Legislature(2021 - 2022)ANCH LIO DENALI Rm

09/08/2021 10:00 AM House WAYS & MEANS

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Audio Topic
03:06:40 PM Start
03:08:02 PM HB3001|| HJR301
03:57:53 PM Overview(s): Appropriation Limits
05:07:50 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time & Location Change --
-- Meeting Postponed to 3:00 pm --
-- Testimony <Invitation Only> --
Heard & Held
Heard & Held
+ Overview: Appropriation Limits TELECONFERENCED
+ Bills Previously Heard/Scheduled TELECONFERENCED
            HB 3001-APPROPRIATION LIMIT; GOV BUDGET                                                                         
                HJR 301-CONST. AM: APPROP LIMIT                                                                             
3:08:02 PM                                                                                                                    
CHAIR SPOHNHOLZ announced that the  first order of business would                                                               
be  HOUSE BILL  NO. 3001,  "An Act  relating to  an appropriation                                                               
limit; relating  to the budget responsibilities  of the governor;                                                               
and providing for  an effective date" and  HOUSE JOINT RESOLUTION                                                               
NO. 301,  Proposing amendments to  the Constitution of  the State                                                               
of Alaska  relating to  an appropriation  limit; and  relating to                                                               
the budget reserve fund.                                                                                                        
3:09:12 PM                                                                                                                    
REPRESENTATIVE JAMES KAUFMAN, Alaska  State Legislature, as prime                                                               
sponsor,  introduced   HB  3001.     He  presented   the  sponsor                                                               
statement,   which   read   as  follows   [original   punctuation                                                               
     HJR 301  and its companion  bill HB 3001  work together                                                                    
     to create a constitutional  and statutory framework for                                                                    
     how we  limit appropriations. 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 can meet that                                                                    
     Alaska   has  been   operating  without   an  effective                                                                    
     appropriation limit  for nearly 40 years,  resulting in                                                                    
     less  than meaningful  control of  our state  spending.                                                                    
     The   current  limit   was   enacted   in  1982,   when                                                                    
     approaching   peak  oil   production.  The   timing  of                                                                    
     instituting   this  cap,   plus   the  population   and                                                                    
     inflation  adjustment, have  made the  cap so  generous                                                                    
     that   it  is   longer   useful   in  controlling   our                                                                    
     appropriations and spending.                                                                                               
     Successful  appropriation limits  have boundaries  that                                                                    
     meet  the  needs  of the  unique  way  that  government                                                                    
     operates;  the right  mix of  rigidity where  it counts                                                                    
     and flexibility when and  where it's absolutely needed.                                                                    
     Alaska's  inflation  rate  often varies  from  national                                                                    
     inflation  numbers, our  tax structure  is unique,  and                                                                    
     our spending per capita is  wildly different than most.                                                                    
     If Alaska  follows suit in using  these common factors,                                                                    
     we risk failure because we  may use a formula that does                                                                    
     not meet our unique needs.                                                                                                 
     Considering  what I  have outlined  above, and  all the                                                                    
     other things that make our  situation unique, I propose                                                                    
     a new, functional cap which  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  government must  support policy  that will  enable                                                                    
     the growth of our private  sector economy if they would                                                                    
     like  to  spend  more.  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                                                                    
     We need  to create strong links  between government and                                                                    
     our productive  economy before it's  too late.  We have                                                                    
     immense opportunity to solve  our structural issues and                                                                    
     deliver  a  better   future  centered  around  Alaska's                                                                    
     productive economy.  Let's be productive and  take this                                                                    
3:12:48 PM                                                                                                                    
MATTHEW  HARVEY,  Staff,  Representative  James  Kaufman,  Alaska                                                               
State  Legislature, on  behalf of  Representative Kaufman,  prime                                                               
sponsor, presented  a PowerPoint, titled   HJR 301/HB 3001.    He                                                               
began on  slide 2,  which read  as follows  [original punctuation                                                               
     Current Appropriation Limit                                                                                              
     $2.5 B plus inflation and population growth since 1982                                                                     
          -Calculation for FY 21 would be about $10 billion                                                                     
     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                                                                                        
     At  least 1/3  of limit  reserved for  Capital Projects                                                                    
     and Loans                                                                                                                  
     Can break  the limit for capital  projects, if approved                                                                    
     by the voters                                                                                                              
MR. HARVEY described a graph  of the proposed appropriation limit                                                               
pictured  on slide  3.   He reviewed  the proposed  appropriation                                                               
limit on  slide 4,  which read  as follows  [original punctuation                                                               
     Proposed Appropriation Limit                                                                                             
     Calculated  by  subtracting  government  spending  from                                                                    
     historical   State  GDP   values   and  adjusting   for                                                                    
     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                                                                                                             
          -FY22 appropriations were $15.9 Million below                                                                         
          11.5% of the calculated value                                                                                         
MR.  HARVEY highlighted  the proposed  exemption list  changes on                                                               
slide 5, which read as follows [original punctuation provided]:                                                                 
     Proposed Exemption List Changes                                                                                            
       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                                                                           
       Removes Capital Project reservation and exemption                                                                        
        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                                                                         
CHAIR SPOHNHOLZ  inquired about the  meaning of   capital project                                                               
MR. HARVEY  said it  referred to the  money reserved  for capital                                                               
3:20:00 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON, referring  to slide  3, asked  whether                                                               
moneys  put  into the  constitutional  budget  reserve (CBR)  was                                                               
reflected in the yellow bars on the graph.                                                                                      
MR.  HARVEY  was unsure  of  the  answer.    He deferred  to  Mr.                                                               
ALEXEI  PAINTER, Director,  Legislative Finance  Division, stated                                                               
that  the limit  excluded  appropriations to  funds that  require                                                               
further appropriation to spend.  He  noted that the CBR fell into                                                               
that category and would be excluded from the limit.                                                                             
REPRESENTATIVE  JOSEPHSON sought  to clarify  whether the  yellow                                                               
bars on slide 3 (reflecting  appropriations subject to the limit)                                                               
included  funds  appropriated  to the  statutory  budget  reserve                                                               
(SBR) or CBR.                                                                                                                   
MR.  PAINTER  conveyed  that  the yellow  bars  did  not  include                                                               
appropriations to the CBR or SBR.                                                                                               
3:22:52 PM                                                                                                                    
REPRESENTATIVE  KAUFMAN, in  response to  Representative Schrage,                                                               
explained that the  intent of the legislation was  to link public                                                               
spending  with the  success of  the private  sector economy.   He                                                               
suggested that  the bill would implement  a  smoothing mechanism                                                                
to tame the volatility in economic performance.                                                                                 
REPRESENTATIVE SCHRAGE pondered whether  this proposal offered an                                                               
appropriate basis for a spending cap.                                                                                           
3:26:32 PM                                                                                                                    
REPRESENTATIVE WOOL pointed out that  most of Alaska's GDP was in                                                               
the oil industry; therefore, if  oil GDP were to increase, Alaska                                                               
could theoretically  spend more  money.   However, he  noted that                                                               
oil production  on state land  was different than  oil production                                                               
on  federal land,  suggesting  that even  if  the spending  limit                                                               
increased,  there wouldn't  necessarily be  more money  to spend.                                                               
Additionally,  if Amazon  were to  bring in  10,000 employees  to                                                               
Anchorage, GDP would increase thus  increasing the spending limit                                                               
according  to this  proposal; however,  the new  Amazon employees                                                               
would  use state  services, such  as schools  and roads,  thereby                                                               
costing the government more money  without bringing in additional                                                               
REPRESENTATIVE  KAUFMAN pointed  out  that  the Amazon  employees                                                               
would become  part of the  "economic fabric" of the  community by                                                               
buying  houses,  purchasing  vehicles, paying  taxes,  eating  in                                                               
restaurants,  etcetera; consequently,  their presence  would feed                                                               
into the GDP.                                                                                                                   
REPRESENTATIVE  WOOL pointed  out that  those employees  wouldn't                                                               
pay taxes.  He reiterated  that although the spending limit would                                                               
go  up due  to the  increased GDP,  there wouldnt   be additional                                                               
revenue to match.  He asked if that was correct.                                                                                
REPRESENTATIVE KAUFMAN maintained his  belief that there would be                                                               
a  stimulative  effect  on  the  local  economy.    He  discussed                                                               
inflation targeting.                                                                                                            
3:31:31 PM                                                                                                                    
REPRESENTATIVE  STORY  questioned  how  an  increased  GDP  would                                                               
increase state revenue without an income tax or sales tax.                                                                      
REPRESENTATIVE KAUFMAN  remarked,  I believe we  could find other                                                               
ways for  it to link  back in so that  what we're spending  is in                                                               
relation to what we're receiving.                                                                                               
3:32:41 PM                                                                                                                    
CHAIR SPOHNHOLZ,  referring to  slide 3,  observed eight  or nine                                                               
years  where state  spending would  have  surpassed the  proposed                                                               
appropriation  limit.    She   asked  Representative  Kaufman  to                                                               
explain why  he had proposed a  spending cap that would  be lower                                                               
than historically low levels of spending.                                                                                       
REPRESENTATIVE  KAUFMAN  believed  that  smoothing   the  capital                                                               
projects would smooth the ensuing maintenance projects.                                                                         
CHAIR SPOHNHOLZ maintained her belief  that the proposed spending                                                               
cap was  too low.   She asked  the bill sponsor  why he  chose 14                                                               
percent and 11.5 percent as  the benchmarks for the appropriation                                                               
REPRESENTATIVE  KAUFMAN  pointed  out   that  the  Fiscal  Policy                                                               
Working  Group   had  recommended   that  the   legislature  seek                                                               
reductions  in  spending.    Further,   he  indicated  that  this                                                               
proposal was just a starting point.  He deferred to Mr. Harvey.                                                                 
MR.  HARVEY stated  that  the statutory  limit  assumed a  market                                                               
price   was  set   at  current   spending  levels,   whereas  the                                                               
constitutional  limit provided   enough headroom,   as well  as a                                                               
level of savings while exhibiting  a  contracyclical  effect with                                                               
3:38:50 PM                                                                                                                    
REPRESENTATIVE   JOSEPHSON  sought   to   confirm  that   capital                                                               
expenditures would be subject to the spending cap.                                                                              
MR. HARVEY  answered yes, as long  as they're not subject  to any                                                               
other  exemptions.   For  example,  federal  spend on  a  capital                                                               
project would not be subject to the cap.                                                                                        
REPRESENTATIVE JOSEPHSON  pointed out  that the  Republican Party                                                               
had  supported large  capital budgets  to improve  private sector                                                               
opportunities.    He  wondered  whether   a  miner  or  a  timber                                                               
operator,  for  example,  would oppose  putting  their  share  of                                                               
capital spending under the limit.                                                                                               
MR. HARVEY indicated that it would be a policy call.                                                                            
3:41:04 PM                                                                                                                    
CHAIR SPOHNHOLZ asked how GDP  [as the measure of spending] would                                                               
be  impacted by  changes in  oil development.   She  considered a                                                               
scenario in which the population  stayed the same while inflation                                                               
continued to grow, and GDP were to decline.                                                                                     
REPRESENTATIVE   KAUFMAN  acknowledged   that   there  would   be                                                               
challenges without finding a way to preserve the local economy.                                                                 
CHAIR SPOHNHOLZ  considered a scenario  in which  oil development                                                               
was declining  while a  new Amazon  fulfillment center  in Alaska                                                               
brought a surge  in new jobs without  an effect on the  GDP.  She                                                               
asked how  the public safety,  health, and education for  the new                                                               
workers would be provided for under the proposed legislation.                                                                   
REPRESENTATIVE KAUFMAN  suggested that the statutory  limit could                                                               
be changed.  He offered to follow up with a response.                                                                           
3:45:21 PM                                                                                                                    
REPRESENTATIVE   JOSEPHSON   inquired   about  the   absence   of                                                               
expenditures that exceed the limit.                                                                                             
REPRESENTATIVE KAUFMAN remarked,  There  could be mechanisms that                                                               
address   space  for   capital   projects   within  the   limit.                                                                
Additionally,  he suggested  that  the  statutory language  could                                                               
allow for a rapid response.   He reiterated the importance of the                                                               
 smoothing effect.                                                                                                              
3:49:12 PM                                                                                                                    
REPRESENTATIVE  PRAX   shared  his  understanding   that  capital                                                               
spending was  included in the  limit.  If  there were a  need for                                                               
capital spending above the limit,  he asked whether the option to                                                               
issue a [general obligation] bond would be available.                                                                           
REPRESENTATIVE KAUFMAN answered yes.                                                                                            
REPRESENTATIVE  PRAX  asked  whether  Wielechowski  v.  State  of                                                             
Alaska had any legal impact on this proposal.                                                                                 
REPRESENTATIVE  KAUFMAN answered  no.   He noted  that there  had                                                               
been some discussion of amendments on that topic in the Senate.                                                                 
MR. HARVEY  explained that a  legal interpretation  had suggested                                                               
that the statutory limit in the  bill may not be enforceable.  He                                                               
added  that the  Senate was  working on  an amendment  to address                                                               
that issue.                                                                                                                     
CHAIR SPOHNHOLZ  asked what  language would  be used  enforce the                                                               
statutory limit.                                                                                                                
MR.  HARVEY said  currently, the  language "as  provided by  law"                                                               
would   apply  to   appropriation  bills;   therefore,  exempting                                                               
appropriation bills would tighten up the language.                                                                              
3:52:22 PM                                                                                                                    
REPRESENTATIVE  KAUFMAN, in  response to  Representative Eastman,                                                               
maintained that  the purpose of  the proposed legislation  was to                                                               
increase stability in state spending,  as opposed to direct state                                                               
REPRESENTATIVE EASTMAN sought  to confirm that the  intent was to                                                               
produce  higher lows and lower  highs,  as opposed to the current                                                               
REPRESENTATIVE KAUFMAN confirmed.                                                                                               
3:56:59 PM                                                                                                                    
CHAIR  SPOHNHOLZ  reminded  listeners  that in  addition  to  the                                                               
constitutional  spending cap,  a statutory  spending cap  already                                                               
existed.    Additionally,  she   pointed  out  that  a  committee                                                               
appropriations cap had been drafted.   She announced that HB 3001                                                               
and HJR 301 were held over.                                                                                                     

Document Name Date/Time Subjects
Leg Finance Appropriation Limits Presentation 9.8.21.pdf HW&M 9/8/2021 10:00:00 AM
HJR 301_HB 3001 Sponsor Statement.pdf HW&M 9/8/2021 10:00:00 AM
HB 3001 Sectional Analysis.pdf HW&M 9/8/2021 10:00:00 AM
HJR 301 Sectional Analysis.pdf HW&M 9/8/2021 10:00:00 AM
HJR 301_HB 3001 Presentation.pdf HW&M 9/8/2021 10:00:00 AM
HJR 301_HB 3001 Supporting Documents.pdf HW&M 9/8/2021 10:00:00 AM
HB 3001 Fiscal Note.pdf HW&M 9/8/2021 10:00:00 AM
HJR 301 Fiscal Note.pdf HW&M 9/8/2021 10:00:00 AM
Workdraft version N 9.8.21.pdf HW&M 9/8/2021 10:00:00 AM
HB 141