Legislature(2021 - 2022)BUTROVICH 205
05/07/2021 01:30 PM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| HB109 | |
| SJR7 | |
| SJR5 | |
| SB39 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 109 | TELECONFERENCED | |
| += | SJR 6 | TELECONFERENCED | |
| += | SJR 5 | TELECONFERENCED | |
| += | SJR 7 | TELECONFERENCED | |
| + | SB 39 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SJR 5-CONST. AM: APPROP LIMIT; BUDGET RESERVE
2:21:10 PM
CHAIR HOLLAND reconvened the meeting announced the consideration
of SENATE JOINT RESOLUTION NO. 5, Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit; and relating to the budget reserve fund.
2:21:35 PM
SENATOR HOLLAND moved to adopt Amendment 1, [work order 32-
GS1664\A.2]:
32-GS1664\A.2
Marx
5/5/21
AMENDMENT 1
OFFERED IN THE SENATE BY SENATOR HOLLAND
TO: SJR 5
Page 1, line 5:
Delete "Except"
Insert "(a) Except as provided in (b) of this
section and except [EXCEPT]"
Page 2, following line 20:
Insert a new subsection to read:
"(b) The legislature may appropriate an
additional amount in excess of the appropriation limit
under (a) of this section for capital projects, if the
appropriation is approved by a majority of the
qualified voters of the state who vote on the
question. Appropriations for capital projects that
exceed the appropriation limit shall not be used in
calculating the appropriation limit in subsequent
fiscal years."
SENATOR SHOWER objected for discussion purposes.
2:21:43 PM
SENATOR HOLLAND explained Amendment 1. He read:
This amendment adds a subsection which allows the
legislature to exceed the spending limit for capital
projects, if we find ourselves in a better financial
situation in the future. The process for exceeding the
spending cap is the same as issuing a general
obligation bond, which is already exempted from the
cap. By putting this type of spending on par with
issuing debt, it avoids pushing future legislators
toward issuing debt when the state has the funds to
pay for capital projects. The last sentence of the new
subsection is critical to ensure that approving
spending above the cap doesn't reset the spending
limit to a higher level.
2:22:47 PM
NEIL STEININGER, Director, Office of Management and Budget,
Office of the Governor, Juneau, Alaska, stated that Amendment 1
uses different language than the Alaska Constitution related to
general obligation (GO) bonds. Amendment 1 uses the term
"capital projects" rather than "capital improvements" language
used in GO bond language. The administration does not have a
position on this. It is the legislature's policy call on how
capital spending is considered in the cap.
2:23:25 PM
SENATOR SHOWER recalled that several years ago, the legislature
discussed placing a limit on the "waterfall provision" or going
over the spending cap. He asked whether the sponsor was amenable
to placing a cap on the spending limit.
2:24:18 PM
CHAIR HOLLAND asked if Amendment 1 should be amended to change
the wording from "capital projects" to "capital improvements."
MR. STEININGER answered yes. He stated that "capital projects"
in the capital budget typically include things that are not
physical or durable assets. He said "capital improvements" is a
stricter definition.
2:25:32 PM
SENATOR HUGHES said she would like to consider capital projects
for alternative energy projects in the villages to move away
from the high cost of fossil fuel use. She asked if the language
"capital improvements" was used, the legislature would need to
use the funds for an existing project.
2:26:06 PM
SENATOR SHOWER asked if both terms could be used.
MR. STEININGER deferred to Mr. Milks.
2:26:44 PM
MR. MILKS responded that "capital projects" is the language in
the current appropriation limit. However, Article IX, Section 8,
on state debt uses the term "capital improvements. The current
appropriation limit uses "capital projects" but the
appropriation limit has not been particularly effective. He said
that "capital improvements" used in Article 9, Section 8, for GO
bonds has not been considered an improvement of an existing
capital asset. He offered his view that "capital improvements"
is a broader term.
CHAIR HOLLAND referred to Senator Hughes' example of sustainable
energy in rural Alaska. He offered his view that it might be
seen as an improvement of the power system rather than an
improvement of a diesel generator.
MR. MILKS replied that capital projects would usually be
interpreted to mean some type of physical asset. He suggested
that the most important is considering what the committee wants
to be covered by the term. Currently, the bill refers to
"capital projects". He agreed with Mr. Steininger that "capital
improvements" is a broader term. When interpreting the Alaska
Constitution, it is important to consider what an ordinary
person would think of as a "capital project." He suggested it
would likely be some kind of hard asset. Further, it is
important to consider the intent of the committee. The committee
could undoubtedly refine the language.
2:30:11 PM
SENATOR KIEHL recalled that capital improvements for GO bonds
must be durable and fixed, so a fire truck would not qualify
according to legal opinions. Maintenance can qualify as a
capital improvement, but preventative maintenance cannot.
However, a capital project is defined in statute, such that it
must be more than $25,000 and a one-time occurrence. The
language is much broader and could include a software license
even though it is not permanent or durable.
2:32:14 PM
ED KING, Staff, Senator Roger Holland, Alaska State Legislature,
Juneau, Alaska, stated that the Alaska Constitution uses capital
improvements in Article IX, Section 8 and capital projects in
Article IX, Section 16. He offered his view that Amendment 1
appears to be consistent with language for GO bonds, so using
the language "capital improvements" would be more consistent. He
said it would be acceptable for the legislature to provide more
latitude and include projects beyond improvements, which is a
policy call. Amendment 1 would require a vote of the people.
MR. KING stated that Senator Shower described how this bill
evolved over the previous legislative cycle. At the time, he
testified about a waterfall provision. However, that provision
was explicitly related to situations in which revenues exceeded
the cap and how to distribute those revenues. This resolution
would deposit those revenues owed to the CBR into the
Constitutional Budget Reserve (CBR), and it is silent on the
funds not owed to the CBR. He characterized Amendment 1 not as a
waterfall provision but rather as an exemption to the spending
limit for capital projects or improvements, consistent with
issuing GO bonds. Without this language, the legislature has an
incentive to issue debt to avoid the cap and use its debt
capacity to reduce its general funds. Using this language allows
the legislature to fund capital projects in the same way that
the legislature would fund debt without actually issuing debt.
2:34:20 PM
SENATOR SHOWER asked if the terms "capital projects" and
"capital improvements" should both be used for consistency
purposes, but the committee should place some type of limit. He
asked if another amendment should cover that because the intent
was not to spend every penny. He suggested the waterfall
provision is necessary since the state needs to catch up on
capital improvements.
2:35:13 PM
MR. KING replied he leans toward not using both capital projects
and capital improvements in Amendment 1, since it seems that
capital projects encompass capital improvements. He suggested
the committee should use one or the other. In terms of the
waterfall provision, because Amendment 1 requires a vote of the
people, it is not necessary to have a limit. When the
legislature discussed this issue previously the vote of the
people was not necessary.
2:35:55 PM
SENATOR MYERS argued against the waterfall provision. He spoke
in favor of Amendment 1 because without this language the
legislature would have the ability to pile on more debt.
Amendment 1 will allow the legislature to accomplish the
projects but requires a vote by the people to exceed the
spending limit. With the waterfall provision, the legislature
could spend funds from regular revenue sources but also issue a
GO bond. In fact, in 2010 or 2012 when revenue was still ample,
the legislature went into debt and the voters agreed to pass a
GO Bond proposal.
2:37:31 PM
SENATOR HUGHES asked if the legislature would need to repay the
CBR before this provision would be triggered.
MR. KING stated he misspoke earlier. The payback provision is
eliminated in the resolution so without amending the resolution,
there is no obligation to repay the CBR.
SENATOR HUGHES asked how calendaring would work. For example, if
the resolution passed, it would require placing something on the
ballot for a general election.
MR. STEININGER responded that under Amendment 1, the process
would mimic the GO bond process so the appropriations would not
be valid until after the next statewide election was held.
2:39:11 PM
SENATOR KIEHL asked if Amendment 1 requires the appropriation to
be approved during a general election rather than a primary or
special election.
MR. STEININGER answered that he may have misspoken on the type
of election. He deferred to Mr. Milks to speak to the mechanics
of GO bond proposals. He said the language "if the appropriation
is approved by a majority of the qualified voters of the state"
who vote on the question creates a condition so the state cannot
spend against the appropriation until that condition is met.
2:40:06 PM
MR. KING offered his belief that GO bonds can be voted on in a
special election.
MR. MILKS confirmed that GO bond bills can be submitted to the
voters at a general election or special election.
2:40:48 PM
SENATOR KIEHL stated that if the GO bonds are not approved by
the voters, the bonds are not sold. Amendment 1 does place any
such requirement. The legislature and governor might agree on a
perceived need and later submit the issue to the voters for
approval, which would be ratification after the fact, he said.
MR. STEININGER related his understanding of the hypothetical
scenario, that the legislature and the administration would
appropriate and expend funds prior to meeting the conditions as
laid out in the Constitution.
SENATOR KIEHL pointed out that currently, long-standing
practices and attorneys general opinions allow those processes
to occur. He offered his view that sometimes funds are expended
in anticipation of an appropriation despite a statute that makes
that action a crime.
MR. STEININGER asked if the attorney general opinion he was
referring to states that after the legislature appropriates
funds, the governor can inform the OMB director these funds will
not be vetoed so the state can begin to expend the funds.
2:43:22 PM
SENATOR KIEHL recalled that the Alaska Budget Report previously
criticized the legislature for its supplemental appropriations.
MR. STEININGER asked if he was referring to the supplemental
appropriation process in which an unanticipated expenditure has
occurred and a supplemental appropriation is required to
complete the fiscal year without running out of funding.
SENATOR KIEHL pointed out that the state also ratifies negative
balances. He questioned why the legislature couldn't just use
this provision to ask the voters after the fact.
2:44:24 PM
MR. STEININGER responded that ratifications occur when the state
expends funds in anticipation of federal funding but later the
federal agency determines the expenditures were ineligible. This
would not be considered an expenditure outside of the
appropriation since the legislature has validly appropriated the
ability to collect the revenues. It means the state must come
back to the legislature for a supplemental appropriation to
backfill the uncollectible funds. The legislature typically
expends funds in the advance of receiving federal funding
because that is how federal programs operate. The administration
is not expending funds without a valid appropriation. It is
characteristically different.
MR. STEININGER explained that Amendment 1 would establish a
condition within the Constitution to set a contingency upon how
an appropriation for a capital project could be executed upon.
If the administration expended funds for a capital project
without having met this contingency, it would be in violation of
the Constitution. However, that is not a reason to not consider
this issue. The possibility of a future executive branch
choosing to violate the Constitution would be a separate issue.
It would require a vote of the people before the executive
branch could execute on it. He said he has faith in future OMB
directors to ensure that contingencies are met on appropriations
before expenditures.
2:46:36 PM
SENATOR HUGHES referred to Amendment 1. She asked if the
language on line 7 uses "may" because if one legislature decided
to put something before the voters it might require the next
legislature to make the appropriation.
MR. KING answered that using "may" is simply to provide
conditionality rather than strict guidance. It would not read
"shall" because this is an option and not a requirement. The
opportunity for the legislature to appropriate above the cap
would be generated by this amendment. Once the appropriation is
made by the legislature, it become valid once it goes before the
voters for approval. There is not any need for secondary
approval.
SENATOR HUGHES questioned the constitutionality of Amendment 1
because this language would allow a subsequent legislature to
decide whether to include it in the budget.
2:48:46 PM
SENATOR SHOWER interjected that this speaks to contingency
language on something that already occurred. He related his
understanding that it provides contingency language upon
approval and if it fails, the funds would not be spent.
2:49:00 PM
MR. KING responded that this would be the same process currently
used in the capital project process. One legislature approves a
project with a multi-year appropriation but a future legislature
can reappropriate or decide not to continue a project. The fact
that a future legislature can influence the expenditure does not
negate that the appropriation occurred. He clarified that there
is not any second appropriation requirement for a future
legislature once the voters approve the measure.
SENATOR HUGHES reiterated that one legislature would appropriate
the amount in the budgetary process but it would not go through
unless approved by the legislature so a subsequent legislature
would not do anything further.
MR. KING added that the legislature would not simply put an
appropriation in the budget but would define the projects that
are being approved.
2:49:56 PM
SENATOR KIEHL asked if appropriations are subject to or
available for reappropriation.
MR. KING deferred to Mr. Milks.
2:50:28 PM
MR. MILKS reminded members that SJR 5 is amending the
Constitution. He reviewed Amendment 1, which read, in part:
(b) The legislature may appropriate an additional
amount in excess of the appropriation limit under (a)
of this section for capital projects, if the
appropriation is approved by a majority of the
qualified voters of the state who vote on the
question.
2:50:59 PM
MR. MILKS said this means the legislature may appropriate an
additional amount for capital projects if the appropriation is
approved by a majority of the qualified voters. He suggested
that a reasonable interpretation would be that once the
legislature appropriates funds and the voters approve the
appropriation for capital projects, the appropriation process is
completed. Thus, it is a two-part process, with the legislature
appropriating and the voters approving the appropriation. It is
unlike a standard appropriation, in which only the legislature
is acting on it and could return the funds.
MR. MILKS said that generally with constitutional amendments,
the language itself is considered, any legislative discussion
during committees is considered in an attempt to understand what
the voters were informed by.
2:52:00 PM
At ease
2:53:52 PM
CHAIR HOLLAND reconvened the meeting.
2:53:56 PM
SENATOR SHOWER removed his objection. There being no further
objection, Amendment 1 was adopted.
2:54:27 PM
SENATOR HOLLAND moved to adopt Amendment 2, [work order 32-
GS1664\A.4]:
32-GS1664\A.4
Marx
5/5/21
AMENDMENT 2
OFFERED IN THE SENATE BY SENATOR HOLLAND
TO: SJR 5
Page 1, line 9:
Delete "State savings account"
Insert "State account or fund that requires a
subsequent appropriation from that account or fund as
prescribed by law, appropriations for payment of the
unfunded liability of a State retirement system"
SENATOR SHOWER objected for discussion purposes.
SENATOR HOLLAND explained Amendment 2:
This amendment attempts to clarify a potential
ambiguity in the exclusions to the spending limit. For
example, a litigant could argue that the over $1
billion appropriation to the Public Education Fund is
exempt from the spending limit. Then, because the
expenditures from that fund do not require further
appropriation (AS 14.17.300), this litigant could also
argue that the grants provided to school districts are
also exempt from the cap. In this way, a future
legislature could theoretically avoid the spending
limit through a series of transfers that are not
subject to further legislative action. This amendment
makes clear that only transfers between accounts that
maintain legislative control are exempt (just like a
transfer between your checking and savings account
isn't part of your household budget). It also allows
transfers to the two accounts that should not be under
the cap to be excluded Appropriations to the
Permanent Fund and payments to reduce our unfunded
pension obligation.
2:55:33 PM
SENATOR HUGHES asked for further clarification on Amendment 2.
2:55:55 PM
MR. KING stated that just as in SJR 6 of the previous
legislature, the language, "subject to further appropriation"
was included to ensure that accounts that require further
legislative action aren't considered part of the appropriation
process and don't contribute to the spending cap. However,
expenditures or appropriations to funds that are not subject to
further appropriation, including the Public Education Fund, the
Abandoned and Derelict Vessel Fund, the Oil and Gas Credit Fund
and a series of other funds should be considered as
appropriations when the transfer is made. Amendment 2 makes it
clear that any account subject to further appropriation is
simply a transfer between accounts. The legislature still
maintains control so those transfers shouldn't contribute to the
spending cap.
2:57:10 PM
MR. STEININGER stated that Amendment 2 further defines state
savings accounts and provides additional clarity on this issue.
2:57:28 PM
SENATOR KIEHL asked how it would treat a future legislature's
decision to deposit funds in a fund that does not require
appropriation for some alternate use. For example, a future
legislature could decide to use the Abandoned and Derelict
Vessel Funds for some other purpose.
MR. KING said that when the appropriation is made to the fund,
the use of those funds is limited. If those funds were repealed,
the funds would lapse back to the general fund.
2:58:16 PM
MR. STEININGER said he agrees with Mr. King. If those funds were
repealed, the funds would lapse back to the General Fund. If the
funds were used elsewhere, the funds would be an expenditure
subject to the cap.
2:58:42 PM
SENATOR KIEHL asked if those dollars would count twice. The
funds would count when deposited and count when expended.
MR. KING clarified that would be true if the legislature
appropriated funds to the Derelict Vessel Fund, that the fund
was subsequently depopulated, and another appropriation was made
in the same year. He did not think that that would be true in
most situations. The expenditure would apply to the cap when the
appropriation to the fund was initially made. The funds would
again be counted towards the cap in a future year when the funds
were returned to the General Fund and are expended again.
2:59:21 PM
SENATOR KIEHL expressed concern about the opportunity cost that
the state would lose. When the state is up against the cap, and
those funds competed against all other uses of the funds, some
other public need is not met. Even if the funds were drawn out
in a subsequent year, if those funds count again towards the
cap, it will displace the public needs twice.
MR. KING pointed out that there is also a revenue component. In
the scenario described, there is an expenditure, a revenue, and
another expenditure. The revenue and expenditure components
would cancel one another out so it will net out as one
expenditure.
SENATOR KIEHL agreed that he is describing the accounting
procedures, but it would not be considered a new revenue.
CHAIR HOLLAND asked the administration to comment.
3:00:37 PM
MR. STEININGER responded that the administration sees the
expanded definition and clarification as positive. The exemption
of the unfunded liability of a state retirement system is a
policy call of the legislature.
3:01:03 PM
SENATOR SHOWER removed his objection.
SENATOR KIEHL objected.
3:01:12 PM
A roll call vote was taken. Senators Myers, Shower, Hughes, and
Holland voted in favor of Amendment 2 and Senator Kiehl voted
against it. Therefore, Amendment 2 was adopted by a 4:1 vote.
3:01:43 PM
SENATOR HOLLAND moved to adopt Amendment 3, [work order 32-
GS1664\A.5]:
32-GS1664\A.5
Marx
5/4/21
AMENDMENT 3
OFFERED IN THE SENATE BY SENATOR HOLLAND
TO: SJR 5
Page 1, lines 11 - 13:
Delete "[, INCLUDING REVENUES OF A PUBLIC
ENTERPRISE OR PUBLIC CORPORATION OF THE STATE THAT
ISSUES REVENUE BONDS]"
Insert ", including revenues of a public
enterprise or public corporation of the State that
issues revenue bonds"
SENATOR SHOWER objected for discussion purposes.
3:01:50 PM
SENATOR HOLLAND explained Amendment 3. He read:
This amendment restores the exemption for corporate
receipts. Public corporations are run like private
business, with fees for service funding the operating
costs of the corporation. Restoring the existing
language in the constitution allows those self-funded
operations to function outside of the limitation of
government growth.
CHAIR HOLLAND asked the administration to comment.
MR. STEININGER said the administration supports Amendment 3
since there were unintended consequences by removing this from
the exemptions in the original drafting of SJR 5.
3:02:45 PM
SENATOR KIEHL said that the corporations must issue revenue
bonds. He asked if appropriations to the corporations are
considered revenues of the corporations.
MR. STEININGER responded that an appropriation of unrestricted
general funds (UGF) would be subject to the cap. The operational
costs funded through the activities of the corporation would not
be subject to the cap. Additional infusion of UGF would be
subject to the cap since it is a state revenue and not revenue
of the corporation.
3:03:54 PM
MR. KING responded that funds provided by the state other than
fees for service contractual obligations are not considered
revenues of the corporation. Corporate receipts are revenues
generated by the corporation and the operation of their business
and not any subsidy that the government might appropriate from
the general fund.
3:04:20 PM
SENATOR KIEHL offered his view that the state could use the
public corporation model to directly levy fees on Alaskans and
use the corporation to shift state functions off the books.
MR. KING related he has previously held this conversation. He
identified the concern that funding that is currently in the
operating budget could be shifted outside of the cap by creating
a corporation. The revenues of the corporation are fees for
services of the corporation so it is possible to circumvent the
cap by creating a corporation with a public infrastructure such
as a toll road or bridge. However, the function of the
corporation would pay for itself since it would generate revenue
to pay for its operations. For example, the Knik Arm Bridge and
Toll Authority (KABATA) could be a public corporation that
generates revenues outside the cap. However, the idea is that
corporations generate revenue based on the services they
provide. These corporations are not funded by taxpayer dollars.
If the intent of the spending limit is to limit government
growth and restrict the generation of taxes, the existence of
corporations should be viewed differently than a type of
government program.
3:06:15 PM
SENATOR KIEHL agreed public corporations should be viewed
differently. He related that Anchorage had a public corporation
to handle downtown parking fees. Corporations are unelected,
unaccountable entities created to provide what is otherwise a
public service. He disagreed with incentivizing public
corporations in the Constitution.
3:07:19 PM
SENATOR MYERS related his understanding that if Amendment 3 is
not adopted, the ticket of a tourist for the Alaska Railroad
(ARRC) would be subject to the cap. However, if Amendment 3
passes, those fees would no longer be subject to the cap and the
ARRC could spend the revenue to further its operations.
3:08:06 PM
SENATOR HUGHES pointed out that the Alaska Marine Highway System
(AMHS) might be restructured. The state wants the AMHS to
provide services. She offered her belief that creating a
corporation for the AMHS could save the ferry system.
SENATOR KIEHL said it has great potential. He said if the state
needs to have a legislative process to keep the revenue bonding
self-funding corporation under control.
3:08:56 PM
SENATOR SHOWER removed his objection.
SENATOR KIEHL objected.
3:09:07 PM
A roll call vote was taken. Senators Shower, Hughes, Myers, and
Holland voted in favor of Amendment 3 and Senator Kiehl voted
against it. Therefore, Amendment 3 was adopted by a 4:1 vote.
3:09:30 PM
SENATOR MYERS moved to adopt Amendment 4, [work order 32-
GS1664\A.8]:
32-GS1664\A.8
Marx
5/6/21
AMENDMENT 4
OFFERED IN THE SENATE BY SENATOR MYERS
TO: SJR 5
Page 3, line 3:
Delete "(b) [OR (c)]"
Insert "[(b) OR] (c)"
Page 3, lines 4 - 16:
Delete all material.
Renumber the following resolution sections
accordingly.
Page 3, lines 22 - 26:
Delete all material and insert:
"Section 31. Budget Reserve Fund Transition. The
2022 amendments to the budget reserve fund (art. IX,
sec. 17) apply to the fiscal year ending June 30,
2024, and thereafter.
* Sec. 4. Article IX, sec. 17(b), Constitution of
the State of Alaska, is repealed."
Renumber the following resolution section accordingly.
CHAIR HOLLAND objected for discussion purposes.
3:09:41 PM
SENATOR MYERS explained Amendment 4. He said that is similar to
how the process currently works. Article IX, Section 17, Budget
Reserve Fund, has four subsections. Amendment 4 will not change
SJR 5, subsection (a), which establishes the revenue limit.
Subsection (b) establishes the conditions under which the
legislature can spend from the Constitutional Budget Reserve
(CBR) with a majority vote. In fact, the legislature has never
been able to spend out of the CBR with a majority vote. That
will not change unless the legislature radically alters the way
designated general funds are handled. Amendment 4 will remove
subsection (b). Subsection (c) outlines how to spend CBR funds
with a three-fourths vote. Subsection (d) provides for a
repayment provision.
He explained that SJR 5 removes subsections (c) and (d).
Amendment 4 would bring a subsection (b) and restore subsections
(c) and (d). This means the legislature is still required to
payback CBR funds and either stop the payback or withdraw funds
with a three-fourths vote.
CHAIR HOLLAND asked the administration for comments.
3:11:38 PM
MR. STEININGER answered that the administration is neutral on
Amendment 4 because it is a policy decision for the legislature
to decide whether to make repayments to the fund or eliminate
repayment provisions and the three-fourths vote requirement.
SENATOR HUGHES asked if it would maintain the way it currently
operates.
SENATOR MYERS agreed.
CHAIR HOLLAND removed his objection. There being no further
objection, Amendment 4 was adopted.
3:12:45 PM
SENATOR KIEHL moved to adopt Amendment 5, [work order 32-
GS1664\A.7]:
32-GS1664\A.7
Marx
5/6/21
AMENDMENT 5
OFFERED IN THE SENATE BY SENATOR KIEHL
TO: SJR 5
Page 2, line 26:
Delete "directly"
CHAIR HOLLAND objected for discussion purposes.
3:12:51 PM
SENATOR KIEHL explained Amendment 5. The committee
previously held discussions about removing "directly" from
Article IX, Section 17 (a). He shared a memo from
Legislative Legal Services attorney Marie Marx, dated April
30, 2021. The Office of Management and Budget (OMB)
provided a letter dated April 11, 2019, from the Attorney
General immediately prior to today's meeting, which he has
not had an opportunity to review. Amendment 5 would make
sure the amounts in dispute were deposited into the CBR on
the same terms they were for decades. He acknowledged that
the memo describes changes. He said the changes affect
tariff disputes, tax disputes, and audit disputes that are
determined years later. The CBR was written to address
windfalls, which should go in the savings account. He asked
how Chair Holland would like to proceed.
CHAIR HOLLAND suggested that he withdraw Amendment 5 and take it
up in the Senate Finance Committee.
3:15:42 PM
SENATOR KIEHL, in response to a question by Senator Hughes,
referred to a letter from the Attorney General dated April 11,
2019.
CHAIR HOLLAND asked Mr. Milks to speak to the letter.
3:16:10 PM
MR. MILKS said he is familiar with a letter from the Attorney
General dated April 11, 2019. The purpose of adding "directly"
on page 2, line 26, is to stop some disagreements between the
Department of Law and Legislative Legal Services. Currently, the
Constitutional Budget Reserve (CBR) is an exception to the
constitution prohibiting dedicating revenues. When the voters
approved establishing the CBR, a certain revenue stream could be
deposited to the CBR and not go to the general fund. There is
only one other exception related to dedicated revenues in the
Constitution, which is the Permanent Fund. Two Attorneys
General, Lindemuth and Clarkson, reviewed the issue whether
royalty amounts or oil and gas taxes in dispute are required to
be deposited to the CBR. Other types of legal disputes involve
tariff litigation. When ultimately resolved, it often means
producers pay more taxes to the state. The question was whether
resolution of tariff litigation should be deposited to the
general fund or the CBR. Both attorneys general addressed this
issue for the Legislative Budget and Audit Committee as outlined
in the letter of April 11, 2019.
MR. MILKS said the Department of Law highlighted why the funds
should be deposited to the general fund. In its lengthy legal
analysis, it referred to the Alaska Supreme Court decision in
Wielechowski v. State. The Alaska Supreme Court said the
prohibition against dedicating revenues is intended to be
broadly applied and the exceptions are narrow. Since tariffs are
not even mentioned in the Constitution, the Department of Law
(DOL) found that depositing tariff-related revenues the CBR was
too expansive. The DOL opined it should be deposited to the
general fund. The letter indicated that in the 1990s, Attorney
General Bothelo also determined tariff-related revenues should
be deposited to the general fund. Nonetheless over time the
revenues were deposited into the CBR. Legislative Legal
identified that the issue is not fully resolved. In fact, it
describes another way to interpret the law that determines that
tariff-related revenues should be deposited to the general fund.
3:21:05 PM
MR. MILKS said that Amendment 5 seeks to insert the word
"directly" into the CBR provision to removing any ambiguity
regarding what should be deposited to the CBR and in the general
fund. He related his understanding that legislative legal agrees
Amendment 5 would remove any ambiguity. He said the background
is laid out in the letter of April 11, 2019.
CHAIR HOLLAND asked the administration for comments.
3:23:01 PM
MR. STEININGER said the administration opposes Amendment 5. As
Mr. Milks illustrated, there is a necessity to add clarification
and remove any ambiguity from the current constitutional
language.
3:23:34 PM
SENATOR KIEHL offered to redraft Amendment 5, to make it clear
that the CBR should be funded with tax money after tariff
settlements. He related his understanding that the CBR was
created after the Trans Alaska Pipeline Settlements (TAPS).
3:24:04 PM
CHAIR HOLLAND removed his objection.
SENATOR KIEHL withdrew Amendment 5. He offered to revise it.
3:24:26 PM
SENATOR HOLLAND stated he would not offer Amendment 6.
3:24:40 PM
SENATOR HOLLAND moved to adopt Amendment 7, [work order 32-
GS1664\A.10]:
32-GS1664\A.10
Marx
5/7/21
AMENDMENT 7
OFFERED IN THE SENATE BY SENATOR HOLLAND
TO: SJR 5
Page 2, line 2:
Delete "three"
Insert "two"
SENATOR SHOWER objected for discussion purposes.
3:24:43 PM
CHAIR HOLLAND explained Amendment 7. He read:
This amendment attempts to clarify the allowable
increase in the spending limit from year to year. In
the version before the committee, the limit is
calculated by averaging the previous three years'
budgets, which are typically increasing for inflation.
It then allows the budget to grow by the cumulative
rate of inflation over the previous three years. This
approach ends up allowing the budget to grow by more
than inflation from year to year. The amendment
reduces the cumulative inflation adjustment to two
years, limiting growth to a number closer to the rate
of inflation.
3:25:34 PM
At ease
3:25:53 PM
CHAIR HOLLAND reconvened the meeting.
3:26:05 PM
MR. STEININGER said that the administration does not have a
position on Amendment 7.
SENATOR KIEHL asked if Amendment 7 would adjust three years of
spending with two years of inflation. He asked whether it would
lead to a reduction of the real dollar spending over time.
MR. STEININGER answered not necessarily. He said this would take
a three-year average of prior year appropriations and apply an
inflationary factor. Amendment 7 would clarify two versus three
years of inflationary pressure and change the time period for
inflation. He said he has not created any models since he just
received this today.
3:27:23 PM
MR. KING responded that this is basically a mathematical model.
He explained that stripping out the volatility and assuming that
the rate of budget growth is the rate of inflation, the three-
year average rate budget will be equal to the budget two years
prior. This means taking the average of three years will be the
budget that was two years ago. Adding one year of inflation
would take us to the current year; adding a second year provides
inflation adjustment for the future year being budgeted. Adding
a third year would give a kicker so the allowable growth is
beyond the rate of inflation.
3:28:18 PM
SENATOR KIEHL asked if that didn't set as its initial case that
the prior three years matched inflation, which would prevent
that from happening.
MR. KING asked for clarification on the question.
SENATOR KIEHL related his understanding that the three years
used in the calculation of the base case in the mathematical
model for the nominal dollar budgets reflected the actual cost
of government.
MR. KING nodded yes.
SENATOR KIEHL said that the assumption becomes invalid once this
factor is applied because only two years of inflation can be
used. The base case of three years of inflation cannot exist.
MR. KING responded that is not mathematically accurate. He
explained that every time this is used for the next year, it
provides the previous budget plus inflation. Staying at the
limit will always draw out two years of accumulated inflation.
3:29:36 PM
SENATOR KIEHL asked for modeling.
MR. KING responded that this represents a simple mathematical
exercise. He characterized it as a mathematical model and not a
computer model.
3:29:49 PM
SENATOR HUGHES asked Mr. Steininger to comment.
MR. STEININGER said that Mr. King and OMB staff have discussed
the mathematics and agree the math is accurate.
3:30:25 PM
SENATOR KIEHL expressed concern that the way SJR 5 is written,
it can only adjust for population or inflation but not both. He
offered his view that it will be necessary to cut real
government spending every year forever. He characterized it as a
problem.
3:31:29 PM
SENATOR SHOWER agreed that it could be a problem but for the
last five to six years the state has experienced a net
population outflow yet government growth continues to rise.
3:32:05 PM
SENATOR HUGHES asked Mr. King if it will be necessary to cut
real government spending every year forever.
MR. KING responded that on a nominal basis that it is definitely
not true. The inflation adjustment means some government
spending would be increasing at the rate of inflation. He said
that whether the rate of inflation is commensurate with what the
public needs is a different question. Under SJR 5, there is no
adjustment for population. In the event that population
increases the real per capita spending will be reduced year by
year. However, the real spending in total dollars will not be
reduced.
MR. STEININGER agreed the math as Mr. King laid it out is
accurate.
3:33:02 PM
SENATOR KIEHL said that real dollar was the wrong economic term
to use; rather, it is the state's ability to meet Alaskans'
needs to adjust for population and inflation. He acknowledged
that this would not require cuts when population shrinks. This
will leave the state lagging in any kind of growth scenario
since SJR 5 will change the Constitution permanently.
3:33:46 PM
CHAIR HOLLAND removed his objection. He offered to request that
Senate Finance review this part of the resolution.
3:34:07 PM
SENATOR HUGHES offered her view that the original spending
limits in the Constitution allowed for population and inflation,
but it rose too high.
3:34:43 PM
SENATOR SHOWER removed his objection.
SENATOR KIEHL objected.
3:34:51 PM
A roll call vote was taken. Senators Myers, Hughes, Shower and
Holland voted in favor of Amendment 7 and Senator Kiehl voted
against it. Therefore, Amendment 7 was adopted by a 4:1 vote.
3:35:23 PM
SENATOR KIEHL offered to bring a revised Amendment 5 forward as
soon as Legislative Legal can provide it.
3:35:39 PM
At ease
3:39:46 PM
CHAIR HOLLAND reconvened the meeting.
3:39:55 PM
CHAIR HOLLAND stated his intention to move the resolution today.
3:40:24 PM
SENATOR SHOWER moved to report SJR 5, Version A, as amended,
from committee with individual recommendations and attached
fiscal note(s).
SENATOR KIEHL objected. He said it is always disappointing when
a judiciary committee lacks adequate time to have deep,
meaningful, and informed conversations on legal questions when
considering measures to change the Alaska Constitution. The
short timeframe has limited the administration's ability to
provide answers to questions in advance of meetings.
3:41:40 PM
SENATOR KIEHL offered his view that this proposal attempts to
put artificial caps on what Alaskans can ask of their
government. It is an attempt to write into Alaska's foundational
document limits that will ensure that Alaska's government will
have a difficult time when times are good. Currently, times are
tough since revenues are down, inflation is negative and
population is dropping as people leave the state. Although
Alaska is experiencing budget constraints, Alaskans have been in
this situation before. In those situations, Alaskans have
elected legislators who have reduced the budget. Alaska's
Constitution allows Alaskans to set the priorities in a
republican form of government. This proposal attempts to put
limits on what Alaskans can achieve from their government. It
does so in ways that place irresponsible restraints on Alaskans'
ability to meet their needs from government. He acknowledged
that the old spending limit did not work. While he appreciated
some changes in the resolution, ultimately the legislature
either trusts people to elect legislators to do the job or it
can set up a situation in which no matter what Alaskans choose
they cannot achieve it.
CHAIR HOLLAND offered his view that the committee heard from
legal experts. He offered his willingness to trust them.
3:45:07 PM
SENATOR HUGHES spoke about the process. She stated that this
resolution has been in the committee for several months. During
that time concerns could have been raised, conversations that
with the administration could have occurred before the
resolution was scheduled for a hearing. She recalled times when
she has had to withdraw amendments and work with the next
committee of referral. She offered her belief that this is not
an unusual process.
3:46:08 PM
A roll call vote was taken. Senators Myers, Shower, Hughes, and
Holland voted in favor of moving SJR 5, Version A, as amended,
from committee and Senator Kiehl voted against it. Therefore,
the CSSJR 5(JUD) was reported from the Senate Judiciary Standing
Committee by a 4:1 vote.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SJR7_A.2.pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 7 |
| SJR7_A.1.pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 7 |
| SJR 5 Amendment Package (SJUD).pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 5 |
| SJR 5 Legal memo.pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 5 |
| SJR 7 Attorney General Opinion.pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 7 |
| SJR 5 Amendment 7.pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 5 |
| SJR 7 legal opinion.pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 7 |
| SJR 5 Legal Memo 2.pdf |
SJUD 5/7/2021 1:30:00 PM |
SJR 5 |