Legislature(2021 - 2022)ANCH LIO DENALI Rm
09/08/2021 10:00 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB3001|| HJR301 | |
| Overview(s): Appropriation Limits | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB3001 | TELECONFERENCED | |
| *+ | HJR301 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HB 3001-APPROPRIATION LIMIT; GOV BUDGET
HJR 301-CONST. AM: APPROP LIMIT
3:08:02 PM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 3001, "An Act relating to an appropriation
limit; relating to the budget responsibilities of the governor;
and providing for an effective date" and HOUSE JOINT RESOLUTION
NO. 301, Proposing amendments to the Constitution of the State
of Alaska relating to an appropriation limit; and relating to
the budget reserve fund.
3:09:12 PM
REPRESENTATIVE JAMES KAUFMAN, Alaska State Legislature, as prime
sponsor, introduced HB 3001. He presented the sponsor
statement, which read as follows [original punctuation
provided]:
HJR 301 and its companion bill HB 3001 work together
to create a constitutional and statutory framework for
how we limit appropriations. Spending limit reform is
one of very few subject matters in which the
Comprehensive Fiscal Plan Working Group unanimously
agreed to be necessary. This legislation can meet that
need.
Alaska has been operating without an effective
appropriation limit for nearly 40 years, resulting in
less than meaningful control of our state spending.
The current limit was enacted in 1982, when
approaching peak oil production. The timing of
instituting this cap, plus the population and
inflation adjustment, have made the cap so generous
that it is longer useful in controlling our
appropriations and spending.
Successful appropriation limits have boundaries that
meet the needs of the unique way that government
operates; the right mix of rigidity where it counts
and flexibility when and where it's absolutely needed.
Alaska's inflation rate often varies from national
inflation numbers, our tax structure is unique, and
our spending per capita is wildly different than most.
If Alaska follows suit in using these common factors,
we risk failure because we may use a formula that does
not meet our unique needs.
Considering what I have outlined above, and all the
other things that make our situation unique, I propose
a new, functional cap which uses a factor based upon a
five-year trailing average of our private sector
economic performance. Specifically, Real GDP less
government spending, which measures the value produced
within our borders.
The government must support policy that will enable
the growth of our private sector economy if they would
like to spend more. The five-year averaging will
moderate the effects of volatility, leading to
stability. This proposal would set a spending cap
roughly at current levels and would include a
constitutional provision allowing flexibility in the
case of unforeseen risks.
Our Permanent Fund is a tremendous asset, but it
creates a risk that Alaska will be destined to become
a "financialized" economy. Instead of maintaining our
status as Alaskans that build, add value, and produce,
we could become Alaskans that wait and passively watch
the market while hoping for the best. A financialized
government that is funded increasingly by some portion
of the permanent fund will grow to have little to no
interest in the private sector. A spending limit
tethered to GDP creates a constructive link to our
private sector and ensures that government does not
outgrow the private sector that it is meant to
support.
We need to create strong links between government and
our productive economy before it's too late. We have
immense opportunity to solve our structural issues and
deliver a better future centered around Alaska's
productive economy. Let's be productive and take this
opportunity.
3:12:48 PM
MATTHEW HARVEY, Staff, Representative James Kaufman, Alaska
State Legislature, on behalf of Representative Kaufman, prime
sponsor, presented a PowerPoint, titled HJR 301/HB 3001. He
began on slide 2, which read as follows [original punctuation
provided]:
Current Appropriation Limit
$2.5 B plus inflation and population growth since 1982
-Calculation for FY 21 would be about $10 billion
Current limit applies to all UGF, most statewide
items, and some DGF items
Excludes PFDs, bond proceeds, debt service payments,
non-State sources of revenue, public corporation
revenues, and disaster declarations
At least 1/3 of limit reserved for Capital Projects
and Loans
Can break the limit for capital projects, if approved
by the voters
MR. HARVEY described a graph of the proposed appropriation limit
pictured on slide 3. He reviewed the proposed appropriation
limit on slide 4, which read as follows [original punctuation
provided]:
Proposed Appropriation Limit
Calculated by subtracting government spending from
historical State GDP values and adjusting for
inflation
Stability is improved by averaging these values over
the previous full five fiscal years
Constitutional amendment, as drafted, caps the
statutory limit at 14% of the calculated value
Statutory limit, as drafted, caps appropriations at
11.5% of value
-FY22 appropriations were $15.9 Million below
11.5% of the calculated value
MR. HARVEY highlighted the proposed exemption list changes on
slide 5, which read as follows [original punctuation provided]:
Proposed Exemption List Changes
Adds payment of principal and interest on revenue
bonds to exceptions list
Adds "appropriations to a state account or fund that
requires a subsequent appropriation from that account
or fund as prescribed by law" to exceptions list
Removes Capital Project reservation and exemption
language
Current limit applies to all UGF, most statewide
items, and some DGF items
-Excludes PFDs, bond proceeds, debt service
payments, non-State sources of revenue, public
corporation revenues, and disaster declarations
CHAIR SPOHNHOLZ inquired about the meaning of capital project
reservation.
MR. HARVEY said it referred to the money reserved for capital
projects.
3:20:00 PM
REPRESENTATIVE JOSEPHSON, referring to slide 3, asked whether
moneys put into the constitutional budget reserve (CBR) was
reflected in the yellow bars on the graph.
MR. HARVEY was unsure of the answer. He deferred to Mr.
Painter.
ALEXEI PAINTER, Director, Legislative Finance Division, stated
that the limit excluded appropriations to funds that require
further appropriation to spend. He noted that the CBR fell into
that category and would be excluded from the limit.
REPRESENTATIVE JOSEPHSON sought to clarify whether the yellow
bars on slide 3 (reflecting appropriations subject to the limit)
included funds appropriated to the statutory budget reserve
(SBR) or CBR.
MR. PAINTER conveyed that the yellow bars did not include
appropriations to the CBR or SBR.
3:22:52 PM
REPRESENTATIVE KAUFMAN, in response to Representative Schrage,
explained that the intent of the legislation was to link public
spending with the success of the private sector economy. He
suggested that the bill would implement a smoothing mechanism
to tame the volatility in economic performance.
REPRESENTATIVE SCHRAGE pondered whether this proposal offered an
appropriate basis for a spending cap.
3:26:32 PM
REPRESENTATIVE WOOL pointed out that most of Alaska's GDP was in
the oil industry; therefore, if oil GDP were to increase, Alaska
could theoretically spend more money. However, he noted that
oil production on state land was different than oil production
on federal land, suggesting that even if the spending limit
increased, there wouldn't necessarily be more money to spend.
Additionally, if Amazon were to bring in 10,000 employees to
Anchorage, GDP would increase thus increasing the spending limit
according to this proposal; however, the new Amazon employees
would use state services, such as schools and roads, thereby
costing the government more money without bringing in additional
revenue.
REPRESENTATIVE KAUFMAN pointed out that the Amazon employees
would become part of the "economic fabric" of the community by
buying houses, purchasing vehicles, paying taxes, eating in
restaurants, etcetera; consequently, their presence would feed
into the GDP.
REPRESENTATIVE WOOL pointed out that those employees wouldn't
pay taxes. He reiterated that although the spending limit would
go up due to the increased GDP, there wouldnt be additional
revenue to match. He asked if that was correct.
REPRESENTATIVE KAUFMAN maintained his belief that there would be
a stimulative effect on the local economy. He discussed
inflation targeting.
3:31:31 PM
REPRESENTATIVE STORY questioned how an increased GDP would
increase state revenue without an income tax or sales tax.
REPRESENTATIVE KAUFMAN remarked, I believe we could find other
ways for it to link back in so that what we're spending is in
relation to what we're receiving.
3:32:41 PM
CHAIR SPOHNHOLZ, referring to slide 3, observed eight or nine
years where state spending would have surpassed the proposed
appropriation limit. She asked Representative Kaufman to
explain why he had proposed a spending cap that would be lower
than historically low levels of spending.
REPRESENTATIVE KAUFMAN believed that smoothing the capital
projects would smooth the ensuing maintenance projects.
CHAIR SPOHNHOLZ maintained her belief that the proposed spending
cap was too low. She asked the bill sponsor why he chose 14
percent and 11.5 percent as the benchmarks for the appropriation
limit.
REPRESENTATIVE KAUFMAN pointed out that the Fiscal Policy
Working Group had recommended that the legislature seek
reductions in spending. Further, he indicated that this
proposal was just a starting point. He deferred to Mr. Harvey.
MR. HARVEY stated that the statutory limit assumed a market
price was set at current spending levels, whereas the
constitutional limit provided enough headroom, as well as a
level of savings while exhibiting a contracyclical effect with
GDP.
3:38:50 PM
REPRESENTATIVE JOSEPHSON sought to confirm that capital
expenditures would be subject to the spending cap.
MR. HARVEY answered yes, as long as they're not subject to any
other exemptions. For example, federal spend on a capital
project would not be subject to the cap.
REPRESENTATIVE JOSEPHSON pointed out that the Republican Party
had supported large capital budgets to improve private sector
opportunities. He wondered whether a miner or a timber
operator, for example, would oppose putting their share of
capital spending under the limit.
MR. HARVEY indicated that it would be a policy call.
3:41:04 PM
CHAIR SPOHNHOLZ asked how GDP [as the measure of spending] would
be impacted by changes in oil development. She considered a
scenario in which the population stayed the same while inflation
continued to grow, and GDP were to decline.
REPRESENTATIVE KAUFMAN acknowledged that there would be
challenges without finding a way to preserve the local economy.
CHAIR SPOHNHOLZ considered a scenario in which oil development
was declining while a new Amazon fulfillment center in Alaska
brought a surge in new jobs without an effect on the GDP. She
asked how the public safety, health, and education for the new
workers would be provided for under the proposed legislation.
REPRESENTATIVE KAUFMAN suggested that the statutory limit could
be changed. He offered to follow up with a response.
3:45:21 PM
REPRESENTATIVE JOSEPHSON inquired about the absence of
expenditures that exceed the limit.
REPRESENTATIVE KAUFMAN remarked, There could be mechanisms that
address space for capital projects within the limit.
Additionally, he suggested that the statutory language could
allow for a rapid response. He reiterated the importance of the
smoothing effect.
3:49:12 PM
REPRESENTATIVE PRAX shared his understanding that capital
spending was included in the limit. If there were a need for
capital spending above the limit, he asked whether the option to
issue a [general obligation] bond would be available.
REPRESENTATIVE KAUFMAN answered yes.
REPRESENTATIVE PRAX asked whether Wielechowski v. State of
Alaska had any legal impact on this proposal.
REPRESENTATIVE KAUFMAN answered no. He noted that there had
been some discussion of amendments on that topic in the Senate.
MR. HARVEY explained that a legal interpretation had suggested
that the statutory limit in the bill may not be enforceable. He
added that the Senate was working on an amendment to address
that issue.
CHAIR SPOHNHOLZ asked what language would be used enforce the
statutory limit.
MR. HARVEY said currently, the language "as provided by law"
would apply to appropriation bills; therefore, exempting
appropriation bills would tighten up the language.
3:52:22 PM
REPRESENTATIVE KAUFMAN, in response to Representative Eastman,
maintained that the purpose of the proposed legislation was to
increase stability in state spending, as opposed to direct state
spending.
REPRESENTATIVE EASTMAN sought to confirm that the intent was to
produce higher lows and lower highs, as opposed to the current
volatility.
REPRESENTATIVE KAUFMAN confirmed.
3:56:59 PM
CHAIR SPOHNHOLZ reminded listeners that in addition to the
constitutional spending cap, a statutory spending cap already
existed. Additionally, she pointed out that a committee
appropriations cap had been drafted. She announced that HB 3001
and HJR 301 were held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Leg Finance Appropriation Limits Presentation 9.8.21.pdf |
HW&M 9/8/2021 10:00:00 AM |
|
| HJR 301_HB 3001 Sponsor Statement.pdf |
HW&M 9/8/2021 10:00:00 AM |
HB3001 HJR301 |
| HB 3001 Sectional Analysis.pdf |
HW&M 9/8/2021 10:00:00 AM |
HB3001 |
| HJR 301 Sectional Analysis.pdf |
HW&M 9/8/2021 10:00:00 AM |
HJR301 |
| HJR 301_HB 3001 Presentation.pdf |
HW&M 9/8/2021 10:00:00 AM |
HB3001 HJR301 |
| HJR 301_HB 3001 Supporting Documents.pdf |
HW&M 9/8/2021 10:00:00 AM |
HB3001 HJR301 |
| HB 3001 Fiscal Note.pdf |
HW&M 9/8/2021 10:00:00 AM |
HB3001 |
| HJR 301 Fiscal Note.pdf |
HW&M 9/8/2021 10:00:00 AM |
HJR301 |
| Workdraft version N 9.8.21.pdf |
HW&M 9/8/2021 10:00:00 AM |
HB 141 |