Legislature(2019 - 2020)ADAMS ROOM 519
05/20/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB1001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB1001 | TELECONFERENCED | |
| += | SB 19 | TELECONFERENCED | |
HOUSE BILL NO. 1001
"An Act making appropriations for public education and
transportation of students; repealing appropriations;
and providing for an effective date."
1:30:36 PM
MEGHAN WALLACE, DIRECTOR, LEGISLATIVE LEGAL SERVICES,
ALASKA STATE LEGISLATURE, discussed the question of the
legality of forward funding education in 2018 for FY 20.
She communicated that the opinion of Legislative Legal
Services was that the bill was unnecessary. She indicated
that in 2018 the legislature passed HB 287-Approp: Pupil
Transportation; Education, which fully funded kindergarten
through grade 12 (K-12) education as well a one-time
appropriation of $30 million for FY 2020. She spoke to the
governor's proposal to repeal the forward funding and
appropriate new FY 20 funding in HB 1001. Legal Services
opinion was that the HB 287 appropriations were binding by
law and the governor would be constitutionally required to
execute the appropriations. She had reviewed the attorney
generals (AG) opinion regarding the forward funding and
reiterated that the appropriations in HB 287 were valid and
would withstand a constitutional challenge. She remarked
that the legislature had a long history of forward
funding education through a variety of mechanisms and had a
strong legislative history for the reasoning behind using
forward funding especially for education. She emphasized
that funding education was constitutionally mandated.
Co-Chair Wilson informed the committee that certain topics
could not be discussed in case the issue ended up in court.
Ms. Wallace would determine whether it was appropriate to
answer a question.
Representative Knopp asked about the attorney general's
opinion related to the constitutionality of the
appropriation. Ms. Wallace answered that the AG highlighted
several reasons why he challenged the validity of the 2018
appropriation. She ascertained that the main issue was
whether the forward funding violated the prohibition
against dedicating revenues. In addition, the AG advanced
other arguments with respect to the impacts on the
governor's annual budgeting requirements, veto power, and
whether it was consistent with the Executive Budget Act.
Co-Chair Wilson interjected that representatives from the
Attorney General Clarkson's office would testify next.
Representative Knopp referenced the prohibition against
dedicating revenues. He wondered whether the yearly
budgeting process that appropriated money for the following
year was dedicating funds.
1:35:15 PM
Ms. Wallace answered that in various cases, the Alaska
Supreme Court had recognized the conflict between the
dedicated fund prohibition and the legislator's power to
appropriate that were distinct provisions within the
constitution. She offered that the court would need to
decide on the conflict in the current case. She maintained
that all budgeting was prospective and if the AGs opinion
was strictly applied the legislature would be unable to
prospectively budget even one fiscal year ahead if the
state had to wait to receive the funding the budget was
based on. Currently, the legislature was appropriating the
FY 20 budget with revenue not yet received.
Vice-Chair Johnston stated that the legislature had forward
funded numerous things over the years. She asked whether
there had been a history of forward funding spanning
administrations. Ms. Wallace responded in the affirmative.
She provided an example of 2005 and 2006 when the
legislature forward funded capital education projects one
year in advance that had crossed administrations. Vice-
Chair Johnston stated that the supplemental budget
contained $20 million in funding that could be construed as
forward funding. She asked if the supplemental was a way an
administration could gain flexibility to deal with funding
from a prior year. Ms. Wallace answered that any forward
funded appropriation made by the legislature was subject to
amendment or repeal by the governor or the legislature the
following session.
1:38:20 PM
Representative Josephson discussed that Representative
Carpenter had offered an operating budget amendment related
to the issue earlier in session to remove the forward
funding language. The amendment was rejected in committee
and on the House floor. He asked if the rejection by the
31st legislature that had expressly looked at the issue and
endorsed the prior legislatures action was potentially
relevant. He wondered whether it reflected the
imprimature of the thirty-first legislature and acted as
a stamp of approval for the prior action of the thirtieth
legislature. Ms. Wallace responded that if the court was
deciding the issue it would consider the legislative
history of the current legislatures action regarding the
appropriation made in 2018. She deemed that it was
reasonable to think that the court might view the action as
a ratification by the legislature in its refusal to amend
or reappropriate the funds. Representative Josephson
discerned that every day that passed since the amendments
by Representative Carpenter had been rejected and the issue
was prevalent in the media was reflective of the current
legislature's desire to fund education pursuant to the
action taken in HB 287.
1:40:40 PM
Ms. Wallace answered that it may be relevant if the matter
was litigated.
Vice-Chair Johnston discussed that the bill repealed the
legislature's action. She asked whether the repeal was
necessary if the action was not considered valid. Ms.
Wallace responded that until the appropriation made in 2018
was rendered invalid by a court it would need to be
repealed.
Representative Josephson referenced testimony by David
Teal, Director, Legislative Finance Division (LFD) in
response to a series of inquiries on the matter. He
indicated that Mr. Teal reminded members that the
constitution prohibited binding future legislatures, but it
did not forbid frustrating the governor. He asked what
Legislative Legal thought of of the states strong governor
model. He offered a scenario where the legislature
appropriated eight years of funding and the governor signed
the legislation and an incoming governor was stuck with the
funding. He assumed that a governor would try to persuade
the incoming legislature to reappropriate the funding. He
asked what she thought of the hypothetical scenario.
1:43:19 PM
Ms. Wallace did not want to speculate how far the
legislature could go in the current circumstance. She
articulated that regarding the issue at hand the
legislature appropriated one fiscal year out. It may be a
question for the future in terms of the length of time a
legislature could go with forward funding before the
appropriation turned into a continuing appropriation. She
pondered whether the appropriation took the debate off the
table and if it was still considered an appropriation by
the legislature as part of the annual budgeting process.
She concluded that the legislature had made a conscious
decision to maintain the funding it had approved the prior
year.
Vice-Chair Ortiz asked if there was anything different with
the way the legislature had forward funded education in
2018. He understood that one of the administration's
positions was that it was different because a valid funding
source had not been identified. Ms. Wallace answered that
the appropriation made in 2018 appropriated the FY 20
funding and the one-time $30 million funding with a delayed
effective date of July 1, 2019. She indicated that the
delayed effective date was identified as unusual or
different from other forward funding. In the past, it had
been the legislature's process to overfund the education
fund with revenue from the current year for the purpose of
forward funding. She reiterated that there were examples
from 2005 and 2006 where the legislature forward funded
education capital projects using a delayed effective date
and was not unprecedented.
1:46:29 PM
HEIDI TESHNER, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF EDUCATION AND EARLY DEVELOPMENT, OFFICE OF MANAGEMENT
AND BUDGET, provided a PowerPoint presentation titled
"HB1001 - Approp: FY2020 Education Funding: Presentation to
the House Finance Committee," dated May 20, 2019 (copy on
file). She began on slide 2 and reviewed the bill sections:
Section 1 appropriates $30,000.0 as one-time
funding to be distributed as grants
to school districts based on the adjusted average
daily membership
Section 2
(a) appropriates the amount necessary, estimated to
be $1,172,603.9, for the Foundation Program
(b) appropriates the amount necessary, estimated to
be $77,214.6, for the Pupil Transportation Program
Under both subsections, funds are appropriated from
the general fund to the public education fund
Section 3 repeals the FY2020 appropriations made
under HB287 (Ch. 6, SLA 2018)
Section 4 appropriations made in Section 2
capitalize the public education fund and do not lapse
Section 5 Section 3 is effective June 30, 2019
(FY2019)
Section 6 Remaining sections are effective July
1, 2019 (FY2020)
Co-Chair Wilson asked why the governor believed the funding
in HB 1001 was the appropriate amount versus the funding
level he proposed in his February 2019 budget that
eliminated approximately $320 million.
Ms. Teshner replied that the governor in discussion with
the legislature and the commissioner of the Department of
Education and Early Development (DEED) determined that it
was not the appropriate time to reduce education funding
and would undertake education reform during the interim.
Co-Chair Wilson asked for confirmation that the governor
endorsed the amount appropriated for education in the bill.
Ms. Teshner reiterated that the administration would not
reduce funding for education at the current time and
remained focused on student outcomes. Co-Chair Wilson
requested the data justifying the funding level proposed in
the governors amended budget released on February 13,
2019. She asked whether the data existed. Ms. Teshner
replied, not specifically. She commented that there were
conversations about why the amount was chosen. However, at
the time, discussions about what was needed to improve
educational outcomes and the amounts that districts had in
reserves was just beginning. Co-Chair Wilson asked how many
districts had enough surplus funds to cover the prior
proposed cuts and how many did not.
1:50:42 PM
Ms. Teshner replied that she did not have the specific
information, she offered to provide the districts
unreserved fund balances. She furthered that not every
district had an unreserved fund balances and none exceeded
the allowable unreserved fund balance. She could provide a
breakdown for the committee. Co-Chair Wilson asked if there
had been a backup plan for districts that had no reserves
and would be forced to make cuts.
LACEY SANDERS, BUDGET DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, reported that she did not have the information at
the time.
Co-Chair Wilson requested the information. She voiced that
many of the small districts maintained much higher costs
than larger school districts. She emphasized that a
question that had never been answered was what happened to
districts that lacked reserve funds and how deep their cuts
would be.
Representative Josephson asked how the administration
proposed to fund the education budget in HB 1001 vis a vie
the February 13th budget. Ms. Sanders answered that the
funding was currently a part of the conversation in front
of the legislature.
Co-Chair Wilson asked whether HB 1001 left the decision
about how the appropriations would be funded entirely up to
the legislature. Ms. Sanders answered it was the
legislature's duty to appropriate funding. Co-Chair Wilson
noted that normally an appropriation bill identified a
funding source.
1:53:33 PM
Ms. Sanders moved to slide 3
Education is one of the most important
obligations of the State, and it is vital that we have
constitutionally valid funding to send out to school
districts come July 1. As it stands right now, that
does not exist, and we cannot rely on an
unconstitutional appropriation. This bill provides
the appropriation necessary to ensure the State can
legally distribute funds for education.
Appropriations are law, and like all laws can
be repealed at a future date if priorities or
circumstances change. The constitution, however, makes
it clear that no law can dedicate a future revenue
stream for a specific purpose. The ability to repeal
such a law at a future date does not make it any less
a violation of the prohibition against the dedication
of funds.
Co-Chair Wilson asked if the administration contended that
using general fund (GF) money was illegal and the
legislature should take the money from the Permanent Fund
Earnings Reserve Account (ERA). Ms. Sanders answered that
the education funding was part of the operating and capital
budgets and needed a valid appropriation backed by valid
revenue to be appropriated on July 1, 2019. She furthered
that regardless of the source, the education funding was
part of a whole budget package. Co-Chair Wilson understood
the process. She recalled that Ms. Sanders stated the
funding had to be available on July 1, 2019, and therefore,
what the legislature proposed was not valid. She was
attempting to verify Ms. Sanders statements. Ms. Sanders
responded that the administration did not believe there was
a valid appropriation to presently distribute funding. Co-
Chair Wilson inquired that whether the administration would
consider GF as the funding source inappropriate, like the
2018 appropriation.
CORI MILLS, SPECIAL ASSISTANT, OFFICE OF THE ATTORNEY
GENERAL, DEPARTMENT OF LAW, clarified what the attorney
general's opinion was that was counter to Ms. Wallaces
interpretation of the AGs opinion. She explained that the
AGs opinion focused on the year the appropriations were
intended for; in any given year the appropriations were for
the following fiscal year excluding supplementals.
Therefore, current revenues were revenues that were
available for the year the appropriations were budgeted
for. She purported that the constitutional convention
minutes and dedicated funds clause cases focused on the
idea that all the states programs needed to compete for
funding annually.
Co-Chair Wilson expressed confusion and emphasized that HB
1001 was a separate appropriation. She explained her
understanding of Ms. Sanders testimony that the use of GF
in 2018 was not appropriate; therefore, illegal. She
concluded that according to the administration, if the
legislature used general funds in the current appropriation
bill it would be illegal. Ms. Mills clarified that her
interpretation of the administration's point was incorrect.
She reiterated that the legislature could use GF if the
appropriation was for the current appropriating year and
not two years ahead. She furthered that when HB 287 was
passed the future years revenue was lacking.
1:58:38 PM
Co-Chair Wilson understood that the administration was
saying that the HB 287 revenue was not available at the
time of appropriation. However, any funding for FY 20 was
not available yet either. The appropriations began on July
1, 2019 and the revenue was collected through the following
June 30, 2020. She was not understanding how using general
funds for the FY 20 budget that were not currently sitting
in the fund and were based on projections exactly as it had
been in 2018 was not valid or different. She believed that
the administration was making the legislatures case.
Vice-Chair Johnston asked if it was the administration's
feeling that through passage of the bill there would not
be a need to address the issue of forward funding.
Co-Chair Wilson interjected that she wanted the data not
the governors feeling.
Ms. Sanders moved to slide 4 titled HB 1001
Appropriation: History of Forward-Funding Education. She
explained that historically, when the legislature had
forward funded education it appropriated a current year's
revenue for the following year and the practice had begun
in Session Law Year (SLA) 2006 when a surplus of revenue
had been available. The legislature deposited two years'
worth of revenue via a supplemental appropriation into the
Public Education Fund (PEF) that left one year of revenue
into the PEF after the first year of funding was expended.
The process had continued until SLA 2017 when the
legislature experienced a steep decline in revenue and had
stopped appropriating an extra year of revenue. She
expounded that the declines marked the end of forward
funding education and brought the fund balance to a single
year available for distribution in the appropriating year.
She maintained that in SLA 2018, with the passage of HB 287
forward funding changed. The appropriation into the PEF was
still for one year but with an effective date earmarking
future revenue to be deposited into the PED for FY 2020.
She emphasized that the transaction did not mimic
historical future funding and merely earmarked future
revenue. She believed that the transaction was the
distinguishing factor from prior forward funding compared
to the forward funding in HB 287. She added that if the
legislature had deposited two years' worth of revenue into
the PEF for HB 287 it would be reflective of the historical
formula, but the administration believed that the funding
was an earmark and the appropriation was invalid. The
administration was asking the legislature to authorize an
appropriation and deposit money into the PEF for FY 20.
2:03:32 PM
Vice-Chair Johnston understood that in 2005 or 2006 the
capital appropriation for building was forward funded. Ms.
Sanders was unfamiliar with the capital appropriation Co-
Chair Johnston mentioned. She relayed that capital
appropriations had several types of forward funded
appropriations but each one used current year revenue and
were not earmarking future revenue. She turned to slide 5
titled HB 1001-Appropriation: Appendix/Definitions to
illustrate her point:
Multi-Year Appropriation operating
appropriation of current year revenue with authority
to expend over multiple fiscal years.
Capital Project capital appropriation of
current year revenue with authority to
expend over multiple fiscal years.
Fund Capitalizations appropriation of current
year revenue into fund to be distributed without
further appropriation for a purpose stated in statute.
Examples include the Community Assistance and Disaster
Relief Funds.
Vice-Chair Ortiz looked at slide 3 that stated education
was one of the most important obligations of the state. He
asked if it was accurate that the administration was not
opposed to the concept of forward funding understanding the
value to districts funding processes. Ms. Sanders replied
in the affirmative. She maintained that the funding needed
to have a valid appropriation behind it.
2:06:18 PM
Representative Josephson noted there was an opinion and
belief that when former Governor Bill Walker had not vetoed
any part of HB 287 that it was incumbent on the governor to
execute the law by appropriating the funds. He deduced that
if the legislature did not advance HB 1001, it would be
incumbent on the governor to start the litigation. He
related an argument that the burden was on the governor to
make the case for forward funding. He voiced that the
administration was attempting to convince the legislature
that it was wrongheaded over the issue and he did not
believe that the legislature's opinion would shift. He
asked for comments.
Ms. Mills answered that the issue had gone through a myriad
of attorneys at the Department of Law who had determined
the law was invalid. She asserted that there was a duty to
uphold the constitution and defend statutes and from
Attorney General Clarkson's perspective it was invalid. She
added that in order to have valid funding a valid law was
necessary. She hoped that litigation could be avoided.
Co-Chair Wilson asked why the AG was not here considering
the significance of the issue.
2:09:33 PM
Ms. Mills replied that Attorney General Clarkson would be
happy to discuss the issue with the committee at a future
date. She remarked that she had not received a specific
notice that the legal issue would be discussed during the
meeting.
Co-Chair Wilson clarified that she did not create the
PowerPoint presentation and that the legal issue was put
forward by the administration. She assumed that the AG
would have testified before the committee since the
legality was the focus of the presentation.
Representative Josephson determined that HB 287 had
referenced GF as a funding source. Each years budget
process was a best guess of anticipated funds. He
wondered why the language that identified GF as the source
was not enough. Ms. Mills replied that the issue was about
the dedicated funds clause and not the appropriations
clause. She noted that the prohibition in the constitution
against earmarking funds was specific. The prohibition
required that funding should be determined on an annual
basis. She summarized the question of whether future
revenue was taken off the table before the future
legislature could determine where and how the money should
be spent. She read the following snippets from the cases of
Meyers versus the Alaska Housing Finance Corporation and
from Sonneman relating to the Alaska Marine Highway System
Fund:
The Alaska Constitution prohibited the legislature
from dedicating future revenues directly to any
special purpose.
The constitutional framers believed that the
legislature would be required to decide funding
priorities annually on the merits of the various
proposals presented.
The constitutional framers knew that dedicating
revenues was an attractive idea but decided that the
good that might come from the dedication of funds for
a particular purpose was outweighed by the long-term
harm to state finances that would result from a broad
application of the practice.
Ms. Mills believed that the Alaska Supreme Court had
focused on the issue to ensure that every legislature for
every year had an opportunity to determine the priorities
of the budget with the current years revenue. The balance
was between the appropriation clause and the dedicated
funds clause.
2:13:29 PM
Co-Chair Wilson requested the information for members'
packets.
Vice-Chair Ortiz stated that Attorney General Clarkson's
perspective to focus on the dedicated fund issue and his
reliance on his interpretation negated the whole concept of
any type of forward funding for education. Ms. Mills
replied that the legislature could prioritize budgeting
using the current years revenues to flow out in future
years. She stressed that HB 287 was different because it
earmarked future revenues. Vice-Chair Ortiz asked if the
constitution mandating the adequate funding of education
did not weigh in the consideration at all. Ms. Mills
answered that education funding was a competing
constitutional requirement that merely meant the
legislature had to fund education through the
constitutionally mandated appropriation process within the
bounds of the dedicated funds clause. Vice-Chair Ortiz
returned to the current year funding cycle. He asked if the
$20 million appropriated in HB 287 was appropriate. Ms.
Mills answered that it was appropriate. Vice-Chair Ortiz
asked for clarification. Ms. Mills answered that the
appropriation was a valid expenditure if there was no
change by the end of the fiscal year.
Representative Sullivan-Leonard asked whether the bill
solved the issue of the earmarked funds appropriated for FY
20 in HB 287. Ms. Sanders was uncertain about the issue
Representative Sullivan-Leonard was referring to.
Representative Sullivan-Leonard stated she was referring to
the issue of distribution. Ms. Sanders responded that the
current version of the operating budget before the
legislature did not include an appropriation for education.
She maintained that adding an appropriation to a budget
bill or passage of HB 1001 would result in a valid
appropriation that allowed the distribution of funds.
2:18:25 PM
Co-Chair Wilson asked Co-Chair Foster if there was forward
funding in the current operating budget. Co-Chair Foster
answered in the affirmative.
Representative Merrick asked how much it would cost to
litigate the matter. Ms. Mills answered that the department
received requests often to estimate the cost of lawsuits
and was difficult to answer. She guessed that the range was
around $100,000 and she would follow up. Representative
Merrick asked who would be responsible for the costs. Ms.
Mills replied that it would be owed by the legislature and
the Department of Law.
2:20:14 PM
Vice-Chair Johnston recalled the statute related to the
Permanent Fund Dividend (PFD) and surmised that if she
applied the administration's logic, the legislature needed
to appropriate the dividend but not necessarily by statute.
Ms. Mills replied in the affirmative. She noted that the
interpretation had been decided in the Wielechowski vs
State case in 2017 by the Alaska Supreme Court that decided
that money for the dividend had to be appropriated and the
appropriation did not rely on a statue.
Co-Chair Wilson asked whether the bill before the
legislature that requested four years' worth of PFDs was a
violation similar to forward funding education. Ms. Mills
replied that the distinguishing feature between the two was
that the current situation included earmarking funds and
the PFD bill proposed to withdrawal funds from the ERA. Co-
Chair Wilson countered that the calculation for the ERA was
based on future earnings that was not yet determined. Ms.
Mills responded that current revenues were available even
if it depended on a calculation in the future.
Co-Chair Wilson asked about Ms. Mills comment that the $20
million would be paid out unless something changed. She
asked for comment about what would change. Ms. Sanders
answered that if the legislature took action to repeal the
appropriation as proposed by the governor the funding would
no longer be distributed. Co-Chair Wilson surmised that a
repeal left the legislature open to a lawsuit and the
districts may sue the state. She was certain that the
Fairbanks North Star Borough investigated the issue. Ms.
Sanders answered that she could not speak to unpredictable
outcomes. She reiterated that if the legislature chose not
to repeal the $20 million appropriation and it was based on
valid funding, the money would be distributed to school
districts.
2:23:24 PM
Representative Josephson noted that the $20 million was
duly authorized and appropriated. He thought that an
executive could hold other funds hostage that were duly
appropriated in a current fiscal year seeking to repeal
them for use by another agency, in effect defying the law
that mandated execution of the appropriation that was
signed off by a governor. He elaborated that there was
significant unhappiness about the $20 million that was
due in six weeks without any indication that the
legislature desired to repeal it. He asked what would stop
an administration from husbanding any other agencys last
series of checks under the same repeal/reappropriate
argument. Ms. Sanders responded that the $20 million repeal
had been proposed by the governor in the February 13th
budget. She could not speak to the legality of the issue or
whether the governor would withhold any other funding from
distribution. She concluded that because he proposed the
action in a bill, the funding was being held until a
determination was made.
Co-Chair Wilson thought that the governor was setting a
precedence. She asked how districts could plan ahead and
depend on funding that an administration felt that they
could cut. She wondered whether OMB would act in the same
way in the future and withhold appropriations for something
else. How could agencies and districts rely on appropriated
money that may or may not be distributed.
2:26:40 PM
Ms. Sanders answered that the administration had no
intention of withholding money for any purpose. She
reported that education funding would be distributed as
usual on the 15th of each month. She believed that there
was historical precedence for the situation. She informed
the committee that when agencies did not fill positions
within the same fiscal year it was considered a negative
supplemental. The legislature had historically, revoked
some of the funding that was not utilized to fill the
position. The current issue was an instance where the
funding was not yet distributed, and the governor proposed
to repeal the appropriation. She could not speak to setting
precedence in the future. She reiterated that there was no
intention to withhold money to any agency. Co-Chair Wilson
surmised that the school districts should not anticipate
the $30 million because the funding could be vetoed or
withheld, which reflected the precedence she spoke of. She
wondered why districts would believe the same thing would
not happen again. Ms. Sanders clarified she had been
speaking to the $20 million and not the $30 million
appropriation. Co-Chair Wilson reiterated that the
districts were counting on the $30 million but with the
governors recent actions regarding the $20 million, the
districts could not count on the funds being distributed.
She asked if districts should see the action as a one-time
deal or prepare for non-distribution of the $30 million as
well. Ms. Sanders answered that school district
distributions were all subject to appropriation on an
annual basis. She reiterated her argument that the
appropriation in HB 287 was not valid.
2:30:10 PM
Co-Chair Wilson asked if Ms. Saunders was stating that both
the $20 million and the $30 million appropriations were
invalid. Ms. Sanders replied in the negative. She clarified
that the $30 million appropriation was invalid. The $20
million would be distributed when the operating budget was
enacted.
Representative Knopp reiterated the administrations
argument that the appropriation was invalid. He deduced
that the succeeding legislature had the ability to
reappropriate the funds in any manner they chose and the
same was true for the current year. He believed that even
though the fund source was not yet available, the delayed
effective date clearly showed the intention that the
funding would come from future revenue. He could not
distinguish the difference since the budgeting process
always relied on future revenues. He did not see the
difference and did not think the legislatures hands were
tied. He asked how other legislatures with a two year
budget cycle handled the issue. Ms. Mills replied that
Alaskas dedicated funds clause was unique among the United
States. Most states merely had an appropriations clause.
Most states were only able to freely appropriate roughly 17
percent of their revenues because the other 80 percent were
dedicated, which was why Alaska adopted the dedicated funds
clause.
2:33:30 PM
Representative Knopp indicated that he was struggling with
the concept of a dedicated fund clause.
Co-Chair Wilson asked to hear from Ms. Wallace for closing
statements.
Ms. Wallace noted that there was nothing in the
presentation that would change the opinion of Legislative
Legal Services. She was happy to answer questions.
Representative LeBon asked about the difference between
forward funding and an earmark. He thought an earmark
denoted an intent rather than an appropriation. Ms. Wallace
was not certain how a court would categorize the forward
funding mechanism the legislature used. She believed that
the term earmark was not appropriate in the current
scenario. She indicated that typically the term was
restricted to the earmarking of taxes for specific
purposes. The legislature had appropriated the education
funding. She noted that in her opinion it had been an
appropriation. Representative LeBon recounted the argument
being made by the administration against the forward
funding. He wondered whether the current legislature had
the authority to change the amount of the forward funded
appropriation. Ms. Wallace answered in the affirmative. The
key about whether the legislature had violated the
dedicated fund prohibition was if the appropriation
eliminated a future legislature's ability to alter the
appropriation in their annual budgeting process. She
reported that the current legislature considered the $1.2
billion education funding appropriation and ensured that
adequate revenue existed to fund all general fund
appropriations, including the education appropriation. The
legislature had the power to amend or repeal both
appropriations. She specified that the legislature had a
long history of forward funding education and repealing
funding when revenue was insufficient. She cited examples
from 2015 when the legislature revoked $1 billion from the
Public Education Fund and in 2014 the legislature
appropriated one-time funding for the subsequent 3 years
and had repealed the FY 16 and FY 17 funds. In both cases,
the state no longer had adequate resources. She advised
that last years appropriation was not compulsory and like
the examples she shared was subject to repeal or amendment.
2:39:04 PM
Representative LeBon asked what would happen if the
legislature ran short on money before the current fiscal
year ended. Ms. Wallace answered that if there was no
longer money to adequately fund the remaining fiscal year,
the legislature could amend the budget or find additional
funds from the ERA or Constitutional Budget Reserve to
transfer into the general fund. Representative LeBon
surmised that the legislature did not have a crystal ball
and budgeted based on projected revenue as best it can.
He ascertained that if the legislature did not amend the
prior years education appropriation it would stand.
Representative Knopp deemed that the prior action in HB 287
had no more binding effect on the legislature than a
resolution had but did bind the governor. He suspected that
that the current administration could not change the
appropriation without a reappropriation by the legislature.
2:41:32 PM
Representative Knopp clarified that it did not tie the
hands of a future legislature but did tie the hands of the
administration. Ms. Wallace answered that the education
appropriations did not bind either a future legislature or
the governor. The appropriation in HB 287 had been subject
to the governor's veto power. She delineated that the veto
power was not specific to a particular governor but to the
office of the governor. The current governor sought to
amend and repeal some of the education appropriations;
therefore, was not binding on the governor.
Representative Josephson cited slide 4 of the presentation.
He pointed to the reference to the dual funded years of
2006 and 2007 for education funding that crossed an
election cycle. He concluded that if the legislature
disapproved of the forward funding for education in 2007,
they had the power to amend or repeal and chose not to. He
felt that his point was the essence of Ms. Wallaces
testimony.
2:43:30 PM
Ms. Wallace affirmed his conclusion. She added that the
legislature had a prior record of amending or repealing
forward funding mechanisms employed the previous year.
Vice-Chair Johnston turned to slide 6 titled HB 1001
Appropriation: Appendix/Definitions of the presentation
that had not been previously discussed.
Examples of Forward Funding Appropriations:
Community Assistance Program Fund capitalization
made each year, from available revenue, to ensure
balance of the fund in the subsequent year is
sufficient for the desired statutory distribution.
Temporary Increments (IncT) Programs with a set
duration, requires appropriation in each subsequent
year. IncT designation provides clarity of temporary
nature of program and anticipated duration.
Ch. 171, SLA 1984 Continuing appropriations from
the general fund to the Power Cost Equalization fund,
Susitna River Hydroelectric project, and Bradley Lake
Hydroelectric project to occur on July 1 each year.
Struck down as unconstitutional by the superior court.
(Trustees for Alaska v. State, 3AN-84- 12053.)
Vice-Chair Johnston pointed to the Community Assistance
Program (CAP) and noted that the funding was based on a
formula and recalled that there was a year where the
legislature either had to fully fund the program or change
the calculation. She asked for confirmation.
Ms. Sanders answered that Vice-Chair Johnston was
referencing the Community Assistance Program. She
elucidated that the funding formula relied on depositing
the current years appropriation and one-third of the
balance flowed out of the fund. The formula remained
unchanged. The formula that determined the amount of the
deposit was based on historical revenue. The CAP funding
mechanism remained the same; each year $30 million (instead
of the prior $90 million) was deposited into the fund and
$30 million was appropriated based on the balance of the
fund. If the balance of the fund declined, one-third would
still flow out of the fund in the following fiscal year.
She emphasized that the fund was capitalized using the
current years revenue.
Co-Chair Wilson thought that Power Cost Equalization (PCE)
was part of the funding as well and the appropriation
relied on a waterfall effect where some funding was
appropriated to PCE and some amounts appropriated to CAP
and the Alaska Energy Authority (AEA). She asked whether
her statement was correct. Ms. Sanders responded that there
was a formula in place under the PCE program where in the
event of excess earnings, the money could be made available
to appropriate to CAP, AEA, and other rural energy projects
under the capital budget. She furthered that if the PCE
fund did not earn enough to waterfall, GF could be
deposited to cover the shortfall. The funding mechanism was
a funding formula to allow excess earnings to be
distributed in a particular manner. Co-Chair Wilson stated
the legislature was appropriating funds that were not yet
earned. She stated that the scenario was similar because
the appropriation happened automatically depending on the
funds earnings.
2:47:54 PM
Ms. Sanders clarified that the appropriation was not
automatic. The legislature had to take an active role in
the appropriation.
Vice-Chair Johnston stated that the original programs
formula was a type of waterfall and based on oil revenue.
The funding mechanism assumed the money would be there
until it was not. Ms. Sanders answered that the mechanism
was the same methodology of distribution; each year based
on oil revenue approximately $90 million was deposited to
keep the balance at $180 million and one-third would flow
out of the fund. She stressed that the deposit relied on an
annual appropriation by the legislature.
Co-Chair Wilson would reach out to the sponsor of the CAP
bill to obtain further information.
Co-Chair Wilson noted public testimony would be heard at
5:00 p.m.
HB 1001 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB1001 Presentation to HFC 5.20.19.pdf |
HFIN 5/20/2019 1:30:00 PM |
HB1001 |
| HB 1001 Public Testimony pkt 1.pdf |
HFIN 5/20/2019 1:30:00 PM |
HB1001 |