Legislature(1995 - 1996)

01/31/1996 01:30 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               SJR 30 USE OF BUDGET RESERVE FUND                              
  CHAIRMAN ROBIN TAYLOR  called the Judiciary Committee meeting to             
 order at 1:30 p.m.  The first item of business was SJR 30.                    
 SENATOR RIEGER, sponsor of SJR 30, responded to a previous question           
 raised by Senator Adams regarding the amount of money drawn from              
 the Constitutional Budget Reserve (CBR).  He explained there was a            
 quantity of money drawn from the reserve, and a quantity not                  
 deposited initially, which the court subsequently ruled should have           
 been deposited.  The amount of that deposit for fiscal years 1991-            
 1994 is $1,055,000,000.  The number of draws are itemized as                  
      $390 million to cover the shortfall between revenues and                 
  appropriations for fiscal years 1994 and 1995;                               
  $130 million for reconstitution of the Mental Health                         
  $141 million to meet the effect of Art. IX, Sec. 17(d) of                    
  the Alaska Constitution;                                                     
  $68 million for the state's share of oil and gas litigation                  
  from July, 1990 through February, 1994;                                      
  $11 million for the legal costs of oil and gas litigation in                 
  fiscal year 1995.                                                            
 The total amount is $1,702,978,690.                                           
 Number 051                                                                    
 SENATOR TAYLOR asked what the current balance of the CBR is. BRAD             
 PIERCE, policy analyst with the Office of Management and Budget,              
 stated the anticipated balance of the CBR, at the end of FY 96, is            
 $2.08 billion.                                                                
 MR. PIERCE reiterated the Administration's support of SJR 30,                 
 particularly the elimination of the sweep provision, which was                
 never intended to include accounts that were set aside by the                 
 Legislature for specific purposes.  The Administration also                   
 supports repeal of the payback provision as it is a debt we owe               
 ourselves, and is something that must be explained to bond rating             
 agencies.  It has become more of an administrative nuisance than              
 anything else.   He requested the Legislature leave a clear trail             
 of the intent of SJR 30: the concern being that no one                        
 inadvertently confuse the issue by replacing the term "available              
 for appropriation," which has been clearly defined by the court,              
 with the term "unrestricted revenue," and resulting in another                
 court challenge.                                                              
 MR. PIERCE added the Governor would like clarification, in the                
 resolution, of when a supermajority vote would be required to draw            
 from the CBR, primarily in the context of how it would fit into an            
 overall fiscal plan.  He stated the Long Range Financial Planning             
 Commission discussed requiring a supermajority vote to enable any             
 use of reserves independent of any other condition.  He noted the             
 upcoming Joint State Affairs meeting during which the Long Range              
 Financial Planning Commission's resolution (identical to SJR 30)              
 will be reviewed.                                                             
 Number 133                                                                    
 SENATOR TAYLOR asked what part of SJR 30, concerning the                      
 supermajority vote provision, the Governor wants clarification of.            
 MR. PIERCE repeated the Governor would like to see it discussed in            
 the context of an overall fiscal plan.                                        
 SENATOR TAYLOR asked Senator Rieger if the intent of the                      
 supermajority vote requirement in SJR 30 would be to require it               
 only when utilizing CBR funds to increase the budget.  SENATOR                
 RIEGER said that was correct.  He explained the context of the                
 original amendment, and the intent of SJR 30, was/is to provide a             
 mechanism to stop the temptation to increase spending when the                
 settlements, or the results of a determination of an administrative           
 proceeding, cause an unusual, one-time, influx of cash into the               
 general fund.  In some respects, that money is like other revenue,            
 because it probably resulted from a tax case.  Had it not been a              
 tax case, the money would have been received in small amounts                 
 annually; instead it accumulated and was received in a lump sum.              
 To help restore it to how it should have come in, the money can be            
 used in a normal operating purpose, just as any other general fund            
 revenue is, but not to increase spending.  This money can be used             
 to stabilize a spending plan, but not to increase spending without            
 a supermajority vote.                                                         
 Number 169                                                                    
 SENATOR ADAMS asked if the Senate Finance Committee has developed             
 a financial plan for other Senators to review, and if so, how much            
 money will come from the CBR.  SENATOR RIEGER replied he has not              
 drafted a financial plan.  SENATOR ADAMS expressed concern about              
 getting the necessary 14 votes to pass SJR 30.                                
 SENATOR TAYLOR asked Mr. Pierce if his request for clarification              
 was addressed sufficiently.  MR. PIERCE explained that if the Rose            
 plan was adopted, which uses the CBR as the "fly-wheel" of a fiscal           
 plan for the future, the Legislature might want a different                   
 requirement to access the CBR.  He believed the Governor was                  
 requesting more discussion in the overall context of fiscal                   
 SENATOR TAYLOR indicated he was unaware of the subtle distinctions            
 between the Rose plan and the Long Range Financial Planning                   
 Commission's plan.  MR. PIERCE indicated the Rose plan would take             
 the unrealized gains from the Permanent Fund (a little over $2                
 billion), deposit those gains into the CBR, and use both the                  
 interest from the earnings of the CBR, and the excess earnings off            
 the Permanent Fund not used for inflation-proofing or dividends,              
 for general fund spending to supplement oil revenues.  That concept           
 might require different access to the CBR than what is proposed in            
 SJR 30.                                                                       
 Number 200                                                                    
 SENATOR ADAMS asked if the original purpose of the permanent fund             
 was to use the interest earned from the corpus to fund state                  
 government, and whether the Rose plan would set up a similar fund.            
 MR. PIERCE replied that essentially a second permanent fund would             
 be created.                                                                   
 SENATOR TAYLOR inquired whether a supermajority would be required,            
 under the Rose plan, to access those funds even though less money             
 might be spent on the overall budget than the previous year.  MR.             
 PIERCE stated Mr. Rose suggested a constitutional amendment would             
 be necessary to address the CBR but was not specific about how it             
 would work.                                                                   
 SENATOR TAYLOR asked where the current interest income from the CBR           
 is being placed, and who is responsible for the investment and                
 workings of the CBR.  MR. PIERCE reported the interest is                     
 reinvested into the CBR which is invested by the Department of                
 Revenue.  OMB has projected a 6 1/4 percent rate of return on those           
 funds, which is about 1 percent lower than the Permanent Fund.                
 SENATOR TAYLOR questioned the lower rate of return.  MR. PIERCE               
 stated the CBR is invested in shorter term instruments, and there             
 are more liquid assets.                                                       
 Number 236                                                                    
 SENATOR TAYLOR asked why interest income from the CBR is not used             
 as ordinary income to the general fund.  SENATOR RIEGER read                  
 Section A of the original constitutional amendment, " Money in the            
 budget reserve fund shall be invested so as to yield competitive              
 market rates to the fund.  Income of the fund shall be retained in            
 the fund."  SENATOR TAYLOR questioned whether the interest income             
 would remain in the CBR under SJR 30.  SENATOR RIEGER replied it              
 would, however he would welcome discussion on that policy.                    
 Number 261                                                                    
 SENATOR MILLER moved SJR 30 out of committee with individual                  
 recommendations.  There being no objection, the motion carried.               

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