Legislature(1995 - 1996)
01/31/1996 01:30 PM Senate JUD
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* first hearing in first committee of referral
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SJR 30 USE OF BUDGET RESERVE FUND
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to
order at 1:30 p.m. The first item of business was SJR 30.
SENATOR RIEGER, sponsor of SJR 30, responded to a previous question
raised by Senator Adams regarding the amount of money drawn from
the Constitutional Budget Reserve (CBR). He explained there was a
quantity of money drawn from the reserve, and a quantity not
deposited initially, which the court subsequently ruled should have
been deposited. The amount of that deposit for fiscal years 1991-
1994 is $1,055,000,000. The number of draws are itemized as
follow:
$390 million to cover the shortfall between revenues and
appropriations for fiscal years 1994 and 1995;
$130 million for reconstitution of the Mental Health
Trust;
$141 million to meet the effect of Art. IX, Sec. 17(d) of
the Alaska Constitution;
$68 million for the state's share of oil and gas litigation
from July, 1990 through February, 1994;
$11 million for the legal costs of oil and gas litigation in
fiscal year 1995.
The total amount is $1,702,978,690.
Number 051
SENATOR TAYLOR asked what the current balance of the CBR is. BRAD
PIERCE, policy analyst with the Office of Management and Budget,
stated the anticipated balance of the CBR, at the end of FY 96, is
$2.08 billion.
MR. PIERCE reiterated the Administration's support of SJR 30,
particularly the elimination of the sweep provision, which was
never intended to include accounts that were set aside by the
Legislature for specific purposes. The Administration also
supports repeal of the payback provision as it is a debt we owe
ourselves, and is something that must be explained to bond rating
agencies. It has become more of an administrative nuisance than
anything else. He requested the Legislature leave a clear trail
of the intent of SJR 30: the concern being that no one
inadvertently confuse the issue by replacing the term "available
for appropriation," which has been clearly defined by the court,
with the term "unrestricted revenue," and resulting in another
court challenge.
MR. PIERCE added the Governor would like clarification, in the
resolution, of when a supermajority vote would be required to draw
from the CBR, primarily in the context of how it would fit into an
overall fiscal plan. He stated the Long Range Financial Planning
Commission discussed requiring a supermajority vote to enable any
use of reserves independent of any other condition. He noted the
upcoming Joint State Affairs meeting during which the Long Range
Financial Planning Commission's resolution (identical to SJR 30)
will be reviewed.
Number 133
SENATOR TAYLOR asked what part of SJR 30, concerning the
supermajority vote provision, the Governor wants clarification of.
MR. PIERCE repeated the Governor would like to see it discussed in
the context of an overall fiscal plan.
SENATOR TAYLOR asked Senator Rieger if the intent of the
supermajority vote requirement in SJR 30 would be to require it
only when utilizing CBR funds to increase the budget. SENATOR
RIEGER said that was correct. He explained the context of the
original amendment, and the intent of SJR 30, was/is to provide a
mechanism to stop the temptation to increase spending when the
settlements, or the results of a determination of an administrative
proceeding, cause an unusual, one-time, influx of cash into the
general fund. In some respects, that money is like other revenue,
because it probably resulted from a tax case. Had it not been a
tax case, the money would have been received in small amounts
annually; instead it accumulated and was received in a lump sum.
To help restore it to how it should have come in, the money can be
used in a normal operating purpose, just as any other general fund
revenue is, but not to increase spending. This money can be used
to stabilize a spending plan, but not to increase spending without
a supermajority vote.
Number 169
SENATOR ADAMS asked if the Senate Finance Committee has developed
a financial plan for other Senators to review, and if so, how much
money will come from the CBR. SENATOR RIEGER replied he has not
drafted a financial plan. SENATOR ADAMS expressed concern about
getting the necessary 14 votes to pass SJR 30.
SENATOR TAYLOR asked Mr. Pierce if his request for clarification
was addressed sufficiently. MR. PIERCE explained that if the Rose
plan was adopted, which uses the CBR as the "fly-wheel" of a fiscal
plan for the future, the Legislature might want a different
requirement to access the CBR. He believed the Governor was
requesting more discussion in the overall context of fiscal
planning.
SENATOR TAYLOR indicated he was unaware of the subtle distinctions
between the Rose plan and the Long Range Financial Planning
Commission's plan. MR. PIERCE indicated the Rose plan would take
the unrealized gains from the Permanent Fund (a little over $2
billion), deposit those gains into the CBR, and use both the
interest from the earnings of the CBR, and the excess earnings off
the Permanent Fund not used for inflation-proofing or dividends,
for general fund spending to supplement oil revenues. That concept
might require different access to the CBR than what is proposed in
SJR 30.
Number 200
SENATOR ADAMS asked if the original purpose of the permanent fund
was to use the interest earned from the corpus to fund state
government, and whether the Rose plan would set up a similar fund.
MR. PIERCE replied that essentially a second permanent fund would
be created.
SENATOR TAYLOR inquired whether a supermajority would be required,
under the Rose plan, to access those funds even though less money
might be spent on the overall budget than the previous year. MR.
PIERCE stated Mr. Rose suggested a constitutional amendment would
be necessary to address the CBR but was not specific about how it
would work.
SENATOR TAYLOR asked where the current interest income from the CBR
is being placed, and who is responsible for the investment and
workings of the CBR. MR. PIERCE reported the interest is
reinvested into the CBR which is invested by the Department of
Revenue. OMB has projected a 6 1/4 percent rate of return on those
funds, which is about 1 percent lower than the Permanent Fund.
SENATOR TAYLOR questioned the lower rate of return. MR. PIERCE
stated the CBR is invested in shorter term instruments, and there
are more liquid assets.
Number 236
SENATOR TAYLOR asked why interest income from the CBR is not used
as ordinary income to the general fund. SENATOR RIEGER read
Section A of the original constitutional amendment, " Money in the
budget reserve fund shall be invested so as to yield competitive
market rates to the fund. Income of the fund shall be retained in
the fund." SENATOR TAYLOR questioned whether the interest income
would remain in the CBR under SJR 30. SENATOR RIEGER replied it
would, however he would welcome discussion on that policy.
Number 261
SENATOR MILLER moved SJR 30 out of committee with individual
recommendations. There being no objection, the motion carried.
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