Legislature(2021 - 2022)BUTROVICH 205
02/04/2021 03:30 PM Senate STATE AFFAIRS
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| SJR5 | |
| SJR7 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 53 | TELECONFERENCED | |
| *+ | SJR 6 | TELECONFERENCED | |
| *+ | SJR 5 | TELECONFERENCED | |
| *+ | SJR 7 | TELECONFERENCED | |
SJR 5-CONST. AM: APPROP LIMIT; BUDGET RESERVE
3:36:57 PM
CHAIR SHOWER 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.
3:37:09 PM
CAROLINE SCHULTZ, Chief Policy Analyst, Office of Management and
Budget, Office of the Governor, Juneau, Alaska, began her
presentation with some background on the appropriation limit.
She explained that Alaska already has a constitutional
appropriation limit that voters ratified in 1982. That provision
had a sunset clause and in 1986, voters re-approved the
constitutional appropriation limit. Also in 1986, the
legislature enacted a statutory spending limit and the statutory
budget reserve as a rainy day savings account. In 1990, voters
ratified the Constitutional Budget Reserve Fund (CBR) in Art.
IX, Sec. 17, Constitution of the State of Alaska.
MS. SCHULTZ said SJR 5 amends the appropriation limit in Art.
IX, Sec. 16, of the constitution. Importantly, SJR 5 amends the
calculation of the appropriation limit. It provides that state
spending may not exceed the prior three-year average by more
than the greater of inflation or population growth. SJR 5 also
clarifies the definition of appropriations subject to the
spending cap. It includes all undesignated general fund (UGF)
and designated general fund (DGF) spending. The exceptions
include the PFD, bond proceeds and debt service costs, deposits
to state savings accounts, disaster response, and non-state
funds for a specific purpose.
3:39:39 PM
SENATOR REINBOLD highlighted that disaster relief money is not
included.
MS. SCHULTZ explained that state or federal funds used to
respond to a disaster, as defined by state disaster statutes,
would not be included in the appropriation limit
SENATOR REINBOLD asked how much disaster funding had come into
the state since March 2020 and if the resolution excludes that
from the cap.
MS. SCHULTZ said she would follow up with the exact numbers. She
clarified that most federal funds would not be counted under the
cap and state funds expended for a disaster would not count
toward the cap.
3:41:03 PM
MS. SCHULTZ continued the presentation. She explained that the
second part of SJR 5 amends Art. V, Sec. 17, Constitution of the
State of Alaska. It changes how the legislature accesses the CBR
by removing the three-fourths vote requirement. SJR 5 provides
that appropriations from the CBR may be made by a majority vote
if there are insufficient general fund revenues to meet
expenditures. Further, it removes the general fund liability to
the CBR. She noted that this is known as the CBR "sweep"
provision.
CHAIR SHOWER asked what the governor's intent is in changing
those two provisions.
MS. SCHULTZ explained that the first of the two gates of the CBR
says that if the amount available for an appropriation is
insufficient to meet the budget and the budget is smaller than
the previous year, the legislature can access the CBR with a
majority vote. Importantly, in 1994 the court ruled in Hickel v.
Cowper that the amount in the permanent fund earnings reserve
counts as available for appropriation. She said that is billions
of dollars so the bar is too high to qualify for the majority
vote provision to access the CBR for a traditional rainy day
fund. Instead, the three-fourths rule, which allows an
appropriation from the CBR for any state purpose, applies.
MS. SCHULTZ said a provision in the current CBR language
requires that if the state has made expenditures from the CBR,
it must pay that back at the end of the fiscal year. At the end
of FY 2020, there was approximately a $10 billion liability to
the CBR. SJR 5 eliminates the requirement to repay the liability
and the three-fourths vote for access, which eliminates the
year-end political problem of the reverse sweep.
CHAIR SHOWER commented that these are significant changes that
the body will need to consider very carefully.
MS. SCHULTZ said the idea is to make the CBR a traditional rainy
day account.
She said the next slides model quantitatively what the funding
cap would look like under different scenarios.
3:44:22 PM
MS. SCHULTZ turned to the line graph on slide 3 that illustrates
that the appropriation limit articulated in the constitution is
ineffective. The heavy black line represents the current
appropriation limit. She pointed out that the heavy black line
that starts in FY1982, when voters approved the constitutional
appropriation limit, grows beyond the scope of either state
revenue or state general fund expenditures. UGF revenue matched
the current cap just two years, and UGF spending never
approached the limit. While there was an awareness that the
appropriation limit was ineffective, voters reapproved it in
1986. She said the concept is still popular but the math needs
fine-tuning.
CHAIR SHOWER mentioned the extensive work that several members
did on this topic several years ago and asked why this model did
not include revenue in addition to inflationary factors.
MS. SCHULTZ answered that this version intends to be as close as
possible to the measure from two years ago.
3:46:17 PM
SENATOR REINBOLD asked if she was recommending that the
approximately $10 billion liability to the CBR not be paid back.
MS. SCHULTZ confirmed that SJR 5 proposes to remove that
liability.
SENATOR REINBOLD said she liked the idea of tightening the
budget and paying the liability back because she thinks it was
the result of overspending. She also pointed out that the three-
fourths vote and reverse sweep can be a big deal and her
preference would be for the legislative branch to discuss this.
CHAIR SHOWER said that is why it is under debate and he was open
to changes if that was the will of the committee.
3:48:17 PM
SENATOR COSTELLO asked whether the $10 million liability affects
the state's bond rating and if so, how it is affected.
MS. SCHULTZ said she would follow up with a response after
consulting the bond manager.
3:48:55 PM
MR. BARNHILL, Deputy Commissioner, Department of Revenue,
Juneau, Alaska, added that he did not believe that rating
agencies account for that liability but he would check with
DOR's debt manager and follow up with the answer.
3:49:28 PM
SENATOR COSTELLO asked if the administration could look back to
see how much the bargaining to get the three-fourths vote to
access the CBR increased the budget over time.
MS SCHULTZ said she would try to get the information but that
kind of analysis would require a level of subjectivity and
perhaps offline calls with former co-chairs.
3:50:54 PM
MS SCHULTZ clarified that while she was modeling UGF spending,
the appropriation limit applies to a broader definition of state
spending than just UGF. For ease of the presentation and the
historical lookback, she used UGF as a proxy for state spending.
She added that when she shows the finer points within a three-
year timeframe, she would use the actual amount defined under
the appropriation limit.
She pointed to the black dotted line on the graph that shows the
spending cap if the voters had approved SJR 5 in FY1982 instead
of starting with $2.5 billion and letting it grow with inflation
and population. If SJR 5 had gone into effect in 1982, about $35
billion of unrestricted general funds would not have been spent.
It is speculation to say what would have happened to those funds
but if $35 billion was put into the permanent fund over that
timeframe, the fund would be valued at $100 billion and the
percent of market value (POMV) would be enough to cover the
current structural deficit.
3:52:48 PM
CHAIR SHOWER commented that the chart was worth a thousand
words. UGF expenditures nearly doubled since 2006 and when
revenue started to become an issue, the legislature did not act.
Now this legislature has to make the hard choices so the state
is not in the same position 14 years from now.
3:54:30 PM
SENATOR KAWASAKI pointed to the large expenditure spikes in
2008-2010 and asked how much of that was capital spending versus
operating expenses.
MS. SCHULTZ said she did not have the exact numbers but capital
expenditures drove the majority of the increase.
CHAIR SHOWER pointed out that while the capital spend was high,
there were also significant payments to PERS and TRS.
SENATOR KAWASAKI asked to see a chart that also represented
operating expenses because the years with spikes in capital
spend were to fill potholes that were unfilled for 20 years. He
said he agrees with paying back the billions owed to the CBR but
there were also billions of dollars in deferred maintenance that
normal operation and maintenance does not address. There needs
to be a recognition that some of those big spending years were
to catch up, he said.
3:56:41 PM
CHAIR SHOWER said it was a valid point but the problem today was
how to balance the budget when capital budgets are minimal.
He asked Ms. Schultz to get that data to the committee.
3:57:25 PM
SENATOR REINBOLD commented that the governor has 95 percent of
the budget so he has whatever cap he wants. Regarding the
deferred maintenance issue, she said the administration must be
held accountable for bloated budgets and not using the funds the
legislature gave for specific things.
3:58:52 PM
MS. SCHULTZ turned to the next slide and explained that the
green line in the background is for UGF revenue and the orange
line is for UGF expenditures. She noted that the graph only
looks at FY2000 through FY2022 because she wanted to show that a
positive aspect of using the three-year rolling average was that
the spending cap could adjust. She said what is modeled with the
various blue lines is the retrospective notion of what the
spending cap would look like if SJR 5 had been implemented in
FY2005. She pointed out that the blue line follows a fairly
linear progression with some growth for the greater of inflation
or population. She noted that recent history in Alaska
chronicles inflation as a higher growth factor than population.
CHAIR SHOWER commented that there had been a net outflow from
the state for the last three years.
MS. SCHULTZ agreed. Continuing, she pointed out that if SJR 5
had been implemented in FY2005, the line tracks along the FY2000
line. However, if SJR 5 had been implemented during a period of
higher spending, such as FY2010, that higher period of budget
growth allows for a larger spending cap but then it adjusts
down. It would have been the same for FY2015. It starts at a
very high level because it is factoring in those prior record
budget years into the three-year average, but it tapers to meet
the fiscal reality of the situation. She said that is an
important notion when you consider what calculation to use.
Something that auto corrects versus the current Art. IX, Sec.
16, limit. She observed that the latter grows and grows.
4:01:14 PM
CHAIR SHOWER asked her to talk briefly about the effect of
factoring in revenue and what the legislature decides to spend
versus what is available to spend.
MS. SCHULTZ said it would depend on how revenue is weighted. It
can mean that the spending limit calculation is more responsive
to a changing revenue environment, but periods of high revenue
spikes can allow the spending cap to grow more than if spending
alone were the basis.
CHAIR SHOWER said he brought it up because part of the
discussion two years ago was about including factors such as
CPI, inflation, or some combination and he wanted that still to
be part of the discussion.
MS. SCHULTZ said she would be happy to provide more information
if she visits the committee again on this topic.
4:03:19 PM
SENATOR KAWASAKI asked if the graphs include the annual
permanent fund dividend (PFD) payments.
MS. SCHULTZ answered no; the orange UGF spending line does not
include PFD payments because the dividend is not subject to the
appropriation limit.
CHAIR SHOWER commented that the language changed in 2017 to make
it a government expense so including it over time would be an
unreliable representation.
MS. SCHULTZ said SJR 5 specifically excludes the dividend from
the cap.
4:04:15 PM
MS. SCHULTZ said the last graph was forward looking. She
explained that the OMB forecast is based on some assumed
reductions in the next few fiscal years along with an inflation
factor and the DOR forecast is based heavily on the POMV draw,
of which are relatively stable growth factors. She said the
small dotted green line represents UGF revenue going forward if
it were to grow as it did in FY2005 through FY2013.
MS. SCHULTZ directed attention to the solid lines. The gray line
shows the cap if spending follows the Office of Management and
Budget (OMB) 10-year plan and the black line shows the cap with
maximized spending. She said she was highlighting this because
she did not want to create the notion that SJR 5 overly limits
spending or does not allow responsiveness. She also pointed out
that the highest possible cap, based on normal inflation and
population measures, is higher than the projected revenue.
However, if revenue were to increase in a year, the
appropriation could be more than it might otherwise be.
4:06:22 PM
CHAIR SHOWER mentioned the amendment to this provision two years
ago that created a waterfall fund. The notion was that in years
with high revenue, capital expenses could be increased to catch
up on things like infrastructure projects. The question is how
to do that without going in the hole again, he said.
MS. SCHULTZ responded that specifying where revenue beyond the
cap would be directed is an important policy conversation for
this committee to have.
CHAIR SHOWER said he would like that provision worked into a
graph to help the committee see how that may play out and where
it may be appropriate.
4:07:53 PM
MS. SCHULTZ said she would be happy to work with committee
members and staff outside of meetings to look at modeling and
the spreadsheets.
4:08:06 PM
CHAIR SHOWER held SJR 5 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 01.19.21 Permanent Fund; Dividend TL - Senate.pdf |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| 01.1921 Permanent Fund; Income; Dividend TL - Senate.pdf |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053-1-2-012521-GOV-Y.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053-2-2-012521-REV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053-3-2-012521-REV-Y.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| SB0053A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SB 53 |
| 01.19.21 Approp Limit; Budget Reserve TL.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR005A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR005-1-2-012221-GOV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR006-1-2-012221-GOV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 6 |
| SJR006A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 6 |
| 01.19.21 Taxation Limitation TL - Senate.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR007-1-2-012221-GOV-N.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR007A.PDF |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR 7 Sectional Analysis.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 7 |
| SJR 5 Sectional Analysis.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 |
| SJR5 and SJR7 - OMB and DOR presentation.pdf |
SSTA 2/4/2021 3:30:00 PM |
SJR 5 SJR 7 |