Legislature(2021 - 2022)ADAMS 519
05/18/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB57 | |
| HB54 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 57 | TELECONFERENCED | |
| + | HB 54 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 57
"An Act relating to the budget reserve fund
established under art. IX, sec. 17(d), Constitution of
the State of Alaska; relating to money available for
appropriation for purposes of applying art. IX, sec.
17, Constitution of the State of Alaska; and providing
for an effective date."
1:35:30 PM
REPRESENTATIVE ANDY JOSEPHSON, SPONSOR, thanked the
committee for hearing the bill. He shared that he had been
a legislative staffer when the House had passed the
amendment for the Constitutional Budget Reserve (CBR) in
1990. He opined that presently, the state likely would not
create a CBR but acknowledged the creation had a lasting
effect. He indicated that the CBR was a way to house funds
more accessible than the corpus [of the Permanent Fund] but
not readily accessible. He commented that a 30/15 vote was
necessary to access the funds. He referenced the funds
subject to the sweep that were fundamental to the CBR. He
noted the dispute amongst legislators whether the CBR debt
mattered since it was a debt to the legislature that did
not bear interest. He specified that the funds subject to
the sweep needed to be in the general fund and available
for appropriation. The bill had originated from a situation
in July 2019 [Special Session]. He delineated that several
hearings took place in the Senate Finance Committee [post
regular session] regarding what funds were subject to the
sweep that involved the Legislative Finance Division (LFD),
Division of Audit, Office of Management and Budget, and the
Department of Law (DOL). He mentioned the various views on
what funds were subject to the sweep and cited a memo from
the Attorney General (AG) at the time, Kevin Clarkson,
[Attorney General, Department of Law, 2019- August 24,
2020] that included the Power Cost Equalization (PCE) as
subject to the sweep. He provided context for the hearings;
the Capital Budget was not yet adopted, the reverse sweep
had not happened, and the states largest operating budget
vetoes had occurred. He felt that the legislature was
unable to figure a way out of the political or fiscal
morass.
1:39:00 PM
Representative Josephson continued that there were roughly
180 different sub-accounts of the General Fund (GF), and
the question became how many of the funds were sweepable.
The incident prompted him to introduce HB 57. He referenced
a PowerPoint presentation (copy on file) titled "HB 57"
showing the CBR language. He elaborated that the initial
attempt to define what was available for appropriation
occurred in 1994 in the case Hickel v. Cowper [both former
governors]. He shared that he and his staffer, Ms. Elise
Sorum-Birk studied the case and used it as their guidepost
for the legislation. He related that the case concluded
that not all funds were sweepable; monies that had already
been appropriated were available for appropriation, however
revolving loan funds were typically not deemed eligible for
appropriation and would be against statutory intent and
trust doctrine to expend all of a rotating funds monies
therefore it was not all available for appropriation. He
emphasized the complexity of the issue. He related that his
key motivation was to avoid going through another situation
like July 2019 again. He believed that the legislature
should write a statute consistent with the 1994 state
Supreme Court ruling.
1:44:11 PM
Representative Josephson reported that the bill attempted
to resolve the issues. He exemplified the provision in HB
57 that stated PCE was nominally held in the Alaska Energy
Authority (AEA) and not subject to appropriation. He
relayed that he frequently had discussions with Kris
Curtis, Legislative Auditor, Alaska Division of Legislative
Audit; Megan Wallace, Director, Legislative Legal Services,
Alaska State Legislature; and Alexei Painter, Director,
Legislative Finance Division when working on the
legislation. Representative Josephson concluded that the
Supreme Court had ruled that some items were sweepable and
some were not.
Co-Chair Merrick noted that Representative Wool had joined
the meeting.
ELISE SORUM-BIRK, STAFF, REPRESENTATIVE ANDY JOSEPHSON,
presented the PowerPoint presentation and began with a
brief sectional analysis of the bill on slide 1 titled
Sectional Analysis:
Section 1 - Uncodified language- legislative intent
and findings
Section 2 - Defines "available for appropriation."
Section 3 - Codifies the principle that funds found
within the general fund that do not require further
appropriation (or must be held separately by law) are
not subject to the sweep. Lists funds that meet these
requirements.
Section 4 - Defines "general fund."
Section 5 - Effective Date - June 30, 2021
Ms. Sorum-Birk elaborated that Section 1 was an analysis of
the Hickel v. Cowper court case. She described Section 1 as
a lengthy analysis of legislative findings and intent. She
revealed that although abnormal, a clear record of why the
bill was drafted in the manner chosen was important to
establish. She highlighted that Section 2 repealed and
reenacted AS 37.10.420 (a). The section contained the
statutory definition for available for appropriation," and
to align with the principles outlined in Hickel v Cowper,
where the Supreme Court ruled that the initial legislative
attempt was unconstitutional. She elaborated that Section 3
added language to AS 37.10.420 (b) and added that the list
of GF was non-inclusive. She commented that Section 4
created a new section, AS 37.10.420(c), that defined
"general fund" and outlined fund types explicitly not
considered to be part of the general fund. She noted that
Section 5 provided an effective date of Jun 30, 2021, to
ensure that the legislation would be in effect prior to the
FY 2021 CBR sweep occurring.
Co-Chair Merrick noted that Representative Carpenter had
joined the meeting.
Ms. Sorum-Birk turned to slide 3 and addressed the CBR
repayment provision:
Article IX, Section 17(d)- "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."
Ms. Sorum-Birk pointed out that an item had to meet two
criteria: it had to be in the general fund and available
for appropriation. She noted the emphasis on the last
sentence stating the legislature shall implement this
subsection by law. Even though, the legislature attempted
to do so in 1994, the law was found unconstitutional.
1:50:22 PM
AT EASE
1:50:52 PM
RECONVENED
Ms. Sorum-Birk turned to slide 4 titled Legislative Intent
1:
"It is the intent of the legislature to create
statutory definitions for these terms in alignment
with both the current legal understanding of them and
the reality of existing state fiscal systems."
O A lack of clarity in statutes surrounding the
mechanics of the sweep provision
O Potential adverse impacts on the availability
of important fund sources
O July 2019 events
O Need consistent meaning of terms "general fund"
and "available for appropriation"
Ms. Sorum-Birk referred to Representative Josephsons
testimony describing the events of July 2019 and offered
that the event illustrated the need for more clarity in the
law on the matter. She shared the concern that without
statutory definitions the sweep became a matter of
administrative policy. She turned to Slide 5 titled
Legislative Intent 2:
It is the intent of the legislature to update the
section of statute defining "available for
appropriation" to specifically reflect the findings
set forth in Hickel."
The Alaska Supreme Court's analysis in the Hickel
v. Cowper decision provides a framework
A legislative obligation exists to implement by
law Article 9 Section 17(d) of the constitution
1994 passage of House Bill 58 (AS 37.10.420)
aimed to do this but was found to be broadly
unconstitutional
Supreme Court outlined general standard and
invited a reexamination of this statute
"We also make no attempt to name and classify as
"available" or "unavailable" every fund within the
treasury of the State of Alaska. We leave it, in the
first instance, to executive and legislative branch
officials more familiar with all of the funds involved
to apply the general definition we adopt today."
(Hickel v Cowper, 874 P. 2d 922, n. 27)
Legislative Audit Finding No. 2019-089 of the State of
Alaska FY 2019 Single Audit
1:54:05 PM
Ms. Sorum-Birk offered that the court outlined the
principles and provided a broad framework but left it to
the policy makers to implement its views. She noted that in
the ensuing years no legal remedy had been pursued.
1:54:50 PM
Ms. Sorum-Birk reviewed on slide 6 titled Legislative
Intent 3:
"It is the intent of the legislature to protect the
financial security of existing programs and maintain
the integrity of state financial structures to the
greatest extent possible"
The Hickel ruling voiced clear opposition to
disrupting the mechanics of state finance;
advocated commonsense approach
Legislature's view too narrow, Cowper's view too
broad
Revolving Loan Funds- "?the existing state
programs dependent on these funds would have to
be curtailed if these funds were expended on
another purpose. These funds are maintained,
however, because in the judgment of the
legislature they serve worthwhile purposes."
(Hickel, 874 P. 2d at 929)
Ms. Sorum-Birk reviewed slide 7 titled "Legislative Intent
4
"The legislature finds that appropriated funds which
can be expended with no further legislative action are
no longer considered available for appropriation and
thus would not be included in the sweep? It is the
intent of the legislature to include this principle in
the codified definition of 'available for
appropriation.
O True regardless of if the funds were given to a
state agency to spend or were held in the general
fund
O Hickel - Article 17 did not require "counting
funds already validly appropriated to a specific
purpose as still 'available'" and that monies
already "validly committed by the legislature to
some purpose should not be counted as available."
(Hickel, 874 P. 2d at 930-931)
Ms. Sorum-Birk added to the first bullet point on the
slide. She furthered that if a pot of money is fully
obligated or if the legislature has relinquished its power
of appropriation over a fund, then it is not subject to the
sweep.
1:55:51 PM
Ms. Sorum-Birk moved to slide 8 titled Legislative Intent
5:
"The legislature finds that any funds that cannot be
immediately expended through appropriation are not
considered available for appropriation and thus are
not subject to the sweep ? It is the intent of the
legislature to include this principle in the codified
definition of 'available for appropriation.' "
The Hickel Court held that the voters, in supporting
passage of the CBR resolution in 1990, were not trying
to eliminate state services or liquidate state assets
before funds in the CBR could be accessed (Hickel, 874
P. 2d at 928).
Categories of funds that are not immediately spendable
include:
o illiquid assets
o revolving loan funds
o grants to the state from private entities
Ms. Sorum-Birk commented that the intent was related to
Governor Cowpers argument that all funds were considered
sweepable.
Ms. Sorum-Birk highlighted Slide 9 titled "Legislative
Intent 6
The legislature finds that funds considered to be
trust receipts, despite being included in the metric
for calculating what is available, are to be excluded
from the sweep? It is the intent of the legislature to
include this principle in the codified definition of
'available for appropriation' and to clarify in
statute the principle that trust receipts are not
fully subject to the sweep provision."
If actually appropriated must be included in
"available for appropriation"
Only a portion is available according to Hickel -
the part that would be expended consistent with
application of prudent "trust principles"
Ms. Sorum-Birk observed that the court ruling employed the
phrase trust receipts multiple times but the term was
meaningless in relation to audits. She noted that in the
ruling footnotes 22 and 23 outlined that trust principles
were the key component of what funds were sweepable. Trust
receipts included federal funds, funds given to the state
for specific purposes from private entities, and
appropriations from trust accounts. She read from footnote
23 Amounts appropriated by the legislature out of other
funds with an executive agency for the purposes of
administering these funds under explicit statutory
authority may also be treated as a type of trust receipt.
Vice-Chair Ortiz asked about the category of trust receipts
and the historic way the sweep had been handled. He asked
about the impact once trust receipts were removed from the
sweep and if it would result in a reduction in sweepable
funds. Ms. Sorum-Birk answered that the majority of trust
receipts were already considered not sweepable. She
deferred to the legislative auditor to provide details on
what were currently considered trust receipts.
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, answered that trust receipts was not an
accounting term. She elaborated that the term Trust Funds
was commonly used and was explicitly defined in statute and
had a different meaning than the use of trust receipts. She
had heard federal funds were considered trust receipts. She
had never encountered trust receipts used in accounting
terms.
1:58:50 PM
Vice-Chair Ortiz asked about the fiscal impact of trust
receipts if the bill was adopted. Representative Josephson
replied that it was necessary to look at July 2019 when the
last sweep occurred. He did not recall whether OMB included
trust receipts in the sweep.
Ms. Sorum-Birk examined Slide 9 titled Legislative Intent
7:
O "The Hickel Court treated money appropriated by
state corporations much the same way as trust
receipts?"
O Alaska Energy Authority is a state corporation that
holds the Power Cost Equalization (PCE) endowment
fund. The PCE is not subject to sweep or part of the
general fund for 4 reasons-
1) This fund is housed in a corporation
2) PCE follows an endowment model which requires
application of prudent "trust principles"
3) Hickel says that only the money appropriated
from a corporation must be counted as
available for appropriation, even if a
corporation had funds in excess of what it
required to fulfill its purpose
4) The legislature has never fully appropriated
the funds and it is unlikely that it would do so,
as that would defy the very purpose of the fund
Ms. Sorum-Birk elaborated that the slide was related to
footnote 23 in the court case. The case considered that
money appropriated from Alaska Industrial Development and
Export Authority (AIDEA) and Alaska Housing Finance
Corporation (AHFC) counted as available for appropriation
but only the amount appropriated.
2:01:15 PM
Ms. Sorum-Birk spoke to Slide 10 titled legislative intent
8:
O "The legislature finds that the earnings reserve
account, as an account in the Alaska permanent fund,
is located outside of the general fund and thus is not
subject to the sweep provision? It is the intent of
the legislature to codify fund types that exist in the
state treasury separately from the general fund to
eliminate all uncertainty as to what constitutes the
general fund."
O Hickel- "the earnings reserve account, need not
be deposited into the budget reserve." (Hickel,
874 P. 2d 922, 23)
Ms. Sorum-Birk illustrated that if the logic of former
Attorney General Clarkson had been followed, funds similar
in use to GF would make the funds GF. Therefore, if
something could be appropriated by the legislature it would
count as GF, which was a cause of concern.
Representative Josephson interjected that in Hickel v
Cowper there was no other use of the ERA except for
inflation proofing and paying Permanent Fund dividends
(PFD). In relation to former AG Clarksons interpretation,
it left open the possibility that constitutionally the
Earnings Reserve Account (ERA) could be sweepable although
statutorily, it is not.
2:02:54 PM
Ms. Sorum-Birk examine Slide 11 titled legislative intent
number 9:
"It is the intent of the legislature to define
eneral fund' in a way that is practical, logical,
and stabilizing in nature."
O No statutory or constitutional definition for
the term "general fund" exists
O Occurs 200+ times throughout statute
O Lack of consistency between organizations -
currently a matter of policy rather than law
O It is common practice in other states to define
'general fund'
Ms. Sorum-Birk addressed Slide 12 titled "What is the
General Fund:"
.notdef There isn't consensus between state agencies
.notdef In budgeting terms, we are used to thinking in terms
of UGF, DGF, Federal and Other
.notdef These categories don't align with the accounts
in the state treasury
.notdef The CAFR says
.notdef "All public monies and revenues coming into the
state treasury not specifically authorized by
statute to be placed in a special fund constitute
the General Fund"
.notdef But also notes - "Not all revenues that flow
into the General Fund are available to pay for
unrestricted government activities. The most
notable are federal revenues, which are provided
for specific purposes."
.notdef It is common practice in public finance to define
general fund
Ms. Sorum-Birk reported that the bill adopted a broad
definition that spoke to how GF existed as an account in
the state treasury.
2:05:07 PM
Ms. Sorum-Birk turned to Slide 13 titled definition of the
general fund:
The primary operating fund of the state, consisting of
all money paid into the state treasury that is not
specifically authorized by law to be placed in a
separate fund
Excludes:
Funds held or managed by legally separate
entities that the state is financially
accountable for including funds held or managed
by public corporations and the University of
Alaska
enterprise funds
? debt service funds
? special revenue funds
? the Alaska permanent fund
? internal service funds
? agency funds
Ms. Sorum-Birk indicated that the definition was adapted
from the Comprehensive Annual Financial Report (CAFR)
definition. The slide noted the items not included in the
definition.
Ms. Sorum-Birk highlighted Slide 14 titled Summary of
principles from Hickel v Cowper used in defining "available
for appropriation"
.notdef Two main parameters:
.notdef "must include all funds over which the legislature
has retained power to appropriate" and
.notdef "which are not available to pay expenditures without
further legislative appropriation"
.notdef For trust receipts the amount appropriated by the
legislature IS the amount available for appropriation
.notdef This category includes federal funds, funds given to
the state for specific purposes by private entities
AND appropriations from trust account
.notdef Notably "amounts appropriated by the legislature out
of other funds within executive agencies for the
purpose of administering these funds, under explicit
statutory authority may also be treated as a type of
trust receipt" (revolving loan funds)
.notdef Monies of public corporations are treated similarly
to trust receipts
.notdef Excludes illiquid assets, funds expendable without
further legislative appropriation, or funds validly
appropriated
2:07:10 PM
Ms. Sorum-Birk reviewed Slide 16 titled goal in summary on
slide 15.
HB 57 aims to enact by law section Article IX, Section
17 (d) of the Alaska Constitution thereby providing
legal clarity on the sweep provision.
It does this by:
.notdef defining 'available for appropriation' using an
understanding of parameters set in Hickel v
Cowper and thereby correcting the largely
unconstitutional AS 37.10.420 (a)(1)
.notdef defining 'general fund' in a way that reflects
the actual mechanics of state finance and
clarifying what fund types are excluded from the
general fund
.notdef formally addressing which funds within the
general fund cannot be swept and why
Ms. Sorum-Birk reminded the committee that resolving the
issue was a constitutional obligation since 1994. She
warned of the need for a unified understanding and
codification of principles. She cautioned against leaving
it up to a matter of administrative policy.
Representative Josephson remarked that he had been involved
in the uncodified language, which was unique when drafting
the bill. He emphasized that courts want to consider what
the intent of the law was, and inclusion of the uncodified
language was a way to establish the intent to follow the
guidance rendered from the Hickel v. Cowper decision. He
mentioned that there were a number of accounts created by
the legislature, but the court had specified that the Spill
Prevention and Response Fund (SPAR) was not sweepable
because of the unpredictable nature of a spill and the
emergency response necessary to clean it up. He pointed out
that a number of other funds were similar in that they were
set up to be self-sustaining. The judgment suggested those
type of funds was also not sweepable. He felt that the
legislature had the advantage of using Hickel v. Cowper as
a roadmap to create statute. He stressed that the bill
should not move from committee at present but emphasized
that it should in 2022 and was the obligation of the
legislature.
Vice-Chair Ortiz cited a document titled "Funds Subject to
CBR Sweep--FY17-FY19," dated July 18, 2019, by the
Legislative Finance Division (copy on file). He interpreted
that only the funds marked by a green Y were sweepable
under HB 57. Representative Josephson deferred to Ms.
Sorum-Birk for the answer.
Ms. Sorum-Birk replied that the document was created for
the meetings in FY 19 and depicted the disagreement among
the agencies regarding what items were sweepable or not.
She noted that the funds in green had unanimous agreement
that the funds were sweepable. She pointed to the three
columns located in the center of the document reflecting
each fiscal year and noted that they portrayed consistency
in agreement over whether certain funds were sweepable or
not. She cited notation in the far right column Not a fund
based on review of IRIS for FY 19." She indicated that many
items on the list were receipts and not funds. She
clarified that the item had to be a fund to be included in
the calculus as to whether something was sweepable.
2:13:48 PM
Vice-Chair Ortiz asked if it was the intent of the chart
was to communicate that there was a consensus that the
items in green were sweepable. He asked if it was the
intent to define funds that were sweepable. Ms. Sorum-Birk
answered in the negative and added that the items had been
added by the Legislative Finance Division.
Co-Chair Merrick OPENED public testimony.
MIKE COONS, SELF, PALMER (via teleconference), opposed the
bill. He believed that the bill would violate the state
constitution. He pointed to page 8, lines 5 through 7 and
read "Funds established within the general fund that by law
require no further appropriation before expenditure or are
required to be held separately by law are not subject to
art. IX, sec. 17(d), Constitution of the State of Alaska."
He stated that it was not possible to create a statute to
get around the constitution. He emphasized that like the
CBR, the use of the so called sweep requires the same three
quarter vote as does the CBR. He thought that the bill was
an opportunity to clear up the issue to allow the
legislature to spend more. He expressed outrage regarding
an attack on the constitution.
Co-Chair Merrick CLOSED public testimony.
Co-Chair Merrick asked to hear a review of the fiscal note.
CAROLINE SCHULTZ, POLICY ANALYST, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, referenced the Statement of
Zero Fiscal Impact by the Office of Management and Budget.
She explained that implementation of the legislation would
not require additional funding.
HB 57 was HEARD and HELD in committee for further
consideration.
2:18:08 PM
AT EASE
2:19:37 PM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 57 PCE legal opinion 4.8.21.pdf |
HFIN 5/18/2021 1:30:00 PM |
HB 57 |
| HB 57 presentation 3.9.21.pdf |
HFIN 5/18/2021 1:30:00 PM |
HB 57 |
| HB 57 Public Testimony by 051821.pdf |
HFIN 5/18/2021 1:30:00 PM |
HB 57 |