Legislature(2023 - 2024)DAVIS 106
03/13/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HJR2|| HB38 | |
| Presentation(s): Responsible Alaska Budget on Spending Limits | |
| Presentation(s): Spending Caps | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 2 | TELECONFERENCED | |
| += | HB 38 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HJR 2-CONST. AM: APPROP LIMIT
HB 38-APPROPRIATION LIMIT; GOV BUDGET
6:03:56 PM
CHAIR CARPENTER announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 2, Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit. and 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." [Before the
committee was CSHJR 2(JUD) and CSHB 38(JUD).]
6:05:05 PM
The committee took a brief at-ease at 6:05 p.m.
6:05:47 PM
REPRESENTATIVE WILL STAPP, Alaska State Legislature, as prime
sponsor, presented CSHJR 2(JUD) and CSHB 38(JUD). He explained
that the need for a spending cap is not new in the state's
history. In 1982 Alaska had identified the potential for
overspending and imposed appropriation limits. However, this
decision was tied to the economy of the time, and he explained
that the problem now is the limit does not effectively limit
appropriations. He further explained that a decade ago Alaska
had $10 billion in revenues and $18 billion combined in the
constitutional budget reserve (CBR) and the statutory budget
reserve (SBR). At that time the House Finance Committee was
presented a 10-year budget forecast from the Office of
Management and Budget (OMB), and the 10-year forecast did not
predict that the state would spend its reserves or make
Permanent Fund draws to pay for state services. He advised that
one of the effective ways to ensure a strong and stable economy
would be to apply "commonsense solutions to complex problems."
He expressed the opinion that an appropriation limit would be
the first of many commonsense solutions.
6:08:21 PM
BERNARD AOTO, Staff, Representative Will Stapp, Alaska State
Legislature, on behalf of Representative Stapp, prime sponsor,
assisted in presenting CSHJR 2(JUD) and CSHB 38(JUD). He
referred to language from [a portion of Article IX, Section 16,
of] the Constitution of the State of Alaska, regarding
appropriations, which relates that appropriations from a fiscal
year shall not exceed $2.5 billion by more than the cumulative
change. He explained that one-third of the income shall be
reserved for capital projects and loan appropriations, while
voter approved projects would be able to exceed the limit. He
said CSHJR 2(JUD) would apply a different metric for calculating
an appropriations limit by using the gross domestic product
(GDP). He said that the proposed resolution would take a five-
year trailing average of real GDP based on calendar years. The
calculation would take 14 percent of the five-year average, and
this would be the spending cap. He advised that if established
before fiscal year 2024 (FY 24), the number would be $6.25
billion. He explained that the reason for 14 percent is it
would set a limit near the current spending levels, and this
would allow stable and predictable spending in the future.
6:10:20 PM
MR. AOTO drew attention to a PowerPoint backup slide [hard copy
included in the committee packet]. He stated that the
expenditures subject to the proposed limit would be unrestricted
general funds (UGF) operating expenditures, UGF capital
expenditures, and payments for retirement benefits. He stated
the expenditures not subject to the limit would be permanent
fund dividends (PFDs), appropriations to the Permanent Fund,
appropriations to the Power Cost Equalization Endowment Fund,
appropriations to the state savings account, appropriations to
capitalize state retirement accounts, direct spending from a
disaster declaration, and proceeds of bonds which are approved
by voters.
6:11:24 PM
MR. AOTO, presenting another backup slide, explained that the
graph illustrates the current appropriations subject to a limit,
the current constitutional limit, and the limit under the
proposed bills. He noted that the graph accounts for the
administration's amended and supplemental FY 24 budgets. He
pointed out that while CSHJR 2(JUD) would exceed the cap CSHB
38(JUD) proposes, it would not exceed the current limit as set
by the state constitution. Mr. Aoto stated that HJR 2 has one
primary goal: to create an effective appropriations limit to
allow for stable long-term fiscal viability.
6:12:33 PM
MR. AOTO gave the sectional analysis for CSHJR 2(JUD) [included
in the committee packet], which read as follows [original
punctuation provided, with some formatting changes]:
Section 1:
Amends Article IX, sec. 16 of the Constitution of the
State of Alaska to slightly revise appropriations
subject to the limit as well as the conditions that
determine the appropriation limit. Sets a maximum
statutory cap at 14% of Real GDP (not including
government spending).
Exceptions List [Article IX, Sec. 16]
• Adds appropriations to the Alaska permanent fund to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Adds Appropriation of GO Bond proceeds to exceptions
list
o Moved with slight variation from Appropriation
Limit Section to Exceptions List
• 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.
• Adds 'appropriations to meet a state of disaster
declared by the governor as prescribed by law to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Removes "Appropriation of Revenue of a public
enterprise or public corporation.
of the state that issues revenue bonds"
Appropriation Limit Conditions [Article IX, Sec. 16]
• Adds (Appropriations Not to Exceed) an amount
prescribed by law equal to a percentage of the average
Real GDP (not including government spending) for the
first five of the last six years. This measure of
Real GDP is estimated by state government as
prescribed by law.
• Removes Old appropriation limit anchored to $2.5
Billion + Pop. and infl. (since 7/1/81)
• Removes language reserving 1/3 for capital projects
and loan appropriations.
• Removes language adding exceptions to appropriations
subject to the limit from this Appropriation Limit
Conditions section and moves these to the exceptions
list. section.
• Removes specific language surrounding Capital projects
exemptions.
Section 2:
Adds a new section to Article XV of the Constitution of
the State of Alaska (Schedule of Transitional
Measures), section 30, which sets an 'effective date'
of the end of the fiscal year immediately following the
next possible opportunity for Alaskans to ratify a
proposed amendment to the constitution.
Section 3:
Includes the provision that the constitutional
amendments proposed by this resolution must be placed
before the voters at the next general election.
6:15:20 PM
REPRESENTATIVE GRAY requested that Representative Stapp speak to
the purpose of CSHJR 2(JUD).
REPRESENTATIVE STAPP explained that the intent of CSHJR 2(JUD)
is to smooth out the boom-and-bust cycles in the state's
budgeting, and this would be to ensure long-term viability and
establish fiscal certainty in Alaska. He said this could also
help private sector performance. He explained that private
sector entities are wary of investing because the state is
struggling to create stability.
REPRESENTATIVE GRAY suggested that the proposed legislation
would help control spending and avoid overspending.
REPRESENTATIVE STAPP concurred with the statement. In response
to a follow-up question concerning why the PFD is not included
in the spending limit, he pointed out that there has been
contention in the state over the PFD for the last eight years,
and he expressed the opinion that the PFD "needs its own
solution." He said CSHJR 2(JUD) would be setting out to solve a
larger fiscal problem which has existed in the state longer than
the PFD "tug-of-war." He pointed out that the struggle over the
PFD ebbs and flows.
6:18:00 PM
REPRESENTATIVE STAPP, in response to a question from
Representative Allard, explained that CSHJR 2(JUD) contains an
exception for PFD appropriations. He said the legislature would
have the ability to take funds not within the cap and
appropriate them as it chooses. He suggested that this could be
to pay the dividend or repay draws from CBR.
6:19:39 PM
REPRESENTATIVE MCCABE brought up the Fiscal Policy Working
Group's (FPWG's) recommendations, pointing out that FPWG had
separated the PFD intentionally, as well as proposed a separate
spending limit. He opined that the PFD does not belong in the
budget. He surmised that Representative Stapp wrote CSHJR
2(JUD), as is, because there are already solutions to the PFD
which are working.
REPRESENTATIVE STAPP responded that a spending cap was one of
FPWG's proposals. He pointed out that a spending cap would not
be dependent on any other aspect of the situation. He said that
he is not opposed to others seeking a "holistic" solution;
however, he expressed belief in the merits of the proposed bills
and stated that they stand independently.
REPRESENTATIVE MCCABE expressed the understanding that FPWG did
not "cherry-pick," and it knew the proposals would be separate,
but the group also wanted all the proposals to "march together."
He noted FPWG expressed that a constitutional spending limit is
important, and he thanked Representative Stapp for bringing
CSHJR 2(JUD) forward and suggested that the matter bears
investigating.
6:22:24 PM
REPRESENTATIVE TILTON asked Representative Stapp to elaborate on
using the GDP formula over the population-plus-inflation
formula. She also asked him to explain the funding limit's
design.
REPRESENTATIVE STAPP stated that the private sector element is
important. He referenced various countries in Europe, like the
Nordic countries, which have a strong private sector economy.
He expressed the opinion that the past private sector growth in
Alaska has been anemic. He suggested that to get to a holistic
economy in Alaska, members in the House must take measures
towards a strong private sector economy. He commented that this
concerns looking at decades ahead.
6:24:13 PM
MR. AOTO relayed that the current population-plus-inflation
formula would need to be tied to a figure in order for it to be
effective, and it is currently tied to $2.5 billion. He said
there is difficulty applying the formula with any figure,
especially when enshrining a figure into the constitution,
because in 10 years the figure could balloon out of control. He
pointed out that this is happening now with the current limit
set out in the constitution. He pointed out the graph which
illustrates how the current constitutional spending limit
formula has led to spending levels the state could not even hope
to achieve at its current economic level. He explained that a
one-year dip in population and inflation could drastically
affect the current formula limit. Alternatively, the formula
that CSHJR 2 proposes bases the limit on five trailing years,
which allows one bad year to not create an issue. He surmised
that if there were five years of economic decline, the
legislature would try to take action to reverse the decline to
avoid the "shock value" which had resulted in 2015 from the
decline in oil prices.
6:26:02 PM
REPRESENTATIVE GROH questioned Representative Stapp's awareness
concerning FPWG's recommendation of "revising Alaska's spending
limits as part of a comprehensive solution," but without
offering what this solution would be.
REPRESENTATIVE STAPP responded that the answers to these
questions are the prerogative of the committee.
6:27:17 PM
CHAIR CARPENTER suggested that characterizing FPWG as having a
recommended action is a mischaracterization of the group's
report. He said that its report put forward a revision to the
concept of Alaska's spending limits, because the limits have not
been effective. He questioned the relationship between the
proposed bills.
6:27:57 PM
MR. AOTO explained that the connection is the proposed bills are
designed to coincide with one another and mimic each other's
language. He said this provides an aligning and stable spending
limit, with the main difference being percentages. He
contrasted the current 14 percent and the proposed statutory
11.5 percent, in that the statutory limit sets a two-thirds vote
requirement for the legislature to exceed the limit.
CHAIR CARPENTER questioned whether this could be for any need or
only for capital spending.
6:29:00 PM
REPRESENTATIVE STAPP responded that, conceptually, it would be
for capital spending, but the money could be appropriated for
other means. He expressed the intention to ensure that [the
state] has the ability to maintain a level of revenue which
could be appropriated for capital spending for the future.
6:29:39 PM
MR. AOTO, at the invitation of Chair Carpenter, offered
information regarding CSHB 38(JUD), which he highlighted as the
statutory companion to CSHJR 2(JUD). He explained that the
current statutory limit, set under AS 37.05.540(b), mostly
aligns with the appropriations limit under Article IX of the
Constitution of the State of Alaska, which states,
"Appropriations from the treasury made in a fiscal year may not
exceed appropriations made in the preceding fiscal year by more
than five percent plus the change in population and inflation
since the beginning of the preceding fiscal year." He further
explained that the change in population is based on an annual
estimate by the Department of Labor and Workforce Development,
and the change in inflation is based on the consumer price
index, as prepared by the U.S. Bureau of Labor Statistics.
MR. AOTO said CSHB 38(JUD) would use the trailing average of the
five previous calendar years of the real GDP for the state as
the metric for the limit. He explained that the real GDP is
calculated by taking data for the standard GDP calculations by
government agencies, subtracting government spending, and
adjusting for inflation. He stated that 11.5 percent of the
total average would be the limit for all appropriations not
listed as exceptions. He noted that, if enacted by FY 24, this
figure would be $5.1 billion. He explained that the
appropriations subject to the limit under the proposed bills
mimic each other; however, CSHB 38(JUD) would add an additional
exemption of appropriations made from the Alaska Mental Health
Trust Authority settlement income account. He said that this
was put into the bill because of Weiss v. State, 939 P.2d 380
(1997), and the language was left unaltered at the advice of the
Legislative Legal Services, because any change to it may subject
the legislature to litigation and reopen Weiss v. State.
6:32:34 PM
MR. AOTO showed a graph depicting the current statutory limit.
He said the figure varies when compared to appropriations
subject to the constitutional limit. He offered further details
and noted that any supplementals made in a fiscal year count
toward this fiscal year. He stated that the two primary goals
of CSHB 38(JUD) are to create an effective appropriations limit
to allow the state more stable long-term fiscal viability and to
align Alaska statute with the constitutional proposal. He then
presented a graph which represented appropriations subject to
the constitutional limit, appropriations subject to the
statutory spending limit, the current limit, the limit under
CSHJR 2(JUD), and the limit under CSHB 38(JUD). He noted that,
historically, the constitutional limit is stable at an incline;
however, the statutory limit is volatile because of the metric
designed for the limit.
6:35:09 PM
MR. AOTO gave the sectional analysis for CSHB 38(JUD) [included
in the committee packet], which read as follows [original
punctuation provided, with some formatting changes]:
Section 1:
Amends AS 37.05.540(b) to conform to changes made by
HJR 2. Changes affect the list of appropriations
subject to the limit as well as the conditions that
determine the appropriation limit. Defines a
calculation for an appropriation cap at 11.5% of a
trailing average of Real Gross Domestic Product (GDP)
(not including government spending).
• Exceptions [37.05.540(b)]
o Adds Appropriation of general obligation
Bond proceeds to exceptions list
o Adds payment of principal and interest on
revenue bonds to exceptions list
o 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
o Adds 'appropriations to meet a state of
disaster declared by the governor as prescribed by
law' to exceptions list.
• Appropriation Limit Conditions [37.05.540(b)]
o Adds (Appropriations Not to Exceed) 11.5%
of the average Real GDP (not including government
spending) for the first five of the last six years.
o Removes Old cap of 5% more than last year
+ the change in population and inflation since
beginning of preceding fiscal year.
o Removes language describing determination
of change in population based on annual estimate by
DLWD.
o Removes language describing change in
inflation based on Consumer Price index (CPI) for all
urban consumers for Anchorage.
Section 2:
Adds a new subsection (f) to AS 37.07.020 which
requires a comparison of the governor's budget
requests, supplemental requests, and budget amendments
to the calculated appropriation limit.
6:36:46 PM
REPRESENTATIVE STAPP pointed out the current statutory limit on
the graph and characterized it as a roller coaster. He echoed
the comments that because of the design of the current statutory
appropriations limit, it can be violated without even knowing
because of the nature of the supplemental budget process. He
further pointed out that because of how the current statutory
limit is calculated, there could be a $3 billion swing in one
fiscal year. He expressed the understanding that this would not
be what the legislature wishes to encourage when trying to find
long-term fiscal stability.
6:38:17 PM
REPRESENTATIVE GROH asked Representative Stapp to describe the
theory behind a constitutional and statutory spending limit. He
noted that a constitutional limit is effective but questioned
the purpose of the statutory limit with differing metrics.
REPRESENTATIVE STAPP explained that the purpose of the statutory
limit is to have a mechanism to ensure effective capital
spending without reaching the constitutional limit. He
reiterated that the goal would be to ensure future fiscal
stability, which he determined comes from a sound appropriations
process. He noted that Alaska already has constitutional and
statutory limits, so the idea is to make the current limits
effective and work together.
REPRESENTATIVE GROH asked if the reason to have a separate
statutory limit is because this is where there is room for
additional capital spending.
REPRESENTATIVE STAPP replied, "Not necessarily." He said there
can be effective capital spending within a statutory limit; it
just depends on how the legislature decides appropriate funding.
He said that when there is year-over-year private sector growth,
there could also be years where all spending falls under the
statutory limit.
6:40:13 PM
MR. AOTO noted that the limit also requires two-thirds of the
legislature to go over the 11.5 percent limit. He said that
theoretically, capital spending could be used but would also
still require two-thirds vote of support from the legislature.
6:40:47 PM
CHAIR CARPENTER announced that HJR 2 and HB 38 were held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0038B.PDF |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| HB 38_HJR 2 Sponsor Statement Version B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 HJR 2 |
| HB 38 Sectional Analysis B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| HB 38 Summary of Changes B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| W&M HB38.HJR2 BHR.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 HJR 2 |
| HJR002B.PDF |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HJR 2 Sectional Analysis Version B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HJR 2 Summary of Changes B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HB38 anf HJR2 model - Leg Finance.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| HB38.HJR2 W&M.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF_Townsend,Quinn_SpendingLimit.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF state-tax-and-expenditure-limits-april-2021.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF - TABOR-Turns-30.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF-Brief-TELs-50-State-Comparison-02-28-2020.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF Responsible Alaska Budget - Fiscal Year 2024.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF - TEL-Tale-Heart.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| H W&M_Approp Limits_3-13-23.pdf.pdf |
HW&M 3/13/2023 6:00:00 PM |