Legislature(2019 - 2020)ADAMS ROOM 519
04/25/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB41 | |
| HB131 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 131 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | SB 93 | TELECONFERENCED | |
| += | HB 41 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 25, 2019
1:31 p.m.
1:31:09 PM
CALL TO ORDER
Co-Chair Wilson called the House Finance Committee meeting
to order at 1:31 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
None
ALSO PRESENT
Representative Dan Ortiz, Sponsor; Bruce Tangeman,
Commissioner, Department of Revenue; Caroline Schultz,
Staff, Senator Natasha von Imhof.
SUMMARY
HB 41 SHELLFISH ENHANCE. PROJECTS; HATCHERIES
CSHB 41(FIN) was REPORTED out of committee with a
"do pass" recommendation and with one new
indeterminate note from the Department of Fish
and Game; one new zero note from the House
Finance Committee for the Department of Revenue;
and one previously published zero note: FN1
(DFG).
HB 131 APPROPRIATION LIMIT
HB 131 was HEARD and HELD in committee for
further consideration.
HOUSE BILL NO. 41
"An Act relating to management of enhanced stocks of
shellfish; authorizing certain nonprofit organizations
to engage in shellfish enhancement projects; relating
to application fees for salmon hatchery permits; and
providing for an effective date."
1:31:37 PM
Co-Chair Wilson discussed the bill status. She reported
that the change made by the bill would enable the program
to become self-sustainable and grow. She noted there was an
updated fiscal note.
REPRESENTATIVE DAN ORTIZ, SPONSOR, supported the bill and
believed it offered much potential for the development and
growth of the state's fishing industry.
Co-Chair Wilson reported she had been discussing with the
Department of Revenue (DOR) whether it needed to update its
system; there had been a $50,000 fiscal note. She had
reached out to the Department of Fish and Game (DFG) to
understand why it would take time before the state would
see any revenue. She read from an email explanation from
Sam Rabung [director of the Division of Commercial
Fisheries] (copy not on file):
ADF&G will implement the regulations, accept
applications, process the application through the
public process and ultimately issue a permit. The
earliest a permit could possibly be issued under this
statute if the bill was to pass this year, would be
the fall of 2020. Further, once a permit is issued,
the project would have to be developed, which would
include building the necessary infrastructure,
collecting broodstock, producing juveniles, culturing
those juveniles to the point they could be released,
and allowing them to grow in the wild to a harvestable
size. I would anticipate this to take, depending on
the species and infrastructure needs, approximately
five years or more. In a best case scenario, this
takes it out to about 2025. Couple this with ADF&G
practice of utilizing a precautionary approach to
permitting new enhancement projects, in which a
project is first permitted at a small scale in order
to evaluate it for unanticipated consequences prior to
increasing production to a level that could support a
targeted commercial, common property fishery that
could have a cost recovery assessment applied. In best
case scenario, this would likely take us out to
approximately 2030.
Co-Chair Wilson referenced the idea of changing a system in
DOR, when one may not be needed. She thought a zero fiscal
note better anticipated what was taking place.
Additionally, it was her understanding that the cost
recovery assessment was merely one option a fishery could
take, but not a requirement. She believed there were other
options a fishery could choose that would not impact DOR.
She communicated it was not her intent to require any
agencies to take on any more costs than they already had.
1:34:54 PM
Co-Chair Wilson offered DOR the opportunity to speak to the
fiscal note [OMB Component Number 2476]. She lauded the
department for its work and reported that she did not want
DOR to have to do work that was not necessary.
BRUCE TANGEMAN, COMMISSIONER, DEPARTMENT OF REVENUE,
believed he understood what the chair was saying, but he
did not agree with the approach in the fiscal note. He
pointed to the following language in the second to last
paragraph on page 2 of the note: "These costs will be
absorbed by the Tax Division." He believed the language set
bad precedent when there was a new tax form and regardless
of what the implementation timeframe may be, the bill had
an immediate effective date. He communicated it was
imperative that the department update the revenue
management system to be prepared for taxes to come online
regardless of how they would be implemented. There had been
talk about interagency receipts or receipt authority, but
he did not see that included in the fiscal note. He
suggested including something to help in that way for
preparation. He reported that DOR could not absorb upgrades
to the revenue management system.
Co-Chair Wilson thought he was misunderstanding the fiscal
note. She pointed to language specifying it was the
committee's intent that any DOR programming costs be
absorbed by the requesting entity. She stated it would not
be DOR, but the fishery requesting the update.
1:37:07 PM
Commissioner Tangeman stated that if that was the intent,
it would be better for the information to be reflected in
the fiscal note. He noted the change in revenue shown in
the fiscal note was zero.
1:37:26 PM
AT EASE
1:39:37 PM
RECONVENED
Co-Chair Wilson explained that the fiscal note would still
reflect zero, but the language would be updated to specify
that all costs would be charged to the fishery entity
requesting the update. She asked if it worked for DOR.
Commissioner Tangeman replied, "I believe so."
Co-Chair Wilson specified the intent to move the bill from
committee with a Department of Fish and Game fiscal note
[two DFG fiscal notes] and a forthcoming note from the
Department of Revenue.
Vice-Chair Johnston MOVED to REPORT CSHB 41(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSHB 41(FIN) was REPORTED out of committee with a "do pass"
recommendation and with one new indeterminate note from the
Department of Fish and Game; one new zero note from the
House Finance Committee for the Department of Revenue; and
one previously published zero note: FN1 (DFG).
1:40:56 PM
AT EASE
1:43:08 PM
RECONVENED
HOUSE BILL NO. 131
"An Act relating to an appropriation limit; relating
to the budget responsibilities of the governor; and
providing for an effective date."
1:43:14 PM
Co-Chair Wilson noted that the committee did not have the
constitutional amendment before it. The bill would be a
statute change. She stated that HB 131 was a committee bill
and she hoped all committee members would participate. She
provided a PowerPoint presentation titled "Spending Cap,"
dated April 25, 2019 (copy on file). She read from prepared
remarks:
Why a spending cap? Two reasons. First, a spending cap
limits how much spending can increase from one year to
the next. Meaning we don't want the budget to grow too
big too quickly. Particularly, we want to avoid
overspending when we have surplus revenue.
Since Alaska has a history of large swings in revenue,
this brings me to my next point. A second reason a
spending cap is important is to force us to save. My
research shows that other states, which we will see,
with successful spending caps also have savings
mechanisms in place in order to bridge the periods of
time when there have been revenue downturns.
A 2010 report from the National Conference of the
State Legislatures describes how Colorado's Taxpayer's
Bill of Rights initially allowed excess revenue
collected above the cap to be refunded to voters;
however, after the severe economic downturn in 2001
and 2002, when Colorado experienced significant
revenue shortfalls, there was no savings account to
provide a buffer and a pretty tough economic recession
followed. As a result, voters approved a legislative
referendum in 2005 to forego the projected mandatory
tax refunds and instead keep surpluses in a savings
account to provide a fiscal buffer when revenues
shrink.
Alaska has the Constitutional Budget Reserve. We need
to keep it and we need to fund it during the years
when we have excess revenue.
1:45:20 PM
Co-Chair Wilson moved to slide 2 and continued with
prepared remarks:
There are five decision points when talking about a
spending cap:
1. starting point
2. growth rate
3. what is included under the cap
4. what is excluded outside the cap
5. what do we do with excess revenue
The goal today is to understand the pros and cons for
each decision point. To think about how different
options might sense under a wide variety of
circumstances and to understand the pros and cons of a
spending cap in statute versus in the constitution. As
you will see in the next slide there is a mix within
the states that do have tax and expenditure limits in
place.
1:45:59 PM
Co-Chair Wilson moved to slide 3 titled "What are other
states doing?" and read from prepared remarks:
As of 2015, 28 states had a state tax and expenditure
limit. These are the blue, pink, and yellow. The black
square states do not have a spending cap. Of the
colored states on this map, 17 are in the
constitution, 11 are in statute. Why does statue
versus constitution make a difference? They have found
its just a level of flexibility over time. What I
don't know at this point is how many of them started
in statute and then became part of the constitution
and were able to prove themselves out before they took
care of the flexibility of it.
Co-Chair Wilson turned to a chart on slide 4 to illustrate
what happened over time:
This is a historical slide since 1980, roughly when
our current constitutional spending cap started, and
oil became a major contributor to our state revenue.
Here the orange line is the unrestricted general funds
spending with the Permanent Fund Dividend and the
green line is the unrestricted general fund revenue
with the Permanent Fund Dividend. The story goes for
about 25 years. Revenue and spending did not fluctuate
much. But then starting in 2005 we went on Mr. Toad's
wild ride and revenue and spending experienced wild
swings. We had 13 years of chaos: revenues spiked
really high and our spending jumped up accordingly.
Then, starting in 2012, our revenue went on a freefall
for about 6 years and it took awhile for spending to
decrease as well.
During that time, we spent over $13 billion out of our
Constitutional Budget Reserve account to help offset
the budget deficits. During most of the years you
would see this swing of a roller coaster ride where we
would build up the Constitutional Budget Reserve and
then we would go into some tough times and we would go
back down and about the time we hit bottom it would go
right back up. We're not seeing that now, we're at a
steady portion, not just related to how much oil is
coming down, but the price of oil as well.
As you can see, there was a big jump in revenue from
FY 19. That is when we passed with the percent of
market value, the structured draw on the Permanent
Fund Earnings Reserve Account of 5.25 percent.
Calculations show that if we have an effectual
spending cap in place, we would have saved more during
the high revenue years and spent less out of the
Constitutional Budget Reserve during the low revenue
years - to the tune of about $15 billion extra dollars
we would have still had in our Constitutional Budget
Reserve.
So, what are the lessons learned? It's important to
have a savings account to provide a buffer as well as
an effectual spending cap.
1:48:55 PM
Co-Chair Wilson directed attention to slide 5 and pointed
to the gray line reflecting the current spending cap. She
noted that fortunately spending had not gone up that high
or the state would likely be in much worse shape than at
present. She continued reading from prepared remarks:
Here's what we have now. Again, the orange line is the
total unrestricted general fund spending with the
Permanent Fund Dividends, capital statewide items like
debt, retirement, and oil and tax credits. The light
orange line shows just agency operations. The green
line is the unrestricted general fund revenue with the
Permanent Fund Dividend. The gray line on top is the
current spending cap. According to this rate, our
unrestricted general fund spending should be around
$10 billion in 2020. The rate is too high. It combines
both CPI and population. Population is the dark gray
line on the bottom: its been steady growth except for
the last couple of years. The dark blue line is this
bill's spending limit. In this graph, we modeled the
blue line both backwards and forwards to see what an
effectual spending cap might have looked like had we
had it in place. This growth rate is the last five
years trailing the CPI average at about 2 percent.
1:50:18 PM
Vice-Chair Johnston looked at the green line on slide 5
labeled UGF revenue plus the PFD. She thought the line
actually reflected UGF and the structured draw (not the
dividend).
Co-Chair Wilson agreed and thanked Vice-Chair Johnston for
the clarification.
Co-Chair Wilson continued reviewing slide 5:
The green dotted line is estimated revenues published
in the spring Revenue Source Book. As you can see it
appears that revenues are estimated to remain steady
for the next five years.
Co-Chair Wilson believed the chart illustrated that during
years the state was flush with money she had seen the
budget increase during session with the hopes that oil
would go up. She recalled that many times oil had
increased. She stated that unfortunately instead of holding
to the budget it had been increased. She thought it showed
that in addition to a spending cap, the legislature may
want to consider the possibility of a two-year budget
versus going through the process annually, especially as
the legislature was looking for ways to be smarter about
spending. She continued reading from prepared remarks
pertaining to slide 5:
The current spending cap illustrates why long-term
growth rates left untouched can become very large in
magnitude. Why? First, what the rate is matters. If
you just consider the dark blue line, which when you
look backwards, the simple rate of five-year average
as the CPI, seems more in line with our revenues and
reasonable expenditures.
Co-Chair Wilson remarked that Alaska was primarily
dependent on oil revenue and its revenue was not as
diversified as many other states.
1:52:17 PM
Co-Chair Wilson moved to slide 6:
However, the second point, regardless of whatever rate
we choose, we have to contain with something called
compound annual growth rate (CAGR). You start with $5
billion growth, grow it by 2 percent inflation, then
next year you begin with $5.1 billion, then you add 2
percent on that and so it goes. Over time, the
compounding effect yields a spending magnitude that
may or may not be in line with revenue. Why? Revenues
and expenditures are not based on the same things. For
revenue, oil prices are not based on inflation, they
are based on supply and demand, technology, shell
fracking, and global politics. Market value of the
Permanent Fund is based on the value of stocks, bonds,
and real estate. Also based on supply and demand,
consumer confidence, and global market forces.
Co-Chair Wilson returned to slide 5:
For expenditures, the light green line is just agency
operations and the dark green line is everything UGF.
Remember, that includes any general funds to attract
federal matching as well. An effectual spending cap
would have been extremely helpful between 2005 and
2018, assuming that we had the political will to
follow it.
Co-Chair Wilson believed it was where the debate came in
between the difference of having a cap in statute versus in
the constitution. She continued reading from prepared
remarks:
But beware, compound annual growth rate is a
mathematical calculation that has economic
consequences when its inside a spending cap. I would
recommend periodic reevaluation of any spending cap we
put in place and make sure it continues to make sense
for Alaska.
Co-Chair Wilson noted typically the concern over putting
something in the constitution was about making sure all of
the levers were exactly where they should be before
solidifying them in the constitution. She added there were
numerous other debates on the subject as well.
1:54:15 PM
Co-Chair Wilson moved back to slide 6 and read from
remarks:
This is based on revenues, this is unrestricted
general funds, money we can use to spend on all agency
funding, capital, retirement, and the dividend. I took
these revenue numbers directly from the 2019 spring
revenue forecast and the Permanent Fund financial
statements for the percent of market value. I have a
blue percent of market value for FY 17 and FY 18. We
did not pass the POMV until 2019, but wanted to show
an example of how the revenue would have been for
analysis purposes. In this bill, we have excluded
debt, so this is why I subtracted debt from the
revenue to get the total amount of money that we have
left to spend, which is green. Then, as for expenses,
here's what we have spent.
1:55:07 PM
Co-Chair Wilson advanced to expenses as a comparison on
slide 7. She read from remarks:
Here's what we spent in the last few years from
unrestricted general funds. FY 18 and FY 19 exceeded
the hypothetical spending cap, which is in blue, and
all of the last three years exceeded the actual
revenues and required us to pull money from the
Constitutional Budget Reserve, which is the red
amount. I excluded debt from this slide as well so
that we could have the same side by side [comparison].
The draw on the CBR includes the debt.
Co-Chair Wilson noted that things had gotten better as the
budget had been decreased; however, the budget had not been
decreased to where the state was spending within its own
means.
1:55:49 PM
Co-Chair Wilson turned to slide 8:
Anything with UGF included:
?Agency spending
?Retirement
?Capital for matching
?Permanent Fund Dividend
Excluded from cap:
?Permanent Fund principal (Corpus)
?Debt payments
?Disaster funding
?Deposits into savings
Co-Chair Wilson summarized that the presentation
highlighted what a spending cap could look like. She
highlighted various levers that could be manipulated. She
had used a starting point of $5 billion, which was similar
to the state's current budget. She highlighted the growth
rate lever and noted it could be the CPI or other. She
noted that if an arbitrary growth rate was selected it
would be necessary to review whether the state would be
able to spend within those means.
1:56:53 PM
Representative Sullivan-Leonard asked for a comparison
between the current spending limit and the bill proposal.
Co-Chair Wilson replied that would present a chart showing
the information at the next meeting.
Representative Sullivan-Leonard looked at the gray line on
slide 5 that showed a continual increase across the years.
She considered that it did not reflect a plateau, but an
increase. She asked what it was determined by.
1:57:58 PM
CAROLINE SCHULTZ, STAFF, SENATOR NATASHA VON IMHOF, shared
that the Senate Finance Committee had heard a close to
identical bill a couple of weeks earlier. She asked
Representative Sullivan-Leonard to repeat her question.
Representative Sullivan-Leonard asked what was causing the
increase in the current spending cap over time. She
wondered why for example, it was not a plateau of $10
billion over time.
Ms. Schultz replied that the future forecast of the current
constitutional spending limit represented by the gray line
[on slide 5] was based on a 2 percent inflation assumption
as well as the Department of Labor and Workforce
Development's (DLWD) official population projections. The
constitutional spending limit was adjusted for inflation
and population, which was the reason it showed a growth
rate that appeared to be quite a bit higher than the bill's
proposed spending limit and population. She pointed to the
dotted gray line that represented DLWD's official
population projection.
Representative Sullivan-Leonard asked if the chart
reflected the average CPI for Anchorage.
Ms. Schultz replied in the affirmative.
Representative Knopp considered exclusions. He observed
there were no federal dollars factored in. He assumed any
capital money would come from under the cap. He wondered
about a provision for additional capital projects. He
thought the spending cap should relate to agency
operations, debt, general government operations, and so on.
Co-Chair Wilson answered that the cap would apply to UGF
and UGF matching funds. She clarified that federal funds
would not be included in the cap.
Representative Carpenter asked if the cap included capital
spending on deferred maintenance.
Co-Chair Wilson answered affirmatively. She clarified that
all UGF items would be included under the cap.
Representative Carpenter asked for verification that even
though deferred maintenance was not in the operations
budget, it was still accounted for in the cap.
Co-Chair Wilson agreed. She explained that it would not
fall under operating in total UGF because capital was
included...
Representative Carpenter interjected, "Agency operations on
that line."
Co-Chair Wilson replied in the negative. She stated that
the orange line showed capital [on slide 5].
Ms. Schultz confirmed that the darker green UGF spending
line included UGF capital and statewide items. The lighter
orange line represented UGF agency operations.
Representative Carpenter asked for verification that the
dark orange line [on slide 5] included capital spending.
Ms. Schultz responded affirmatively.
Representative Carpenter remarked that state revenue was
not generated by population in Alaska. He did not believe
it was a good gauge of where the state spending level
should be. He thought it was better to consider what size
economy the state had to sustain spending for the desired
type of government. He suggested it would be better to use
GDP - to have some capacity to measure the amount of money
generated in the economy, which was ultimately what funded
government. He explained that the number of people did not
fund the government - Alaska did not have an income tax. He
understood some people wanted an income tax, but that was
not the current scenario.
2:03:32 PM
Ms. Schultz replied that Senator von Imhof's office had
looked at using GDP as one of the inputs to the spending
cap calculation. Based on Alaska's historic economic growth
rate as well as the considerable impact that oil price and
production had on Alaska's GDP calculations, they had
discovered that GDP resulted in a growth rate that was too
high and volatile. She elaborated the topic was certainly
worthy of discussion, but their modeling had shown a growth
rate that was too high. Their office had considered that
Alaska was a relatively young and developing state that
historically over the past 40 years had higher growth rates
than the rest of the country. She explained it was
difficult to say what the state's GDP growth rate would be
going forward. She added that given Alaska's commodity
based economy, it was normal to expect quite a bit of
volatility in the GDP calculation. She offered to provide
the graphs from Senator von Imhof's office.
2:04:51 PM
Co-Chair Wilson added that the bill was intended to start
the conversation. She relayed there was no intent to add
any tax. She stated it was necessary to begin at the
beginning to determine the starting point and the various
options. She wanted to bring the bill forward because of
the gray line [on slide 5 representing the current spending
cap]. She believed that individuals who had implemented the
current cap had likely thought it would keep state spending
in check and that it would prevent the state from facing
situations like the current one. She stated it had not
proven to be effective.
Representative Carpenter looked at a spike in the green
line [representing UGF revenue plus the PFD] in FY 05/FY 06
to present. He observed the spike represented a 30 percent
increase in inflation and 10 percent increase in
population. He stated that if the model was used to project
inflation growth in the future, the increase would be
drastic. He stated there was no way to get around it.
Co-Chair Wilson thought it was the reason to vet everything
out at present to determine what would work for Alaska to
avoid spikes that had historically occurred. She continued
that the state had always been dependent on where the oil
prices were at the end of the year for its budget versus
considering whether the budget was the size it needed to be
(and not necessarily how much money the state had available
to spend).
Representative Carpenter agreed. He had seen some documents
that broke out the state's non-oil revenue versus oil
revenue. He detailed that the part of the revenue that
would spike wildly was the oil revenue portion, while the
non-oil revenue was likely fairly static. He stated it was
a measure of the non-oil ability to produce revenue within
the state. He was interested in something that took that
into account. He suggested that perhaps the discussion
should be about where things would start from the cap. He
thought it would be something that looked more like FY
05/FY 06 or an average of the last 25 years than it was at
any point on the spiked portion of the green line [slide 5]
where the state had been on a joy ride flush with revenue.
2:07:25 PM
Co-Chair Wilson remarked that the governor had repeatedly
discussed the importance of making the lines steadier. She
spoke to a misalignment between revenues and expenditures
and explained that companies investing in the state (e.g.
in technology or resource development) wanted a stable tax
system. She stated that a spending cap was one of the ways
to bring stability.
Vice-Chair Johnston reported that she had voted for the
constitutional budget cap. She looked at slide 8 and
observed the bill would include retirement in the spending
cap but would exclude debt payments. She asked if
retirement included the unfunded retirement liability.
Ms. Schultz answered it was her understanding that the
state on-behalf payment for the Public Employees'
Retirement System (PERS) and Teachers' Retirement System
(TRS) unfunded liability would be included in the cap.
Vice-Chair Johnston asked if the debt payment would be for
any state bonding.
Ms. Schultz agreed and noted debt payment would fall
outside the cap [under the bill].
Co-Chair Wilson stated it was a developing bill that would
take collaboration from the entire committee. The idea was
to reach a sustainable budget.
2:09:36 PM
Vice-Chair Johnston reported that she had come from a
municipal background where there was a functional spending
cap. She reasoned that a government that was closer to the
people was different than one with degrees of separation.
The Municipality of Anchorage's cap was based on CPI and
population; and any maintenance and operations for capital
were bonded. She shared that the cap had worked pretty
effectively. She noted that occasionally when people had
tried to remove things out from under the cap it had not
worked as well. She reported that the basic cap worked
quite well.
Vice-Chair Johnston disagreed on Representative Carpenter's
point about population. She believed population growth had
an impact on the cost of government, because government
(especially local government) was the last stop. The need
of government for a larger population could be larger. She
noted there could be a cost savings due to the size, but
there was an increased need for government as population
grew. She thought the capital budget including highways was
the best example - there was a need as population grew to
have some sort of transportation to meet the needs, unless
the growth was only vertical, but she did not think that
was something Alaska was looking for.
Vice-Chair Johnston stated that population had an impact on
the cost of government. She highlighted the Department of
Environmental Conservation as an example and explained the
department protected Alaskans from unsafe drinking water.
She elaborated that people would want their children to
have a safe place to live and to have a way to reach where
they live. She did not think population growth should be
discounted. She thought CPI was also a good mechanism.
Vice-Chair Johnston was familiar with what had caused the
significant increases in the orange line [slide 5], much of
it was the capital budget. She reported that she had been
concerned about capital budgets for the past 40 years and
she believed the capital budget needed to be included in
the spending cap. She believed the state needed a way of
financing capital. She highlighted port projects [in
Anchorage] that could be quite expensive. She considered
whether the projects should not be done or whether they
were part of the Alaskan growth. She had always felt the
state needed an effective spending cap and fiscal plan. She
believed they were onto a good beginning conversation.
2:13:53 PM
Representative Josephson referenced the administration's
position to entice and increase the attractiveness of the
state's communities. He pointed out that a number of people
including chambers had said the opposite.
Co-Chair Wilson clarified that her statement was not about
the budget itself. She explained that if large gaps in the
state's budget continued and companies thought the state
would use their profits to fill the gap, they would be less
likely to come. She explained that her statement had not
been about how far down the budget should be. She pointed
out that continued gaps would mean companies would not
invest in Alaska. She wanted to avoid a discussion about
where the budget should be.
Representative Josephson emphasized that if the service
levels were at the governor's proposed level, he believed
those same companies would be alarmed. He explained it
moved the bullseye squarely onto companies when services or
sects of the people stated they could not tolerate a given
class size or the closure of the University. He looked at
slide 5 and asked for verification that the light orange
line reflecting agency operations showed a number of
approximately $2.3 billion in FY 05. He asked if the number
was adjusted for population and inflation.
Ms. Schultz answered that the numbers were not adjusted for
inflation or population. Only the lines reflecting the two
spending caps (the existing and proposed caps) were
adjusted for inflation and population. She referenced a
graph from the Legislative Finance Division showing a
similar pattern for revenue expenditures, which were
adjusted for inflation and population. She clarified that
the dollars were nominal; the FY 05 number did not include
inflation or population adjustments.
Representative Josephson thought the committee had seen
from LFD that when taking away state expenses and
considering only agency operations, the current budget with
the adjustments was not that off from FY 05. He looked at
the dark orange line on slide 5 that included capital
budgets. He thought it would mean modest capital budgets of
less than $200 million. He thought the spending cap hemmed
the state in very small capital outlay (historically
speaking).
Co-Chair Wilson replied in the affirmative based on the
starting point used in the example. She noted it was the
beginning of the discussion and considered that perhaps the
starting point was somewhat off. She reported that the
Fairbanks North Star Borough also had a spending cap, which
excluded debt. She explained that sometimes the borough had
used a bonding mechanism to stay outside of the cap and
avoid making decreases in other places to have the ability
to make improvements.
2:18:34 PM
Representative Josephson discussed that the committee had
been told that retirement payments in FY 21 (to remain in
the 78 percent viability range) were in the range of $400
million, which represented a sudden increase. He noted that
those items were sensitive and needed to be tracked as
well.
Co-Chair Wilson emphasized that her intent was to work
through the issues as a committee and determine a starting
point. She planned to do more research about states that
had spending caps in statute versus in the constitution.
She would find it interesting to see whether states had
started their caps in statute and after determining success
had put the cap in their constitution. She considered
whether some of the other states had a steadier income
through taxation or other in order to make the adjustment.
She believed the volatility of oil made it difficult to
know what the price and production would be in five years.
She thought Representative Josephson had the perfect point
about what the starting point was and how it would lock the
state in.
Representative Josephson discussed when oil prices had
spiked during the Palin and Parnell Administrations. He
noted it was true that the state had spent a huge amount of
money, but it was possible because the state had saved an
enormous amount of money. There had been a window of time
to develop a fiscal plan, but lawmakers had not taken it
up. Predecessors had given lawmakers the ability, but they
had not exercised it.
Co-Chair Wilson replied it came back to the will of the
legislature.
Vice-Chair Ortiz referenced discussion by Vice-Chair
Johnston that a spending cap had worked well for the
Municipality of Anchorage. It was important to note that
tax revenue had increased in Anchorage as its population
had grown. However, at the state level an increase in
population did not mean more revenue would come in.
Additionally, an increase in GDP did not mean more revenue
for the most part. He believed it was important to
recognize in the discussion going forward. He stated that
until there was a revenue source the problem would exist -
increasing population brought increase in cost in
education, roads, and other, but it would not bring
increased revenues. He pointed out that communities had
local taxing authority, but the state currently did not.
2:22:16 PM
Co-Chair Wilson thought it was a good point. She noted that
the Fairbanks North Star Borough only had property taxes
(North Pole had a sales tax). She detailed that when
population grew there was new development outside the cap.
She highlighted the construction of a new mall as a
hypothetical example when population growth occurred. She
stated there had been a cap for a long time and it was the
first year the borough had come up against the cap. The
borough had not seen substantial new growth in terms of new
homes or buildings and the tax base had not grown, but more
people had come in utilizing some of the existing
infrastructure. She thought it would be a good conversation
for the committee to have with LFD on how a state spending
cap would differ from municipalities (with different
revenues - municipalities did not have the same oil revenue
coming in as the state).
Vice-Chair Ortiz referenced the graph [on slide 5] showed
that while there was an increase in agency operations from
year-to-year (shown in light orange), the largest increases
were due to capital spending.
Co-Chair Wilson interjected that both areas had grown.
Vice-Chair Ortiz agreed, but noted that capital spending
had grown more than agency spending. He noted that the
increase in capital spending had resulted in the growth in
private industry (private industry had benefited from
capital budget growth in the form of contracts to build
roads and other work).
2:24:18 PM
Representative LeBon looked at the dark green line [on
slide 5] and noted the peak of revenue in FY 07 and low in
FY 17 was buffered by the CBR draws. He pointed to the dark
orange line that crossed the spending line in FY 12, which
was the beginning of the CBR draws. The encouraging part
was that at present, the dark green and dark orange bars
had moved close together. He observed that the state was
coming close to matching revenues with expenditures.
Representative Tilton suggested considering a relief valve
for capital improvement projects that could be accessed
with a three-quarter vote [by the legislature] or other.
She stated that the governor's constitutional limit
included an additional excess appropriation amount for
capital improvements. She explained there were different
ways to write the limit to avoid cutting off the ability to
have capital projects to help with the economy. She
believed it was important to discuss whether relief valves
should be considered.
Representative Knopp looked at the spike in revenue shown
in green [on slide 5] in FY 10 to FY 12 resulting from high
oil prices. He remarked that the state had a history of
supporting all of its municipalities and boroughs, which
had resulted in expenditure spikes related to capital
projects. He noted that the state had given money for
everything communities had asked for without significant
vetting in the past - some of the projects had been good
and others had not. He thought it necessary to consider
whether the state was going to finally start telling
municipalities there would be a cap if revenues came back
and excess revenues occurred; therefore, communities could
take on the burden themselves. He noted that the state had
saved just under $27 billion between the CBR and SBR when
oil prices had spiked in the past. He wondered if that was
part of the big spike or part of savings as well.
Ms. Schultz agreed. The difference between the green line
and orange line reflected what had been put into savings at
the time.
Representative Knopp believed there were many things to
consider associated with the idea of a spending cap. He
wondered if a restriction on UGF funds would limit the
state's ability to accept federal dollars. He recognized
the importance of determining how to reign in state
spending.
2:28:07 PM
Co-Chair Wilson noted Representative Knopp was correct
about the levers; the cap would restrict UGF and it would
not matter whether it was total UGF spend or matching
federal dollars. It was important to consider all of the
levers to determine how to keep the cap tight enough so it
would not have to be changed in the future. She thought it
would take some pain to get down to the needed amount.
Vice-Chair Johnston agreed with Representative Knopp's
point that "some of this was depositing money into
savings." Another factor in the dark orange line was when
the state paid off $2 billion to TRS and $1 billion to
Public Employees' Retirement System (PERS). She stated it
was necessary to keep in mind that much of the big spike
[in revenue] was savings.
Co-Chair Wilson clarified that Vice-Chair Johnston was
talking about the Public Employees' Retirement System
(PERS) and Teachers' Retirement System (TRS).
Representative Knopp noted that during that same time
period the legislature had invested a lot of additional
capital money into the corpus of the Permanent Fund. He
believed it should be reflected in the data on the chart
[on slide 5].
Representative Carpenter noted that there had been an
increase in capital spending. He stated that new capital
projects increased maintenance requirements going into the
future that were found in the capital budget. He suggested
that one way to equalize the conversation about how the
state spent its money was to pull the conversation of
maintenance into agency operations to compete with every
other good idea. He stated taking care of maintenance was
mandatory for buildings the state wanted to keep. At
present it was a separate conversation from all of the
other things.
Representative Carpenter stated that the future would look
different related to federal funds. He highlighted the
large federal deficit and believed at some point there
would have to be a conversation about what the country
would do with spending at the federal level. He assumed it
would mean bringing spending in line with revenues at the
federal level. He considered what it would mean for states
where federal dollars represented one-third of the budget.
He thought it would be wise for the state to consider how
it could wean itself from federal dollars. He did not want
to have to rely on federal funds because when there was a
federal fund problem, the state would be insulated.
2:31:48 PM
Representative Josephson countered that the same would
apply to the Eielson Air Force Base. He stated that dollars
were dollars. He shared that he had more familiarity with
the federal constitution than the state constitution and
there was no separation in that respect. He believed it was
not incumbent on the 700,000 Alaskans to be especially
heroic in that regard because the other 300 million
Americans would stare at Alaska in wonderment.
Co-Chair Wilson stated that the challenge was that the bill
was the starting point and did not reflect a complete
solution. She offered members an opportunity to provide
input into the bill. She shared that she would like to see
the constitutional issue come before voters, but she
recognized time was running out and the bill could be
implemented statutorily prior to the end of session. She
reasoned passage of the legislation would give the
legislature the chance to practice the cap prior to a
potential constitutional change.
Co-Chair Wilson considered that $5 billion may be too high
or low and perhaps 2 percent was not the right number. She
clarified that the bill was not her project, but the
committee's project. She noted that other committee members
had looked at their own appropriation limits, which she was
amenable to hearing. She believed the bill was long
overdue. She agreed that federal dollars made the state
dependent. She noted that during some of the peak years
there had been substantial federal dollars coming into the
state. She noted there were strings attached to federal
dollars that she had not fully realized in the past. She
highlighted the need to determine the efficacy of existing
programs. She asked members to provide ideas to her office.
2:35:13 PM
Representative Carpenter responded to the federal dollar
discussion. He acknowledged there were federal dollars that
would continue to come in related to federal troops in
Alaska. He stated it was not something he would factor into
the budget. He thought federal dollars for education were
different and should be considered. He stated that some
federal funds impacted the state's economy, but not its
budget and others that impacted the budget and how the
state operated.
Vice-Chair Johnston followed up on Representative
Carpenter's statements and recognized the expense related
to maintenance and operations. She thought it was important
to consider how the expense fit within UGF and the
departments. She discussed spikes in the budget in the
past, specifically related to the capital budget. She noted
a thorough vetting system for the capital budget had been
absent in the past. Additionally, a rush in capital
projects had occurred in the past without a workforce or
the ability to bring the projects to fruition. She
elaborated that the costs of the projects had skyrocketed
and many of the projects had been conducted by contractors
and workers who did not live in Alaska. She recognized the
state had significant need for capital investment, but she
thought a tampered down capital budget was needed that
could be reflected and addressed by Alaska's population,
while continuing to provide growth.
Co-Chair Wilson wanted to ensure they understood the
operating costs of capital items.
2:38:15 PM
Representative LeBon looked at slide 5 and pointed out that
from FY 00 to FY 03, the CBR had a rapid growth period that
lasted until about FY 12. He asked for verification that
the gap between the dark green and dark orange lines
reflected CBR growth.
Ms. Schultz agreed.
Representative LeBon asked if it would help visually if the
chart had a shaded color in the CBR growth and decline
periods.
Ms. Schultz would be happy to add the detail to the graph.
Co-Chair Wilson noted that when the legislature took money
from the CBR it was required to replace the funds. She
remarked there were certain things the state had
fortunately done and been mindful of; although there was
significant growth [in expenditures] when the state had
money, but a large amount had been put back into the CBR
for use during leaner financial times.
Representative Tilton requested a slide showing the
differences in the existing constitutional limit versus the
information included in the bill.
Co-Chair Wilson agreed. She was counting on the committee
to do its part to contribute to the bill. She did not want
to set an amendment timeline and wanted members to provide
ideas to her office.
Vice-Chair Ortiz asked for clarification about her request.
He wondered if Co-Chair Wilson wanted committee members to
provide ideas in writing to her office.
Co-Chair Wilson agreed. She stated the goal was to bring
ideas back to the committee.
2:41:43 PM
Representative Knopp remarked his preference for capital
budgets over operating budgets. He was concerned about
putting capital dollars under a cap. He was also concerned
about putting supplemental budgets into a capital budget,
especially since supplementals usually went to operational
items.
Co-Chair Wilson believed the supplemental would be required
to be included in the cap.
Ms. Schultz agreed that the cap in HB 131 and SB 104
pertained to appropriations for a fiscal year rather than
in a fiscal year. She believed the bills may specifically
state that supplementals were included.
Co-Chair Wilson stated that supplementals came after the
budget had been completed. She provided a scenario where
the legislature put together a spending cap that it
followed in the coming year. She elaborated that under the
scenario expenditures provided $100 million in wiggle room
under the cap. She asked if there was a $200 million
supplemental whether it would be reflected on the year
before or the budget for the following fiscal year.
Ms. Schultz answered that the supplemental count for the
year the spending cap applied. The bill included a section
asking the governor's office to calculate the spending cap
and to specify whether the supplemental fell within the
cap.
Co-Chair Wilson thought it would make sense. She
highlighted concern about creating a budget within the
state's appropriate expenditure levels but ending up with a
supplemental the following year that ended up exceeding
those levels.
HB 131 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
2:44:26 PM
The meeting was adjourned at 2:44 p.m.