Legislature(2003 - 2004)
03/24/2004 09:04 AM Senate FIN
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* first hearing in first committee of referral
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CS FOR SENATE JOINT RESOLUTION NO. 3(JUD)
Proposing an amendment to the Constitution of the State of
Alaska relating to an appropriation limit and a spending
limit.
This was the fourth hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this legislation would allow a
Constitutional spending limit proposal to be placed on a Statewide
election ballot.
Amendment #1: This amendment deletes language in Section 1, page
two, subsection (c)(3) and replaces it with new language as
follows.
(3) of money received 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;
In addition, following ";" in Section 1, subsection (c)(8) on page
two, line 21 the word "and" is deleted and a new paragraph is
inserted to read as follows.
(9) of money for expenditure by a State agency to provide
services to another State agency that has also received an
appropriation of the same money; and
LUCKY SHULTZ, Staff to Senator Dyson, explained that in response to
Members' concerns regarding the appropriateness of language in
Version 23-LS0296\B pertaining to the appropriation calculation
exemption "of donations, gift, and grants to the State for specific
purposes," Amendment #1 would replace that language "with more
appropriate language" pertaining to the exemption of such statutory
designated program receipts as gifts, grants, bequests, and
specifically, contracts.
Senator Dyson moved to adopt Amendment #1.
Co-Chair Wilken objected for explanation.
CHERYL FRASCA, Director, Office of Management and Budget, Office of
the Governor, clarified that this amendment would align the bill's
language with current State Statutes pertaining to statutory
designated program receipts.
Mr. Schultz continued that the amendment would also incorporate a
new exemption into the bill in order to allow for an exchange of
interagency receipts in that one State agency could expend money in
order to provide services to another State agency. This is not
additional income and should therefore be appropriately reflected.
The amendment would also address reimbursable agreements.
AT EASE 9:39 AM / 9:39 AM
Senator Hoffman inquired as to the necessity of addressing the
interagency receipt language, as, were the funds already included
in one department's budget, they would be incorporated into the
allocation base.
Ms. Frasca responded that the amendment would address the issue of
duplicated expenditures. She explained that when developing a
fiscal summary that compares one year's budget to the next, there
is a line item element through which to identify components that
should be backed out or would reduce duplicated expenditures that
had been appropriated twice. The proposed language would serve "to
exclude the duplication so they count only once under the limit."
Examples would include "highway working capital fund appropriations
to the Internal Services Fund for telecommunications" as well as
interagency receipts.
Co-Chair Green asked regarding a component of the Department of
Health and Social Services budget that would be affected by the
proposed statutory designated program receipts language.
Ms. Frasca responded that the amendment would address the pro-
share/fair share component in the Department as these funds are
categorized as a contractual relationship between a health facility
through which federal Medicaid funds are received and then returned
to the State. The amendment would address this contractual issue.
Co-Chair Green asked whether "this implies that it is a contract
with the State."
Ms. Frasca clarified that it is a contractual agreement between a
hospital and the State.
Co-Chair Green understood therefore that it is not a contractual
agreement between the hospital and the federal government.
Ms. Frasca affirmed that, when pertaining to the fair share/pro
share arrangement, it is not.
Co-Chair Wilken removed his objection.
There being no further objection, Amendment #1 was ADOPTED.
Amendment #2: This amendment inserts new language into Section 2,
subsection (d) on page three, line three following the word "fund"
as follows.
if the balance in the fund is less than $2,000,000,000. The
amount deposited into the budget reserve fund under this
subsection shall not exceed the amount that, when added to the
balance in the fund before the deposit, equals $2,000,000,000.
After deposit is made under this subsection, any excess
general fund money shall be deposited into a budget reserve
fund established by statute
Senator Dyson moved to adopt Amendment #2.
Co-Chair Wilken objected for explanation.
Senator Dyson explained that this amendment would address the
question of how to deal with excess funds were the money available
for appropriation to exceed the limit. The original version of the
bill decried that the excess funds must be deposited into the
Constitutional Budget Reserve (CBR). However, utilizing these funds
to rebuild the CBR to approximately a seven billion dollar level
has not been viewed as the "wisest public policy." Therefore,
rebuilding the CBR to some acceptable or prudent level would serve
to strengthen the State's bond rating and provide flexibility with
which to respond "to foreseen and unforeseen fluctuations in
revenue." This Amendment would specify a CBR limit of two billion
dollars. This would be one billion dollars beyond Governor Frank
Murkowski's recommendation that a one billion dollar minimum
balance be established. Additional revenue beyond the two billion
dollars would be deposited into the existing Statutory Budget
Reserve (SBR) fund. He voiced support for the amendment.
Co-Chair Wilken recalled that prior to the State's withdrawing
funds from the CBR beginning in 1994, money from the SBR was
utilized between 1990 and 1994. The balance currently is the SBR is
minimal.
Senator Dyson read Section 2, subsection (d), as it would read were
the amendment adopted.
(d) The amount of money in the general fund available for
appropriation at the end of each fiscal year shall be
deposited in the budget reserve fund if the balance in the
fund is less than $2,000,000,000. The amount deposited into
the budget reserve fund under this subsection shall not exceed
the amount that, when added to the balance in the fund before
the deposit, equals $2,000,000,000. After deposit is made
under this subsection, any excess general fund money shall be
deposited into a budget reserve fund established by statute.
Co-Chair Wilken understood that adoption of the amendment would
limit the CBR balance to two billion dollars and anything beyond
that amount would be deposited into the SBR. He asked whether the
language stating that, "any excess general fund money shall be
deposited into a budget reserve fund established by statute" should
be amended to clarify that this fund is the SBR.
Ms. Frasca suggested that amendment language specifying the general
fund also be deleted, as such things as excess Permanent Fund
earnings should also be deposited into the budget reserve fund.
Senator B. Stevens noted that, in response to his question as to
whether the Permanent Fund Earnings Reserve Account was a
subaccount of the general fund or the Permanent Fund, the position
of the Department of Revenue's Commissioner was that it was a
subaccount of the Permanent Fund. As a result of the Commissioner's
remarks, he understood that those earnings would not available for
appropriation as a general fund subaccount. Therefore, the
Permanent Fund earnings reserve account would not be a
consideration in this bill.
Ms. Frasca agreed that this would be the case "in terms of the
categorization;" however, she stated that a future Legislature
could appropriate the balance of the Permanent Fund earnings
reserve account into the general fund.
Senator B. Stevens acknowledged. He noted that this legislation
differs from separate earnings reserve account legislation that he
has proposed, in that, by specifying that excess general funds
would fund the earnings reserve account, there is a different
funding mechanism.
Co-Chair Wilken suggested therefore that the general fund language
in the amendment remain as is with the option of revisiting it as
the bill progresses.
Senator Dyson stated that amending the language to specifically
denote SBR is worthy of consideration.
Senator Dyson asked Ms. Frasca whether the language specifying that
general fund money would be available for appropriation should be
revisited.
Ms. Frasca asked that additional time be provided before that
determination is made.
Senator Dyson asked the Members and Ms. Frasca to reflect upon
whether two billion dollars is an appropriate CBR limit.
Ms. Frasca requested that she be provided sufficient time to be
able to confer with the Department of Revenue in that regard.
SFC 04 # 55, Side B 09:51 AM
Senator Bunde asked the rationale behind designating two billion
dollars as the CBR limit, particularly as the State typically
requires, annually, half a billion to provide for cash flow issues
aside from sufficient funding with which to provide for such things
as a downturn in revenue or a catastrophic event. In addition, the
fact that the State borrowed five billion dollars from the CBR and
has yet to fully reimburse that amount is an irritant.
Senator Dyson voiced appreciation for that concern. He also voiced
appreciation for the efforts being exerted by Senator B. Stevens to
present legislation to reimburse the CBR.
Senator Dyson voiced the understanding that the ability of the CBR
to reach a five billion balance was unanticipated, and that the
Governor's recommendation that a one billion dollar CBR limit be
specified as the account "floor" or level that must not be breached
was the amount required to maintain such things as the State's bond
rating. In addition, he referenced separate testimony pertaining to
loan rates, inflation, the financial market and the impact that
such things incur on the State's financial situation.
Senator B. Stevens expressed the hope that someday the Legislature
could face the problem of what to do with an excess balance in the
CBR. He also stressed that reimbursing the CBR is "a constitutional
obligation" and unless that issue were resolved, either by changing
the Constitution or by repaying the amount borrowed, the
establishment of a one billion dollar floor as recommended by the
Governor or a two billion dollar floor as suggested in this
amendment would serve to prohibit that reimbursement as future
Legislators could appropriate excess funds elsewhere.
Senator Dyson clarified that rather than establishing a two billion
dollar floor, this amendment would establish that amount as the
maximum CBR "ceiling" or limit.
Senator B. Stevens understood that this limit would only apply to
the amount of general fund contributions to the CBR.
Senator Dyson clarified that the two billion dollar limit would
apply to total funds in the account regardless of where they
originated. He requested Members to contemplate whether a two
billion dollar balance in the CBR combined with the money that
might be deposited into the SBR would qualify as a reimbursement of
the money the State has borrowed from the budget reserve.
Senator B. Stevens responded that time would be required to
appropriately consider the situation. However, he voiced discomfort
that the Legislature might allocate funds in excess of the proposed
two billion dollar mark to other savings accounts rather than
repaying the entirety of the money owed to the CBR. This mechanism
could displace the State's debt obligation to the CBR.
Senator Hoffman asked whether this language would serve to repeal
the CBR repayment language. This would be contrary to the original
intent of Legislators who, acting upon a vote of the people,
allowed funds to be borrowed from the CBR with the understanding
that the money would be repaid. He stated that, years ago, the
Legislature, without success, inquired of the Administration at the
time, as to whether settlement money the State received from oil
companies could be utilized to repay the CBR. Therefore, he agreed
with Senator B. Stevens that the entire amount of money that has
been borrowed from the CBR should be repaid. This bill, he
continued, in addition to establishing a spending limit, would also
attempt to amend, by establishing a spending cap, a vote of the
people that specified that the CBR should be reimbursed.
Senator Olson asked whether a majority vote of the Legislature
would be required in order to access funds from the SBR as opposed
to the three-quarter vote that is required to access the CBR.
Co-Chair Wilken affirmed that a majority vote could access the SBR.
Senator Dyson, in response to Senator Hoffman's concern, asked for
clarification regarding whether the adoption of this amendment
would eliminate the Constitutional requirement that the CBR be
reimbursed to the level it was at the time the Constitution was
amended to allow funds to be borrowed from the CBR.
Mr. Schultz responded that the Version "B" committee substitute
contains language that would repeal Article IX, Section 17(d) of
the Constitutional budget language that specifies that any
withdrawal of funds from the CBR must be repaid. Amendment #2 would
add new language to Section 17(d).
Senator Dyson therefore stated that it must be clarified that were
the people of the State to approve language as presented in this
legislation, the voters would be changing language that they had
previously approved in this regard. He stated that, provided that
it is clearly communicated to the people of the State, Legislators
have the right to determine an appropriate CBR fund level. The real
discussion should be what is an appropriate level for the CBR.
Senator Hoffman stated that the single subject rule should be
applied in this instance, as the language contained in the
Amendment regarding a specified CBR level is a completely different
topic that should require a separate Constitutional amendment aside
from the spending limit. While it does pertain to managing the
State's funds, aligning it with a spending limit might be a
stretch.
Senator Bunde understood that the reason that a two billion dollar
limitation is being presented is to provide sufficient funding
above the Governor's one billion dollar "floor" recommendation that
supports the State's credit rating. Therefore, in addition to
maintaining a one billion dollar floor, $500,000,000 is required to
support cash flow issues throughout the year and another
$500,000,000 would be available to address claustrophobic events or
such things as financial market fluctuations and oil price
declines.
Senator Bunde stated that the position of maintaining a one billion
dollar floor to insure the State's credit rating has also been
questioned as the State has other options through which to support
its bond ratings such as acquiring a line of credit from a
financial institution. The problem with doing that, he professed,
is that it would incur additional debt service whereas maintaining
one billion dollar balance in the CBR would not cost the State
anything. It would also garner interest earnings even though
utilizing the CBR in this manner would tie up a lot of money.
Knowing which position to advance is a dilemma.
Co-Chair Wilken asked that Senator Dyson consider holding this
amendment for further discussion.
Senator Dyson agreed. He also acknowledged Senator Hoffman's point
about the single subject rule and stated that further research in
that regard would be undertaken.
Senator Dyson stated that an amendment that would specify a four-
year termination date on this proposal is being considered, with a
provision that it could be re-authorized.
Co-Chair Wilken asked what the fee might be were the State to
arrange for a one billion or half a billion dollar line of credit
with a major financial institution. He considered this a viable
option and suggested that it might be less expensive than the cost
associated with investing the CBR on a short-term rather than long-
term basis. With $28 billion in the bank, the fee for a line of
credit should be "relatively" reasonable. Perhaps an informal
inquiry could be made.
Ms. Frasca stated that information in this regard would be
forthcoming.
Senator Dyson voiced uncertainty as to whether providing
$500,000,000 to address such things as fluctuations in the
financial markets or the price of oil is sufficient. He asked Ms.
Frasca or the Department of Revenue to provide further information
to the Committee in this regard.
Senator Dyson moved to withdraw the motion to adopt Amendment #2.
There being no objection, Amendment #2 was WITHDRAWN from
consideration.
Co-Chair Wilken ordered the bill HELD in Committee.
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