Legislature(1999 - 2000)
05/24/1999 03:11 PM Senate JUD
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SENATE JUDICIARY COMMITTEE
May 24, 1999
3:11 p.m.
WORK SESSION
MEMBERS PRESENT
Senator Robin Taylor, Chairman
Senator Dave Donley
MEMBERS ABSENT
Senator Rick Halford, Vice-Chairman
Senator John Torgerson
Senator Johnny Ellis
OTHERS PRESENT
Senator Jerry Ward
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 28
Proposing an amendment to the Constitution of the State of Alaska
relating to the appropriation limit.
-HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
SJR 28 - See Judiciary minutes dated 5/23/99.
ACTION NARRATIVE
TAPE 99-39, SIDE A
Number 001
SJR 28-CONST AM: APPROPRIATION LIMIT
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee work session
to order at 3:11 p.m. and announced that the subject of a
constitutional spending limit is appropriate for the committee to
discuss during the special session even though it is not
technically within the Governor's call. He stated that the
Governor's Proclamation does not include, as a general subject, the
consideration of a long term, or any, fiscal plan.
SENATOR DONLEY commented the Governor's Proclamation does include
the consideration of an advisory vote on a long term fiscal plan
but it does not include the legislative elements of a long term
plan to make an advisory vote work. He added the only exception is
a specific plan the Governor likes, which is included in one of the
House proposals. That plan limits the amount of the permanent fund
dividend.
CHAIRMAN TAYLOR asked Senator Donley to discuss his proposal on a
state government spending limitation (SJR 28 - Version K).
SENATOR DONLEY said Version K restructures the existing
constitutional appropriation limit. That appropriation limit has
never functioned correctly. Version K lowers the current
constitutional limit from $2.5 billion to $2.025 and it reduces the
amount it can escalate from 100 percent to 12.5 percent by using a
calculation that contains both the consumer price index and the
population increase. By reducing the escalator to 12.5 percent and
reducing the dollar amount by almost $250 million, the ten percent
provision in the bill will equal more than the current general fund
operating amount. He noted that demonstrates how "out of whack"
the current constitutional appropriation limit is.
Number 100
CHAIRMAN TAYLOR asked if increases in federal revenue have been
exempted from that calculation. SENATOR DONLEY said they have.
SENATOR WARD joined the committee.
SENATOR DONLEY stated the language on lines 6-8 contains two
existing exemptions that are appropriate to continue: the exemption
for appropriations to the Alaska Permanent Fund and monies expended
to meet a declaration of disaster.
CHAIRMAN TAYLOR asked what effect the current constitutional
spending limit has had on expenditures. SENATOR DONLEY said,
"Absolutely none because the dollar amount is so astronomical that
we've never even gotten close to reaching it." He added that since
the constitutional appropriation limit was enacted, the one-third
amount for capital projects has never been met. An attorney
general's opinion interpreted that provision to mean that if the
full amount of the limit is spent, then at least one-third must be
used for capital appropriations.
Number 149
CHAIRMAN TAYLOR noted the spending limit was passed by the voters
during the peak oil years when the State had a lot of revenue and
very high budgets. The people were concerned that the government
would keep spending without restraint unless a constitutional
amendment was enacted to prevent that from occurring. He agreed
the existing constitutional amendment has had no effect because the
amount was set extremely high and then the state's income started
to taper off.
SENATOR DONLEY added that when this amendment was approved by the
voters the price of oil was projected to be $40 per barrel by the
end of the century. He stated the escalation provision allows
escalation for both population increases and inflation. He
explained if one estimated both population increase and inflation
at one percent, with a 12.5 percent escalation factor, the dollar
increase of total operating expenditures would be $16 million for
the first year and $26 million for the second year. Using the
current one hundred percent escalation calculation, that $16
million would increase to $128 million. During the past eight
years, however, the Legislature has pretty much held the line on
spending. For that reason, the constitutional limit has become
less effective. With the escalation factor decrease to 12.5
percent under Version K, an increase of $16 million will still
occur in the first fiscal year.
Number 220
CHAIRMAN TAYLOR asked how it would actually work. He noted the
Legislature is currently required to balance the budget, but not
balance it against state income. Instead, the amount appropriated
is determined by the projected price of oil.
SENATOR DONLEY clarified that the Constitution does not contain a
balanced budget provision; it contains a limit on incurring debt
but Alaska's reserve accounts have prevented that provision from
holding down spending. If Version K is enacted, the constitutional
language will be clarified to include state agencies but not monies
received from the federal government.
SENATOR WARD asked if that would include federal monies that do not
require a state match.
CHAIRMAN TAYLOR said it would not. He stated that many departments
are living off of program receipts. He asked Senator Donley to
recount the explanation given by David Teal of the Division of
Legislative Finance the day before of how other revenues are
accounted for.
SENATOR DONLEY stated the Alaska Constitution states that all
expenditures must be appropriated by the Legislature, therefore,
program receipts are appropriated. A serious question of the
legality of the Alaska Housing Finance Corporation's (AHFC's),
Alaska Industrial Development and Export Authority's (AIDEA's), and
the Alaska Railroad Corporation's (ARRC's) expenditures continues
to be raised. Although federal law requires that federal railroad
funds be expended for railroad activities only, Alaska's
Constitution requires that those federal monies be appropriated by
the Legislature, which is not being done.
CHAIRMAN TAYLOR stated Senator Donley's constitutional amendment
(SJR 28) would capture those monies within its ambit.
SENATOR DONLEY said that is true for everything except ARRC for
which an exception needs to be made.
SENATOR WARD noted ARRC could be placed under the Executive Budget
Act. SENATOR DONLEY said that could not be written into the
Constitution, but ARRC could be added to the list of exceptions.
CHAIRMAN TAYLOR asked if all other activities will be added to the
total amount of state expenditure allowed under the new
constitutional spending limit. SENATOR DONLEY said that is
correct.
SENATOR WARD asked if the Denali Commission is separate. SENATOR
DONLEY answered it is separate to the extent that no state match is
required for its federal funding. State match portions for
programs receiving federal funds will have to be dealt with under
the appropriation limit.
SENATOR WARD said he thought the Denali Commission had to have
state regulatory cooperation in order to exist.
CHAIRMAN TAYLOR said it may, but that he thought some state match
was going to be required. If so, SJR 28 would give the Legislature
the opportunity to review those expenditures.
SENATOR DONLEY indicated it may resemble the village water and
sewer program in which direct grants are given to local governments
while not all of those grants are matched with local money.
Likewise, with the Denali Commission, the State may be the conduit
for the federal dollars although no match is required.
CHAIRMAN TAYLOR noted the federal funds going to the Denali
Commission would not show up as part of the state's budget because
federal funds will be exempted under SJR 28.
SENATOR DONLEY said between the limit reduction of $250 million and
the decreased escalator, a meaningful dollar amount will result.
Referring to a spreadsheet, he said the state would kick in $2.797
billion in the first year. The constitutional proposal contains a
provision that could be accelerated or increased by up to ten
percent with a two-thirds vote of the Legislature - that would
equal $280 million. The total amount would then be $3.038 billion.
That amount is almost exactly the same as the FY 2000
appropriations.
CHAIRMAN TAYLOR asked if this spending limitation would hold state
spending at the current level and then, over time, with population
growth and modest growth in the consumer price index, the amount of
per capita spending would decrease. SENATOR DONLEY said that is
correct. He explained that a dramatically reduced increase would
occur over the years.
Number 381
SENATOR WARD asked if this proposal would decrease the budget by
ten percent without a majority vote of the Legislature. SENATOR
DONLEY said that is true.
SENATOR WARD thanked Senator Donley for bringing this proposal
forward. He said he has often wondered why the existing spending
limit did not work but now understands why.
CHAIRMAN TAYLOR noted the wrinkle put in by the Attorney General
was to prevent one-third of the budget from being spent on capital
expenditures. The Attorney General determined the Legislature did
not have to spend the one-third on capital expenditures until the
maximum amount was spent, and that never took place because the
maximum was too high to reach. He added if the amount of the
permanent fund dividend is to be capped, state spending should also
be capped.
SENATOR WARD said as a member of Local 302, he never understood
that a legal opinion prevented more money from being spent on
capital projects.
SENATOR DONLEY explained that Section 2 of Version K pertains to an
implementation mechanism to enforce the limit. Some portions of
the budget, such as the front section portions, do not specify the
precise amount of expenditures for entities such as AIDEA. The
legislature does not know until the end of the year how much was
expended. To provide an enforcement mechanism, Section 2 says that
when spending exceeds the appropriation limit, the Governor shall
reduce expenditures by the Executive Branch for its operation to
the extent necessary to avoid spending more than the amount that
may be appropriated under the Constitution. The operating
expenditures by each department established by law would be reduced
by a percentage. This mechanism guides the Governor on how to make
cuts.
CHAIRMAN TAYLOR maintained it is crucial that an enforcement
mechanism be included. The proposal would allow a person to file
suit to force the Administration to comply with the Constitution.
The second interesting part is that the method to reduce
appropriations has been designated in the legislation. He noted
that last year no effort was made by the Governor to decrease
spending as the price of oil went way down, and this year the
proposed capital budget contains another $400 million to pay for
this year's expenditures because no one slowed down the spending.
When Governor Sheffield was faced with the same problem in 1986, he
reduced the number of state employees by 1500. That decline was
only a fraction of the decline that occurred this past year. He
stated he appreciates that the bill contains guidance and
enforcement provisions.
Number 485
SENATOR WARD asked if the Court System is considered a principal
department. SENATOR DONLEY said it is not. SENATOR WARD asked how
the Court System would share in the cuts. SENATOR DONLEY replied
that this legislation should be considered a starting point for
what the Governor should do if spending exceeds the appropriation
limit. Section 2 is a spending limit enforcement of the
appropriation limit which never existed before. SENATOR DONLEY
said he is very open to suggestion on how to craft the section on
how to give guidance to the executive branch, i.e. the bill could
exempt certain departments, such as the Department of Public
Safety, from budget decreases.
SENATOR WARD said he would not want to exempt any department.
CHAIRMAN TAYLOR noted that many Governors have used the "Washington
Monument Syndrome" whereby snow plowing services are terminated in
the districts of legislators who call for reduced government
spending.
SENATOR DONLEY added the Court System is not addressed by this bill
because of the separation of powers issue. Requiring the Executive
Branch to impose budget cuts on the Court System would create
problems.
SENATOR DONLEY stated tremendous progress has been made on this
issue in the last 48 hours and he thanked staff and the legal
drafters who worked on the measure. He thought SJR 28 is now a
much better product that will allow for quality public comment.
CHAIRMAN TAYLOR indicated that at this point of time, a spending
limit is not within the Governor's call, therefore action on that
subject is limited to committee work. He noted the committee wrote
a letter to the Governor the previous day asking him to expand the
call so that the Legislature can take action on a spending limit.
He agreed the committee has done good work on this measure.
SENATOR DONLEY stated the idea that a long range plan can be
devised for a 20 year period is far fetched because things can
change dramatically in five years. He suggested placing a sunset
provision in the legislation, or some mechanism to force the
Legislature to revisit the issue periodically.
CHAIRMAN TAYLOR agreed that without such an escape valve, the
Legislature could find itself in a very difficult position because
the Constitution can only be amended during a general election year
and a drastic change could occur in the meantime.
SENATOR DONLEY suggested placing triggers in the legislation that
would force revisitation of the issue, such as a certain inflation
percentage.
CHAIRMAN TAYLOR suggested also placing a time limit as well as
several triggers in the legislation.
CHAIRMAN TAYLOR announced that he would like to bring this subject
up again if the Governor expands the call of the special session
and to take public testimony on this legislation when a quorum is
available. SENATOR DONLEY believed the committee needs to
officially adopt a good proposal that could be put before the
public for comment.
SENATOR WARD maintained the public wants a chance to vote on this
proposal. He noted his constituents in Kenai did not understand
that the subject of a spending limit could not be addressed by the
Legislature during the special session.
CHAIRMAN TAYLOR recessed the meeting at 3:58 p.m. to a call of the
Chair.
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