Legislature(2023 - 2024)ADAMS 519

03/15/2023 01:30 PM House FINANCE

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Audio Topic
01:35:36 PM Start
01:35:42 PM HB39 || HB41 || HB62
01:46:39 PM Presentation: Mechanics of Constitutional Budget Reserve Vote, Reverse Sweep, and Effective Dates
02:46:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
Moved HB 62 Out of Committee
+ Presentation: Mechanics of Constitutional Budget TELECONFERENCED
Reserve Vote, Reverse Sweep, and Effective Dates
by Emily Nauman, Director, Legislative Legal
Services and Alexei Painter, Director,
Legislative Finance Division
+ Bills Previously Heard/Scheduled TELECONFERENCED
                   HOUSE FINANCE COMMITTEE                                                                                      
                       March 15, 2023                                                                                           
                          1:35 p.m.                                                                                             
1:35:36 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 1:35 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Bryce Edgmon, Co-Chair                                                                                           
Representative Neal Foster, Co-Chair                                                                                            
Representative DeLena Johnson, Co-Chair                                                                                         
Representative Julie Coulombe                                                                                                   
Representative Mike Cronk                                                                                                       
Representative Alyse Galvin                                                                                                     
Representative Sara Hannan                                                                                                      
Representative Andy Josephson                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Will Stapp                                                                                                       
Representative Frank Tomaszewski                                                                                                
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Laib Allensworth, Staff, Representative Bryce Edgmon; Megan                                                                     
Wallace, Chief Counsel, Legislative Legal Services; Alexei                                                                      
Painter, Director, Legislative Finance Division.                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
HB 39     APPROP: OPERATING BUDGET/LOANS/FUND; SUPP                                                                             
          HB 39 was HEARD and HELD in committee for further                                                                     
HB 41     APPROP: MENTAL HEALTH BUDGET                                                                                          
          HB 41 was HEARD and HELD in committee for further                                                                     
HB 62     RENEWABLE ENERGY GRANT FUND                                                                                           
          HB 62  was REPORTED  out of committee  with eleven                                                                    
          "do  pass"  recommendations   and  one  previously                                                                    
          published fiscal  impact note from  the Department                                                                    
          of Commerce,  Community and  Economic Development:                                                                    
          FN7 (CED).                                                                                                            
PRESENTATION: MECHANICS OF CONSTITUTIONAL BUDGET RESERVE                                                                        
VOTE, REVERSE SWEEP, AND EFFECTIVE DATES                                                                                        
HOUSE BILL NO. 39                                                                                                             
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain   programs;    capitalizing   funds;   amending                                                                    
     appropriations;    making   reappropriations;    making                                                                    
     supplemental   appropriations;  making   appropriations                                                                    
     under art.  IX, sec.  17(c), Constitution of  the State                                                                    
     of  Alaska,  from  the  constitutional  budget  reserve                                                                    
     fund; and providing for an effective date."                                                                                
HOUSE BILL NO. 41                                                                                                             
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive mental health  program; and providing for                                                                    
     an effective date."                                                                                                        
HOUSE BILL NO. 62                                                                                                             
     "An  Act relating  to the  renewable energy  grant fund                                                                    
     and  recommendation  program;   and  providing  for  an                                                                    
     effective date."                                                                                                           
1:35:42 PM                                                                                                                    
Co-Chair Foster reviewed the meeting agenda.                                                                                    
1:37:15 PM                                                                                                                    
Co-Chair Edgmon  summarized HB 62.  He explained that  HB 62                                                                    
extended the Renewable Energy  Grant Fund and Recommendation                                                                    
Program for 10  years and set a new sunset  date of June 30,                                                                    
Co-Chair Foster  indicated that Representative  Coulombe had                                                                    
joined the meeting.                                                                                                             
1:38:05 PM                                                                                                                    
Co-Chair  Johnson reviewed  the fiscal  impact fiscal  note,                                                                    
for  the  Department  of Commerce,  Community  and  Economic                                                                    
Development  (FN1  (CED)   allocated  to  Statewide  Project                                                                    
Development, Alternative  Energy, and  Efficiency. [Co-Chair                                                                    
Johnson had stated that the fiscal note was zero in error.]                                                                     
1:38:50 PM                                                                                                                    
LAIB  ALLENSWORTH,   STAFF,  REPRESENTATIVE   BRYCE  EDGMON,                                                                    
clarified that the  fiscal note had a fiscal  impact of $1.4                                                                    
million that was included in the governors budget request.                                                                      
1:39:07 PM                                                                                                                    
1:39:48 PM                                                                                                                    
Co-Chair  Foster reiterated  that  the  fiscal note  totaled                                                                    
$1.4  million and  was already  included  in the  governor's                                                                    
1:40:25 PM                                                                                                                    
Representative  Josephson  asked   what  the  administrative                                                                    
costs were for FY 23.                                                                                                           
1:40:47 PM                                                                                                                    
Curtis Thayer, Executive  Director, Alaska Energy Authority,                                                                    
Department of Commerce,  Community and Economic Development,                                                                    
responded that  $1.4 million was  appropriated in FY  23. He                                                                    
furthered  that  the amount  the  average  cost to  run  the                                                                    
program each year.                                                                                                              
1:41:24 PM                                                                                                                    
Co-Chair  Johnson MOVED  to REPORT  HB 62  out of  committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
HB 62  was REPORTED out  of committee with eleven  "do pass"                                                                    
recommendations and  one previously published  fiscal impact                                                                    
note  from   the  Department  of  Commerce,   Community  and                                                                    
Economic Development: FN7 (CED).                                                                                                
1:42:10 PM                                                                                                                    
1:46:24 PM                                                                                                                    
^PRESENTATION:  MECHANICS OF  CONSTITUTIONAL BUDGET  RESERVE                                                                  
VOTE, REVERSE SWEEP, AND EFFECTIVE DATES                                                                                      
1:46:39 PM                                                                                                                    
Co-Chair Johnson introduced the next item on the agenda.                                                                        
1:47:13 PM                                                                                                                    
MEGAN  WALLACE, CHIEF  COUNSEL, LEGISLATIVE  LEGAL SERVICES,                                                                    
Alaska  State   Legislature,  introduced   the  presentation                                                                    
entitled,   "Constitutional   Budget   Reverse   Sweep   and                                                                    
Effective  Date Overview,"  dated  March 15,  2023 (copy  on                                                                    
file). She  indicated that she  would review  the mechanisms                                                                    
of the  Constitutional Budget Reserve (CBR)  and the Reverse                                                                    
Sweep  in light  of the  recent litigation  surrounding both                                                                    
budget items.  She discussed the  litigation and  its impact                                                                    
on  the  historical  analysis  of the  sweep  and  spoke  to                                                                    
effective dates.                                                                                                                
Ms. Wallace  explained the Constitutional provisions  of the                                                                    
CBR  found  in   Article  IX,  Section  17   of  the  Alaska                                                                    
Constitution.   She    delineated   that    subsection   (a)                                                                    
established  the  CBR  fund and  covered  the  deposits  and                                                                    
investments  of  the  fund.  Subsection  (b)  established  a                                                                    
formula  in which  the legislature  was able  to access  the                                                                    
funds via  majority vote. She furthered  that subsection (c)                                                                    
allowed  for  appropriation from  the  fund  for any  public                                                                    
purpose upon  approval of three  quarters of both  houses of                                                                    
the  legislature. All  of the  deficit spending  and reverse                                                                    
sweep mechanisms were appropriations under subsection (c).                                                                      
1:49:56 PM                                                                                                                    
Co-Chair  Johnson asked  about subsection  (d). She  pointed                                                                    
out that  it was amended  in 1990.  She asked if  Section 17                                                                    
was  part   of  the   original  Constitution.   Ms.  Wallace                                                                    
responded that all of Section  17 was approved by the voters                                                                    
in 1990 via a constitutional amendment.                                                                                         
1:50:50 PM                                                                                                                    
Ms. Wallace turned to slide 2 titled "CBR Sweep Mechanism:"                                                                     
     The CBR sweep provision  was established in Article IX,                                                                    
     Section 17 of the Alaska Constitution:                                                                                     
     (d)  Repayment  requirement   "If an  appropriation  is                                                                    
     made  from the  budget reserve  fund, until  the amount                                                                    
     appropriated  is repaid,  the  amount of  money in  the                                                                    
     general fund available for appropriation  at the end of                                                                    
     each succeeding  fiscal year shall be  deposited in the                                                                    
     budget  reserve fund.  The legislature  shall implement                                                                    
     this subsection by law."                                                                                                   
Ms.  Wallace explained  that subsection  (d) meant  that any                                                                    
money left in  the General Fund (GF) that  was available for                                                                    
appropriation was effectively swept  into the CBR, which was                                                                    
the reason it was referred to as the sweep.                                                                                     
1:51:53 PM                                                                                                                    
Representative Josephson offered that  the debt was not like                                                                    
a credit  card debt that  had repercussions if the  debt was                                                                    
not repaid.  There was  no penalty or  fee for  not repaying                                                                    
the CBR.  He asked if  he was correct. Ms.  Wallace answered                                                                    
in the  affirmative. She  added that  there was  no specific                                                                    
enforcement or penalty if the  legislature did not repay the                                                                    
fund. The only  consequence was that there would  be a sweep                                                                    
every year until the amount was fully repaid.                                                                                   
1:52:48 PM                                                                                                                    
Representative Stapp  asked for  a definition of  "amount of                                                                    
money  available  for  appropriation"   in  context  of  the                                                                    
Earnings  Reserve Account  (ERA). Ms.  Wallace deferred  the                                                                    
answer to  future slides.  She pointed  out that  there were                                                                    
many upcoming slides that would discuss the topic.                                                                              
1:53:30 PM                                                                                                                    
Ms. Wallace continued on slide  2. She communicated that the                                                                    
sweep  occurred  by  operation  of  the  Constitution  under                                                                    
subsection D. The legislature  occasionally decided to adopt                                                                    
what was  called a "reverse  sweep." It was not  possible to                                                                    
stop the  sweep from  happening, but an  appropriation could                                                                    
be passed  to return all of  the swept funds back  to all of                                                                    
the original sub funds or accounts from whence they came.                                                                       
Ms. Wallace discussed slide 3 titled Reverse Sweep:                                                                             
    The "reverse sweep" is an appropriation from the CBR                                                                     
     that returns  swept funds back to  the original subfund                                                                    
     or  account. The  "reverse sweep"  is an  appropriation                                                                    
     under art. IX,  sec. 17(c), and requires a  3/4 vote to                                                                    
    The sweep is effective at the end of a fiscal year                                                                       
     (June 30)  and the  reverse sweep  is effective  on the                                                                    
     first day of the following fiscal year (July 1).                                                                           
Ms. Wallace  commented that if  a reverse sweep  passed, the                                                                    
only  sweep  that would  actually  occur  was an  accounting                                                                    
event involving  the reconciliation  of accounts at  the end                                                                    
of the fiscal year.                                                                                                             
Ms. Wallace moved to slide 4 titled How the Sweep Works:                                                                        
     The   Department   of  Administration's   Division   of                                                                    
     Finance(DOF)  accountants  calculate  the  sweep  while                                                                    
     preparing  the  Annual Comprehensive  Financial  Report                                                                    
     (ACFR). The  sweep represents  unreserved, undesignated                                                                    
     fund balances of the general fund subfunds.                                                                                
          •   DOF  accountants   calculate   the  sweep   in                                                                    
          September as  the ACFR is prepared  yet the amount                                                                    
          of the  sweep is  posted in the  financial records                                                                    
          as of the end of the fiscal year (June 30th).                                                                         
          • After the ACFR  is prepared (historically by the                                                                    
          end  of  October),  the ACFR  is  audited  by  the                                                                    
          legislative auditor. The  sweep amount is adjusted                                                                    
          as necessary. The sweep amount is adjusted as                                                                         
1:56:49 PM                                                                                                                    
Representative  Josephson asked  if  the  key agencies  that                                                                    
voiced  opinions  on  what  was    sweepable   were  not  in                                                                    
agreement. He  noted that included the  Office of Management                                                                    
and Budget  (OMB), Legislative  Finance Division  (LFD), and                                                                    
the Division  of Legislative Audit.  Ms. Wallace  replied in                                                                    
the affirmative  and furthered that  there had  been moments                                                                    
of disagreement between  the different agencies. Ultimately,                                                                    
the   entity   that   carried  out   the   sweep   was   the                                                                    
administration via  the Division  of Finance  [Department of                                                                    
Revenue.] She  reported that there had  been litigation over                                                                    
its decisions regarding what was swept.                                                                                         
1:58:18 PM                                                                                                                    
Ms.   Wallace  continued   on   slide   5  titled    Statute                                                                    
Implementing Sweep Was Found Unconstitutional:                                                                                  
    AS 37.10.420 was intended to implement the sweep.                                                                        
    The Supreme Court in Hickel v. Cowper found this                                                                         
     statute unconstitutional in 1994.                                                                                          
    Since then, the executive branch has had to implement                                                                    
     the sweep without statutory guidance. The list of                                                                          
  sweepable    funds   has    been   driven    by   legal                                                                       
     interpretations of Hickel v. Cowper.                                                                                       
    The legislature could pass a new statute that attempts                                                                   
   to define which funds are sweepable, but absent this                                                                         
  or a court case the administration's interpretation is                                                                        
Ms.  Wallace  offered  that  after   the  Hickel  v.  Cowper                                                                    
judgement the legislature had not  attempted to define which                                                                    
funds were sweepable.                                                                                                           
Ms. Wallace  summarized slide 6  titled  Hickel v.  Cowper -                                                                    
874 P.2d 922 (Alaska 1994):                                                                                                     
   • To determine whether a fund is sweepable under art.                                                                        
   IX, sec. 17(d), the two-part test is whether the fund                                                                        
     (1) "in the general fund" and (2) "available for                                                                           
     • Hickel addressed the phrase "available for                                                                               
   appropriation" and held that funds which may be used                                                                         
     to pay state expenditures without further legislative                                                                      
     action    or further  legislative appropriation  -- are                                                                    
     not   available   for   appropriation  and   thus   not                                                                    
     sweepable.  On  the  other  hand,  funds  that  require                                                                    
    further appropriation are considered "available for                                                                         
     appropriation" and are sweepable.                                                                                          
Ms. Wallace advanced to slide 7 titled Recent Changes in                                                                        
Interpretation and Resulting Litigation:                                                                                        
     • In 2019, relying on  an Attorney General opinion, the                                                                    
     administration  expanded  the  scope of  the  sweep  to                                                                    
     include additional funds.                                                                                                  
     •  Most  significantly,  the   sweep  was  expanded  to                                                                    
     include the Power Cost Equalization  (PCE) Fund and the                                                                    
     Higher Education Investment Fund.                                                                                          
     • Litigation followed.                                                                                                     
Ms. Wallace detailed that the Hickel v. Cowper judgement                                                                        
was the law of the land for roughly 25 years.                                                                                   
Ms. Wallace pointed to slide 8 titled AFN v. Dunleavy,                                                                          
3AN-21-06737CI (August 11, 2021):                                                                                               
     • The  Alaska Federation  of Natives brought  a lawsuit                                                                    
     against    the     administration    challenging    the                                                                    
     sweepability of the PCE Fund.                                                                                              
     • On August  11, 2021, a Superior Court  ruled in favor                                                                    
     of  the  plaintiffs, finding  that  PCE  should not  be                                                                    
     subject  to  the  sweep  because  the  PCE  fund  is  a                                                                    
     separate fund outside the general fund.                                                                                    
     •  The  court  noted  that  the  legislature  has  also                                                                    
     created other  "separate funds" and listed  those other                                                                    
     funds in footnote 77 of  the opinion. It was there that                                                                    
     the court  noted that  the legislature  established the                                                                    
     statutory budget reserve fund  in AS 37.05.540(a) "as a                                                                    
     separate  fund in  the state  treasury." Based  on this                                                                    
     notation,  our office  has advised  that the  statutory                                                                    
     budget  reserve fund  would also  likely be  considered                                                                    
  outside the general fund and not subject to the sweep.                                                                        
     •  The case  was  not appealed  to  the Alaska  Supreme                                                                    
Ms. Wallace voiced that the administration decided not to                                                                       
appeal the case to the Supreme Court, but the case would                                                                        
bind the administration in respect to the PCE fund.                                                                             
2:04:55 PM                                                                                                                    
Ms. Wallace continued on slide 9 titled Short v. Dunleavy,                                                                      
520 P.3d 142 (Alaska 2022):                                                                                                     
     • After the  PCE decision and a failed  2021 sweep, the                                                                    
     Attorney General wrote a  memorandum stating that money                                                                    
     already   appropriated   from  the   Higher   Education                                                                    
     Investment  Fund  (HEIF)  for fiscal  year  2022  could                                                                    
     likely  be spent  despite the  appropriation having  an                                                                    
     effective   date  occurring   after   the  sweep,   but                                                                    
     maintained  the  position  that  the  HEIF's  remaining                                                                    
     corpus was subject to the sweep.                                                                                           
     • A group  of students then sued  the governor alleging                                                                    
     that the  Higher Education  Investment Fund  (HEIF) was                                                                    
     not  sweepable.  Legislative  Council filed  an  amicus                                                                    
     brief supporting the students' position.                                                                                   
     •  The Alaska  Supreme Court  determined that  the HEIF                                                                    
     was  sweepable.  The  Court  held  that  the  HEIF  was                                                                    
     "available  for appropriation"  under the  Cowper test,                                                                    
     particularly focusing  on the  fact that the  monies in                                                                    
     the HEIF,  by statute, must be  further appropriated to                                                                    
     be spent.                                                                                                                  
       In  2022, the legislature amended  AS 37.14.750(a) to                                                                    
     establish the  HEIF "as  a separate  fund in  the state                                                                    
     treasury." ch. 15, SLA 2022.                                                                                               
       At  the time  of the Short  litigation, the  HEIF was                                                                    
     established "in the general fund."                                                                                         
Ms. Wallace  elaborated that since the  administration could                                                                    
not  expend the  funds without  a legislative  appropriation                                                                    
the   Alaska  Supreme   Court  determined   that  HEIF   was                                                                    
sweepable. The  plaintiffs had argued that  the court should                                                                    
consider  overruling the  Cowper  decision  ruling, but  the                                                                    
court  refused. Therefore,  the legislature  adopted HB  322                                                                    
[HB  322  - Ak  Marine  Hwy  Funds,  Higher Ed  Inves  Fund,                                                                    
Chapter 15 SLA 22,  06/29/2022] that amended AS 37.14.750(a)                                                                    
to establish  the HEIF  as a  separate fund  from GF  in the                                                                    
state treasury as  well as the Alaska  Marine Highway System                                                                    
Fund  in AS  19.65.060  (a) and  the  Alaska Marine  Highway                                                                    
Vessel Replacement  Fund in AS 37.05.550(a).  She noted that                                                                    
although the Supreme  Court upheld the HEIF  corpus sweep in                                                                    
the prior  year, the legislature passed  a supplemental fund                                                                    
transfer and  reestablished the fund in  the previous years                                                                     
operating budget and deposited  $342.5 million into the fund                                                                    
subsequent to the governors veto.                                                                                               
2:10:17 PM                                                                                                                    
Ms. Wallace discussed slide 10 titled Scoop vs. Sweep:                                                                          
     •  After the  failed 2021  sweep, the  Attorney General                                                                    
     advised it was  legally defensible to not  sweep the FY                                                                    
     22  funds appropriated  in the  budget that  had passed                                                                    
     but  not yet  taken  effect, and  the governor  ordered                                                                    
     that those FY 22 appropriations not be swept.                                                                              
       It was  from here that the concept  of "scooping" the                                                                    
     funds before they are swept was born.                                                                                      
     •  In the  Short v.  Dunleavy litigation,  the superior                                                                    
     court   held   that   the  HEIF   was   available   for                                                                    
     appropriation  and  sweepable,  but   that  the  FY  22                                                                    
     appropriations made from the  HEIF should not be swept,                                                                    
     even  though those  appropriations  had  not yet  taken                                                                    
     effect at  the time  of the  sweep. The  superior court                                                                    
     reasoned  that "the  money is  no longer  available for                                                                    
     appropriation  because the  money can  now be  expended                                                                    
     without further legislative action." This decision was                                                                     
     ultimately  affirmed  by   the  Alaska  Supreme  Court,                                                                    
     although  the Court  did not  specifically analyze  the                                                                    
     "scoop" portion of the superior court's opinion.                                                                           
Ms. Wallace  advanced to slide 11  titled  Special Effective                                                                    
     •  Article  II,  sec.  18 of  the  Alaska  Constitution                                                                    
     provides  "Laws   passed  by  the   legislature  become                                                                    
     effective ninety days after enactment.                                                                                     
     The legislature  may, by  concurrence of  two-thirds of                                                                    
     the  membership  of  each house,  provide  for  another                                                                    
     effective date."                                                                                                           
       Enactment occurs when the governor signs the                                                                             
     bills or allows the bill to become law without                                                                             
     signature. See AS 01.10.070, and art. II, sec. 17,                                                                         
     Constitution of the State of Alaska.                                                                                       
Ms. Wallace moved to slide 13 titled           Retroactivity                                                                    
     • A  retroactive clause  does not  amount to  a special                                                                    
     effective date.                                                                                                            
     • A retroactivity provision may  be adopted by majority                                                                    
     vote  rather  than  the two-thirds  vote  required  for                                                                    
     effective dates.  ARCO Alaska, Inc. v.  State, 824 P.2d                                                                    
     708 (Alaska 1992).                                                                                                         
Ms. Wallace highlighted slide 14 titled          Failure of                                                                     
Effective Dates and Resulting Litigation:                                                                                       
     • Historically,  the Attorney General has  advised that                                                                    
     "A  strict   interpretation  of   the  absence   of  an                                                                    
     effective  date  would  imply  that  no  money  may  be                                                                    
     expended  under the  appropriations made  in this  bill                                                                    
     until  90 days  after you  sign the  bill. However,  it                                                                    
     would  be  irresponsible  to disrupt  state  government                                                                    
     functions  to  await   the  constitutionally  specified                                                                    
     effective  date." 1989  Inf. Op.  Att'y  Gen. (May  25,                                                                    
     •  However, in  2021, the  Attorney General  filed suit                                                                    
     against the  Legislative Affairs Agency,  alleging that                                                                    
     LAA   improperly  advised   employees  that   it  would                                                                    
     "likely"  be  the   legislature's  position  that  "the                                                                    
     retroactivity   clause   enables   the  work   of   the                                                                    
     Legislature to  continue." The Attorney  General's suit                                                                    
     was  dismissed by  the superior  court on  grounds that                                                                    
     the action  was prohibited  under Article  III, Section                                                                    
     16  of  the  Alaska  Constitution. The  case  is  under                                                                    
     appeal  and awaiting  final  decision  from the  Alaska                                                                    
     Supreme Court. (Taylor v. LAA, S-18292).                                                                                   
     • To avoid litigation and uncertainty, the legislature                                                                     
     should adopt special effective dates on appropriation                                                                      
Ms.  Wallace   recounted  that  in  2021,   the  legislature                                                                    
initially passed  its budget, but  it failed to  approve the                                                                    
special  effective  dates  for   the  budget.  A  government                                                                    
shutdown might  occur in the scenario  where effective dates                                                                    
were  not  approved.  Previous historical  attorney  general                                                                    
opinions  implied  that  the administration  could  rely  on                                                                    
retroactivity provisions to  keep state government operating                                                                    
while  waiting for  the  bill  to take  effect  in 90  days.                                                                    
However,  in 2021,  the attorney  general  took an  opposite                                                                    
2:16:08 PM                                                                                                                    
Representative Josephson was familiar  with all of the cases                                                                    
apart from Taylor. He understood  that Attorney General (AG)                                                                    
Taylor approved all  of the appropriations for  FY 22 except                                                                    
for sweeping  the corpuses of  all funds. He referred  to it                                                                    
as the  Taylor memo.  He surmised  that the  slide countered                                                                    
what actually  happened 2021 and was  perplexed. Ms. Wallace                                                                    
answered  that  Representative  Josephson was  correct.  She                                                                    
elucidated that  two distinct  issues or  positions existed.                                                                    
The summary related  to the scoop and also  addressed the FY                                                                    
22 appropriations  as one  issue. Subsequently,  the lawsuit                                                                    
was  filed, and  she thought  it was   a matter  of opinion                                                                     
whether they were consistent or not.                                                                                            
2:18:12 PM                                                                                                                    
Representative  Hannan   concluded  that   the  presentation                                                                    
touched  on  big funds  and  litigation.  She recalled  that                                                                    
there had  been an  agreement between OMB  and LFD  on which                                                                    
funds were  sweepable and which  were not. She  remembered a                                                                    
list of  smaller funds and  the nexus between OMB,  LFD, and                                                                    
the Department  of Law  on whether  funds were  sweepable or                                                                    
not. She wondered about the list.                                                                                               
2:20:13 PM                                                                                                                    
2:20:34 PM                                                                                                                    
2:20:52 PM                                                                                                                    
ALEXEI  PAINTER,  DIRECTOR,  LEGISLATIVE  FINANCE  DIVISION,                                                                    
responded  that LFD  did not  have opinions  on which  funds                                                                    
should be swept  and which should not.  He communicated that                                                                    
the Division  of Legislative Audit  held those  opinions. He                                                                    
delineated   that  there   were  multiple   lists  regarding                                                                    
sweepable  funds.  In  2019,  the  Division  of  Finance  in                                                                    
conjunction with DOL  and OMB changed the scope  of what the                                                                    
DOF  had done  in  the past  and  implemented future  sweeps                                                                    
based  on the  changes. He  recalled that  Legislative Audit                                                                    
had agreed to  the changes. He described the  sweep issue as                                                                    
an  academic  issue  until  FY 2020,  when no  reverse sweep                                                                    
occurred.  Legislative   audit  disagreed  with   the  scoop                                                                    
provision  in the  FY 2021  statewide  audit. He  elaborated                                                                    
that in  the prior  year, the  legislature and  the governor                                                                    
made a  series of  changes to  the budget  to cope  with the                                                                    
ramifications of  funds not  being swept in  FY 2021  and FY                                                                    
2022.  There were  several funds  where the  effective dates                                                                    
were changed to June 30   versus July 1.  Some funds were no                                                                    
longer  subject  to  the  sweep  by  the  action,  like  the                                                                    
Department of Environmental  Conservations  Spill Prevention                                                                    
and Response Fund.                                                                                                              
Mr.  Painter continued  that there  were a  number of  funds                                                                    
where the legislature  and governor decreased appropriations                                                                    
from sweepable  funds to bring  revenue and  expenditures in                                                                    
line because the funds balances were no longer available.                                                                       
Currently,  there  were likely  fewer  issues  if a  reverse                                                                    
sweep  was not  adopted. However,  there were  still impacts                                                                    
that were  evident in the  supplemental because  the purpose                                                                    
of the  funds was a  way to  deal with volatile  revenue. He                                                                    
exemplified a Department of  Labor and Workforce Development                                                                    
(DOL)  fund  where the  expenditures  and  revenues did  not                                                                    
match up to  pay claims due to the workings  of the accounts                                                                    
and the inconsistency  of when funds came  into the account;                                                                    
due  to  the  sweep,  there   were  no  funds  when  needed.                                                                    
Consequently,  an Unrestricted  General  Fund (UGF)  request                                                                    
for DOL was included in  the supplemental to account for it.                                                                    
The result of  not having a reverse sweep was  that more UGF                                                                    
was  spent on  a  year to  year basis.  Some  of the  funds                                                                     
revenue  lapsed into  the CBR  instead  of replenishing  the                                                                    
funds.   He  lacked   current   information  regarding   the                                                                    
consequences  of  the  most recent  fiscal  year  without  a                                                                    
reverse sweep.  He was  unsure if  there were  any lingering                                                                    
disagreements among  agencies regarding sweepable  funds due                                                                    
to litigation.  He noted that  the only disagreement  he was                                                                    
aware  of   was  between  the  auditor   and  administration                                                                    
regarding the scoop provision.                                                                                                  
2:25:46 PM                                                                                                                    
Representative Hannan  had found the prior  list information                                                                    
helpful in understanding the issue  regarding the many funds                                                                    
that  were  affected.  She  commented  that  by  legislative                                                                    
policy, there  were a number  of areas where the  public was                                                                    
required to  pay fees  for licensure,  investigations, etc.,                                                                    
those smaller  funds in various  agencies where  the revenue                                                                    
collected was  expended in the  next fiscal year.  She asked                                                                    
if there was a sense of  how many of the small funds, funded                                                                    
by fees  that were not part  of a reverse sweep  that needed                                                                    
to be  recapitalized existed. Mr.  Painter answered  that in                                                                    
the absence  of FY  2022 financials,  he thought  that there                                                                    
would be more  balances resolved than in FY  2021, the first                                                                    
year of  the sweep.  It would be  expected that  the current                                                                    
years and  future sweeps would  be fairly  minimal. However,                                                                    
it was  difficult to  do more than  speculate at  the moment                                                                    
without current financials.                                                                                                     
2:28:20 PM                                                                                                                    
Co-Chair Edgmon hoped that there  would be a presentation at                                                                    
some point  about the reason why  the CBR and the  sweep was                                                                    
ever enacted.  He recounted that  in 1990, when the  CBR was                                                                    
enacted,  there   were  many  oil  tax   disputes  involving                                                                    
hundreds of  millions of dollars.  The CBR  was set up  as a                                                                    
fiscal stability  tool or  lockbox   that required  a three-                                                                    
quarters  vote  to  expend.  With  the  onset  of  declining                                                                    
revenues  in 2014,  the  three-quarters  vote was  routinely                                                                    
employed and not  weaponized as it was in  more recent years                                                                    
leading to  multiple years of special  sessions that carried                                                                    
on  into the  summer or  fall.  He relayed  that during  the                                                                    
2000s,  oil  revenue was  high and grew  the balance  of the                                                                    
CBR to  $16 billion.  He furthered that  his point  was that                                                                    
many  of  the theories  in  the  presentation had  not  been                                                                    
tested  since  the  three-quarters  vote had  been  seen  as                                                                    
perfunctory.  Currently, the  vote was  difficult to  obtain                                                                    
and was avoided  if possible. The three quarters  vote was a                                                                    
very high bar that instigated  all of the  machinations  and                                                                    
issues  currently  under  discussion  that  in  prior  years                                                                    
worked  as   a  gentleman's  agreement.  He   believed  that                                                                    
providing some background on how  the CBR became a contested                                                                    
issue brought clarity to the present situation.                                                                                 
2:32:26 PM                                                                                                                    
Representative  Stapp asked  what the  Cooper test  was. Ms.                                                                    
Wallace  returned   to  slide   6.  She  read   through  the                                                                    
definition of what comprised a sweepable fund:                                                                                  
     (1) "in the general fund" and (2) "available for                                                                           
Representative  Stapp quoted  from  the Alaska  Constitution                                                                    
Article  9,  Section  15  and  read  the  last  sentence  as                                                                    
     All income  from the permanent fund  shall be deposited                                                                    
   in the general fund unless otherwise provided by law.                                                                        
He read from the Cooper case:                                                                                                   
      The ERA  was effectively not subject  to appropriation                                                                    
     because  all  income from the  Permanent Fund  shall be                                                                    
     deposited  into  the   General  Fund  unless  otherwise                                                                    
     provided by law. The ERA  was established as a separate                                                                    
     account in the fund and  all income from the fund shall                                                                    
     be  deposited by  the corporation  into the  account as                                                                    
     soon as  it is  received. Therefore,  money in  the ERA                                                                    
     never  passes  through the  general  fund  as is  never                                                                    
     appropriated as such from the legislature.                                                                                 
Representative Stapp  asked if the  legislature appropriated                                                                    
money   from  the   ERA.  Ms.   Wallace  responded   in  the                                                                    
affirmative. She elucidated that  money was appropriated for                                                                    
several purposes.  During the time  of the  Hickel decision,                                                                    
the  legislature only  appropriated money  from the  ERA for                                                                    
the Permanent  Fund Dividend. In  addition, the  notion that                                                                    
the legislature  never appropriated  money from the  ERA was                                                                    
corrected by the court in  a later statement. Representative                                                                    
Stapp commented that his fear  was that the state might have                                                                    
made  the  entirety   of  the  ERA  subject   to  the  sweep                                                                    
provision.  Ms.  Wallace  answered that  the  Supreme  Court                                                                    
addressed that  concern in Footnote  32 of the  opinion. She                                                                    
explained that  because the ERA  was established  outside of                                                                    
the GF  and was not  part of the GF  the ERA failed  the two                                                                    
part  test.  The  decision  in  the  Short  Case  from  2022                                                                    
reaffirmed the Hickel Case and the Hickel precedent.                                                                            
2:36:07 PM                                                                                                                    
Representative  Josephson noted  that the  Hickel case  also                                                                    
addressed  endowments and  trust funds.  He noted  that they                                                                    
were separate due to the  way they were designed and created                                                                    
to   be  self-sustaining   and   were   not  available   for                                                                    
appropriation. He  deduced that they  did not pass  one part                                                                    
of  the two  part test.  He asked  for comment.  Ms. Wallace                                                                    
responded that Representative Josephson  was correct in that                                                                    
the endowment  trust funds had not  been historically swept.                                                                    
The Hickel  case addressed trust  receipts and  decided that                                                                    
they  were counted  as available  for appropriation  because                                                                    
they were  appropriated for the  purposes they  were created                                                                    
and were only  counted for in Article IX, Section  17 (b) in                                                                    
the calculation of whether the  legislature could access the                                                                    
CBR by a  majority vote. She noted that  the legislature had                                                                    
never accessed the CBR  using that provision. Representative                                                                    
Josephson  wondered  if  there  had ever  been  a  challenge                                                                    
regarding the sweep for funds  based on fees for the expense                                                                    
of a  board or commission,  etc. Ms. Wallace  responded that                                                                    
prior  presentations from  the OMB  director indicated  that                                                                    
funds from donations were not sweepable.                                                                                        
Representative Josephson  asked whether  Mr. Painter  had an                                                                    
opinion  regarding if  a  three-quarter  or simple  majority                                                                    
vote was necessary  to expend funds from the CBR  for the FY                                                                    
24 budget.                                                                                                                      
Mr. Painter responded that he  would have to revise his math                                                                    
given the  decrease in  the price of  oil. Generally  due to                                                                    
the  balance  of  the  ERA,  they  were  not  close  to  the                                                                    
threshold. He  noted that with  the comparison of  the prior                                                                    
years  appropriation provision, the  calculation was done on                                                                    
all appropriations.  The closest the legislature  had gotten                                                                    
to  the  simple  majority  vote  was  when  $4  billion  was                                                                    
deposited into the Permanent Fund  for inflation proofing in                                                                    
the previous  year. He surmised that  the inflation proofing                                                                    
in FY  23 was estimated  to be $4.2 billion  but considering                                                                    
the  ERA balance  the  calculation would  be  a few  billion                                                                    
2:40:20 PM                                                                                                                    
Representative Coulombe  was confused  about the  funds that                                                                    
could not be  swept under DOR. She asked why  funds like the                                                                    
Exxon  Valdez  oil  spill account  was  not  sweepable.  Mr.                                                                    
Painter responded  that the  list in  statute like  the HEIF                                                                    
Fund, had  been modified  and is  no longer  in the  GF. The                                                                    
Exxon  Valdez   oil  spill  fund   was  not   available  for                                                                    
appropriation  other than  the specific  amount appropriated                                                                    
because the  expenditure was determined  by the  trustees of                                                                    
the  fund.  The Public  School  Trust  Fund was  established                                                                    
before  statehood and  only the  amount set  in statute  was                                                                    
available  for appropriation.  Sometimes  the  test for  the                                                                    
 available  for appropriation   part could  be difficult  to                                                                    
determine  with trusts.  He ascertained  that the  only part                                                                    
that could potentially be subject  to the sweep would be the                                                                    
amount  available   for  appropriation   and  only   if  the                                                                    
legislature chose not to appropriate that amount.                                                                               
2:42:31 PM                                                                                                                    
Representative Galvin  asked about the appealed  decision in                                                                    
the case  on slide 14, Taylor  versus LAA. She asked  if Ms.                                                                    
Wallace had heard anything about  the decision or the timing                                                                    
of it. Ms. Wallace replied that it was unknown.                                                                                 
2:43:21 PM                                                                                                                    
Co-Chair Edgmon  referred to the Wielechowski  decision that                                                                    
ruled on the legislatures   power to appropriate. He related                                                                    
that the  power was constitutionally created  and rose above                                                                    
anything in  statute. He asked  whether he was  correct. Ms.                                                                    
Wallace  answered that  from a  general perspective,  it was                                                                    
correct.  She  elucidated  that  if  a  statute  recommended                                                                    
appropriating funds via a formula  or percentage the current                                                                    
legislature could  use its own discretion  whether they were                                                                    
going to follow it.                                                                                                             
2:44:34 PM                                                                                                                    
Co-Chair  Johnson  reviewed  the agenda  for  the  following                                                                    
day's meeting.                                                                                                                  
2:46:20 PM                                                                                                                    
The meeting was adjourned at 2:46 p.m.                                                                                          

Document Name Date/Time Subjects
HB 62 Public Testimony Rec'd by 031423.pdf HFIN 3/15/2023 1:30:00 PM
HB 62
Leg Legal HFIN CBR Sweep Effective Dates 031523.pdf HFIN 3/15/2023 1:30:00 PM