Legislature(2021 - 2022)ADAMS 519
03/18/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB69 || HB71 | |
| Presentation: Reverse Sweep - Office of Budget and Management | |
| HB128 | |
| HB76 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 69 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HB 128 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 76 | TELECONFERENCED | |
HOUSE BILL NO. 69
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making reappropriations; making
supplemental appropriations; making appropriations
under art. IX, sec. 17(c), Constitution of the State
of Alaska, from the constitutional budget reserve
fund; and providing for an effective date."
HOUSE BILL NO. 71
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; making
supplemental appropriations; and providing for an
effective date."
1:34:09 PM
^PRESENTATION: REVERSE SWEEP - OFFICE OF BUDGET AND
MANAGEMENT
1:34:13 PM
Co-Chair Foster hoped the presentation would help to answer
some common questions about the reverse sweep and how it
functioned. He advised the presenter to keep the
presentation brief, as there were two bills that would also
be addressed in the meeting.
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced the PowerPoint
presentation: "Constitutional Budget Reserve Sweep and
Reverse Sweep" (copy on file). Turning to slide 2 He
indicated that the Alaska Constitution addressed three
distinct funds: The Alaska Permanent Fund (PF), (Article 9,
Section 15); the Constitutional Budget Reserve (CBR),
(Article 9, Section 17); and the general fund (GF). Each of
the funds had different restrictions. Specific revenues
were deposited into the PF and only the income of the fund
could be appropriated. The Constitutional Budget Reserve
Fund included money received from the termination of
administrative and judicial proceedings involving mineral
revenues. He reported that the concept of the sweep came
from the CBR. The general fund contained money received
from taxes, fees, and other sources not constitutionally
directed to the CBR or the PF including the various
designated general fund accounts used in the state budget
system.
Co-Chair Foster announced Representative Edgmon and
Representative Wool had joined the meeting.
Mr. Steininger turned to slide 3 which was a reproduction
of Article 9, Section 17 regarding the Constitutional
Budget Reserve Fund (CBR). It was added to the constitution
in 1990 via an amendment. Subsection (d) pertained to the
sweep and the reverse sweep and outlined the repayment
requirement. He read the subsection:
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. Steininger reported that over the previous decade, the
state had drawn a considerable amount from the CBR in order
to meet state needs and fill a structural deficit. As a
result, the state owed a considerable amount to the CBR
which triggered the repayment requirement on an annual
basis.
1:37:23 PM
Mr. Steininger continued to slide 4 to review the repayment
requirement commonly known as the "sweep." Between FY 95
and FY 10 the requirement was also triggered. It peaked at
a debt of $5.2 billion in FY 05 which was fully repaid by
FY 10. The state's current debt began in FY 15. Presently,
the state owned more than $11 billion to the CBR.
Mr. Steininger reviewed the mechanics of the sweep's
execution. The Sweep was effective at midnight on June 30th
of each year. Any balance in an account on the night of
June 30th would be swept to the CBR. It was reversed
through the reverse sweep pending a three-quarter vote of
the legislature and a signature of the governor in an
appropriation bill. The reversal occurred at 12:01 a.m. on
the following day. He explained that because the state's
accounting systems did not close exactly at midnight, the
state had 2 months to do clean-up. It ensured that all
accounting transactions were in the right place and were
made to the correct funds before closing out the fiscal
year on August 31st on an annual basis.
Mr. Steininger continued that There being NO OBJECTION, it
was so ordered. state accounted for all payroll and bills
that were pending and being received. The sweep transaction
would not be executed until the administration was finished
closing out the year and following the completion of an
audit and a review by the Legislative Finance Division. As
they prepared the annual comprehensive financial report,
they looked at the balances of the account and determined
the amounts that were actually in the accounts and subject
to the sweep at midnight on June 30th. The mechanics of the
sweep actually happened much later than June 30th.
Mr. Steininger reviewed how the state determined which
funds were subject to the sweep. The state did not have
much guidance on how to interpret the constitutional
provision. He suggested that a test had to be applied to
different funds to determine whether the sweep should be
applied to them and whether their amounts would appear in
the annual financial report. Funds that were subject to the
sweep were funds the legislature could appropriate and
required further legislative appropriation. Funds that
listed purposes for which the money could be used but still
required legislative appropriation were also subject to the
sweep. The rule came down to the availability of
appropriation by the legislature.
Mr. Steininger reviewed items that were not subject to the
sweep including money and funds that were already validly
appropriated - obligated funds. For example, the sweep
would not defund an existing capital project. Also, federal
funds were not subject to the sweep. Other trust funds with
an obligation behind them such as the public employee's
retirement fund or other funds that could only be used for
a specific stated purpose under law or held in trust were
not subject to the sweep. Additionally, donations were not
subject to the sweep, because they usually came with
strings attached by the person making the donation.
Accounts that were subject to expenditure without
appropriation, capitalized funds, were not subject to the
sweep as well. Receipts subject to refund were not subject
to the sweep including the Alaska Marine Highway System
(AMHS) receipts and the University of Alaska (UA) tuition
receipts.
1:42:31 PM
Mr. Steininger discussed the sweep reversal on slide 6. He
explained that the sweep reversal was an action taken
annually in the state's operating budget or capital budget
depending on where it fell in the legislative process. In
the current year, the reverse sweep proposal was in
Section 28(a) in the FY 22 governor's proposed operating
budget. The language on the slide replicated the language
in the budget implementing the sweep. The language stated
that any monies swept from a fund or sub fund of the
general fund or an account within the general fund were
appropriated back to the funds from the CBR. Technically,
it was a draw from the CBR and required a three-quarter
vote of the legislature. The intent of the appropriation
was to prevent programmatic problems that could be caused
by the emptying of the various funds, sub funds, and
accounts within the general fund.
Mr. Steininger advanced to slide 7 to discuss the impacts
of the sweep. If the sweep reversal was not enacted there
were 3 categories of impacts. There were high impact funds,
funds that did not have projected revenues for FY 22
including the scholarships coming from the Higher Education
Fund and any appropriation made from the Power Cost
Equalization (PCE) Fund. Both funds did not receive
revenues on a fiscal year basis. Rather, they were savings
accounts set aside in prior years by the legislature that
produced income that provided for the cost of certain state
programs including the PCE Program and the scholarship
program.
Mr. Steininger explained that medium impact funds were
funds that would receive revenue in the following fiscal
year. There would be money to back some of the
appropriations. However, the revenue was less than the
amount being appropriated in FY 22. Some of the programs
included the Alcohol Safety Program, Chronic Disease
Prevention within the Department of Health and Social
Services (DHSS), substance abuse grants, the Domestic and
Sexual Assault Prevention Program, AMHS operations, and the
Spill Prevention and Response (SPAR) Program within the
Department of Environmental Conservation (DEC). All of the
programs he mentioned had revenues coming in the following
fiscal year. However, the revenue was not sufficient to
cover all of the appropriations.
1:45:30 PM
Representative Josephson brought up the SPAR account. He
thought the response portion of the funding was already
fully appropriated, as it had to be available for use at a
moment's notice. He was uncertain the item should be on Mr.
Steininger's list.
Mr. Steininger thanked Representative Josephson for his
question. He responded that there was a strange
technicality to the way the SPAR fund was filled. The Spill
Prevention and Response accounts were filled with
surcharges on fuel. However, during the fiscal year, the
surcharges were held within an account in the general fund
and in the following fiscal year the legislature
appropriated the amount collected in the prior year. The
appropriation into the account occurred on July 1st. The
sweep occurred on June 30th and was subject to a holding
account where revenues were placed. He continued that
because of the way the money was appropriated into the SPAR
account, the response account was not subject to the sweep.
It was the revenue collections from the year that were
about to be deposited into the fund that were subject to
the sweep. The account itself was not subject to the sweep,
as it was fully obligated. However, revenues going into the
account were impacted by the sweep. There were areas where
there might be unforeseen circumstances in which a fund
would be impacted by the sweep indirectly.
Co-Chair Foster asked members to hold their questions until
the presentation was finished.
Mr. Steininger indicated there were funds that experienced
no real immediate impacts such as funds without FY 22
appropriations reliant on existing balances. There were
holding accounts for revenues used for specific purposes
but did not have ongoing reliance on a specific program.
Mr. Steininger looked at a non-comprehensive yet high-level
summary of some of the impacts if the sweep occurred but
was not reversed in FY 22. The table reflected dollar value
shortfalls of several funds where there would be
significant impacts to the FY 22 budget. He had already
reviewed the impacts to the PCE fund and the Higher
Education Fund. There were use taxes such as tobacco use
education and cessation that were directed towards
prevention and public health, or things that addressed
domestic violence or substance abuse. There were also
industry impacts such as the Commercial Fisheries Entry
Commission Fund where there would be a shortfall in the
FY 22 budget without a reverse sweep. He noted that the
impacts would be mitigated with the enactment of
Section 28(a) of the governor's proposed operating budget.
He concluded his presentation.
Co-Chair Foster had wanted a refresher on the topic. He
thanked Mr. Steininger for his presentation. He was glad to
see the governor had included the sweep language in his
budget.
1:50:54 PM
Representative LeBon referred to slide 7 and the Alaska
Housing Capital Corporation Account. He wondered if the
fund was not subject to the sweep because it was considered
a capitalized account.
Mr. Steininger responded that the fund was subject to the
sweep but without any material impact to the FY 22 budget.
The capital corporation account was an account at Alaska
Housing Finance Corporation (AHFC). However, they were not
able to spend from it without further appropriation and did
not meet the other categories that would take it out of the
scope of the sweep as he viewed the guidelines.
Representative LeBon clarified that it would be subject to
the sweep. He asked for an example of a capitalized account
not subject to the sweep.
Mr. Steininger responded that a good example would be the
vaccine assessment account - the account that funded the
purchase of vaccines. The state received payments from
entities and pooled them together to purchase vaccines. The
state received payments as general fund revenue, then it
capitalized the account and allowed DHSS to spend without
an appropriation to make bulk purchases of vaccines to keep
costs down.
Vice-Chair Ortiz referred to slide 4 regarding funds
subject to the sweep. He asked if the state had always
swept funds that were subject to the sweep in 1995. Mr.
Steininger responded affirmatively but only on paper. He
elaborated that no actual money was moved from account to
account. The funds were not physically moved across
accounts.
Vice-Chair Ortiz asked if there had been any broadening of
the funds subject to the sweep. Mr. Steininger responded
that the funds subject to the sweep had shifted with
different understanding over time. In prior years (1995 to
2010) the sweep had been reversed in a timely manner.
Several years ago, there was uncertainty as to whether the
sweep would be reversed. In order to ensure the that the
provision was implemented correctly, the state needed to
review the issue with greater rigor.
1:56:16 PM
Vice-Chair Ortiz asked if the review had been done by each
administration. He specifically asked about whether the PCE
Fund and the Higher Education Fund had always been swept.
Mr. Steininger responded that they were more recently a
part of the sweep. He noted they had not necessarily been
considered or reviewed with rigor in the past.
Representative Josephson relayed that in the case of Hickel
vs. Cowper the implication was that the PCE Fund was not
sweepable according to the Legislature's legal counsel.
However, the administration disagreed. He believed that if
the PCE Fund was swept permanently, litigation would
result. He asked Mr. Steininger if he agreed with the idea
of crafting a law defining the sweepable accounts. He noted
the CBR provision stated, "As prescribed by law."
Mr. Steininger commented that the most recent attorney
general's opinion on the matter was his reference point as
the OMB Director. The opinion determined that PCE was
sweepable based on the analysis of the information
available. In response to Representative Josephson's
question about whether there should be a law, he thought it
would be helpful in guiding interpretation. Currently,
there was little criteria available to determine
sweepability. He suggested that there were many different
funds impacted by the sweep. The policy position of whether
to reverse the sweep and its impacts on the state budget
and state programs did not really change depending on the
outcome of some of the arguments about the higher profile
funds. The importance of the budget item being discussed
did not change based on a determination. It was still an
important budget item to enact for the health of state
operations. He thought it was an important thing to note as
the funds were being discussed.
2:00:52 PM
Representative Carpenter referred to slide 8. He asked
about the programs represented by the dollar figures. He
wondered if the legislature had created a program funded by
a specific account which would go unfunded without a
reverse sweep. The legislature had the option to fund the
program with different funds. He asked if he was correct.
Mr. Steininger replied that if, for example, instead of
using the Tobacco Use Education and Cessation Fund for $2.7
million an unrestricted general fund appropriation was made
to the programs, the impact would go away. It would require
an appropriation of $2.7 million UGF.
Representative Carpenter suggested that if a program was
important enough, it would make sense to fund the account
with UGF into perpetuity. He wondered why the state did not
just do it the way he was suggesting. Mr. Steininger
thought it was a policy decision for the legislature to
make.
Representative Carpenter believed the legislature was
unable to do so based on the Alaska Constitution. It would
be a dedicated fund. They were designated funds because
they had to be reappropriated every year. The legislature
did not have the authority to make it a dedicated fund. Mr.
Steininger clarified that the policy decision would be
which fund to use to support the program: the Tobacco
Education and Cessation Fund or the general fund. The
policy for what fund to use for any given appropriation was
up to the legislature.
Representative Carpenter asked what percentage of funds
that were swept were on the list. Mr. Steininger indicated
there was a list in member's packets that listed the total
amounts of funds that were swept at the end of FY 20 and
totaled about $1.5 billion.
2:03:59 PM
Representative Edgmon indicated that the reverse sweep vote
on the floor, which required a three-quarter vote of 30
members in the House and 15 members in the Senate, could
prevent the legislature from getting its job done in a
timely manner. He indicated that the SBR was established in
1986, and the CBR (a place to park billions of oil
settlement dollars) was established in 1990. The accounts
were created in an era of insufficient revenues, several
budget cuts, and the Permanent Fund Dividend had to be
paid. At the time oil prices were about $8 or $9 per
barrel. The Constitutional Budget Reserve was a vault where
legislators could not get their hands on it without a super
majority vote. He requested an opportunity to look at the
history of the funds and why they came to be. He
appreciated the presentation but noted that no one really
understood the concept.
Co-Chair Foster liked Representative Edgmon's suggestion
concerning a historical lookback.
HB 69 was HEARD and HELD in committee for further
consideration.
HB 71 was HEARD and HELD in committee for further
consideration.
2:06:47 PM
AT EASE
2:07:25 PM
RECONVENNED
Co-Chair Merrick called the meeting back to order and
invited the bill sponsor to begin his presentation.