Legislature(2023 - 2024)DAVIS 106
03/13/2023 06:00 PM House WAYS & MEANS
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HJR2|| HB38 | |
| Presentation(s): Responsible Alaska Budget on Spending Limits | |
| Presentation(s): Spending Caps | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 2 | TELECONFERENCED | |
| += | HB 38 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HJR 2-CONST. AM: APPROP LIMIT
HB 38-APPROPRIATION LIMIT; GOV BUDGET
6:03:56 PM
CHAIR CARPENTER announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 2, Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit. and 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." [Before the
committee was CSHJR 2(JUD) and CSHB 38(JUD).]
6:05:05 PM
The committee took a brief at-ease at 6:05 p.m.
6:05:47 PM
REPRESENTATIVE WILL STAPP, Alaska State Legislature, as prime
sponsor, presented HJR 2 and HB 38. He explained that the need
for a spending cap is not new in the state's history. 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, and he explained that the
problem with this limit is that it does not effectively limit
any kinds of appropriations. He further explained that a decade
ago, Alaska had $10 billion in revenues and $18 billion in the
constitutional budget reserve (CBR) and the statutory budget
reserve (SBR). He said that the House Finance Committee had
been presented 10-year budget forecasts from the Office of
Management and Budget (OMB), and guaranteed to members that in
2012, the 10-year forecasts at that time would not have
predicted that the state spent all of its reserves, or would
make permanent fund draws to pay for state services. He stated
that one of the effective ways to ensure a strong and stable
economy is to apply "common sense solutions to complex
problems." He further stated that such an appropriation limit
would be the first of many commonsense solutions.
6:08:21 PM
BERNARD AOTO, Staff, Representative Will Stapp, Alaska State
Legislature, on behalf of Representative Stapp, prime sponsor of
HJR 2 and HB 38, referred to language from [a portion of Article
IX, Section 16, of] the Constitution of the State of Alaska,
regarding appropriations, which states that "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." He explained that one-third of
the income shall be reserved for capital projects and loan
appropriations, and that voter approved projects can exceed the
limit. He said HJR 2 sets out to apply a different metric for
calculating an appropriations limit by using gross domestic
product (GDP). He said that HJR 2 takes a five-year trailing
average of real GDP based on calendar years. The calculation
takes the five-year average, takes 14 percent, which will then
be the spending cap. He advised that if established before
fiscal year 2024 (FY 24), the number would be $6.25 billion. He
explained that the reason for 14 percent is that it would set a
limit near current spending levels and allow stable and
predictable spending in the future.
6:10:20 PM
MR. AOTO drew attention to a PowerPoint presentation [hard copy
included in the committee packet], to slide 3, and presented a
table that depicts which expenditures are and are not subject to
the proposed limit. He said that unrestricted general funds
(UGF) operating expenditures, UGF capital expenditures, and
payments for retirement benefits are all subject to the limit.
He detailed what is not subject to the limit: permanent fund
dividends (PFDs), appropriations to permanent fund/PCE
endowment, appropriations to a state savings account,
appropriations to capitalize state retirement accounts, direct
spending from a disaster declaration, and proceeds of bonds that
are approved by voters.
6:11:24 PM
MR. AOTO presented a graph on slide 4 illustrating current
appropriations subject to the limit as the red lines, the
current constitutional limit as an orange line, the limit
proposed under HB 38 as a black line, and the proposed limit
under HJR 2 as a green line. He noted that the graph accounts
for the administration's amended and supplemental FY 24 budgets.
He pointed out that while HJR 2 exceeds the cap that HB 38
proposes, it does not exceed the current limit as set by the
Alaska Constitution. Mr. Aoto moved to slide 5 and stated that
HJR 2 has one primary goal: to create an effective
appropriations limit to allow stable long term fiscal viability.
6:12:33 PM
MR. AOTO gave the sectional analysis for HJR 2 [included in the
committee packet], which read as follows [original punctuation
provided, with some formatting changes]:
Section 1:
Amends Article IX, sec. 16 of the Constitution of the
State of Alaska to slightly revise appropriations
subject to the limit as well as the conditions that
determine the appropriation limit. Sets a maximum
statutory cap at 14% of Real GDP (not including
government spending).
Exceptions List [Article IX, Sec. 16]
• Adds appropriations to the Alaska permanent fund to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Adds Appropriation of GO Bond proceeds to exceptions
list
o Moved with slight variation from Appropriation
Limit Section to Exceptions List
• Adds payment of principal and interest on revenue
bonds to exceptions list
• Adds 'appropriations to a state account or fund that
requires a subsequent
appropriation from that account or fund as prescribed
by law' to exceptions list.
• Adds 'appropriations to meet a state of disaster
declared by the governor as prescribed by law' to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Removes "Appropriation of Revenue of a public
enterprise or public corporation.
of the state that issues revenue bonds"
Appropriation Limit Conditions [Article IX, Sec. 16]
• Adds (Appropriations Not to Exceed) an amount
prescribed by law equal to a percentage of the average
Real GDP (not including government spending) for the
first five of the last six years. This measure of
Real GDP is estimated by state government as
prescribed by law.
• Removes Old appropriation limit anchored to $2.5
Billion + Pop. and infl. (since 7/1/81)
• Removes language reserving 1/3 for capital projects
and loan appropriations.
• Removes language adding exceptions to appropriations
subject to the limit from this Appropriation Limit
Conditions section and moves these to the exceptions
list. section.
• Removes specific language surrounding Capital projects
exemptions.
Section 2:
Adds a new section to Article XV of the Constitution of
the State of Alaska (Schedule of Transitional
Measures), section 30, which sets an 'effective date'
of the end of the fiscal year immediately following the
next possible opportunity for Alaskans to ratify a
proposed amendment to the constitution.
Section 3:
Includes the provision that the constitutional
amendments proposed by this resolution must be placed
before the voters at the next general election.
6:15:20 PM
REPRESENTATIVE GRAY requested Representative Stapp to state the
purpose of HJR 2.
REPRESENTATIVE STAPP explained that the intent of HJR 2 is to
smooth out the boom and bust cycles in the state's budgeting, in
order to ensure long-term viability and establish fiscal
certainty in Alaska. He said this could also help private
sector performance, where private sector entities are wary of
investing while the state struggles to create the kind of
stability that attracts long-term investment.
REPRESENTATIVE GRAY asked if it is fair to say that HJR 2 would
help control spending, or rather, help to avoid overspending.
REPRESENTATIVE STAPP responded, "That's a fair assessment." In
response to a question from Representative Gray about the reason
the PFD is not included in the spending limit, said there's been
contention in the state over the last eight years over the PFD,
and from his perspective the PFD "needs its own solution." He
said HJR 2 is setting out to solve a larger fiscal problem that
has existed in the state longer than the PFD "tug-of-war." He
pointed out that the struggle over the PFD ebbs and flows.
6:18:00 PM
REPRESENTATIVE STAPP, in response to a question from
Representative Allard, explained that HJR 2 contains an
exception for PFD appropriations. He said the legislature would
have the ability to take funds that are not within the cap and
appropriate them as they so choose whether that be to pay the
dividend or repay draws from the constitutional budget reserve.
6:19:39 PM
REPRESENTATIVE MCCABE brought up the Fiscal Policy Working
Group's recommendations, pointing out that the group had
separated the PFD intentionally, as well as proposed a separate
spending limit. He opined that the PFD does not belong in the
budget. He surmised that Representative Stapp wrote HJR 2 as
is, because there are already solutions to the PFD that are
working.
REPRESENTATIVE STAPP responded, regarding the fiscal policy
working group, that a spending cap was one of the proposals. He
pointed out that a spending cap is not dependent on any other
aspect of the situation. He said that he is not opposed to
people seeking a holistic solution, but when he speaks to the
merits of HJR 2 and HB 38, the bills stand independently.
REPRESENTATIVE MCCABE stressed that the fiscal policy working
group did not want to "cherry-pick," in that the group knew the
proposals were going to be separate but wanted all the proposals
to march together. He noted that the group did state that a
constitutional spending limit is important, and he thanked
Representative Stapp for bringing HJR 2 forward and said the
matter bears investigating.
6:22:24 PM
REPRESENTATIVE TILTON asked Representative Stapp to elaborate on
using the GDP formula over population plus inflation. She also
asked him to explain the funding limit's design.
REPRESENTATIVE STAPP stated that the private sector tie is
important. He said that in various countries in Europe, like
the Nordic countries, there is a strong private economy. He
stated that in Alaska's case regarding historic private sector
growth, the state has had an anemic private sector economy. He
suggested that to get to a holistic economy in Alaska, members
in the house must take measures towards a strong private sector
economy. He commented that it's not so much looking at today
but instead decades ahead.
6:24:13 PM
MR. AOTO relayed that the current population plus inflation
formula needs to be tied to a figure in order to be effective,
and the current figure it is tied to is $2.5 billion dollars.
He said the difficulty with applying the formula with any figure
- especially when enshrining a figure into the constitution - is
that in 10 years the figure could balloon out of control, which
he said is happening now with the current limit set out in the
Alaska Constitution. He pointed to the graph on slide 7 and
said it illustrates how the current constitutional spending
limit formula has led to spending levels the state could not
even hope to achieve at its current economic level. He
explained that a one-year dip in population and inflation could
drastically affect the current formula limit. Alternatively,
the formula that HJR 2 proposes bases the limit on five trailing
years, which allows one bad year to not be an issue. He
surmised that if there were five years of economic decline, the
legislature would try to take action to reverse the decline to
avoid the "shock value" that resulted from a decline in oil
prices in 2015.
6:26:02 PM
REPRESENTATIVE GROH noted the comments around the Fiscal Policy
Working Group. He asked Representative Stapp if he is aware
that the group recommended "revising Alaska's spending limits as
part of a comprehensive solution," but without actually offering
what that solution would be.
REPRESENTATIVE STAPP responded that the answers to those
questions are the prerogative of the committee.
6:27:17 PM
CHAIR CARPENTER commented that if it is being characterized that
that fiscal policy working group had recommended an action item
- whether a bill or spending limit - then that would be a
mischaracterization of the group's report. He said the report
put forward a revision to the concept of Alaska's spending
limits, since the limits are not effective. He asked
Representative Stapp what the relationship is between HJR 2 and
HB 38.
6:27:57 PM
MR. AOTO explained that the connection between HJR 2 and HB 38
is that the bills are designed to coincide with one another and
mimic each other's language. He said this provides an aligning
and stable spending limit, with the main difference being
percentages. He contrasted the current 14 percent and the
proposed statutory 11.5 percent, in that the statutory limit
sets a two-thirds vote requirement for the legislature to exceed
the limit.
CHAIR CARPENTER asked if it is for any need or only for capital
spending.
6:29:00 PM
REPRESENTATIVE STAPP responded that, conceptually, it would be
for capital spending, but money could be appropriated for other
means. He said his intention is to ensure that [the state] has
the ability to maintain a level of revenue that could be
appropriated for capital spending for the future.
6:29:39 PM
MR. AOTO, at the invitation of Chair Carpenter, offered
information regarding HB 38, which he highlighted is the
statutory companion to HJR 2. He explained the current
statutory limit, set under AS 37.05.540(b), mostly aligns with
the appropriations limit under Article IX of the Alaska
Constitution: "Appropriations from the treasury made in a
fiscal year may not exceed appropriations made in the preceding
fiscal year by more than five percent plus the change in
population and inflation since the beginning of the preceding
fiscal year." He further explained that the change in
population is based on an annual estimate by the Department of
Labor & Workforce Development (DLWD) and that the change in
inflation is based on the consumer price index (CPI) as prepared
by the U.S. Bureau of Labor Statistics.
MR. AOTO said HB 38 uses the trailing average of the 5 previous
calendar years of Real GDP for the state as the metric for the
limit. Real GDP would be calculated by taking data for standard
GDP calculations by government agencies, subtracting government
spending, and adjusting for inflation, and 11.5 percent of the
total average is the limit for all appropriations not listed as
exceptions. He noted that if enacted by FY 24, that figure
would be $5.1 billion. He explained that the appropriations
subject to the limit under HB 38 mimic the provisions under HJR
2. The only difference is that HB 38 adds an additional
exemption of appropriations made from the Alaska Mental Health
Trust Authority settlement income account. He said that was put
into HB 38 because of the Weiss v. State case, and the language
was left unaltered at the advice of Legislative Legal Services
that any change to it may subject the legislature to litigation
and re-open litigation in Weiss v. State.
6:32:34 PM
MR. AOTO showed a graph depicting the current statutory limit,
represented by a light blue line, and the [darker] blue lines
represent appropriations subject to the statutory limit. He
said the figure varies when compared to appropriations subject
to the constitutional limit. He offered further details, then
noted that any supplementals that are made in a fiscal year
court toward that fiscal year. Mr. Aoto stated the two primary
goals of HB 38 are to create an effective appropriations limit
to allow the state more stable long-term fiscal viability and to
align Alaska statute with the constitutional proposal. He then
presented a graph with a red bar that represents appropriations
subject to the constitutional limit and a blue bar that
represents appropriations subject the statutory spending limit.
Further, there is an orange line that represents the current
limit, a green line that represents the limit under HJR 2, and a
black line that represents the limit under HB 38. He noted
that, historically, the constitutional limit is stable at an
incline; the statutory limit is volatile due to the metric
designed for the limit.
6:35:09 PM
MR. AOTO explained that Section 1 of HB 38 amends AS
37.05.540(b) to conform to changes made by HJR 2. Changes
affect the list of appropriations subject to the limit as well
as the conditions that determine the appropriation limit. The
bill defines a calculation for an appropriation cap at 11.5% of
a trailing average of Real GDP, not including government
spending. Under exceptions, AS 37.05.540(b), it adds the
following to the exceptions list: appropriation 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"; and "appropriations to meet a state of
disaster declared by the governor as prescribed by law". Under
appropriation limit conditions, AS 37.05.540(b) it adds
appropriations not to exceed 11.5 percent of the average Real
GDP, not including government spending, for the first five of
the last six years. It removes the following: the old cap of 5
percent more than last year plus the change in population and
inflation since the beginning of the preceding fiscal year;
language describing determination of change in population based
on annual estimate by DLWD; and language describing the change
in inflation based on CPI for all urban consumers for Anchorage.
MR. AOTO explained that Section 2 of HB 38 adds a new subsection
(f) to AS 37.07.020 which requires a comparison of the
governor's budget requests, supplemental requests, and budget
amendments to the calculated appropriation limit. Section 3
repeals AS 37.05.540(e) due to Section 1 of HB 38, adding
disaster response spending to the exceptions list in subsection
(b). Section 4 adds a new section to uncodified law of the
State of Alaska which ensures that this Act is contingent upon
the ratification of an amendment to Article IX, Section 16 of
the Alaska Constitution. Section 5 sets an "effective date" of
the beginning of the fiscal year with the contingent set forth
in Section 4.
6:36:46 PM
REPRESENTATIVE STAPP pointed to the aforementioned blue line on
a graph, the current statutory limit, and characterized it as a
roller coaster. He echoed Mr. Aoto's comments that because of
the design of the current statutory appropriations limit, it can
be violated without even knowing due to the nature of the
supplemental budget process. He further pointed out that due to
how the current statutory limit is calculated, there could be a
$3 billion dollar swing in one fiscal year, which he said he
imagines is not what the legislature wishes to encourage when
trying to find long-term fiscal stability.
6:38:17 PM
REPRESENTATIVE GROH asked Representative Stapp to describe the
theory behind a constitutional and statutory spending limit. He
noted that a constitutional limit is effective, but asked what
the purpose is of the statutory limit with differing metrics.
REPRESENTATIVE STAPP explained that the purpose of the statutory
limit is to have a mechanism to ensure effective capital
spending without reaching the constitutional limit. He
reiterated that the goal is to ensure future fiscal stability,
which he said comes from a sound appropriations process. He
noted that Alaska already has constitutional and statutory
limits, so the idea is to make the current limits effective and
work hand in hand.
REPRESENTATIVE GROH asked if the reason to have a separate
statutory limit is because that is where there is room for
additional capital spending.
REPRESENTATIVE STAPP replied, "Not necessarily." He said there
can be effective capital spending within a statutory limit; it
just depends on how the legislature decides to appropriate
funding. He said there may be years where all spending falls
under the statutory limit when there is year over year private
sector growth.
6:40:13 PM
MR. AOTO noted that the limit also requires two-thirds of the
legislature to go over the 11.5 percent limit. He said that
theoretically, capital spending could be used but would also
still require a two-thirds vote of support from the legislature.
6:40:47 PM
CHAIR CARPENTER announced that HJR 2 and HB 38 were held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0038B.PDF |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| HB 38_HJR 2 Sponsor Statement Version B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 HJR 2 |
| HB 38 Sectional Analysis B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| HB 38 Summary of Changes B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 |
| W&M HB38.HJR2 BHR.pdf |
HW&M 3/13/2023 6:00:00 PM |
HB 38 HJR 2 |
| HJR002B.PDF |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HJR 2 Sectional Analysis Version B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HJR 2 Summary of Changes B.pdf |
HW&M 3/13/2023 6:00:00 PM |
HJR 2 |
| HB38 anf HJR2 model - Leg Finance.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| HB38.HJR2 W&M.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF_Townsend,Quinn_SpendingLimit.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF state-tax-and-expenditure-limits-april-2021.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF - TABOR-Turns-30.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF-Brief-TELs-50-State-Comparison-02-28-2020.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF Responsible Alaska Budget - Fiscal Year 2024.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| APF - TEL-Tale-Heart.pdf |
HW&M 3/13/2023 6:00:00 PM |
|
| H W&M_Approp Limits_3-13-23.pdf.pdf |
HW&M 3/13/2023 6:00:00 PM |