Legislature(1999 - 2000)

02/05/1999 01:35 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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HOUSE FINANCE COMMITTEE                                                                                                         
February 5, 1999                                                                                                                
1:35 P.M.                                                                                                                       
                                                                                                                                
TAPE HFC 99 - 16, Side 1.                                                                                                       
TAPE HFC 99 - 16, Side 2.                                                                                                       
TAPE HFC 99 - 17, Side 1.                                                                                                       
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
Co-Chair Therriault called the House Finance Committee                                                                          
meeting to order at 1:35 P.M.                                                                                                   
                                                                                                                                
PRESENT                                                                                                                         
                                                                                                                                
Co-Chair Therriault   Representative G. Davis                                                                                   
Co-Chair Mulder    Representative Grussendorf                                                                                   
Vice-Chair Bunde   Representative Kohring                                                                                       
Representative Austerman  Representative Moses                                                                                  
Representative J. Davies                                                                                                        
                                                                                                                                
Representatives Foster and Williams were not present for the                                                                    
meeting.                                                                                                                        
                                                                                                                                
ALSO PRESENT                                                                                                                    
                                                                                                                                
David Teal, Director, Division of Legislative Finance;                                                                          
Ginger Blaisdell, Fiscal Analyst, Division of Legislative                                                                       
Finance; Tom Maher, Legislative Aid, Representative Gail                                                                        
Phillips; Representative Fred Dyson; Dan Spencer, Chief                                                                         
Budget Analyst, Office of Management and Budget; Tamara                                                                         
Cook, Director, Legislative Legal & Research Services.                                                                          
                                                                                                                                
SUMMARY                                                                                                                         
                                                                                                                                
PRESENTATION: DAVID TEAL, DIRECTOR,                                                                                             
LEGISLATIVE FINANCE DIVISION                                                                                                    
25 YEAR GENERAL FUND HISTORY                                                                                                    
                                                                                                                                
SB 28 An Act relating to the increase of an                                                                                     
appropriation item based on additional federal or                                                                               
other program receipts.                                                                                                         
                                                                                                                                
 CSSB 28(FIN) was reported out of Committee with a                                                                              
"do pass" recommendation and with a zero fiscal                                                                                 
note by the Legislative Finance Division dated                                                                                  
1/26/99.                                                                                                                        
SENATE BILL NO. 28                                                                                                              
                                                                                                                                
"An Act relating to the increase of an appropriation                                                                            
item based on additional federal or other program                                                                               
receipts."                                                                                                                      
                                                                                                                                
TOM MAHER, LEGISLATIVE AID, REPRESENTATIVE GAIL PHILLIPS,                                                                       
explained that SB 28 would revise procedures that the                                                                           
Governor must follow when the Legislative Budget and Audit                                                                      
(LBA) Committee does not approve or does not take under                                                                         
consideration a revised program request (RPL).  The need for                                                                    
revisions to what is commonly called the 45-day rule stems                                                                      
from recent actions by the Governor and LBA's desire to                                                                         
protect the appropriation power of the Legislature.  Last                                                                       
December, LBA directed Legislative Finance and Legal                                                                            
Services to explore options to address these concerns.  The                                                                     
proposed legislation is a result of that effort.                                                                                
                                                                                                                                
Mr. Maher continued, the Legislature typically places front                                                                     
section language in appropriation bills granting an open                                                                        
appropriation to the Governor to proceed with the                                                                               
expenditure of federal or other program receipts not                                                                            
specifically appropriated by the Legislature.  The Governor                                                                     
is required to submit revised program requests to the LBA                                                                       
Committee.  If the request is approved, the Governor may                                                                        
proceed immediately.  If the request is disapproved, under                                                                      
current law, the Governor must wait 45 days and then provide                                                                    
a statement of reason to the Committee prior to the                                                                             
commencement of any expenditure.                                                                                                
                                                                                                                                
Mr. Maher pointed out that revisions to the 45-day rule set                                                                     
forth in SB 28 do not stop the Governor from ultimately                                                                         
proceeding with an expenditure that has been disapproved or                                                                     
not considered by that Committee.  Instead, SB 28                                                                               
strengthens the Legislature's appropriation power by                                                                            
delaying the commencement of any expenditure until after the                                                                    
full Legislature has been in regular session for at least 30                                                                    
days.                                                                                                                           
                                                                                                                                
The 30 day period is designed to provide for additional                                                                         
discussions between the Governor and the full legislative                                                                       
body, allowing the full Legislature to consider any action                                                                      
deemed appropriate regarding the Governor's determination to                                                                    
proceed with any expenditure.                                                                                                   
                                                                                                                                
Mr. Maher concluded, SB 28 would not create any major                                                                           
obstacles for the Governor in terms of proceeding with                                                                          
expenditures.  The legislation merely allows the full                                                                           
Legislature to consider the issue and provide for additional                                                                    
safeguards to the legislature's appropriation power.                                                                            
                                                                                                                                
Co-Chair Therriault explained how this legislation would be                                                                     
accomplished.  In the front section of the operating budget,                                                                    
the Legislature's authority is extended to make                                                                                 
modifications to appropriations for underestimated and                                                                          
unanticipated revenue receipts.  That power is then extended                                                                    
to the LBA Committee.  The Governor files an RPL requesting                                                                     
the additional authorization and then LBA takes the                                                                             
appropriate action.  As the statutes are currently written,                                                                     
if the Committee fails to take it up or takes it up and                                                                         
turns it down, the Governor can proceed with the expenditure                                                                    
after the 45 days have passed.  The question being, does the                                                                    
Legislature wants to extend that authority and allow the                                                                        
Governor to have that power or should that office wait until                                                                    
the full Legislature meets in session to consider and                                                                           
negotiate the concern.                                                                                                          
                                                                                                                                
Mr. Maher pointed out that the LBA Committee does have the                                                                      
authority to rescind action taken if the RPL had previously                                                                     
failed.                                                                                                                         
                                                                                                                                
Representative Bunde pointed out that the Governor has taken                                                                    
advantage of this authority over recent years.                                                                                  
                                                                                                                                
Representative J. Davies disagreed with Representative Bunde                                                                    
pointing out that during his tenure on LBA Committee, such                                                                      
action was used sparingly and only in times of addressing a                                                                     
serious issue.  He requested documentation indicating that                                                                      
there had been increased frequency to merit the policy                                                                          
change.  Mr. Maher noted that he could provide a document                                                                       
received from Legislative Finance illuminating the concern.                                                                     
                                                                                                                                
Representative Grussendorf referenced the sponsor statement                                                                     
which indicates that "provisions of the 45 day rule set                                                                         
forth in SB 28, do not stop the Governor from ultimately                                                                        
proceeding with an expense which has been disapproved or not                                                                    
considered by the Committee".  He asked if that was correct.                                                                    
He understood that the Governor could proceed with the                                                                          
expenditure with or without legislative approval.  Mr. Maher                                                                    
agreed, noting that there could be other legislative action                                                                     
within that negotiation.                                                                                                        
                                                                                                                                
Co-Chair Therriault reiterated his main concern is that the                                                                     
full Legislature deal with each item as a new appropriation                                                                     
or as an expansion to an existing appropriation.                                                                                
                                                                                                                                
Representative J. Davies suggested that it would be                                                                             
appropriate to hear the historical perspective which lead to                                                                    
the existing 45-day statute.  He cautioned changing the                                                                         
terms of that settlement.  Co-Chair Therriault clarified                                                                        
that the proposed legislation would only be an extension to                                                                     
the delay period.                                                                                                               
                                                                                                                                
Representative J. Davies explained that the Administration                                                                      
claims that for some funds, there should be no requirement                                                                      
for legislative appropriation because they are federal pass-                                                                    
through funds.  The Administration argues that authority                                                                        
does not have to be extended.  The compromise was to have a                                                                     
"notice" feature of the 45 days.                                                                                                
                                                                                                                                
Co-Chair Mulder suggested that the concern is "the power of                                                                     
appropriation".  He commented that the Legislature does                                                                         
appropriate "other funds".  He believed that the Legislature                                                                    
has the right and authority to make the appropriation.                                                                          
Representative J. Davies agreed to that, however, asked if                                                                      
the Legislature has the power to stop an appropriation made                                                                     
by Congress.                                                                                                                    
                                                                                                                                
Co-Chair Mulder noted his concern that with the current                                                                         
system, the Legislature indirectly encourages the                                                                               
Administration to not "lay all their cards on the table"                                                                        
during the appropriation process.                                                                                               
                                                                                                                                
Representative Austerman questioned why the 45 rule exists,                                                                     
if the Legislature is the appropriating body.  He asked when                                                                    
the 45-day rule was implemented.                                                                                                
                                                                                                                                
TAMARA COOK, DIRECTOR, LEGISLATIVE LEGAL & RESEARCH SERVICES                                                                    
noted that the statute which has issue with the proposed                                                                        
legislation, provides an entertaining history.  It was                                                                          
enacted in 1977, which provided for the Governor and the LBA                                                                    
Committee to jointly approve expenditures of three different                                                                    
categories of which one was program receipt.  When the bill                                                                     
was passed, it was immediately challenged in a class action                                                                     
called Kelly vs. Hammond.  The plaintiff was Ramona Kelly                                                                       
and the case went before Judge Steward who ruled that all                                                                       
three types of appropriations were invalid.  With respect to                                                                    
the program receipt portion, the Judge found an improper                                                                        
delegation of the legislative power to appropriate to a                                                                         
committee and he found a violation of the separation of                                                                         
powers doctrine.  Judge Steward also addressed the question                                                                     
of federal program receipts.  At the trial court level,                                                                         
Judge Steward concluded that even federal program receipts                                                                      
are subject to appropriation.  As advised at that point, is                                                                     
currently how Alaska operates.                                                                                                  
                                                                                                                                
Ms. Cook continued, the case was under appeal and both the                                                                      
Legislature and the Executive Branch won some things and                                                                        
lost some things.  The appeal was dropped by agreement.                                                                         
Instead, the Legislature submitted a proposed constitutional                                                                    
amendment to the voters, which would put in place, what is                                                                      
before the Committee in the proposed legislation as                                                                             
Subsection H.  The voters turned it down.                                                                                       
                                                                                                                                
The following year in 1979, the Legislature amended                                                                             
Subsection H so that it would apply only to program receipts                                                                    
and in the form currently before the House Finance                                                                              
Committee.  In response to Judge Stewart, the Legislature                                                                       
realized that it would have to come up with an                                                                                  
appropriation.  The Legislature hit upon the mechanism of                                                                       
appropriating in the front section of the budget an unknown                                                                     
amount of additional program receipts, subject to                                                                               
legislative audit.  That was a physical appropriation in an                                                                     
appropriation act of both federal and non-federal program                                                                       
receipts.  It is broad language which has never been                                                                            
challenged.                                                                                                                     
                                                                                                                                
Ms. Cook continued, the second part, dealing with the                                                                           
Legislature not interfering with the Executive Branch's                                                                         
power of expenditure created the 45-day rule. LBA does have                                                                     
authority, but it does not have the power to keep that money                                                                    
from being spent.  That would be an improper delegation of                                                                      
the Legislature's expenditure power to a Committee.  It                                                                         
would violate the Governor's power to spend in the face of a                                                                    
legitimate appropriation.  The 45-day rule allows LBA to                                                                        
refuse and recommend but, ultimately, the Governor has the                                                                      
power to spend.                                                                                                                 
                                                                                                                                
Ms. Cook pointed out that the "statutory fix" coupled with                                                                      
LBA's advisory review, creates a system which has never been                                                                    
challenged.  She added that it has worked for both the                                                                          
Executive Branch and the Legislature, creating a system                                                                         
which is flexible.                                                                                                              
                                                                                                                                
Co-Chair Therriault asked if it was correct to call the                                                                         
referenced case a "settlement".  Ms. Cook explained that the                                                                    
case was dropped because the Governor and Legislature                                                                           
decided to seek a political solution by proposing an                                                                            
amendment to the Constitution.  When that effort failed,                                                                        
this statutory scheme was put in place.                                                                                         
                                                                                                                                
Representative J. Davies remarked that the "settlement" had                                                                     
been an agreement made out of court between the Legislature                                                                     
and the Administrative Branch to resolve a long-standing                                                                        
disagreement.  Ms. Cook agreed that it had been mutually                                                                        
beneficial to both the parties.                                                                                                 
                                                                                                                                
Representative Grussendorf believed that the Exxon Valdez                                                                       
Oil Settlement (EVOS) money was the issue which created                                                                         
tension.  That money had to be spent in certain designated                                                                      
areas.   He suggested that this was a different category                                                                        
than program receipts.  Ms. Cook agreed that the Exxon                                                                          
Valdez money was unusual.  In the case of that settlement,                                                                      
it went before the Court in a formal sense.  At one point,                                                                      
the Administration assumed the position that expenditure of                                                                     
those funds, which were "weird" in that they were co-mingled                                                                    
with the federal government, could have been received as                                                                        
damages.  The State damages were placed into a single fund                                                                      
with trustees representing both the federal government and                                                                      
State government in charge, which created a curious dynamic                                                                     
to address those co-mingled funds.  Ms. Cook recalled that                                                                      
the federal government indicated that none of the money in                                                                      
that fund would be subject to appropriation.  They                                                                              
emphasized that it was not part of the Alaska State Treasury                                                                    
and was not subject to appropriation.  One of the                                                                               
difficulties of not appropriating that money was that it                                                                        
would be going to State entities.  If the money was not                                                                         
subject to appropriation, there was a question as to how the                                                                    
departments would accept it and delegate it with absence of                                                                     
that appropriation.                                                                                                             
                                                                                                                                
The Legislature responded by passing a statute, which                                                                           
applied, to Exxon Valdez money.  The statute was specific to                                                                    
that money indicating that there were two ways in which the                                                                     
expenditures could be made:                                                                                                     
                                                                                                                                
? The Legislature could appropriate money for a                                                                                 
particular project that is submitted and then fund                                                                              
it; or                                                                                                                          
? Through program receipt expenditure authority                                                                                 
which provides oversight for the LBA Committee.                                                                                 
                                                                                                                                
Ms. Cook reiterated that this is how the State has gotten to                                                                    
the present point with the EVOS money treated like program                                                                      
receipts.                                                                                                                       
                                                                                                                                
Representative Bunde asked if it was only federal program                                                                       
receipts which LBA had perview over.  Ms. Cook responded                                                                        
that the definition of program receipts was broad and                                                                           
included a few different income streams of which federal                                                                        
program receipts are one.                                                                                                       
                                                                                                                                
Representative J. Davies pointed out that the legislation                                                                       
before the Committee resulted from seven cases in which                                                                         
three were related to EVOS circumstances.  That leaves only                                                                     
four program receipt issues of concern, two of which                                                                            
occurred during the Administration of Governor Hickel and                                                                       
two during that of Governor Knowles.  He suggested that                                                                         
there is no evidence of acceleration.  Co-Chair Therriault                                                                      
responded that all have occurred since 1990, from a                                                                             
statutory scheme put in place in 1979.                                                                                          
                                                                                                                                
Co-Chair Mulder asked the value to the Legislature of having                                                                    
the 45-day rule.  Ms. Cook replied that value would be the                                                                      
same that the 45-rule has for the Governor.  It sets up a                                                                       
system of appropriating an unanticipated amount of revenue.                                                                     
It is beneficial to the Legislature in that it gets the                                                                         
Legislature out from under constitutional objection that a                                                                      
Committee is participating in an expenditure decision in an                                                                     
unconstitutional manner.  It helps the Governor, because                                                                        
without that, LBA Audit review, the Legislature would be                                                                        
disinclined to appropriate that amount of money.                                                                                
                                                                                                                                
Co-Chair Mulder believed that the old system does encourage                                                                     
providing excess authority in anticipation of funding.  Ms.                                                                     
Cook replied that the 45-day rule allows the Office of the                                                                      
Governor to make the expenditure more quickly.  Co-Chair                                                                        
Therriault stated that it provides the ability to deal with                                                                     
unforeseen circumstances during interim.  He agreed that the                                                                    
current mechanism has provided some sort of flexibility.                                                                        
                                                                                                                                
Representative G. Davis suggested that the 45-day rule                                                                          
basically provides notice.  Co-Chair Therriault agreed,                                                                         
although asked if it was correct that when a legislator                                                                         
makes a vote on the front section of an appropriation, would                                                                    
notice be good enough or would you expect more control.                                                                         
Representative G. Davis asked what is an "emergency" and                                                                        
could that differ between the Governor and the LBA                                                                              
Committee.                                                                                                                      
                                                                                                                                
DAN SPENCER, CHIEF BUDGET ANALYST, OFFICE OF THE GOVERNOR,                                                                      
OFFICE OF MANAGEMENT AND BUDGET, offered to provide                                                                             
Committee members an overview.  He noted that the front                                                                         
section appropriations reference those not specific to                                                                          
statute.  Three years ago, those appropriations were more                                                                       
broadly worded with EVOS, program receipts, test fishery                                                                        
receipts and statutory designated program receipts.  Years                                                                      
prior to that, it also included general fund program                                                                            
receipts.  Of the seven RPL's proposed as problems, three of                                                                    
these were general fund program receipts at the time they                                                                       
were used.                                                                                                                      
                                                                                                                                
Mr. Spencer explained what has occurred is that a                                                                               
subcommittee faced with a cap might take program receipts                                                                       
out of the budget and then offers intent language to LBA in                                                                     
order to receive those program receipts.  He explained the                                                                      
way the process currently works is that the Legislature                                                                         
passes a budget plan based on what is known at that time.                                                                       
As unexpected federal grants are made available, it is then                                                                     
determined if they would fit into an existing budget.  If                                                                       
not, it is then submitted as a RPL to the LBA Committee.                                                                        
Mr. Spencer acknowledged that the existing 45-day rule                                                                          
provides any Administration plenty of opportunity for                                                                           
mischief although, emphasized that no governor has chosen to                                                                    
do that but instead has worked closely with the LBA                                                                             
Committee.                                                                                                                      
                                                                                                                                
Mr. Spencer continued, if an RPL is turned down during the                                                                      
LBA Committee, the Governor's choice is to resubmit, ask the                                                                    
LBA Committee to reconsider its action, not undertake it, or                                                                    
continue and authorize the expenditure.  He assured                                                                             
Committee members that in the decision involving the seven                                                                      
issues of concern, none of them were arrived at from a                                                                          
"cavalier attitude".  He emphasized that nothing is taken                                                                       
lightly about this rule.                                                                                                        
                                                                                                                                
(Tape Change HFC 99 - 16, Side 2).                                                                                              
                                                                                                                                
Mr. Spencer advised that a timing issue had been involved in                                                                    
each of the seven decisions and that the Governor did                                                                           
consult with the members of the LBA Committee.                                                                                  
                                                                                                                                
Mr. Spencer addressed his concerns with the legislation in                                                                      
regards to giving the LBA Committee veto power.  The law as                                                                     
currently written has been rarely invoked.  Had it not been                                                                     
for EVOS, there have been few times it has occurred.  When                                                                      
it has occurred and when there is a timing constraint, this                                                                     
legislation could give the Committee veto authority, and                                                                        
that would not be in the best interest of the State.                                                                            
Presently, the Governor must provide LBA a written report                                                                       
explaining why the expenditure was essential; that action                                                                       
has always occurred.  Under the proposed statutory change,                                                                      
the Governor would not be able to make that decision.                                                                           
                                                                                                                                
Mr. Spencer summed up the position of the Governor's Office,                                                                    
pointing out that the Legislature and that Office have a                                                                        
workable agreement and a process with a built-in reasonable                                                                     
time delay before the Governor can invoke the ability to                                                                        
spend unappropriated money.  No Administration has acted                                                                        
unreasonably.  He concluded that the current process works.                                                                     
                                                                                                                                
Representative Bunde mentioned his concern that there are                                                                       
projects which can not maintain the scrutiny of the full                                                                        
body so consequently decide to wait to introduce their                                                                          
proposition so that it would come before the LBA Committee.                                                                     
Mr. Spencer acknowledged that the concerns are a double-                                                                        
edged sword and that motives do vary.                                                                                           
                                                                                                                                
Co-Chair Mulder asked about the Department of Community and                                                                     
Regional Affairs (DCRA) payment in lieu of taxes.  Mr.                                                                          
Spencer noted that federal money had been available for the                                                                     
communities and he recalled that in prior years, it was off                                                                     
budget.  The question was never if the communities would                                                                        
receive the funding, but rather would they receive it in a                                                                      
timely fashion.  Mr. Maher addressing that concern,                                                                             
referenced an e-mail from Fred Fisher, Legislative Analyst,                                                                     
pointing out that the issue got to LBA because it was                                                                           
difficult to find the original appropriation.  Mr. Spencer                                                                      
agreed that there has been debate regarding the underline                                                                       
appropriation of that RPL.                                                                                                      
                                                                                                                                
Representative Grussendorf advised that the situation was                                                                       
more complicated with that Payment In Lieu of Taxes (PILT)                                                                      
which has always passed directly through to the communities.                                                                    
LBA was trying to direct communities how they were to spend                                                                     
that money.  The communities did not appreciate that                                                                            
attitude especially in Southeast Alaska.                                                                                        
                                                                                                                                
Representative Austerman noted that he was not convinced                                                                        
that the proposed legislation would be the correct way to                                                                       
address the problem.                                                                                                            
                                                                                                                                
Co-Chair Therriault replied that the legislation would grant                                                                    
the flexibility on many different possible fronts.  Within                                                                      
30-days when the Legislature was back in session, action                                                                        
could then be decided upon by the full legislative body.                                                                        
                                                                                                                                
Representative J. Davies countered that if the Legislature                                                                      
were to not place it in the front section, then communities                                                                     
might go directly to the federal government to get the money                                                                    
appropriated.  He suggested that the Legislature would then                                                                     
have less foresight and control then now.  Additionally,                                                                        
every issue before the LBA Committee has had a timing                                                                           
concern for funding.  He reiterated, the current settlement                                                                     
is the best compromise and has worked over the years.                                                                           
                                                                                                                                
Representative Grussendorf suggested that the legislation                                                                       
was submitted because some people disagreed with the land                                                                       
purchases.  He pointed out that each issue had been quite                                                                       
time sensitive.                                                                                                                 
                                                                                                                                
Representative J. Davies agreed with Co-Chair Therriault                                                                        
that members on the LBA Committee should not take their                                                                         
votes lightly.  He suggested that the recommendations made                                                                      
by Co-Chair Therriault could actually "shut-off" an                                                                             
appropriation to veto funding made either by the Legislature                                                                    
or by Congress.  Representative J. Davies emphasized that                                                                       
both those actions would be unconstitutional.                                                                                   
                                                                                                                                
Representative G. Davis thought that the legislation could                                                                      
initiate additional costs.  He believed that if a situation                                                                     
were a true emergency, it would need to be quickly addressed                                                                    
and with the proposed legislation, the Governor would have                                                                      
to call a Special Session to handle it.  He recommended that                                                                    
the current system stay in place.                                                                                               
                                                                                                                                
Representative Bunde commented that the decision regarding                                                                      
the legislation was a "judgement call".  He added that some                                                                     
departments circumvent legislative action by coming to LBA                                                                      
with their requests rather than to the full Legislature.  He                                                                    
noted that he supported the legislation with the hope that                                                                      
negotiations could be made to eliminate the need for it.                                                                        
                                                                                                                                
Co-Chair Mulder MOVED to report CSSB 28(FIN) out of                                                                             
Committee with individual recommendations and with the                                                                          
accompanying fiscal note.  Representative J. Davies                                                                             
OBJECTED.                                                                                                                       
                                                                                                                                
Representative J. Davies explained that that issues have not                                                                    
been resolved and there have been serious concerns raised in                                                                    
discussion.  He requested an opportunity to better                                                                              
understand the cases which stimulated the proposed                                                                              
legislation.  Additionally, he recommended separating the                                                                       
EVOS circumstances from the rest of the proposal.  The EVOS                                                                     
process was added as an appendix to the current process.                                                                        
Representative J. Davies asked to separate the issues, place                                                                    
the bill in subcommittee, and leave in-place the statutory                                                                      
laws made over twenty years ago.  He requested members to                                                                       
reconsider their consideration their position on the                                                                            
legislation.                                                                                                                    
                                                                                                                                
Representative Grussendorf noted the historical efficiency                                                                      
of the LBA Committee given the tremendous amount of funds                                                                       
they are responsible for.  The current system has worked                                                                        
efficiently.  He requested that Committee members not use                                                                       
the proposed legislation as an item for a power struggle                                                                        
between the Legislature and the Office of the Governor.                                                                         
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Austerman, Bunde, G. Davis, Kohring, Mulder,                                                                          
Therriault                                                                                                                      
OPPOSED:  J. Davies, Grussendorf, Moses                                                                                         
                                                                                                                                
Representatives Foster and Williams were not present for the                                                                    
vote.                                                                                                                           
                                                                                                                                
The MOTION PASSED (6-3).                                                                                                        
                                                                                                                                
CSSB 28 (FIN) was reported out of Committee with a "do pass"                                                                    
recommendation by the Legislative Finance Committee dated                                                                       
1/26/99.                                                                                                                        
PRESENTATION BY DAVID TEAL - 25 YEAR GENERAL FUND HISTORY                                                                       
                                                                                                                                
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, spoke to                                                                    
how oil revenue affects the overall revenue for the State.                                                                      
He emphasized that oil revenue is not stable and that there                                                                     
is a downward trend in oil revenue.  Currently, there is a                                                                      
$1.1 billion dollar fiscal gap or 50% of the budget.  Mr.                                                                       
Teal commented that concern with stability is no surprise.                                                                      
The General Obligation (GO) debt was structured so as to                                                                        
assume continued production and selling power of the oil.                                                                       
The present situation creates a much larger than anticipated                                                                    
fiscal gap.  Mr. Teal stressed that the gap can not be                                                                          
reasonably addressed with budget cuts alone.  He noted that                                                                     
the focus of the Senate Finance Committee meeting earlier in                                                                    
the day had been on generating revenue rather than the                                                                          
downsizing expenditures.                                                                                                        
                                                                                                                                
Mr. Teal commented that following the request to address                                                                        
State expenditures, the Legislative Finance Division                                                                            
prepared Attachment #1, "The 25 Year General Fund History".                                                                     
[Copy on file].  He noted that Ginger Blaisdell coordinated                                                                     
that effort for the Division.                                                                                                   
                                                                                                                                
GINGER BLAISDELL, FISCAL ANALYST, DIVISION OF LEGISLATIVE                                                                       
FINANCE, spoke to Attachment #1.  She stated that Page 2 of                                                                     
the graph indicates the volatility of oil and gas property                                                                      
taxes, severance tax, corporate income tax and rents and                                                                        
royalties on Alaska's total revenue.                                                                                            
                                                                                                                                
She pointed out that the small spikes in the "other                                                                             
revenues" line are attributed to:                                                                                               
                                                                                                                                
? 1980 Investment earnings                                                                                                      
? 1983 Investment earnings                                                                                                      
? 1986 Settlement payments                                                                                                      
                                                                                                                                
Ms. Blaisdell continued, the greatest peak in 1981-1982 was                                                                     
due to extraordinary high world oil prices that occurred at                                                                     
the same time Alaska's production came onto the market.                                                                         
Alaska was producing 2 million barrels per day at that time.                                                                    
Alaska's production level is currently about half, and the                                                                      
price per barrel is less than half of the 1982 level.                                                                           
                                                                                                                                
In general, Alaska's oil forecasts have been close to actual                                                                    
earnings over the past 15 years.  Overall, the Department of                                                                    
Revenue has under-projected oil revenues by $.82/bbl.                                                                           
                                                                                                                                
Representative J. Davies asked if "other revenue" included                                                                      
Permanent Fund revenues.  Ms. Blaisdell replied that                                                                            
category was only general fund revenue and would not include                                                                    
the Permanent Fund.  Representative J. Davies questioned if                                                                     
the tax settlement had been considered revenue.  Ms.                                                                            
Blaisdell stated that would not show as general fund revenue                                                                    
nor would the Capital Budget Reserve (CBR) interest.                                                                            
                                                                                                                                
Ms. Blaisdell spoke to Page #3, which illustrates projected                                                                     
general fund revenues at various oil prices, indicating the                                                                     
impact on the general fund as the oil price fluctuates                                                                          
between $10/bbl and $20/bbl.  The narrowing distance between                                                                    
lines shows that with lower production, the price per barrel                                                                    
has a lesser effect on oil revenues.                                                                                            
                                                                                                                                
Other oil revenues, such as corporate income tax, property                                                                      
tax and severance taxes provide additional "oil-related"                                                                        
revenues to Alaska.  She noted that the oil projections are                                                                     
based on a sensitivity model provided by the Department of                                                                      
Revenue and are based on the current oil fields life and                                                                        
production expectancy.                                                                                                          
                                                                                                                                
Ms. Blaisdell pointed out that to make $1.257 billion                                                                           
dollars in year 2020, oil prices would have to be $91/bbl as                                                                    
adjusted for 3% inflation.  ($45/bbl in today's dollars).                                                                       
                                                                                                                                
Representative Grussendorf asked about the oil companies                                                                        
production reaction at this time.  Ms. Blaisdell stated that                                                                    
she understood that ARCO was looking at future development.                                                                     
                                                                                                                                
Page #4 of the handout illustrates general fund revenues                                                                        
versus the expenditures.  In general, Alaska's spending has                                                                     
followed the pattern of its revenue.  As revenue increases,                                                                     
so does spending.  As revenue decreases, so does spending,                                                                      
but at a slightly lower rate.                                                                                                   
                                                                                                                                
She pointed out that general fund program receipts are                                                                          
counted as general fund expenditures but are not included in                                                                    
the State's revenue total.                                                                                                      
                                                                                                                                
Ms. Blaisdell noted that the revenue peaks and valleys shown                                                                    
on Figure #4 are attributed to oil fluctuation.                                                                                 
                                                                                                                                
? 1979-1982 Oil production increased from the                                                                                   
previous years and the extremely high prices.                                                                                   
? 1986 Oil prices "crashed" from a projected                                                                                    
$24.64/bbl to $22.03/bbl.  With high production,                                                                                
the slight price drop caused a significant drop in                                                                              
Alaska's revenues.                                                                                                              
? 1991 The Gulf War brought projected oil prices                                                                                
from $19.15/bbl to $21.57/bbl.                                                                                                  
? 1992 Tax settlement payments from oil producers                                                                               
increased revenues.                                                                                                             
? 1994 Oil prices "crashed" from a projected                                                                                    
$18.25/bbl to $14.05/bbl.                                                                                                       
? 1997 Unexpected high oil prices from projected                                                                                
$16.72/bbl to $20.90/bbl.                                                                                                       
? 1998 Iraq exports are allowed that drive prices                                                                               
down from projected $18.44/bbl to $16.03/bbl.                                                                                   
? 1999 Price "crash" brings oil to a new low average                                                                            
of $11.58/bbl.                                                                                                                  
                                                                                                                                
Ms. Blaisdell spoke to the expenditure peaks and valleys on                                                                     
Page #4.                                                                                                                        
                                                                                                                                
? 1980 Alaska's first $1 billion dollars operating                                                                              
budget plus $100 million dollars supplemental.                                                                                  
Capital budget increased from $23 million dollars                                                                               
to $86 million dollars in 1980.                                                                                                 
? 1981 Alaska's operating budget increased to $1.5                                                                              
billion dollars, capital expenditures jump from                                                                                 
$86 million dollars to $900 million dollars in                                                                                  
general fund spending.                                                                                                          
? 1982 Alaska's operating budget grows by another                                                                               
$400 million and the capital budget declines                                                                                    
slightly.  Special appropriations are                                                                                           
approximately $3 billion dollars.                                                                                               
? 1983 & 1984 Drop significantly due to decline in                                                                              
special appropriations spending, however, the                                                                                   
operating and capital budgets stay at around $1.9                                                                               
billion dollars and $400 million dollars                                                                                        
respectively.                                                                                                                   
? 1985 Operating budget increased to $2.3 billion                                                                               
dollars and capital jumps to $1.8 billion dollars.                                                                              
? 1986 Oil revenues drop due to a price crash.                                                                                  
Overall spending stays relatively stable but drops                                                                              
in FY88 and rebounds in FY89.  During this time,                                                                                
1,300 positions were eliminated from the state                                                                                  
work force.  By 1991, state positions were back to                                                                              
the "pre-layoff" level and stabilized with minimal                                                                              
growth.                                                                                                                         
? 1987 The operating budget stayed relatively the                                                                               
same, the capital budget increased $200 million                                                                                 
dollars and special appropriations increased $150                                                                               
million dollars from 1986.                                                                                                      
? 1988 to 1994 Expenditure peaks and valleys have                                                                               
leveled off.                                                                                                                    
? 1990 Constitutional Budget Reserve created.                                                                                   
? 1994 Alaska draws from the Constitutional Budget                                                                              
Reserve to offset the decline in revenues.                                                                                      
? 1997 An unexpected increase in revenues created a                                                                             
$70 million dollar general fund surplus.                                                                                        
? 1998-2000 The Constitutional Budget Reserve is                                                                                
depended upon to "balance" the State's                                                                                          
expenditures with it declining revenue source.                                                                                  
                                                                                                                                
Representative J. Davies responded to comments made by                                                                          
Representative Kohring and pointed out that the graphs do                                                                       
not indicate federal funds.  If the total expenditures per                                                                      
capita were plotted and adjusted to real dollars, it would                                                                      
indicate that the State spends less per capita now than it                                                                      
did in the 1970's.                                                                                                              
                                                                                                                                
Ms. Blaisdell provided those figures:                                                                                           
                                                                                                                                
1973 Population was 336 thousand residents.                                                                                     
1998 Population was 621 thousand residents.                                                                                     
                                                                                                                                
1973 $3.7 million dollars per person was spent.                                                                                 
1998 $3.7 million dollars per person was spent.                                                                                 
                                                                                                                                
Mr. Teal pointed out that in 1973, there were only two                                                                          
funds, general fund and federal funds.  Over the years, the                                                                     
"other" funds have grown substantially.                                                                                         
                                                                                                                                
Co-Chair Therriault commented that when the State started                                                                       
offering a dividend, the State started attracting a populace                                                                    
that required much more service from government.                                                                                
                                                                                                                                
Representative Bunde asked if the expenditures indicated                                                                        
money paid out for the Permanent Fund Dividend (PFD).  Ms.                                                                      
Blaisdell stated it did not.  PFD checks are paid out of the                                                                    
Permanent Fund corporate receipts and are not included in                                                                       
the general fund category.                                                                                                      
                                                                                                                                
Co-Chair Mulder acknowledged that oil revenue is not stable                                                                     
and asked how to reduce that uncertainty.  Mr. Teal advised                                                                     
that "uncertainty" could not be reduced, because oil is a                                                                       
commodity and commodities fluctuate.  He emphasized that oil                                                                    
prices can not be controlled.  Everyone understands that the                                                                    
oil bonanza is over.  He cautioned that it is important to                                                                      
remember to spend less than every dime that is available.                                                                       
Representative J. Davies suggested that earnings from the                                                                       
PFD could be a source of major income.  Mr. Teal                                                                                
acknowledged that the Legislature has been responsible but                                                                      
that there is competition for that money. The Permanent Fund                                                                    
Dividend takes away the earning flow from the general fund.                                                                     
                                                                                                                                
Thus concluded the presentation on the general fund history.                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
The meeting adjourned at 3:45 P.M.                                                                                              
                                                                                                                                
                                                                                                                                
H.F.C. 10 2/05/99                                                                                                               

Document Name Date/Time Subjects