Legislature(1997 - 1998)
03/22/1997 10:05 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 78 - AMEND DEFINITION OF "PROGRAM RECEIPTS" The first order of business to come before the House State Affairs Standing Committee was HB 78, "An Act relating to the definition of certain state receipts; and providing for an effective date." CHAIR JEANNETTE JAMES called on Royce Weller, Office of the Governor, to present the bill. Number 0060 ROYCE WELLER, Budget Analyst, Office of Management and Budget (OMB), Office of the Governor, explained HB 78 related to the definition of certain state receipts. State receipts essentially came in as general funds or something other than general funds. The statute that the bill proposed to amend, AS 37.05.146, defined what was a general fund and what was not a general fund receipt. MR. WELLER explained the first concern was the constitutional prohibition against dedicated funds under Article IV, Section 7. The second concern was that the bill did not take any revenues off of the book. The third concern was that the receipts did not impact the fiscal gap. MR. WELLER explained the bill did not in any way circumvent the constitutional dedication. In fact, it made it clear that the revenues would be available and subject to appropriation. In no way were the revenues off of the book from legislative monitoring and reviewing. The receipts were collected and restricted by a gift, grant, request, federal or state law and appropriated for a specific purpose. Therefore, if the budget was cut, the receipts coming in would also be cut. It was not like a normal general fund program receipt where the revenues could be used some other place. For instance, if the Division of Occupational Licensing's budget was cut, the division was obligated under statute to reduce its fees to reduce the revenues coming in. Number 0284 MR. WELLER further explained that there were three technical and three substantive changes in the bill. MR. WELLER explained the first technical change was on page 2, line 11, "(E) corporate receipts earned or managed by a public corporation or enterprise of the state authorized by law including." Corporate receipts had been around for some time - Alaska Housing Finance Corporation, Municipal Bond Bank Authority and the Alaska Industrial Development and Export Authority - but they had never been put in statute. There was a reference only; not a lead-in statement that indicated they were corporate receipts. MR. WELLER explained the second technical change was on page 2, line 24, "(K) public school trust fund." The word "trust" was being added to make it clear that it was a trust fund. MR. WELLER explained the third technical change was on page 3, line 5, "(T) Alaska children's trust (AS 37.14.200):" The trust was identified because for the first time the state was going to have receipts coming in. MR. WELLER explained the first substantive change was on page 2, lines 3-5, "(3) designated program receipts (INDIVIDUAL, FOUNDATION, OR CORPORATION GIFTS, GRANTS, OR BEQUESTS THAT BY THEIR TERMS ARE RESTRICTED TO A SPECIFIC PURPOSE);" The deleted language was being rolled into the definition of a designated program receipt because there was no reason to have two similar definitions on the books. MR. WELLER explained the second substantive change was on page 2, line 3, "(3) designated program receipts". The definition was on page 3, line 10-11, "(c) For purposes of this section, `designated program receipts' means money that is received from a source other than the state and that is (1) restricted to a specific use under the terms of a gift, grant, bequest, contract, or federal law; or (2) subject to appropriation for another purpose, but is designated by state law as available for a specific use." MR. WELLER explained the third substantive change was on page 3, line 8-9, "(6) receipts of commercial fisheries test fishing operations (AS 16.05.050(15)." It was a specific and unique receipt established by the legislature so it needed to be included in the bill. MR. WELLER further stated that attached to the fiscal note was a spreadsheet which identified the receipts and their associated revenues for Fiscal Year (FY) 96 and 98. Number 0647 CHAIR JAMES stated she had a lot of problems with the bill and a lot of questions. She understood the definition of program receipts, but she wanted to know what kind, and where the receipts would come from. She understood that this was a good tool when it came to "cutting the budget without cutting the budget." She was not happy with the way the state measured how it cut the budget. The general public really wanted the state to downsize government. The public did not care if the money came from the federal government, the state general fund, or the program receipts. The state had been measuring its budget reduction by the general funds. "This has been an argumentative issue as to what the total state spending is. We don't tell the people that. We only tell them that we're trying to keep it down to 2.4." Therefore, this would be a bigger subterfuge by not including the program receipts in the column of general funds when they could not be anything except general funds according to the constitution. It appeared that the state was trying to take program receipts as another source so that they would not be counted as general funds. She suggested adding another column titled "general funds-program receipts" to the budget process to identify them. CHAIR JAMES further stated she was concerned about the departments making applications for permits; such as, the oil companies trying to get their permits run through at a faster pace when staff was not available. A designated receipt was taken in allowing for the hiring of a person in order for the oil company to get its permits. She was concerned about the little guy who did not have the money to pay extra to get a permit. She did not see it as fair and equitable. She had heard stories that the extra money was not on a list of schedule and fees; it was arbitrary. The state should not be arbitrarily collecting money from anyone to get a service that the state was supposed to be providing anyway. She understood that the Division of Occupational Licensing was supposed to charge the cost of doing business; so, if the legislature cut its budget, then the division would have to cut its fees because it was suppose to be a wash. Number 0973 REPRESENTATIVE ETHAN BERKOWITZ stated that the legislature did cut its budget. CHAIR JAMES replied she did not cut its budget. Nevertheless, the public did not want to pay any taxes until the legislature reduced governmental spending and every time a charge or fee was added "you're taxing the people." The issue should be black and white so that the ordinary person could understand it. Right now, the ordinary person could not understand this because it was a subterfuge. Number 1024 REPRESENTATIVE KIM ELTON stated that the bill would help the public understand because it would establish categories and identify different funding sources. For example, a bill was introduced that would allow dive fishermen to assess themselves a tax and the proceeds would be given by statute to the Division of Fish and Game for the purpose of hiring the management and enforcement of that fishery. The dive fishermen were doing that because the department did not have the money to manage the fishery. According to HB 78, the funds would not be identified as general fund dollars, but as dollars collected for a specific purpose. REPRESENTATIVE ELTON further stated that there was a public that needed governmental services. Thus, it was important to distinguish between voluntary funds for a specific purpose and general funds. In addition, an advantage to the little guy - big guy permitting process would be that the money would not go into the pot causing the little guy to wait longer. The new money was incremented for the purpose of permitting for the big guy only which would include the staff. Number 1217 CHAIR JAMES replied she now understood what the Governor meant by "open for business." "We have a store front and if you can come in and pay for our services you can have some. If you don't have any money you don't get any." It was a question of what the private and public sectors should do. She wondered why the dive fishermen did not put their money into a pot and hire somebody from the private sector. The expertise was out there and they could even get it for less. "By doing it this way, we're totally changing the face of government and what's it here for. It's here to provide services that the public needs and not those that it doesn't need." Therefore, she saw the bill as a crossing of the lines and a blurring of the edges between what the people should be doing and what the government should be doing. Number 1300 REPRESENTATIVE ELTON replied the difference was that the state was constitutionally mandated to manage its natural resources for the benefit of all the people. Furthermore, the legislature had - collectively - created the store front Chair James mentioned. The Department of Fish and Game, for example, had fewer scientists and managers now than in 1979 before the oil money when now there were more complex fisheries and user groups. Thus, the bill allowed for the opportunity of the industry to help itself and the state entities as well. Number 1356 CHAIR JAMES replied the state entity, Department of Fish and Game, was not mandated to do research which was what the money for the dive fishermen would be used for; not management. Number 1367 REPRESENTATIVE ELTON replied research was necessary to determine the size of the bio-mass to determine the limits of the harvest, for example. Number 1380 CHAIR JAMES replied she understood but it could be done by a private individual as well. Number 1392 REPRESENTATIVE FRED DYSON stated he agreed with the limits of what Representative Elton and Chair James were saying. There was reason to be concerned about losing control of the cost. In addition, there was a difference between a tax and a fee for service. He was in favor of the bill, but the list of designated program receipts was long and he felt intimidated that he would not get enough information about each program. The principle argument - historically - was to keep police officers from pinching tourists to raise the local police budget. Thus, it was important to ensure that there was a mechanism to prohibit misuse. REPRESENTATIVE DYSON declared a conflict of interest with the test fisheries because he had tried for several years to bid for that project. He was concerned that the Department of Fish and Game would shut down the entire fishery and contract with just fishermen and put half of the catch or all of it into the budget. "I don't foresee that happening but that's the kind of thing we worry about that is possible." REPRESENTATIVE DYSON further stated that the next bill - HB 155 - was his idea three or four years ago. It was the other side that was very valuable and needed to be done. Number 1554 CHAIR JAMES asked Mr. Weller if the figures in the spreadsheet would not be measured as general funds in the budget process? Number 1584 MR. WELLER replied, "That's correct." The figures in the spreadsheet would be defined as designated program receipts and they would not roll up as general funds. Number 1600 CHAIR JAMES asked Mr. Weller if the bill was passed would there be a $53 million budget cut in general funds - automatically? Number 1611 MR. WELLER replied the Governor did not intent to portray it in that way. The budget plan as submitted by the Governor showed three columns: general funds, general funds with designated program receipts and other funds. Representative Terry Martin wanted all revenues appropriated by the legislature to be shown and we intend to do that. The programs in the spreadsheet would not roll up as a general fund appropriation but, they would roll up as a designated program receipt appropriation. Number 1657 CHAIR JAMES replied they were already being designated. Generally, the legislature authorized money to be spent according to the fees. For example, the marine highway revenues went into an account that was used for its budget. It was considered part of the "sweep" at the end of the budget process. Number 1693 MR. WELLER replied the issue she was addressing was the self- sufficiency requirement where the programs were required to cover their full cost of operation in statute, such as, the Division of Insurance. Every year the legislature appropriated the balance of funds for those programs into the carry-forward so that there was no leakage into the General Fund. In other words, it was swept and put back into the programs because they were funded by the users. MR. WELLER further stated that the legislature required in statute that OMB submit a fee report every year in January that showed any regulatory changes to the program receipts. In addition, general fund program receipts were not included in HB 78. The bill only addressed designated program receipts and there was a big difference between them. For example, the parks levied a fee, but it only covered a small portion of the cost of managing and operating them. The rest of their budget was funded through the General Fund; there was not a one-to-one relationship. Number 1779 CHAIR JAMES replied the Salcha River property owners in her area organized to take care of its park because it was going to be closed. "So don't tell me it's not out there. It is being done." Number 1800 MR. WELLER replied - generically - park fees funded only a small portion of its total cost, therefore, they were not included in the bill. The Division of Motor Vehicles was another example. It was not in statute that the collected revenues would be appropriated back to the program, yet it raised some $31 million. The examples in the spreadsheet were programs with a one-to-one relationship. He cited the Alaska Tourism Marketing Council whereby the legislature appropriated a certain amount of general funds and the industry was mandated to raise at least 25 percent. Therefore, if the budget was cut in this area, the receipts that were being matched would also be cut from the industry. There were no receipts that were deposited into the General Fund that could be used for something else or to close the fiscal gap. Some programs received funds from the federal government that could only be used for that particular program, and if the receipts were cut, it would violate the federal law. Number 1882 CHAIR JAMES replied the state did not cut those programs because there were other funds. MR. WELLER responded because - currently - they were general fund program receipts. He reiterated they were unique receipts, they were not the same as general fund program receipts and should be treated differently. The intent was not to let those with money "go to the head of the line" per se. The intent was to separate the line and treat all those involved the same, except for the private parties that were willing to pay for their programs. Number 1986 CHAIR JAMES replied it did not seem like the way government should be doing business. The government was here to provide a service. If something extra was needed to be paid for it seemed unfair that the government was the only place to get the service. In addition, she believed it was already being accounted for so she did not see how the bill would make it any easier. Mr. Weller first said that the budget process would reduce the amount of general funds and now he said that they would all be counted as general funds. The issue here was whether or not it should be a legislative decision as opposed to an agency decision; a designation allowed to make these types of deals and to collect funds without authorization of the legislature. Number 2112 MR. WELLER replied, if the bill passed, the program receipts would be treated as non-general fund program receipts. Number 2119 CHAIR JAMES asked Mr. Weller if the $53 million reduction was actual? MR. WELLER replied it was actual as a General Fund reduction. It would not be calculated as part of the FY 97 to FY 98 reduction; but, it would be calculated as part of the overall spending. In other words, there would not be a $53 million drop in total spending. CHAIR JAMES wondered how the public would understand a reduction in the General Fund and a corresponding increase in other general funds. MR. WELLER stated the budget plan as submitted showed general funds, general funds with designated program receipts, and other funds. Therefore, a person could see the total expenditures. The program receipts would not be hidden, and that would not change with the passage of HB 78. CHAIR JAMES asked Mr. Weller if this was the first year that there was a column that indicated the designated program receipts? MR. WELLER replied it was used last year as well. Last year, he explained, was the first year that there were designated program receipts as an account. Number 2188 CHAIR JAMES wondered, therefore, why a statute was needed because it was already being done. Number 2196 MR. WELLER replied a statute was needed for budgeting and accounting purposes. Thus, a budget could be submitted that pointed to the accounting code and no matter what was done on the accounting side it could not be made a non-general fund, without the approval of the legislature. Number 2236 REPRESENTATIVE ELTON stated to change or clarify what in practice was happening gave a certain sense of comfort to those who were paying for a fee. If the oil industry, for example, wanted to give $2 million to help on the Badami Project, it would be comforting to know that the money was designated by statute. It would also help the legislators explain to the public what was going on. He did not want to be in a position to explain how the $2 million from the oil company affected the budget. Number 2321 CHAIR JAMES replied HB 78 would not change that process. REPRESENTATIVE ELTON further stated that the bill provided an education for the legislators and the public because there was a large segment of the population that believed there was too much government so "let's cut it." But, even that portion would not say "let's cut government that the industry was willing to pay extra for." Number 2365 CHAIR JAMES replied, if she was an oil company, she would not give the state $2 million dollars without a contract that said how the state would spent the money. She asked Mr. Weller if there was a written contract? Number 2410 MR. WELLER replied the spreadsheet broke the program receipts by their type: contract, assessment, restricted fee, legal, third party billing, and test fishery. CHAIR JAMES asked Mr. Weller how a contract was measured? Number 2451 MR. WELLER replied he could not answer the question. A contract was entered into by two parties and he assumed that the parties worked out the conditions. TAPE 97-31, SIDE B Number 0001 MR. WELLER further stated that the money did not just go to the General Fund to help close the fiscal gap. There was a contract that backed up the service. He reiterated there were fees that were restricted by: contract, federal law, state law, and third party travel situations. Number 0021 CHAIR JAMES wondered if there would be a profit associated with the $2 million charged for the Badami Project as an example mentioned earlier. She asked Mr. Weller if the department would use existing personnel already authorized in the budget, or if the department would hire new personnel in addition to the already authorized budget to spend the money? Number 0061 MR. WELLER replied he did not know every case, but he did know that new people were not hired in other cases. There could be subcontracting with the university, for example, if the project was highly scientific. In addition, there were only situations where the state had the data base, such as, labor statistics (Department of Labor). He was not sure, however, if it was similar in the resource development agencies as well. Number 0112 REPRESENTATIVE VEZEY replied the data from the Department of Labor was available to anyone who wanted it for $100 - the Geographical Information Management System (GIS). There was also a big private sector that was providing GIS services. Number 0135 CHAIR JAMES stated the issue of not hiring new personnel bothered her. It appeared that the customer would be paying extra if the state used its existing personnel to provide the service rather than hiring new personnel to work on the contract. Number 0180 REPRESENTATIVE DYSON stated that it would be wise to outline a path for a solution to this issue because there were some programs that everybody would agree on, there were a few programs where assurance would be needed, and for some programs more information would be needed. He suggested moving forward after deciding a course of action. Number 0231 REPRESENTATIVE ELTON stated he also believed that extra program receipts meant additional resources applied to the project and, that the strongest argument to accept the extra receipts was to not hurt the little guy. He assumed that extra personnel would be hired with the money to accomplish the specific purpose. Number 0264 CHAIR JAMES stated it would be a good idea if the Legislative Finance Division would be here to answer some questions. Number 0285 REPRESENTATIVE VEZEY asked Mr. Weller what did HB 78 enable the legislature to do that it could not do without it? Number 0295 MR. WELLER replied HB 78 would clearly define that program receipts were different and unique from general funds; that the program receipts would not close the fiscal gap; and that if the budget was cut for these programs, the receipts would also be cut. Number 0319 REPRESENTATIVE VEZEY wondered if that was an answer to his question. CHAIR JAMES replied, "No." REPRESENTATIVE ELTON stated, actually, it was a good answer. Number 0335 REPRESENTATIVE VEZEY asked Mr. Weller what did the statute enable the legislature to do that it could not do - now - with internal procedures? Number 0344 MR. WELLER replied the statute - AS Sec. 37.05.146 - stated that program receipts were presumed to be for the general fund, minus the programs identified in statute as the exceptions. The bill, therefore, amended the statute to add the children's trust fund, for example. He reiterated that the program receipts for the exceptions should not be considered as general funds when addressing the budget because they were unique receipts and should be treated differently. CHAIR JAMES asked Mr. Weller if the budget was presented like this last year? MR. WELLER replied, "No." CHAIR JAMES asked Mr. Weller if the Administration accounted for the program receipts like this last year? MR. WELLER replied, "Yes." They were presented in the budget as designated program receipts, but they were the general fund designated receipts. House Bill 78 would amend the statute so that the funds from the programs would be designated as program receipts and not as general fund program receipts. Number 0413 CHAIR JAMES replied it would then affect the bottom-line spending of the General Fund. Number 0419 MR. WELLER replied, "Correct." It would affect the bottom line. The budget plan presented would show everything - total state spending. It would show all of the revenue sources and receipts which would still be subject to the committee and appropriation processes. They would also be subject to reduction. He reiterated the bill tried to identify them as unique, and that they did not impact the fiscal gap. Number 0447 CHAIR JAMES asked Mr. Weller where the $53 million would be reflected? Number 0499 MR. WELLER replied, if the bill passed, the program receipts would not show as general funds. The total spending of FY 97 to FY 98 would show the total expenditures. The program receipts would not be taken off of the books. The programs would be reflected separately as: general fund program receipts and designated program receipts for FY 97 and FY 98. It was clear that there would not be a $53 million reduction in FY 98. That was not the intent of the bill at all. Number 0555 CHAIR JAMES explained the bill would be rolled over to Tuesday, March 25, 1997. Number 0558 MR. WELLER replied that the Legislative Finance Division had a listing of the program receipts and how they rolled up in the back of the budget either as a general fund, a federal fund, or another fund. Number 0584 CHAIR JAMES replied that the rolling over of the money bothered her. She asked Mr. Weller, if the legislature authorized something, would it continue to be authorized into the next year? Number 0593 MR. WELLER replied, "No." They were operating expenditures, therefore, subject to an annual appropriation. The Auke licensing mentioned earlier contained carry-forward provisions in the operating budget so that the balance of one year was appropriated into the next year. That required legislative approval, there was no automatic carry forward. CHAIR JAMES reiterated the bill would be held over to Tuesday, March 25, 1997.
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