Legislature(2021 - 2022)SENATE FINANCE 532
04/27/2021 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB101 | |
| SB10 | |
| SB95 | |
| SB75 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 10 | TELECONFERENCED | |
| += | SB 95 | TELECONFERENCED | |
| += | SB 101 | TELECONFERENCED | |
| *+ | SB 75 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 75
"An Act relating to the duties of the legislative
finance division; relating to an appropriation limit;
relating to the budget responsibilities of the
governor; and providing for an effective date."
Co-Chair Bishop relayed that this was the first hearing of
the legislation.
9:39:44 AM
Senator von Imhof, Sponsor, discussed a presentation
entitled "SB 75" (copy on file). She believed that the
state should have a spending cap. She thought that the
current constitutional spending cap did not work that it
was imperative that a steady and predictable spending plan
be established. She asserted that the cap would allow the
state to spend new revenue on annual operating expenses
based on what was allowable inside of the cap, while saving
excess funds for disasters, emergencies, and low revenue
years.
9:40:48 AM
Senator von Imhof looked at slide 2, Why a spending cap?:
1. Restrain the growth of the state budget over time.
2. Save during the good times so we have a savings
account to draw from in the tough times.
?Spending Cap aka: TEL (Tax and Expenditure Limit)
She shared that if the state had an effectual spending cap
in place more would have been saved during the time of high
revenues in the mid-2000s, and less would have been spent
out of the CBR in low revenue years (mid to late 2000s) to
the tune of approximately $15 billion.
9:41:48 AM
Senator von Imhof spoke to slide 3, " What are other states
doing?" She related that in 2020, 25 states had imposed
limits on their government spending. States that had a
spending limit were represented in dark orange on the
slide; states with revenue limit were yellow; states with
both were blue. She said that some states had their
spending caps in their constitutions and some in statute.
She said that the state currently had a constitutional
spending cap with too high of a growth rate. She felt that
there was a revenue limit in place with the annual POMV on
the Permanent Fund.
9:42:48 AM
Senator von Imhof referenced slide 4, "Four Decision
Points:
1. Growth rate
2. Starting point
3. What is included under the cap
4. What is excluded outside the cap
Senator von Imhof said that the goal today was to
understand the pro and cons for each decision point, as
well as the pros and cons of the spending cap in statute
versus the constitution.
9:43:21 AM
Senator von Imhof turned to slide 5, "Growth Rate:":
?Usually a function of annual income and/or sales tax
collected
?And/Or change in annual population
?And/Or inflation growth
SB 75: 75% of CPI (inflation) + 25% of population
Senator von Imhof explained that most states had some form
of personal taxes a part of the spending cap or the revenue
cap growth rate, an income tax, or a sales tax. She
asserted that the personal taxes were a true measurement of
economic activity in the state. She stated that an increase
in economic activity would be reflected in the taxes
collected, which meant that state budgets would fluctuate
to meet the demand. She noted that Alaska did not have
personal taxes, so it used inflation, which was reflected
as the CPI for urban Alaska and population. She related
that the state used 100 percent growth of population and
inflation, which was too high. She shared that in her
modeling she had found that 75 percent of the change of
annual inflation, plus 25 change of population, seemed to
be a comfortable equation.
9:45:07 AM
Senator von Imhof considered slide 6, which showed a graph
entitled "Population vs CPI." The red line showed total
growth of CPI since 1980, which present day denoted by the
vertical grey dotted line. The blue bars represented
population. She noted that both measures had been on a
steady upward trajectory, until recently when CPI and
population decreased.
9:45:45 AM
Senator von Imhof displayed slide 7, "Historical Revenue
and Spending," which showed a line graph entitled 'Expenses
vs Revenue (Current Cap).' She said that the slide began in
1980, roughly when the current spending cap started, and
oil became a major contributor to state revenue. The red
line was all UGF spending, including the Permanent Fund
Dividend (PFD), the green line was all UGF revenue,
including the money allocated to pay the PFD. She said that
the black line on top represented the current cap. She
stated that according to the rate the UGF spending should
be approximately $10 billion in 2021. She asserted the cap
was too steep and the rate too high, combining both 100
percent of the CPI growth and population.
Senator von Imhof said that between 1980 and 2005 revenue
and spending had not fluctuated much. She pointed to the
change in 2005 when revenue and spending experience extreme
highs and lows. She lamented that during the fluctuating 13
years the state spend $13 billion from the CBR to offset
budget deficits. She pointed to 2019 when the POMV passed
the legislature. She asserted that more could have been put
in the CBR during those volatile years if there had been an
effective spending cap.
9:48:07 AM
Senator von Imhof highlighted slide 8, "What If: SB 75
Started @ $2.58 in FY83 - What If: Current Spending, With
SB 75 Model Looking back," which showed a line graph
depicted on the previous slide, with the addition of a
hypothetical model showing a hypothetical growth rate. The
yellow dotted line considered today's spending doing a
lookback of the SB 75 growth rate calculation. She stated
that at this rate spending grew at $3 billion per year,
rather than the $billion swings experienced in the recent
decade.
9:49:27 AM
Co-Chair Stedman pondered the spike in spending between FY
05 and the present. He considered the spike in spending
between FY06 and FY10, which he attributed to deferred
maintenance spending in the Capital Budget. He reminded the
committee that at that time there had been a significant
deferred maintenance backlog. He thought the same deferred
maintenance backlog problem was applicable currently as
there had been small Capital Budgets the past few years. He
thought actual expenditures were suppressed by
underspending on maintenance. He recalled that the
increases in the Operating Budget were recommended and
pushed through by the agencies themselves and the governors
at the time had pulled agency budgets back. He stated that
the legislative body had struggled to fill holes in the
Operating Budget while supporting the administrations
desire to hold back agency growth. He thought it would be
helpful to take a more detailed view of agencies when
discussing the bill. He asserted that the growth rates in
agencies came for m the agencies themselves, which the
legislature struggled with year after year.
9:52:43 AM
Co-Chair Stedman addressed the POMV draw, which had a
revenue cap; the state could not spend what it did not
have.
9:53:04 AM
Co-Chair Bishop added that the legislature needed to
consider the good public policy regarding the 1 percent
replacement rule on deferred maintenance to eliminate the
spike in spending.
9:53:47 AM
Senator Wielechowski referenced the red line on the slide,
and assumed it included the PFD.
Senator von Imhof answered in the affirmative.
Senator Wielechowski asked whether the $1200 supplemental
dividend of 2008 was represented in the line.
Senator von Imhof answered in the affirmative.
Senator von Imhof commented that it was important to
remember that Alaska was unique in that prior to passing
the POMV draw, the state's primary income was from oil. She
noted that oil was volatile. She referenced a document from
the Palin Administration that indicated between 1993 and
2005, the legislature appropriated over $4.8 billion from
the CBR. Cash was borrowed from the CBR in 1994, 1995,
1996, 1998, 1999, 2000, 2002, 2003, 2004, and 2005 to
balance revenue and expenditures. She asserted that the
state had a history of funding annual budgets from the CBR.
She thought the CBR was currently under $1 billion and
would not be available to supplement future budgets.
9:55:49 AM
Senator Hoffman thought that the CBR had been protected
because it required 40 out of 60 votes to access, which had
once been a high bar to meet. He thought there was a
potential to ignore SB 26 when it came to deficits because
statutes were not always followed. He noted that there had
been $17 billion in the CBR, and with use of the three-
quarter vote it had been drained overtime.
9:58:51 AM
Senator von Imhof looked at slide 9, "Proposed SB 75,"
which showed a line graph. She explained that the black
line showed the current spending cap; the red line depicted
the governor's proposed expenditures, including all UGF and
the proposed 50/50 PFD spending; the green line showed
anticipated revenue, including the POMV transfer and
anticipated mineral revenue; the green dotted line showed
the governors line item of undefined revenue; the blue and
yellow lines was the SB 75 growth rate starting at $6
billion. The blue was the LFD numbers and the yellow
Senator von Imhofs numbers she assured the committee
that her office had worked to mirror the LFD numbers in
their model.
10:00:29 AM
Senator von Imhof addressed slide 10, "Comparison SB 75
Start in FY83 @$2.5B to SB 75 Start," which removed the CBR
from the model so the discrepancy could be identified.
10:00:47 AM
INTIMAYO HARBISON, STAFF, SENATOR VON IMHOF, relayed that
the SB 75 limit, starting at $2.5 billion in FY 83, had
been added back for comparison between the proposed SB 75
model and current spending.
Senator von Imhof noted that there was currently a $1.2
billion shortage in undefined revenue.
10:01:38 AM
Senator Hoffman asked about the proposed funding level for
the PFD.
Senator von Imhof replied that the governors proposed PFD
for FY 22 was the full statutory dividend, and then the
50/50 POMV split from FY 23 and into the future.
10:02:12 AM
Senator von Imhof advanced to slide 11, " Starting Point =
$6.0 billion (UGF)," which showed a table of UGF and POMV
revenues. The slide showed revenues, which were well below
the $6 billion mark.
10:03:21 AM
Senator von Imhof looked at slide 12, "As a comparison:
Expenses," which showed a data table of spending from FY19
through FY26. She noted that the spending cap bill did not
include debt retirement debt, school bond debt,
reimbursement, or general obligation bond debt, all
indicated in the red numbers on the slide. The bill did
include the spending for the PFD, with the governors POMV
50/50 split starting in FY23. She noted that the bright
orange line reflected that the numbers were below the cap
for this scenario.
10:04:14 AM
Senator von Imhof showed slide 13, "What is included versus
excluded":
Included
Anything with UGF
? Agency Spending
? Retirement
? Capital *
? Permanent Fund Dividend
Excluded
? Permanent Fund Principal (Corpus)
? Debt payments
? Disaster Funding
? Deposit into Savings
? Federal Funds and Designated Funds
* There is a provision in section 4(c) that limits
additional capital to 5% of total cap in the event we
have excess revenue.
Senator von Imhof relayed that the provision in Section 4
allowed the legislature to appropriate an additional
capital amount in excess of the appropriation limit, not
exceeding 5 percent of the total appropriation limit for
the year. She explained that this was to avoid flooding the
industry with too much capital dollars in one year. She
said that Alaskas finite amount of construction companies
and construction workers, coupled with the short building
season, limited the states capacity to absorb funds in a
given year.
10:05:54 AM
Co-Chair Stedman considered the states unfunded liability
for PERS and TRS. He thought that, under the SB 75
scenario, the state would need to decrease other
operational costs in order to meet the PERS and TRS
payments. He assumed any disaster funding would be broad in
scope and would include federal dollars.
Co-Chair Stedman discussed the concept of overheating the
economy and too many capital dollars. He felt that the
large Capital Budgets in the past had helped to build the
state labor pool, which had been drained as Capital Budgets
were cut.
Co-Chair Stedman brought up debt payments, and asked about
the reason for excluding debt service from the proposed
spending cap.
10:08:57 AM
Senator von Imhof affirmed that debt service was not
included in the current constitutional spending cap, and
the bill was consistent with that. She said she was open to
including debt in the cap.
10:09:55 AM
Senator Wilson asked whether the spending cap would limit
the states ability to take advantage of federal
infrastructure dollars.
Senator von Imhof responded that a future slide would speak
to the question.
10:10:25 AM
Senator Hoffman discussed including the PFD in the
calculation. He said that currently the PFD was excluded,
which was constitutionally established. He reminded that
there was a constitutional 120-day legislative session and
a statutory 90-day session. He thought the body had only
once achieved the 90-day statutory legislative session but
had always honored the constitutional 120 days. He asked
whether the inclusion of the PFD appropriation limit would
allow for future legislators to ignore statute.
10:12:32 AM
Senator von Imhof went back to slide 9 and discussed the
constitution versus statute. She pointed out the green
line, which showed UGF revenue including oil taxes and the
POMV draw. She said that taxes would need to be raised to
balance the budget. She thought there were factors to
Senator Hoffman's point; if the state wanted to issue a PFD
at the statutory amount then new revenue would be
necessary.
10:13:54 AM
Senator von Imhof referenced slide 14, "Additional Issues
to consider:":
1. Constitution versus statute
2. Can the legislature over-ride
3. What happens if we have excess revenue
4. Legislative Finance report requirements
5. Governor budget provision
Senator von Imhof reiterated that the growth rate of the
current constitutional spending cap was too high, and
combined inflation and population. She noted imperfect
factors going into the growth rate and that the
constitutional rate did not work. She asserted that a
statutory spending cap had no teeth and that any
legislature could override a statute. She contended that a
spending cap in the constitution would make overspending
more difficult. She thought that her cap should be written
into statute as a test run over the next several years. She
said that LFD would analyze the limit and prepare a report
every three years starting in January 2024 so that the
legislature could review the effectiveness of the statute
on a periodic basis. She added that when the governor
submitted his budget in December it would include a report
stating that the budget was under the statutory spending
cap.
10:17:01 AM
Co-Chair Bishop commented on item 3 on the slide. He agreed
with the concept but highlighted that the constitution
stated that the CBR must be paid back at the end of each
year using excess revenue. He asserted that it would take
120 years, at $100 million per year, to pay back what had
already been borrowed from the CBR.
10:17:46 AM
Co-Chair Stedman referenced numerous discussions over the
years regarding a spending cap. He thought many members had
faced the same issue at the municipal level. He thought the
best way to control spending was to constrain cash flow,
and not spending what was not there not to borrow for
operational costs. He noted that POMV was the states major
source of revenue and he suggested a lower spending rate.
He stressed that to successfully implement cost controls
across the state cashflow should be restricted. He
supported putting a lower spending rate into the
constitution. He spoke to the structural deficit issue,
which required revenue enhancements or spending reductions.
He believed that legislatures would likely ignore statute
when it suited them.
10:20:57 AM
Senator Olson referred to Slide 13. He asked about the
25/75 split.
Senator von Imhof clarified that the 25/75 split was the
growth rate for the proposed legislation reflected on slide
5. She said that there was nothing in the bill that
addressed excess revenue.
10:22:11 AM
Mr. Harbison addressed a Sectional Analsyis (copy on file):
Sec. 1: Amends AS 24.20.231 to add analyzing and
preparing a report on the appropriation limit, enacted
by this bill, to the duties of the Legislative Finance
Division.
Sec. 2: Enacts AS 24.20.236, which requires the
Legislative Finance Division to deliver a report about
its analysis of the appropriation limit, enacted by
this bill, and the allowed growth rate to the chairs
of the finance committees every three years.
Sec. 3: Amends AS 37.05.540 to remove a reference to
the current statutory spending limit, which is
repealed in this bill.
Sec. 4: Enacts AS 37.05.545, which is the new
Appropriation Limit.
(a) Establishes the parameters of the limit:
.notdef Includes all Unrestricted General Fund (UGF)
appropriations for agency spending, Permanent Fund
dividends, retirement obligations, and capital
projects.
Does not include reappropriations, federal funds,
Designated General Fund
(DGF) spending, program receipts, money received from
non-state sources for specific purposes, or the
exclusions listed in (b).
.notdef Starting point is $6 billion for FY 2022, with a
growth rate based on 75% of the cumulative change in
inflation and 25% of the cumulative change in state
population. Defines how the growth rate is calculated.
(b) Lists the exclusions to the appropriation limit:
(1) Appropriations to the Permanent Fund principal
(corpus);
(2) Debt payments;
(3) Disaster funding; and
(4) Deposits into savings accounts and transfers into
accounts that require additional legislative action to
spend.
(c) Allows an additional five percent above the limit
to be spent on capital projects.
(d) Defines the terms "debt obligation, "program
receipts", and "unrestricted general fund" for the
purposes of this section.
Sec. 5: Enacts AS 37.07.020(f) which requires the
governor to submit, along with the annual budget, a
report noting whether the proposal is within the
spending limit. The report must be updated to include
any supplemental appropriations and budget amendments.
Sec. 6: Repeals the current statutory appropriation
limit in AS 37.05.540(b); a section made obsolete by
that repeal in AS 37.05.540(c), and outdated language
related to the statutory budget reserve in AS
37.04.540(e).
Secs 7 - 10: Applicability, transition, and effective
date language that specifies when the new
appropriation limit and reporting requirements would
take effect. The limit would apply to the FY2022
budget, the governor would be required to file the
necessary reports for the proposed budgets starting in
December 2021, and Legislative Finance would prepare
the first analysis report in 2024.
10:25:51 AM
Co-Chair Bishop OPENED public testimony.
10:25:59 AM
CHARLIE FRANZ, SELF, HOMER (via teleconference), testified
in opposition to the bill. He supported the intent of the
legislation but thought that the bill was ineffectual. He
believed that appropriation limits should be based on
projected revenue rather than past spending.
10:27:18 AM
BERT HOUGHTALING, SELF, BIG LAKE (via teleconference),
spoke in opposition to the bill. He thought the bill was
another way to solidify the theft of the PFD by putting it
under the spending cap. He expressed concern for increased
Capital Budgets and decreased PFDs.
10:29:11 AM
Co-Chair Bishop CLOSED public testimony. He discussed
housekeeping.
SB 75 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 75 Sectional Analysis v.B 03.09.2021.pdf |
SFIN 4/27/2021 9:00:00 AM |
SB 75 |
| SB 75 Sponsor Statement v.B 03.09.2021.pdf |
SFIN 4/27/2021 9:00:00 AM |
SB 75 |
| SB 10 Explanation of Changes ver W to N 4.26.2021.pdf |
SFIN 4/27/2021 9:00:00 AM |
SB 10 |
| SB 10 Work Draft ver. N 4.26.2021.pdf |
SFIN 4/27/2021 9:00:00 AM |
SB 10 |
| SB 101 Explanation of Changes ver A to B 4.24.2021.pdf |
SFIN 4/27/2021 9:00:00 AM |
SB 101 |
| SB 101 Work Draft ver. B 4.24.2021.pdf |
SFIN 4/27/2021 9:00:00 AM |
SB 101 |
| SB 101RDC support for SB 101 SFIN.pdf |
HRES 5/14/2021 1:00:00 PM SFIN 4/27/2021 9:00:00 AM |
SB 101 |
| SB75 SFIN Corrected Presentation.pdf |
SFIN 4/27/2021 9:00:00 AM |
SB 75 |