Legislature(2021 - 2022)DAVIS 106
04/29/2021 11:30 AM House WAYS & MEANS
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HJR6 | |
| HB141 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HJR 6 | TELECONFERENCED | |
| *+ | HB 141 | TELECONFERENCED | |
| + | TELECONFERENCED |
HJR 6-CONST. AM: APPROP LIMIT; BUDGET RESERVE
11:33:13 AM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 6, Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit; and relating to the budget reserve fund.
CHAIR SPOHNHOLZ noted that the modeling being presented by the
Office of Management & Budget (OMB) today applies to both [HJR
6] and HB 141. She stated that the bills are substantially
similar.
11:33:59 AM
NEIL STEININGER, Director, Office of Management & Budget, (OMB),
introduced HJR 6 on behalf of the House Rules Standing
Committee, sponsor by request of the governor. He prefaced the
presentation by noting that HJR 6 is a constitutional amendment
to addresses the spending limit and the constitutional budget
reserve (CBR). He directed attention to a PowerPoint
presentation, titled "HJR 6: Constitutional Spending Limit"
[hard copy included in the committee packet]. He began on slide
2, which displayed the depletion of savings over the last
decade, indicating that over $16 billion in budget reserves had
been spent through expenditures in excess of revenue. He stated
that the proposed constitutional spending limit seeks to address
the ability to run up state spending at an unsustainable rate.
He advanced to slide 3 and highlighted the issue with the
current constitutional limit (represented by the solid blue
line). He pointed out that at its inception in 1982, the
spending limit was near UGF spending levels, and has since
escalated far greater than spending; consequently, the current
constitutional limit per Article IX, Section 16 is too high to
effectively control spending. The solid yellow line reflected
UGF revenues, whereas the blue dotted line reflected the limit
proposed in HJR 6 if it had been enacted in 1982. He noted that
the proposed spending limit would have worked differently to
effectively constrain spending.
11:36:58 AM
CAROLINE SHULTZ, Chief Policy Analyst, Office of Management &
Budget, provided additional historical context to slide 3. She
explained that when the constitutional spending limit was
originally ratified by the voters, it contained a provision that
obligated a 5-year checkup, at which point the voters would have
to approve it a second time. She pointed out that even by the
late 1980s, the spending limit was already well above the level
of spending at the time. Despite that, voters still ratified
the constitutional limit a second time. She indicated that the
concept of a spending limit was very popular with Alaskans and
legislators.
11:37:54 AM
MR. STEININGER continued to slide 4, which read as follows
[original punctuation provided]:
HJR 6 amends article 9, section 16 of the Alaska
Constitution:
Fixing the calculation to limit spending
May not exceed prior three-year average by more than
the greater of inflation or population growth
Clarifies definition of appropriations subject to cap
Includes appropriations of state funds (UGF, DGF)
Excludes the following appropriations:
PFD
Bond proceeds and debt service costs
Deposits to state savings accounts
Disaster response
Non-state funds for a specific purpose
MR. STEININGER stated that HJR 6 seeks to amend Article 9,
Section 16 of the Alaska Constitution by fixing the current
calculation, such that the base by which the spending limit is
calculated would not exceed the prior three-year average,
compounded by the greater of inflation or population growth. He
noted that the current spending limit has a base set in 1982
that has escalated by inflation of population growth compounded.
Thus, HJR 6 proposes changing both the escalator of the
constitutional spending limit, as well as the base to which that
is applied.
11:39:27 AM
MR. STEININGER advanced to slide 5, which read as follows:
HJR6 amends article 9, section 17 of the Alaska
Constitution:
Amends budget reserve fund (CBR) access provisions
Appropriations from CBR may be made by a majority
vote if there are inadequate general fund revenues to
meet expenditures
Removes general fund liability to CBR (CBR "sweep")
11:40:01 AM
MR. STEININGER turned to slide 6, which provided a comparison
between the current spending limit and the proposed
constitutional amendment. He noted that the bold text reflects
the differences between the two. The current constitutional
limit excludes revenues of a public enterprise and certain
capital appropriations, which are not excluded in HJR 6; whereas
HJR 6 excludes deposits into other state savings accounts, which
is not currently excluded. The base in the current spending
limit is $2.5 billion while the base in HJR 6 is an average of
the previous three years, which would allow the base to adjust
with spending decisions. Finally, the adjustor factors in the
current spending limit compounds inflation and population, which
creates a high growth rate; alternatively, the adjustor factors
in HJR 6 are the greater of inflation or population.
11:41:57 AM
MS. SCHULTZ continued to slide 7, which modeled the base year,
or starting point, for calculating the spending limit. She
posited that the three-year average moving base proposed in HJR
6 would be a better and more flexible option, as opposed to a
fixed dollar amount. The blue dotted lines on the graph
reflected "what if" scenarios if the three-year moving average
in HJR 6 had been implemented in different years. She pointed
out that the hypothetical spending limit beginning in 2015 (dark
blue dotted line) would have been high; however, because it's
based on the three-year moving average, it would have adjusted
back down to the spending level (red line). She said the three-
year average would permit a flexibility to react to real fiscal
conditions and prevents the runaway growth that exists with the
current constitutional limit (grey dotted line).
11:44:01 AM
MS. SCHULTZ turned to slide 8, which modeled the same examples
from slide 7, but instead of using a three-year average, the
graph displayed a fixed base comparison. She indicated that
similar to the current constitutional limit, the spending limits
grew according to the escalator [the greater of population or
inflation] rather than adjusting down given fiscal realities.
Consequently, she reiterated that a moving average would allow
for flexibility.
11:44:50 AM
REPRESENTATIVE SCHRAGE referring to the graph on slide 8, he
asked what the different colored lines represented.
11:45:06 AM
MS. SCHULTZ explained that the solid orange line reflected HJR 6
if it had been implemented in 2000 and accounted for a three-
year moving average with a gross escalator based on population
and inflation; similarly, the orange dotted line reflected HJR 6
if it had been implemented in 2000, but accounting for FY 99 as
the based instead of a three-year moving average. She concluded
that the same applied for all the different colored lines: the
solid lines reflected a spending limit with a moving average and
the dotted lines reflected a fixed base.
11:46:51 AM
REPRESENTATIVE STORY asked whether past spending was reflected
on the graph.
MS. SCHULTZ directed her attention to the light grey line, which
represented UGF spending.
11:47:08 AM
REPRESENTATIVE SCHRAGE inquired about the spending beginning in
2010 (blue lines), noting that the UGF spending went well above
what would have been the spending cap had it been implemented.
He asked what the predominant driver of the increased spending
was and whether necessary expenditures would have been foregone
as a result of that spending cap.
MS. SCHULTZ said a major driver of spending increases during
that time period were capital expenditures, such as deferred
maintenance and necessary construction that had been deferred
during low spending years in the late 1990s and early 2000s.
Additionally, some of the spending simply occurred because funds
were available.
11:48:04 AM
MS. SCHULTZ reviewed the graph on slide 9, which illustrated the
difficulty in forecasting a spending limit that is based on a
moving average, as it requires predicting economic conditions in
addition to future spending. The red line reflected UGF
spending based on OMB's 10-year plan; the light grey dotted line
reflected the spending cap as presented in HJR 6 if spending
followed OMB's 10-year plan; the black dotted line reflected the
maximum potential spending cap under HJR 6 given the CPI
assumption of 2.25 and .5 percent population growth assumption.
11:49:54 AM
REPRESENTATIVE STORY sought to confirm that following OMB's 10-
year plan assumed that $1.2 billion in new revenue was accounted
for.
MS. SCHULTZ noted that the spending cap discussion is agnostic
on revenue. Nonetheless, she confirmed that OMB's 10-year plan
did assume that new revenue was established to meet the deficit.
11:50:24 AM
CHAIR SPOHNHOLZ speculated that if the state failed to come up
with new revenue, spending would drop, and the three-year moving
average would drive that spending down further moving forward.
CHAIR SPOHNHOL confirmed.
11:50:41 AM
MS. SCHULTZ resumed the presentation on slide 10, which modeled
a comparison of growth adjustors. She reminded the committee
that in HJR 6, the growth adjustor is based the greater of
population growth or inflation; alternatively, the growth
adjustor in the current constitutional spending limit is based
on population and inflation compounded. The black dotted line
reflected the spending limit in HJR 6 as if it had been
implemented in FY 05; the green line reflected HJR 6 if was just
based on inflation. She explained that the two were extremely
similar because inflation has been higher than population growth
during this time period. The blue solid line reflected HJR 6 if
it were to track population growth. She continued to the next
slide, noting that people often ask why population and inflation
are used more commonly for spending cap adjustors. The graph on
slide 11 highlighted the volatility of other common economic
indicators, which is why they are not used as frequently for
spending limit adjustors.
11:53:21 AM
MS. SCHULTZ continued to slide 12, which modeled projections
based on different economic considerations. She concluded that
different economic considerations would change the spending
limit when based on CPI and population.
CHAIR SPOHNHOLZ asked whether Ms. Schultz was concerned about
there the large backlog of deferred maintenance and whether a
constitutional spending cap would prevent the ability to address
that.
11:54:44 AM
MR. STEININGER acknowledged that necessary investment into
deferred maintenance needs to be considered when looking into
capital and operating budgets moving forward. He pointed out
that the flexibility allowed by HJR 6 would allow for the use of
general obligation bond debt to address immediate, larger needs.
He reiterated that HJR 6 would constrain out-of-control gross
spending for unnecessary purposes.
11:55:51 AM
REPRESENTATIVE SCHRAGE questioned how to address deferred
maintenance in future years should the price of oil skyrocket.
He considered a scenario in which oil prices rose, the state was
flush with savings, and the only option to address deferred
maintenance was to take out bonds and go into debt. He believed
that would create an "awkward" situation.
11:56:39 AM
MR. STEININER confirmed that the point made by Representative
Schrage is an important policy decision when setting a spending
limit, as it would inherently constrain the ability to respond
to increased revenue to avoid the "boom and bust" cycle.
CHAIR SPOHNHOLZ emphasized the relevancy of Representative
Schrage's question. She believed that the decision on whether
to address the infrastructure deficit of $22 billion when the
state has available funding would be an important policy
consideration.
11:58:10 AM
REPRESENTATIVE PRAX referred to slide 4 and asked whether HJR 6
would potentially restrict the growth of certain fee-collection
programs.
11:59:31 AM
MR. STEININGER confirmed that it would limit the growth of fees
coming in through Designated General Funds (DGF) if it were
outside the adjustor factors. He added that whether fees or
general tax revenue, they still count as general funds, which is
why both UGF and DGF and the distinction between the two were
included. He said OMB is looking to constrain the ability to
generate new programs when there is addition revenue to avoid
the runaway spending enabled under the current spending cap. He
reiterated that HJR 6 would effectively limit the creation of a
new fee-based program.
12:00:28 PM
REPRESENTATIVE PRAX commented on the Fairbanks North Star
Borough's spending cap, noting that it limits the amount of
revenue it can take into property evaluation growth. He
explained that the spending cap has not affected the borough, as
the borough expanded its property tax base, whereas the city is
charging more service fees. He shared his belief that
government could be grown on fees rather than taxes, adding that
HJR 6 could obstruct that ability.
12:01:58 PM
REPRESENTATIVE EASTMAN asked how the spending limit would impact
the state's legal obligations.
12:02:24 PM
MR. STEININGER said the exemptions from the spending cap include
deposits into state savings accounts, including the pension
fund, the PERS fund, and the TERS fund. He added that it would
not constrain the ability to meet those specific obligations,
nor would it constrain the state's ability to meet such
obligations as paying down state debt. He indicated that the
goal was to constrain spending on discretionary items and gross
of extra government spending without hampering the ability to
meet existing constitutional obligations, such as paying for
retirement.
12:03:26 PM
REPRESENTATIVE EASTMAN considered a scenario in which the state
put $3 billion towards pension obligations. He asked whether
the $3 billion would count towards spending that year and
whether other appropriations would be limited.
MR. STEININGER conveyed that it would not be subject to the cap
as applied by the constitutional limit; however, it would still
be counted as a state expenditure in budget reports.
CHAIR SPOHNHOLZ noted that Assistant Attorney General Bill Milks
was available to address the question in further detail.
12:04:26 PM
WILLIAM "BILL" MILKS, Chief Assistant Attorney General, Public
Corporations and Governmental Services, Civil Division (Juneau),
Department of Law, agreed with Mr. Steininger's response.
12:04:57 PM
REPRESENTATIVE STORY addressed the state's constitutional
obligations pertaining to the funding of education. She
reported that when adjusted for cost of living, Alaska's
teachers were ranked twentieth in the nation [in terms of pay],
which is the primary indicator of student learning. She
believed that teachers in Alaska were not being paid
sufficiently and asked how HJR 6 would account for increasing
the state's constitutional obligations.
12:06:22 PM
MR. STEININGER said the answer is similar to the one regarding
deferred maintenance funding, because education funding and
deferred maintenance funding are both subject to fall within the
spending cap under HJR 6. He stated that they would all
effectively compete for the availability of expenditures and the
gross would be constrained to the escalation of the spending
limit and its prioritization within that. He added that as the
spending limit was reached, priorities would have to be
reallocated within that per the statewide budget process.
12:07:17 PM
REPRESENTATIVE PRAX asked Mr. Steininger to elaborate on bonding
and how it would fit into the proposed spending cap. He
speculated that deferred maintenance could be addressed with an
issuance of bonds and asked whether there would be a limit on
the amount of bonds that could be issued.
12:07:46 PM
MR. STEININGER clarified that issuing general obligation bond
debt and expending the proceeds of a bond cell, as well as
paying the debt service, would not be subject to the cap as
drafted. He noted that those would go to a vote of people;
therefore, Alaskans would have to agree to issue the debt and
fund the projects.
12:08:18 PM
REPRESENTATIVE PRAX sought to confirm that if the voters
approved a general obligation bond, the spending cap would be
raised appropriately to pay the interest on the bonds.
MR. STEININGER clarified that it wouldn't be part of the
spending cap calculation. He said the cap itself wouldn't be
raised and that expenditure would not be subject within the cap.
12:08:56 PM
REPRESENTATIVE SCHRAGE pointed out that the mechanism for
increasing the spending cap with the growth of inflation or
population had been discussed; however, he proposed a scenario
in which the legislature was to set appropriations at a low
level and asked how that would impact future legislatures.
Further, he questioned whether there would be a remedy for the
next class of legislatures to correct that spending level or
whether the spending cap would restrain spending to an
unreasonable level for future years.
12:10:03 PM
MR. STEININGER said effectively, with a three-year average, the
legislature in that scenario would be driving down the cap to
meet spending as it declined. He added that if there were a
conscious decision to significantly reduce spending over a time
period, it would bring the spending limit down along with it.
REPRESENTATIVE SCHRAGE sought to confirm that the spending cap
could be arbitrarily driven down; however, the only mechanism to
raise it would be the rate of inflation or population growth.
MR. STEININGER confirmed.
REPRESENTATIVE SCHRAGE believed that when considering something
as serious as a constitutional amendment, it's important to map
out certain scenarios to ensure that the state doesn't end up in
a situation where it is unable to adapt to challenges.
12:11:09 PM
MR. SCHULTZ conveyed that she had been considering what would
happen if there was an influx of available federal funds that
could be used to reduce the state budget on paper. She
explained that if the spending cap was lowered because the
legislature decided to replace $1 billion of state funding, it
would be an immediate issue.
REPRESENTATIVE SCHRAGE considered a scenario in which the
federal government wanted to invest in upgrading Alaska's
utility infrastructure, which requires a state match. He
expressed concern about being unable to appropriate those funds
to meet the matching requirement for investments in the state.
12:12:57 PM
REPRESENTATIVE PRAX, referring to slide 5, asked how amending
the CBR fits into the proposed spending cap.
12:13:24 PM
MR. STEININGER explained that the changes to the CBR proposed in
HJR 6 would change the way the CBR is accessed. Rather than
requiring a three-quarter vote, appropriations from the CBR
could be made by a majority vote if there were inadequate
general fund revenues to meet expenditures. He explained that
the prior three-year average effectively stops excessive use of
the CBR to increase spending. He noted that HJR 6 would also
remove the general fund liability to the CBR, also known as the
CBR "sweep" provision.
12:14:26 PM
REPRESENTATIVE PRAX sought to confirm that HJR 6 would not turn
the CBR into the SBR.
MR. STEININGER said no, it would not turn it into the SBR, as it
would remain a constitutionally protected rainy day fund for
situations where general fund revenues are inadequate.
REPRESENTATIVE PRAX asked whether the designated funds that are
swept back and forth would continue to exist within the CBR
under HJR 6.
MR. STEININGER stated that because HJR 6 would remove the
general fund liability and the CBR sweep provisions, those
designated general funds would remain managed as sub funds of
the general fund.
12:15:43 PM
REPRESENTATIVE EASTMAN inquired about the distinctions that
would exist between the general fund and the CBR if HJR 6 were
to pass.
MR. STEININGER acknowledged that in terms of the required vote
count, the CBR expenditures would be similar to a general fund
expenditure; however, the CBR would be managed separately as a
rainy-day fund. Therefore, the first access in the current
fiscal year would be general fund and general fund revenues,
while the CBR would only be accessed should the general fund
revenues be inadequate to fund government purposes. He
reiterated that the CBR would be akin to segregating a rainy-day
fund rather than "lumping them all into the general fund."
12:16:53 PM
REPRESENTATIVE EASTMAN inquired about the appropriate CBR
balance and how money would be deposited into the CBR if the
repaying of previous borrowing is not required.
MR. STEININGER replied that deposits into CBR would be similar
to what they are now: settlement income and earnings on the fund
itself. Regarding the CBR's balance, he characterized it as a
policy call and said it would require a much broader discussion.
He pointed out that roughly $4-5 million dollars would be needed
to meet basic cash flow needs; therefore, from OMB's
perspective, $4-5 million would be the absolute minimum balance
required. In order to utilize the CBR to address volatilities,
the need under the current fiscal structure is "unbounded," he
said, because $16 billion dollars wasn't enough. He explained
that until some of the structural issues are resolved, the right
amount of money in a rainy-day fund is difficult to state
objectively.
CHAIR SPOHNHOLZ opined that the spending cap conversation is
interesting; however, the revenue conversation is more important
at this time. She expressed her hope that the administration
would come to the table with some constructive revenue measures.
She acknowledged that the governor's 10-year plan identifies
over $1 billion in new revenue, but without new revenue, an
overdraw of the earnings reserve account (ERA) is likely. She
noted that currently, the CBR requires a three-quarter vote to
send from. Still, the legislature spent $16 billion from state
savings accounts with that three-quarter vote requirement in
place. She emphasized the risk to Alaska's fiscal stability
unless the structural deficit is solved. She believed a
spending cap could be a part of the solution, but now, all it
would do is force the legislature to gut essential services and
constitutionally mandated services unless it's paired with new
revenue. She believed this was an important area for the
governor to take some leadership on moving forward. She thanked
Mr. Steininger and Ms. Schultz and invited closing remarks from
the presenters.
12:21:24 PM
MR. STEININGER concluded that this is one piece in the overall
ability to address the structural fiscal problems. He agreed
that it needs to be considered in concert with other proposals,
such as the POMV constitutional amendment and other large
structural fixes, as this on its own would not solve the state's
problems.
12:21:56 PM
CHAIR SPOHNHOLZ stated her intent to hold over HJR 6.
12:22:05 PM
REPRESENTATIVE PRAX remarked:
In Alaska over the last 40 years, government thought
has been on revenue limited, rather then on long-term
spending trends and that would be the advantage of
this because, especially at the state level, our
revenue is so volatile. This would ... provide
stability over the long term for the base part of our
economy and not let government grow to what would be
an unsustainable level without lots of other things.
[HJR 6 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 6 HWAM OMB Presentation 4.29.21.pdf |
HW&M 4/29/2021 11:30:00 AM |
HJR 6 |
| HJR 6 Hearing Request Letter.pdf |
HW&M 4/29/2021 11:30:00 AM |
HJR 6 |
| HJR006-1-2-021821-GOV-N.PDF |
HW&M 4/29/2021 11:30:00 AM |
HJR 6 |
| HJR 6 Approp. Limit, Excess Revenue TL.pdf |
HW&M 4/29/2021 11:30:00 AM |
HJR 6 |
| HB 141 Sponsor Statement.pdf |
HW&M 4/29/2021 11:30:00 AM HW&M 10/14/2021 10:00:00 AM |
HB 141 |
| HB 141 Sectional Analysis.pdf |
HW&M 4/29/2021 11:30:00 AM |
HB 141 |