Legislature(2017 - 2018)BUTROVICH 205
02/14/2017 03:30 PM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB48 | |
| SJR2 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 48 | TELECONFERENCED | |
| *+ | SJR 2 | TELECONFERENCED | |
| + | TELECONFERENCED |
SJR 2-CONST AM: APPROPRIATION LIMIT
4:01:58 PM
CHAIR DUNLEAVY called the committee back to order and announced
the consideration of Senate Joint Resolution 2, (SJR 2). He
explained that SJR 2 is a constitutional amendment appropriation
limit sponsored by the Senate State Affairs Committee. He
provided an overview of SJR 2 based upon his sponsor's statement
as follows:
In 1982, Alaska's voters enacted a constitutional
appropriation limit which can be found in Article IX,
Section 16. It has applied to every budget since FY84.
However, in practice the spending cap has grown too
high to matter during the budget process. For example,
the constitutionally calculated spending limit for
this year is $10.1 billion, while applicable state
spending is roughly $5.2 billion. Simply put, we could
double the budget today before bumping into the cap.
Unless we act to "reset" the spending limit, it will
remain powerless to curb future government spending
growth.
SJR 2 lowers the constitutional appropriation limit
amount, to bring it in line with the state's current
fiscal realty, and to respect the intent of voters who
chose to restrict the size of their government. It
ties the cap going forward to a percentage of the
annual change in population and inflation, to allow
for changing conditions in the state.
SJR 2 draws on the wisdom from experience since 1982,
and aims to close loopholes which allow for spending
to bypass the limit. It attempts to simplify the limit
so that it can be easily understood by budget and
policy makers, as well as ordinary citizens.
Alaskans are prepared to help get us through this
short-term fiscal situation, but do not want to give
government an open checkbook. One of the simplest and
most impactful ways we can structurally reduce and cap
government growth is through repairing the
constitutional appropriation limit to ensure it
functions, as the voters of Alaska intended when they
enshrined it in the Constitution not once, but twice.
The state's fiscal situation calls upon Alaskans to
make sacrifices and the people want assurances that
the size, spend, and growth of government will be kept
in check. SJR 2 may be the most crucial piece of
legislation that helps in accomplishing this goal.
4:06:24 PM
DANIEL GEORGE, Staff, Senator Mike Dunleavy, Alaska State
Legislature, Juneau, Alaska, provided an overview of SJR 2 as
follows:
SJR 2 is a timely conversation, it addresses a clause
in our constitution that for some time has not been
relevant to the discussion; but, given our current
predicament, it is an option to help us deal with our
fiscal situation as well as guide the state going
forward, and it's an opportunity to respect the intent
of the voters who enshrined this in the constitution
not once, but twice.
The way SJR 2 functions is it takes all state spending
and places it within a dollar-cap limit and that is
the way the existing Article IX, Section 16 reads, and
then it names and lists out the items that are outside
that limit.
MR. GEORGE disclosed that former legislators and staff from
former governors were contacted for input as well. He divulged
that former governor Hammond's staff members were contacted and
noted that the appropriation cap was originally Governor
Hammond's bill.
MR. GEORGE reiterated that SJR 2 takes all state spending and
places it within a limit and then lists each item that is exempt
from the limit. He noted that as Senator Dunleavy pointed out,
the legislation would be on the ballot in November of 2018.
4:09:01 PM
He presented to the committee an overview, "SJR 2,
Constitutional Appropriation Limit-Revision," and detailed as
follows:
· Article IX, Section 16 of Alaska's Constitution.
· In Alaska: An annual cap on appropriations which can be
enacted, which grows yearly by the increase in population
and inflation, and held binding by the constitution. Some
categories of appropriations are exempted.
· According to Alaska's OMB, "appropriation" is defined as,
"Statutory authorization to spend a specific amount of
money for a state purpose. Appropriations are often
subdivided into allocation in the appropriations bill.
Funds may not be spent without an appropriation made by
law."
He addressed page 3, "How Many States Have Limits?" as follows:
· Appropriation limits are part of a broader category of Tax
and Expenditure Limits (TEL).
· According to the National Conference of State Legislatures
(NCSL), as of 2010:
ƒ30 states operate under a tax or expenditure limit.
ƒ23 states have spending limits.
ƒ3 states have tax limits.
ƒ4 states have both spending and tax limits.
· Roughly half of these limits are constitutional, the other
half are statutory.
He noted that Alaska's appropriation limit is a state
appropriation limit that does not apply to municipalities or
local governments.
CHAIR DUNLEAVY pointed out that many municipalities have opted
for certain caps; for example, Anchorage has a tax cap and other
municipalities have to get a vote of the people to raise a tax.
He noted that the term "appropriation" is used in the same
breathe as "revenue limit;" the two terms are slightly
different, but the effects are they are trying to have the same
effect and that is to limit the growth and size of government.
MR. GEORGE continued on page 3 and addressed the 23 states that
have spending limits as follows:
Of the states that have tax expenditure limits,
roughly half are constitutional in nature and the
other half are statutory; Alaska has both as you may
know. The constitutional limit in 1982 and then the
statutory limit was enacted by the Legislature in
1986, the same year that the constitutional limit was
up for a revisit. When the bill passed the Legislature
and went to the voters, it was known that they would
revisit the limit in four year; so they know it would
be on the ballot again in four years and have a chance
to look at it and see how it was doing and see if they
liked it or not. The Legislature passed the statutory
limit knowing full well that the constitutional limit
may or may not exist later on, but the statutory limit
would exist regardless.
4:12:02 PM
CHAIR DUNLEAVY emphasized that SJR 2 is not something new to the
people of Alaska, and they had a say on an appropriation limit
decades ago. He acknowledged that Alaskans did want to constrain
the Legislature and the size of government.
MR. GEORGE addressed page 4, "How Did We Get Our Appropriation
Limit?" and detailed as follows:
Historical Context:
· Trans-Alaska Pipeline System (TAPS) completed,
first oil flowed June 20, 1976.
· Alaska Permanent Fund established by voters
November 2, 1976.
· From FY79 to FY82, Alaska's total budget tripled,
going from $1.08 billion to $3.21 billion. For
reference, the FY06 budget was $3.29 billion.
· Alaska was facing a challenge of plenty at the
time and there was a robust dialog about the need
for an appropriation limit that took place in the
early 80s.
MR. GEORGE pointed out that Alaska's budgets have grown in quick
bursts over the years.
SENATOR COGHILL noted that in the constitution there is
reference to the inflation rate. He asked if dollar amounts
addressed by Mr. George are in real dollars or in inflated
dollars.
MR. GEORGE replied as follows:
The "Unrestricted General Revenue/Budget History"
graph referenced on page 4 is in nominal dollars that
are not adjusted. If you were to turn this into real
dollars, you see that blip around the early 80s, it
would look nearly as high as the top of the chart on
the right hand side of the 2000s. So what they were
facing was, and if you were to look at it in real
terms per capita, it's very significant. There's a
whole presentation that Legislative Finance has put
together on this.
SENATOR COGHILL commented on nominal dollars versus adjusted
dollars and specified as follows:
This is just a context we need to kind of keep in
front of us because we are going to be asking them to
think about how it would look in the adjusted dollars
along the way and yet it just shows that stark reality
of the huge volume of dollars that have come and gone.
4:15:11 PM
MR. GEORGE addressed page 5, "How Did We Get Our Limit?" as
follows:
Timeline:
· July 15, 1981: Legislature passed Governor
Hammond's SJR 4 in a special session.
· November 2, 1982: Voters enshrined the amendment
limiting appropriation increases in the Alaska
constitution, passing Ballot Measure 4 with a 61
percent to 39 percent tally.
· November 4, 1986: Voters reaffirmed the amendment
in a planned revisit, passing 71 percent to 29
percent.
Later Fiscal Measures:
· 1986: Statutory Appropriation Limit.
· 1991: Statutory Budget Reserve Fund.
· 1991: Constitutional Budget Reserve Fund.
MR. GEORGE noted that Governor Hammond in 1981 addressed the
larger budget and called a special session for a fiscal
guarantee regarding the state's future for by asking for an
appropriation limit, via SJR 4, to go before the Legislature.
CHAIR DUNLEAVY pointed out that the chart that Mr. George
referenced shows that each time the people of Alaska had an
opportunity to vote on an appropriation limit they reaffirmed it
and did so by larger numbers. He opined that a baseline "spend"
that was actually more constrained with less of an incline would
have resulted in billions of more dollars in savings accounts
and the budget issue that the Legislature has been grappling
with for the last two or three years would not be as large as it
is today. He set forth that SJR 2 draws on the past and present
to chart the course for the future that is much more fiscally
sustainable for Alaskans.
4:17:12 PM
MR. GEORGE addressed page 6, "Why SJR 2 Was Brought Forward," as
follows:
· The appropriation limit in Article IX, Section 16
is in need of repair; it has soared out of reach
and failed to impact any spending since its
enactment:
ƒFY17 budget was $5.2 billion, while the
limit was $10 billion.
· The limit may never come into play again unless
it is reset.
· The intent of the voters should be respected and
there should be a meaningful appropriation limit.
4:18:10 PM
At ease.
4:18:52 PM
CHAIR DUNLEAVY called the committee back to order.
MR. GEORGE addressed page 7, "Why SJR 2 Was Brought Forward,
Continued," as follows:
· During the 2016 interim, Senator Dunleavy asked Legislative
Finance Division (LFD) to review the existing Statutory and
Constitutional Appropriation Limits.
· LFD responded with analysis and also provided a look at
problems associated with the state's spending limits, and
recommendations for ways to assist in developing a workable
loophole-proof as much as possible with a spending limit
that would:
ƒSuppress the growth of government ring revenue
surpluses,
ƒAddress rapid burning of reserves during revenue
shortfalls.
· Staff worked with LFD, Legal Services Division, and
individuals involved in the creation of the existing
appropriation limit, to craft a revised appropriation limit
for Alaska.
He addressed page 8, "Key Elements of SJR's Revision to the
Constitutional Appropriation Limit," as follows:
· Simplicity in presentation:
ƒVoters must be able to clearly understand the
limit; it must not be so complex or wonky that it
cannot be easily explained.
ƒSJR 2 was designed to simplify the existing
limit.
· Sophisticated in function:
ƒBorrows from lessons learned following implementation
of the 1982 limit.
ƒOMB's Division of Strategic Planning wrote a paper in
1986 which characterized the 1982 limits as, "Complex,
because it has be. Like all legislation, it was
designed to strike a balance between accomplishing
something in a particular way, yet simultaneously
preserving the flexibility to respond to unforeseen
events and changing circumstances."
He addressed page 9, "Basics of SJR 2" as follows:
· Would need to pass during the 30th Legislature, prior to
the November 2018 General Election:
ƒConstitutional Amendments and Conventions: AS
15.50.030, placing proposition on ballot. The
lieutenant governor shall direct the director to place
the ballot title and proposition on the ballot for the
next statewide general election held after the
amendment proposed by the Legislature or held 120 days
after the amendment proposed by a constitutional
convention. If there is insufficient time to permit
the proposition to be placed on the regular ballot by
the director, the lieutenant governor shall direct the
director to prepare a separate ballot for the
proposition.
· Effective Date: Under AS 15.50.060, would become effective
30 days after certification; this means SJR 2 would be
effective for the FY2020 budget, contemplated in early
2019.
4:21:27 PM
CHAIR DUNLEAVY commented as follows:
Once again, we are going through a time where we may
be asking the people of Alaska for the first time in
decades to contemplate a tax, contemplate some
reconfiguration of the permanent fund, and the
feedback I've been getting from constituents is they
want to pull together and get Alaska to get through
this period of time; but, the very concern about once
we get through this period of time is it's going to be
an "open checkbook" and is it going to be their
checkbook that's open for any future increases in
taxes, any future reconfigurations of the permanent
fund. The feedback that I'm getting from constituents
is they want to keep government constrained and as
small as possible so that they can keep as much money
in their pockets. I had a discussion with many
constituents that believe we should be sure that we
have adequate public safety, good roads, good schools,
their concerns are some of the other things that may
have spent our money on in the past, they would like
us not to go back to that spending where when we get
money, we spend it for the most part, we save a little
bit, but we spend it for the most part; they want to
be assured as we move forward they are going to be
able to retain as money in their pockets and the state
will have adequate funds to deliver basic services.
4:23:22 PM
MR. GEORGE addressed page 10, "Basics of SJR 2, Continued,"
regarding spending exempt "outside" the limit appropriations
made as follows:
· The Alaska Permanent Fund;
· Payment of Permanent Fund Dividends;
· Meet a state of disaster declared by the governor as
prescribed by law, AS 26.23.020;
· State general obligation or revenue bond proceeds;
· Obligations under State general obligation bonds and
revenue bonds;
· Money received from the federal government;
· Reappropriation of a previous unobligated appropriation;
· Expenditure by a state agency to provide internal services,
or to provide services to another agency, and another state
agency has also received an appropriation of the same
money.
· Money held in trust by the state for a particular purpose;
· Money receive by the state from a source other than the
state or federal government that is restricted to a
specific use by the terms of a gift, grant, bequest, or
contract;
· Revenue of a public enterprise or public corporation that
issues revenue bonds;
· Money deposited into the Constitutional Budget Reserve
(CBR), back to the funds and accounts from which the money
came, "reverse sweep;"
· State savings account or fund as prescribed by law;
· Dedicated funds.
CHAIR DUNLEAVY addressed general obligation bonds and revenue
bonds. He noted that revenue bonds have revenue attached to
service those bonds.
4:27:19 PM
MR. GEORGE addressed page 11, "What Is Inside and Outside the
Limit?" as follows:
· Permanent Fund Dividends:
ƒExisting limit: outside;
ƒNew limit: outside.
· General Obligation Bond Proceeds (State):
ƒExisting limit: inside, unless in Capital Budget and
approved by voters;
ƒNew limit: outside, universally.
· General Obligation Bond Principal Repayment (State):
ƒExisting limit: outside;
ƒNew limit: outside.
· General Obligation Bond Interest Repayment (State):
ƒExisting limit: outside;
ƒNew limit: outside.
· Municipal Debt Service:
ƒExisting limit: outside;
ƒNew limit: inside.
· Revenue Bond Proceeds:
ƒExisting limit: outside;
ƒNew limit: outside.
· Revenue Bond Debt Service:
ƒExisting limit: inside;
ƒNew limit: outside.
· Money held in trust by the State for a particular purpose:
ƒExisting limit: outside;
ƒNew limit: outside.
· Revenues of public enterprise or public corporation of the
State that issues revenue bonds:
ƒExisting limit: outside
ƒNew limit: outside.
· Federal receipts:
ƒExisting limit: outside;
ƒNew limit: outside.
· Reappropriatons:
ƒExisting limit: outside, per attorney general opinion;
ƒNew limit: outside, explicitly.
· I/A Services and Duplicate Appropriations:
ƒExisting limit: implied outside;
ƒNew limit: outside, specified.
· Gift, grant, bequest, or contract, restrict money from
neither Feds or State for a specific use:
ƒExisting limit: implied outside;
ƒNew limit: outside, specified.
· CBR reverse-sweep:
ƒExisting limit: not contemplated;
ƒNew limit: outside.
· To a state savings account, as prescribed by law
(designated in the statutory bill), which require further
appropriation in order to spend. (Statutory Budget Reserve
(SBR), CBR):
ƒExisting limit: implied outside;
ƒNew limit: outside, specified.
· Dedicated funds (per Constitutional definition):
ƒExisting limit: outside, with exceptions;
ƒNew limit: outside.
· Appropriations from other than the Treasury:
ƒExisting limit: outside;
ƒNew limit: inside.
· Appropriations into the Permanent Fund:
ƒExisting limit: outside;
ƒNew limit: outside.
· State Capital Budget:
ƒExisting limit: inside, unless valid and approved by
voters as prescribed by law;
ƒNew limit: inside, generally.
· Disaster (when declared by governor, as provided by law):
ƒExisting limit: outside;
ƒNew limit: outside.
MR. GEORGE noted that one significant item which was not spelled
out in the original limit was municipal debt service that
includes: transportation, infrastructure, bonds that are on the
local level, and school debt reimbursement; those are approved
on a municipal-wide basis. He explained that the state, under a
statute that dates back to 1971, has made an annual
appropriation in most years to offset or pay the municipalities
for those costs. He said as a policy call, the way SJR 2 works
is it takes all state spending, except for the items in the
exclusions, and puts them on equal footing with one another so
that they compete for scarce resources under equal footing. He
detailed that SJR 2 would take municipal-debt reimbursement and
place it within a limit; that doesn't mean it wouldn't be paid,
it's just that it would have to compete with other items.
4:28:33 PM
He addressed page 12, "The Built-In Growth Formula" as follows:
· The mechanism which adjust the appropriation cap annually
is a critically important element.
· The existing limit's formula adjusts the spending cap by
100 percent of the cumulative change in population and
inflation; this led to a trajectory for the limit which
quickly became unattainable.
· If the formula in 1982 had been set at 50 percent of the
cumulative change in population and inflation, the limit
would have cutoff the mountain of spending for FY06 to
FY15.
CHAIR DUNLEAVY concurred with Mr. George that if SJR 2 was in
place, the appropriation spikes from FY06 and beyond would not
have occurred. He asserted that billions of dollars would have
been put into savings that the state would have today; that's
one of the major points of trying to revise the appropriation
limit. He set forth that the state will come into more revenue
over time and noted recent oil discoveries occurring on the
North Slope as well as an oil-price rebound. He said being
prepared for the future will allow the state to save more of the
added revenue.
4:30:56 PM
MR. GEORGE addressed page 13, "Further Policy Considerations" as
follows:
· Flagged spending items for further examination:
ƒRevenue bond debt service; specifically, whether this
exemption should be limited to bonds that generate
sufficient revenue, or anticipated reductions, to
cover debt service.
ƒUnrestricted federal funds, approximately $7.4 million
in FY18.
ƒReappropriations and scope changes.
ƒUniversity receipts, Designated General Funds (DGF) or
other.
ƒAppropriations to a state savings account, as
designated by law; statutory clarification needed, CBR
or SBR.
ƒDedicated fund; example, Fish and Game Fund currently
inside the limit, the introduced bill would place all
dedicated funds outside the limit. Note: dedicated
fund are not the same as designated funds.
ƒCapital budget; this is an obvious loophole if placed
outside the limit.
· Pressure-relief valve:
ƒA method to exceed the appropriation limit, whether it
be through referral to voters, legislative super-
majority, or otherwise.
He addressed the pressure-relief valve and noted its use in
emergency situations. He disclosed that states have abused the
pressure-relief valve by annually declaring an emergency as a
way to get around their appropriation limit, or to declare a
particular appropriation is outside the limit.
4:32:39 PM
CHAIR DUNLEAVY commented as follows:
This is a bill that we are going to really take our
time and do it right because once again, changing
something in the bill or adding something really needs
to be scrutinized and evaluated to see if it stays
within our parameters of being simple and effective.
What we don't want to do is end up where the folks in
1982 ended up and that was they wanted a spending
limit, it went through the process, we know how the
process can be with bills with amendments and changes,
and what came out the other end was a spending limit,
and if the trajectory of "spend" was kept at that
trajectory, that baseline, it probably would have
constrained us, but the reality was we would have to
spend about $10 billion.
He noted that even if SJR 2 passed during the current year, a
vote would not occur for another year. He asked Mr. George to
verify the ballot date.
MR. GEORGE replied November 2018.
CHAIR DUNLEAVY welcomed invited testimony on SJR 2.
4:35:08 PM
JEREMY PRICE, State Director, Americans for Prosperity,
Anchorage, Alaska, testified in support of SJR 2. He said the
existing cap, established at $2.5 billion in 1982, would be over
$10 billion after inflation and population growth adjustments.
He noted Alaska has come close to exceeding the appropriation
limit in FY09 and FY13. He pointed out that spending increased
dramatically from $3 billion in FY04 to $8.7 billion in FY13. He
asserted that spending increases dramatically when government
revenue is high. He said the challenge to keeping spending under
control is when times are good.
MR. PRICE opined that the majority of Alaskans have not changed
their opinion since the early 1980s on limiting state spending.
He asserted that now is the perfect time to enact the limit on
appropriations because state spending has been declining for the
last few years. He referenced the Municipality of Anchorage and
the state of Colorado as examples of governing bodies with
taxing and spending caps. He noted that Anchorage recently spent
excess taxes, but Colorado issued refunds to taxpayers. He
disclosed that Colorado has refunded $2 billion to taxpayers
since 1992.
He set forth that the lessons learned in Anchorage and Colorado
can be applied to Alaska by:
1. Not allowing an appropriations cap to be suspended.
2. Making language of the spending cap "water tight" so future
legislators will not be able to "poke holes" in it.
He opined that the majority of Alaskans are largely supportive
on limits to keep government from growing excessively.
4:43:34 PM
BOB WILLIAMS, State Budget Solutions Representative, American
Legislative Exchange Council, Gig Harbor, Washington, disclosed
his background and noted that he served five terms in the
Washington State Legislature where he worked on tax and spending
limits.
He set forth that the purpose of spending limits is to provide
the fiscal discipline necessary during strong periods of revenue
growth. He concurred that a budget is overextended when a strong
limit is not set during revenue growth.
He said the main benefits from SJR 2 are as follows:
· Makes government more accountable;
· Forces discipline over budget and tax practices;
· Makes government more efficient;
· Makes government think of creative ways to generate
revenues;
· Controls the growth of government;
· Forces government to evaluate programs and prioritize
services;
· Raises questions about the advisability of some functions
provided by government.
· Helps citizens feel empowered and results in more taxpayer
satisfaction.
· Helps diffuse the power of special interests.
MR. WILLIAMS concurred with Mr. Price that a tax and spending
cap must stay "watertight." He noted that some states without
watertight caps have put in exceptions to get around caps. He
suggested that consideration also be given to budget reform
where the process is changed to an outcome-performance-based
budgeting.
4:46:25 PM
CHAIR DUNLEAVY. He said he believed SJR 2 is one of the most
important pieces of legislation and tool that all Alaskans are
going to be looking at moving forward. He asserted that
legislators work for the people of Alaska and have to remember
that. He opined that Alaskans were fortunate enough for decades
to have a large amount of oil revenue and the paradigm has
changed. He set forth that the people legislators represent are
owed their say prior to the Legislature making decisions on
taxation or changes in the permanent fund or other revenue
enhancements and tell legislators what they are looking at in
terms of size of government.
CHAIR DUNLEAVY announced he would hold SJR 2 in committee for
future consideration