Legislature(2021 - 2022)ANCH LIO DENALI Rm
10/15/2021 12:00 PM House JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| HB4006|| HJR401 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB4006 | TELECONFERENCED | |
| *+ | HJR401 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB4006-APPROPRIATION LIMIT; GOV BUDGET
HJR401-CONST. AM: APPROP LIMIT
12:02:31 PM
CHAIR CLAMAN announced that the only order of business would be
HOUSE BILL NO. 4006, "An Act relating to an appropriation limit;
relating to the budget responsibilities of the governor; and
providing for an effective date," along with HOUSE JOINT
RESOLUTION NO. 401,"Proposing amendments to the Constitution of
the State of Alaska relating to an appropriation limit; and
relating to the budget reserve fund."
12:03:02 PM
REPRESENTATIVE JAMES KAUFMAN, Alaska State Legislature, as prime
sponsor, presented HB 4006/HJR 401. He referenced the sponsor
statement, entitled "HB 4006 & HJR 401 Sponsor Statement v. A
10.15.2021.pdf," [included in the committee packet and
summarized the intent of the proposed bill and resolution were
to establish a fiscal policy to establish an appropriation limit
and address risks associated with overspending, overspending on
capital projects and subsequent inability to maintain the
infrastructure of such projects, and to address the management
of the permanent fund. He stated that controlled spending to
eliminate the "boom or bust" mentality and create beneficial
links with the private sector.
12:06:26 PM
MATTHEW HARVEY, Staff, Representative James Kaufman, Alaska
State Legislature, presented a PowerPoint on HJR 401/HB 4006 on
behalf of Representative Kaufman, prime sponsor. He presented
page 2, titled "Appropriation Limits Overview," which read as
follows [original punctuation provided]:
Structure of an appropriation limit
Exemptions List: Appropriations subject to the
limit
The Appropriation Limit: Define the calculation
factor, starting point, growth rate, and other
limit mechanisms
Other: Capital projects or other specific
language
Current Appropriation Limit
Constitutional: Article IX, ?16 (effective in
1982)
Statutory: AS 37.05.540(b)
Types of Appropriation Limits
Proposed Appropriation Limit (HJR 401 / HB 4006)
MR. HARVEY presented slide 3, "Current Constitutional Limit,"
which read as follows [original punctuation provided]:
Constitutional: Article IX, ?16 (effective in 1982)
"Appropriations from the treasury made for a fiscal
year shall not exceed $2,500,000,000 by more than the
cumulative change, derived from federal indices as
prescribed by law, in population and inflation since
July 1, 1981. " $2.5 B plus inflation and population
growth since 1982 Calculation for FY 21 would be about
$9.8 billion At least 1/3 of limit reserved for
Capital Projects and Loans Can also break the limit
for appropriations to Permanent fund, capital projects
if signed by governor or approved by the voters, and a
state of disaster
12:09:50 PM
MR. HARVEY presented slide 4, "Current Constitutional Limit:
Exemptions," which read as follows [original punctuation
provided]:
Creates exemptions for fund sources as well as
purposes Current limit applies to all UGF, most
statewide items, and some DGF items Excludes PFDs,
bond proceeds, debt service payments, non-State
sources of revenue, public corporation revenues, and
disaster declarations School Bond Debt Reimbursement
is excluded from the limit
MR. HARVEY presented slide 5, entitled "Current Statutory
Limit," which read as follows [original punctuation provided]:
Enacted in 1986 Based on appropriations made in a
fiscal year, not for a fiscal year Counts
supplementals in the year appropriated, not effective
Limits spending growth to population plus inflation
plus 5% The use of both factors to calculate the limit
has caused the limit to outgrow effectiveness The
timing of data for calculation of this limit does not
work well with the budget process. The limit is not
known before the annual budget process
MR. HARVEY presented slide 6, "UGF Spending History," which
displayed a graph showing spending history. He then presented a
second graph on slide 7 showing inflation and population
adjusted UGF spending. The slide also noted as follows: "When
the spending limit was put in place, it was anchored to the
highest rate of spending in Alaska history."
12:15:26 PM
MR. HARVEY, continuing his presentation of slide 11, entitled
"Proposed Appropriation Limit," and explained that it depicted a
comparison of several proposed fiscal policies. He drew
attention to slide 13, which read as follows [original
punctuation provided]:
Effective and Reasonable
This proposal would set the cap roughly at current
levels and would include a constitutional provision
for some flexibility in the case of unforeseen risks
Stable and Predictable
The 5-year trailing average creates stability, smooths
out overspending when revenues are up, allows
government spending to fall much slower than GDP
during poor years, and the limit is known before the
budget process begins
Private-Sector Focused
Open the discussion to outcomes during the budget
process
CHAIR CLAMAN referred to slide 11 and asked for an explanation
of the color coding that had been used on the chart.
12:16:53 PM
ALEXEI PAINTER, Director, Legislative Finance Division,
Legislative Affairs Agency, explained that there existed two
instances on the chart where the word "yes" had been shaded red
and explained that it was a typographical error.
12:17:25 PM
REPRESENTATIVE EASTMAN opined that focusing the discussion on
tangibles, such as impacts to the economy, is a critical part of
the conversation.
12:18:04 PM
REPRESENTATIVE DRUMMOND shared her concern that the proposal
doesn't examine the development of Alaska's human capital. She
stated that there exist 1230,000 children in kindergarten
through twelfth grades, adults who may require additional
education, and pre-kindergarten students who also require
education. She stated that education and training would be
necessary to cultivate a contributing workforce. She asked how
such education and training would be funded.
REPRESENTATIVE KAUFMAN referred to slide 4 and noted that school
bond debt reimbursement would be excluded under the proposed
plan and that, over time, the spending limits would not result
in draconian cuts but would stabilize the fiscal cycles and
create potential to take advantage of opportunities as they may
arise.
12:22:15 PM
REPRESENTATIVE SNYDER referred to slide 8 entitled, "Proposed
Appropriation Limit." and asked for additional information on
the 11.5 percent value cap.
REPRESENTATIVE KAUFMAN answered that the means of determining
spending can vary, including using inflation, or tax revenue,
economic factors, income and productivity [indices] and the
proposed cap was based on Gross Domestic Product (GDP) data over
five years. He stated that advances in data collection and
reporting allowed for better quality GDP data. He stated that
GDP took into consideration many economic factors including
government and private sector data.
REPRESENTATIVE SNYDER asked what outcomes had been observed in
other places that have adopted part or all of the proposed
policies and whether there had been lessons learned that could
be shared with the committee.
REPRESENTATIVE KAUFMAN referred to the State of Colorado had
imposed spending caps that had resulted in collecting less
taxes.
12:27:00 PM
MR. PAINTER suggested that interpretation of results in other
states was one of policy. He stated that the State of Colorado
and the State of California had both imposed some spending caps
that had limited expenditures.
REPRESENTATIVE SNYDER asked whether spending caps in the states
referenced had been based on GDP.
MR. PAINTER answered that the State of Colorado had based its
limits on two factors, that of inflation plus population growth,
and personal income. He stated that several states used
inflation and personal income but that no states to his
knowledge had based caps on GDP. He stated that Alaska's
natural resources influence its GDP proportionally different
than in tother states and that Alaska's economic structure was
different than those in other states. He stated that the most
common factor used in other states is that of personal income
growth.
REPRESENTATIVE SNYDER stated that some investment such as land
clearing and ports was necessary to encourage economic
development and infrastructure and asked whether impacts to
those had been taken into consideration.
REPRESENTATIVE KAUFMAN asked Representative Snyder to clarify
whether she was asking whether the allowable spending would
cover future infrastructure costs, which she confirmed as
correct.
REPRESENTATIVE KAUFMAN stated his belief that it had. He stated
that that the proposed policy had a focus on the private sector
and that sector is closely tied to government infrastructure.
He suggested that the elimination "boom or bust" could impart
stability and contribute to wiser spending decisions.
REPRESENTATIVE SNYDER asked whether HJR 401 would change the
vote requirement to draw from the Constitutional Budget Reserve
(CBR).
MR. HARVEY referred to section 2, and explained that, should the
amount in available in the general fund is less than the
established limit, then there would exist a mechanism to fund
the general fund from the CBR.
PRESENTATIVE SNYDER asked the rationale for the inclusion of
that provision.
MR. HARVEY answered that the fiscal plan working group had
recommended its inclusion and that the Senate Judiciary
Committee had removed that provision to address the question of
constitutional amendment versus revision associated with the
CBR.
12:35:34 PM
REPRESENTATIVE KURKA asked the current amount spent per person
in Alaska excluding federal funds and the pfd.
MR. PAINTER answered that, with federal funds and the pfd
excluded, the total appropriations amounted to approximately
$4.6 billion, or $6,300 per person subject to the proposed
appropriation limit.
REPRESENTATIVE KURKA asked to confirm that the amount stated
consisted of only state funds.
MR. PAINTER explained that amount consisted of the
appropriations subject to the limit in question and offered to
analyze all appropriations and follow up with the committee.
REPRESENTATIVE KURKA said he had estimated state spending per
person to be $8,750. He asked how much of a percentage increase
HJR 401 would allow in state spending.
REPRESENTATIVE KAUFMAN said that the present limit would allow
for double of that which is currently spent.
MR. HARVEY added that HJR 401 would provide a constitutional
limit on the statutory spending limit.
REPRESENTATIVE KURKA asked Representative Kaufman whether he
would consider state spending at the current level to be
excessive.
REPRESENTATIVE KAUFMAN stated that his opinion was that spending
was not managed effectively and that direct cuts to spending
could result in "blowback." He stated that continuous
improvement could be contrasted with the negative effects of
radical institutional change, and it would require hard work.
He pointed out that Alaska lacks municipalities and has an
expansive terrain that justify some of the state spending. He
offered that a management path that could deliver value at equal
or lower costs.
12:44:51 PM
REPRESENTATIVE KURKA asked Representative Kaufman to explain his
rational for basing spending on GDP rather than other metrics.
REPRESENTATIVE KAUFMAN answered that there exist challenges with
each approach and that population is not a direct indicator of
prosperity. He offered that Alaska's inflation is unique to
national inflation as evidenced by Cost of Living (COLA)
allowances have widely varied. He rhetorically asked whether
government spending should naturally align with inflation, to
which he postulated that it should not, necessarily as evidenced
by economies of scale. He proposed that the factors calculated
to determine GDP take into consideration gainful employment,
localized inflation, and the unique attributes of Alaska. He
compared GDP to a moving bandwidth that would respond to an
economy.
12:49:38 PM
REPRESENTATIVE VANCE asked Representative Kaufman to expand on
the relationship between the proposed statutory bill and the
proposed constitutional amendment and the need for both.
REPRESENTATIVE KAUFMAN explained that the constitutional cap
would exist as a high limit, and the statutory bill would manage
[budgetary] high- highs and low- lows.
REPRESENTATIVE VANCE asked Representative Kaufman to clarify
whether, as the economy's production increases, state spending
could also increase without exceeding the cap.
REPRESENTATIVE KAUFMAN answered that it could but only as a
result of economic growth.
REPRESENTATIVE VANCE asked the dangers Representative Kaufman
had warned of becoming "financialized" and his rationale for
moving away from that mentality.
REPRESENTATIVE KAUFMAN answered by comparing that an individual
may enter into retirement and thus become financialized, without
worry of other economic factors such as the labor market. He
offered that other individuals would still be reliant on the
labor market for economic and spiritual value. He cautioned
that the focus on reserves was one with merit, but it was not a
sole indicator of financial success. He mentioned the state's
transition from natural resources to the earnings from the
permanent fund as an example of the changes that may occur in
future scenarios.
12:57:35 PM
REPRESENTATIVE EASTMAN asked Representative Kaufman to what he
attributes the "dwindling" private sector.
REPRESENTATIVE KAUFMAN answered that the economy had changed and
diversified but that his belief was that there exist tremendous
responsible resource development opportunities to contribute to
prosperity, rather than relying solely on a financial fund.
1:01:01 PM
REPRESENTATIVE SNYDER stated that the exclusion of the
appropriations from the proposed bill did not further a solution
to the problems that exist with regarding the dividend.
REPRESENTATIVE KAUFMAN offered that it may be impossible to
solve all problems that may exist [in fiscal policy] in any
single proposed legislation, and that the proposed legislation
would address other fiscal matters.
REPRESENTATIVE SNYDER asked whether Representative Kaufman held
the belief that [an omnibus] set of legislation could be paired
with the other proposed legislation at a future date.
REPRESENTATIVE KAUFMAN agreed that it was possible and expressed
his hope that the legislation before the committee could aid in
stabilizing other, underlying fiscal issues.
1:04:33 PM
REPRESENTATIVE CLAMAN referred to the Wielechowski v. Alaska
decision as being the law of the land that prescribes that the
permanent fund dividend must compete with all other programs and
that exclusion of the dividend in the overall proposed policy
may run contrary to that decision.
REPRESENTATIVE KAUFMAN referred to slide 11 and explained that
the assumption had been made that there existed a future
potential solution to the problems with the dividend and offered
that the proposed legislation before the committee would not
interfere with any such future proposed legislation regarding
the dividend.
1:06:50 PM
REPRESENTATIVE SNYDER asked whether there could exist unintended
tensions considering constitutional obligations to fund
education and other programs.
REPRESENTATIVE KAUFMAN answered by drawing attention to slide 13
that depicted an analysis of what would have occurred had the
proposed policy been in place. He stated that peaks in spending
had historically usually occurred due to capital spending. He
suggested that he did not believe that the proposed fiscal
policy would interfere with constitutionally mandated spending.
1:09:52 PM
REPRESENTATIVE KURKA asked whether there is any difference
between the graphs on slide 9 on slide 13.
REPRESENTATIVE KAUFMAN explained there did not exist any
difference in the graphs.
REPRESENTATIVE KURKA asked whether the graphs represented
current spending that would fall within the proposed cap
considering that there were exclusions [from the data.]
REPRESENTATIVE KAUFMAN answered that the chart reflected that
which is included and that which is excluded.
1:12:54 PM
CHAIR CLAMAN noted that there exists a U.S. military publication
that rates education in all 50 states and noted that Alaska is
no longer listed among the best. He asked whether there exists
sufficient investment in education under the proposed
legislation to address factors that had contributed to Alaska's
downgrade.
REPRESENTATIVE KAUFMAN offered that teachers have difficulties
in teaching due to non-education factors such as mental health.
He suggested that underlying societal problems need to be
addressed separate from education spending. He suggested that
[economic] opportunity would alleviate some of the social
factors negatively affecting education outcomes.
1:18:32 PM
CHAIR CLAMAN restated his question to seek how the model before
the committee would address some of the direct fiscal investment
needed to improve Alaska's schools to become again attractive to
military and other employers' families.
REPRESENTATIVE KAUFMAN referred to slide 13 and offered that it
depicted the policy as if it had been enacted and suggested that
spending is not a solution to all problems that may exist, but
that the model represents future opportunity to allow for
additional spending when necessary.
CHAIR CLAMAN asked whether Representative Kaufman was suggesting
that the limits in the policy would allow for future spending
flexibility for the legislature.
REPRESENTATIVE KAUFMAN answered that yes, and had the policy
been applied previously, there would have been opportunities for
increased spending flexibility as well as increased reserves.
He reiterated that appropriation limits cannot address all
issues that may exist and stated his hope that the proposed
policy would have strength but not rigidity.
CHAIR CLAMAN asked whether, if Representative Kaufman had been
among the lawmakers who had passed the original state spending
caps in 1982 would agree or disagree with the current cost of
government spending.
REPRESENTATIVE KAUFMAN answered that it may have seemed prudent
at the time it was proposed but suggested that the model, with
the benefit of hindsight, had become inflexible.
1:23:56 PM
REPRESENTATIVE KURKA asked Mr. Harvey to add to the previous
line of questioning.
MR. HARVEY offered that the previous lawmakers had not
considered population or inflation that had resulted in errors
and suggested that, had those been considered, it would have
been a better policy.
CHAIR CLAMAN offered that the City of Anchorage tax cap belied
the logic that tax cap laws were not effective.
REPRESENTATIVE KURKA asked whether the existing spending cap was
effective.
REPRESENTATIVE KAUFMAN answered that the present constitutional
limit would allow for double the current state spending and
characterized the limit as ineffective and that it could not
measure for success. He mentioned the decrease in student
readiness and other issues had occurred under the current
spending cap. He encouraged the development of policy to take
into consideration its results.
REPRESENTATIVE KURKA asked Representative Kaufman to provide
another graph to include the current spending cap. He asked
whether Representative Kaufman held the belief that education
spending and outcomes were not a problem to be solved.
1:28:39 PM
REPRESENTATIVE KAUFMAN answered that, while money does not
provide all solutions but that it has tremendous effects. He
cautioned that fiscal [booms] can allow for unchecked spending.
He emphasized continuous management improvement to increase the
value of money spent.
1:30:46 PM
REPRESENTATIVE DRUMMOND stated that the COVID-19 pandemic had
had a negative impact on childcare in Alaska. She stated the
importance of readiness programs including pre-k programs. She
mentioned that the Anchorage School District had formerly been a
desirable district for military and working families, and she
asked how appropriation limits could benefit the decline in
quality education in the state.
REPRESENTATIVE KAUFMAN referred to slide 13 and stated that the
only limitation in spending in the proposed plan would be the
current spending consensus. He stated that additional funding
would only be subject to a simple majority vote under the
proposed plan, although an upper limit would be established at
the constitutional level. He advised that, while problems may
have been identified, solutions should be sought including
examining successes in other districts and could benefit by
continuous improvement processes.
1:36:12 PM
REPRESENTATIVE VANCE asked what the overall goal for the
appropriation limit and for him to further explain the value
expected.
REPRESENTATIVE KAUFMAN stated that the current state spending
depicted on the graphs in the presentation reflected the
prevailing political sentiment regarding spending. He stated
that the proposed policy was designed for improved management
considering the current political consensus. He stated that the
reduction in budgetary volatility as proposed with appropriation
limits would enable more optimal management and increased value
including the ability to reserve some capital funding for future
identified priorities. He stated that the proposed policy would
be adaptive to future policy changes.
REPRESENTATIVE VANCE asked whether the policy being associated
with GDP would create more opportunities for education within
the private sector and whether other states had realized such
opportunities.
REPRESENTATIVE KAUFMAN answered that the states which have high
performance match resources with its policies and management
processes. He added that other, non-monetary benefits may also
be realized with flexible fiscal planning and controls. He
compared the government and private sectors to a business'
accounting and operations and its production floor,
respectively.
1:44:10 PM
CHAIR CLAMAN asked which states had realized optimization.
REPRESENTATIVE KAUFMAN called to mind the State of Colorado,
which was experiencing high economic growth and population
growth and is in the process of evaluating rescinding of taxes.
He stated that a simple search of states experiencing economic
growth was readily available, and he allowed that some factors
affecting a state's economic growth would not be attributed to
fiscal policy
CHAIR CLAMAN noted that Mr. Painter had provided the per-person
spending for items other than the permanent fund amounted to
$8,562 in FY 22.
[HJR 401/HB 4006 was held over]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4006 v. A 10.4.2021.PDF |
HJUD 10/15/2021 12:00:00 PM |
HB4006 |
| HJR 401 v. A 10.4.2021.PDF |
HJUD 10/15/2021 12:00:00 PM |
HJR401 |
| HB 4006 & HJR 401 Sponsor Statement v. A 10.15.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HB4006 HJR401 |
| HB 4006 v. A Sectional Analysis 10.7.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HB4006 |
| HJR 401 v. A Sectional Analysis 10.7.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HJR401 |
| HB 4006 & HJR 401 Supporting Document - Appropriation Limit Comparison 10.15.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HB4006 HJR401 |
| HB 4006 & HJR 401 Supporting Document - NASBO State Tax and Expenditure Limitations 10.15.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HB4006 HJR401 |
| HB 4006 Fiscal Note GOV-OMB 10.11.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HB4006 |
| HJR 401 Fiscal Note OOG-DOE 10.11.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HJR401 |
| HB 4006 & HJR 401 PowerPoint Presentation 10.15.2021.pdf |
HJUD 10/15/2021 12:00:00 PM |
HB4006 HJR401 |