Legislature(2021 - 2022)GRUENBERG 120
05/26/2021 01:00 PM House JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| HJR7 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 7 | TELECONFERENCED | |
| + | TELECONFERENCED |
HJR 7-CONST. AM: PERM FUND & PFDS
[Contains discussion of HB 69.]
1:03:41 PM
CHAIR CLAMAN announced that the only order of business would be
HOUSE JOINT RESOLUTION NO. 7, Proposing amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund, appropriations from the permanent fund, and the
permanent fund dividend. [Before the committee was CSHJR
7(STA).]
CHAIR CLAMAN stated that the committee would hear invited
testimony on constitutional and statutory issues raised by a
potential overdraw of the earnings reserve account (ERA) as
proposed by the executive branch.
1:05:55 PM
CORI MILLS, Deputy Attorney General, Office of the Attorney
General, Civil Division, Department of Law, stated that her
office had been asked to address whether the legislature can
appropriate more money from the ERA than the 5 percent statutory
percent of market value (POMV) cap. She emphasized that the
office considers this a policy question along the lines of how
to spend the earnings reserve money, whether to go over the cap,
and whether to fund the permanent fund dividend (PFD). She said
the Office of the Attorney General has heard from those who
think the original formula for the PFD should be followed and
others who think the formula for the statutory 5 percent POMV
should be followed. She reiterated these are policy questions,
not legal questions. Therefore, she said the short answer is
that yes, the legislature has the constitutional authority to
spend the income from the permanent fund from the ERA,
regardless of what the POMV cap and dividend formula are in
statute.
MS. MILLS reviewed the statutes to build a framework for the
discussion of the issue. She said Alaska Statute (AS)
37.13.140(b) sets forth that the amount available for
appropriation is 5 percent of the average market value of the
fund for the first five of the preceding six fiscal years. Ms.
Mills related that AS 37.13.145(e) states that the legislature
may not appropriate from the ERA to the general fund (GF) a
total amount that exceeds the amount available for
appropriation. She noted that 37.13.145(f) states that the
combined total transfer of money to the dividend and the 5
percent limit in subsection (e) may not exceed the amount of 5
percent. In other words, "The amount to the dividend, as well
as what you use for the general fund can't exceed 5 percent."
MS. MILLS said since [Senate Bill 26 was signed into law on
6/27/18, during the Thirtieth Alaska State Legislature], it has
been the opinion of the Department of Law (DOL) that it is not
binding on the legislature, because the constitutional power of
appropriation and the prohibition of the dedicated funds
forecloses the statute being binding; therefore, the legislature
gets to make those annual appropriation choices every year.
1:09:18 PM
MS. MILLS advised that it is necessary to seek out the
Constitution of the State of Alaska. She said the Alaska
Supreme Court does not spend a lot of time on statutory language
in terms of these questions; rather, the court first looks to
the constitution to set up the framework, and then determines
whether the statute fits within that framework. She said the
dedicated funds clause is in Article 9, Section 7, of the state
constitution prohibiting dedication of funds unless an exception
applies. She continued as follows:
For a statute to limit the legislature's ability to
spend funds that are otherwise available for
appropriation, you must have a constitutional
exception to the dedicated funds clause. And we know
from the Alaska Supreme Court already that they
determined the income from the permanent fund is
available for appropriation. ... That's based on
Wielechowski v. State. ... We view this as the
seminal case; it's the only case to have interpreted
the permanent fund amendment, and particularly this
second sentence in the amendment that talks about the
permanent fund income.
MS. MILLS cited most of the fourth paragraph of the introduction
portion of the opinion from Wielechowski v. State, which read as
follows [original punctuation provided]:
The narrow question before us is whether the 1976
amendment to the Alaska Constitution exempted the
legislature's use of Permanent Fund income from the
Constitution's anti-dedication clause. The answer
cannot be found by weighing the merits of the dividend
program or by examining the statutory dividend
formula. The answer is found only in the language of
the Alaska Constitution. And, as we explain below, the
answer is no the 1976 amendment did not exempt the
legislature's use of Permanent Fund income from the
Constitution's anti-dedication clause.
MS. MILLS said that is the end of the analysis. She stated:
the permanent fund income is available for appropriation;
appropriations have to be done through an appropriation bill, as
mandated under Article 2; appropriations cannot be done under
substantive law; placing a cap on spending permanent fund
income, as was done under Senate Bill 26, is merely a guideline
- it is not binding; to be binding, a constitutional amendment
is required.
1:12:46 PM
MS. MILLS highlighted another portion of the Alaska Supreme
Court's opinion [found under "3. Wielechowski's arguments" at
"c. Plain meaning"], which read as follows, [original
punctuation provided]:
The phrase "unless otherwise provided by law" does not
plainly allow the legislature to dedicate Permanent
Fund income; the phrase appears to simply provide an
alternative to depositing the income into the general
fund.
MS. MILLS brought attention to language [further down in the
same paragraph under "c. Plain meaning," which read as follows,
original punctuation provided:
The second sentence of the Permanent Fund clause
permits the creation and use of the earnings reserve
for deposit of the fund's income pending
appropriation; it does not give the legislature the
authority to dedicate that income.
MS. MILLS explained that that phrase allows the money to be
deposited somewhere, but ultimately, the legislature still has
its full appropriation authority over the income from the fund.
MS. MILLS talked about legislative history specific to when the
statutes [under Senate Bill 26] were created. She said there
were comments made on the floor that illustrate that the
legislature knew at the time the POMV was passed that it was not
binding, and that the legislature would need a constitutional
amendment. She said one legislator indicated that Senate Bill
26 and its effective date were meaningless and likely to be
ignored; another commented that it would not limit draws or
require future dividends to be paid; another admitted that the
legislature would likely be pushed to spend more than the
statutory cap and gave the example of the 90-day session limit
that has not been binding on the legislature; and another
comment made at the time was that future legislatures could
ignore the limitation, since it is merely statutory. Ms. Mills
said this illustrates that the legislative history supports what
the Alaska Supreme Court has said about the interpretation.
MS. MILLS discussed the specific proposed appropriations where
there is an overdraw beyond the statutory cap, at least as it
has been "put forward so far to the legislature." She said the
two proposals she is aware of are HB 69, to pay the dividend,
and "the governor's bridge gap proposal of $3 billion." She
said in both cases the money is not being appropriated to the
general fund. She reviewed that under AS 37.13.145(e), the
legislature may not appropriate from the ERA to the GF [a total
amount that exceeds the amount available for appropriation].
She added, "So, the 5 percent cap applies to appropriations to
the general fund, which, to us, shows how difficult it is when
you have this broad appropriation power to put any sort of limit
on it outside of the constitution."
MS. MILLS stated that the HB 69 appropriation would go to the
Alaska Housing Capital Corporation account. She added, "There
may be a question there as to whether that's the general fund or
not, but then the second one, the governor's, would go to the
CBR - the constitutional budget reserve, and that is not the
general fund; and so, it technically still ... does not meet the
prohibition in the statute." In conclusion, Ms. Mills stated:
We think the constitution trumps, and in this case the
constitution allows the legislature full authority to
spend the income of the permanent fund in whatever way
you deem appropriate.
1:16:45 PM
REPRESENTATIVE KURKA offered his understanding that when the
budget is signed by the governor, it is state law. He said he
does not hear that point being referenced.
MS. MILLS responded that under Article 2, appropriations must be
made under an appropriation bill, while substantive law is made
in a separate type of bill. She said, "So, when the permanent
fund language says, 'unless otherwise provided by law', 'by law'
is an appropriation."
1:18:02 PM
[Due to technical difficulties, the question asked by
Representative Eastman and the subsequent response by Ms. Mills
was not audible. They repeated the question and answer
following an at-ease.]
1:19:46 PM
The committee took an at-ease from 1:19 p.m. to 1:20 p.m.
1:20:41 PM
CHAIR CLAMAN asked Representative Eastman to repeat his
question.
1:20:58 PM
REPRESENTATIVE EASTMAN asked for a description of all the
sources of funding that can be used for appropriation.
1:21:29 PM
MS. MILLS suggested reading Article 9, Section 7, of the state
constitution, under which the dedication of funds is prohibited,
which means "you can't limit how the legislature decides to
spend money." There are exceptions, such as federal funding.
Article 9, Section 13, states that no money shall be withdrawn
from the treasury except in accordance with appropriations made
by law. She explained that means the legislature gets to
determine how the money is spent in combination with the
governor, "who has the veto authority at the end of the day."
The dedication and appropriations clauses together amount to all
revenues, including permanent fund income, which has been
determined by a court to be a type of revenue, being available
for appropriation. She added, "And in very specific, limited
instances, those can be limited to certain dedicated purposes in
terms of how they're spent; but overall, it's all available for
all spending decisions by the legislature."
MS. MILLS said "available for appropriation" is found in AS
37.14.140 and 145 and is defined in the first of those two. She
reiterated her previous comments about the 5 percent of POMV and
that the view of the Office of the Attorney General is that the
constitution trumps the statutory definition.
1:23:56 PM
CHAIR CLAMAN asked whether the ERA is part of the general fund.
MS. MILLS answered that multiple Alaska Supreme Court cases must
be considered because the constitutional budget reserve fund
(CBRF) has language which distinguishes general fund from all
funds.
CHAIR CLAMAN said that he recognizes that specific funds have
been created, but once outside the purview of dedicated funds,
there could be other funds which are part of the general fund
and are appropriated as such.
MS. MILLS responded that it's all part of the State Treasury,
available for use as deemed appropriate by the legislature.
CHAIR CLAMAN asked whether money drawn from the ERA and
transferred to the CBRF is simply taken from a large fund and
put into a dedicated fund.
MS. MILLS responded that, constitutionally, it doesn't matter
whether the money is being moved from the general fund or the
ERA.
CHAIR CLAMAN noted that in the case of Wielechowski v. State,
Wielechowski needed the ERA to be a dedicated fund in order to
force the payment by statute, but the court's decision that the
ERA is not a dedicated fund made the funds available for
appropriation.
MS. MILLS replied that the court found that there was no
exception to the dedicated funds clause.
CHAIR CLAMAN asked whether the Wielechowski decision says that
because the ERA is not a dedicated fund, legislators cannot, by
statute, require spending at a certain level. He asked why the
same analysis applies to the question of "you are supposed to
spend something, as opposed to you shouldn't spend something."
1:30:07 PM
MS. MILLS responded that while the case could be viewed as a
question of the dedicated funds clause, it was actually about
not allowing spending for any purpose other than the specific
purpose of the fund. The funds would remain in the account "if
the governor didn't want to spend the money in the exact way
that the statute said," she explained. She said that in her
opinion, this is the same situation of restricting money from
uses other than those determined by statute not being permitted
by Alaska Supreme Court precedent.
CHAIR CLAMAN asked whether the legislature has ever violated
that precedent as relates to school bond reimbursements.
MS. MILLS replied that she doesn't believe it has.
CHAIR CLAMAN asked whether it's the view of DOL that the state
should provide school bond debt reimbursement despite statute
saying it shouldn't.
MS. MILLS replied, "I believe that's where we should fall." She
referred to the State v. Ketchikan Gateway Borough case which
dealt with local contributions, and in which it was determined
that the state and local contribution was not a tax or license
under the constitution, "so therefore the dedicated funds clause
didn't apply." She explained that the appropriations clause
still allowed the legislature to take the actions it did, so if
the legislature "wanted to spend more money on school bond debt
reimbursement than the statute said, it could absolutely do
that."
CHAIR CLAMAN said that the school bond debt reimbursement
formula had been amended yearly until 2014, when an adjustment
for the following three years was made. He said that his
understanding is that the amount specified by the BSA formula in
the line item has never been exceeded, and when more funds are
directed to schools it's called something else with a different
budget line item, but the cap in statute is still adhered to.
He asked whether it's the view of DOL that the legislature has
the ability to fund schools in excess of the BSA.
MS. MILLS told Chair Claman that the legislature has "full
appropriation authority" and that the BSA, as well as other
items, are in statute because local governments need to have
some certainty in their budgets. She opined that it was a
"prudent move" by the legislature for the local governments to
have a base of funds, but that it's ultimately the appropriation
bill that governs.
CHAIR CLAMAN remarked that he finds it "troubling" that the laws
governing how the legislature manages spending are "essentially
meaningless."
MS. MILLS responded that when looking at Alaska Supreme Court
decisions and the constitutional convention minutes, it's clear
that the delegates wanted the legislature to have flexibility in
spending necessary to address whatever is happening in the
state. She said that the legislature has appropriated the PFD
according to the formula for decades, but according to the
Alaska Supreme Court, "ultimately the constitution governs."
CHAIR CLAMAN said that similar to the situation with the BSA,
it's not mandatory to follow the PFD formula.
MS. MILLS replied, "You're exactly right because they either
haven't been challenged or the legislature's been following them
just like they did the PFD for decades."
1:36:23 PM
REPRESENTATIVE EASTMAN asked whether it would be helpful to
consider an appropriation bill as a one-time, nonpermanent
statute.
MS. MILLS responded that it would be helpful, but Article 2 is
very specific in that appropriations need to be done within an
appropriation bill.
REPRESENTATIVE EASTMAN asked what the difference is between an
appropriation and a transfer.
MS. MILLS explained that the CBR is a constitutional fund, so it
has very specific limits on moving money in and out. Money may
be transferred from one sub-fund to another within the GF, but
it can't leave the Treasury.
1:39:24 PM
CHAIR CLAMAN asked, "You had said you can't have a statute that
limits an appropriation, did I get that right?"
MS. MILLS responded, "Yes." In response to a follow-up question
regarding where that is found in the constitution, she cited a
portion of Article II, Section 13, of the Alaska State
Constitution, which read:
SECTION 13. Form of Bills. Every bill shall be
confined to one subject unless it is an appropriation
bill or one codifying, revising, or rearranging
existing laws. Bills for appropriations shall be
confined to appropriations.
CHAIR CLAMAN said that the statute doesn't say that
appropriations cannot be limited in a separate law.
MS. MILLS responded, "But then you go to the dedicated funds
clause and the appropriation clause, and you get back to the
same discussion we were having before, which is that saying you
can't touch money is the same as a dedication."
1:40:30 PM
REPRESENTATIVE EASTMAN asked whether moving funds within the
general fund from one account to another would negate the
necessity of an appropriation bill.
MS. MILLS responded that there are so many accounts for a
specific purpose that it's difficult to answer without a set of
relevant facts.
REPRESENTATIVE EASTMAN asked, "If we can do these transfers and
they don't necessarily need an appropriation then whatever could
be transferred isn't going to be subject to appropriation,
right?" He continued:
I mean, we're talking about available for
appropriation, but if it doesn't take an
appropriation, then I guess that also would be
available for transfer or some other way of describing
it because we won't need an appropriation, so it does
need to be available for appropriation.
MS. MILLS responded that if the money is to be removed from the
treasury, then an appropriation is necessary.
1:43:17 PM
REPRESENTATIVE KREISS-TOMKINS asked to circle back to the
reference to the reverse sweep and asked whether, from the
perspective of the DOL, the ERA is "sweepable."
MS. MILLS stated her belief that this issue was addressed in
Hickel v. Cowper, [874 P 2d. 922 (Alaska 1994)], but that it's
known that the permanent fund was specifically noted as not in
the GF "for purposes of the reverse sweep."
REPRESENTATIVE KREISS-TOMKINS asked whether Ms. Mills is saying
that the administration does not believe the ERA is sweepable,
since the budget has not yet been finalized. He asked whether
the administration would sweep the ERA into the CBR.
MS. MILLS answered yes and said she agreed with Representative
Kreiss-Tomkins' statement.
1:45:40 PM
REPRESENTATIVE KURKA asked why [the ERA] is not being swept.
MS. MILLS answered that the CBR has very specific language, and
subsection (d) says that the sweep only applies to those funds
which are available for appropriation in the general fund.
1:47:20 PM
JOE GELDHOF, Attorney at Law, Law Office of Joseph W. Geldhof,
explained that he represents a group of individuals, referred to
as the Concerned Citizens for Constitutional Protection (CCCP),
who have been observing the "fiscal crisis" in the state. He
expressed that CCCP has watched the statutory budget reserve
(SBR) and CBR be "essentially drained," and the state has not
figured out how to address the ongoing use of these savings
accounts to come up with a balanced and sustainable budget. He
noted that the CCCP includes individuals, including: a friend
who has litigated several times against the State of Alaska,
including a case that involved the dedication of funds and
taxation issues; the Mayor of Homer; and a number of others. He
said that the commonality within the group is that members care
about Alaska and about the fiscal future of the state.
MR. GELDHOF noted that he had provided a written decision to the
committee [included in the committee packet] and would be happy
to take questions about the document. He recalled that Ms.
Mills had said that this is largely a matter of policy, and he
said he disagrees with that notion. Although there is policy
involved, the legal issues are the area of most importance to
him. He explained that legal issues arose with the attorney
general's contention that "you can basically just do whatever
you want." He emphasized that he also wants to speak about the
presumption of laws passed by the legislature being enforceable
in constitution. He shared his understanding that the
legislature passed a statute and has been invited by the Office
of the Attorney General to "blow it off" and not follow it. He
deduced that Wielechowski v. State is something which is relied
on heavily. He said that the individuals involved in this case,
Alaska State Senator Bill Wielechowski, former Alaska State
Senator Clem Tillion, and former Alaska State Senator Rick
Halford, attempted to determine whether there was an implicit
designation of funds in the constitution that required payment
of the PFD. He explained that the Alaska Supreme Court
unanimously said such a designation is "an impermissible
dedication of fund." He mentioned the statute implemented by
the legislature that set a 5 percent cap for withdrawal of the
POMV from the combined ERA and permanent fund accounts. He
expressed his understanding that "the overdraw is not a
mandatory spending."
1:52:07 PM
MR. GELDHOF responded that there is a statutory cap on spending,
and it is easily distinguishable from the requirement to spend.
He compared it to the difference between an "accelerator and a
brake" when driving a car. He shared that he has "searched and
searched" and has not found an Alaska Supreme Court case that
interprets a statute that is based on a constitutional provision
that says, "You can do whatever you want and blow through your
statutory caps." He suggested reading the Hickel v. Cowper case
from 1994 and shared that his reading of the case is that the
Alaska Supreme Court specifically stated that the statutory cap
issue was not addressed. He said he understands that the court
reserved issues for "down the trail." The idea that the 5
percent cap can be ignored is incorrect and, as he understands
it, has never been litigated. Mr. Geldhof concluded that CCCP
is concerned that the state is going to "throw money that we
don't have and throw caution to the wind" for short term
political gain. He explained that CCCP will ask the courts to
rule on this issue.
1:53:57 PM
MR. GELDHOF asked, "What is the policy here?" He said that he
has listened to the proceedings in the legislature and the
testimony from the Office of the Attorney General. He shared
his understanding that the legislature is being invited to do
exactly what the Callan consultants [from Callan Associates,
Inc.] for the Alaska Permanent Fund Corporation advised against
because it would destroy the combined assets in the ERA and
permanent fund. He continued that the consultants said that 5
percent would be too high while the attorney general said that
the legislature can do "whatever you want" based on the
Wielechowski case. He noted that this case provides a slender
comfort, but is not binding, because it is about the dedication
of funds. He continued that the statute on the 5 percent POMV
is not a dedicated fund, it's a cap, and there are other caps in
statutory law that are followed.
MR. GELDHOF offered an "easy solution": if the legislature wants
to go on record as disregarding the advice from the Callan
consultants and the permanent fund trustees in favor of spending
money, then the statute should be amended. He suggested that
the legislature go on record and let the citizens of Alaska know
that legislators "really don't care" about the fiscal integrity
of the savings accounts in the permanent fund and ERA. Mr.
Geldhof concluded that CCCP knows the struggles that the
legislature faces, but it wants the legislators to either live
within the means set out in the statute or amend the statue. He
demanded that the advice "to ignore the law" from the attorney
general and the [Dunleavy] Administration not be taken. He
noted that there is a presumption of constitutionality and that
statues enacted by the legislature are presumed to be valid.
1:57:35 PM
REPRESENTATIVE EASTMAN explained that he has read the letter
provided by Mr. Geldhof and understands that he is before the
committee to defend the cap found in AS 37.13.140 and AS
37.13.145. He asked, since there is a cap on appropriations,
whether Mr. Geldhof also believes that that cap should apply to
the current efforts of the legislature to move a greater amount
of money than the cap would permit.
MR. GELDHOF responded that his understanding is that the
proposal is to move $4 billion from the ERA into the corpus of
the permanent fund. He said that moving funds via an
appropriation doesn't raise "any constitutional image" because
the money would be put into the corpus, which would a "safe
harbor" that would preclude legislators and the administration
from spending it. He said that he doesn't think that presents a
statutory or constitutional issue.
REPRESENTATIVE EASTMAN asked for clarification on how Mr. Geldof
arrived at his conclusion. He said that he understands Mr.
Geldof's argument to be that there is an appropriation cap of 5
percent, and if legislators were to appropriate money beyond
that cap, then it would be a statutory violation. He stated
that he thought he heard Mr. Geldof say contrarily that if
legislators appropriate $4 billion in the current budget and
send it to the corpus, then that would not be part of the cap
and could be ignored. He asked Mr. Geldof to explain whether
that is a legal argument, a political argument, or something
else.
MR. GELDOF responded that the fundamental purpose of the statute
and of Senate Bill 26 was to protect the combined assets of the
ERA and the permanent fund. He said that taking funds from the
ERA and putting these funds where they cannot be spent doesn't
create any problem, neither does an obligation to appropriate
money to inflation-proof it. He expressed that Senate Bill 26
aims to overdraw the ERA in a way that would diminish future
opportunities and prospects. He highlighted the real issue in
his mind as being whether the chief executive will exercise his
or her constitutional veto or appropriation reduction powers.
2:02:21 PM
CHAIR CLAMAN noted that if money is being transferred from the
ERA into the corpus, then no changes to the overall fund are
being enacted. He explained that the withdrawal wouldn't change
the fund value, which might be the reason why it gets analyzed
differently.
MR. GELDOF responded with his interpretation that analytically,
Chair Claman is calling for an accounting methodology that
doesn't diminish the overall value of the combined ERA and
permanent fund. He said that that makes sense analytically, but
from a practical point of view, if the money is not appropriated
properly and gets utilized for projects of varying worthiness,
it would not deviate from the 5 percent cap and would be
presumptively valid.
2:04:13 PM
REPRESENTATIVE EASTMAN asked for clarification that the statutes
being referenced are AS 37.13.145(f), which is where the
combined total of the transfer is found, and AS 37.13.145(e),
where the information on the cap is found. In AS 37.13.145(a),
it is found that the ERA is being specifically referenced, and
AS 37.13.145(f) is referring to the cap on the appropriations.
He noted that the way that the statute is written, the ERA is
specifically called out and places a cap on that particular
account, which he stated is one of multiple accounts in the
permanent fund. He suggested that it might be helpful to
clarify legislative history because there was intent to protect
the account, but also to ensure that funds going to the dividend
were not limited. He mused that if the legislature simply
permitted more money to be taken out of the ERA and sent to the
corpus, it could be taking away from funds that could be paid as
a dividend.
MR. GELDHOF responded that he thinks the correct way of reading
the statutes referenced by Representative Eastman is that the 5
percent application represents the combined market value of the
corpus, which can't be touched. The proceeds from the ERA is
added to combined value, and then the 5 percent is applied. The
5 percent of the value cannot be taken out of the permanent
fund, he continued, because it can only come out of the ERA. He
stated that the question becomes, "are we going to go over that
5 percent?"
REPRESENTATIVE EASTMAN restated that his question regards AS
37.13.145(f), which refers to the earnings specifically. He
explained that the POMV is being used to determine the size of
the corpus, and that is being used to decide how much the state
can suitably appropriate from this amount. He asked for a
response from Mr. Geldhof on whether the state would need to
protect the dividend portion of a statute just as much as the
portion of the statute that refers to the protection of the
permanent fund's value.
2:08:59 PM
MR. GELDHOF explained that he agrees with Ms. Mills in that it
is not acceptable to introduce a statute that says, "You must
pay." He shared his understanding that the Office of the
Attorney General is saying that, contrarily, it is not
acceptable to use a statute to say, "You can't exceed." He
expressed that this is wrong, and the two uses of statutes are
two separate issues. He noted that he is on the board of the
Permanent Fund Defenders and is a big proponent, as well as the
other board members, of paying a permanent fund dividend and
putting the permanent fund dividend formula in the state
constitution. He said that the issue of whether the state is
able to use a statute to dedicate funds has already been settled
by the Alaska Supreme Court, and it was decided that statutes
cannot be used in this way. The issue that has not yet been
ruled upon, he continued, is whether the statute that has been
enacted has any vitality in meaning. He shared his opinion that
he thinks it does, and the members of CCCP also agree that it
has meaning. He concluded that the easy way out of potential
litigation on this issue is to change the statute. He suggested
that the legislators pass a statute that says the legislature is
going to "suspend the 5 percent" and go on record to say that
there will be a deviation from the 5 percent cap. He shared his
understanding that all the public wants is for this business to
be done publicly and transparently.
2:11:12 PM
CHAIR CLAMAN inferred that the attorney general's analysis
suggested that the appropriation authority under the
constitution is "higher" than the legislature's authority to
pass statutes. He asked if Mr. Geldhof shares that
interpretation.
MR. GELDHOF responded that Alaska is a jurisdiction that has a
constitution to limit, as well as assign, the powers of all
three branches [of government]. He opined that the legislative
branch is the highest and most significant branch. He expounded
that the executive branch executes "faithfully and consistently
with the laws," while the judicial branch interprets the laws
and resolves disputes. Regarding the legislature's powers of
appropriation, he said, they are "extraordinary" but not without
restrictions. Further, he offered his belief that the attorney
general's "vague" analysis is "an invitation for mischief." He
pointed out that the public thinks that statutes passed by the
legislature have meaning. He went on to convey that the
statutory provision that limits the expenditure of the combined
market value was enacted in law and follows from the
constitutional principal in Article 9, Section 15, which
specifies that the income from the permanent fund shall be
deposited into the GF unless otherwise provided by law; however,
the legislature set up the ERA. He offered his understanding
that the "[otherwise] provided by law statute" stems from the
legislature's general power and constitutional power in Article
9, Section 15. He asserted that the legislature set up a
restriction on over-appropriating the money, emphasizing that
"[the legislature] provided by law, in a statute, which is
binding, a cap, and unless and until you change that cap, you
should follow it."
2:14:50 PM
REPRESENTATIVE EASTMAN questioned whether the income from the
permanent fund falls under the category of proceeds from a state
tax or license.
MR. GELDHOF opined that it does not [fall under the category of
proceeds from a state tax or license]. Further, he stated his
interest in asking that question to Angela Rodell, the Chief
Executive Officer of the Alaska Permanent Fund Corporation
(APFC), as well as to APFC's counsel.
2:16:33 PM
MS. MILLS reiterated that despite Mr. Geldhof's statements,
Wielechowski v. State advised what the legislature could do with
permanent fund income. She cited another line from the
introductory paragraph, which stated that "the legislature's use
of permanent fund income is subject to normal appropriation and
veto budgetary processes." Therefore, she surmised that
permanent fund income is similar to the GF, in that it can't be
dedicated. In response to the previous question from
Representative Eastman, she said, the Alaska Supreme Court
indicated that permanent fund income is revenue, and under the
Alaska Supreme Court's precedent, revenue is a state tax or
license; thus, she maintained that the permanent fund income is
subject to the dedicated funds clause and is a state tax or
license for purposes of the constitution. Based on that
premise, she argued that permanent fund income should be
considered as any other spending. She questioned if any member
of the legislature believes that a statutory spending limit
could be enacted that caps spending overall. She added, "[The
attorney general] doesn't think you can do that." To conclude,
she said [the attorney general] does not view this particular
issue as an open question because the court has made it clear in
all its precedents. Furthermore, she offered her belief that
the legislature has the authority to make the policy decision,
which should not be based on the threat of litigation.
2:20:00 PM
CHAIR CLAMAN considered a scenario in which DOL viewed the 5
percent as enforceable. Based on that scenario, he asked if the
legislature would be breaking the law if they put the $4 billion
into the corpus from the ERA.
MS. MILLS said subsection (e) of the statute referenced by
Representative Eastman states that the legislature may not
appropriate, from the ERA to the GF, a total amount that exceeds
the 5 percent. She noted that subsection (f) is the combined
total of money from the ERA to the dividend fund. Based on
that, she said, appropriating money from the ERA to the
permanent fund would not fall under the statute.
REPRESENTATIVE CLAMAN asked [if transferring $4 billion into the
corpus from the ERA] would be allowed.
MS. MILLS answered that is correct.
2:21:15 PM
REPRESENTATIVE EASTMAN asked what DOL's position was before the
Alaska Supreme Court decided to define state tax or license
equivalent to revenue.
MS. MILLS answered that she was unsure [of DOL's opinion at that
time.]
2:22:24 PM
CHAIR CLAMAN questioned why putting a cap on GF expenditures
would create a dedicated fund.
MS. MILLS replied there are two things to consider. The first
consideration is the dedicated funds clause, which sets forth
that revenues of the state cannot be dedicated. She added, "If
you are saying these can't be used in a certain way, that's the
other side of the coin from saying you can only spend it in this
way." The second consideration, she said, pertains to the way
legislation is passed. She stated her understanding that
appropriations do not necessarily hold a higher authority, but
they do have a specific process, and to restrict [the
legislature's] authority through a substantive law bill on
appropriations would violate the concept that appropriations
occur in appropriations bills.
CHAIR CLAMAN remarked that "that doesn't really hold a lot of
water" because it only takes 21 votes to change the law. He
explained that if a cap is put into law that the legislature
does not like, then the legislature could change the cap with 21
votes in the House, 11 votes in the Senate, and the governor's
signature. He asked how that would create a dedicated fund.
MS. MILLS emphasized that every year appropriations must be
passed in an appropriation bill. She expounded that every year,
the legislature must consider all the revenues and all available
money. She suggested that the court recognized that passing a
statute is different, which was an argument that Senator
Wielechowski made; however, it was dismissed by the court.
CHAIR CLAMAN interjected by pointing out that Wielechowski v.
State is "a different animal" because it pertains to a statute
that says, "You shall spend this much money"; further, the court
decided that it's not a dedicated fund. He pointed out that
there's nothing in the Wielechowski case that says the
legislature does not have the authority to put limits on its
spending authority. He asked Ms. Mills why that can't be done.
MS. MILLS replied that she and Chair Claman may disagree on this
legal point. She reiterated that [the attorney general]
believes that spending decisions are done through
appropriations. She maintained that to limit that authority
through a substantive statute is limiting [the legislature's]
appropriation power. She emphasized that appropriations are
done through a specific process.
CHAIR CLAMAN asked whether the legislature's appropriation power
is included in Article 2, Section 1, which states that the
legislative power of the state is vested in the legislature.
Further, he sought confirmation that it is inherently in the
legislature's power to limit itself.
MS. MILLS answered, "But Chair Claman, you can. Every year you
get to make those decisions and decide to hold back, or not, on
the way you spend. It's an annual spending decision."
CHAIR CLAMAN posited that Ms. Mills is indicating that the
appropriation authority is a "higher" authority than [the
legislature's] statutory authority. He reasoned that the
legislature "is not saying how you spend it, we're just saying
this is all you have available to spend." He added that the cap
in the POMV law specifies how much money can be spent. He asked
why the legislature does not have the authority to limit how
much money it has available to spend.
MS. MILLS replied, "Because that's not how the constitution was
set up by our framers."
2:26:49 PM
CHAIR CLAMAN pointed out that nowhere in the constitution does
it read that the [legislature's] appropriation authority trumps
everything else that the legislature does, "which is essentially
the argument you're making," he said.
MS. MILLS remarked:
I'm saying that appropriations have to go through a
specific process and there's an annual process that
was set forth in the constitution and you can't use
the substantive law process to do appropriations;
whether you view that as a higher power because you
have to do it on an annual basis, to me, that's a
subjective descriptor ...; but they are two separate
processes and our constitutional convention delegates,
again, were very clear that they wanted the
legislature to have full flexibility every year to
look at the revenues, look at what was in the fund,
and determine how to spend it. Having a substantive
law that you would have to change by statute - again,
I know you say that Wielechowski was different, but
the argument was very similar.
CHAIR CLAMAN stated that the Wielechowski case was about
"whether or not this was a dedicated fund," and the court
decided it's not; therefore, those funds have to compete for
everything else. He asked if Ms. Mills agrees that the POMV
does not create a dedicated fund.
MS. MILLS replied, "It depends on if you're interpreting it as
binding or not. If it's binding, I think there's a really
strong argument that [it] is a prohibited dedication."
CHAIR CLAMAN asked if the legislature passed a law that limits
spending to no more than 5 percent, why it would create a
dedicated fund. He said he does not follow that logic and asked
Ms. Mills to explain. Additionally, he questioned what it's
being dedicated to.
MS. MILLS answered:
It's being dedicated to not being spent. It' still a
dedication, it's just a negative dedication and you're
taking it out of the pool that the legislature can
appropriate. ... Appropriation laws are laws, and if
you have a substantive law that says you can't spend
more than this, why couldn't an appropriation bill
change that?
CHAIR CLAMAN pointed out that the money stays in the Treasury.
He added, "I guess I have difficulty with the analysis that it's
somehow a negative dedicated fund."
2:29:49 PM
CHAIR CLAMAN referencing the Employment Security Act and several
other statutes, which limit how much the legislature is
obligated to pay, asked if DOL's position is that those statutes
could be written off because they have no binding effect on the
state.
MS. MILLS explained that in part, the purpose of a statute is to
advise the executive branch how to implement the law. Regarding
Chair Claman's question, she said, those statutes are telling
the executive branch how the appropriation can be distributed.
She added, "If you wanted to give more or create a new program,
that's where we get into fuzzy lines about what's the
appropriation and what's the program."
CHAIR CLAMAN regarding employment security benefits, questioned
whether the legislature has the authority to increase the weekly
benefit in the budget without changing the statute.
MS. MILLS said she would need to look at the specific statute in
question and how the appropriation was written. Nonetheless,
she said the legislature can "absolutely" provide grants to
individual Alaskans through an appropriation bill.
CHAIR CLAMAN noted that his previous question was not about
grants. He asked again if the legislature could increase the
weekly benefit in an appropriation bill.
MS. MILLS opined that depending on how it's written, it could be
done.
2:33:49 PM
REPRESENTATIVE EASTMAN asked if the statute route or the
appropriation route was more difficult, regarding the veto
process. He clarified his question by asking if the governor
could line item veto a piece of legislation that was not an
appropriation bill.
MS. MILLS responded that the governor cannot line item veto a
substantive law bill. This came up previously in a case
regarding bonds, she recalled. The courts had decided that
since it was not an appropriation bill, the governor could not
line item veto the legislation. Therefore, only an
appropriation bill can be line item vetoed, she concluded.
REPRESENTATIVE EASTMAN asked which had a higher threshold, to
override a veto through an appropriation bill, or substantive
law bill.
MS. MILLS responded it would be the appropriation bill, which
requires a three-quarters override.
REPRESENTATIVE EASTMAN referred to the Uniform Rules and how
appropriation bills are dealt with differently than substantive
law bills. He then asked which had more strict controls in
conference committees.
MS. MILLS offered her understanding there is more flexibility in
appropriation bills when it comes to conference committees than
substantive law bills.
REPRESENTATIVE EASTMAN suggested that Uniform Rule 42 may be the
one he was referencing. He said Ms. Mills' answer was not his
recollection.
2:36:35 PM
REPRESENTATIVE SNYDER clarified that unless it is an
appropriation bill, the legislature cannot limit spending and
cannot direct spending. She inquired if there was anything that
disallowed the legislature from putting a limit or directive in
an appropriation bill that would apply indefinitely or over
multiple years.
MS. MILLS responded that is a current issue in the Alaska
Supreme Court. The court is looking at whether the legislature
could forward fund appropriations for education. She said DOL's
position is that Alaska has an annual spending model in that
every year the legislature considers the spending for one year
at a time and cannot bind the next legislature on spending. The
case is undecided, and the answer depends on what the court
says, she explained.
2:37:53 PM
CHAIR CLAMAN, regarding the question on whether the legislature
could forward fund, opined that DOL was taking a distinctly
different position under the current administration than it took
during the last administration.
MS. MILLS responded that having looked at the history and having
been a part of it, "we just never looked at the question."
CHAIR CLAMAN asked if the notation that one legislature can't
bind the next is from Carr-Gottstein Properties v. State, [899
P.2d 136 (Alaska 1995)], and he asked whether that [restriction]
would have any effect regarding the POMV law.
MS. MILLS answered she thinks it does, and that it plays into
the annual appropriation model that every year the legislature
makes spending decisions. The terminology on not binding
another legislature generally has to do with how the legislature
spends money, she explained, not substantive law, because things
that are codified can be overturned.
CHAIR CLAMAN explained the reason he was curious for Ms. Mills'
opinion was because he understood the Carr-Gottstein case as
relating to the incurring debt provisions, not relating to
dedicated funds or appropriations. As per that case, he
understood that the legislature can enter all the leases the
legislature wants, but the legislature cannot bind the next
legislature to renew a lease. He asks if he missed something
that comes into play here.
MS. MILLS argued that Carr-Gottstein had to with debt, and
whether one legislature could bind another to pay dept, making
it a spending issue of whether one legislature could force
another to put a debt into the appropriation bill. Only general
obligation (GO) bonds can require funding from another
legislature.
CHAIR CLAMAN concluded that GO bonds need to come before the
public for a vote, which would resolve the issue. The only
issue he saw was state leases, in which the landlord takes the
risk that the legislature will not want to fund the lease.
MS. MILLS agreed with Chair Claman's understanding.
2:41:33 PM
REPRESENTATIVE VANCE asked how Ms. Mills reconciled the
legislature's power of appropriation in the constitution with
the constitutional spending cap.
MS. MILLS replied that is exactly how a spending cap has to be
done, through a constitutional amendment. She continued that
she didn't think a statutory spending limit would be binding.
2:42:46 PM
MR. GELDHOF stated that there has been a lot of talk about the
general power of appropriation by the legislature according to
the power of the constitution. He proposed focusing on the
appropriation being discussed, which comes from the ERA, and the
source of the ERA, the Alaska permanent fund. He argued this
issue cannot be looked at abstractly, as if the legislature
could do as it wished according to appropriation powers.
Generally speaking, he stated, the legislature has a great deal
of discretion in terms of appropriating. What the legislature
can't do, and is not implicated in this case, he declared, is
dedicate funds and bind future legislatures. That is not what
is being discussed, Mr. Geldhof argued. What is being
discussed, he stated, was whether the Alaska State Legislature,
in the context of dealing with Article 9, Section 15, of the
constitution, relating to the permanent fund, were to set up
restrictions on the amount of money in a statute.
MR. GELDHOF opined that the statutes are not aspirational, and
the legislature is obligated to follow them. The legislature's
power as lawmakers to put a restrictor device on an account uses
the Article 9, Section 15, provision that states, "otherwise
provided by law". This money, he explained, goes into the ERA,
because the legislature used its authority to pass a statute
that says it will spend 5 percent of the combined permanent fund
and ERA. Mr. Geldhof said unless and until the legislature uses
its law powers to change the restriction, the legislature must
follow it as a matter of law.
MR. GELDHOF posed the question: "Are we a state that follows
the rule of law?" The implication here, he suggested, from the
Office of the Attorney General is to engage in ad hoc fiscal
decision-making. He opined that would cause ruination of one of
the best ideas that has ever come forward - the permanent fund.
He rhetorically asked if he was being harsh, before continuing
to state that for six years the state has had an imbalanced,
unsustainable budget. The call from the Office of the Attorney
General has been to open the floodgate and overdraw the ERA,
which is a part of the permanent fund.
2:45:32 PM
MR. GELDHOF challenged committee members, asking if they wanted
to be part of the group of people who that kicks the can down
the road, and overdraws and overspends. He drilled further
asking if they wanted to ignore their own statutes. He implored
the committee, if the legislature would continue to behave this
way, to have the courage to pass a law that says the legislation
is no longer binding.
MR. GELDHOF stated that he believed Wielechowski was not on
point in controlling this case, because it was dealing with a
mandatory spending and a dedication of funds. This is a cap
adopted in order to protect the permanent fund and the ERA. He
suggested going back to Hickel v. Cowper. The obvious question
that was unanswered, he declared, was whether a statutory
prohibition, the spending cap of 5 percent of POMV, precludes an
overdraw. The court in Hickel v. Cowper talked about the
statute but said there is no statutory or constitutional
provision that precludes [an overdraw]. He argued that the
court left open the idea that the legislature could adopt a
restriction.
MR. GELDHOF concluded his argument by asking the committee what
was wrong with following the law and whether the legislature was
so undisciplined that it needed to spend money that the state
couldn't afford. He requested if the legislature wanted to tap
into funds in an unsustainable way, that it at least have the
wherewithal to change the statute that limits the draw to 5
percent.
2:48:34 PM
REPRESENTATIVE EASTMAN sought further understanding of what was
behind the inability to bind future legislatures. He
acknowledged that there may be some value in not allowing one
legislature to bind those that come after, but he argued that
other legislatures don't seem to believe they need to follow
statutes. He asked how far a legislature can go in binding a
future legislature, and where the stopping point is.
MR. GELDHOF replied that he was again inclined to talk about
policy. He surmised that if the legislature asked the court
whether [statutes] meant anything and the Office of the Attorney
General were to respond that they do not, then legislators would
have to consider what that would mean to their constituents. He
concluded by restating his argument that a law should be
changed, not ignored.
2:52:35 PM
MS. MILLS responded to Representative Eastman's question about
binding future legislatures. She stated that the constitutional
convention delegates were concerned about legislatures being
able to look at what was available in resources in any given
year and make decisions. Specifically, they were concerned, she
explained, that giving a legislature the ability to bind a
future legislature without knowing what circumstances they could
face was dangerous. They wanted to give flexibility, and part
of that was making sure each legislature could make decisions on
spending with the knowledge and resources based on current
knowledge.
2:54:59 PM
CHAIR CLAMAN announced that HJR 7 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 7 Additional Document - Geldhof Legal Opinion on 5% POMV Spending Cap (Distributed by HJUD Committee) 5.14.2021.pdf |
HJUD 5/26/2021 1:00:00 PM |
HJR 7 |
| HJR 7 Additional Document - Dunleavy Administration Response to Geldhof Legal Opinion (Distributed by HJUD Committee) 5.17.2021.pdf |
HJUD 5/26/2021 1:00:00 PM |
HJR 7 |