Legislature(2023 - 2024)ADAMS 519
05/02/2023 10:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HJR2 || HB38 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 38 | TELECONFERENCED | |
| + | HJR 2 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE JOINT RESOLUTION NO. 2
Proposing amendments to the Constitution of the State
of Alaska relating to an appropriation limit.
HOUSE BILL NO. 38
"An Act relating to an appropriation limit; relating
to the budget responsibilities of the governor; and
providing for an effective date."
10:36:17 AM
REPRESENTATIVE STAPP, SPONSOR, introduced himself and his
staff. He explained that HJR 2 was a revision to the
existing appropriation limit. The state had a
constitutional and statutory appropriate limit since 1982.
He believed that the argument to revise the limit was that
the current limit had not been effective since its
inception. The "boom and bust" cycle driven by high and low
oil prices was not familiar to the state until the 1980s
and was not taken into consideration in the original
appropriation limit. He delineated that the proposed limit
used a stabilizing metric that smoothed out high revenue
years and insulted the state from decreasing revenue by
applying a 5-year average to the states Gross Domestic
Product (GDP). He felt that the plan would bring stability
for long term investments in the state.
10:38:10 AM
BERNARD AOTO, STAFF TO REPRESENTATIVE STAPP, introduced the
PowerPoint presentation "HJR 2 GDP Based Spending Cap"
dated May 2, 2023 (copy on file). He began on slide 2
titled Current Constitutional Limit:
• Established in Art IX, §16
• Effective starting 1982
• Appropriation Limit is set as follows:
• "Appropriations from the treasury made for a fiscal
year shall not exceed $2,500,000,000 by more than
the cumulative change, derived from federal indices
as prescribed by law, in population and inflation
since July 1,1981."
• At Least 1/3 is reserved for Capital Projects &
Loans
• Voter approved Capital projects are allowed to
exceed the limit.
Mr. Aoto directed attention to the words for a fiscal
year that would be relevant later in the discussion. He
elaborated that the metric used to calculate the cap was a
population and inflation model with a set date of 1981.
There were exceptions to the limit listed in Article IX,
Section 16 as follows: Alaska Permanent Fund Dividends,
appropriations from revenue bond proceeds, appropriations
to pay principal and interest on General Obligation Bonds
(GO), and appropriations for non-state sources for specific
purposes that included things like federal receipts and
grants or revenues from corporations of the state that
issued revenue bonds. He noted that there was another
section that included additional exceptions such as the
Alaska Permanent Fund, appropriations for capital projects
from bond proceeds that were approved by the voters and
signed by the governor, and appropriations needed for a
declared state of disaster.
Co-Chair Foster asked what the funding limit would
currently look like. He pointed to the $2,500,000,000 and
the words by more than the cumulative change and deduced
that a current limit could be higher. Mr. Aoto responded
that by using the population and inflation metric there
needed to be some kind of anchor the cap was tied to, which
was the $2.5 billion. He noted that the section described
the cumulative change as derived from federal indices as
prescribed by law based on population changes and
inflation via the Anchorage Consumer Price Index (CPI). Co-
Chair Foster suggested that an easy way to think about the
concept was an inflation adjusted number. He asked what
the current number would be.
Representative Stapp interjected that the information was
on a future slide.
Co-Chair Foster indicated that Co-Chair Edgmon joined the
meeting.
10:41:51 AM
Mr. Aoto continued on slide 3 titled What does HJR 2 do:
Uses a different metric of calculating
appropriations limit by using the trailing
average of the 5 previous calendar years of Real
Gross Domestic Product (GDP)
Calculating Real GDP
Takes data for standard GDP calculations by
government agencies, subtracts government
spending, and adjust for inflation.
13% of the total average is the limit for all
appropriations not listed as exceptions.
If established before FY24, that would equal
approximately $5.8 billion.
Would effectively set limit near current
spending levels to allow for stable and
predictable and budgeting.
Mr. Aoto delineated that GDP was calculated using a variety
of economic factors like consumer spending, business
spending, net imports and exports, and government spending.
He acknowledged that there were other outside factors that
could affect the states revenue and economy but believed
that the limit would provide stable and predictable
governing.
10:43:23 AM
Representative Ortiz asked if real GDP meant the GDP
calculated by the federal government or if there was an
agency in the state that calculated GDP. Mr. Aoto answered
that the bill required that GDP was calculated by a state
government agency. The data that was typically used was
through the Federal Bureau of Economic Analysis in the
United States (US) Department of Commerce. Representative
Ortiz summarized that it was a measurement of GDP at the
national level. Mr. Aoto replied that the national
calculation used the national CPI and for Alaska there was
a specific CPI based on Anchorage.
10:44:28 AM
Representative Galvin appreciated the concept of the
legislation. She asked how population changes would relate
to GDP. Some populations might decline, but it was
important to incorporate public services that needed to
happen in areas with declining populations even if the
services had shrunk in scale because they were
constitutionally mandated.
Representative Stapp asked for more specificity to her
question.
Representative Galvin asked how the spending cap decisions
would be made related to population size when the state was
mandated to deliver certain services even to areas of
declining populations. Representative Stapp answered that
it was fair to say that as population increased, GDP also
increased. He acknowledged that the state had negative GDP
for the past few years due to out migration. He commented
that regarding the cap, it should not be a backdoor
draconian cut he intended reasonable and stable limits
placed on appropriations. It was not ideal to have a metric
that was so tight that there was no room to accommodate
changes. He thought a goal of the bill was to incentivize
private sector growth. He believed that there were two
economies: public and private sectors. He held that healthy
economies were based on a a public sector economy that sat
on the shoulders of a robust private sector economy that
was diversified and could support the overarching needs
of the population irrespective of population changes.
10:47:45 AM
Representative Hannan asked how real GDP accounted for
Alaska's unique economy due to the oil industry that was
located on public land and contracted with the state to
operate for its benefit. She asked how it would be
reflected and measured in a GDP based on the private
sector. Alaska was unique in the way that most of its
resources were state owned but not state agency produced.
She wondered how that could be accurately measured. She did
not believe the federal calculation took that into account.
Mr. Aoto responded that standard GDP calculations included
things like the oil industry, and it was baked into the
state's standard GDP. The difference between standard GDP
and real GDP was that it adjusted for inflation and removed
government spending. Representative Hannan viewed it as a
flaw in the calculation. She exemplified that if the state
did not fund the Department of Natural Resources permitting
due to a cap it would shut down contractor services. She
wanted to ensure that if there was a limit, the way the
state operated as a contractor for its natural resources
would be accurately reflected. She did not believe it
currently was reflected in GDP and emphasized that setting
a limit placed the state in a precarious situation to not
operate as an owner state of the resources.
Representative Stapp spoke to her DNR example. He believed
that private sector performance was being measured and the
facilitation of commerce was an aspect of that. He deduced
that where the state took steps to facilitate private
sector commerce it would be captured in outputs in GDP
calculations. He thought it was apparent in the
downstream in consumption based spending and investment
in that type of sector of the economy.
10:51:19 AM
Representative Ortiz referred to the statement about how
public sector GDP sat on the shoulder of private sector
growth. He agreed with Representative Hannan that it was
different in Alaska because other than some corporate tax
revenue, there was no direct link between private sector
economic growth or decline and revenue without state income
and other taxes, that other state economies were based on.
He believed that there was a flaw in standard GDP theory
espoused by the sponsor as it applied to Alaska. He did not
believe there was a direct link between private sector
growth and revenue to the state for appropriations lacking
private sector taxes. Representative Stapp answered that
Representative Ortizs point was the reason behind HJR 2.
He believed that it would begin to create the tie that did
not currently exist and incentivize the legislature to make
decisions to benefit the private sector. He deduced that in
the event that broad based taxes were implemented in the
future, it would be beneficial to currently consider how to
grow the private sector base. He thought that it was
healthier to have a flourishing private sector economy that
was tied to the outcome of state governance.
10:54:25 AM
Representative Josephson asked if it was the state's
obligation to foster economic development and not the
private sector's own obligation to look out for its own
needs. He asked whether it was Representative Stapps
philosophical approach. Representative Stapp replied in the
negative and added that he would not phrase it that way. He
thought that the state had a role in facilitating commerce
and believed it was a good concept and the public and
private sectors should work together to create a future
that benefits all Alaskans. He did not believe that it was
the state's responsibility to grow the economy, but it
could play an active role.
10:55:40 AM
Co-Chair Johnson recalled that Senator Kaufman introduced a
similar bill [HB 258 Appropriation Limit; Gov Budget] in
the prior session and noted that there currently was a
companion bill in the Senate [SB 20 Appropriation Limit;
Gov Budget, Senator Kaufman]. She inquired about the
differences in the sponsors House Bill. Representative
Stapp responded that the difference between the House and
Senate versions was that HJR 2 was the constitutional
spending limit with the calculation in HB 38. He indicated
that the calculation was amended downward in the prior
committee, House Ways and Means Committee. The senate
version used the original calculation therefore, the
difference was in the percentages the appropriation limit
was based on.
10:57:13 AM
Representative Josephson assumed that the 13 percent figure
was selected in the prior committee because the $5.8
billion number is roughly the size of the current budget.
He asked why the number was chosen. Representative Stapp
answered that the previous version had a higher percentage
than the original bill and was amended downward in the
prior committee at its discretion.
10:58:12 AM
Representative Galvin understood that the premise of the
proposal was to achieve the right level of funding. She
noted that the House recently passed a budget that was
roughly $100 million higher than the number in the bill.
She asked what would happen if a future legislature
discovered that there was underfunding in a critical sector
of the economy like education spending. She asked how a
need to catch up on funding would be handled if a
spending cap was implemented. Representative Stapp
responded that the current adopted House budget did not
exceed the constitutional spending limit but did exceed
that statutory spending limit. He furthered that the
concept of the measures was to create stability and
reiterated that it was not his intention to create a limit
that was too tight and functioned like backdoor cuts. He
believed that his proposal included a metric when applied
was consistent, measurable, and changed with different
input and outputs. He commented that he would entertain
amendments that achieved the objective.
11:00:37 AM
Mr. Aoto turned to slide 4 titled Appropriations Subject
to Limit:
Subject to Limit
Unrestricted General Funds (UGF) Operating
Expenditures
UGF Capital Expenditures (some exceptions)
Payments for Retirement benefits
Not Subject to Limit
Permanent Funds Dividends
Appropriations to Permanent Fund/PCE Endowment
Appropriations to a State Savings Account (ex.
CBR, MHTF*)
Appropriations to capitalize state retirement
accounts
Direct spending from a Disaster Declaration
Proceeds of bonds that are approved by voters
* CBR Constitutional Budget Reserve
MHTF - Mental Health Trust Fund (AS 37.14.031)
11:01:57 AM
Representative Hannan asked why the PFD would be an
exception when there were other constitutionally mandated
items like education that would be subjected to the limit.
Representative Stapp replied that the PFD was one of the
largest state expenditures and he thought the issue needed
to be handled separately outside the bill.
11:03:06 AM
Representative Ortiz communicated that his question was
essentially the same as Representative Hannans and he also
inquired as to the additional exemptions listed under the
UGF capital expenditures. Mr. Aoto responded that the
exceptions were GO and revenue bonds approved by the voters
for capital projects and any money from non-state sources
like the federal government for capital projects.
Representative Ortiz asked whether the required match to
meet the federal funding would be included under the cap.
Mr. Aoto replied that the state match would be subject to
the limit but not the federal receipts.
11:04:52 AM
Representative Josephson believed that the PFD created the
greatest instability. He commented that often chambers of
commerce and the most affluent people did not desire large
dividends because they viewed it resulted in growth in
taxation. He was informed by the entities he mentioned and
unions that they wanted PFD reform. He recounted that in
2017 the governor wanted to pay a $10 thousand PFD, which
some viewed as creating instability. He reported that he
was responding to Representative Hannans as well as his
concerns. He asked for comment.
Representative Stapp answered that was a reason why the
dividend was an exception to the limit because the
appropriation had become arbitrary. He thought the issue
should be settled separately because of the variation in
what policy makers think the payout should be and it would
be very difficult to model under a spending cap.
11:07:13 AM
Representative Ortiz asked if the cap included
supplementals. Mr. Aoto responded that the supplementals
would be included under the cap except for excluded items.
11:07:55 AM
Representative Galvin cited slide 3 and wondered about the
calculations. She thought that there was too much power
given to oil companies and outside entities that were
deeply affecting the states economy via volatility. She
asked if the state was giving away its power under the cap.
She did not want to hamstring our government at a time
when the state was bouncing back from a recession. She
thought there needed to be more investment to recover. She
wondered if the bill would tie the state to entities, it
did not have control over. Representative Stapp replied
that he did not think it would cede power to oil companies.
He opined that in a revenue shortfall the state would not
be worried about a spending limit if there was less revenue
available than the limit allowed. Representative Galvin was
not sure the limit was the stabilizer that was being
sought. She thought that it depended on how the proposal
was evaluated and whether the limit could be designed to
avoid granting outside forces too much control.
Representative Stapp agreed that the oil and gas industry
comprised a large portion of Alaskas GDP. He reminded the
committee that the limit included a 5 year rolling average
of the states economic performance; if the economy grew or
shrank the limit would follow but the effects would be
averaged out. Averages were historically used in the state
because they were designed in a way that mitigated the
risk. Therefore, the legislation used a 5-year rolling
average of GDP. Representative Galvin commented that an
average did matter, and a sliding rolling average could not
cut the state out of a recession.
Co-Chair Foster noted that the bills would be heard again
in a future meeting.
11:11:51 AM
Representative Hannan asked about the subject limit
payments for retirement benefits. She wondered how the cap
would work with the defined benefit retirees.
Representative Stapp answered that appropriations to
capitalize state retirement accounts were outside the cap
because it was a constitutional obligation. He furthered
that the state made payments to the retirement system
annually that would fall under the limit. However, any
special appropriation to capitalize the fund would not be
included in the cap. He assured that the limit would not
create a liquidity crisis that left retirement unfunded.
11:13:44 AM
Representative Coulombe ascertained that if the limit was
met the excess revenue would be saved. She asked how it
would impact private sector investment and interest in the
state.
Representative Stapp replied that the limit intended to
smooth out the boom and bust economy in how the state
appropriated revenue. He indicated that excess revenue was
available for other things besides savings such as paying
back large amounts to the Constitutional Budget Reserve
(CBR), appropriating larger PFD checks or an ad hoc
infusion into the PF corpus, and capitalize State Owned
Enterprises (SOE), etc. He concluded that there were lots
of ways to save or capitalize excess revenue. He thought
it was generally a good thing because all choices would be
part of a long term vision for the state. Representative
Coulombe asked if the spending cap would incentivize making
the retirement payments more consistent. Representative
Stapp responded that it was another aspect that he had not
considered. He deduced that excess revenue could be
utilized to right size capitalization of the retirement
fund in the event it was underfunded. How excess revenue
was utilized would be subject to the will of the
appropriating body.
11:16:12 AM
Mr. Aoto continued on slide 5 [untitled] that contained a
chart of raw data provided by the Legislative Finance
Division (LFD). He noted that the chart was also provided
as backup in the bill packet (copy on file), and he would
not discuss the numbers. He described the columns so
members could understand the chart. He started with the
column on the far left that included the calendar year and
proceeded to the subsequent columns to the right in the
following order: Alaska GDP, Alaska Government GDP, GDP
less Government, Anchorage CPI, and Fiscal Year. The
following 5 columns were the trailing years of GDP, the 5-
year average, and the last two columns contained both bill
percentages (11 and 13 percent) adjusted for inflation.
11:17:50 AM
Mr. Aoto advanced to slide 6 [untitled] that presented the
prior slides data in a graph form. He reported that the
red bar represented the appropriations subject to the
limit, the orange line depicted the current constitutional
limit, and the green line showed the HJR 2 proposal. He
noted that the current fiscal year was under the
constitutional limit.
Co-Chair Johnson pondered prior years' operating and
capital budgets and how much was spent relative to the
other. She requested a breakdown in a future meeting. Mr.
Aoto responded that by request of the previous committee of
referral, LFD had modeled the differences between capital
and operating expenditures. He offered to provide the
modeling. Co-Chair Johnson asked if it was a correct
assumption that appropriations above the proposed limit in
prior years had to do with the capital budget. Mr. Aoto
answered that he was not certain. Co-Chair Johnson
commented that some of the slim years where there was not
much excess money was above the cap.
11:20:22 AM
Representative Josephson asked if the bill granted the
legislature the discretion regarding amounts spent on
operating versus capital. Representative Stapp responded in
the affirmative. He pointed out that the space between the
black line and the green line would in theory, be the
amount for the capital budget. The intent was to ensure
that there was a consistent capital budget. He recalled
that in prior high revenue years the capital budget
ballooned. He opined that resulted in the unintended
consequence of long term deferred maintenance.
Representative Josephson asked if it would be prudent to
know what would was built and how much in salaries were
paid to contractors to determine what would have been
foregone without the large capital expenditures.
Representative Stapp answered that the argument could be
made but he was not certain if that was a fair measurement
of prudence.
11:22:36 AM
Representative Ortiz referred to Representative Galvins
comments regarding catching up in budgeting. He inquired
that as the capital budgets had been limited in the
previous few years and if the limit allowed the state to
catch up on the capital investment in deferred maintenance
costs. Representative Stapp responded that it would help
the state catch up in his opinion. He pointed to FY 07 to
FY 14 and deduced that if spending had been slightly
reduced the state would have had more revenue to provide
consistent funding overtime. He declared that deferred
maintenance only got more expensive over time due to
inflation and if prior appropriations were made to address
the backlog, current and future actions would be less
expensive.
11:24:17 AM
Mr. Aoto addressed slide 7 titled One Primary Goal:
Create an effective appropriations limit to allow the
state more stable long-term fiscal viability.
Co-Chair Foster suggested Mr. Aoto explain the reason for
the next bill.
11:25:04 AM
Mr. Aoto explained that the main difference between HJR 2
and HB 38 was the percentage used for the limit. House Bill
38 used the same metric, but the percentage was set at 11
percent. He explained that the statutory limit in AS
37.05.540.(b) set a limit in a fiscal year versus for a
fiscal year, which created issues. In addition, the limit
was tied to the prior year's appropriations plus 5 percent
and an adjustment for inflation and population. He thought
that the metric, based on the prior years appropriation,
created instability for the following year.
11:26:22 AM
Representative Stapp highlighted the fact that the bills
had language that tied them together. He added that the
statutory spending cap in HB 38 and HJR 2 were subject to
legislative passage and voter approval; one could not be
effective without the other.
Co-Chair Foster understood that one was constitutional and
required approval from the voters and the other was
statutory and did not.
Representative Stapp concluded his comments. His goal was
to ensure a long-term vision for the future of the state.
11:27:28 AM
Co-Chair Foster reviewed the agenda for the afternoon's
meeting.
HJR 2 was HEARD and HELD in committee for further
consideration.
HB 38 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 38 Sectional Analysis ver. C 4.24.23.pdf |
HFIN 5/2/2023 10:30:00 AM |
HB 38 |
| HB 38_HJR 2 Sponsor Statement 4.24.23.pdf |
HFIN 5/2/2023 10:30:00 AM |
HB 38 HJR 2 |
| HB 38 Summary of Changes ver. C 4.24.23.pdf |
HFIN 5/2/2023 10:30:00 AM |
HB 38 |
| HB 38_HJR 2 Sponsor Statement Version C.pdf |
HFIN 5/2/2023 10:30:00 AM |
HB 38 HJR 2 |
| HJR 2 Sectional Analysis Ver. C 4.24.23.pdf |
HFIN 5/2/2023 10:30:00 AM |
HJR 2 |
| HJR 2 Summary of Changes Ver. C 4.24.23.pdf |
HFIN 5/2/2023 10:30:00 AM |
HJR 2 |
| HJR 2 Additional Documents Presentation 4.25.23.pptx |
HFIN 5/2/2023 10:30:00 AM |
HJR 2 |
| HB38.HJR2 Additional Document.Presentation 4.25.23.pdf |
HFIN 5/2/2023 10:30:00 AM |
HB 38 HJR 2 |