Legislature(2019 - 2020)SENATE FINANCE 532
04/29/2019 01:30 PM Senate FINANCE
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 | |
| SB104 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 39 | TELECONFERENCED | |
| += | HB 40 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 104 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
April 29, 2019
1:38 p.m.
1:38:31 PM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 1:38 p.m.
MEMBERS PRESENT
Senator Natasha von Imhof, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Peter Micciche
Senator Lyman Hoffman
Senator Donny Olson
Senator Bill Wielechowski
MEMBERS ABSENT
Senator Mike Shower
Senator David Wilson
ALSO PRESENT
Juli Lucky, Staff, Senator Natasha von Imhof; Caroline
Schultz, Staff, Senator Natasha von Imhof; Vikki Jo
Kennedy, Self, Juneau; Senator Cathy Giessel; Senator Mia
Costello.
PRESENT VIA TELECONFERENCE
Adam Hykes, Self, Homer; Lynette Clark, Self, Fox.
SUMMARY
SB 104 APPROPRIATION LIMIT
SB 104 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 104
"An Act relating to an appropriation limit; relating
to the budget responsibilities of the governor; and
providing for an effective date."
1:38:58 PM
Co-Chair Stedman discussed housekeeping.
Co-Chair von Imhof MOVED to ADOPT proposed committee
substitute for SB 104, Work Draft 31-LS0804\U (Wallace,
4/28/19).
Co-Chair Stedman OBJECTED for discussion.
1:40:13 PM
JULI LUCKY, STAFF, SENATOR NATASHA VON IMHOF, discussed the
proposed committee substitute (CS).
Ms. Lucky noted that there was a new section added on page
2 of the bill that allowed for an allowance outside of the
cap for capital projects. She said that an amount equal to
the 5 percent of the cap could be spent outside of the cap
for projects within a years time. She furthered that the
erroneous language on Page 2, lines 16 and 17 would be
removed in a future CS.
Ms. Lucky detailed that the first year of the spending
limit would be $5 million and the amount allowable would be
up to $250 million to be outside of the cap. She clarified
that the capital budget would not necessarily be $250
million, only that up to $250 million would not be included
under the cap. There were also technical changes that did
not change the intent of the bill. The technical changes
provided clarifying language.
1:43:12 PM
Co-Chair Stedman WITHDREW his objection. There being NO
further OBJECTION, it was so ordered.
Ms. Lucky addressed the fiscal note, which was a statement
of zero fiscal impact for various departments.
1:44:15 PM
CAROLINE SCHULTZ, STAFF, SENATOR NATASHA VON IMHOF,
directed attention to the spreadsheet "Unrestricted General
Fund Short-term budget expectations (1.5 percent inflation)
'A'," (copy on file). She clarified that the spreadsheet
reflected a short-term cash flow analysis that would show
the expected budget given the budget that had passed out of
committee as well as other policy considerations currently
in front of the committee.
Ms. Schultz looked at Slide A, which showed unrestricted
general fund (UGF) spending in millions except for Line M,
which showed the per capita permanent fund dividend. Line A
represented the oil and other UGF revenue, which was
projected at $2.3 billion for FY20. Line B showed the SB 26
percent of market value (POMV) draw, which will be 5.25
percent until FY22, when it switches to 5 percent. Line C
showed the UGF revenue, which was the sum of lines A and B
and totaled $5.23 billion. She continued to the 'Spending'
section of the spreadsheet, which began on line D. She
noted that the senate budget was $3.785 for FY20 and grew
at 1.5 percent inflation rate through FY22. Line E showed
total debt payments. Line F clarified the debt subject to
the cap; the bill explicitly clarified that the only debt
considered debt issued by the state were excluded from the
cap. Items such as school debt reimbursement and pension
obligation would still be counted under the cap. She
pointed to Line G, which showed the retirement payment and
Line H was for fund capitalization and was held steady
through FY22, as it was unclear what those numbers would
be. She stated that Line I reflected that total operating
budget at $4.3 billion and Line J showed the placeholder
capital budget of $150 million. Line I and J added together
reflected the total government UGF spending of $4.46
billion. She said that the chart reflected a permanent fund
dividend of only surplus; the total UGF revenue with
subtracted UGF spending, which in FY20 was $777 million and
calculated to a dividend of $1,200 for all qualified
applicants. Chart B showed the 50 percent POMV split.
1:48:20 PM
Ms. Shultz moved to Line N, which showed the total
expenditures, including the dividend, of $5.237 billion.
The deficit would be zero as the surplus would be used to
pay the dividend. She moved to Line P, which showed
appropriations subject to the cap and was the total UGF
spending, less the debt outlined in Line F, as well as
capital as long it was less than 5 percent of what the cap
allowed. She said that the cap would not apply in FY20
because the effective date of the bill was for the FY21
budget. She relayed that based on the modeling, in FY 21
the appropriation subject to the cap were $82 million over
the $5 billion cap. She noted the estimated constitutional
budget reserve (CBR) balance for FY21 and FY22 and shared
that the estimated for the CBR balance for the beginning of
FY20 was $2.3 billion but was subject to change.
1:50:00 PM
Co-Chair Stedman asked how the legislature would address
Line 'R'.
Ms. Schultz noted that the line suggested that the cap as
written in the bill was lower can could be expected to be
achieved in the first year.
Co-Chair Stedman wondered whether the state would have to
have more revenue and less expenses, or less expenses
because it was delinked from revenue.
Ms. Schultz stated that the cap was delinked from revenue,
so even with a significant windfall in terms of oil prices
or production, or remarkably large market returns on the
permanent fund, it would not matter because the cap would
still be set at $5 million.
Co-Chair Stedman asked about the components driving the
negative number on Line R when operating budgets were flat.
Ms. Schultz stated that the operating budget grew slowly,
but it was important to take note that debt payments were
expected to increase in FY21 and FY22. Additionally, the
state's expected retirement payment should go up by $125
million by FY21, based on the experience study.
1:51:50 PM
Co-Chair Stedman asked whether the actuarial assumptions
and performance of the retirement portfolio could push the
figures over the cap.
Ms. Schultz replied in the affirmative.
1:52:06 PM
Co-Chair von Imhof thought the key piece of information on
the spreadsheet was on Line G, which pushed against the
cap. She thought that Lines A through O were separate but
interrelated. She believed that the work of the state was
to decide what should be done with anticipated expenses
over the next few years. She said that Line D looked
steady, but other state services like debt, retirement, and
capital made a significant impact on the cap. She affirmed
that the state needed to adjust the amount of the cap or
set more money aside to help fund the years of low
cashflow.
1:53:49 PM
Senator Bishop referenced Page 2 of the bill. He asked
whether Line E 'Total Debt Payments' was inside or outside
of the cap.
Ms. Schultz explained that Line E included the state
obligation for state debt as well as school and municipal
debt reimbursement; Line F subtracted out school bond debt
reimbursement.
Senator Bishop asked whether the $103 million listed for
FY21, on Line F, was outside the cap.
Ms. Schultz answered in the affirmative.
1:55:17 PM
Senator Wielechowski understood that the proposed
appropriation limit did not apply to an appropriation to
the principal of the permanent fund but would apply to the
actual appropriation for the permanent fund dividend.
Ms. Schultz answered in the affirmative.
Senator Wielechowski cited the Alaska Constitution, Article
9, Section 16, which excluded appropriations for permanent
fund dividends. He thought that in a conflict between
statute and the constitution, the constitution would trump.
1:56:03 PM
Co-Chair von Imhof addressed Senator Wielechowski's
question. She affirmed that the entire statute was a
conflict.
Co-Chair Stedman relayed that there was a current spending
cap, which was considerably higher than the recent spending
level. To bring a statutory spending cap below the
constitutional spending cap would lead to conflict between
statute and the constitution.
1:57:34 PM
Senator Wielechowski wondered what ramifications there
would be if there was as statute that was at odds with the
constitution. He wondered whether the constitution would
overrule the statute, rendering the statute meaningless.
Co-Chair Stedman thought that a statutorily mandated
spending cap that was lower than the constitutionally
spending cap would be a non-issue. He believed that there
was an effort at hand to adjust the constitutional spending
cap so that it was more viable to the current fiscal
reality.
1:58:46 PM
Senator Wielechowski looked at the FY20 calculation for the
dividend. He noted that the committee had recently passed
at $3,000 for FY19 and expressed curiosity as to how that
would impact the FY20 calculations.
Ms. Schultz offered to provide the information later.
Ms. Schultz addressed a second spreadsheet "Unrestricted
General Fund Short-term budget expectations (1.5 percent
inflation) 'B'," (copy on file). She noted that the
spreadsheet reflected the 50 percent POMV split.
Co-Chair Stedman noted that the original spreadsheet 'A'
showed a per capita dividend of $1,215. He thought the
statutory number was more like $3,000 or $1.8 billion. He
asked how much the statutory number effected the spending
cap numeric.
Ms. Schultz stated that increasing the dividend payout
would not affect the cap itself but would impact the
appropriation subject to the cap by adding an additional
$1.2 billion. She thought it was important to note the
difference between cash flow constraints and cap
constraints when discussing expenditures.
2:00:54 PM
Senator Micciche understood that spending over the cap for
a full dividend would exceed the cap by $800 million.
Ms. Schultz agreed that the full statutory dividend would
put the state significantly over the cap.
Co-Chair Stedman asked that the full statutory dividend be
added to the model.
Ms. Schultz agreed to provide the information.
Co-Chair Stedman recalled an earlier conversation on
changing the statutory dividend calculation to a 50/50
split of the 5.25 percent between the dividend and the
portion that would come to the state for core services. He
said that the slide reflected the split.
2:02:06 PM
Ms. Schultz affirmed that slide 'B' showed everything from
the prior slide except for line L, which reflected 50
percent of POMV split for the dividend, with the other 50
percent going to other government spending. She noted that
lines A through K were unchanged in the second scenario.
She pointed out that M was higher as well as Line N. She
stated that the revenue less expenditures on Line O
reflected a larger deficit due to the higher dividend
payout. She thought it was important to note that Line O
was a cash flow deficit, which was distinct from the cap;
the appropriation subject to cap on Line P was also higher
because the dividend amount was higher. The cap remained
unchanged. Line R, the amount that appropriations were
either under or over the cap, was higher due to the larger
dividend payout.
Ms. Schultz shared that the model assumed that deficits
would come from the CBR, and it was observable that the CBR
balances depleted much more quickly with the larger
dividend payout.
2:04:13 PM
Co-Chair Stedman looked at line O. He though that in FY20,
hypothetically, the state would be $690 million short of
meeting its obligations; in FY21 the shortfall would be
$865 million.
Ms. Schultz answered in the affirmative.
Co-Chair Stedman understood that the model used the 50/50
POMV split.
Ms. Schultz responded in the affirmative.
Co-Chair Stedman looked at line R. He surmised that the
state would be approximately $1 billion over the cap to
balance the budget.
Ms. Schultz agreed.
Co-Chair Stedman thought there was a demonstrated benchmark
error of where the starting number should be and asked how
that could be fixed.
Ms. Schultz suggested that a way should be discovered to
reduce the total expenditure by $1 billion or add $1
billion to the cap.
Co-Chair Stedman explained that in looking at the two
models it was important to consider the impact on the
legislation that would be made by a new statutory dividend
structure.
2:06:17 PM
Co-Chair von Imhof agreed that the cap could be increased
to reflect any scenario. She asserted that the cash flow
was the real issue. The reason for a cap was to constrain
spending, so that funds were saved in years of high cash
flow. She thought the consideration was an academic
experience. She thought reasons such as retirement and debt
expenses were valid reasons to increase the cap.
Co-Chair von Imhof pointed out that the spending did not
have to reach the cap, particularly if the revenue was
unavailable. She noted that spreadsheet 'A' showed a
dividend of $1200 for FY20 and noted that there would be
pressure on the dividend because of retirement and debt,
which left a weak capital budget. She lamented that the
state was already short of funds for capital projects and
noted that an additional $20 million had just been spent on
an emergency supplemental. She thought that a 50/50 split
was fiscally unwise.
2:10:08 PM
Co-Chair Stedman noted that Co-Chair von Imhof pointed out
the balancing of the spending cap and consideration of the
net cash flow. He thought there would be great concern of
taking the CBR below $2 billion.
2:11:28 PM
Senator Olson agreed with Co-Chair von Imhof that it was
not necessary to spend up to the cap.
2:11:54 PM
Senator Wielechowski wondered about the rationale for
excluding debt obligation like refundable oil tax credits
from the appropriation cap and not including state pension
liability and school debt bond reimbursement in that
exclusion.
Co-Chair von Imhof said that retirement could be excluded
if it was the wish of the committee. She explained that her
initial proposal was for anything that used UGF but that
conversations with committee members had resulted in the
exclusion of some things from the cap.
2:13:37 PM
Senator Wielechowski thought it looked like inflation was
calculated on the average of the previous five years. He
thought it was important to ack quickly to rising
inflation.
Ms. Schultz stated that she had considered many different
growth options for the cap. Personal income was considered,
and several other factors. Given that inflation had been
fairly steady over the preceding years, the window had been
closest to the revenue forecasts for growth rate.
2:15:20 PM
Ms. Lucky added that as Senator Olson had previously
stated, steady growth over time had been considered. Since
the cap was not intended to be a spend to target but a
rate of acceptable growth, the five-year average seemed the
best fit for the model.
2:15:59 PM
Senator Micciche supported the five-year trailing average.
2:16:49 PM
Senator Wielechowski asked about the constitutional
appropriation limit, and thought the bill proposed one-
third set aside for capital projects and loan
appropriations.
Co-Chair Stedman stated that the issue had come up over the
years. He thought the issue was more complex than it
appeared. He questioned how to embed the capital project
needs of the state into a spending limit that was targeted
for the growth of the operating budget. He suggested that
the matter be considered by LFD and the Legislative Legal
department.
2:19:08 PM
Senator Bishop stressed the importance of steady
maintenance of the states buildings and roads. He believed
drawing down deferred maintenance in the state would help
to smooth out the capital budget overtime.
2:20:37 PM
Co-Chair Stedman OPENED public testimony.
ADAM HYKES, SELF, HOMER (via teleconference), spoke in
opposition to the bill. He did not believe that the POMV
model was workable and did not have faith in a spending
cap. He said that the role of the government was to promote
the general welfare, not to provide for it, and that the
state was going broke trying to provide for everyones
needs. He supported less government spending.
2:22:55 PM
LYNETTE CLARK, SELF, FOX (via teleconference), testified
against the bill. She thought the bill was in aid of
growing bigger government. She supported the cuts proposed
by the governor.
2:24:59 PM
VIKKI JO KENNEDY, SELF, JUNEAU, was from Kodiak. She
asserted that when it was time to act, it was too late to
prepare. She expressed a general malaise with the seemingly
redundant conversation surrounding balancing the budget
while paying out a full dividend. She did not support
further cuts to education or the ferry system. She feared
that the legislature was overcomplicating the situation.
2:29:01 PM
Co-Chair Stedman CLOSED public testimony.
Co-Chair Stedman set the bill aside.
2:29:40 PM
Co-Chair von Imhof shared that the $5 billion figure had
been chosen because it was inline with the expected next
few years revenue would be and what the past few years
expenditures had been. She referred to Line K on both
slides, which showed that expenditures had been below the
spending cap, and only when the surplus was spent was the
cap breached.
2:30:44 PM
Senator Micciche reiterated his support for the use of the
5-year average in the model. He said that the governor
supported an appropriation limit. He stated that the
committee supported an appropriation limit, which was a
seed for the future.
SB 104 was HEARD and HELD in committee for further
consideration.
Co-Chair Stedman discussed housekeeping.
ADJOURNMENT
2:33:54 PM
The meeting was adjourned at 2:33 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 104 work draft version U.pdf |
SFIN 4/29/2019 1:30:00 PM |
SB 104 |
| SB 104 Work Draft v.U Explanation.pdf |
SFIN 4/29/2019 1:30:00 PM |
SB 104 |
| SB 104 Unrestricted General Fund Short-Term Budget Expectations.pdf |
SFIN 4/29/2019 1:30:00 PM |
SB 104 |