus the UGF spending from 1982 to
2006. He thought there was pent-up demand for deferred
maintenance going back 20 years. He looked at slide 3 and
emphasized the last two bullets on the slide. He asked if
Mr. Steininger had modelled SJR 5 for outcomes.
Mr. Steininger relayed that the proposed limit would be
responsive to inflationary pressure or a large influx in
population.
9:28:34 AM
Ms. Schultz stated that she had looked at projections based
on Department of Labor and Workforce Development's high,
medium, and low population projections as well as different
inflation scenarios based on historical information. She
noted that the model looked different using numbers from
the 1980s than the current low inflation regime. She
offered to share the information with the committee.
Mr. Steininger addressed slide 4, "Policy Considerations
for Appropriation Limit Calculations":
There are three critical policy considerations when
establishing a spending limit calculation:
What is excluded?
Current Article IX, Section 16 Limit
PFDs, deposits to PF, bond proceeds, GO bond
debt service, disaster spending, non-state
money received in trust, revenues of a
public enterprise, certain capital
appropriations
CS SJR 5 (JUD) Proposed
PFDs, deposits to PF or other state savings
accounts, retirement unfunded liability
payments, bond proceeds, GO & revenue bond
debt service, disaster spending, non-state
money received in trust, revenues of a
public enterprise, certain capital
appropriations
What is the base?
Current Article IX, Section 16 Limit
$2.5 B in 1982 (fixed)
CS SJR 5 (JUD) Proposed
Previous average 3 years (moving)
Mr. Steininger explained that the proposed spending cap's
moving average allowed the calculation to respond to
events. He discussed a growth rate that was as closely tied
to the real pressures on government spending as possible
and mentioned the importance of availability of data.
9:32:09 AM
Mr. Steininger continued with slide 4:
How does is grow?
Current Article IX, Section 16 Limit
Inflation population (cumulative)
CS SJR 5 (JUD) Proposed
Greater of inflation or population (over
previous two years)
Mr. Steininger discussed changing the growth rate as
proposed in SJR 5, which would use the greater of
population or inflation over the prior few years. He
thought the proposal allowed for the ability to grow and
respond to events while not allowing for significant growth
above what was necessary to meet the needs and services. He
explained that the levers and policy considerations needed
to be looked at to ensure that the change would achieve the
goals of the legislature and administration in setting a
spending limit without any unintended consequences. He
mentioned having tools to deal with things like deferred
maintenance but without creating incentives for excess
spending.
Co-Chair Stedman reiterated that the issue of a spending
cap had been before the committee many times, as well as
consideration of whether the Permanent Fund Dividend (PFD)
should be included or not. He discussed balancing the needs
of the state and asked why the PFD would be excluded from
the spending cap when it was one of the most significant
calls for revenue.
Mr. Steininger stated that the primary reason the PFD was
excluded from the proposed spending cap was that SJR 5 was
not the only constitutional amendment before the
legislature. He detailed that there was another proposed
constitutional amendment that would address the PFD and set
the payment in the constitution and effectively control the
expenditure of the PFD rather than being a discretionary
item in the state budget under the purview of a spending
limit.
Co-Chair Bishop iterated that the administration was
banking on the other constitutional amendment passing the
legislature. He pondered what would happen if the bill
failed and SJR 5 passed the legislature.
Mr. Steininger explained that the administration did not
consider the PFD a discretionary appropriation, but rather
something that should be done per the statute. He stated
that although the court had ruled that the PFD was a
discretionary item that was part of the annual budget
process, the administration's perspective was that the PFD
would still be rules-based and not a discretionary item
that should be considered under the spending cap.
9:37:11 AM
Co-Chair Stedman thought the statutory formula equated to a
PFD of about $3,300, while the administration's proposed
PFD was $2,300. He asserted that the Supreme Court made the
law of the land for all to follow, including the
administration. He discussed his concern that previous
policy set by governors resulted in annual dividends to the
people. He recounted that the formulation was to be 50
percent for the people and 50 percent to the state after
adjustment for inflation. The state had reinvested its
portion and the Permanent Fund had grown as a result.
Co-Chair Stedman asserted that all the citizens had
benefitted from the policy and growth of the fund. He
suggested that if the legislature had followed the statute,
the value of the Permanent Fund would be roughly $30
billion, and the dividend would be $1,100. He cautioned
against setting future policy in a vacuum. He thought there
were issues to work through before changing the
constitution. He hoped the public would recognize the $50
billion in added value to the Permanent Fund, rather than
the legislature spending the funds along the way.
9:43:02 AM
Co-Chair Bishop asked for a definition of certain capital
projects and asked if there was a list.
Ms. Schultz replied that the current constitutional
appropriation limit in Article IX, Section 16 had a
provision where under certain circumstances a portion of
the appropriation limit needed to be spent on capital
items. She continued that SJR 5 allowed for capital
appropriations that exceeded the appropriation limit if
voted on and approved by a majority of voters in the state,
similar to the provisions required for a general obligation
(GO) bond. The provision was added in the Senate Judiciary
Committee in order to enable capital expenditures outside
the limit, with the added control of a vote by the people.
Co-Chair Bishop asked if the capital projects could only
include water and sewer projects. He thought the bill was
not definitive on the type of civil projects that would be
allowed.
Ms. Schultz explained that there was some ambiguity in the
wording regarding whether an item was for capital
improvement or capital project. She noted that the
definition of a capital project had not been tested in
court in Alaska. She thought the conversation would be
academic in nature and noted that Assistant Attorney
General Bill Milks was available for questions.
9:45:45 AM
Mr. Steininger pointed to slide 5, "SJR 5 Constitutional
Appropriation Limit - Timing Matters," which had a graph
depicting the proposed appropriation limit starting at
various times. He noted that the slide showed a tighter
timeframe than was shown on the first slide. He thought it
was possible to see that the result was different depending
on when the proposed appropriation limit was started. He
pointed out that the scenarios in 2000 and 2005 were
relatively similar due to the fact that the time period had
relatively flat and stable budgets, and the three-year
average calculated by SJR 5 yielded the same results.
Mr. Steininger pointed out the increase in expenditures
leading to 2010, which increased the three-year average. He
thought it was important to note that if the SJR 5 proposal
was implemented in a time of higher spending (unlike what
was shown on the first graph), the initial base calculation
would be based on the most recent three budgets. He
emphasized that the calculation was responsive and ensured
that when the spending cap was implemented it would not
significantly constrain spending immediately. He noted that
if implemented 2010, the proposed limit would have
constrained spending after a few years. He commented that
as expenditures went down to meet the decline in revenue
subsequent to FY 15, it was observable that the averaging
brought the appropriation limit down with spending. Growth
would be limited to inflation or population growth.
Co-Chair Bishop commented that when the state had flat
revenue, the legislature was not over-spending. He pointed
out that when the state had more revenue, it was catching
up on 20 years of deferred maintenance it was previously
unable to do.
9:49:43 AM
Mr. Steininger looked at slide 6, "SJR 5 Constitutional
Appropriation Limit - Looking Forward." He explained that
the slide the graph on the slide used OMB's ten-year plan
as well as the Department of Revenue's official forecast.
He explained that the graph tried to show that the
appropriation limit in SJR 5 had some flexibility and was
dependent upon choices that were made. The two black dotted
lines represented a range of where the spending limit could
be calculated in the future. The top line showed that if
the state tried to respond to the limit by treating it as a
goal, the amount would increase over time.
Mr. Steininger continued to address the graph on slide 7.
He explained that the lower dotted line showed that if
spending was flat, the line would meet the spending and
grow by population or inflation depending upon which was
greater. The graph used a rate of one-half percent in
annual population growth and 2.25 percent in inflation
growth. He summarized that the provisions in the bill, as
currently drafted, were responsive to appropriation
decisions that were made and allowed for a small amount of
growth but not a fast run-up of expenditures.
9:51:39 AM
Co-Chair Bishop thought if the state could maintain its
savings discipline, it could pay the Constitutional Budget
Reserve (CBR) back in 16 years with $1 billion per year
instead of in 130 years by paying $100 million per year.
Mr. Steininger highlighted slide 7, "SJR 5 Constitutional
Appropriation Limit - As Amended by Senate Judiciary":
SJR 5 amends article 9, section 16 of the Alaska
Constitution:
Fixing the calculation to limit spending
?May not exceed prior three-year average by more
than the greater of inflation or population
growth
Clarifies definition of appropriations subject to cap
?Includes appropriations of state funds (UGF,DGF)
?Excludes the following appropriations:
?PFD
?Bond proceeds and debt service costs
?Deposits to state savings accounts
?Payments toward retirement unfunded liability
?Disaster response
?Non-state funds for a specific purpose
?Capital projects if approved by voters
Mr. Steininger noted that slide 7 and slide 8 provided
details of what was in the bill. He suggested that the
provisions were areas for legislative consideration to
ensure that the way the bill was drafted gave the ability
to address items such as deferred maintenance and capital
appropriation.
Co-Chair Bishop asked if the administration had a plan for
addressing deferred maintenance.
9:54:24 AM
Mr. Steininger stated that the current mechanism used to
fund deferred maintenance was through the Alaska Capital
Income Fund, and earnings that went into the fund. The
administration was in the process of addressing deferred
maintenance on a statewide basis through the Division of
Facilities Services. He acknowledged that there was a need
to find more adequate funding for deferred maintenance, and
that the amount of money available in the Alaska Capital
Income Fund was less than the ideal amount if one was to
calculate one to two percent of the asset value.
Co-Chair Stedman asked about bond proceeds and debt service
costs. He spoke of bonded projects and false numbers
represented in the budget. He thought that bond proceeds
should be included. He was curious whether bond packages
should be pushed forward or not. He thought there was
clearly budgetary manipulations that made bond packages
more attractive than they should be. He questioned taking
capital projects to the voters when the legislature was
elected to make the decisions.
Co-Chair Stedman continued his thoughts. He highlighted the
unequal distribution of voters across the state. He noted
that the legislature spent many areas to ensure that the
call on the treasury was equally distributed around the
state. He thought a vote by the people could lead to
inequity with projects concentrated in population centers.
He thought there were numerous examples to draw from
relating to unfair allocation of resources around the
state.
Co-Chair Bishop solicited questions. He asked whether the
capital projects were particular to the GO bond list only,
or if the bill proposed to eliminate the normal capital
budget process.
9:59:31 AM
Mr. Steininger explained that under SJR 5 the legislature
would still provide for a normal capital budget process.
The capital project or GO bonds approved by voters would
happen in a case where there was a need for projects that
exceeded the proposed appropriation limit.
Co-Chair Stedman reminded that capital budgets in the near
past had been federal match funded only. He pondered what
size of capital budget would spill over enough to require a
vote. He reiterated his concern about equal treatment
around the state. He discussed examples in rural Alaska and
the perception that expenditures in the Railbelt were
supported while smaller rural projects were not.
Senator Hoffman asked about excluded appropriations and
thought a strong argument could be made for the Power Cost
Equalization Program to be excluded from the appropriation
limit. He recounted that there had been expenditures across
the Railbelt to reduce energy costs in the area, and the
PCE Fund was an attempt to equalize expenditures as there
had been no infrastructures built to reduce cost in rural
Alaska.
10:03:01 AM
Co-Chair Stedman considered ways things were manipulated.
He observed that under the current enacted budget there
were about $200 million in expenditures that were not made.
He listed oil tax credits, school bond debt reimbursement,
Regional Educational Attendance Area (REAA) school funding,
and community assistance. He discussed using the proposed
three-year average as a policy of the executive branch. He
discussed vetoes by the governor. He opined that there was
a difference in policy decisions to increase expenditures
and the discussion of paying the states obligations. He was
not sure the proposal did not hinder the state's ability to
meet its obligations. He had concerns that using a three-
year expenditure average left room for financial
manipulations and political maneuvering.
Mr. Steininger pointed to slide 8, "SJR 5 Constitutional
Appropriation Limit - As Amended by Senate Judiciary":
SJR 5 amends article 9, section 17 of the Alaska
Constitution:
?Amends section 17 (a) to clarify deposits to the
fund
?Removes section 17 (b) which currently allows
simple majority access under certain
circumstances
Retains access through three-quarter vote and
repayment provisions
Mr. Steininger detailed that the bill proposed to address a
difference in interpretation of current language in Article
9, Section 17 of the Alaska Constitution. The change would
address what types of settlements went into the CBR and
would clarify that there were settlements directly related
oil, gas, and mineral resource issues.
10:07:40 AM
Co-Chair Stedman noted that the legislature had used the
access provision to the CBR without a three-quarter vote.
He proposed that the access to the CBR through a three-
quarter vote was always more expensive. He recalled
accessing the CBR without additional cost, and the creation
of the Statutory Budget Reserve. He thought the bill would
create greater expenditures. He relayed that normally there
was language in the budget to provide a backstop on
spending.
Co-Chair Bishop summarized that if one wanted to save
money, a three-quarter vote was not a good choice.
10:12:38 AM
Ms. Schulz discussed "CS SJR 5 (JUD) Sectional, Version 32-
GS1664\B, (Constitutional Amendment: Appropriation Limit;
Budget Reserve Fund), September 9, 2021" (copy on file):
Section 1: This section would amend the appropriation
limit amendment in the Alaska Constitution (Art. IX,
sec. 16).
Subsection (a) begins by listing the appropriations
that would be excluded from the appropriation limit:
appropriations made under new subsection (b)
[Section 2],
? money for permanent fund dividends,
? money going into the permanent fund,
? appropriations of general obligation and
revenue bond proceeds and the payment of debt
service on those bonds,
? appropriations into a state savings account or
fund that requires a subsequent appropriation
from the account as prescribed by law,
? appropriations for payment of the unfunded
liability of a State retirement system,
? appropriations to meet a disaster,
? and appropriations of money from a non-State
source in trust for a specific purpose including
revenues of a public corporation of the State
that issues revenue bonds.
The section then sets forth a new appropriation limit.
The new limit would require that appropriations for a
fiscal year not exceed the average of the
appropriations for the last three years plus the
cumulative percent change in the greater of population
or inflation over the previous two calendar years.
Section 2: New subsection (b) in Art. IX, sec. 16
permits appropriations for capital projects in excess
of the limit if approved by a majority of voters of
the State and specifies that appropriations in excess
of the limit are not to be used in calculating the
appropriation limit in subsequent years.
Section 3: This section would make limited changes to
section 17(a) of the budget reserve fund in Article IX
that clarify what money is deposited into the budget
reserve Office of the Governor CS SJR 5 (JUD)
September 9th, 2021 fund and that deposits into the
fund are not subject to the dedicated fund prohibition
in Section 7 of Article IX.
Section 4: This section would provide for a transition
provision to ensure a smooth transition between the
existing appropriation limit and the new limit.
Section 5: This section would repeal subsection (b) of
the budget reserve fund in Section 17 of Article IX.
Subsection (b) currently allows for appropriations
from the budget reserve fund with a simple majority if
the amount available for appropriation is less than
the amount appropriated in the previous year.
Section 6: This section would require that this
amendment be placed on the ballot in the 2022 general
election.
Co-Chair Bishop discussed the agenda for the afternoon.
SJR 5 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:15:47 AM
The meeting was adjourned at 10:15 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SJR 5 CSSJR5(JUD) Sectional 9.9.21.pdf |
SFIN 9/9/2021 9:00:00 AM |
SJR 5 |
| SJR 5 OMB Presentation to SFIN 9.9.21.pdf |
SFIN 9/9/2021 9:00:00 AM |
SJR 5 |