Legislature(2021 - 2022)BUTROVICH 205
05/03/2021 01:30 PM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| SJR7 | |
| SJR5 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SJR 6 | TELECONFERENCED | |
| += | SJR 5 | TELECONFERENCED | |
| += | SJR 7 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SJR 5-CONST. AM: APPROP LIMIT; BUDGET RESERVE
1:59:36 PM
CHAIR HOLLAND announced the consideration of SENATE JOINT
RESOLUTION NO. 5, Proposing amendments to the Constitution of
the State of Alaska relating to an appropriation limit; and
relating to the budget reserve fund.
2:00:35 PM
NEIL STEININGER, Director, Office of Management & Budget, Office
of the Governor, Juneau, Alaska, stated that OMB created a new
graph in response to a request at the hearing on April 30, 2021.
The question was about the current constitutional spending limit
and setting its base at $2.5 billion. OMB adjusted the graph to
depict the spending limit in FY 1982 more clearly.
2:01:11 PM
CAROLINE SCHULTZ, Policy Analyst, Office of Management & Budget,
Office of the Governor, Juneau, Alaska, responded to Senator
Hughes's question in an earlier meeting about whether voters
believed they were implementing a lower spending limit than the
current spending levels. The answer is no. This was because the
current constitutional spending limit in Article IX, Section 16,
excludes capital appropriations. She referred to the graph on
today's handout that added two more lines. She explained that
the blue line represents the UGF Agency operations and UGF
Agency + statewide [the purple line] represents the total
operating budget. She said members could see that UGF Agency
Operations and UGF Agency + Statewide fall well below the
constitutional spending limit.
2:02:24 PM
SENATOR KIEHL said he was interested in the rationale behind
limiting the budget to population growth or inflation. It seemed
to him if the state experiences a growing economy that happens
to coincide with inflation, it could hamstring the state's
ability to meet the needs of an influx of population. He asked
if it could be a combination of the two.
MR. STEININGER explained that the reason for selecting the
"greater of population or inflation" was made by examining the
existing constitutional spending limit. Compounding inflation
and population together in the current spending limit results in
a spending limit that grows much faster than is reasonable,
compared to the growth and need for state services. In examining
how to set the proper adjustor factor on a spending limit, it
mustn't be so great that it will not limit spending. He said
that that is the effect of compounding with the state's current
spending limit. However, as Senator Kiehl alluded to, it adjusts
and accounts for things that create pressure on state spending.
He stated that both population and inflation could create
pressure on the cost of providing government services, one
through the demand and the other through the cost of providing
those services. However, compounding the two is not necessarily
a perfect analogy for the pressure on state spending. He
concluded that was the reason that the greater of the two was
selected. It would ensure that the state could respond if
significant inflation or a significant jump in population
occurred. However, it would not create unconstrained growth.
2:05:14 PM
SENATOR KIEHL acknowledged the effects of compounding, such that
the existing spending limit compounds from a fixed reference
year. Regardless of what the legislature spends, it will rise.
He asked the reason for the approach of the greater of one or
the other factor when it also changes from a fixed reference
year to a three-year average of actual expenditures. He asked if
it would prevent massive compounding but still allow the state
to deal with the actual needs.
2:05:58 PM
MR. STEININGER stated that one thing shown on the graph based on
the ten-year plan is the difference without a fixed base using
the three-year average. This graph shows the inherent difference
in the spending decisions made in any given year, he said.
There's a difference between whether the legislature continues
to constrain spending, as shown based on the ten-year plan, or
if the legislature chooses to maximize spending. Suppose the
legislature decides to maximize spending using the three-year
average. In that case, the legislature can still achieve
unconstrained growth by using compounding factors. It allows the
legislature to continue spending more each year, thereby driving
up the three-year average. At that point, the legislature would
still have the ability to achieve less constrained growth even
though it's not using the fixed base. Using compounding allows
the expenditure maximization scenario to be less constrained, as
shown on the graph. It will be more aligned to the state's
actual spending because of the three-year average. This also
assumes that future legislatures and executive branches will try
to maximize their expenditures. Although that does not
necessarily pose a high risk, it is something to consider as the
legislature calculates a spending cap in SJR 5.
2:07:45 PM
SENATOR KIEHL stated that he also did not think the risk was
that high unless there was a genuine need for additional state
services.
2:08:00 PM
SENATOR MYERS recalled at the previous hearing he agreed that
the $1 billion in federal COVID-19 funding qualified as money
received from a non-state source for a specific purpose. The
legislature will need to decide whether to use the extra billion
of federal funding to backfill the deficit or use it for
programs. For example, the governor has discussed providing
relief for tourism businesses. If the state were to receive
future windfall monies from outside the state's funding sources,
it seems as though it would create a perverse incentive. It
essentially translates to "what is beneficial in the short run
is not beneficial in the long run."
MR. STEININGER acknowledged that the administration has been
considering how to cope with that type of situation. He pointed
out that the state routinely receives some discretionary federal
revenues, but it typically represents a rounding error in the
overall federal funding. These funds are not significant enough
to take into consideration, he said. However, it should be
considered since the state currently faces that situation. As
SJR 5 is currently written, if the federal funding were entirely
used to offset general fund expenditures, it would lower the
three-year average, creating a perverse incentive in terms of
how to allocate the federal funds.
2:12:17 PM
SENATOR HUGHES referred to the chart that shows the effects of
the constitutional spending limit from FY 1982 to FY 2022. She
said the legislature did not foresee that the spending limit
would constrain spending but allow for astronomical increases in
per capita spending. She wondered why the voters thought passing
the constitutional amendment was the right thing to do. She
asked if he had any background information on the ballot
measure, including voting statistics on the measure.
MR. STEININGER deferred to Mr. Milks.
2:14:25 PM
WILLIAM MILKS, Senior Assistant Attorney General, Legislation &
Regulations Section, Civil Division, Department of Law, Juneau,
Alaska, explained that whenever a constitutional amendment is
before the voters, it is included in the election pamphlet,
which is sent to all the voters. The Division of Election's
pamphlet will describe the proposed ballot measure. The
legislative affairs agency prepares a summary of the changes
proposed in the constitutional amendment. The pamphlet also
contains a statement in favor and a statement in opposition to
the amendment. He did not paraphrase the 1982 constitutional
amendment specifically, but the document explained why some
residents wanted an appropriation limit. He opined the 1982
voter pamphlet would be the best source document.
2:16:21 PM
MR. MILKS said Senator Hughes posed a question at a previous
hearing on SJR 5. She asked whether the language of the entire
constitutional amendment is on the ballot that voters have in
the voting booth. He answered no, it is not. Instead, the ballot
contains an impartial summary of the constitutional amendment.
The Division of Elections' polling place posts the entire
constitutional amendment language. The Division of Elections'
pamphlet mailed to each voter also contains the language of the
constitutional amendment, a neutral summary, a statement in
support and a statement in opposition to the amendment.
SENATOR HUGHES related her understanding that in 1982, the
legislature was concerned about overspending. She surmised
legislators must not have had projections. She stated she was
just handed information on the November 1982 vote; the vote was
61 percent in favor and 31 percent in opposition to the
constitutional amendment limiting increases in appropriations.
2:18:01 PM
CHAIR HOLLAND related his understanding that the Constitutional
Budget Reserve (CBR) would become a nonissue once Art. IX, Secs.
17 (c) and 17 (d) are repealed and the spending cap is in place
because the spending cap applies to all spending, including
spending from the CBR. Thus, the language in Sec. 3 could be
unnecessary. Further, the language in Sec. 2 may be unnecessary
because without Secs. 17 (c) and 17 (d), there is no difference
between monies in the CBR and monies in the general fund. He
asked whether all of Art. IX, Sec. 17 should be removed, or if
it should just maintain the supermajority vote for access.
MR. STEININGER responded that he would not necessarily agree
that the CBR no longer becomes relevant. It would effectively
state that certain revenues, as listed in Art. IX, Sec. 17 (a)
will be deposited into a Rainy Day Account, which would be
available for expenditures if ordinary revenues to the state are
insufficient. The legislature could access the Rainy Day Account
with a simple majority vote. He characterized the current CBR as
a Rainy Day Account but with more stringent access provisions.
SJR 5 will simplify the access provisions but retain a formal
general fund Rainy Day Account.
2:20:39 PM
SENATOR MYERS expressed concern about repealing Art. IX, Secs.
17 (c) and 17 (d) because it was likely that the legislature
would cease repayments to the CBR unless a windfall occurred. If
the state encountered future hard times, it would enter any
slumps without any reserves, he said.
2:22:53 PM
MR. STEININGER addressed the concern by explaining that the
state's ability to repay the CBR is fairly constrained under the
current revenue projections. The state does not anticipate
future years with significant excess revenue to repay the CBR.
However, that is not necessarily a reason to remove the
repayment provision. He explained that SJR 5 would create a
ceiling of true constraints on expenditures in the context of
other structures. If the revenue projections are wrong and the
state experiences increased revenue, an expenditure cap will
limit the state's ability to spend that windfall. The state
would need to save it or put it somewhere. This would provide
constrained options for a revenue surplus, including depositing
the funds into the CBR as a state savings account. If the CBR
becomes a more formalized Rainy Day Savings Account for revenue
downturns, it would be prudent to deposit funds into the CBR.
Once the state resolves the other state fiscal problems, it may
not be necessary to build the CBR to $12 billion. Ultimately,
whether to erase the CBR debt is a policy call for the
legislature and the people to make.
2:25:43 PM
CHAIR HOLLAND asked if Mr. Milks had any comments.
MR. MILKS answered no.
2:26:14 PM
SENATOR KIEHL recalled that in 1982, when the current
constitutional spending limit was adopted, the state had
experienced an average of 9 percent inflation per year for eight
years, four years of which exceeded 11 percent.
He said it is difficult to think of the CBR as a Rainy Day
Account once the constitution removes the restricted access
provision. In reviewing the language in SJR 5, he found several
ways that the legislature could drain the CBR. He asked how the
CBR under SJR 5 would differ from the Statutory Budget Reserve
(SBR) since both can be accessed with a simple majority vote.
MR. STEININGER agreed that the SBR functioned similarly to how
SJR 5 envisions the CBR from an expenditure side. He stated that
the state structurally needs to have a financial tool such as
the Rainy Day Account, with revenues dedicated to it, to
repopulate itself. This account could be the CBR as drafted,
repopulating the SBR, or the current option of using the
Earnings Reserve Account. The state needs an account to use when
revenues are low. SJR 5 would establish the CBR as that account,
he said. When revenues are lacking, it will take a simple
majority vote to access the Rainy Day Account. He would like to
discuss any loopholes to identify if they are what the state
intended or drafting errors that need to be closed up.
2:29:19 PM
SENATOR KIEHL referred to a Legislative Legal Memo dated April
30, 2021, that discusses the significant reduction of deposits
to the CBR by deleting the word "directly." He offered his view
that the Rainy Day Account will not function as one if the state
significantly reduces funds deposited to the CBR, making it easy
for the legislature to access with a simple majority vote. He
noted that all proceeds of General Obligation (GO) Bond Debt
would be added to the exemptions. He said he previously
expressed concern about the administration's GO Bond proposal
projects because many of the projects were appropriations for
routine capital improvements. He expressed concern that this
exemption would encourage maximizing debt, especially as
revenues decline.
MR. STEININGER responded that it was not necessarily maximizing
borrowing. He said the voters' consent through the ballot
measure process inherent in GO Bonds, so it is exempted in SJR
5.
2:31:46 PM
CHAIR HOLLAND suggested allowing spending above the limit only
on capital projects and in the same manner used for GO Bond
proposals.
MR. STEININGER responded that was certainly something to
consider when considering the current constitutional spending.
He stated that SJR 5 is drafted to put all capital spending
under the cap.
2:32:30 PM
SENATOR HUGHES asked the administration to provide a snapshot of
the state's current condition, including the state's population,
economy and operating budget spending compared to other states.
He acknowledged that Alaska has unique challenges and provides
services in communities that local government would typically
provide. She recalled some studies, including the number of
state employees per capita. She offered her belief that the
government sector doesn't produce any wealth, but the private
sector supports it. She said every dollar drained from the
private sector to support government is a dollar that cannot be
used for the economy. The multiplier effect of a dollar in the
private sector is greater than the multiplier effect of a dollar
in the government sector. She said she would like documentation.
SENATOR HUGHES asked whether the legislature should consider
addressing the spending cap in statutes and not in the Alaska
Constitution.
MR. STEININGER answered that generally speaking, placing the
spending limit in the Alaska Constitution creates a hard limit;
the statutory spending cap likely could be exceeded by a
legislative appropriation and would be less enforceable.
2:36:28 PM
MR. MILKS agreed with Mr. Steininger that a constitutional
spending limit is binding and a statutory spending limit is not
since the legislature retains the power of appropriation.
2:37:03 PM
SENATOR HUGHES maintained her belief that dollars that swirl
around the state, such as government funds, do not provide any
growth. The private sector dollars can draw money in from
outside Alaska and strengthen Alaska's economy. She offered her
belief that the only value of a statutory spending cap is that
the constituents will react if the legislature exceeds it.
2:37:55 PM
CHAIR HOLLAND recalled Senator Kiehl raised the issue at the
last hearing on SJR 5. He asked if narrowing the language "state
savings account" to language "an appropriation to the budget
reserve fund" or "appropriations to the state retirement trust
fund" would address that issue. The term "state savings account"
was broad and a subsequent legislature could create another
state savings account not subject to the constitutional spending
limit.
2:38:44 PM
MR. STEININGER responded that such an approach would provide
more specificity. However, it is hard to predict future accounts
that may fund future programs. For example, the Alaska Marine
Highway System Fund revenues are deposited into that fund and
the legislature appropriates from the fund. It is counted as
spending when an appropriation is made from the account. When
the AMHS experiences a bad revenue year, the legislature
appropriates additional monies into the fund. Monies being
appropriated into the fund are not counted against the cap.
Instead, those funds are merely considered deposits to a savings
account. It is counted as spending once expenditures are made
from the account. This raises the issue of whether the
appropriation would be counted both times if it will only count
when the fund is spent for services or when deposits are made.
He explained that listing the accounts in the Alaska
Constitution would limit the ability to use that type of
financial tool for future programs.
MR. STEININGER said it would create a constraint the
administration does not intend in SJR 5. He clarified that
deposits to some accounts are counted, such as the Vaccine
Assessment Account, which is capitalized with monies paid to the
state and funds from the state to pay for purchasing vaccines.
Monies deposited to the account count as spending because the
Department of Health and Social Services (DHSS) can use those
funds to make bulk purchases. When those purchases are made, the
state does not count them as expenditures. Thus, there are two
ways to address some of the accounts. It is generally counted
when the funds are committed to a specific purpose and cannot be
redirected. The AMHS Fund is available for general
appropriation. When the monies are deposited to that account,
they are not counted because the legislature has the authority
to spend it elsewhere.
2:42:25 PM
SENATOR KIEHL remarked that he does not share Senator Hughes's
view on private and public sector spending. Alaskans create
businesses that innovate and generate efficiency, which creates
economic growth. He disagreed that dollars circulating within
Alaska do not create growth. Further, when companies and workers
earn money in Alaska and take it to the Lower 48, it does not
help Alaska's economy.
2:43:27 PM
SENATOR KIEHL offered that currently, there is very little
connection between economic activity and support for the state's
economy, except corporate income tax provides some help. If the
state maintains this model, it will need additional state
services when it experiences good economic and population
growth. He related his understanding that one incentive will be
to devolve government services to other levels. SJR 5 will not
limit total government spending, just what comes from the state
treasury. For example, suppose the legislature decided it needed
$18 million of spending authority. In that case, it could give
second-class boroughs police power and cut the entire Alaska
State Trooper staff from the Fairbanks North Star Borough area.
It would essentially shift the burden to the Fairbanks
taxpayers. He asked if that would provide additional state
spending.
2:44:57 PM
MR. STEININGER responded that if the legislature needed to
generate additional room to meet a need, the legislature would
need to weigh that against other state expenditures. It would
require an offsetting reduction, either to the trooper staff,
education, or other services. He explained that creating a
constraint will limit government growth. If the state would like
to add a new program, the legislature would need to find room
within the spending cap. The intent is to limit new programs and
constrain government growth. This is difficult to do as revenues
decline, he said.
2:45:59 PM
SENATOR KIEHL expressed concern that SJR 5 does not institute a
spending cap on government but instead it would cap the state's
current spending.
2:46:21 PM
CHAIR HOLLAND offered his view that the inflation adjustment in
SJR 5 is generous. Over three years, the cumulative change in
inflation is about 7 to 9 percent allowable growth. That figure
will be applied to the three-year average spending, normally
about 2 to 3 percent below the prior year's spending. The
current language allows budget growth by more than inflation. He
asked whether the cumulative growth factor should be two years
instead of three years.
2:47:09 PM
MR. STEININGER explained that he was interested in additional
modeling using a different inflationary factor, as shown on a
graph. He offered to report back to the committee using a
different inflationary factor graph.
[SJR 5 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| SJR 5 Legal memo.pdf |
SJUD 5/3/2021 1:30:00 PM |
SJR 5 |