Legislature(2021 - 2022)BELTZ 105 (TSBldg)
03/15/2022 01:30 PM Senate TRANSPORTATION
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| Audio | Topic |
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| SB226 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 226 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
March 15, 2022
1:33 p.m.
MEMBERS PRESENT
Senator Robert Myers, Chair
Senator Peter Micciche
Senator Jesse Kiehl
MEMBERS ABSENT
Senator Mike Shower, Vice Chair
Senator Click Bishop
COMMITTEE CALENDAR
SENATE BILL NO. 226
"An Act relating to the Alaska marine highway system fund and
the Alaska marine highway system vessel replacement fund;
establishing the Alaska marine highway system fund and the
Alaska marine highway system vessel replacement fund outside the
general fund; authorizing the commissioner of transportation and
public facilities to expend money from the Alaska marine highway
system fund and the Alaska marine highway system vessel
replacement fund; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 226
SHORT TITLE: FUNDS: AK MARINE HWY SYSTEM
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/09/22 (S) READ THE FIRST TIME - REFERRALS
03/09/22 (S) TRA, FIN
03/15/22 (S) TRA AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
ANDY MILLS, Legislative Liaison
Office of the Commissioner
Department of Transportation and Public Facilities (DOTPF)
Juneau, Alaska
POSITION STATEMENT: Co-presented SB 226 on behalf of the
Department of Transportation and Public Facilities (DOTPF).
CAROLINE SCHULTZ, Policy Analyst
Office of Management and Budget
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Co-presented SB 226 on behalf of the
administration.
CORI MILLS, Deputy Attorney General
Civil Division
Department of Law
Juneau, Alaska
POSITION STATEMENT: Answered legal questions during the
discussion of SB 226.
ACTION NARRATIVE
1:33:50 PM
CHAIR ROBERT MYERS called the Senate Transportation Standing
Committee meeting to order at 1:33 p.m. Present at the call to
order were Senators Kiehl, Micciche, and Chair Myers.
SB 226-FUNDS: AK MARINE HWY SYSTEM
1:34:18 PM
CHAIR MYERS announced the consideration of SENATE BILL NO. 226
"An Act relating to the Alaska marine highway system fund and
the Alaska marine highway system vessel replacement fund;
establishing the Alaska marine highway system fund and the
Alaska marine highway system vessel replacement fund outside the
general fund; authorizing the commissioner of transportation and
public facilities to expend money from the Alaska marine highway
system fund and the Alaska marine highway system vessel
replacement fund; and providing for an effective date."
1:34:45 PM
ANDY MILLS, Legislative Liaison, Office of the Commissioner,
Department of Transportation and Public Facilities (DOTPF),
Juneau, Alaska, presented SB 226 on behalf of the
administration. He stated that this bill seeks to insulate the
Alaska Marine Highway System Fund (AMHS Fund) and Alaska Marine
Highway System Vessel Replacement Fund (AMHS VRF) from a
potential reverse sweep. The department hopes to provide
regular, reliable, stable service to people using the AMHS
system. He said the forward-funding mechanism would help provide
added stability to the system. The bill also addresses the
mechanics of the sweep and appropriations.
1:36:20 PM
CAROLINE SCHULTZ, Policy Analyst, Office of Management and
Budget, Office of the Governor, Juneau, Alaska, reviewed the
sectional analysis for SB 226, which read:
[Original punctuation provided.]
Sec. 1: Amends AS 19.65.060(a) to removed the Alaska
Marine Highway System from the general fund and
authorize the Commissioner of the Department of
Transportation and Public Facilities (DOTPF) to spend
money from the fund without further legislative
appropriation. The section further authorizes the fund
to receive appropriations of AMHS gross revenue, money
from the general fund and designated federal receipts.
Sec. 2: Adds a new section to AS 19.65 that
authorizes and describes the manner in which the
Commissioner of DOTPF may make lawful expenditures
subject to the program review and financial plan
provisions of the Executive Budget Act from the AMHS
fund to include:
• Effectuate the goals of the legislature for the
efficient, predictable and stable operations of
the marine highway system (system) established in
AS 19.65.050(b) and (c);
• Fund and support the operations of the system;
• Pay costs incurred through the operation of the
system, excluding capital improvements;
• Acquire, hold, lease, sell, or dispose of
property that is necessary to the administrative
functioning of the system;
• Fund contracts or agreements with federal, local,
or foreign governments; and
• Award and administer grants authorized by the
legislature.
Sec. 3: Amends AS 19.65.100(1) to change the definition
of "annual operating cycle" from the fiscal year to
the calendar year, consistent with current budgeting
practices.
Sec. 4: Amends AS 37.05.550(a) to remove the AMHS
Vessel Replacement fund
Sec. 5: Repeals AS 19.65.080 regarding
appropriations from the AMHS fund.
Sec. 6: Effective date of January 1, 2023.
MS. SCHULTZ stated that SB 226 is the administration's attempt
to address the matter of the AMHS Fund and AMHS VRF sweepability
since the funds are currently sweepable as constructed. This
bill would retool the way the two funds are set up in law so
they are not sweepable. As a primer, the Alaska Constitution
requires that all subfunds of the general fund be swept into the
Constitutional Budget Reserve (CBR) at the end of the fiscal
year if there isn't a three-quarter vote to reverse that action.
In FY 2021, the state did not have a reverse sweep, so these
funds were functionally swept into the CBR. She explained that
the passage of SB 226 will correct that matter going forward.
She referenced Hickel v. Cowper as the main policy driver on
what creates a sweepable or non-sweepable fund. This Alaska
Supreme Court decision established a two-part test for
sweepability. First, if the funds are in the general fund or
some subfunds of the general fund, the funds are sweepable. The
second test is whether the funds are available for
appropriation. She highlighted that this bill would address both
items.
1:37:55 PM
MS. SCHULTZ stated that SB 226 specifies that the AMHS Fund is
outside the general fund. Further, it would establish the AMHS
Fund as a capitalized fund. This means that the funds, once
appropriated into the fund, are no longer available for
appropriation per the test established in Hickel v. Cowper.
MS. SCHULTZ explained that there are two types of funds. In one
type of fund, the money flows into the fund automatically, and
the legislature appropriates out of the fund. This is currently
how the Alaska Marine Highway Fund operates. The AMHS receipts
go into the fund, and the legislature appropriates AMHS receipts
to fund the operations of the system year by year. SB 226 would
change the process so the legislature will appropriate AMHS
receipts into the fund, and the Department of Transportation and
Public Facilities commissioner can spend from the fund without
further appropriation. It is functionally a terminal
appropriation since it is appropriated when it goes into the
fund, not as it leaves the fund. This structure provides extra
security so the fund won't be sweepable.
1:38:59 PM
SENATOR MICCICHE related that the Power Cost Equalization (PCE)
issue provided the test because it was clearly outside the
general fund. It is also why the state had an issue with the
Higher Education Fund. He related his understanding that all
funds remain available for appropriation regardless of whether
they reside outside the general fund. He asked why it would not
be considered a dedicated fund.
1:39:39 PM
MS. SCHULTZ responded that it is not a dedicated fund because
the legislature must appropriate into the fund. Once the funds
are appropriated to the fund, the legislature can appropriate
them elsewhere. Thus, it is not like the Alaska Permanent Fund
(APF) or the CBR, which are constitutionally-protected funds
from which the legislature cannot make usual appropriations. No
appropriations can be made from the APF, and the CBR requires
three-quarter vote access. She listed similar funds, the
Permanent Fund Dividend Fund (PFD Fund), which funds the PFD and
the operation of the Permanent Fund Dividend Division. The fund
is statutorily constructed, allowing the administrative costs to
come from the appropriations. She stated that every year the
legislature makes an appropriation into the PFD Fund to pay
dividends. Still, some are spun off in the operating budget as
duplicated funds. Thus, it still shows up in the annual budget
detailing the Position Control Numbers (PCN). For example, one
budget item this year is for conducting additional identity
verification, which would be funded with duplicated funds since
the funds were functionally appropriated by the legislature once
before.
MS. SCHULTZ stated that's how the administration envisioned this
fund would operate from a technical and functional perspective.
The legislature would appropriate into the AMHS Fund. Their
operations will still show up in the budget, but as a duplicated
fund, not a Designated General Fund (DGF), which is how it is
currently reflected.
1:41:45 PM
SENATOR MICCICHE asked if removing the language, "the
legislature may appropriate money from the fund" [on page 2,
line 18] doesn't matter because the legislature can appropriate
from the fund. Thus, it isn't necessary to add the language to
every section in the bill.
MS. SCHULTZ answered yes.
MS. SCHULTZ turned to the recent Superior Court Power Cost
Equalization case. The court ruled that the Power Cost
Equalization Fund is not subject to a sweep since it is outside
the general fund. She explained that this ruling only applied to
PCE Fund. The administration took this approach because the
Superior Court ruling on PCE might not be interpreted as broadly
as the administration would like. The simple fact of whether a
fund is inside or outside the general fund isn't enough to
prevent funds from being sweepable. Further, PCE is managed by
the Alaska Energy Authority, a quasi-corporation outside the
normal state function. It's a stronger interpretation of
"outside the general fund" than stating the AMHS Fund is outside
the general fund since it runs within the state system. This
bill would provide a more robust and durable fix to the problem.
1:43:26 PM
SENATOR KIEHL commented that he was concerned about what the
Alaska Supreme Court might rule. However, since the state does
not have an Alaska Marine Highway Corporation yet, it strikes
him as a good step forward. He suggested that the closest
comparison he could think of is the Public Education Fund, which
has been used several times to prefund education. He pointed out
that the difference was that the state has an education funding
formula, so it knows the exact amount of the funding. He asked
what the DOTPF commissioner could do with the funds without
further appropriation.
MR. MILLS responded that Section 2 of the bill allows for
permissible expenditures. He explained the process such that the
initial appropriation would be made to these funds, so no
further appropriation is necessary. He stated that Section 2
adds sideboards, authorizes and describes how the DOTPF
commissioner may make expenditures from the AMHS Fund.
1:45:45 PM
CHAIR MYERS expressed concern about Section 2. He stated that
when the AMHS Fund was created, the court ruled in Sonneman v.
Hickel that the legislature couldn't put into statute how the
funds could be spent. He wondered if the combination of court
cases and legislative actions in the last 15 years would
accomplish the goal of stabilizing the system.
1:46:40 PM
MS. SCHULTZ responded that since the legislature will
appropriate into the fund as a terminal appropriation, and
expenditures can be made from the fund, subject to the statutory
constraints, it would be binding. However, this statute doesn't
bind how the legislature can appropriate. Since the
appropriation was made, it will limit the commissioner to spend
within some fairly hard guidelines. In some ways, this statute
provides stronger constraint on expenditures than a regular
appropriation. She said she did not want to give the impression
that the executive branch can execute on the appropriations as
it pleases, but in some ways, it can. Every year, the
legislature appropriates so the department can functionally
operate AMHS. Beyond that appropriation, the legislature has
little control over how DOTPF manages and operates AMHS, which
comes up from time to time. She characterized this as a
different kind of appropriation with sideboards guiding the
department on how to execute the appropriation. Still, it's not
that much different than the normal appropriations the
legislature makes every year to the basic functioning of every
executive branch department.
1:48:32 PM
SENATOR MICCICHE noted the fiscal note was $5 million. He asked
for the operational reason that AMHS needs a separate fund and a
fund balance, especially given the strong support in the
legislature for AMHS.
MS. SCHULTZ answered that the AMHS fund was constructed to allow
the gross receipts from AMHS. That fund has been spent down, and
until recently, AMHS was spending the receipts in the same year
collected, along with a general fund subsidy to keep the system
operational. Two things changed: the sweep is not consistently
being reversed. Second, the state will receive an influx of
federal funds from the Infrastructure Investment Jobs Act (IIJA)
supporting AMHS. Since the state can functionally replace UGF
and gross receipts of the system, it can save those receipts in
a fund. It could use the federal funds to replace them and
create an endowment or nest egg to fund AMHS. At the same time,
the administration could consider more significant policy
implications of AMHS as a whole.
1:50:41 PM
MR. MILLS answered that few funds have an operating system
relying on them. He highlighted that the department's goal is to
insulate the operational fund from volatility. The department
must consider the timing of AMHS's contracts on the Capital
Improvement Program (CIP) and the potential necessity of
obtaining vessel replacement funds between legislative sessions.
As previously mentioned, AMHS has broad support within the
legislature, so the legislature would likely take the necessary
actions. However, the reverse sweep requires legislative action,
but it has not been successful previously. The department wanted
to ensure that the legislature could say this fund has
operations that rely on it, so it will not be subject to that
type of volatility. He highlighted that this two-prong approach
should provide durability or lasting power if PCE is appealed to
the Alaska Supreme Court and the ruling goes differently.
1:52:15 PM
SENATOR MICCICHE related a scenario such that SB 226 passed with
a $5 million fund balance that grew over time. He asked whether
the system could continue operating with its savings if the
legislature did not adopt a budget in FY 2025 by July 1 since
the department is authorized to spend out of the fund.
MS. SCHULTZ answered that she was hesitant to give a firm answer
given the complexity of executing a government shutdown. She
agreed that AMHS would be able to make expenditures, but the
rest of DOTPF would not have a budget. It would be challenging.
She stated that she would like the Department of Law to weigh in
1:53:29 PM
SENATOR MICCICHE understood that the purpose of the bill was to
plan and preserve UGF and maximize federal funds, but if the
government suffered a shutdown, maintaining the continuity of
the system is unknown.
MS. SCHULTZ answered that is correct. However, she was unsure
that the bill would protect against an actual government
shutdown.
MS. SCHULTZ reviewed the fiscal notes. Fiscal note 1 for $5
million, reflects a technical fund change. If SB 226 passed,
what is listed as designated general funds (DGF) would change to
a new fund code. She reported that AMHS only has $5 million this
year since the department used federal funds for the rest of the
funding. However, some costs were unallowable for federal
reimbursement, so the $5 million provides a plugin for the
budget. It would go from DGF to other duplicated funds.
MS. SCHULTZ stated that the two other fiscal notes relate to
funding capitalization, which reflects the appropriations into
the two fund, the terminal appropriations to the AMHS Fund for
$53 million in receipts that reflect a supplemental
appropriation, and an appropriation for FY 2023. The fiscal note
is indeterminate in future years due to a lack of revenue
projections. There is one other supplemental fund capitalization
for the AMHS Vessel Replacement Fund, which replaces the amount
that was swept in FY 2021.
SENATOR MICCICHE asked whether that was for $18.4 million.
MS. SCHULTZ answered that is correct.
1:55:38 PM
CHAIR MYERS asked for clarification of the other two fiscal
notes. He related his understanding that the $53 million would
be for this year's operational revenue from fare boxes.
MS. SCHULTZ answered yes. She said the department projections
are for $53 million.
CHAIR MYERS related his understanding that the fund has already
been swept. He asked whether the $18 million was coming from
UGF.
MS. SCHULTZ answered yes, the $18 million was the amount that
was swept into the CBR, and this fiscal note appropriates
general funds to replenish that amount.
1:56:21 PM
SENATOR KIEHL related his understanding that without an
operating fund that cannot be swept, there is not any
possibility to run AMHS with its calendar year budgeting if
there is a government shutdown on July 1, 2022.
MS. SCHULTZ asked if he was speaking to a potential government
shutdown.
SENATOR KIEHL answered that is correct. He stated that part of
the reason that AMHS went to a calendar year budgeting was due
to recent run-ins with that deadline.
1:57:11 PM
MR. MILLS said the struggle is that if the legislature does not
pass a budget by July 1, 2022, it would arguably call life,
health, and safety into question. He acknowledged that many
things in the department would need to wait for the legislature
to pass a budget. He suggested that AMHS falls in the gray area.
The department had an interpretation that life, health, and
safety may allow AMHS to continue to run. He said he was
unprepared to analyze that and provide a clear answer today.
Still, those are the things that would need to be examined to
agree that the system would be able to continue under this
structure versus the larger question of the government shutdown.
He offered to research and report to the committee.
MS. SCHULTZ stated the intent is to make the fund sweep proof,
not shutdown proof. As Mr. Mills said, a potential government
shutdown was not something that was factored into the drafting
considerations.
1:59:01 PM
SENATOR MICCICHE said he would like to have the government
shutdown considered since his common-sense approach is with
calendar year budgeting with an authorized fund. He emphasized
that the AMHS is a critical service, so he surmises that this
service could continue with the AMHS Fund. However, he is not an
attorney, so he was interested in the legal viewpoint. He
offered his view that it is different than fiscal year
appropriations. If the funds are not appropriated, there is no
money. If funding doesn't arrive for DOTPF, the department would
have money that it is authorized to spend under the bill.
1:59:56 PM
MR. MILLS offered to have someone from the Department of Law
respond.
2:00:00 PM
At ease
2:05:11 PM
CHAIR MYERS reconvened the meeting.
2:05:31 PM
SENATOR MICCICHE stated that the Alaska Marine Highway System
Fund was swept. He wondered if the legislature passed SB 226
with the fund outside the general fund, whether it would be
protected from a sweep. The department would have adequate funds
for continuous operation on the calendar year with a fund
balance and authority to spend in Section 2 of SB 226. He
offered his view that AMHS could continue operating if the
system had available funds in the AMHS Fund.
CORI MILLS, Deputy Attorney General, Civil Division, Department
of Law, Juneau, Alaska, answered yes. She explained that the
bill has no further need for appropriation since DOTPF could
spend the funds. Although AMHS operates on the calendar year, it
has a fund available to use the fund source. In the past, when
considering potential shutdown scenarios, if anything had a
source of funding that continues and didn't need further
authority to spend, that was a funding source that could be
spent.
2:07:04 PM
SENATOR MICCICHE noted that there might be other impacts on
DOTPF's senior leadership. However, leadership and expenditures
associated with the fund could continue. He was unsure how the
rest of the department would be shut down. He surmised that
commissioners would eventually be paid. He related his
understanding that this bill would keep the critical service of
AMHS operating if the legislature did not pass a budget by July
1.
2:07:59 PM
MS. MILLS answered that from a funding perspective that is
correct. However, she said she could not answer the personnel
aspect since several collective bargaining agreements would be
affected. She agreed that there would be funding to pay for AMHS
operations.
2:08:35 PM
CHAIR MYERS held SB 226 in committee.
2:09:08 PM
There being no further business to come before the committee,
Chair Myers adjourned the Senate Transportation Standing
Committee meeting at 2:09 p.m.
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