Legislature(2001 - 2002)
05/03/2001 09:20 AM Senate FIN
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SENATE JOINT RESOLUTION NO. 23
Proposing amendments to the Constitution of the State of
Alaska relating to an appropriation limit and a spending
limit.
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Donley restated the intent of the resolution to replace
the current constitutional appropriation, or spending limit. He
noted the current spending limit amendment to the Alaska
Constitution was adopted in 1982 by voters and was intended to
limit state government spending and require that one-third of all
appropriations are allocated to the capital budget items. He opined
that this constitutional amendment "has never worked" because the
amount is "simply set too high". He explained that although the
$2.5 billion figure is specified in the amendment, annual
adjustment for population and inflation raises the amount to over
$6 billion for the current year. He pointed out the amount subject
to the provisions of the constitutional amendment is approximately
$3.1 billion. This, he noted results in a $3 billion "cushion".
Co-Chair Donley added that a court decision on the matter
"completely turned on its head," the meaning of the one-third
capital appropriation provision. This one-third requirement, he
said, has never been followed. He surmised citizens reading the
constitution "are led to believe" there exists a $2.5 billion
limit, which he stressed is actually $6 billion, and that the
capital budget is almost $1 billion general funds annually, which
is also not the case.
Co-Chair Donley expressed, "Given that the existing provisions have
never worked and is not understandable to any average person…it's
clear that that provision of the constitution is certainly broken."
This resolution, he said, replaces the "broken language" with a
provision that is effective. Co-Chair Donley explained the FY 00
budget of $3.1 billion is used to set a new baseline. He noted that
although this seems to be an increase of $600 million from the
language adopted in 1982, it is actually a decrease of almost $3
billion from the population and inflation adjusted amount.
Co-Chair Donley stated that this resolution attempts to prevent the
problems of the 1982 provision by clarifying which funds are
included in the spending limit. He added that this resolution
limits the growth in spending to a percentage of population and
inflation. He referred a spreadsheet, Appropriation Limit, showing
the changes to the base limit and growth limit of 50 percent of
population and inflation. [Copy on file.] He surmised this approach
would hold down the growth more effectively.
Co-Chair Donley also noted a provision is added allowing, through a
super majority vote of the legislature, that .25 percent
inflationary growth could be accessed. He pointed out in the first
year after this resolution takes effect, the amount would be
approximately $31 million. He termed this to be a safety valve.
Co-Chair Donley continued that an additional safety valve is the
option of general obligations (GO) bonds to finance capital
projects. He described how, if the legislature identifies an
important need, a GO bond proposal could be placed on the ballot,
and if approved by voters at the next general election, could
relieve pressure on the operating budget. He surmised that this is
an appropriate method to allow for large capital expenditures.
Co-Chair Donley also noted the resolution contains a repeal
provision in the form of placing a question before voters in the
2010 general election as to whether this constitutional amendment
should remain a part of the constitution. He noted that this
encourages legislative review of the provision as well.
Co-Chair Kelly asked if there are other provisions in the state
constitution that come up for public review.
Co-Chair Donley replied there are several and gave the
constitutional convention as an example, explaining how the
question of whether to hold a constitutional convention is placed
before the voters every ten years.
Senator Ward expressed his support for this resolution and told how
he had made earlier attempts to support Co-Chair Donley in these
efforts in previous legislative sessions.
Senator Ward commented that if this issue had been placed on the
ballot earlier, he believed Alaskans "would have taken a different
attitude toward income tax, sales tax, permanent funds, petroleum
taxes, a whole host of things." He stated there is currently "a
blank check in government." He titled this constitutional amendment
as the beginning of "the Alaskan Plan" and said it does not compare
to the Republican Party's five-year budget plan that concluded the
previous fiscal year. He stressed this is what the citizens of
Alaskans have demanded and that "they want us to live within our
means and right now they know that there is no limit" to state
government spending. He surmised that if this resolution were
placed on a future ballot, voters would become more involved in the
long-range fiscal plan for state government. He warned there must
be a limit to government spending so citizens would have faith in
their government. He concluded this resolution is the answer to the
failed ballot measure in the 1999 special election to use a portion
of the earnings of the permanent fund to pay for some government
services.
Co-Chair Kelly commented that whenever a constitutional amendment
pertaining to government spending there would always be
difficulties. He noted that although Co-Chair Donley gave a
complete presentation of this resolution, there might still be
minor issues to address. However, he remarked that the House of
Representatives committee process has progressed "frightenly slow"
this session and he was concerned that the resolution would not
complete the process in the next year and qualify for placement on
the 2002 General Election ballot. He therefore asked for Senate
Finance Committee leeway to expedite the resolution through the
Senate this year so it could be transmitted to the House as soon as
possible. He preferred this resolution receive necessary scrutiny
in House committees rather than be delayed then rushed through
during the last days of the legislative session.
Senator Hoffman referenced page 2, lines 13 and 14, "The operating
expenditures of each of the principal departments established by
law under Section 22 of Article III shall be reduced by an equal
percentage." He asserted that whenever the matter of reducing state
government has been considered, the method of across the board
reductions to all services was a last result option. He stressed
that across the board reductions "don't make much sense" and a
better approach is to examine and prioritize specific services.
Therefore, he asked why an across the board method is imposed in
this constitutional amendment.
Senator Hoffman continued to page 2, lines 14 through 16, "This
subsection does not apply to expenditures that are approved by a
resolution concurred in by at least two-thirds of the members of
each house." He wanted to know if such a resolution could be
considered and adopted at the same time the budget is under
consideration.
Co-Chair Donley answered yes to Senator Hoffman's second question.
He noted the final result would still be a requirement that the
growth remain less than the population and inflation requirements.
Co-Chair Donley addressed the first question saying that although
he agreed the equal reduction approach is not a good idea for
general budget practice, he recommends it for this situation
because it is a provision to be implemented only if the legislature
violates the spending limits imposed in this constitutional
amendment. He expressed this provision would encourage the
legislature to stay within the spending limit, to prioritize
services and would also avoid costly litigation. He explained that
in a situation where the legislature "ignored its constitutional
duty" to appropriate within the limit or inadvertently appropriated
more than the limit allows, a court would have to determine
appropriate reductions. He stated this provision in the
constitutional amendment provides the court specific guidelines for
making those reductions and also gives the legislature "clear
notice" of the consequences of violating the spending limit. He
predicted that this provision actually addresses Senator Hoffman's
concerns about unprioritized reductions because the legislature
would be encouraged to make budget decisions within the constraints
rather then allow for an arbitrary across the board reduction.
Senator Hoffman estimated the proposed FY 02 budget would exceed
the spending limit imposed by this constitutional amendment if it
existed today. He requested the Division of Legislative Finance
confirm this.
Co-Chair Donley agreed to this, and classified the FY 02 budget as
a "moving target" since it had not yet passed the legislature.
Co-Chair Kelly asked for clarification of the equal reduction
provision imposed if the legislature appropriated an amount higher
than the spending limit.
Co-Chair Donley reiterated how the budget would be reduced in equal
proportions to each department in the event of a lawsuit filed and
won against the legislature for over-spending. He pointed out that
the governor is also responsible for any over-spending since the
budget must be signed into law before funds could be appropriated.
He surmised that the amount of money involved in these instances
would be minimal.
Co-Chair Kelly asked if the appropriation reductions would be made
through a court action.
Co-Chair Donley affirmed and explained the court would order each
department to reduce its budget and the specifics would be
determined by the commissioners of each department.
Co-Chair Kelly asked if the commissioners would have flexibility to
make these reductions within the Budget Request Units (BRU).
Co-Chair Donley answered by reading from page 2, lines 10 and 11,
"…the governor shall reduce expenditures by the executive branch
for its operation and administration to the extent necessary to
avoid spending more than the amount that may be appropriated…"
Senator Hoffman opined that in actuality, the governor would review
the budget passed by the legislature to ensure the appropriations
are within the limit. In the event they are higher, Senator Hoffman
continued, the governor would prioritize and make necessary line
item reductions at this time.
Co-Chair Donley agreed this is true, "within the perimeters of the
constitutional provision, which requires it to be equal by
department." He asserted the way to avoid this situation is to not
violate the spending limits.
Amendment #1: This conceptual amendment deletes a sentence from
Section 1 (c), on page 2, lines 13 and 14 of the resolution, which
reads, "The operating expenditures of each of the principal
departments established by law under Section 22 of Article III
shall be reduced by an equal percentage."
Co-Chair Kelly expressed his concern that some items such as
contracts negotiated in good faith and entitlements, would be a
priority and could not be reduced, but that other, less desirable
reductions would be required elsewhere. He predicted there would be
a small number of budget items available to incur the full
reduction. He also warned that the legislature would be unable to
make these budget decisions.
Co-Chair Donley noted several events would have to occur before
this provision would be activated. He listed: the legislature would
pass a budget higher then the appropriation limit, the governor
would not exercise veto authority in reducing appropriations to
meet the limit, a lawsuit would be filed against the state, and the
court would rule against the state in this suit. Only at this time,
he explained, would the governor be required to make the equal
reductions in accordance to the constitutional amendment and the
court order.
Senator Green understood the primary intent of the appropriation
limit is to become the "guiding principal" by which, the budget is
formulated and policies set. By knowing the appropriation limit at
the start of the budget process, she surmised the department
representatives would have to submit proposed budgets that meet the
predetermined amount. She stated the message would be sent to the
executive branch, "This is the principal under which we're going to
operate. You have some information and you work from that
principal." She expressed this method starts with the governor's
office. If nothing else, she predicted this intent of the
constitutional amendment would ensure there is leadership in the
budget process rather then a compilation of reactions.
Co-Chair Donley applauded this point, and noted that in the last
six years, the governor has been proposing large budget increases.
Under the appropriation limit, Co-Chair Donley stated, the governor
would have to meet the cap or there could be consequences. He noted
this also addresses Senator Hoffman's concerns about prioritizing
expenditures.
Co-Chair Donley stated he had no objection to the deletion of the
sentence as proposed.
Co-Chair Donley moved for adoption of Amendment #1.
Without objection the amendment was ADOPTED.
Co-Chair Donley requested Committee advice on the last sentence in
Section 2 on page 2, lines 23 through 25, "If the majority of those
voting on the proposition rejects the amendment, the amendment
shall be repealed and Section 16 of Article IX shall be reenacted
to read exactly as it did when it was first adopted in 1982." He
explained this applies to the provision placing the constitutional
amendment, if initially adopted, back before voters for
reconsideration in the year 2010 and every eight years thereafter.
He commented that the language adopted in 1982 is "pretty bad" and
thought it might be preferable to completely repeal the
constitutional amendment rather then revert to the previous
language.
Co-Chair Kelly asked for clarification of how this resolution would
affect the existing constitutional amendment.
Co-Chair Donley explained if this resolution were adopted, and its
provisions incorporated into the constitutional amendment governing
spending limits, but the voters later elected to repeal these
provisions, the constitutional amendment would remain but the
language would revert to that in the original constitutional
amendment. An alternative, he said, is to provide that the
constitutional amendment is repealed in its entirety if voters fail
to retain the language contained in this resolution.
Co-Chair Kelly recommended repealing the entire constitutional
amendment, saying it is ineffectual.
Senator Leman agreed. He stated the provision proposed in the
resolution could be confusing and he wanted to keep the
constitution as simple as possible.
Senator Leman referred to the "safety valve" language on page 2,
lines 14 through 16, "This subsection does not apply to
expenditures that are approved by a resolution concurred in by at
least two-thirds of the members of each house." He asked if this
provision would preclude the current legislative practice of
separately voting to pass the budget and the subsequent withdrawal
from the Constitutional Budget Reserve fund (CBR) to pay the
difference between available funds and the total budget
expenditures. He noted this method is established in statute and
wanted to know if an additional resolution would be required before
funds could be withdrawn from the CBR.
Co-Chair Donley replied that a resolution "keeps the power with the
legislature" with regard to CBR draws. He explained if the CBR
withdrawal were included in the budget legislation, it would be
subject to a line-item veto. He gave a scenario of a budget bill
passed that included the CBR withdrawal. He warned that the
governor could veto this section of the bill, which would activate
the budget reduction provision and the governor would determine the
reductions rather then the legislature.
Senator Leman asked how this compares to the Alaska Supreme Court
interpretation of the existing constitutional amendment.
Co-Chair Donley replied this resolution specifically authorizes the
legislature's intent that the governor could not veto legislative
approval of CBR draws.
Amendment #2: This amendment deletes, "…and Section 16 of Article
IX shall be reenacted to read exactly as it did when it was first
adopted in 1982." from Section 2, page 2, lines 24 and 25 of the
resolution.
Co-Chair Donley moved for adoption.
There was no objection and the amendment was ADOPTED.
Senator Wilken stated that he would support reporting this
resolution from Committee, but stressed that it is a work in
progress. He voiced concerns with "the half and half" provision
that calculates the allowable spending increases based on
population and inflation, saying it is too ambitious and too low.
He admitted he did not have a recommendation as to what the amount
should be. He noted the predicted 13 percent per capita reduction
over nine years and emphasized the difficulty in making one-percent
budget reductions under the Republican's five year budget plan,
which concluded the previous year. He thought the issue could be
addressed with an additional safety valve; one that would be easier
to enact then the currently proposed provision.
Senator Wilken expressed there is a need to address capital
spending versus operating expenditures. He opined that the
operating budget is the result of an "arduous process that serves
to restrain government." He remarked this is entirely different
from the process of allocation for capital expenditures, which are
intended to encourage the state's economy. He stressed Alaskans
need to understand that the intent in funding operation items is
one of restraining government but the intent in funding capital
items is to build Alaska. He characterized the two budgets as
mutually exclusive. He was concerned with the proposal to combine
the two into one spending limit provision. He warned that the
result could be favoring government at the expense of building
Alaska.
Co-Chair Kelly concurred.
Senator Wilken listed that his third concern relates to the
University of Alaska, which he was unsure if it was subject to the
spending limits. He predicted if tuitions were increased, "we're
back to the old statutory designated receipts problem," explaining
that any revenue increases with the intent of funding specific
state services would affect the total appropriation amount in
relation to the spending limits. He stated there are other
instances where additional revenues could be generated to assist in
paying for and expanding a service.
Senator Wilken shared his final concern with "federal indices" as
it appears in Section 1 (a). He pointed out there are few federal
indices for comparison and those impacted by this resolution should
be clarified.
Senator Wilken assured he is "fully supportive" of the
constitutional spending limit, stressing he wanted to guarantee the
one adopted is acceptable.
Senator Austerman associated himself with Senator Wilken's
comments. He emphasized, "the devil is in the details" on any such
proposal. He considered this resolution "a tool for us to start
getting a handle on where we're going on government." He noted his
interest in pursuing a long-term financial plan and stressed this
is a key element to that plan. He was reassured that because this
resolution requires a two-thirds vote from each body, the problems
would be adequately addressed before it passed. He hoped there
would be constructive discussions on the matter in the House of
Representatives over the interim.
Co-Chair Kelly noted Co-Chair Donley's tendency to "work on a lot
of projects all very much in depth." He requested the sponsor work
on this resolution with the same intensity given to his other
legislation.
Senator Austerman invited Co-Chair Donley to participate in the
long-term financial planning group.
Senator Ward offered a motion to move from Committee SJR 23, as
amended, with a zero fiscal note from the Division of Elections,
Office of the Lieutenant Governor.
Co-Chair Donley remarked he was in agreement with all the comments
raised during this hearing and that he would continue to work on
this resolution.
Without objection the bill MOVED from Committee.
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