Legislature(1997 - 1998)

02/04/1997 08:00 AM House STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HJR 18 - DEDICATED FUNDS: RATE MAY BE CHANGED                               
 The next order of business to come before the House State Affairs             
 Standing Committee was HJR 18, "Proposing an amendment to the                 
 Constitution of the State of Alaska relating to changing the rate             
 of a tax or license that supports a dedication of its proceeds."              
 CHAIR JAMES called on Representative Ivan Ivan, sponsor of HJR 18,            
 to present the resolution.                                                    
 Number 0713                                                                   
 REPRESENTATIVE IVAN IVAN announced his staff, Thomas W. Wright, was           
 here to answer any technical questions about the resolution.                  
 Representative Ivan read the following sponsor statement into the             
 "This resolution proposes an amendment to Article IX, Section 7 of            
 the state constitution.  The current article allows for the                   
 dedication of funds for a specific purpose as long as it existed by           
 April 24, 1956.  This resolution would allow a changing of a rate             
 of a tax or license of which the proceeds are dedicated to a                  
 special purpose.  This proposed amendment would be placed before              
 the voters at the next general election, if approved by the                   
 "I introduced this resolution because of the differing opinions               
 represented by the attorney general's office and Legal Services in            
 regards to the dedication of a tax increment to a specific purpose.           
 In order to avoid litigation, especially if the proceeds of the               
 tobacco tax are to be placed into the school fund or if the                   
 legislature changes any other tax rate or license fee, into which             
 proceeds are to be placed into a dedicated fund, this resolution is           
 a means to resolve that potential problem."                                   
 REPRESENTATIVE IVAN further stated he would like to see that the              
 proceeds of the tobacco tax go to the maintenance and construction            
 of school facilities.  It was an opportunity to assist the                    
 government in some of its most important aspects.                             
 Number 0860                                                                   
 REPRESENTATIVE ELTON asked how many dedicated funds were there,               
 other than the education fund?                                                
 Number 0869                                                                   
 CHAIR JAMES replied there was a fish and game fund and a school               
 REPRESENTATIVE ELTON wondered if those were the only two funds that           
 would qualify under this resolution.                                          
 CHAIR JAMES replied, "Yes."                                                   
 Number 0877                                                                   
 REPRESENTATIVE VEZEY stated he believed that there were more than             
 two funds.  He cited the Fishermen's Fund as an example.  He could            
 not remember how many there were, but he knew there were more than            
 Number 0883                                                                   
 CHAIR JAMES asked Thomas W. Wright, Legislative Assistant to                  
 Representative Ivan Ivan, to respond to the question.                         
 Number 0879                                                                   
 THOMAS W. WRIGHT, Legislative Assistant to Representative Ivan                
 Ivan, stated the opinion of Mr. Gerald L. Wilkerson, Legislative              
 Auditor, dated November 30, 1982, outlined what dedicated funds               
 existed.  He cited the Tobacco Tax (school) Fund, the Fish and Game           
 Fund, the Reserves for Capital Outlay and Energy Facilities                   
 Development, the Renewable Resources Fund, the Public Employees               
 Retirement System Fund, the International Airport Funds, the                  
 Continuing Debt Service Appropriation, and the Rural                          
 Electrification Revolving Loan Fund.  Some of those funds, he                 
 explained, were out of existence and according to the attorney                
 general's opinion, once a dedicated fund was out of existence it              
 could not be re-instituted.                                                   
 Number 0940                                                                   
 REPRESENTATIVE VEZEY asked was that five funds?                               
 CHAIR JAMES replied there were a number of funds listed by Mr.                
 Wright.  Some of which were already gone.                                     
 Number 0948                                                                   
 REPRESENTATIVE BERKOWITZ asked Mr. Wright, if the funds out of                
 existence had been zeroed out in terms of the account, or had they            
 been repealed?                                                                
 Number 0956                                                                   
 MR. WRIGHT replied he understood that they were not funded and                
 considered discontinued programs.  He suggested asking the                    
 Department of Revenue who had a better understanding.  He did not             
 know if they were out of existence in statute.  He had not gone               
 that far back, yet.  He reiterated he understood that they were in            
 existence, but they were not being funded.                                    
 Number 0978                                                                   
 CHAIR JAMES responded that according to a legal opinion relating to           
 the tobacco tax that once the tax was taken completely away, it               
 could not be brought back.  That was in accordance with the minutes           
 at the constitutional convention.  It would need to be re-                    
 instituted again.  Chair James called on James Baldwin, Department            
 of Law, to address the issue.                                                 
 Number 1016                                                                   
 JAMES BALDWIN, Assistant Attorney General, Government Affairs                 
 Section, Civil Division, Department of Law, stated the question of            
 how many dedicated funds there were, was subject to definition.               
 The only true dedicated funds now were the Fishermen's Fund and the           
 Tobacco Tax (school) Fund.  Those were the only two that he had               
 been able to confirm.  There was, of course, the permanent fund,              
 that was constitutionally dedicated.  There was also the                      
 Constitutional Budget Reserve Fund.  There were also the funds that           
 were required by federal statute.  The funds that Mr. Wright                  
 referred to were not truly dedicated funds.  They were rather                 
 segregated funds that were established for bond covenant purposes.            
 They were an exception to the dedicated fund prohibition because              
 the assets were pledged to buy off bond indebtedness.  There was an           
 exception allowed in the constitution to allow the state to incur             
 debt for that purpose.                                                        
 Number 1085                                                                   
 CHAIR JAMES stated there were funds that the state used as though             
 they were dedicated funds.  She liked the term "segregated fund"              
 that Mr. Baldwin mentioned earlier.  The general public thought of            
 these accounts as dedicated funds when technically they were only             
 considered dedicated for political purposes.  In addition, funds              
 were also appropriated to get around the issue of dedication.  She            
 called it an end-run around the situation.  She believed that the             
 legislature should have free reign of the general fund to spend it            
 in the best way.                                                              
 Number 1186                                                                   
 MR. BALDWIN replied the dedicated fund prohibition was put into               
 place so that the power of the legislature would be preserved to              
 the maximum extent possible over revenues coming into the state.              
 Therefore, as long as the legislature retained its ability to                 
 appropriate funds, it did not violate the dedicated fund                      
 Number 1210                                                                   
 CHAIR JAMES replied she understood that.  However, "It's a                    
 perception, and perception is sometimes reality as far as people              
 are concerned."                                                               
 Number 1217                                                                   
 MR. BALDWIN stated there were many funds that the legislature                 
 established by law and then appropriated money to them.  That was             
 clearly not a violation of the dedicated fund prohibition.  The               
 Governor's bill, he explained, would appropriate the revenues from            
 the tobacco tax to a particular fund rather than dedicate them in             
 the beginning.                                                                
 Number 1246                                                                   
 REPRESENTATIVE ELTON asked Mr. Baldwin if the language in the                 
 resolution would not allow the legislature to change the rate of              
 contribution to the permanent fund or to the Constitution Budget              
 Reserve Fund?                                                                 
 Number 1279                                                                   
 MR. BALDWIN replied it would not because it only referred to those            
 funds in existence before April 24, 1956.  The permanent fund was             
 established after that date.  The constitution did allow the                  
 legislature to change the rate upwards, but the constitution would            
 have to be amended to decrease the rate.                                      
 Number 1317                                                                   
 REPRESENTATIVE ELTON asked Mr. Baldwin if the language in the                 
 resolution would allow the legislature to bring back a fund that              
 had disappeared, such as, the Renewable Resources Fund?                       
 Number 1338                                                                   
 MR. BALDWIN replied he did not think that it did.  The language               
 would have to be changed to do that.  It did not revive passed                
 repealed dedicated funds.  The statutory interpretation would say             
 that "you cannot revive a prior repealed provision unless expressly           
 provided."  This resolution did not expressly provide for that.               
 Number 1382                                                                   
 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin if, according to the               
 opinion of Mr. Jack Chenoweth, Attorney, Legislative Legal and                
 Research Services, Legislative Affairs Agency, a change in the rate           
 of the tax by the legislature would not have an impact on the                 
 existence of the dedicated fund or undo the legal effect of the               
 dedicated fund?                                                               
 Number 1405                                                                   
 MR. BALDWIN replied the 1959 opinion of the attorney general                  
 indicated such an act would nullify a fund.  "We didn't explore               
 that, as to what would be the effect.  Whether it would destroy the           
 underlying dedication."  He read the opinion to say it would be an            
 empty act.  It would not accomplish anything.  The legislature was            
 without power to do that.  It would leave the existing dedication             
 in place.  It would not destroy the existing dedication.  That,               
 however, was an open question.                                                
 Number 1455                                                                   
 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin, in his opinion, if                
 there was a change in the tax rate, would it nullify the fund?                
 Number 1469                                                                   
 MR. BALDWIN replied, "No."  If the tax rate was increased then the            
 law was nullified.  If the tax rate was increased and went to a               
 dedicated fund then that law was nullified.  If it was repealed, it           
 was also gone and it could not be revived according to the current            
 wording of the constitution.                                                  
 Number 1490                                                                   
 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin in his opinion if the              
 increase in the tobacco tax in CSHB 1(STA) that the House State               
 Affairs Standing Committee just passed would nullify the fund?                
 Number 1501                                                                   
 MR. BALDWIN replied the opinion of the attorney general indicated             
 there was a good faith legal argument that could be made of Mr.               
 Jack Chenoweth's opinion.  It was still an open question for the              
 courts to decide, however.  It was the opinion of the attorney                
 general that it was worth testing.  He could not say that it was              
 flat out void or unconstitutional.  The opinion of the attorney               
 general in 1959 had been in effect for a long time, and the                   
 legislature had followed if for a long time.  All those factors               
 would be considered by a court.  He could not say today that the              
 bill passed out of the committee was flatly prohibited by the                 
 Number 1554                                                                   
 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin if the opinion had ever            
 been tested before in court?  He had more faith in the court system           
 than Chair James.                                                             
 Number 1567                                                                   
 MR. BALDWIN replied this particular issue had not been tested in              
 Alaska.  He was not aware of a case tested in another state either.           
 There were dedicated funds in other states, but he did not believe            
 that there was a dedicated fund prohibition similar to the one in             
 Alaska.  The dedicated fund prohibition had been tested in other              
 aspects, in particular, the breadth of the revenue covered.  It was           
 believed at one time that the prohibition only applied to tax and             
 license proceeds.  But, in the mid-1980's, it was ruled by the                
 court that it covered all revenues received by the state.  The                
 court also ruled that the revenues that went to the ferry proceeds            
 was not a dedicated fund.  He was not aware of any other court                
 Number 1659                                                                   
 CHAIR JAMES stated that Mr. Jack Chenoweth's opinion contained the            
 same caveat-that it could be challenged in court.  The resolution,            
 however, put the choice to the public as opposed to the courts.               
 Number 1689                                                                   
 MR. BALDWIN explained there was a timing issue involved here as               
 well.  The resolution would go before the voters in 1998.  And,               
 according to the terms of the constitution it would take effect 60            
 days after certification.  The CSHB 1(STA) indicated the primary              
 tax would take effect in October of 1997.  There was a one-year               
 difference.  He suggested considering a provision to include                  
 retroactivity or somehow linking the two together.                            
 Number 1770                                                                   
 CHAIR JAMES thanked Mr. Baldwin for his suggestion.  The committee            
 substitute was drafted so that if there was court action that                 
 negated it from putting revenues into the school fund, the money              
 would then go into the general fund.  It was assumed that the taxes           
 collected before the court case would go to the dedicated fund.               
 The money would be identifiable and the net result would then go to           
 the general fund.  She agreed the bill and the resolution should be           
 coordinated.  She hoped that the resolution would deter anybody               
 from challenging this issue in court.                                         
 MR. BALDWIN replied he thought somebody would file as soon as the             
 first return was due.                                                         
 CHAIR JAMES stated it did not deter her determination, however, to            
 move this issue forward.                                                      
 Number 1901                                                                   
 REPRESENTATIVE VEZEY stated the effort of HJR 18 was a bad idea.              
 He called it an attempt to assuage ones conscience over raising               
 taxes.  The legislature had a 38 year history of defending its                
 right to appropriate revenues.  The hottest issue in terms of                 
 dedicating funds was the highway fund.  Moreover, "Every time we              
 get into a dedicated fund, it just turns into such a christmas tree           
 that it goes into a hole and stays there the rest of session."                
 That would probably happen to HJR 18 as well.                                 
 Number 1972                                                                   
 CHAIR JAMES replied during the last legislature, she proposed a               
 bill that addressed a state highway dedicated fund.  She believed             
 there needed to be a relationship between a tax and a fund for a              
 connection.  There was no connection between a tobacco tax and a              
 school fund.  There was a definite relationship between a fuel tax            
 and a road maintenance fund.  However, the state currently spent              
 $75 million on road maintenance, but only collected $24 million in            
 gas taxes.  Even if the current gas tax was tripled there would not           
 be enough money available to maintain the roads.  Therefore, it did           
 not serve the purpose of the dedicated fund.  She agreed HJR 18               
 assuaged her because she had as much passion for spending money to            
 make the schools safe and healthy as the people who supported the             
 tobacco tax.                                                                  
 Number 2080                                                                   
 REPRESENTATIVE VEZEY commented that, if all the fees and taxes were           
 added together that were directly contributed to highway and                  
 vehicle use, they would amount to approximately $75 million.  It              
 just so happened, he explained, that what the legislature                     
 appropriated was at about the level that the state taxed and                  
 assessed fees at.                                                             
 Number 2111                                                                   
 CHAIR JAMES replied she understood that argument.  The general                
 public was concerned about losing federal funding in Alaska if it             
 did not start taking care of its roads.  That was a nationwide                
 problem, however.  She understood in other states that there was a            
 dedicated highway fund and in other states that a transportation              
 authority took care of the funds.  The funds did not go through the           
 legislature.  She was not questioning whether the resolution or the           
 bill was a bad idea or not.  It was just what she wanted to do.               
 Number 2217                                                                   
 REPRESENTATIVE ELTON said he was concerned because the                        
 constitutional convention provided the notion that dedicated funds            
 were not good.  He announced he was not prepared to move the                  
 resolution today, especially since there was a suggestion to                  
 include a retroactivity clause.  He asked Chair James to postpone             
 the final disposition of the resolution until Thursday, February 6,           
 1997, to allow the committee members to review the possible added             
 language.  He also wanted more time to ponder the wisdom of the               
 members of the constitutional convention who were adamantly opposed           
 to dedicated funds.                                                           
 Number 2312                                                                   
 CHAIR JAMES replied she did not have a problem with his concerns.             
 The prohibition in the constitution had a rational purpose.  It               
 also allowed for the grandfathering of those dedicated funds prior            
 to statehood.  That was done for a reason.  She did not want to               
 question the reason, however.  She believed, if the opinion of the            
 attorney general had not been written in 1959 in its context, then            
 the state would probably still have a highway use fund, for                   
 example.  She would like to have a fund for the roads and a tax               
 that was directly related to the use of the roads.  She would not             
 vote for a school fund if a highway use fund was an issue before              
 the committee.  There was no relationship between a tobacco tax and           
 a school fund.  But, it was here, it was reasonable, and it was               
 available.  That was her rationale and she knew there were holes              
 all through it.  She reiterated she would support a dedicated fund            
 for the maintenance of the roads as long as the money going into it           
 had a direct relationship to the use of the roads.  This should not           
 be a political issue, it should be a realistic issue.                         

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