Legislature(2025 - 2026)BUTROVICH 205
04/25/2025 01:30 PM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| SB36|| SJR4 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 36 | TELECONFERENCED | |
| *+ | SJR 4 | TELECONFERENCED | |
SB 36-APPROPRIATION LIMIT; GOV BUDGET
SJR 4-CONST. AM: APPROP LIMIT
1:33:13 PM
CHAIR CLAMAN announced the consideration of:
SENATE BILL NO. 36 "An Act relating to an appropriation limit;
relating to the budget responsibilities of the governor; and
providing for an effective date."
and
SENATE JOINT RESOLUTION NO. 4 Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit.
CHAIR CLAMAN said this is the first hearing of SB 36 and SJR 4
in the Senate Judiciary Committee. He invited the bill sponsor
and his staff to identify themselves for the record and begin
the presentation.
1:34:10 PM
SENATOR JAMES KAUFMAN, District F, Alaska State Legislature,
Juneau, Alaska, sponsor of SB 36 and SJR 4, introduced the
legislation. He said the spending cap proposal is one component
of a suite of legislative proposals discussed within the
framework of the Fiscal Policy Working Group. The idea is that
the different policy elements might lead to better fiscal
management in the state. Those discussions include proposals
related to process and performance management, and revenue
measures intended to improve how the state finances and manages
government services for the betterment of all Alaskans.
SENATOR KAUFMAN stated that the existing spending cap is
ineffective because it is set well above actual spending levels
and does not meaningfully constrain appropriations. He said the
intent of a revised spending cap would be to moderate
fluctuations in state spending. He explained that, in the past,
periods of increased spending, often for capital projects or
other beneficial purposes, have occurred in bursts. He suggested
that spending moderately would allow the state to better respond
to needs if the legislature did not appropriate funds from
present-year revenue. He suggested that if the legislature
flattened and maintained a moderate level of spending, the
change would drive better economic performance.
1:36:35 PM
SENATOR KAUFMAN explained that his proposal would measure the
state's gross domestic product (GDP) using five of the past six
years. He said the model would average five of the previous six
years of state GDP to smooth year-to-year fluctuations, similar
to the five percent of market value draw used for the Permanent
Fund. He explained that using a healthy percentage of that
amount would establish a limit for operating budget spending.
SENATOR KAUFMAN stated that the second component of the proposal
addresses the amount to be segregated for capital project
spending, which would require a two-thirds vote. He said the
legislature has sought guidance to move the state toward
consistent capital project funding, but those efforts have not
fully succeeded.
1:37:30 PM
SENATOR KAUFMAN noted that Alaska is not revenue limited, so a
cap may not have a meaningful immediate effect. However, if the
state experiences increased revenue in the future, perhaps new
oil and gas prospects, the cap could help prevent rapid
increases in spending. In that situation, the excess revenue
could be directed toward replenishing the budget reserves, such
as the statutory budget reserve (SBR) and the constitutional
budget reserve (CBR). He proposed to then make those dollars
available for capital funding assuming the state reaches a
healthy level of program spending.
SENATOR KAUFMAN emphasized that the proposed cap is not intended
to impose a rigid ceiling on spending but rather to serve as a
moderating influence. The five year average and the measurement
of the state GDP would create a smoothing effect and a guiding
mechanism.
1:38:47 PM
DOMINICK HARNETT, Staff, Senator James Kaufman, Alaska State
Legislature, Juneau, Alaska, delivered a presentation on SB 36
and SJR 4 on behalf of the sponsor.
MR. HARNETT moved to slide 2, Current Constitutional Limit:
[Original punctuation provided.]
Current Constitutional Limit
• Constitutional: Article IX, sec. 16 (effective in
1982)
• "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."
• $2.5 B plus inflation and population growth since
1982
• Calculation for FY26 would be over $11 billion
• Exemptions to the cap include, PFD's, bond proceeds,
debt service payments, non-state sources of revenue,
public corporation revenue appropriations, and
disaster declarations, school bond debt
reimbursement
MR. HARNETT stated that Alaska has a constitutional spending
limit, but it is so high that the state cannot reach it. The
spending limit is established in art. IX, sec. 16, Constitution
of the State of Alaska, adopted in 1982. The provision states
that appropriations from the treasury made for a fiscal year
shall not exceed $2.5 billion by more than the cumulative change
derived from federal indices as described by law. It adjusts for
population and inflation starting at $2.5 billion. Adjusted to
today's dollars, the constitutional limit for fiscal year 2026
would be slightly more than $11 billion. He noted that spending
levels are not even close to that.
MR. HARNETT further explained that the constitutional spending
limit includes several exemptions. He listed exemptions such as
permanent fund dividends, bond proceeds, debt service payments,
non-state sources of revenue, public corporation revenue
appropriations, disaster declarations, and school bond debt
reimbursement, which he noted was added later through a court
decision.
1:40:04 PM
MR. HARNETT moved to slide 3, Current Statutory Limit:
Current Statutory Limit
• AS 37.05.540 - Enacted in 1986
• Based on appropriations made in a fiscal year, not
for a fiscal year
• Counts supplementals in the year appropriated,
not effective
• Limits spending growth to population plus inflation
plus 5 percent
• The use of both factors to calculate the limit
has caused the limit to outgrow effectiveness
• The timing of data for calculation of this limit
does not work well with the budget process. The
limit is not known before the annual budget
process
MR. HARNETT stated that the statutory spending limit, enacted in
1986, is codified in AS 37.05.540. He explained that the
statutory limit is based on two factors:
• Appropriations are made "in a fiscal year" rather than "for a
fiscal year." Meaning, supplemental appropriations are counted
in the year they are made, which makes them a little less
effective.
• The statute limits spending growth to the population plus five
percent of the previous year's budget.
MR. HARNETT said the spending limit has outgrown its
effectiveness because it uses both of those factors.
1:40:38 PM
MR. HARNETT explained the problems with the statutory spending
limit. He said the timing of the data used to calculate the
limit presents challenges. He explained that population and
consumer price index (CPI) data are calculated at the beginning
of the year, while the governor releases the proposed budget in
December, creating a timing mismatch in the application of the
formula. He said the next slide explains the proposed statutory
limit.
1:40:58 PM
MR. HARNETT moved to slide 4, Proposed Appropriation Limit:
[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 Cap, upper limit, would cap spending
at 15 percent of GDP
• Statutory Cap, lower limit, caps spending at 12
percent of GDP
MR. HARNETT explained that the proposed legislation calculates
the statutory spending limit using historical state GDP. He said
the calculation would use the average of five of the previous
six years of GDP and would subtract government spending from
that figure. He stated that the resulting number would be based
on current-dollar values for that fiscal year.
1:41:17 PM
MR. HARNETT stated that using a five-year average helps prevent
fluctuation and stabilizes the calculation. The state GDP can
fluctuate significantly from year to year, particularly in
Alaska, due to changes in oil prices. He said averaging five of
the previous six years creates a stabilizing mechanism.
MR. HARNETT said the proposed legislation establishes a
constitutional cap as the upper limit and a statutory cap as the
lower limit. He said the constitutional cap is set at 15 percent
of GDP, while the statutory cap is set at 12 percent of GDP.
1:41:53 PM
SENATOR CLAMAN asked why the proposal excludes government
spending when calculating gross domestic product.
1:42:08 PM
SENATOR KAUFMAN replied that the measurement focuses on private-
sector economic activity because the aim is to have a beneficial
focus on the health of that sector. He noted that Alaska
receives substantial federal funding and operates many
government programs, but the proposed approach intends to
measure the portion of the economy the state hopes to grow. He
said a common principle in business management is that if
something is important, it should be measured and then managed
accordingly.
SENATOR KAUFMAN stated that the proposal focuses on the portion
of the economy that would benefit the state if it grows. He said
the goal is to grow the underlying private-sector economy rather
than expand the government sector. He acknowledged that
government spending is a factor and produces peripheral economic
effects. For example, employees working in a government office
may purchase goods from nearby businesses, which indirectly
supports private-sector activity.
1:43:25 PM
SENATOR CLAMAN stated that certain activities, such as road
construction projects, are largely funded with public funds but
carried out by private-sector contractors. He said those
projects involve government spending but still support private-
sector economic activity. He noted that he was not advocating
for growth of the government but suggested that including those
expenditures could potentially provide a more accurate
reflection of overall economic health.
1:44:03 PM
SENATOR MYERS said the example of road construction illustrates
the distinction between measuring government spending and
measuring private-sector economic growth. If the goal is simply
to increase overall spending totals, the state could fund
projects without regard to whether they produce long-term
economic benefits. He stated that focusing on private-sector
growth encourages policymakers to consider whether government
spending, such as road construction, supports long-term economic
development rather than only short-term employment.
SENATOR MYERS said that measuring private-sector activity may
encourage the state to consider how projects contribute to
economic growth over a longer period, such as ten or twenty
years.
1:45:02 PM
SENATOR KAUFMAN acknowledged that government-funded projects,
such as road construction, do contribute to the economy. He
explained that when individuals employed on those projects spend
their wages in the private sector, those dollars flow into
private-sector economic activity. Such spending can generate
indirect economic effects, such as workers purchasing vehicles
or other goods, which support businesses in the private sector.
He noted from his experience in the fabrication industry that
increased work activity was often evident in the parking lot,
where employees had parked their new pickup trucks. He
emphasized that these types of secondary economic effects are
reflected in the broader economy, but not through direct
government expenditure. Rather, they occur through indirect
effects on the economy.
1:46:00 PM
SENATOR MYERS noted that the proposal for a constitutional
amendment has gone through several iterations over the past four
years and asked about the change in the proposed percentage
limit. He recalled that earlier versions used a limit of 14
percent of private-sector GDP and asked why the proposed version
uses 15 percent.
SENATOR KAUFMAN responded that the specific percentages changed
over time as the proposal evolved in prior discussions. The
exact percentages remain part of the broader policy discussion
and negotiation. He said the goal is to set the limit within a
reasonable range. He explained that the proposal aims to
establish a workable spending range and that determining the
precise percentages will likely involve continued discussions
with legislative finance staff and others.
1:47:20 PM
SENATOR MYERS asked whether changes in the proposed legislation
were influenced by developments in the private sector or by
legislative considerations during prior committee deliberations.
SENATOR KAUFMAN responded that there may have been discussion at
one point about matching the percentage to spending levels in a
prior year. He said the legislation has evolved over several
legislatures.
1:48:24 PM
SENATOR KIEHL remarked that he is a little intrigued by the fact
that the proposed legislation ties the spending cap to the state
GDP and that the private-sector economy is the main focus. He
noted that when he reads the Alaska State Constitution,
including its preamble, it does not define the primary purpose
of state government as promoting private-sector economic growth.
SENATOR KIEHL acknowledged the importance of maintaining a
strong and healthy private-sector economy. He said the state
should support that goal and build incentives that do not exist
today. He suggested a possible alternative to consider is to
link state revenues to economic performance in a strong, healthy
private-sector economy.
SENATOR KIEHL stated that the Alaska State Constitution outlines
a range of responsibilities for state government that relate to
the overall well-being of Alaskans. He said those
responsibilities include economic well-being but also encompass
broader public services and obligations. He said that, as the
Alaska State Constitution reads, the proposed constitutional
amendment should not prioritize the private-sector economy over
all other public-sector workers, public services, or the good of
Alaskans as a whole.
1:50:06 PM
SENATOR KAUFMAN responded that the intention is not to diminish
the importance of the public sector. However, the state funds
government services through economic activity generated by the
private sector, and a healthy, vibrant private-sector economy
provides the resources needed to support public programs.
SENATOR KAUFMAN said that while the Alaska State Constitution
expresses the intent of promoting the well-being of Alaskans,
the question for policymakers is how best to achieve that
intent. He suggested that policies encouraging private-sector
economic growth are a great way to help provide the revenues
necessary to fund public services and programs.
SENATOR KAUFMAN noted that strengthening the private sector
could also reduce reliance on government services by creating
employment opportunities. He stated that the proposal seeks to
create mechanisms that keep the legislature focused on the
overall health of the economy.
1:51:17 PM
SENATOR KAUFMAN said there is another piece to the discussion.
He expressed concern that as the permanent fund continues to
grow, the state could increasingly rely on investment income to
finance government operations rather than private-sector
economic activity. He cautioned that such a shift could lead to
a system in which government services are funded primarily
through financial returns rather than through a productive
private-sector economy.
SENATOR KAUFMAN emphasized that employment provides more than
income; it contributes to an individual's self-worth and other
values. He said the proposal aims to strengthen the economic
foundation supporting public services.
SENATOR KIEHL remarked that he had never heard a better argument
for income tax.
1:52:21 PM
SENATOR KAUFMAN acknowledged the remark, noting that the senator
made a similar comment the first time the legislation was
proposed.
SENATOR KIEHL responded that the sponsor is just as convincing
this time.
1:52:32 PM
CHAIR CLAMAN recalled that when similar legislation was in the
Senate Judiciary Committee the previous legislature, it was
amended in committee to use a broader measure of GDP. He said it
went to the next committee of referral, the Senate Finance
Committee, and he did not know what happened from there.
SENATOR KAUFMAN responded that although the proposal has
undergone several iterations, he remains open to suggestions and
further input. He said the central concept is to measure it as
holistically as possible, average it, then identify healthy
ratios that guide responsible fiscal behavior.
SENATOR KAUFMAN noted that earlier discussions also raised
questions about whether the permanent fund dividend should be
included within the spending cap calculation. He said that has
been a big topic in Alaska. He explained that determining a
spending limit is difficult without a clear estimate of the
permanent fund dividend amount. The disagreement over the
dividend made it challenging to incorporate it directly into the
proposed cap calculation. The proposal leaves the dividend
outside the cap framework for that reason.
1:54:27 PM
CHAIR CLAMAN said that he is not sure if there is a right
answer. He said if government spending includes the GDP, the
percentage decreases because the GDP would be larger. He noted
that different approaches might produce different percentages
while ultimately reaching similar spending limits.
CHAIR CLAMAN invited Mr. Harnett to proceed with the
presentation.
1:55:38 PM
MR. HARNETT moved to graph on slide 5, Proposed Appropriation
Limit. The graph shows how from FY04 - FY26Gov:
• The unrestricted general fund spending appropriations, subject
to limit, never exceeded the present-day constitutional limit.
• Appropriations subject to the limit have been nowhere near the
constitutional cap for over a decade.
• The statutory limit of 12 percent proposed in SB 36 and the
constitutional limit of 15 percent proposed in SJR 4 intersect
with and smooth out appropriations spending.
1:56:10 PM
SENATOR KAUFMAN elaborated on the graph. He explained that the
red line shows the proposed 15 percent constitutional cap, which
cuts across the gold bar from FY06 through FY14, and the years
when spending exceeds the proposed 15 percent constitutional cap
during periods of high revenue. He noted that during those
years, the state addressed significant backlogs of deferred
maintenance and other infrastructure needs.
SENATOR KAUFMAN stated that while those expenditures supported
worthwhile projects, spreading the spending over a longer period
might have produced more sustainable outcomes. He explained that
distributing the spending more gradually could have helped
maintain workforce stability. He said that when spending occurs
in large bursts during high-revenue years, it can create gaps in
subsequent years when revenue declines. He stated that the goal
of the proposed cap is to introduce a smoothing factor that
moderates the boom-and-bust nature of Alaska's fiscal cycles.
1:57:29 PM
SENATOR KAUFMAN explained that using a five-year trailing
average would help moderate fluctuations by allowing the
spending limit to adjust gradually. He said the mechanism allows
some flexibility during revenue declines while also preventing
excessive increases during periods of strong revenue.
SENATOR KAUFMAN said that spreading capital spending and
maintenance projects over time could improve efficiency by
reducing workforce shortages and preventing spikes in project
costs. He stated that a steadier approach could provide better
value, help maintain skilled workers in the state, and support
private-sector economic activity.
1:58:49 PM
SENATOR KIEHL recalled comments in a previous presentation about
smoothing spending by clipping off the peaks and filling in some
of the valleys. He said that approach assumes the state already
has a healthy level of program spending, and he expressed
uncertainty about whether the state has met that condition.
SENATOR KIEHL stated that many of his constituents think
spending levels are already quite low. He recalled that, if his
memory serves, the administration estimated it could require
approximately $80 million to $120 million to implement a salary
adjustment intended to bring state employee compensation to
competitive levels. He referenced constitutionally required
education funding, asking how policymakers would know when
appropriate levels of program spending had been reached and when
it would be time to start clipping the peaks.
1:59:57 PM
SENATOR KAUFMAN replied that the legislature can look to
historical spending levels and past fiscal ratios. He said
determining what constitutes a healthy level of spending is part
of the grand policy discussion and would require continued
committee deliberation.
SENATOR KAUFMAN stated that financial modeling could help
evaluate the appropriate level for the cap. He noted that such
modeling would require the committee to decide which elements to
include within the spending limit, such as the dividend. He
expanded on the idea, stating that when he served in the House,
the Ways and Means Committee examined spending cap models. Many
states use formulas based on population and inflation, which are
among the more common approaches. He said the committee reviewed
the relative behaviors and noticed two outcomes. Either they
would become very harsh or free float off into space. He stated
that models based on averaging economic indicators and measuring
spending relative to overall economic activity often performed
reasonably well. He said it surprised many committee members. He
acknowledged that policymakers sometimes worry whether such
mechanisms would allow spending enough on programs or leaving
enough resources for capital funding.
SENATOR KAUFMAN said, ultimately, the committee could do some
modeling and determine whether the proposed mechanism is
appropriate, identify the best ratios and structure that would
best guide fiscal policy.
2:02:35 PM
SENATOR KIEHL stated that while economic modeling may help, he
is also interested in the broader question of government
structure. He said that, in practice, elections currently
function as the state's effective spending cap. He explained
that the legislature periodically reassesses whether certain
government functions should be reduced or expanded, particularly
when structural changes occur in the economy. He offered the
example of child care, noting that the Alaska Chamber of
Commerce advocates for significantly increased state involvement
in addressing child care costs. Child care costs have increased
substantially and can now consume a large share of a family's
income, which in turn affects the state's workforce and economy.
He stated that this illustrates how new challenges may arise
that lead voters, businesses, or policymakers to request
expanded government involvement in areas where the state
previously played a smaller role.
SENATOR KIEHL asked how the legislature can determine that it
has set the appropriate level of government spending when future
needs may arise decades later that could require additional
state involvement.
2:04:25 PM
CHAIR CLAMAN said that he would treat that as a statement not a
question.
2:04:28 PM
SENATOR KAUFMAN indicated that he would like to respond, stating
that the proposal includes a constitutional and a statutory
component. He explained that the lower spending limit is
statutory and is not locked in the constitution. If the concern
is about total available spending, the constitutional limit
would govern.
SENATOR KAUFMAN stated that the purpose of the constitutional
limit is to set a cap that allows policymakers to capture value
during peak revenue years. He reiterated that the lower limit is
not constitutionally locked in, explaining that is why the
legislation comes in two parts. There are constitutional and
statutory parts. It does not have to be perfect on day one. The
part of the legislation that would be put in place is the
constitutional upper limit, which requires ratification by the
people. The statutory limit is available for policymakers to
adjust as need be. The only aspect at risk is getting into "all
program and no capital spending" by expanding too much.
2:05:40 PM
SENATOR KAUFMAN said there are two limits. One is the limit of
what is possible with available money; that is where the
legislature is. The other is to maintain a reasonable level of
program spending while also preserving the ability to fund
capital projects more consistently. He cautioned that if program
spending expands too rapidly during periods of temporary peak
revenue increases, it can crowd out capital investment when
revenue declines.
SENATOR KAUFMAN said the proposal aims to create a more durable
fiscal structure that moderates spending increases during
revenue spikes and preserves funding capacity for capital
projects over time.
2:06:20 PM
SENATOR MYERS stated that one difference between government and
business is that businesses operate within clearly defined
limits, whereas government resources are limited, but public
needs are not. He asked how a spending cap might help the
legislature prioritize some of those needs.
2:06:40 PM
SENATOR KAUFMAN replied that legislators do it now, facing the
need to prioritize among competing needs. He said that when
meeting with constituents, legislators regularly hear compelling
stories and requests related to education, health care, and
other public services, but ultimately must decide which
priorities to fund. He stated that a spending cap would not
eliminate that process but would require the legislature to make
those choices within a defined limit rather than relying solely
on available revenue. He said the purpose is to preserve some
funding capacity for capital funding by encouraging more
deliberate prioritization.
2:07:30 PM
SENATOR KAUFMAN acknowledged that Alaska faces revenue
constraints and that the proposed cap is not designed primarily
for the present fiscal environment. Instead, the proposal is
intended for future opportunities, when state revenues may
increase, so that the state will have a mechanism to encourage
replenishment of funds.
SENATOR KAUFMAN reiterated that the legislature could amend the
proposed statutory portion of the cap through the normal
legislative process. He explained that the framework would
create a range between the statutory and constitutional limits,
with the intent that the legislature could, with a two-thirds
vote, direct funding between those levels toward capital
projects.
2:08:22 PM
MR. HARNETT moved to slide 6, Spending Subject to Limit:
[Original punctuation provided.]
Spending Subject to Limit
Spending Subject
to the Limit_ Not Limited by the Proposal_______
All UGF Operating Permanent Fund Dividends
Expenditures
All UGF Capital Appropriations to Permanent Fund/
Expenditures PCE Endowment
Retirement Appropriations to a state savings
Payments account (e.g. CBR)
Appropriations to capitalize state
retirement accounts
Direct Spending on a Disaster
Declaration
Proceeds of bonds approved by the
voters
MR. HARNETT explained the types of spending included and
excluded under the proposed spending limit. He stated that
spending subject to the limit would include all unrestricted
general fund (UGF) operating expenditures as well as capital
expenditures.
2:08:38 PM
MR. HARNETT explained that the proposal would not limit several
categories of appropriations. He said appropriations not
included in the limit are the permanent fund dividend payments,
appropriations to savings accounts such as the constitutional
budget reserve and the statutory budget reserve, capitalization
of state retirement accounts, disaster declarations issued by
the governor, and bonds approved by a vote of the people.
2:09:07 PM
SENATOR MYERS asked about the revenue bonds, which were listed
as exemptions. He asked what the justification is for including
revenue bonds among the exemptions.
SENATOR KAUFMAN expressed his belief that just came about in
conversations, again, about being approved by a vote of the
people.
2:09:31 PM
SENATOR MYERS stated that revenue bonds are not approved by a
vote of the people. They are the one bond the legislature may
authorize without voter approval.
SENATOR KAUFMAN clarified that "proceeds of bonds approved by
the voters" was inserted.
SENATOR MYERS noted that statutory language reads "principal and
interest of general obligation bonds," but the text of SJR 4
adds "principal and interest of revenue bonds."
SENATOR KAUFMAN replied that he would review the language
further.
2:10:17 PM
MR. HARNETT moved to slide 7, Benefits. He summarized the
proposed benefits of the spending cap:
[Original punctuation provided.]
Benefits
• Effective and Reasonable
• This proposal would set the cap roughly at
current levels and would include a constitutional
provision for some flexibility in the case of
unforeseen risks
• Stable and Predictable
• The 5-year trailing average creates stability and
predictability by smoothing out annual volatility
in oil prices and financial markets.
• GDP factor creates a private-sector focus
2:10:58 PM
SENATOR MYERS said given the legislation's emphasis on using a
private-sector focus using the GDP factor, he asked whether the
legislature uses any incentives today that focus on private-
sector economic growth.
2:11:10 PM
SENATOR KAUFMAN expressed his belief that the legislature does
but said it could improve those incentives. He said one of the
good things about Alaska is that the state is not as politically
divided as some places, particularly Washington, D.C. Alaskans
are a bit more cordial, in part, because residents have a
tighter bond. Alaskans are inherently aware of and recognize the
importance of resource revenue projects and other economic
activities that help fund the state. He expressed his belief
that it is better to strengthen that focus. He said that
policymakers may become a little satisfied with the
financialized proceeds of the permanent fund if it grows larger
and pays for most state operations. He cautioned that, as the
permanent fund contributes a larger share of annual state
revenue, legislators may risk becoming overly dependent on its
returns rather than focusing on deeper economic opportunities.
He expressed concern that legislators may become satisfied with
the financialized proceeds of the permanent fund to pay for most
state operations, along with some service-sector and tourism
revenue. And, as a result, lose sight of the deeper economic
activity that actually produces economic prosperity among the
populace. He said to focus on policy that helps drive underlying
economic activity. It is important not just for state revenue or
money in people's pockets, but for the deep personal
satisfaction that comes from those difficult and varied jobs in
the private sector.
2:13:20 PM
SENATOR MYERS sought confirmation that he understood the
sponsor's message, specifically that Alaska has bonds that tie
the legislature to the people. Those bonds are becoming strained
as the permanent fund's share of the state's revenue grows.
SENATOR KAUFMAN clarified that he would not characterize the
relationship as strained, but there is potential for it in the
future. The proposed legislation intends to anticipate potential
future circumstances. He explained that the legislation's design
anticipates a scenario in which the permanent fund continues to
grow and may provide a larger share of state revenue. Coupled
with the revenue from the permanent fund, a large influx of
revenue could result from future economic development, such as a
gasline and related value-added industries. In such a scenario,
the state could experience a significant increase in revenue.
2:14:30 PM
SENATOR KAUFMAN stated that the proposed legislation aims to
capture the benefits of potential future revenue increases while
encouraging responsible fiscal behavior. He explained that the
proposed mechanism could allow the state to fund programs while
retaining measured slices of revenue for capital projects that
boost the private-sector economy and open up opportunities. It
creates a "virtuous cycle" that is inherent in a moderating
mechanism that measures what matters.
2:15:28 PM
SENATOR MYERS asked how the state would respond to a revenue
surplus under the proposed spending cap compared with present-
day practices.
2:15:44 PM
SENATOR KAUFMAN responded that should the state experience
increased revenue from economic activity, the legislature could
choose to moderate draws from the permanent fund, allowing the
fund to grow and generate additional revenue in the future.
Primarily, the legislature could populate state reserves,
rebuilding the statutory budget reserve fund and the
constitutional budget reserve fund to strengthen the state's
fiscal cushion. He said that if the legislature could get those
funds flush, they could get the state out of a pinch. The
options could be many, depending on the potential magnitude of
revenue. If the earnings reserve fund and the permanent fund
were conjoined, the legislature would no longer need to
implement the inflation-proofing mechanism because, in managing
an endowment for total return, that process is inherent in its
growth, and it is attached to the withdrawal rate."
SENATOR KAUFMAN said if the state suddenly had an influx of
revenue and it was not spent as fast as possible, legislators
could put that revenue into different funds, such as:
• the state budget reserve (SBR)
• the constitutional budget reserve (CBR)
• program funding
• capital projects funding
SENATOR KAUFMAN said those reserves could carry forward into the
future in the form of the SBR and CBR with money in them.
2:17:17 PM
SENATOR MYERS referred to his colleague's comment that
elections, in many ways, drive spending limits. He offered a
hypothetical scenario in which the state experiences multiple
years of surpluses above the spending cap, with excess funds
deposited into savings accounts such as the CBR, SBR, and the
permanent fund. He asked whether that could lead the electorate
to favor candidates who would abolish the cap.
SENATOR KAUFMAN asked for clarification as to whether the
question referred to the constitutional cap or the statutory
cap.
2:18:16 PM
SENATOR MYERS replied that it could apply to either limit,
depending on the situation. He said the state could experience
sustained surpluses while spending remained constrained by the
cap. He asked about the plausibility that voters, based on their
wants or needs, might support candidates willing to increase
spending by modifying or bypassing either the statutory or
constitutional cap.
SENATOR KAUFMAN responded that he cannot anticipate how voters
might respond. He noted the legislature has adopted moderate
budgets and exercised spending restraint, in part due to fiscal
necessity. He said that if voters wished to change the spending
cap, they would need to elect legislators and advance a
constitutional amendment, which would then require voter
approval. He said that he was unclear about the direction of the
question.
2:20:57 PM
SENATOR MYERS continued exploring the area of focus, stating the
proposed spending cap is aimed at the future. He said that he is
speculating on what else could come in the future. He can
foresee a situation where the private-sector economy is not
doing well but the permanent fund is strong. In that situation,
the state government is doing well while the residents are not.
He asked whether there is a "safety valve" that would allow
funds outside of the spending cap and outside of government
spending to reach the public directly in such a scenario.
SENATOR KAUFMAN responded that the scenario involves several
speculative conditions and that he did not have an answer. He
said he would consider the issue further and suggested it could
be discussed in more detail.
2:22:19 PM
SENATOR MYERS clarified his question by referencing a recent
event in Fairbanks. He said Fairbanks has a revenue cap, not a
spending cap, and when the assembly sought to exceed that cap,
the issue was placed before voters, who ultimately rejected it
because they did not want higher taxes.
SENATOR MYERS expressed concern that the proposed spending cap
lacks a similar backstop. He explained that, in most states,
there is a natural tension between taxation and spending;
however, Alaska generally does not tax residents, so that
tension is absent. As a result, there is a "full steam ahead" on
the spending side. He stated his support for spending caps as a
way for the legislature to put some tension back in, helping
restore the natural balance.
SENATOR MYERS further expressed concern that, as state revenues
increase, particularly from the permanent fund, the appetite for
spending could overrun the cap. He suggested that keeping the
permanent fund dividend outside the proposed cap provides a
safety valve by directing funds to residents, supporting the
private sector, and reducing pressure to override the cap. He
suggested that keeping the permanent fund dividend (PFD) outside
the cap serves as a safety valve, directing funds to residents.
That would help grow the private sector if it's in an anemic
spot, and at the same time, provide some relief so people have
less interest in overriding the cap.
SENATOR KAUFMAN replied that there is a host of concerns and
ideas rolled up in that, some of which are outside of the
discussion of the proposed legislation.
2:25:00 PM
SENATOR MYERS referred to the presentation, mentioning a court
decision that included school bond debt reimbursement under the
cap, and asked for background on that.
SENATOR KAUFMAN said that he would provide the committee with
legal memos on that.
2:25:41 PM
SENATOR MYERS commented that the legislation has gone through
different iterations, and there has been a kind of argument
about appropriations "in a fiscal year" versus "for a fiscal
year." He noted the proposed legislation reads "for" in SJR 4.
He asked the sponsor to expand on that policy decision.
SENATOR KAUFMAN expressed his belief that it largely has to do
with managing supplementals. He stated that the proposed
language reflects how the legislature treats them. He said he
would follow up with details.
2:26:32 PM
CHAIR CLAMAN asked whether there were further questions.
2:26:40 PM
SENATOR KIEHL indicated that he was considering the distinction
between "in a fiscal year" and "for a fiscal year" and their
effects on whether supplemental appropriations level out over
time. He said he would continue to consider the question.
2:26:54 PM
CHAIR CLAMAN held SB 36 and SJR 4 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 36 Ver. A.pdf |
SJUD 4/25/2025 1:30:00 PM |
SB 36 |
| SJR 4 Ver. A.pdf |
SJUD 4/25/2025 1:30:00 PM |
SJR 4 |
| SJR 4 and SB 36 Sponsor Statement.pdf |
SJUD 4/25/2025 1:30:00 PM |
SB 36 SJR 4 |
| SB 36 Sectional Analysis Ver. A.pdf |
SJUD 4/25/2025 1:30:00 PM |
SB 36 |
| SJR 4 Sectional Analysis Ver. A.pdf |
SJUD 4/25/2025 1:30:00 PM |
SJR 4 |
| SB 36 and SJR 4 Supporting Document - Spending Cap Visual Graph.pdf |
SJUD 4/25/2025 1:30:00 PM |
SB 36 SJR 4 |
| SB 36 Fiscal Note GOV-OMB 4.18.25.pdf |
SJUD 4/25/2025 1:30:00 PM |
SB 36 |
| SJR 4 Fiscal Note OOG-DOE 4.18.25.pdf |
SJUD 4/25/2025 1:30:00 PM |
SJR 4 |
| SJR 4 & SB 36 Presentation to Senate Judiciary 4.24.25.pdf |
SJUD 4/25/2025 1:30:00 PM |
SB 36 SJR 4 |