Legislature(2005 - 2006)BUTROVICH 205

02/08/2005 08:30 AM JUDICIARY

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Heard & Held
Heard & Held
Heard & Held
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Moved CSSB 65(JUD) Out of Committee
             SJR 1-CONST. AM:  APPROPRIATION LIMIT                                                                          
CHAIR SEEKINS announced SJR 1 to be up for discussion.                                                                          
SENATOR FRED DYSON, sponsor, said that SJR 1 and SJR 4 are a                                                                    
"matched pair and need to go forward together." SJR 1 is a                                                                      
significant  improvement  over  the  resolution  introduced  last                                                               
year, but it raises some  profound public policy issues that need                                                               
to  be discussed  at length.  He explained  the state  has had  a                                                               
constitutional  spending cap  since 1981  that has  proved to  be                                                               
ineffective.  It  was  not  based  on  appropriations  or  actual                                                               
spending. The  limit could go  up as high  as $6 billion  at this                                                               
SJR  1  multiplies  the two  escalators,  population  growth  and                                                               
consumer  price index  (CPI), instead  of  adding them.  Although                                                               
this method  makes a  very small difference,  experts say  it's a                                                               
wiser and  more economically  sound way  to go.   It  also limits                                                               
debt  service to  6%  of  GF funding,  an  idea  copied from  the                                                               
California  Legislature. Debt  service in  Alaska now  approaches                                                               
10%  and limiting  the state's  ability to  increase indebtedness                                                               
and  the resulting  debt service  at a  key time  in the  state's                                                               
development is a judgment call  for the Legislature. He explained                                                               
that  the California  Legislature was  concerned about  incurring                                                               
future debt and  the resulting debt service  payments that become                                                               
a huge  component in  a budget.  He left  the 6%  number in  as a                                                               
starting point, but was not convinced it is the best for Alaska.                                                                
8:44:01 AM                                                                                                                    
SENATOR  DYSON  said  SJR  1  contains  a  better  definition  of                                                               
"emergency." Also,  he realized the legislature  wanted to define                                                               
what  happened to  excess revenues  and repay  the constitutional                                                               
budget  reserve (CBR).  Legislative Legal  and Research  Services                                                               
says leaving  those provisions  in a  spending limit  bill leaves                                                               
the state  open to the  challenge of it not  being single-purpose                                                               
legislation. To remedy  that, he has proposed  Amendment 1, which                                                               
strips the CBR deposit provision out of SJR 1.                                                                                  
SJR 4 covers what happens with  the CBR and excess money. It sets                                                               
a prudent cap  on the CBR at  $5 billion, which experts  say is a                                                               
good number  to have in  the fund  to take care  of extraordinary                                                               
events  or  shortfalls. Experts  say  having  funds available  to                                                               
cover  the  financial peaks  and  valleys  is  very wise.  SJR  4                                                               
provides  that excess  revenues will  go into  the CBR  until the                                                               
amount  reaches  $5  billion.  After  that,  50%  goes  into  the                                                               
Permanent Fund  principal, 25%  goes to citizens  in the  form of                                                               
dividends and  25% goes  to deferred  maintenance. In  two years,                                                               
escalators will  end up being in  the $70 million to  $80 million                                                               
category with present assumptions of CPI and population growth.                                                                 
8:48:19 AM                                                                                                                    
SENATOR  DYSON   said  Amendment   1  to   SJR  1   provides  for                                                               
emergencies, but also for extraordinary  events, i.e., more money                                                               
if the gas pipeline goes forward.                                                                                               
8:49:12 AM                                                                                                                    
SENATOR DYSON reviewed the sectional analysis as follows.                                                                       
Lines 4-5  on page  1 repeal  the existing  limit and  replace it                                                               
with the new appropriations limit.                                                                                              
Lines 6-8  define what  the base  is and bases  it on  the actual                                                               
amount appropriated in the preceding  fiscal year as opposed to a                                                               
cumulative escalation.                                                                                                          
Lines 10-11 keep the limit for  the annual percent change in line                                                               
with the  population and the CPI,  but the CPI limit  can't go up                                                               
more than personal income.                                                                                                      
8:51:33 AM                                                                                                                    
SENATOR  DYSON  explained  that  the  requirement  for  providing                                                               
public services  is ongoing and this  formula multiplies, instead                                                               
of adds,  the two escalators.  Deflation seldom impacts  the cost                                                               
of providing  state services for  a long time and  the population                                                               
is increasing. SJR  1 is not in  lock step with the  CPI and that                                                               
is another policy call.                                                                                                         
8:53:08 AM                                                                                                                    
Language on page 2, lines  11-29, is from last year's resolution.                                                               
It takes enterprise-type state activities  out from under the cap                                                               
and doesn't  force a reduction in  state spending if there  is an                                                               
increase in revenue in another area.                                                                                            
Line 12 on page 3 requires  the commissioner of the Department of                                                               
Revenue  to   provide  quarterly  reports  on   expenditures  and                                                               
If Amendment 1 is adopted, line 20  on page 4 will be removed and                                                               
covered  in  SJR 4.  Line  14  addresses  a special  session.  If                                                               
spending exceeds  the cap or  if a significant change  in revenue                                                               
occurs, a special session would  be required. If the governor and                                                               
the legislature can't  resolve the spending issues,  both of them                                                               
lose  their salaries  after 10  days,  which was  taken from  the                                                               
California law.                                                                                                                 
Page 5, lines 8-20, contain  the 6% debt service provision. Lines                                                               
23-30 create a smooth transition to the new spending limit.                                                                     
Amendment 1  deletes language  relating to  constitutional budget                                                               
reserve (CBR).                                                                                                                  
8:56:36 AM                                                                                                                    
SENATOR THERRIAULT referred to the  language on page 3, lines 30-                                                               
31,  and asked  if a  shortfall occurs  and the  Legislature must                                                               
expend money  out of  CBR, why  that wouldn't  count in  the next                                                               
year's base if it just makes the funding level.                                                                                 
MR. SHULTZ explained  that is part of the CBR  language that will                                                               
be deleted with Amendment 1.                                                                                                    
8:57:53 AM                                                                                                                    
CHAIR SEEKINS  asked how percentage  shifts with  federal funding                                                               
could affect the spending limit.                                                                                                
MR. SHULTZ  directed him to  the exemptions  on page 2,  line 21,                                                               
that exempt federal funds from the cap.                                                                                         
CHAIR  SEEKINS  asked if  the  state  has  to  pick up  a  larger                                                               
percentage if there  is a reduction in federal  funds and whether                                                               
SJR 1  makes it clear  that would be  an increase that  would not                                                               
otherwise have to be approved.                                                                                                  
MR. SHULTZ indicated yes.                                                                                                       
8:58:46 AM                                                                                                                    
SENATOR  THERRIAULT disagreed  and was  concerned if  the federal                                                               
government is  going to give  the state millions less,  the state                                                               
would have to "eat that."                                                                                                       
CHAIR SEEKINS said that is what he is trying to figure out.                                                                     
SENATOR THERRIAULT  said he thought  if federal funding  goes up,                                                               
the state could spend those funds.                                                                                              
CHAIR SEEKINS  countered, "But  if they go  down, the  state eats                                                               
MR. SHULTZ said that Senator Therriault is correct.                                                                             
8:59:31 AM                                                                                                                    
SENATOR  FRENCH said  one  of  his concerns  is  that Alaska  has                                                               
enjoyed  federal largesse  due  to Senator  Ted  Stevens who  has                                                               
defended  the  state  against Washington,  D.C.  attacks  because                                                               
Alaska's infrastructure  is behind  other states.  And now  SJR 1                                                               
freezes state  funding in place  and a  time may come  when there                                                               
are still great needs, but not as many federal dollars.                                                                         
CHAIR SEEKINS responded that needs to be clarified.                                                                             
9:01:15 AM                                                                                                                    
SENATOR DYSON said  SJR 1 does not limit the  amount of money the                                                               
state can spend  when other revenue sources are coming  in and it                                                               
does  not mandate  that the  state  continue a  certain level  of                                                               
effort. But it does provide  a significant incentive to find out-                                                               
of-the-box ways  to provide  for Alaskans.  This could  limit the                                                               
amount  of services  because it  limits  the amount  that can  be                                                               
spent  from   the  general  fund   to  meet  those   needs.  Most                                                               
jurisdictions find that  a tax cap forces government  to look for                                                               
alternative ways to meet public needs.                                                                                          
9:02:55 AM                                                                                                                    
CHAIR SEEKINS mused that they come  to the state to ask for money                                                               
and then that forces the state to go to the federal government.                                                                 
SENATOR DYSON said he asked  Arliss Sturgulewski last spring what                                                               
the thinking  was behind the Permanent  Fund and was it  a return                                                               
on  investment to  the people  of Alaska  for expenditure  of its                                                               
resource or as a way to  fund an endowment that would support the                                                               
cost of government when the  oil fields decline. Ms. Sturgulewski                                                               
answered that it  was a mechanism to get the  money off the table                                                               
so that one  generation of Alaskans couldn't spend all  of it. It                                                               
was a way to preserve money for future generations.                                                                             
SENATOR DYSON  said he believed  oil prices  would be $30  in the                                                               
foreseeable  future,  with  gas  at  over  $5,  providing  steady                                                               
revenues to the  state. This is an attempt to  be disciplined and                                                               
wise and not waste this significant revenue stream.                                                                             
9:05:18 AM                                                                                                                    
His  understanding of  the  Statehood Act  is  that the  founding                                                               
fathers  anticipated  that  frontier areas  would  trade  natural                                                               
resources for  infrastructure for  a long  time. The  U.S. Senate                                                               
was afraid Alaska  could not support itself and would  be a drain                                                               
on federal coffers.  Alaska is in the process  of trading natural                                                               
resources  for  infrastructure  and services.  Eventually  Alaska                                                               
will have a  large enough tax base that it  won't be so dependent                                                               
on the expenditure  of its natural resources. This  is an attempt                                                               
to  smooth out  spending and  investment  for the  long haul  and                                                               
create long-term economic stability.                                                                                            
9:07:29 AM                                                                                                                    
CHAIR SEEKINS said the many  variables that can affect the amount                                                               
of money that  comes in from natural resources  and other sources                                                               
like the  federal government  need to  be clear. If  a cap  is in                                                               
place, an unavoidable consequence might  be to shift funding from                                                               
one  place   to  another   or  change   the  threshold   for  the                                                               
qualification limit.                                                                                                            
9:09:29 AM                                                                                                                    
SENATOR DYSON  said 80% of the  State of Idaho's budget  is spent                                                               
on education and health and human  services. Soon it will have to                                                               
make  a choice  between  the  two. Those  two  areas  tend to  be                                                               
formula-driven in  both Idaho and  Alaska. A spending  limit will                                                               
force  the  Legislature to  make  tough  decisions in  those  two                                                               
9:10:43 AM                                                                                                                    
CHAIR SEEKINS said a legislator  from Colorado told him that this                                                               
year  the  state would  have  the  shortest  school year  in  its                                                               
history  and  the  university  is  going  without  state  funding                                                               
because that battle is already taking place there.                                                                              
SENATOR FRENCH  said the Colorado  spending limit was  enacted in                                                               
1992;  the Bell  Policy Center  researched that  issue and  found                                                               
that Colorado  had fallen to 50   in K-12 spending  per $1,000 of                                                               
personal income.                                                                                                                
     Even  during the  '90s, the  state fell  behind in  per                                                                    
     capita spending in higher  education and public health.                                                                    
     By  2000,  Colorado spent  less  than  other states  on                                                                    
     public health care  services, was at the  bottom on on-                                                                    
     time immunization rates, was  at the bottom in prenatal                                                                    
     care,  had the  highest  rate  of uninsured  low-income                                                                    
     children in  the nation, was  almost last  among states                                                                    
     in high school graduation  rates, ranked almost last in                                                                    
     higher education and the arts, and had a growing list                                                                      
     of unfunded highway projects.                                                                                              
One Republican senator said he wouldn't vote for it again.                                                                      
9:12:22 AM                                                                                                                    
SENATOR FRENCH expressed  concern about locking in  a system that                                                               
proves inadequate for future needs.  The Legislature talked about                                                               
a spending cap in statute, because  it would be easier to change;                                                               
it also talked about exempting education.                                                                                       
9:13:15 AM                                                                                                                    
CHAIR  SEEKINS  said SJR  1  has  some safeguards  that  Colorado                                                               
doesn't have. It has a  no-ratchet-down provision and the ability                                                               
for the Legislature  to meet emergency circumstances  with a two-                                                               
thirds vote.                                                                                                                    
SENATOR  DYSON  said  another   significant  difference  is  that                                                               
Colorado's  Taxpayers'  Bill  of Rights  (TABOR)  requires  voter                                                               
approval for any tax increases, but  SJR 4 doesn't do that; it is                                                               
only a spending  cap. Colorado is limited as much  by its revenue                                                               
stream as by its cap.                                                                                                           
9:14:27 AM                                                                                                                    
MR. SHULTZ  said he had  information from the January  2005 issue                                                               
of State Legislatures that talked  about how Colorado's Amendment                                                               
23  excluded  schools from  the  spending  cap and  provides  for                                                               
annual  spending   increases  in   both  primary   and  secondary                                                               
education. This is causing a  problem because the increases occur                                                               
regardless  of  the cap.  The  cap,  therefore, is  not  reducing                                                               
Colorado's  troubles  have  been   manageable  compared  to  what                                                               
California faced  recently when  it continued  to spend  money to                                                               
take care  of its programs. Part  of the language in  SJR 1 comes                                                               
from the California citizens' initiative to get out of debt.                                                                    
The  question   is  how  Alaska   would  cover   federal  funding                                                               
shortfalls  now and  two or  three years  into the  future. Also,                                                               
Legislative Finance  indicates the  need to  look at  that impact                                                               
two to five  years out. Federal funds are expected  to dwindle as                                                               
9:16:57 AM                                                                                                                    
SENATOR  HUGGINS  said  the  spending cap  sounds  good  to  many                                                               
people, but when  you look at other states, you  wonder if it's a                                                               
good idea.  He expressed concern that  trying to put it  into the                                                               
Constitution  is  trying  to  save  us from  our  lack  of  self-                                                               
discipline.  He  asked  if  there  were  any  corners  they  were                                                               
painting themselves into.                                                                                                       
SENATOR  DYSON replied  that he  thought it  was constitutionally                                                               
appropriate  for a  republic to  bind itself  with constitutional                                                               
law. Critics  point out that  Alaska spends more per  person than                                                               
any  other state  in  the nation.  Solving  people's problems  by                                                               
spending more  money doesn't get  to the  heart of the  issue. He                                                               
didn't agree with  the implied principle of  the state supporting                                                               
an activity the  federal government quit supporting.  He hoped to                                                               
empower people to  do more for themselves and  rely on government                                                               
9:21:37 AM                                                                                                                    
MR.  SHULTZ  commented  that  President   Bush  is  proposing  to                                                               
eliminate 160 programs because the  federal government is looking                                                               
at  duplicative services.  Forty  different  agencies within  the                                                               
federal government  deal with teenage  pregnancy. The  concern is                                                               
that  as Alaska  prospers,  people will  want  more services.  He                                                               
pointed out that the Permanent Fund  would be a lot larger now if                                                               
there had been a spending limit.                                                                                                
9:23:58 AM                                                                                                                    
CHAIR SEEKINS  said he applied for  a river permit years  ago and                                                               
found that  three different agencies  were looking over  the same                                                               
fish. "Why  can't one agency take  care of that same  fish rather                                                               
than three?"  Eliminating the competition for  funding creates an                                                               
economy in itself and the  probability that any legislature would                                                               
short-fund education is unlikely.                                                                                               
9:27:16 AM                                                                                                                    
SENATOR  DYSON   commented  that   Legislative  Legal   told  the                                                               
legislature  last year  that  a statutory  spending  limit is  of                                                               
little value  because if  a sitting  legislature exceeds  it, the                                                               
courts will  hold that  it was  done deliberately  and supersedes                                                               
what was in statute. You  can't bind future legislatures. He also                                                               
understands that  of the  states with  spending caps,  almost all                                                               
have seen  significant investment activity. Industries  that want                                                               
to invest in an area are worried about being subjected to deep-                                                                 
pocket taxes so they are comforted by a spending cap.                                                                           
9:29:41 AM                                                                                                                    
CHAIR SEEKINS moved Amendment 1.                                                                                                
A M E N D M E N T 1                                                                                                         
OFFERED IN THE SENATE                          BY SENATOR DYSON                                                                 
     TO:  SJR 1                                                                                                                 
Page 2, line 29:                                                                                                                
     Delete ", (g), or (k)"                                                                                                     
Page 3, line 7:                                                                                                                 
     Delete "persons an"                                                                                                        
     Insert "persons or"                                                                                                        
Page 3, line 20, through page 4, line 13:                                                                                       
     Delete all material.                                                                                                       
     Reletter the following subsections accordingly.                                                                            
Page 4, line 29:                                                                                                                
     Delete "(h)"                                                                                                               
     Insert "(g)"                                                                                                               
Page 5, line 6:                                                                                                                 
     Delete "(h)"                                                                                                               
     Insert "(g)"                                                                                                               
Page 5, line 14:                                                                                                                
     Delete "many"                                                                                                              
     Insert "may"                                                                                                               
     Delete "not-self-liquidating"                                                                                              
     Insert "non-self-liquidating"                                                                                              
Page 5, line 15:                                                                                                                
     Delete "general - fund-supporting"                                                                                         
     Insert "general-fund-supported"                                                                                            
Page 5, line 16:                                                                                                                
     Delete "(k)"                                                                                                               
     Insert "(j)"                                                                                                               
Page 5, following line 20:                                                                                                      
     Insert a new subsection to read:                                                                                           
          "(l)  The legislature may, upon the affirmative vote                                                                  
     of at least  two-thirds of the members of  each house, adopt                                                               
     an appropriation  that exceeds the  limit under (a)  of this                                                               
     section  if  the  governor  requests  the  appropriation  in                                                               
     response  to extraordinary  circumstances.   The  governor's                                                               
     request  must include  at least  the following  information:                                                               
     (1)   identification    of   the    specific   extraordinary                                                               
     circumstances; (2)  the amount requested  for appropriation;                                                               
     (3)  the period  of  time over  which  the appropriation  is                                                               
     intended  to be  used; and  (4)  a plan  for recovering  the                                                               
     amount  of money  appropriated under  this  subsection.   An                                                               
     appropriation  made under  this subsection  may not  be used                                                               
     for  the payment  of  bonds, notes,  or  other evidences  of                                                               
     indebtedness.      For    purposes   of   this   subsection,                                                               
     "extraordinary  circumstances"  shall   be  defined  by  law                                                               
     adopted  by  at least  two-thirds  of  the members  of  each                                                               
MR.  SHULTZ explained  that most  of the  changes are  typos, but                                                               
lines 20-21 on  page 2 introduce a new  section for extraordinary                                                               
circumstances that allows the limit  to be exceeded under certain                                                               
circumstances. The gasline indebtedness is an example of one.                                                                   
CHAIR SEEKINS asked if there  were any objections to Amendment 1.                                                               
There were  none and it was  adopted. He announced that  the bill                                                               
would be held for further discussion.                                                                                           

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