Legislature(2001 - 2002)
04/17/2001 09:14 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE JOINT RESOLUTION NO. 23
Proposing amendments to the Constitution of the State of
Alaska relating to an appropriation limit and a spending
limit.
This was the first hearing for this resolution in the Senate
Finance Committee.
Co-Chair Donley gave a history of a previous constitutional
amendment adopted by the legislature in 1981 that established an
appropriation limit. It received voter approval, he said, and is
contained in Article 9 Section 16 of the Alaska Constitution.
Unfortunately, he noted, the appropriation limit "has never worked
the way it was intended." He explained that initially the limit
was set at a level never reached and also contained a clause that
allows an escalation based on cost of living and inflation figures.
As a result, he said the current limit is over $6 billion,
approximately $3 billion greater than the actual spending of the
general fund.
Co-Chair Donley opined that the language of this constitutional
provision is unconstitutional, misleading, confusing and also
contains a provision that should be interpreted to require one-
third of the state budget is for capital expenditures. He noted
this provision has never been implemented and that a court decision
reinterpreted the language as "it didn't really mean what it said"
and that the budget does not have to consist of one-third capital
expenditures.
Co-Chair Donley shared that he has never heard this constitutional
amendment defended but rather has heard that it should be changed.
The resolution before the Committee, he stated, is an attempt to
correct the existing provisions with language that could be more
easily comprehended and by implementing a lower appropriation
limit.
Co-Chair Donley explained the proposed appropriation limit would
use the $3.1 billion general fund appropriation of FY 00 as a
starting base and would allow for population and inflationary
increases. He said an additional provision allows an additional 25
percent increase with two-thirds approval from both legislative
bodies.
Co-Chair Donley referenced a chart entitled, Appropriation Limit.
[Copy on file.] He detailed the variables and shared that others
could be calculated as the Committee desired.
Co-Chair Donley surmised that population and inflationary increases
would have less impact than exists in the current constitutional
amendment.
Co-Chair Donley pointed out that general obligation (GO) bonds are
not included in the appropriation limit and that voters could
approve such bonds if the need arose. He deemed this a "safety
valve" in case of an unforeseen need or economic boom arises. He
compared this to many municipal governments that operate under a
tax cap, but allows the issuance of bonds not constrained in the
spending limits.
Co-Chair Donley added that the resolution also contains automatic
voter reconsideration in 2010. He suggested that the actual date
could be changed. He surmised that the absence of this
reconsideration provision is a fault in the current appropriation
limit. He expressed, "it is so difficult to get a two-thirds vote
of the legislature to get a constitutional amendment on the ballot"
and suggested this is the reason the existing constitutional
amendment has not been corrected. He stressed that if the proposed
constitutional amendment does not work, the voters are guaranteed
an opportunity to eliminate it.
Co-Chair Donley spoke from a political science and public
administration standpoint saying, "democratic institutions are just
not well adapted at controlling spending." He emphasized the
pressures on these institutions to increase spending.
Co-Chair Donley stressed the importance of addressing "the current
fiscal crisis that is looming on the horizon." He expressed
gratitude that the Constitutional Budget Reserve (CBR) fund was
established.
Co-Chair Donley concluded that this resolution is a "useful tool to
help restrain the on-going interest in ever increasing spending and
force the continued consideration of hard decisions regarding how
to make government run smarter with what we already have."
Co-Chair Kelly relayed an earlier conversation he had with Co-Chair
Donley in which Co-Chair Donley stated that the just-completed five
year fiscal plan to reduce or maintain government spending
exercised by the legislative majority is unprecedented and does not
exist anywhere else in the United States. Co-Chair Kelly remarked
that he had not previously supported a constitutional spending
limit because the existing provision does not work and also because
of the unforeseen consequences encountered in utilizing the CBR. He
said this resolution is a "workable" solution, particularly because
of the stipulation requiring reassessment by the voters.
Senator Austerman also supported the idea of modifying the existing
spending limit. However, as a layman, he was unsure if the public
understood the issue. Therefore, he predicted it would be the
legislature's duty to educate the public, including the language in
the resolution. He surmised that most voters would only give the
issue a quick review, which he did not think explains the issue,
and as a result, not support the amendment. He asked how this could
be rectified.
Co-Chair Donley predicted that the voters would only look at the
dollar amounts, which is the reason he selected the FY 00
appropriation as the base. He detailed the calculations necessary
to understand the existing methods. He agreed that a major
education campaign would be necessary to inform voters that
although the proposed base amount is increased from the $2.5
billion currently named in the constitution, the actual
appropriation limit is $6 billion after accounting for inflation
and population growth. He stressed that the resolution proposes a
$3 billion decrease, which would be need to be explained to voters.
Co-Chair Kelly asked if the appropriation limitation includes all
general fund spending, but not permanent fund dividends, Alaska
Railroad expenditures and emergency expenses.
Co-Chair Donley clarified the current constitutional amendment
inclusions are, "a little more exclusive." He stated that
additional information would be provided to the Committee that
would better explain this issue.
Senator Austerman calculated that after removing permanent fund
dividends, federal funds and special appropriations, the operating
and capital budgets contain less than two billion general fund
dollars. He reiterated the need to simplify the resolution warning
that the ballot measure would easily fail if there were any
organized opposition.
Co-Chair Kelly agreed and relayed his experience during his last
campaign for office where his opponent stated that spending had
increased by billions of dollars. Co-Chair Kelly emphasized that
his opponent had been using permanent fund earnings and federal
funding in his calculations.
Senator Austerman suggested that the Appropriation Limit chart
should include an additional column to list the status quo.
Co-Chair Donley responded this could be added, but noted that the
real issue would be predicting the status quo in future years.
Senator Hoffman stated that the requirement to spend one-third of
general fund appropriation on capital projects is not observed and
should be addressed. He opined that establishing a fiscal spending
plan is the next largest issue before the legislature. He asserted
that once such a plan is in place, future spending limits could be
determined. He asserted that the requirement that the legislature
provide a balanced budget each year is appropriate and should
remain. He reiterated that the most important issue to Alaskans is
that there is a fiscal plan.
Co-Chair Kelly countered that with various legislation and proposed
constitutional amendments, "there is a fiscal plan." He expressed
that he would always be in opposition to a "ledger sheet that goes
out in the future" because legislatures are prohibited from
requiring future legislatures to abide by spending guidelines.
Instead he said Co-Chair Donley's proposal is the appropriate
method to bind future legislatures through a constitutional
amendment. Co-Chair Kelly noted that statutory changes, such as SB
180 relating to geographical pay differentials, also are a part of
establishing a fiscal plan.
SFC 01 # 75, Side B 10:05 AM
Senator Green referenced Medicaid as one of several entitlement
programs and asked if under the proposed system, these programs
would take priority over all discretionary expenditures. She warned
that by imposing an appropriation limit, entitlement programs would
be the only expenditures remaining and that there would be no funds
for capital projects.
Senator Green asserted that until the Administration adopts and
practices a fiscal plan, any efforts the legislature makes are
irrelevant.
Co-Chair Kelly agreed and commented that in the seven years he has
served in the legislature, efforts have been made to restrain and
decrease government growth. However, he stressed that the
legislature would never have all the information required to make
this happen. He noted the majority votes required to adopt a
budget. He compared this to "performing surgery in the dark while
wearing mittens." He stated that corporate boards of directors do
not make detailed financial decisions, but rather are presented
with a fiscal plan by the company executives for approval.
Senator Green asked how university funding and mental health funds
are related to the appropriation limitation. She suggested that the
Mental Health Trust Authority (MHTA), through its income earning
capacity, has the potential for future self-sufficiency and she
wondered if developing this ability should be the priority.
Co-Chair Kelly agreed with Senator Green's earlier comments saying,
"Medicaid drives our budget." He shared that he has been disturbed
by the conflicts of funding state-operated programs and that he has
never heard opposition to the importance of education or a capital
project program that meets the needs of a young and growing state.
However, he stressed that funding for these programs are contingent
on the entitlement programs' budgets.
Co-Chair Kelly opined that while the Medicaid program is necessary,
it is a program that gets abused and that along with deserving
recipients, there are "free-loaders." He expressed that these free
loaders "push out" capital projects and university, education, and
public safety funding. He qualified that Medicaid is a federal
program, which the state has little control over.
Senator Green invited Co-Chair Kelly to join the Senate Health,
Education and Social Services Committee subcommittee formed to
research Medicaid spending.
Co-Chair Donley interjected that capital projects would not suffer
since G.O. bonds could be issued. He noted that this was how the
state addressed all capital projects before oil and gas revenues
were generated.
Senator Green shared that before she was a member of the
legislature, she would read a list of proposed capital projects on
the ballot and ask herself, "Why would anyone think I know that
that's the priority and why am I voting on it." She stated that
voters did not have background information on the proposed projects
to enable them to make an informed decision.
Co-Chair Donley suggested that since the 1970s, when G.O. bonds
were last issued on a regular basis, technology has advanced and
that background details could be provided on any proposed projects
included in a G.O. bond package.
Co-Chair Donley assured that the proposed $1.3 billion limitation
does not include many funding sources, such as the Alaska
Industrial Development and Export Authority (AIDEA) dividends and
the Alaska Housing Finance Corporation (AHFC) dividends and
University of Alaska tuition, which would increase the total amount
of general fund spending. He stated that it would be reasonable to
debate the inclusion of these variables to the resolution and
adjust the appropriation limitation accordingly. However he
recommended keeping the language broad to allow for unforeseen
circumstances, such as a major natural disaster, and the Alaska
Railroad, which functions independently.
Co-Chair Kelly suggested inserting language in the resolution to
allow earnings from future public corporations to be excluded from
the spending limit by a two-thirds legislative vote at the
formation of that corporation.
Co-Chair Donley stated this would be consistent with other
constitutional requirements to "fine tune" new public corporations
through statute.
Senator Austerman added that the constitution should not be "micro
managed" and become too specific to allow for future decisions.
Co-Chair Kelly commented that discussions such as this are
important to hold when considering constitutional amendments.
Co-Chair Donley invited further discussions and suggestions for
improvements.
Co-Chair Kelly ordered the bill HELD in Committee.
| Document Name | Date/Time | Subjects |
|---|