Legislature(2021 - 2022)SENATE FINANCE 532
08/24/2021 01:00 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB3001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB3001 | TELECONFERENCED | |
SENATE BILL NO. 3001
"An Act making an appropriation from the general fund
to the Department of Education and Early Development
for the payment of educational programs; making an
appropriation from the earnings reserve account for
the payment of permanent fund dividends; making an
appropriation from the earnings reserve account to the
budget reserve fund; and providing for an effective
date."
1:05:04 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, discussed the presentation "State
of Alaska Office of Management and Budget; Senate Finance
Committee; Third Special Session Budget Overview SB 3001;
August 24, 2021" (copy on file). He addressed slide 2:
Durable Fiscal Plan
?Constitutionally protect Permanent Fund, PFD, and PCE
?Establish meaningful limits to expenditure growth
?Provide for a bridge to a sustainable fiscal plan
FY22 Budget
?2021 Permanent Fund Dividend Resolved in SB3001
?FY22 Sweep impacts
?Power Cost Equalization Endowment Resolved by
the AFN case decision
?Higher Education Scholarship Programs Resolved
in SB3001
?Other operating and capital budget shortfalls
Ongoing
Mr. Steininger noted that there was an attachment to the
presentation (copy on file) that listed the other operating
and capital budget shortfalls shown on the slide.
Co-Chair Stedman stated that there were only four slides
and requested that Mr. Steininger complete the presentation
of the slides uninterrupted and then the committee would
address questions on the bill components.
Mr. Steininger pointed to slide 3, "Elements of SB3001":
Permanent Fund Dividend Payment
?$1.53 billion for the payment of the 2021 PFD based
on 50 percent of the POMV draw, providing an estimated
$2,350 per eligible Alaskan
Alaska Student Scholarships and Grants
?$11.7 million to Alaska Performance Scholarship
Awards
?$6.4 million to Alaska Education Grants
?$3.3 million to WWAMI Medical Education
Constitutional Budget Reserve (CBR) Deposit
?$1.47 billion one-time transfer from the earnings
reserve account to the CBR
Mr. Steininger noted that the student scholarships and
grants listed on the slide appeared with zero funding
amounts in the bill because there was a fund source change
from a fund that was subject to the sweep to Unrestricted
General Funds (UGF). The fund change was being made in
Section 2 and Section 3. He continued that the $1.47
billion one-time transfer to the Constitutional Budget
Reserve (CBR) in combination with the Permanent Fund
Dividend (PFD) payment made up the $3 billion "bridge fund"
that the Department of Revenue (DOR) had spoken of during
its presentation. He explained that the bridge funding
allowed for the bridge to the sustainable fiscal plan
introduced by the administration.
1:09:47 PM
Mr. Steininger addressed slide 4, "Budget Impacts of CBR
Vote Failure":
Immediate Issues
?Unfunded operating items Scholarships and education
grants
?Resolved in SB3001 with UGF backfill
Delayed Issues
?Unfunded capital projects
?Projects delayed until valid funding source is
appropriated
?Partially funded operating items
?Programmatic impacts likely in second half of
FY22
?Legislative options exist to address shortfalls
Mr. Steininger discussed budget impacts of the three-
quarters vote failure, and detailed that without the
appropriation, Washington, Wyoming, Alaska, Montana, and
Idaho (WWAMI) students would receive notice of having to
pay out-of-state tuition. He referenced the document
"Budgetary Issues Due to the CBR Vote Failure" (copy on
file), which showed a percent of the overall operating
budget impacted by the shortfalls due to the sweep. Most of
the programs would have the impacts take effect in the
third or fourth quarter of the fiscal year. He contended
that the shortfalls were not an operational problem with an
immediate impact, and there were different legislative
options to address the shortfalls.
Co-Chair Stedman pointed to slide 2, which he thought
showed a preference for a third special session and durable
fiscal plan. He was not sure how to work the option through
the system in two weeks. He asked Mr. Steininger to discuss
the concept of the constitutionally protected PFD, before
addressing the bridge funding or the expenditure/growth
issue.
Mr. Steininger replied that he was present mostly to
discuss the bill. He thought a thorough discussion,
particularly regarding the PFD and the Power Cost
Equalization (PCE) Program, it would necessitate a
presentation by the commissioner of DOR to discuss
modelling of the issues.
Senator Olson pointed out that Mr. Steininger was the
Office of Management and Budget (OMB) director, and the DOR
commissioner was an appointee that might not have the same
longevity. He pointed out that the members had a great deal
of experience and had seen many budget proposals. He asked
Mr. Steininger to address Co-Chair Stedman's question.
1:14:43 PM
Co-Chair Stedman pointed out that the committee was
probably the most seasoned Senate Finance Committee in the
history of the state, and it had dealt with a variety of
issues. He relayed that the committee had concerns it
wanted addressed. He referenced the second bullet,
"Establish meaningful limits to expenditure growth," and
cited that since 2016 there had been virtually no growth in
statewide operating and agency expenditures. He did not
expect the trend to change. He questioned the reasoning for
the administration's proposal of establishing meaningful
spending limits, when there was a 5 percent payout from the
Earnings Reserve Account (ERA), which served as a spending
cap. He asked for Mr. Steininger to expand on the proposal.
Mr. Steininger referenced SJR 5, which proposed an
amendment to the constitutional appropriation limit. He
commented on prior events and the concern that the current
appropriation limit would not constrain overspending during
a windfall. He recalled that there were only two fiscal
years in which the current appropriation limit was below
total revenue available for expenditure. He thought the
experience of the last decade showed that it was
challenging to reign spending back in. He thought the
proposal looked to the future where the state's situation
had changed and would provide meaningful constraints on the
changes in the future.
1:18:29 PM
Co-Chair Stedman stated that the committee had not seen a
forecast of massive surpluses from any direction. He
recalled being up against the spending limit in the current
year and thought also for the following year. He referenced
using American Rescue Plan Act (ARPA) funds to balance the
budget. He discussed contemplation of constitutional
changes in May, when there was an election in the fall. He
thought many months were needed to work through the issues
and questioned an expensive special session when there was
time already built into the regular session to consider
proposals. He thought it was questionable to constrain the
budget to work on an issue that could be worked on the
following May.
Co-Chair Stedman discussed the proposed bridge funding, and
concerns that the proposal was an overdraw of the Permanent
Fund for $3 billion. He asked why the legislature should
consider advancing over $1.5 billion to the CBR years in
advance. He asked why the action was germane over the next
year. He had not seen any fiscal models or presentations
that showed the state running out of cash in the next year.
He asked why there was urgency to the bridge funding, other
than politics.
Mr. Steininger explained that the bridge funding was
proposed to bring the fiscal plan into balance until
revenues increased or other changes to be made. He asserted
that if all the components of the fiscal plan were enacted
before the components were enacted, it would constitute a
"show of faith" that the plan worked. He contended that
there needed to be funds to go to in order to avoid a draw
of the ERA over 5 percent. He thought some estimates had
the CBR going below $1 billion, which was too low of a
balance for long term sustainability to act as the state's
working capital account. The proposed transfer would allow
for the state to make it until the point in which the
proposed models balanced. Doing the transfer now allowed
the state to follow the rules of the proposed plan in
advance of a vote by the people to show that the plan
worked. He noted that the proposed bridge funding was a
one-time draw, and the assets were necessary for the basic
financial health of the state going forward.
Co-Chair Stedman shared a concern that the plan was
deficient and did not add up.
1:23:33 PM
Senator von Imhof thanked Mr. Steininger for his testimony.
She thought he had stated that he did not want to discuss
topics beyond the bill, but she opined that part of
presenting a bill was to discuss the impacts of the
provisions under multiple lenses. She thought the committee
should be discussing the trade-offs, such as taking $1.53
billion for the PFD payment with the trade-off of not
paying for many of the other vetoes. She observed that the
governor had put in three vetoes pertaining to the Alaska
Student Fellowship Grant. She noted the exclusion of public
health nursing, the Alaska travel industry, Regional
Educational Attendance Area (REAA) Funding, Alaska
vocational updates, and other items. She asked about the
economic impacts to the state and to individuals as a
result of not funding the items listed.
Mr. Steininger clarified that the education programs, the
education grant, the scholarship program, and WWAMI were
not vetoed from the governor's bill; and the governor had
supported the items in every bill the administration put
forward. He asserted that the reason the items were
addressed in HB 3001 was due to the fact that the original
appropriations were made from a fund subject to the sweep
and there had not been a successful vote. The items were
unfunded, and with the PFD program were the programs with
immediate impact on Alaskans and were supported in the
bill. He thought the bill should not be interpreted as lack
of support for the other programs tied up by the sweep
issue, which he asserted did not have the same immediate
impact.
Mr. Steininger continued that the administration had
proposed a solution via the bill put forward the previous
December in the form of the reverse sweep. Since the sweep
had not passed, the administration was considering
solutions for other programs, which had varying sizes of
shortfalls. He emphasized that the administration was
focusing on the fiscal plan, and to that end only addressed
things related to the plan and impacting Alaskans in the
bill. He asserted that the administration was looking to
other opportunities to resolve the remaining issues.
1:27:24 PM
Senator von Imhof cited that REAA School funding was
immediate. She knew students returned to school recently
and cited school conditions. She emphasized the immediacy
of public health nursing, and the strain on ICU beds and
the recent rush for Covid-19 vaccinations. She thought the
administration might want to reevaluate its priorities.
Senator Wilson referenced the fund switch mentioned by Mr.
Steininger. He asked if OMB had begun to enact the sweep in
terms of switching fund sources and closing out accounts.
He asked if the administration felt the reverse sweep would
not happen.
Mr. Steininger replied that Senator Wilson's question was
complex. He detailed that the administration had restricted
expenditures on any appropriations made from sweepable
funds that did not show current year revenues. He
referenced the supplemental document, which listed the
restrictions. The administration was restricting
expenditures beyond existing fund revenues to ensure that
the state did not overspend revenue in the fiscal year. The
money in the funds would stay in place until the accounting
process was done. Once the Annual Comprehensive Financial
Report (ACFR) was released and the Legislative Audit
Division finished its final audit finding, the amount of
funding needed to move to the CBR would be known. The
actual transfer of cash did not happen till much later in
the year.
Senator Wilson asked about trying to get the votes for a
sweep rather than doing a fund source switch. He asked if
the position of the administration had changed with regard
to using General Funds.
Mr. Steininger relayed that the administration's position
had not necessarily changed. He recounted that in December
the administration had introduced a budget that included a
reverse sweep, which was not enacted through the vote of
the legislature. He continued that SB 3001 proposed to take
a different route to address the scholarship programs that
impacted individuals directly and immediately.
1:31:42 PM
Co-Chair Stedman wondered how much time the process would
take if the state did not go through the reverse sweep
process. He asked if Mr. Steininger expected additional
work for his department.
Mr. Steininger stated that evaluating the impacts of the
sweep and working through the issues with agencies had
comprised much of the work of his office over the previous
several months. He noted that looking into the impacts of
the sweep had added another layer onto the normal budgetary
process. He referenced the spreadsheet, which was the work
product of many refinements over time.
Co-Chair Stedman asked if there was a cost savings
involved.
Mr. Steininger answered in the negative.
Co-Chair Stedman asked if the legislature could expect a
supplemental budget request if there was no reverse sweep,
or if there would no budget impacts to be concerned about.
Mr. Steininger relayed that Co-Chair Stedman could expect
that in looking at the list of programs to expect that the
solutions for each program might be different. He used the
example of using UGF supplemental to backfill funding that
was swept into the CBR, or a future budget that reflected
cuts. He relayed that the legislature would not see a
supplemental for the time spent by OMB, accounting staff,
or budget staff as it was part of the job to respond to and
evaluate budget issues.
Co-Chair Stedman thought Mr. Steininger's claim that the
increased workload was absorbed indicated that OMB had too
much flexibility with its budget. He thought the matter
needed further review. He recalled that all of the other
OMB directors had been very concerned about the extra
workload related to the sweep getting bogged down in
politics. He wanted more clarity as to why the
administration was advocating for the reverse sweep during
the special session. He reminded that before the budget was
submitted, OMB scrubbed the accounts for excess funds, as
did the legislature once it received the budget.
1:35:40 PM
Mr. Steininger clarified that because OMB was spending time
working on the sweep issue, it was not spending time
working on other issues. He asserted that it was not that
OMB had "slack capacity" that it was devoting to looking at
the reverse sweep, but rather that there were other issues
OMB was unable to investigate further. He addressed the
issue of reviewing funds during the budget development
process, which he explained was the reason for some holes
as a result of the sweep.
Mr. Steininger asserted that some of the funds, such as the
Alcohol and Tobacco Substance Use Fund, were
overcapitalized and the legislature and administration had
engaged in a draw-down. Once the excess balance was swept,
any potential draw down became an over-appropriation of
revenue. He continued that the over-appropriations and
shortfalls were the result of a deliberate and thoughtful
effort to draw down excess balances in Designated General
Funds (DGF) to reduce the burden on the General Fund. He
thought the sweep highlighted operational issues. He did
not there was a one-size-fits-all solution.
Mr. Steininger added that the scholarship programs and
educational grants were very important and backfilling the
programs with some restricted GF made sense. He qualified
that some other programs with smaller shortfalls needed to
be evaluated and a special session without the subcommittee
process was not the right environment to do a deep dive,
and he anticipated there would be future discussions
regarding how to make the programs more durable.
1:39:18 PM
Senator Wilson mentioned the Recidivism Fund and asked how
funding gaps would be filled going forward.
Mr. Steininger relayed that funding gaps, especially when
there was no ability to make up funds through operational
changes, would require UGF backfill to ensure operational
needs were met. He continued that some of the funds had
excess balances the administration had used to lessen the
need for UGF in a given fiscal year, but the costs
remained, and it was a case-by-case situation as to how the
backfill or change in operational costs would be addressed.
Senator Wilson asked if the state had enough funds to pay
its bills without access to the CBR.
Mr. Steininger thought the largest challenge in addressing
the issues would be if accessing the CBR was required. He
noted that many of the instances in which the
administration had over-appropriated General Fund sources
was done to reduce the UGF burden and the amount needed to
draw from the CBR, and detailed conversations including the
subcommittee and budget process would be needed.
Senator Wilson asked if there needed to be a CBR vote
during the current session to ensure that there was
adequate cash flow without going into deficit spending.
Mr. Steininger relayed that there was currently enough of a
General Fund surplus in FY 22 to address the issues.
1:42:22 PM
Senator von Imhof alluded to Mr. Steininger's reference to
cleaning up some of the designated funds but recalled that
the administration's original budget had well over $100
million scattered through the budget using designated funds
as fund sources for a multitude of programs. She thought
the administration had since changed its intent.
Mr. Steininger stated that the administration had not
necessarily changed how it put together a December budget
but was simply responding to the operational changes caused
by not having a three-quarter vote. Without the vote to
access funds, the administration had to reassess how to go
about funding programs. He added that the administration
would still be putting forward a budget utilizing DGF,
because there would be DGF revenue in future years from
sources such as alcohol and marijuana taxes. He explained
that after the sweep occurred, the administration would no
longer have access to existing balances, so the
appropriations would have to be in line with revenue
estimates for the different funds.
Senator von Imhof considered that if the administration
truly supported a reverse sweep, it would be nice to see a
press conference that indicated so. She referenced the
receipt of $505 million in Covid-19 relief funds, which she
thought had a material positive impact on the budget that
gave the opportunity to fund many programs that had been
vetoed or not funded because of the reverse sweep. She
thought the funds had created a cushion and thought it was
important to acknowledge that the funds were a one-time
event.
1:45:19 PM
Co-Chair Stedman expressed concern regarding the
administration's position on the reverse sweep. He
mentioned the Alaska Performance Scholarship (APS) balance
being swept. He asked if there was any opportunity cost and
performance difference between the scholarship fund and the
CBR the way the accounts were currently structured.
Mr. Steininger relayed that the CBR was invested much more
conservatively, due to the large portion of the balance
that was needed for everyday operations in comparison to
the overall size of the fund. He continued that the Higher
Education Investment Fund had a larger balance compared to
its annual appropriation need, so could be invested with a
longer-term outlook. If the fund became part of the CBR,
there would be a transition period where it would begin to
be invested more conservatively.
Co-Chair Stedman recalled testimony from the previous day
that indicated there would be tens of millions in
opportunity cost dealing with the lack of the reverse
sweep. He thought the administration had proposed an
expensive maneuver to the treasury. He thought it was
problematic that the APS balance could be spent from the
CBR. He asked Mr. Steininger if the committee should not
expect the administration to pursue a reverse sweep.
Mr. Steininger stated that after the reverse sweep did not
pass in the appropriation bill HB 69, the administration
had chosen an alternate way to ensure the programs were
funded in in SB 3001. He argued that that the sweep was not
a maneuver or choice that was made, but rather a
constitutional requirement that could only be reversed with
a three-quarter vote of both bodies of the legislature. He
added that the vote threshold to spend any funds moved to
the CBR was higher than that of the Higher Education Fund.
Co-Chair Stedman expanded that the maneuver he had
referenced related to the first year of the administration
when it had advocated to sweep all kinds of funds, after
which its position had changed. He considered it to be a
political maneuver, rather than the constitutional
obligation to pay back the debt owed to the CBR from the
General Fund. He reiterated concern about the opportunity
cost of moving funds, and concern about liquidating the APS
funds. He discussed the spending limit and the 5 percent
draw rate.
1:49:11 PM
Senator Hoffman thought the committee members fully
understood the constitutional requirements of the reverse
sweep. He relayed that he had been chair of the House
Finance Committee when the constitutional amendment had
been written. He asked how much energy the administration
would expend to achieve the reverse sweep, or if the
offices would expend time on accounting and accept the fact
that the reverse sweep did not happen.
Mr. Steininger could not speak to political strategy, but
stated that OMB was present to help find solutions to
ensure the programs were funded and that there were not
operational impacts. He continued that reversing the sweep
was technically the most expeditious way to resolve the
issues but might not be politically the most expeditious
way. He added that it was not a matter for OMB to weigh in
on; rather, OMB's role was to resolve the operational
issues in the departments and encourage resolution to the
issues.
Senator Hoffman referenced Co-Chair Stedman's question
about opportunity costs and noted that it was the second
month of the fiscal year. He also recalled that there had
been a report of $20 million in opportunity costs that were
being lost as a result of not having the reverse sweep. He
asked why the administration had not acted to have lost
opportunity costs reinstated as part of the bill.
Mr. Steininger stated that the costs being discussed were
still theoretical and neither OMB nor the administration
had put together the opportunity cost issues. He continued
that the money from the Higher Education Fund had not been
yet moved into the CBR and was still managed separately in
the fund. The move would not happen until all the
accounting work was completed to determine the balance
available for appropriation that would be swept into the
CBR. He reiterated that the CBR was invested more
conservatively than the Higher Education Fund and there
would be a difference in earnings once the funds were
moved.
1:53:29 PM
Co-Chair Stedman pondered the legislature not reconvening
before the regular legislative session in January. He asked
if Mr. Steininger was indicating that the sweep would not
take place until after January.
Mr. Steininger indicated that the timing was dependent upon
the timeline of the audit of the annual financial report,
which in the last few years had been early in the following
calendar year.
Co-Chair Stedman thought the accounting had been late in
the current year, and the account balances on sweepable
items had not been available until February. The division
had promised to have the accounting done more quickly. He
thought the balances would be refined before February. He
was concerned about the impact of hypothetical opportunity
costs. He thought the actions of a few legislators would
come at a cost to the state. He shared an additional
concern about liquidation of funds that would be moved to
the CBR.
Senator Hoffman referenced the school debt reimbursement
program, and a presentation from the Legislative Finance
Division (LFD) director the previous day, which had
provided a figure of $4,125,000. He asked about the
difference between the number provided by LFD and the
number in the bill for school debt reimbursement. He asked
why the administration was treating the school debt
reimbursement program, which was primarily an urban
program, differently than the Rural Education Attendance
Area (REAA), which was primarily a rural program. He
thought there was a 50 percent difference. He emphasized
the question of why one would treat rural education
differently than urban education.
1:57:06 PM
Mr. Steininger relayed that the administration had vetoed
the REAA funding to 50 percent of the statutory
calculation, and the intention had been to also veto the
school bond debt to 50 percent. The appropriation that came
to the executive branch from the legislature was for less
than 50 percent of the calculation for school bond debt, so
no veto was made. The funding for REAA was greater as a
percentage of the statutory calculation than that for
school bond debt.
Senator Hoffman referred to the Kasayulie v. State of
Alaska case and the court decision and settlement that
directed the state to agree with statute. He questioned why
the full decree had not been funded. [In 1997, Kasayulie
and other parties brought suit against the state regarding
education funding; the Kasayulie Consent Decree and
Settlement Agreement addressed the violations of law and
provided remedies for the violations].
Mr. Steininger commented that the statute that tied REAA
funding to school bond debt reimbursement had been a result
of the case, and REAA funding was a calculation based on
school debt funding. When the administration had proposed
50 percent school bond debt reimbursement funding, the
calculation also resulted in 50 percent REAA funding. He
asserted that there attempt at parity to meet the intent of
the case and fund REAA similarly to school bond debt
reimbursement.
Senator Hoffman stated that the plaintiffs would disagree.
He thought the administration should work with his office
to work to ascertain if the decree was being followed.
Co-Chair Stedman explained that the legislature had funded
the items in the budget, but the lack of the sweep and
three-quarters vote to access funds had resulted in the
cut. He thought it was due to a group of legislators
primarily from the Matanuska-Susitna (Mat-Su) area. He
pondered why the vetoes appeared to be from every area but
for the Mat-Su. He asked why there was a geographical
concentration in one area of the state in the
administration's capital budget, when the legislature had
not added anything to the capital budget.
2:01:00 PM
Co-Chair Stedman thought the geographical concentration was
curious.
Mr. Steininger said that projects that were UGF had been
vetoes where the administration thought other funds should
be used.
Co-Chair Stedman pointed to page 2 of the backup.
Mr. Steininger discussed the chart, which covered capital
projects that were impacted by the result of a CBR vote
failure. The projects were not vetoed, and were included in
HB 69, but from fund sources impacted by the CBR vote
failure.
Co-Chair Stedman asked if the projects had been in the
proposed bond package.
Mr. Steininger thought a couple of the projects had
originally been in the bond package. He recounted that when
the bond package appeared not to be going forward through
the legislative process, subsequent amendments had been
released to support the projects being funded with UGF. The
projects were including in the capital budget using
Statutory Budget Reserve (SBR) funds.
Co-Chair Stedman asked if the legislature was the
appropriating body and chose the funding source.
Mr. Steininger answered affirmatively.
Co-Chair Stedman thought that funding was a legislative
responsibility. He noted that the legislature had absorbed
the governor's amendments to the capital budget through the
end of the previous session. He expressed concern for
regional balance and fairness.
2:04:30 PM
Mr. Steininger stated that the slide only represented
projects funded with sweepable funds and were now unfunded
due to the lack of the three-quarter vote.
Co-Chair Stedman stated that most of the capital budget was
federal matching funds. He reiterated his concern with
regional fairness across the state. He asked for Mr.
Steininger to provide an idea of when the administration
would make a decision regarding the SBR being swept or not.
Mr. Steininger referenced regional fairness and noted that
the spreadsheet only referenced the capital projects funded
with sweepable funds and did not represent the entire
enacted capital budget. He cited that there were other
capital projects that had a more regional distribution. He
reiterated that the projects listed on the slide were
projects that were funded with sweepable funds in the bill
that came from the legislature, that were subject to not
being funded as a result of the lack of a three-quarters
vote.
Co-Chair Stedman pointed out that most of the capital
budget was federal matching funds through Department of
Transportation and Public Facilities. He suggested that the
capital budget chairman could pull the vetoes and do a
comparison of the added amendments. He reiterated his
concerns for regional fairness.
Senator von Imhof asked whether there had been discussion
within the administration to resurrect the bond package in
order to fund the projects that had not been funded.
Mr. Steininger replied that while the bond package
legislation was still active, discussions would be part of
the deliberative budget process leading up to December 15.
Senator von Imhof said that many projects were unfunded
this year, including large projects and bridges. She spoke
of the infrastructure conversation on the national level
and thought there could be state matching funds. She
wondered whether OMB was looking into how capital needs
would be funded. She hoped that the governor did not
continue to veto federal funds.
Co-Chair Stedman asked Mr. Steininger to address the veto
of federal funds for DOT.
Mr. Steininger spoke to the governor's veto of federal
funds for DOT. He said that they were excess funds and not
necessary to achieve the mission of the department. He
mentioned the federal infrastructure program and noted it
was an ongoing topic of conversation for the
administration.
2:09:14 PM
Co-Chair Bishop understood Mr. Steiniger's position but had
an argument with the response to the previous question. He
mentioned the capital budget sweep list and thought there
were three items funded by the SBR that had come off the
bond list. He referenced the recent court ruling involving
the PCE Fund and the Alaska Federation of Natives, footnote
77, and the SBR-funded projects. [In 2021, the AFN disputed
the legality of Governor Dunleavy's decision to sweep funds
from the PCE through a state court filing. An Anchorage
Superior Court Judge ruled that the PCE Fund was not
subject to the sweep and directed the state to keep funding
for the PCE Program.]
Mr. Steininger relayed that the case was specific to the
PCE Fund and there was a question of whether the decision
could be applied to the SBR. He commented that the SBR had
always been on the administration's list of sweepable
funds, and relayed that the administration was working with
the Department of Law to understand how the case decision
and analysis applied to the determination of sweepability.
Co-Chair Stedman understood that if the SBR was not
sweepable all the projects listed on the sheet were safe.
He referenced testimony by LFD from the previous day that
indicated that if the governor had not vetoed the already-
reduced dividend appropriation, the PFD would be $1025.
Mr. Steininger thought that at the time of the vetoes
everybody thought that the SBR would be subject to the
sweep. He did not think that the characterization was fair.
Co-Chair Stedman thought that Mr. Steininger had misspoken.
He asserted that the governor had not vetoed an $1,100
dividend, but rather a $525 dividend. He thought the
concern was mechanical fallout.
Co-Chair Stedman said that he would be shocked if the SBR
was swept because of all of the impacts.
2:14:43 PM
Senator Hoffman asked about the administration's logic
regarding the SBR being swept, and discussed the PCE Fund
never being swept. He wanted to thank the administration
for not appealing the court decision. He thought there was
some disparity in the administration's thinking.
Mr. Steininger relayed that at the time the PCE Fund was
determined to be sweepable a couple of years previously,
the administration had worked with the Department of Law to
apply a test to funds to determine whether or not the funds
were subject to the sweep. The test considered whether a
fund was available for appropriation with a simple majority
vote, whether a fund could be spent without obligation, and
whether a fund was defined as being part of the Permanent
Fund or CBR. The test was applied in 2019 and the PCE Fund
was determined to be sweepable. The test changed as an
outcome of the AFN decision, and the new criteria was
causing the administration to re-consider long-held
understandings of what was or was not sweepable.
Senator Hoffman thought the most important test was the
Hickel v. Cowper ruling. He asked if the attorney general
had contemplated the information when considering if the
funds should be swept.
Mr. Steininger relayed that the memo from Attorney General
Clarkson (copy on file) had referenced the Hickel v. Cowper
case, as part of the justification for establishing the
test the department gave the administration to apply to
funds. The AFN case added a new interpretation that would
be applied to funds.
2:19:04 PM
Co-Chair Stedman thought many members agreed with Senator
Hoffman, and referenced many years of status quo treatment
of funds until the current administration started and made
the decision to consolidate liquid assets to accomplish a
political objectives as well as leverage rural Alaskans for
a political philosophy. He thought the politics behind the
matter were unfortunate.
Co-Chair Stedman mentioned the proposed budget deposit of
$3 billion. He asked for more explanation of why the
committee should advance the funds for a cash flow need
that was not apparent.
Mr. Steininger stated that the proposal for the $3 billion
bridge fund, and the 50-50 dividend both were in SB 3001 in
support of the other constitutional amendments.
Co-Chair Stedman asked Mr. Steininger to name the
constitutional amendments.
Mr. Steininger explained that the constitutional amendments
were the primary objective of the special session from the
perspective of the administration and would institute a
structural reform of the state's finances. He continued
that SB 3001 was a supporting bill to go along with the
amendments. The administration was not suggesting that the
$3 billion bridge fund be enacted without the
constitutional amendments, which would dramatically limit
the state's access to assets. He summarized that the bill
and the amendments were a package.
Co-Chair Stedman asked Mr. Steininger to name the proposed
constitutional amendments that were tied to the bill.
Mr. Steininger cited SJR 6, which proposed to roll the ERA
and the PCE Fund into the corpus of the Permanent Fund. He
continued that SJR 6 would constitutionalize the 5 percent
draw and the PFD. He reasoned that by protecting the ERA
and the PCE Fund in the corpus of the Permanent Fund, only
the 5 percent draw could be accessed. He proposed that the
change would ensure that the Permanent Fund would be there
for the future. The change would also mean that the state
would need access to liquid assets to keep the state
operating while budget reductions or additional revenues
were enacted to bring the state into balance.
Co-Chair Stedman asked if there was a proposed vote of the
people regarding taxes.
2:23:26 PM
Mr. Steininger stated that the item was not on the call for
the special session. He mentioned the other item, a
proposed reform to the constitutional spending limit. The
proposed change was another piece of the administration's
overall fiscal plan. He offered to bring the Department of
Revenue commissioner or anyone else to the committee to
have an in-depth discussion about the proposed
constitutional amendments and elements of the fiscal plan.
Co-Chair Stedman asked if the constitutional amendments
were more of a priority to the administration than the PFD.
Mr. Steininger asserted that the constitutional amendments
addressed the dividend and would create a structure in
which the PFD was rules-based and could be reliable in the
future. He continued that the bill would implement the
dividend as laid out in the constitutional amendment that
would be put to voters.
2:25:00 PM
Co-Chair Stedman asked about a clause in Section 6 of the
bill.
Mr. Steininger relayed that Section 6 was a retroactivity
clause to ensure that the appropriations in Section 4
(which included the transfer and dividend transfer) were
retroactive to July 1, 2021.
Co-Chair Stedman asked why the retroactivity clause in
Section 6 was in the bill. He recalled that there had been
issues. He recalled that there had been retroactive
language in the last budget bill, in the event that the
effective date failed and to make it clear when the
starting time was. He asked for help understanding why
there was a different structure being proposed after
numerous administrations and legislatures operating under
the same structure for appropriation bills. He referenced a
previous budget bill that would have provided a balanced
budget, an $1,100 dividend, all the governor's requested
capital projects and amendments, and would have set the
legislature up to return in October to discuss re-writing
the dividend formula. He questioned why the legislature
should put a retroactivity clause in any piece of
legislation for the administration.
Mr. Steininger thought Co-Chair Stedman had posed a fair
question which he would possibly defer to the Department of
Law. He noted that Section 7 would require a two-thirds
vote of both bodies, otherwise the bill would not be
effective for 90 days. He continued that whether or not a
retroactivity clause would become superfluous to the vote
would be a good question for the bill drafters.
2:28:07 PM
Co-Chair Stedman explained that the retroactivity clause
that was normally put into budget appropriation bills every
year to make it clear that it was not necessary to wait 90
days. He recalled that the legislature normally tried to
submit the budget appropriation bill in May or early June
to give the administration time for review and to go
through its process. He thought the current administration
had tried a completely different method, dissimilar to all
other governors since statehood. He expressed concern over
what he thought was the governor trying to leverage the
operating budget against his ideological endeavor of
constitutional amendments. He reminded that the legislature
had a constitutional obligation to provide a bill by the
end of June, but not an obligation to provide retroactive
dates.
Co-Chair Stedman continued his remarks. He asserted that
elected officials should consider the concept of doing no
intentional damage. He relayed that the members had
significant concerns regarding the administration's new
interpretation of decades of precedence. He thanked the
administration for not vetoing the $4 million that was put
in the constitutionally protected portion of the Permanent
fund. He was concerned about liquidation of the Permanent
Fund and hoped the committee would consider an additional
recommendation into the budget to continue to build the
constitutionally protected portion of the fund. He
mentioned the necessity of considering the markets.
Co-Chair Stedman discussed the importance of the two recent
appropriations to the Permanent Fund, which he thought
benefitted all future Alaskans.
2:33:36 PM
Co-Chair Stedman continued his remarks. He thought it was
unfortunate that there had been an attempt to block the
appropriation to the protected part of the Permanent Fund.
He mentioned concerns about retroactive dates and truth in
budgeting. He mentioned the capital budget and regional
fairness. He hoped the administration would consider its
"lackadaisical" position regarding the reverse sweep. He
lamented the work and difficulty for employees caused by
the lack of a reverse sweep. He thought it was important to
deal with education issues, including the Washington,
Wyoming, Alaska, Montana, and Idaho (WWAMI) Program.
Co-Chair Stedman hoped there would be enough legislators
that would realize that the lack of reverse sweep would
cost the state money. He discussed the status quo budget
process and hoped that the legislature could put together a
budget document that was not considered deficient.
Co-Chair Stedman thanked Mr. Steininger for his work. He
discussed the agenda for the following day.
SB 3001 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 3001 Budget Impacts of CBR Vote Failure 8.24.21.pdf |
SFIN 8/24/2021 1:00:00 PM |
SB3001 |
| SB 3001 SFIN TSS Budget Bill 8.24.21.pdf |
SFIN 8/24/2021 1:00:00 PM |
SB3001 |