Legislature(2023 - 2024)GRUENBERG 120
01/27/2023 01:00 PM House JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| HB38 | |
| HB11 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 38 | TELECONFERENCED | |
| *+ | HB 11 | TELECONFERENCED | |
HB 38-APPROPRIATION LIMIT; GOV BUDGET
[Contains discussion of HJR 2.]
1:05:12 PM
REPRESENTATIVE VANCE announced that the first order of business
would be HOUSE BILL NO. 38, "An Act relating to an appropriation
limit; relating to the budget responsibilities of the governor;
and providing for an effective date."
1:06:23 PM
REPRESENTATIVE WILL STAPP, Alaska State Legislature, introduced
HB 38, as the prime sponsor. He paraphrased the sponsor
statement [included in the committee packet], which read as
follows [original punctuation provided]:
One of the most effective ways to ensure a stable
economy is to apply common sense solutions to complex
problems. An effective appropriation limit is the
first of many commonsense solutions that is both
uncontroversial and bipartisan.
This is not a new revelation. The State of Alaska had
already identified the potential for overspending and
imposed appropriation limits in 1982. However, that
decision was tied to the economy of the time. An
economy that was approaching peak oil production which
allowed for a reasonable limit that was adjusted for
population and inflation. The modern budget of Alaska
has been operating without an effective appropriation
limit for nearly 40 years, resulting in less than
meaningful control of our state spending. HB 38 and
its companion resolution HJR 2 work together to create
a constitutional and statutory framework for how we
limit appropriations.
The functional cap that is being proposed uses a
factor based upon a five-year trailing average of our
private sector economic performance. Specifically,
Real GDP less government spending, which measures the
value produced within our borders. The five-year
averaging will moderate the effects of volatility,
leading to stability. This proposal would set a
spending cap roughly at current levels and would
include a constitutional provision allowing
flexibility in the case of unforeseen risks.
Our Permanent Fund is a tremendous asset, but it
creates a risk that Alaska will be destined to become
a "financialized" economy. Instead of maintaining our
status as Alaskans that build, add value, and produce,
we could become Alaskans that wait and passively watch
the market while hoping for the best. A financialized
government that is funded increasingly by some portion
of the permanent fund will grow to have little to no
interest in the private sector. A spending limit
tethered to GDP creates a constructive link to our
private sector and ensures that government does not
outgrow the private sector that it is meant to
support.
Spending limit reform is one of very few subject
matters in which the Comprehensive Fiscal Plan Working
Group unanimously agreed to be necessary. This
legislation seeks to follow the recommendations of the
working group by proposing a structured and flexible
appropriations limitation to ensure a prosperous
future for Alaska.
1:07:23 PM
The committee took a brief at-ease.
1:07:29 PM
REPRESENTATIVE STAPP directed attention to a PowerPoint
presentation, titled "GDP-Based Spending Cap; An Appropriation
Limit Linking Government Spending to Alaska's Productive
Economy" [included in the committee packet]. He provided an
overview of appropriation limits on slide 2, which read as
follows [original punctuation provided]:
Structure of an appropriation limit
o Exemptions List: Appropriations subject to the
limit The Appropriation Limit: Define the
calculation factor, starting point, growth rate,
and other limit mechanisms
o Other: Capital projects or other specific
language
Current Appropriation Limit
o Constitutional: Article IX, §16 (effective in
1982)
o Statutory: AS 37.05.540(b)
Types of Appropriation Limits
Proposed Appropriation Limit (HJR 2 / HB 38)
1:08:44 PM
REPRESENTATIVE STAPP reviewed the current constitutional limit
on slide 3, 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. "
o $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
o 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
REPRESENTATIVE STAPP deferred to Senator Kaufman to provide
additional context on the bill.
1:09:51 PM
SENATOR JAMES KAUFMAN, Alaska State Legislature, prime sponsor
of [SB 20], the companion bill in the Senate, said the
legislation was drafted to create a more beneficial process
control around budgeting. He indicated that the purpose of HB
38, in combination with HJR 2, was to determine a beneficial
percentage of the private sector's economic activity, which
would represent "responsible spending." He believed that
subtracting government spending from state gross domestic
product (GDP) was the most "holistic" expression of Alaska's
economy. He indicated that the statutory limit, as drafted,
would cap the appropriation limit at 11.5 percent of the
calculated value. The constitutional amendment, as drafted in
HJR 2, would cap the statutory limit at 14 percent of the
calculated value. He said the two limits would work in tandem
to create a "high limit" and an operating limit. He revealed
that the bill would include a five-year trailing average to
create stability and smooth out overspending when revenues were
up. He described the graph on slide 9, indicating that the gold
bars reflected spending affected by the cap; the blue line
reflected the statutory limit proposed under HB 38; the black
line reflected the constitutional limit proposed under HJR 2;
and red line reflected the current constitutional limit. He
reiterated that the intent was to determine beneficial spending
ratios based on Alaska's economic activity averaged over five
years to smooth out "boom and bust" fluctuations. He concluded
by summarizing the spending that would be subject to the
appropriation limit.
1:14:26 PM
REPRESENTITIVE STAPP directed attention to slide 10, which
provided a side-by-side comparison of spending subject to and
excluded from the limit. Slide 10 read as follows [original
punctuation provided]:
Spending Subject to the Limit:
o All UGF [unrestricted general fund] operating
expenditures
o all UGF Capital Expenditures
o Retirement Payments
Not Limited by this Proposal:
o Permanent Fund Dividends
o Appropriations to the Alaska Permanent Fund/ PCE
[Power Cost Equalization] Endowment
o Appropriations to capitalize state retirement
accounts
o Direct spending on disaster declaration
o Proceeds of bonds approved by the voters
1:15:37 PM
CHAIR VANCE invited questions from committee members.
1:15:56 PM
REPRESENTATIVE EASTMAN asked whether the bill would be
functional without a constitutional amendment. Additionally, he
pointed out that the current statutory limit was habitually
ignored. He questioned whether the bill sponsor expected the
proposed limit to be treated differently.
1:16:21 PM
The committee took a brief at-ease.
1:16:33 PM
SENATOR KAUFMAN reiterated that that the bill, in combination
with HJR 2, would set a "high limit" and an operational limit.
He confirmed that the bill required the constitutional amendment
proposed under HJR 2, its companion resolution, to function as
drafted.
1:17:02 PM
REPRESENTATIVE GRAY inferred that the statutory limit could be
ignored whereas the constitutional limit would be "the true hard
limit." He asked whether that was accurate.
REPRESENTATIVE STAPP stated that the goal was for both limits
the statutory limit and the constitutional limit to work hand
in hand.
SENATOR KAUFMAN pointed out that exceeding [the statutory limit]
would require a two-thirds vote. He said the purpose was to
implement a healthier "bandwidth" of capital spending. He
discussed the boom-and-bust sequences of Alaska's economy and
spending cycles.
REPRESENTATIVE GRAY asked why the Permanent Fund Dividend [PFD]
was excluded from the spending cap proposal.
SENATOR KAUFMAN responded, "To avoid encroachment into too many
areas." He opined that the dividend demanded its own economic
and political solution. He suggested that a beneficial spending
cap would act as a foundation for solving various issues by
referencing the private sector economy and providing capital
spending to build up the economy's capability.
1:20:43 PM
REPRESENTATIVE GROH pointed out that the Fiscal Policy Working
Group (FPWG) had advocated for a comprehensive and simultaneous
solution to Alaska's structural deficit. He said he had a
number of questions about technical aspects and how the
statutory and constitutional spending caps would fit into a
comprehensive approach to resolving the deficit.
1:22:49 PM
The committee took a brief at-ease.
1:23:49 PM
REPRESENTATIVE GREY asked whether the governor's FY24 budget
would fall underneath the proposed spending cap.
1:24:01 PM
BERNARD AOTO, Staff, Representative Will Stapp, Alaska State
Legislature, shared his understanding that the governor's
proposed budget would not fall under the spending cap.
REPRESENTATIVE GRAY sought to confirm that if HB 38 had been
enacted, the governor would need to cut his proposed budget.
MR. AOTO indicated that if enacted by the legislature, the
governor would need to follow the statutory spending cap.
1:24:52 PM
REPRESENTATIVE GROH asked why the legislature was proceeding
with proposals for a statutory and constitutional spending limit
when the FPWG had recommended a simultaneous and comprehensive
solution.
1:25:25 PM
MATTHEW HARVEY, Staff, Senator James Kaufman, Alaska State
Legislature, responded that the House was free to consider
additional proposals. He added, "This is the proposal that's
currently in front of the body."
REPRESENTATIVE GROH referenced the graphs on slides 6-7, which
reflected the history of Unrestricted General Fund (UGF)
spending. He explained that he had taken the liberty to have
the graph updated and extended past FY19. He offered to provide
this information to the committee. He sought to confirm that
the state was not in a period of a peak spending.
MR. HARVEY said he had not had the chance to consider the
graphic shared by Representative Groh.
REPRESENTATIVE GROH confirmed that Alaska was not in a period of
peak spending, of which there been multiple in past years. He
asked whether, based on the graphic, it appeared that overall
spending in addition to spending on agency operations were the
biggest issues in the state.
1:29:10 PM
REPRESENTATIVE CARPENTER pointed out that the graphic referenced
by Representative Groh did not come from the Legislative Finance
Division (LFD), Legislative Agencies and Offices. He asked
where it came from.
REPRESENTATIVE GROH explained that in preparation for hearings
on HB 38, he had arranged and paid for the work to be completed
before session started. He noted that he had showed the graphic
to Alexei Painter, Director of LFD, who analyzed and agreed with
the information provided.
1:29:59 PM
CHAIR VANCE said she would allow some leniency today, as it was
the first meeting of the House Judiciary Standing Committee;
however, she advised members to, in the future, arrange the
sharing of documents with her staff in advance. She emphasized
the importance of citing sources of information.
1:30:45 PM
MR. AOTO returned attention to the PowerPoint presentation,
noting that he would be covering the policy driven aspects while
Mr. Harvey would cover the mechanical aspects of the
legislation.
MR. HARVEY resumed the presentation on slide 4, which outlined
the exemptions included in the current constitutional limit.
Slide 4 read as follows [original punctuation provided]:
"Except for appropriations for Alaska permanent fund
dividends, appropriations of revenue bond proceeds,
appropriations required to pay the principal and
interest on general obligation bonds, and
appropriations of money received from a non-State
source in trust for a specific purpose, including
revenues of a public enterprise or a public
corporation of the State that issues revenue bond? No
other appropriation in excess of this limit may be
made except to meet a state of disaster declared by
the governor as prescribed by law."
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 reviewed the current statutory limit on slide 5,
which read as follows [original punctuation provided]:
Enacted in 1986
Based on appropriations made in a fiscal year, not for
a fiscal year
o Counts supplementals in the year appropriated,
not effective
Limits spending growth to population plus inflation
plus 5%
o The use of both factors to calculate the limit
has caused the limit to outgrow effectiveness
o 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
1:33:39 PM
MR. HARVEY turned to slide 6, which provided a graph of UGF
spending history. Key milestones and peak spending periods, in
addition to peak oil production, were noted on the graph. He
continued to slide 7, which featured a graph of inflation and
population adjusted UGF spending. He noted that the existing
constitutional spending limit was passed during the highest rate
of spending in Alaska's history.
1:35:01 PM
MR. AOTO outlined the proposed appropriation limit on slide 8,
which read as follows [original punctuation provided]:
Calculated by subtracting government spending from
historical State GDP values and adjusting for
inflation
Stability is improved by averaging these values over
the previous full five fiscal years
Constitutional amendment, as drafted, caps the
statutory limit at 14% of the calculated value
Statutory limit, as drafted, caps appropriations at
11.5% of value
o FY22 appropriations were roughly $16 Million
below 11.5% of the calculated value (the
statutory limit)
MR. AOTO described the graph of the proposed appropriation limit
featured on slide 9. He summarized the spending that would be
subject to and excluded from the cap on slide 10, which the bill
sponsor had reviewed earlier. He concluded by discussing the
benefits of the proposal on slide 11, which read as follows
[original punctuation provided]:
Effective and Reasonable
o 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
o 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
o Open the discussion to outcomes during the budget
process
1:38:39 PM
REPRESENTATIVE ALLARD, referring to slide 11, highlighted the
spending not limited by this proposal, specifically the proceeds
of bonds approved by the voters. She asked, "Is there a reason
you don't want this statute actually proposed and voted on by
voters as well with the 11.5 percent?"
MR. HARVEY confirmed that the proceeds of a general obligation
bond would not be subject to the limit. He explained that,
because general obligation bonds were ratified by the voters,
the bill sponsor did not want to limit the amount subject to the
appropriation limit.
1:41:10 PM
REPRESENTATIVE JOHNSON posed several questions to be answered at
a future hearing. He asked how GDP was figured and how
"trailing it is to reality." He considered an example of the
state granting a contract to a private individual for a road and
surmised that the contract would be under the cap; however, he
asked whether the money spent by the contractor would be figured
into GDP. He asked whether the state was effectually "double
dipping" and artificially increasing the GDP with state money.
1:42:02 PM
REPRESENTATIVE GRAY requested examples of other states that had
implemented a spending cap based on GDP.
MR. HARVEY reported that other states had enacted spending caps
based on economic indicators and productive economy. He noted
that over the last 10 years, the U.S. Bureau of Economic
Analysis (BEA) improved its data quality by renewing the process
for calculating GDP. He shared his understanding that states
had been successful in implementing economic-based spending
caps.
REPRESENTATIVE GRAY sought to confirm that Alaska would be the
first to directly tie a state spending cap to GDP if HB 38 were
to pass.
MR. HARVEY answered yes.
1:43:34 PM
REPRESENTATIVE GRAY emphasized his philosophical concern about
this proposal. He explained that if [the legislature] wanted to
increase spending to stimulate the economy during a recession
that caused a dramatic drop in GDP, the proposed spending cap
would "tie [the state's] hands" and require larger cuts.
MR. HARVEY responded by pointing out that if Alaska's GDP took a
massive hit, the five-year trailing average would prevent the
spending cap from being severely impacted. He indicated that
the five-year trailing average would effectually produce lags
and leads in the spending cap compared to private sector growth.
1:45:39 PM
REPRESENTATIVE GROH inquired about the difference between the
exceptions proposed under [HJR 2] and HB 38.
1:46:54 PM
MR. HARVEY directed attention to Section 1 of the bill, noting
that several exceptions were being added to those listed under
AS 37.05.540(b): appropriations of general obligation bond
proceeds; payment of principal and interest on revenue bonds;
appropriations to a state account or fund that requires a
subsequent appropriation from that account or fund as prescribed
by law, which includes appropriations to the Constitutional
Budget Reserve (CBR) and appropriations to capitalize the Alaska
Permanent Fund and retirement funds; and appropriations to meet
a state of disaster declared by the governor, as prescribed by
law.
REPRESENTATIVE GROH noted that he shared the concerns expressed
by Representative Gray.
1:48:28 PM
CHAIR VANCE announced that HB 38 would be held over.
1:49:01 PM
The committee took a brief at-ease.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 38 - Sponsor Statement.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 38 |
| HB 38 - v.A.PDF |
HJUD 1/27/2023 1:00:00 PM |
HB 38 |
| HB 38 - Sectional Analysis.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 38 |
| HB 38 - HJR 2 Presentation 1.25.23.pdf |
HJUD 1/27/2023 1:00:00 PM HJUD 2/15/2023 1:00:00 PM |
HB 38 HJR 2 |
| HB 38 - HJR 2 Research Appropriation Limit Data.pdf |
HJUD 1/27/2023 1:00:00 PM HJUD 2/15/2023 1:00:00 PM |
HB 38 HJR 2 |
| HB 38 - HJR 2 Research GDP information 1.25.23.pdf |
HJUD 1/27/2023 1:00:00 PM HJUD 2/15/2023 1:00:00 PM |
HB 38 HJR 2 |
| HB 38 - HJR 2 Reserach AG Opinion from 1983 1.25.23.pdf |
HJUD 1/27/2023 1:00:00 PM HJUD 2/15/2023 1:00:00 PM |
HB 38 HJR 2 |
| HB 11 - Sponsor Statement- Family Violence.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - v.S (01-25-23).PDF |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Sectional Analysis- Family Violence.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Family Violence Presentation.pptx |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Alaska Family Services Letter of Support.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Letter of Support WISH.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Alaska State Troopers Fiscal Note.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Department of Administration Fiscal Note.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Department of Corrections Fiscal Note.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Department of Law Fiscal Note.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |
| HB 11 - Public Defender Fiscal Note.pdf |
HJUD 1/27/2023 1:00:00 PM |
HB 11 |