Legislature(1999 - 2000)
05/11/1999 01:17 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HJR 23 - COMMUNITY DEVELOP FUND/PFD/BUD RESERVE CHAIRMAN KOTT announced the next order of business is HOUSE JOINT RESOLUTION NO. 23, Proposing amendments to the Constitution of the State of Alaska relating to the community development fund, the permanent fund, and the budget reserve fund. Number 1259 REPRESENTATIVE DAVIS, sponsor, Alaska State Legislature, noted that there was testimony on this legislation last year when it was called the community dividend fund which has since been changed to the community development fund. He explained that this is an endowment for municipal assistance and revenue sharing. The earnings from this endowment would be distributed to legal municipalities. This plan calls for $750 million from the constitutional budget reserve (CBR) to be placed in the community development fund where it will draw interest. The earnings from that will be distributed to the municipalities. Additionally, Representative Davis informed the committee that he was pondering trying to generate additional revenues to the corpus of the endowment. Therefore, HJR 23 still includes receipt of two percent of the dividend earnings for 20 years. REPRESENTATIVE DAVIS acknowledged that the resolution is left vague and noncommittal as to who would administer the fund and the details of the distribution of the fund. Furthermore, the resolution is left completely open with regard to how municipalities would spend the funds received from the endowment. He indicated that there would be the desire to roll a portion of the fund back into the fund in order for the fund to grow. Representative Davis hoped this fund and its distribution would grow. He envisioned municipalities taking over responsibilities that the state currently provides such as road maintenance, education projects, community schools, et cetera. Representative Davis recognized that this plan may have come at an inopportune time as there is another plan such as the Healthy Alaska Plan. However, this endowment may be an opportunity in view of the funds the House eliminated to municipal assistance and revenue sharing. He noted that Representative Moses has a similar proposal. CHAIRMAN KOTT expressed his understanding that those areas not included in the resolution would be done statutorially. REPRESENTATIVE DAVIS said that he prefers to keep things simple when going before the voters. In further response to Chairman Kott, Representative Davis explained that if this passes it would be before the voters at the next general election. If it passes, the money would be transferred to the fund and given a year to generate revenue with the first distribution being in fiscal year 2002. He pointed out that Table 1 in the committee packet illustrates the results with and without inflation proofing. Therefore, the first distribution in 2002 without inflation would result in $117 million which is large because the distributions would actually be from two years of earned income. If there is inflation proofing at three percent, the first distribution would be $69 million. CHAIRMAN KOTT asked if Representative Davis envisioned this fund replacing the current appropriation for municipal assistance and revenue sharing. REPRESENTATIVE DAVIS replied yes. REPRESENTATIVE MURKOWSKI asked if Representative Davis intended for the schools in the community to be funded through this endowment or was he referring to the community school concept. REPRESENTATIVE DAVIS clarified that he was referring to the community school program. REPRESENTATIVE GREEN asked if the estimated growth of this endowment would be comparable to the permanent fund dividend. Number 1792 DEB DAVIDSON, Legislative Administrative Assistant to Representative Davis, Alaska State Legislature, said that the tables before the committee were provided with data from the permanent fund and the same inflation rate was utilized as is for the permanent fund. REPRESENTATIVE GREEN asked if this is a way around a dedicated fund to support municipalities. REPRESENTATIVE DAVIS clarified that this is a dedicated fund. MS. DAVIDSON explained, in response to Representative Croft, that because the total earnings may be a little higher than the percentage on the permanent fund, the language says that the fund will be invested to yield competitive market rates. The Department of Revenue calculated the earnings based on how the CBR is invested because it has more latitude than with the permanent fund. The inflation rate utilized for the permanent fund and the CBR was utilized, while the investment scenarios and portfolios of the CBR were utilized for the community development fund. Therefore, the estimate of total earnings is a little higher due to the different investment policies. In further response to Representative Croft, Ms. Davidson believed that the rate was around eight percent. According to the original table, the realized return to the community development fund was considered at 7.3 percent. She clarified that the $58 million earnings is the 7.3 percent without inflation proofing. The total return would remain the same at $5 million, from which $23 million for inflation proofing would be subtracted. REPRESENTATIVE CROFT asked if the total earnings is the combination of the 2 percent from the permanent fund and the interest that is taken off of it. MS. DAVIDSON clarified that the total earnings is what is earned on the balance of the principal. However, the table reads, for say fiscal year 2001, $750 million plus the $37 million - 2 percent - plus the earnings on that total becomes the principal. There is no distribution the first year. Number 2069 KEVIN RITCHIE, Alaska Municipal League (AML), Alaska Conference of Mayors, said that this is an exciting concept. Municipal assistance and revenue sharing have been a difficulty in the state budget for years. Furthermore, those budget areas have decreased each year which has created substantial discord between the state and the municipalities. This concept would not only create stability in local government, but also a vehicle to accomplish efficiencies in state government. He posed the example of road maintenance. In many areas there is a city and a state road shop. Although the city may be more efficient, the city cannot take over road maintenance because the tax money for such is not available and there is not a vehicle at the state level for such. If the state wanted to transfer state maintenance to municipalities, it would be possible to add an additional endowment to the fund and transfer those with a continuing source of revenue. Such would result in a more efficient system as well as a stable source of revenue to pay for the system over time. Mr. Ritchie felt this concept has arrived at a most appropriate time. REPRESENTATIVE JAMES commented that she was sure the municipalities would like this. She inquired as to how many other groups would prefer an endowment so as to avoid going to the legislature for funding. MR. RITCHIE said that there is a unique relationship between the state and municipalities. In essence, municipalities are state government. He likened municipalities to a local franchise of the state government. Number 2236 REPRESENTATIVE JAMES asked if there has been thought of payment in lieu of taxes. Representative James stated that she is generally opposed to endowments because there is not necessarily a relationship between the amount of funds received and the amount of funds needed. It seems more responsible to have a need to be funded. Currently, there is no opportunity for a municipality to provide any evidence of need. Representative James emphasized that the state should recognize its obligation to assist in some relationship with the municipalities. With this legislation, that is lost. MR. RITCHIE commented that the concept of payment in lieu of taxes is great. He pointed out that some communities include much state property while others do not and therefore, need is not necessarily mirrored. Mr. Ritchie believed that under this plan, the state would define how much money is distributed and could define what the money is distributed for which would provide some control. REPRESENTATIVE JAMES clarified that she was concerned that the money available would not be enough while the same need exists. She reiterated that there should be a relationship between the money distributed and the need which is lost with endowments. CHAIRMAN KOTT noted that under this proposal the municipality would receive more than is currently dispersed under the revenue sharing and municipal assistance. REPRESENTATIVE CROFT pointed out, "A lot of the ideas that are being thrown around now are for endowing the entire, all the pots we have, putting them together and then having everyone come up and say now 'do we fund foster care or municipal assistance?' or and keep that discretion. It certainly was a preference of the framers of our constitution, that we not do a lot of these different pots. Why wouldn't it be the preferable approach to endow everything and then still have the discretion to dole whether it's too much or too little in any one particular year." MR. RITCHIE asked if Representative Croft meant leaving it as it is now with revenue sharing to be an annual appropriation for a revenue sharing program. REPRESENTATIVE CROFT replied yes. He suggested endowing the entire structure and still have people come to the legislature for their share of the funds. MR. RITCHIE pointed out that revenue sharing could get zeroed out and there is not a mechanism in state government to study the impacts of state government on municipal governments. There can be significant impacts on municipal government that do not receive study which he believed to be the case with the major cuts to revenue sharing. Mr. Ritchie said he was unsure as to how to improve that relationship. Municipalities consider the notion of if the state were to take over a service. For example, the senior citizen property tax exemption was initially created with the promise of full reimbursement of the cost which happened for a few years. Of course, things change. TAPE 99-63, SIDE B MR. RITCHIE commented that to be able to discuss with municipalities the ability to transfer certain functions, having a steady source of revenue makes sense. With regard to endowing everything, Mr. Ritchie said that municipalities are "literally half of what the state does." If all the municipal budgets were added, it would amount to about $2.4 billion which is a tremendous group of the services the state provides. According to the Department of Community & Regional Affairs, 75-85 percent of the services provided by municipalities fall into the essential services category that was identified for the Healthy Alaska Plan; those include public health and safety, education, and transportation. Number 0048 CHAIRMAN KOTT asked whether this proposition would be counter to the policy of phasing out municipal assistance and revenue sharing, if that is the legislature's direction. MR. RITCHIE stated that the AML and the Alaska Conference of Mayors disagrees with that policy. If the state eliminated all funding to municipal governments, essential services would plummet. Mr. Ritchie said, "In a sense, we feel that eliminating revenue sharing on the one hand is saying that communities without the ability to provide services go without and there is going to be a very large property tax or sales tax increase in communities that can afford to do that .... And that is probably a long-range fiscal plan issue. If the state were to, as part of its plan, wanted to increase statewide property taxes that is a legitimate thing to discuss as a part of the plan, but we feel that is the kind of impact that you have to look at." REPRESENTATIVE MURKOWSKI returned to Representative James' comments and she hoped that if such an endowment happens, the state could specify which areas the municipality would have to take over. Therefore, municipalities which receive more funds would take over more services and there would be an evening out with respect to how much funding a municipality receives in relation to what it must take over. Number 0180 MR. RITCHIE responded, in response to Representative James, that there are 98 municipalities which have a sales tax. REPRESENTATIVE JAMES pointed out that Anchorage and Fairbanks do not have a sales tax. She indicated that those municipalities continually cry that they cannot do anything due to the property tax cap, but a sales tax could be implemented. MR. RITCHIE said that he believed the property tax rate in Anchorage is around 20 mills while in comparison, the property tax in Juneau is 12 mills, but there is a 5 percent sales tax in Juneau. Mr. Ritchie commented that it does sort of work out. REPRESENTATIVE JAMES interjected that her point is that there are still options. REPRESENTATIVE GREEN understood that Mr. Ritchie believed that if this fund were created, $750 million would be taken from the CBR and the state would not have to deal with funding for municipal revenue sharing. However, that is taking $750 million out of the stream. He asked if there has been consideration given to which communities would not receive this funding. MR. RITCHIE mentioned that this year's funding for municipal assistance and revenue sharing is about $48 million and capital matching grants amount to $15 million which results in a little more than the first year of funding under this proposal. Mr. Ritchie use road service as an example. He believed that many municipalities would be able to provide road maintenance service as a single entity better than can be accomplished as a state and local service structure. However, no municipality could currently afford to take over state road maintenance and there is no guarantee that the state would provide funding in the future for a negotiated contract. In that sense, money would not be taken away from anyone and there would be attempts to be more efficient thus, saving money in a sense. MR. RITCHIE responded further. For example, if the state is spending $20 million on road service in a community. A city could assume that responsibility and potentially do it for less because operations are being combined. That extra money would not be lost. The city would do more to compensate for receiving more funds. Number 0386 REPRESENTATIVE GREEN commented that may not be in the state's best interest. REPRESENTATIVE KERTTULA suggested that it may make more sense to place the funds into one large fund and earmark it there. MS. DAVIDSON informed the committee that when Representative Davis developed this legislation, he recognized that each community has different needs and priorities. Part of the problem is that the state allocates funds according to the different issues such as transportation. Representative Davis believed there would be more options for municipalities to have the ability to utilize the money for the needs the municipality felt important. This would also make it easier for constituents to go to the local government than to the state. Furthermore, when municipalities come to the state for funds, the state could review how the community development funds were utilized when determining the funding for a particular need. There being no one else to testify on HJR 23, public testimony was closed. REPRESENTATIVE JAMES stated that she was willing to move HJR 23 from committee, although she is a no vote. Perhaps, HJR 23 needs to be in House Finance which is its next committee of referral. CHAIRMAN KOTT announced that it was his desire for HJR 23 to be forwarded to House Finance in order to deal with the legislation in the context of the long-range fiscal plan. REPRESENTATIVE GREEN commented that HJR 23 probably "flies in the face" of one of the big issues. He emphasized that he has many reservations regarding HJR 23. Number 0633 REPRESENTATIVE JAMES moved to report HJR 23 out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE ROKEBERG objected. He explained that he has supported this in the past, but it is not consistent with what is attempted in the long-range fiscal plan. This sends a mixed message to the public. Furthermore, the two percent is over-reaching in terms of establishing an endowment. Representative Rokeberg mentioned that if Chairman Kott wishes to move HJR 23, he would help do so, but would have to sign the report "Amend." Representative Rokeberg withdrew his objection. There being no further objection, HJR 23 was reported from the House Judiciary Standing Committee. The committee stood at-ease from 2:21 p.m. to 2:25 p.m.
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