Legislature(2021 - 2022)DAVIS 106

04/29/2021 11:30 AM House WAYS & MEANS

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                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                         April 29, 2021                                                                                         
                           11:32 a.m.                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Ivy Spohnholz, Chair                                                                                             
Representative Calvin Schrage                                                                                                   
Representative Andi Story                                                                                                       
Representative Mike Prax                                                                                                        
Representative David Eastman                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Adam Wool, Vice Chair                                                                                            
Representative Andy Josephson                                                                                                   
COMMITTEE CALENDAR                                                                                                            
HOUSE JOINT RESOLUTION NO. 6                                                                                                    
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to an appropriation limit; and relating to the budget                                                                  
reserve fund.                                                                                                                   
     - HEARD & HELD                                                                                                             
HOUSE BILL NO. 141                                                                                                              
"An Act relating to an appropriation limit; relating to the                                                                     
budget responsibilities of the governor; and providing for an                                                                   
effective date."                                                                                                                
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HJR 6                                                                                                                   
SHORT TITLE: CONST. AM: APPROP LIMIT; BUDGET RESERVE                                                                            
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
02/18/21       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/18/21       (H)       STA, JUD, FIN                                                                                          
03/24/21       (H)       W&M REPLACES STA REFERRAL                                                                              
03/24/21       (H)       BILL REPRINTED                                                                                         
04/29/21       (H)       W&M AT 11:30 AM DAVIS 106                                                                              
BILL: HB 141                                                                                                                  
SHORT TITLE: APPROPRIATION LIMIT; GOV BUDGET                                                                                    
SPONSOR(s): SPOHNHOLZ                                                                                                           
03/20/21       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/20/21       (H)       W&M, FIN                                                                                               
04/29/21       (H)       W&M AT 11:30 AM DAVIS 106                                                                              
WITNESS REGISTER                                                                                                              
NEIL STEININGER, Director                                                                                                       
Office of Management & Budget                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Co-provided  a  PowerPoint  presentation,                                                             
titled "HJR 6: Constitutional Spending Limit," dated 4/29/21.                                                                   
CAROLINE SHULTZ, Chief Policy Analyst                                                                                           
Office of Management & Budget                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Co-provided  a  PowerPoint  presentation,                                                             
titled "HJR 6: Constitutional Spending Limit," dated 4/29/21.                                                                   
WILLIAM "BILL" MILKS, Chief Assistant Attorney General                                                                          
Public Corporations and Governmental Services                                                                                   
Civil Division (Juneau)                                                                                                         
Department of Law                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:   Concurred  with a  statement  made by  Mr.                                                             
Steininger during the hearing on HJR 6.                                                                                         
ROSE FOLEY, Staff                                                                                                               
Representative Ivy Spohnholz                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented a  sectional analysis of HB 141 on                                                             
behalf of Representative Spohnholz, prime sponsor.                                                                              
ACTION NARRATIVE                                                                                                              
11:32:12 AM                                                                                                                   
CHAIR IVY  SPOHNHOLZ called the  House Special Committee  on Ways                                                             
and  Means  meeting  to  order at  11:32  a.m.    Representatives                                                               
Schrage, Story, Prax,  and Spohnholz were present at  the call to                                                               
order.   Representative  Eastman arrived  as the  meeting was  in                                                               
         HJR 6-CONST. AM: APPROP LIMIT; BUDGET RESERVE                                                                      
11:33:13 AM                                                                                                                   
CHAIR SPOHNHOLZ announced that the  first order of business would                                                               
be  HOUSE JOINT  RESOLUTION NO.  6, Proposing  amendments to  the                                                               
Constitution of the State of  Alaska relating to an appropriation                                                               
limit; and relating to the budget reserve fund.                                                                                 
CHAIR SPOHNHOLZ  noted that the  modeling being presented  by the                                                               
Office of  Management & Budget  (OMB) today applies to  both [HJR
6]  and HB  141.   She stated  that the  bills are  substantially                                                               
11:33:59 AM                                                                                                                   
NEIL STEININGER, Director, Office  of Management & Budget, (OMB),                                                               
introduced  HJR  6   on  behalf  of  the   House  Rules  Standing                                                               
Committee, sponsor by  request of the governor.   He prefaced the                                                               
presentation by noting  that HJR 6 is  a constitutional amendment                                                               
to  addresses the  spending limit  and the  constitutional budget                                                               
reserve   (CBR).     He  directed   attention  to   a  PowerPoint                                                               
presentation,  titled  "HJR  6:  Constitutional  Spending  Limit"                                                               
[hard copy included in the committee  packet].  He began on slide                                                               
2,  which  displayed  the  depletion of  savings  over  the  last                                                               
decade, indicating that  over $16 billion in  budget reserves had                                                               
been spent through expenditures in  excess of revenue.  He stated                                                               
that the proposed constitutional  spending limit seeks to address                                                               
the ability  to run up  state spending at an  unsustainable rate.                                                               
He  advanced  to slide  3  and  highlighted  the issue  with  the                                                               
current  constitutional  limit  (represented by  the  solid  blue                                                               
line).   He  pointed  out  that at  its  inception  in 1982,  the                                                               
spending  limit  was near  UGF  spending  levels, and  has  since                                                               
escalated far  greater than  spending; consequently,  the current                                                               
constitutional limit  per Article IX,  Section 16 is too  high to                                                               
effectively control  spending.   The solid yellow  line reflected                                                               
UGF revenues,  whereas the blue  dotted line reflected  the limit                                                               
proposed in HJR 6 if it had been  enacted in 1982.  He noted that                                                               
the  proposed spending  limit would  have  worked differently  to                                                               
effectively constrain spending.                                                                                                 
11:36:58 AM                                                                                                                   
CAROLINE  SHULTZ, Chief  Policy Analyst,  Office of  Management &                                                               
Budget, provided additional  historical context to slide  3.  She                                                               
explained  that  when  the   constitutional  spending  limit  was                                                               
originally ratified by the voters,  it contained a provision that                                                               
obligated a 5-year checkup, at  which point the voters would have                                                               
to approve it  a second time.   She pointed out that  even by the                                                               
late 1980s, the  spending limit was already well  above the level                                                               
of spending  at the  time.  Despite  that, voters  still ratified                                                               
the constitutional limit  a second time.  She  indicated that the                                                               
concept of  a spending limit  was very popular with  Alaskans and                                                               
11:37:54 AM                                                                                                                   
MR.  STEININGER  continued to  slide  4,  which read  as  follows                                                               
[original punctuation provided]:                                                                                                
        HJR 6 amends article 9, section 16 of the Alaska                                                                        
     Fixing the calculation to limit spending                                                                                 
      May not exceed prior three-year average by more than                                                                      
     the greater of inflation or population growth                                                                              
     Clarifies definition of appropriations subject to cap                                                                    
       Includes appropriations of state funds (UGF, DGF)                                                                        
       Excludes the following appropriations:                                                                                   
       Bond proceeds and debt service costs                                                                                     
       Deposits to state savings accounts                                                                                       
       Disaster response                                                                                                        
       Non-state funds for a specific purpose                                                                                   
MR.  STEININGER stated  that  HJR  6 seeks  to  amend Article  9,                                                               
Section  16 of  the  Alaska Constitution  by  fixing the  current                                                               
calculation, such  that the base  by which the spending  limit is                                                               
calculated  would  not  exceed   the  prior  three-year  average,                                                               
compounded by the greater of  inflation or population growth.  He                                                               
noted that  the current  spending limit  has a  base set  in 1982                                                               
that has escalated by inflation  of population growth compounded.                                                               
Thus,  HJR  6  proposes  changing   both  the  escalator  of  the                                                               
constitutional spending limit, as well  as the base to which that                                                               
is applied.                                                                                                                     
11:39:27 AM                                                                                                                   
MR. STEININGER advanced to slide 5, which read as follows:                                                                      
        HJR6 amends article 9, section 17 of the Alaska                                                                         
     Amends budget reserve fund (CBR) access provisions                                                                       
       Appropriations from CBR may be made by a majority                                                                        
     vote if there are inadequate general fund revenues to                                                                      
     meet expenditures                                                                                                          
     Removes general fund liability to CBR (CBR "sweep")                                                                      
11:40:01 AM                                                                                                                   
MR. STEININGER  turned to  slide 6,  which provided  a comparison                                                               
between   the   current   spending   limit   and   the   proposed                                                               
constitutional amendment.   He noted that the  bold text reflects                                                               
the  differences between  the two.    The current  constitutional                                                               
limit  excludes  revenues  of a  public  enterprise  and  certain                                                               
capital appropriations, which are not  excluded in HJR 6; whereas                                                               
HJR 6 excludes deposits into  other state savings accounts, which                                                               
is  not currently  excluded.   The base  in the  current spending                                                               
limit is $2.5  billion while the base  in HJR 6 is  an average of                                                               
the previous  three years, which  would allow the base  to adjust                                                               
with spending  decisions.  Finally,  the adjustor factors  in the                                                               
current spending limit compounds  inflation and population, which                                                               
creates a  high growth rate; alternatively,  the adjustor factors                                                               
in HJR 6 are the greater of inflation or population.                                                                            
11:41:57 AM                                                                                                                   
MS. SCHULTZ  continued to slide  7, which modeled the  base year,                                                               
or  starting point,  for  calculating the  spending  limit.   She                                                               
posited that the  three-year average moving base  proposed in HJR
6 would  be a better  and more flexible  option, as opposed  to a                                                               
fixed  dollar  amount.    The  blue dotted  lines  on  the  graph                                                               
reflected "what  if" scenarios if  the three-year  moving average                                                               
in HJR  6 had been implemented  in different years.   She pointed                                                               
out that the hypothetical spending  limit beginning in 2015 (dark                                                               
blue dotted  line) would  have been  high; however,  because it's                                                               
based on  the three-year moving  average, it would  have adjusted                                                               
back down to the spending level  (red line).  She said the three-                                                               
year average would  permit a flexibility to react  to real fiscal                                                               
conditions and prevents  the runaway growth that  exists with the                                                               
current constitutional limit (grey dotted line).                                                                                
11:44:01 AM                                                                                                                   
MS. SCHULTZ  turned to slide  8, which modeled the  same examples                                                               
from  slide 7,  but instead  of using  a three-year  average, the                                                               
graph  displayed a  fixed base  comparison.   She indicated  that                                                               
similar to the current constitutional  limit, the spending limits                                                               
grew according  to the  escalator [the  greater of  population or                                                               
inflation]  rather than  adjusting down  given fiscal  realities.                                                               
Consequently, she  reiterated that  a moving average  would allow                                                               
for flexibility.                                                                                                                
11:44:50 AM                                                                                                                   
REPRESENTATIVE  SCHRAGE referring  to the  graph on  slide 8,  he                                                               
asked what the different colored lines represented.                                                                             
11:45:06 AM                                                                                                                   
MS. SCHULTZ explained that the  solid orange line reflected HJR 6                                                               
if it  had been implemented  in 2000  and accounted for  a three-                                                               
year moving  average with a  gross escalator based  on population                                                               
and inflation; similarly, the orange  dotted line reflected HJR 6                                                               
if it had  been implemented in 2000, but accounting  for FY 99 as                                                               
the based instead of a  three-year moving average.  She concluded                                                               
that the  same applied for  all the different colored  lines: the                                                               
solid lines reflected a spending  limit with a moving average and                                                               
the dotted lines reflected a fixed base.                                                                                        
11:46:51 AM                                                                                                                   
REPRESENTATIVE STORY  asked whether  past spending  was reflected                                                               
on the graph.                                                                                                                   
MS. SCHULTZ directed her attention  to the light grey line, which                                                               
represented UGF spending.                                                                                                       
11:47:08 AM                                                                                                                   
REPRESENTATIVE SCHRAGE  inquired about the spending  beginning in                                                               
2010 (blue lines),  noting that the UGF spending  went well above                                                               
what would  have been the  spending cap had it  been implemented.                                                               
He asked  what the predominant  driver of the  increased spending                                                               
was and  whether necessary expenditures would  have been foregone                                                               
as a result of that spending cap.                                                                                               
MS.  SCHULTZ said  a major  driver of  spending increases  during                                                               
that  time period  were capital  expenditures,  such as  deferred                                                               
maintenance  and necessary  construction that  had been  deferred                                                               
during  low spending  years in  the late  1990s and  early 2000s.                                                               
Additionally, some of the spending  simply occurred because funds                                                               
were available.                                                                                                                 
11:48:04 AM                                                                                                                   
MS. SCHULTZ reviewed the graph  on slide 9, which illustrated the                                                               
difficulty in  forecasting a  spending limit that  is based  on a                                                               
moving average, as it requires  predicting economic conditions in                                                               
addition  to  future  spending.    The  red  line  reflected  UGF                                                               
spending based on OMB's 10-year  plan; the light grey dotted line                                                               
reflected  the spending  cap as  presented in  HJR 6  if spending                                                               
followed OMB's 10-year plan; the  black dotted line reflected the                                                               
maximum  potential  spending  cap  under  HJR  6  given  the  CPI                                                               
assumption of 2.25 and .5 percent population growth assumption.                                                                 
11:49:54 AM                                                                                                                   
REPRESENTATIVE STORY  sought to confirm that  following OMB's 10-                                                               
year plan assumed that $1.2  billion in new revenue was accounted                                                               
MS. SCHULTZ  noted that the  spending cap discussion  is agnostic                                                               
on revenue.   Nonetheless, she confirmed that  OMB's 10-year plan                                                               
did assume that new revenue was established to meet the deficit.                                                                
11:50:24 AM                                                                                                                   
CHAIR SPOHNHOLZ  speculated that if  the state failed to  come up                                                               
with new revenue, spending would  drop, and the three-year moving                                                               
average would drive that spending down further moving forward.                                                                  
CHAIR SPOHNHOL confirmed.                                                                                                       
11:50:41 AM                                                                                                                   
MS. SCHULTZ resumed  the presentation on slide  10, which modeled                                                               
a comparison  of growth  adjustors.   She reminded  the committee                                                               
that  in HJR  6,  the growth  adjustor is  based  the greater  of                                                               
population  growth   or  inflation;  alternatively,   the  growth                                                               
adjustor in  the current constitutional  spending limit  is based                                                               
on population  and inflation compounded.   The black  dotted line                                                               
reflected  the  spending  limit  in  HJR 6  as  if  it  had  been                                                               
implemented in FY 05; the green  line reflected HJR 6 if was just                                                               
based on  inflation.  She  explained that the two  were extremely                                                               
similar because inflation has been  higher than population growth                                                               
during this time period.  The  blue solid line reflected HJR 6 if                                                               
it were  to track population growth.   She continued to  the next                                                               
slide, noting that people often  ask why population and inflation                                                               
are used more commonly for spending  cap adjustors.  The graph on                                                               
slide  11 highlighted  the volatility  of  other common  economic                                                               
indicators,  which is  why they  are not  used as  frequently for                                                               
spending limit adjustors.                                                                                                       
11:53:21 AM                                                                                                                   
MS.  SCHULTZ continued  to slide  12,  which modeled  projections                                                               
based on  different economic considerations.   She concluded that                                                               
different  economic  considerations  would  change  the  spending                                                               
limit when based on CPI and population.                                                                                         
CHAIR  SPOHNHOLZ asked  whether Ms.  Schultz was  concerned about                                                               
there the  large backlog  of deferred  maintenance and  whether a                                                               
constitutional spending cap would  prevent the ability to address                                                               
11:54:44 AM                                                                                                                   
MR.  STEININGER  acknowledged   that  necessary  investment  into                                                               
deferred  maintenance needs  to be  considered when  looking into                                                               
capital and  operating budgets  moving forward.   He  pointed out                                                               
that the flexibility allowed by HJR  6 would allow for the use of                                                               
general obligation bond debt to  address immediate, larger needs.                                                               
He  reiterated that  HJR 6  would constrain  out-of-control gross                                                               
spending for unnecessary purposes.                                                                                              
11:55:51 AM                                                                                                                   
REPRESENTATIVE  SCHRAGE   questioned  how  to   address  deferred                                                               
maintenance in  future years should  the price of  oil skyrocket.                                                               
He considered a scenario in which  oil prices rose, the state was                                                               
flush  with savings,  and  the only  option  to address  deferred                                                               
maintenance was to take out bonds  and go into debt.  He believed                                                               
that would create an "awkward" situation.                                                                                       
11:56:39 AM                                                                                                                   
MR.  STEININER confirmed  that the  point made  by Representative                                                               
Schrage is an  important policy decision when  setting a spending                                                               
limit, as  it would inherently  constrain the ability  to respond                                                               
to increased revenue to avoid the "boom and bust" cycle.                                                                        
CHAIR  SPOHNHOLZ  emphasized   the  relevancy  of  Representative                                                               
Schrage's question.   She believed  that the decision  on whether                                                               
to address  the infrastructure  deficit of  $22 billion  when the                                                               
state  has  available  funding   would  be  an  important  policy                                                               
11:58:10 AM                                                                                                                   
REPRESENTATIVE PRAX referred  to slide 4 and asked  whether HJR 6                                                               
would potentially  restrict the growth of  certain fee-collection                                                               
11:59:31 AM                                                                                                                   
MR. STEININGER confirmed  that it would limit the  growth of fees                                                               
coming  in through  Designated  General Funds  (DGF)  if it  were                                                               
outside  the adjustor  factors.   He added  that whether  fees or                                                               
general tax revenue, they still  count as general funds, which is                                                               
why both  UGF and DGF  and the  distinction between the  two were                                                               
included.   He said OMB  is looking  to constrain the  ability to                                                               
generate new  programs when  there is  addition revenue  to avoid                                                               
the runaway spending enabled under  the current spending cap.  He                                                               
reiterated that HJR  6 would effectively limit the  creation of a                                                               
new fee-based program.                                                                                                          
12:00:28 PM                                                                                                                   
REPRESENTATIVE  PRAX  commented  on   the  Fairbanks  North  Star                                                               
Borough's  spending cap,  noting  that it  limits  the amount  of                                                               
revenue  it  can  take  into  property  evaluation  growth.    He                                                               
explained that the spending cap  has not affected the borough, as                                                               
the borough expanded  its property tax base, whereas  the city is                                                               
charging  more  service   fees.    He  shared   his  belief  that                                                               
government could be grown on  fees rather than taxes, adding that                                                               
HJR 6 could obstruct that ability.                                                                                              
12:01:58 PM                                                                                                                   
REPRESENTATIVE EASTMAN asked how  the spending limit would impact                                                               
the state's legal obligations.                                                                                                  
12:02:24 PM                                                                                                                   
MR. STEININGER said the exemptions  from the spending cap include                                                               
deposits  into  state  savings accounts,  including  the  pension                                                               
fund, the PERS fund,  and the TERS fund.  He  added that it would                                                               
not  constrain the  ability to  meet those  specific obligations,                                                               
nor  would  it  constrain  the   state's  ability  to  meet  such                                                               
obligations as  paying down  state debt.   He indicated  that the                                                               
goal was to  constrain spending on discretionary  items and gross                                                               
of  extra government  spending without  hampering the  ability to                                                               
meet  existing constitutional  obligations,  such  as paying  for                                                               
12:03:26 PM                                                                                                                   
REPRESENTATIVE EASTMAN  considered a scenario in  which the state                                                               
put $3  billion towards  pension obligations.   He  asked whether                                                               
the  $3  billion  would  count towards  spending  that  year  and                                                               
whether other appropriations would be limited.                                                                                  
MR. STEININGER conveyed  that it would not be subject  to the cap                                                               
as applied by  the constitutional limit; however,  it would still                                                               
be counted as a state expenditure in budget reports.                                                                            
CHAIR SPOHNHOLZ noted that Assistant  Attorney General Bill Milks                                                               
was available to address the question in further detail.                                                                        
12:04:26 PM                                                                                                                   
WILLIAM "BILL"  MILKS, Chief  Assistant Attorney  General, Public                                                               
Corporations and Governmental  Services, Civil Division (Juneau),                                                               
Department of Law, agreed with Mr. Steininger's response.                                                                       
12:04:57 PM                                                                                                                   
REPRESENTATIVE   STORY  addressed   the  state's   constitutional                                                               
obligations  pertaining  to  the   funding  of  education.    She                                                               
reported  that  when  adjusted   for  cost  of  living,  Alaska's                                                               
teachers were ranked  twentieth in the nation [in  terms of pay],                                                               
which  is  the  primary  indicator  of  student  learning.    She                                                               
believed   that  teachers   in   Alaska  were   not  being   paid                                                               
sufficiently and  asked how  HJR 6  would account  for increasing                                                               
the state's constitutional obligations.                                                                                         
12:06:22 PM                                                                                                                   
MR. STEININGER  said the answer  is similar to the  one regarding                                                               
deferred  maintenance  funding,  because  education  funding  and                                                               
deferred maintenance funding are both  subject to fall within the                                                               
spending  cap  under HJR  6.    He  stated  that they  would  all                                                               
effectively compete for the availability  of expenditures and the                                                               
gross  would be  constrained to  the escalation  of the  spending                                                               
limit and its  prioritization within that.  He added  that as the                                                               
spending  limit   was  reached,  priorities  would   have  to  be                                                               
reallocated within that per the statewide budget process.                                                                       
12:07:17 PM                                                                                                                   
REPRESENTATIVE PRAX asked Mr. Steininger  to elaborate on bonding                                                               
and  how  it would  fit  into  the  proposed  spending cap.    He                                                               
speculated that  deferred maintenance could be  addressed with an                                                               
issuance of  bonds and asked  whether there  would be a  limit on                                                               
the amount of bonds that could be issued.                                                                                       
12:07:46 PM                                                                                                                   
MR.  STEININGER clarified  that issuing  general obligation  bond                                                               
debt  and expending  the  proceeds of  a bond  cell,  as well  as                                                               
paying  the debt  service, would  not be  subject to  the cap  as                                                               
drafted.   He  noted that  those would  go to  a vote  of people;                                                               
therefore, Alaskans  would have  to agree to  issue the  debt and                                                               
fund the projects.                                                                                                              
12:08:18 PM                                                                                                                   
REPRESENTATIVE  PRAX  sought  to   confirm  that  if  the  voters                                                               
approved a  general obligation  bond, the  spending cap  would be                                                               
raised appropriately to pay the interest on the bonds.                                                                          
MR.  STEININGER  clarified  that  it  wouldn't  be  part  of  the                                                               
spending cap  calculation.   He said the  cap itself  wouldn't be                                                               
raised and that expenditure would not be subject within the cap.                                                                
12:08:56 PM                                                                                                                   
REPRESENTATIVE  SCHRAGE  pointed  out   that  the  mechanism  for                                                               
increasing  the spending  cap  with the  growth  of inflation  or                                                               
population had  been discussed; however,  he proposed  a scenario                                                               
in  which the  legislature was  to  set appropriations  at a  low                                                               
level  and  asked  how that  would  impact  future  legislatures.                                                               
Further, he  questioned whether there  would be a remedy  for the                                                               
next  class of  legislatures to  correct that  spending level  or                                                               
whether  the   spending  cap  would   restrain  spending   to  an                                                               
unreasonable level for future years.                                                                                            
12:10:03 PM                                                                                                                   
MR. STEININGER  said effectively, with a  three-year average, the                                                               
legislature in  that scenario  would be driving  down the  cap to                                                               
meet spending  as it  declined.   He added that  if there  were a                                                               
conscious decision  to significantly reduce spending  over a time                                                               
period, it would bring the spending limit down along with it.                                                                   
REPRESENTATIVE SCHRAGE  sought to  confirm that the  spending cap                                                               
could be arbitrarily driven down;  however, the only mechanism to                                                               
raise it would be the rate of inflation or population growth.                                                                   
MR. STEININGER confirmed.                                                                                                       
REPRESENTATIVE SCHRAGE  believed that when  considering something                                                               
as serious as  a constitutional amendment, it's  important to map                                                               
out certain scenarios to ensure that  the state doesn't end up in                                                               
a situation where it is unable to adapt to challenges.                                                                          
12:11:09 PM                                                                                                                   
MR. SCHULTZ  conveyed that  she had  been considering  what would                                                               
happen if  there was  an influx of  available federal  funds that                                                               
could  be  used  to  reduce  the state  budget  on  paper.    She                                                               
explained  that  if the  spending  cap  was lowered  because  the                                                               
legislature decided  to replace $1  billion of state  funding, it                                                               
would be an immediate issue.                                                                                                    
REPRESENTATIVE  SCHRAGE  considered  a   scenario  in  which  the                                                               
federal  government  wanted  to   invest  in  upgrading  Alaska's                                                               
utility  infrastructure,  which  requires  a  state  match.    He                                                               
expressed concern  about being unable to  appropriate those funds                                                               
to meet the matching requirement for investments in the state.                                                                  
12:12:57 PM                                                                                                                   
REPRESENTATIVE  PRAX, referring  to slide  5, asked  how amending                                                               
the CBR fits into the proposed spending cap.                                                                                    
12:13:24 PM                                                                                                                   
MR. STEININGER explained that the  changes to the CBR proposed in                                                               
HJR 6  would change  the way  the CBR is  accessed.   Rather than                                                               
requiring  a  three-quarter  vote, appropriations  from  the  CBR                                                               
could  be  made by  a  majority  vote  if there  were  inadequate                                                               
general fund  revenues to meet  expenditures.  He  explained that                                                               
the prior  three-year average effectively stops  excessive use of                                                               
the CBR  to increase spending.   He noted  that HJR 6  would also                                                               
remove the general  fund liability to the CBR, also  known as the                                                               
CBR "sweep" provision.                                                                                                          
12:14:26 PM                                                                                                                   
REPRESENTATIVE PRAX sought  to confirm that HJR 6  would not turn                                                               
the CBR into the SBR.                                                                                                           
MR. STEININGER said no, it would not  turn it into the SBR, as it                                                               
would  remain a  constitutionally  protected rainy  day fund  for                                                               
situations where general fund revenues are inadequate.                                                                          
REPRESENTATIVE PRAX  asked whether the designated  funds that are                                                               
swept  back and  forth would  continue  to exist  within the  CBR                                                               
under HJR 6.                                                                                                                    
MR.  STEININGER  stated  that  because HJR  6  would  remove  the                                                               
general  fund  liability  and the  CBR  sweep  provisions,  those                                                               
designated general  funds would  remain managed  as sub  funds of                                                               
the general fund.                                                                                                               
12:15:43 PM                                                                                                                   
REPRESENTATIVE  EASTMAN  inquired  about  the  distinctions  that                                                               
would exist  between the general fund  and the CBR if  HJR 6 were                                                               
to pass.                                                                                                                        
MR. STEININGER  acknowledged that in  terms of the  required vote                                                               
count, the  CBR expenditures would  be similar to a  general fund                                                               
expenditure; however,  the CBR would  be managed separately  as a                                                               
rainy-day  fund.   Therefore,  the first  access  in the  current                                                               
fiscal  year would  be general  fund and  general fund  revenues,                                                               
while  the CBR  would only  be accessed  should the  general fund                                                               
revenues  be   inadequate  to  fund  government   purposes.    He                                                               
reiterated that the CBR would  be akin to segregating a rainy-day                                                               
fund rather than "lumping them all into the general fund."                                                                      
12:16:53 PM                                                                                                                   
REPRESENTATIVE  EASTMAN   inquired  about  the   appropriate  CBR                                                               
balance and  how money  would be  deposited into  the CBR  if the                                                               
repaying of previous borrowing is not required.                                                                                 
MR. STEININGER  replied that deposits  into CBR would  be similar                                                               
to what they are now: settlement  income and earnings on the fund                                                               
itself.   Regarding the CBR's  balance, he characterized it  as a                                                               
policy call and said it  would require a much broader discussion.                                                               
He pointed out that roughly  $4-5 million dollars would be needed                                                               
to   meet  basic   cash  flow   needs;   therefore,  from   OMB's                                                               
perspective, $4-5  million would be the  absolute minimum balance                                                               
required.  In  order to utilize the CBR  to address volatilities,                                                               
the need  under the current  fiscal structure is  "unbounded," he                                                               
said, because  $16 billion dollars  wasn't enough.   He explained                                                               
that until some of the  structural issues are resolved, the right                                                               
amount  of  money in  a  rainy-day  fund  is difficult  to  state                                                               
CHAIR  SPOHNHOLZ opined  that the  spending  cap conversation  is                                                               
interesting; however, the revenue  conversation is more important                                                               
at this  time.   She expressed her  hope that  the administration                                                               
would come to the table  with some constructive revenue measures.                                                               
She  acknowledged that  the  governor's  10-year plan  identifies                                                               
over  $1 billion  in new  revenue,  but without  new revenue,  an                                                               
overdraw of  the earnings reserve  account (ERA) is likely.   She                                                               
noted that  currently, the CBR  requires a three-quarter  vote to                                                               
send from.   Still, the legislature spent $16  billion from state                                                               
savings  accounts with  that  three-quarter  vote requirement  in                                                               
place.   She  emphasized the  risk to  Alaska's fiscal  stability                                                               
unless  the  structural  deficit  is  solved.    She  believed  a                                                               
spending cap  could be a  part of the  solution, but now,  all it                                                               
would do is  force the legislature to gut  essential services and                                                               
constitutionally mandated  services unless  it's paired  with new                                                               
revenue.    She believed  this  was  an  important area  for  the                                                               
governor to take some leadership  on moving forward.  She thanked                                                               
Mr. Steininger and  Ms. Schultz and invited  closing remarks from                                                               
the presenters.                                                                                                                 
12:21:24 PM                                                                                                                   
MR. STEININGER  concluded that this  is one piece in  the overall                                                               
ability to  address the  structural fiscal  problems.   He agreed                                                               
that it needs  to be considered in concert  with other proposals,                                                               
such  as  the  POMV  constitutional  amendment  and  other  large                                                               
structural fixes, as this on its  own would not solve the state's                                                               
12:21:56 PM                                                                                                                   
CHAIR SPOHNHOLZ stated her intent to hold over HJR 6.                                                                           
12:22:05 PM                                                                                                                   
REPRESENTATIVE PRAX remarked:                                                                                                   
     In Alaska  over the  last 40 years,  government thought                                                                    
     has been  on revenue limited, rather  then on long-term                                                                    
     spending  trends and  that would  be  the advantage  of                                                                    
     this  because,  especially  at  the  state  level,  our                                                                    
     revenue  is  so  volatile.    This  would  ...  provide                                                                    
     stability over the  long term for the base  part of our                                                                    
      economy and not let government grow to what would be                                                                      
     an unsustainable level without lots of other things.                                                                       
[HJR 6 was held over.]                                                                                                          
12:23:10 PM                                                                                                                   
The committee took a brief at-ease.                                                                                             
[Chair Spohnholz passed the gavel to Representative Story.]                                                                     
                HB 141-APPROPRIATION LIMIT; GOV BUDGET                                                                      
12:23:57 PM                                                                                                                   
REPRESENTATIVE STORY  announced that the final  order of business                                                               
would  be   HOUSE  BILL   NO.  141,  "An   Act  relating   to  an                                                               
appropriation limit;  relating to the budget  responsibilities of                                                               
the governor; and providing for an effective date."                                                                             
12:24:07 PM                                                                                                                   
CHAIR  SPOHNHOLZ,  as prime  sponsor,  introduced  HB 141.    She                                                               
recounted the robust conversation  that stemmed from the previous                                                               
presenters  about the  value  of  a spending  cap  and whether  a                                                               
constitutional spending cap  is the right approach  as opposed to                                                               
updating  the  statutory spending  cap.    She pointed  out  that                                                               
throughout  the entire  history of  Alaska, the  current spending                                                               
cap  has never  been reached,  as  it was  set in  1982 when  oil                                                               
revenue  was  high.   Further,  the  constitutional spending  cap                                                               
allowed for changes based both  on population and inflation.  She                                                               
noted that  she has been  a strong advocate for  a comprehensive,                                                               
sustainable  fiscal plan  for years,  revealing that  it was  the                                                               
only  reason she  entered  into  public service.    She shared  a                                                               
personal anecdote  about growing  up in Alaska,  emphasizing that                                                               
oil would not  solve the state's fiscal problem.   She added that                                                               
Alaska  continues  to have  a  structural  gap that  resulted  in                                                               
spending over  $16 billion from  savings.  The rainy-day  fund is                                                               
essentially drained,  she said,  as there is  only $1  billion in                                                               
the CBR.   She explained that without spending from  the ERA, the                                                               
state  has  no  other  funds  left to  send  from;  however,  she                                                               
believed that spending  from the ERA would be one  of the largest                                                               
strategic risks to Alaska's future.   She reported that for every                                                               
$1 billion  spent from the ERA,  $50 billion is lost  annually in                                                               
available  earnings to  spend on  both  permanent fund  dividends                                                               
(PFDs) and essential government services.                                                                                       
CHAIR  SPOHNHOLZ  stated  that the  government  made  significant                                                               
progress in  2018, when  the legislature  passed Senate  Bill 26,                                                               
which  allowed  for  the  use  of  permanent  funds  to  pay  for                                                               
essential government  services, such as public  education, public                                                               
safety,  road/marine highway  maintenance  operations, the  court                                                               
system, and  dividends.  Essentially, Senate  Bill 26 established                                                               
a cap  on the amount of  spending from the permanent  fund, which                                                               
helps to preserve  the critical asset that now  provides about 65                                                               
percent  of  the  state's unrestricted  revenue.    Further,  she                                                               
shared  her  belief that  a  critical  part of  a  comprehensive,                                                               
sustainable   fiscal   plan   is   new   revenue,   as   Alaska's                                                               
constitutional  obligations need  to be  met to  provide for  the                                                               
health, education, and  public safety of Alaskans, as  well as to                                                               
keep commerce flowing and to  continue developing state resources                                                               
for the benefit of all Alaskans.   She assured the committee that                                                               
revenue bills would be heard  soon; however, she pointed out that                                                               
many of her  colleagues have said they would be  reticent to vote                                                               
on new revenue without addressing spending.                                                                                     
12:30:55 PM                                                                                                                   
CHAIR  SPOHNHOLZ opined  that state  spending  is too  low.   She                                                               
noted the infrastructure deficit of  $22 billion, adding that the                                                               
state's UGF  capital budget  had averaged  $123 million  over the                                                               
last five  years, which is  too low to address  Alaska's deferred                                                               
maintenance needs, she said.   Additionally, she pointed out that                                                               
education funding  has not  been increased in  years.   She noted                                                               
that each year education funding  is not increased to accommodate                                                               
inflation, it essentially operates as  a cut.  She concluded that                                                               
the state  has real  needs that  must be  paid for;  however, she                                                               
argued that when oil prices were  high, the state has spent a lot                                                               
of money  on projects  that don't  always make  sense, such  as a                                                               
church in  Anchorage, which  was developed  as a  fish processing                                                               
plant that  was paid for  by government  funds.  She  opined that                                                               
when oil was high and cash  was flowing through Alaska, the state                                                               
did not save  enough money.  The House Special  Committee on Ways                                                               
and  Means  has passed  conservative  fiscal  policy designed  to                                                               
protect  the  Alaska Permanent  Fund  from  being overspent,  but                                                               
fiscal policy  that increases  the amount of  funds going  to the                                                               
permanent  fund also  needs to  be  advanced, she  posited.   She                                                               
shared her belief  that a constitutional spending  cap should not                                                               
so  tight that  it would  make it  difficult to  address Alaska's                                                               
strategic  needs.    Accordingly,  HB 141  proposes  a  statutory                                                               
spending cap.                                                                                                                   
CHAIR SPOHNHOLZ acknowledged that  the proposed legislation still                                                               
needs work.   She  pointed out that  since introducing  the bill,                                                               
challenges were identified that  could be strategically dangerous                                                               
to  the state  if the  spending cap  were passed  in its  current                                                               
form, for  example, the massive  infusion of federal funds.   She                                                               
reminded  the  committee  that  the  legislature  is  using  $700                                                               
million  dollars in  American  Rescue Plan  Act  funds to  offset                                                               
general  funds in  the current  operating budget.   She  conveyed                                                               
that if  the state  were to  set the spending  cap based  only on                                                               
state  spending,  a cliff  in  spending  would materialize  as  a                                                               
result  of offsetting  general  funds with  federal  funds.   She                                                               
relayed  that  as  currently  drafted,  HB  141  would  base  the                                                               
statutory spending cap  on a three-year average.   She recognized                                                               
that  the   bill  could  be   made  better  to  allow   for  more                                                               
flexibility, adding  that she would  be proposing changes  to the                                                               
spending cap  and encouraged  committee members  to do  the same.                                                               
She concluded by  reiterating that the legislature  needs to pass                                                               
a comprehensive sustainable fiscal  plan that allows for adequate                                                               
funding of essential government services.   She stated her belief                                                               
that  advancing  a  meaningful   statutory  spending  cap  is  an                                                               
important element of a broader fiscal plan.                                                                                     
12:35:22 PM                                                                                                                   
ROSE  FOLEY, Staff,  Representative Ivy  Spohnholz, on  behalf of                                                               
Representative  Spohnholz, prime  sponsor, presented  a sectional                                                               
analysis  of HB  141 [included  in the  committee packet],  which                                                               
read as follows [original punctuation provided]:                                                                                
      Section   1:  This   section   updates  the   existing                                                                  
     statutory appropriation limit  found in AS 37.05.540(b)                                                                    
     to:  update  appropriations   subject  to  this  limit;                                                                    
     clarify   which   fiscal    year   appropriations   are                                                                    
     attributed  to;  and   provide  a  three-calendar  year                                                                    
     average adjuster to the appropriation limit.                                                                               
     This bill includes appropriations  for school bond debt                                                                    
     and state-declared disasters in  the list of items that                                                                    
     fall outside  of the appropriation limit.  This section                                                                    
     also  changes  the  calculation  of  the  appropriation                                                                    
     limit to  include all appropriations made  for a fiscal                                                                    
     year,  rather  than  in  a  fiscal  year.  This  change                                                                    
     ensures  supplemental  appropriations are  captured  as                                                                    
     spending  in  the  fiscal  year   for  which  they  are                                                                    
     appropriated,   regardless  of   the   timing  of   the                                                                    
     appropriation. Finally,  this section allows  the limit                                                                    
     to  be adjusted  by  the three-year  average change  in                                                                    
     population or  inflation to smooth any  drastic changes                                                                    
     that may occur in a  single year. Using a calendar year                                                                    
     rather  than a  fiscal  year  aligns the  appropriation                                                                    
     limit with the current  data availability on population                                                                    
     and inflation figures.                                                                                                     
     Section  2:  This  section  adds  the  calculation  and                                                                  
     reporting   of   the   appropriation   limit   to   the                                                                    
     responsibilities  of the  Governor under  the Executive                                                                    
     Budget Act in AS 37.07.                                                                                                    
     Section  3: This  section repeals  language related  to                                                                  
     appropriations  from   the  Budget  Reserve   Fund  for                                                                    
     disasters, as this bill in  Section 1 excludes spending                                                                    
     for declared disasters from the appropriation limit.                                                                       
     Section 4: This section notes  that sections 1 and 2 of                                                                  
     the bill apply to  appropriations that are effective in                                                                    
     Section:  This  section  contains  transition  language                                                                  
     clarifying  that prior  appropriations made  for school                                                                    
     bond  debt reimbursement  and state-declared  disasters                                                                    
     will  not   be  included  in  the   calculation  of  an                                                                    
     appropriation limit  for the  fiscal years  2023, 2024,                                                                    
     and 2025.                                                                                                                  
     Section 6:  This section establishes an  effective date                                                                  
     of July 1, 2021.                                                                                                           
12:37:18 PM                                                                                                                   
MS.  FOLEY  highlighted  differences   between  HB  141  and  the                                                               
governor's proposed legislation,  HJR 6.  First,  HB 141 proposes                                                               
a statutory  appropriation limit, as opposed  to a constitutional                                                               
spending  limit,  to  ensure  that  the  spending  cap  works  in                                                               
practice  before  amending  the  constitution.   Second,  HB  141                                                               
excludes school  bond debt  reimbursement from  the appropriation                                                               
limit to treat  it similarly to other state debt.   Third, HB 141                                                               
refers  to appropriations  made "for"  a fiscal  year, while  the                                                               
current  statutory limit  refers  to appropriations  made "in"  a                                                               
fiscal year.                                                                                                                    
12:38:44 PM                                                                                                                   
REPRESENTATIVE PRAX  asked whether  it would  be possible  to put                                                               
the proposed legislation to an advisory vote of the people.                                                                     
CHAIR  SPOHNHOLZ  noted that  spending  caps  are popular.    She                                                               
shared  her belief  that an  updated spending  cap would  pass an                                                               
advisory  vote.   Nonetheless, she  opined  that it  would be  an                                                               
unnecessary  effort and  expense  for  the public  to  vote on  a                                                               
statutory  spending  cap  given  that  the  legislature  has  the                                                               
authority to pass one.                                                                                                          
12:40:23 PM                                                                                                                   
REPRESENTATIVE PRAX  sought to  confirm that  HB 141  proposes to                                                               
exclude school bond debt.                                                                                                       
CHAIR  SPOHNHOLZ answered  yes.   She conveyed  that it  would be                                                               
excluded because  voters across the  state have voted  to approve                                                               
school  bond debt;  therefore, the  state should  be required  to                                                               
honor its  obligations pertaining  to school  bond debt  to local                                                               
12:41:10 PM                                                                                                                   
REPRESENTATIVE PRAX  questioned whether  that would  continue for                                                               
new bonds.                                                                                                                      
MS.  FOLEY noted  that currently,  there is  a moratorium  on new                                                               
school bond  debt.  Consequently,  the exclusion in HB  141 would                                                               
apply existing  school bond debt  that was incurred  when statute                                                               
allowed for state reimbursement of that debt.                                                                                   
12:41:53 PM                                                                                                                   
REPRESENTATIVE  SCHRAGE,  in  response to  Representative  Prax's                                                               
question regarding the advisory  vote, emphasized that the public                                                               
elected legislators to  make decisions for the  state rather than                                                               
opine  on  the issues.    He  shared  his  belief that  having  a                                                               
spending cap  with no function is  problematic, as it is  so high                                                               
that  it would  never limit  spending.   However, he  pointed out                                                               
that that the statutory dividend  formula has been overridden and                                                               
asked  what role  a  statutory  spending cap  would  play if  the                                                               
legislature could essentially ignore it.                                                                                        
CHAIR   SPOHNHOLZ  believed   that  there   could  be   merit  in                                                               
considering  a   constitutional  spending  cap  in   the  future;                                                               
however, putting  something so politically  popular to a  vote of                                                               
the people before  testing it could be risky.   Instead, she said                                                               
she supported updating the statutory  spending cap to ensure that                                                               
it works  before amending  the constitution in  a way  that could                                                               
create unintended  consequences.  She explained  that the current                                                               
statutory spending  cap is largely  ignored, as  presently, there                                                               
are no reporting requirements.  She  noted that HB 141 includes a                                                               
requirement that  the administration  report on how  their budget                                                               
meets the proposed spending cap.                                                                                                
12:46:53 PM                                                                                                                   
REPRESENTATIVE  SCHRAGE acknowledged  the  merit and  flexibility                                                               
that this  proposal offers.   He suggested that  another solution                                                               
would be to  limit the available revenue.  He  pointed out that a                                                               
spending cap utilizes prior spending  to dictate current spending                                                               
rather  than  looking  at  available   funds.    He  opined  that                                                               
constitutionalizing the POMV would  provide stability to revenues                                                               
while  serving  as  a  spending   cap  by  limiting  the  revenue                                                               
available for  appropriation.   He asked  whether a  spending cap                                                               
would be necessary if available revenues were limited.                                                                          
CHAIR  SPOHNHOLZ pointed  out  that presently,  the  state has  a                                                               
functional  spending  cap because  the  state  spent through  its                                                               
savings  and lacks  enough revenue  to  offset the  budget.   She                                                               
expressed her hope that the  legislature would force more revenue                                                               
into  the permanent  fund  to create  a  sustainable fiscal  plan                                                               
moving  forward.   She emphasized  that she  would not  support a                                                               
spending  cap  without  a broad-based  revenue  measure,  as  new                                                               
revenue   could  create   a  risk   of  unfettered   spending  on                                                               
unnecessary  projects.    Further,  she  explained  that  she  is                                                               
agnostic  on the  three-year moving  average,  adding her  belief                                                               
that the floor is the problem  with the bill in its current form.                                                               
She  opined  that without  the  influx  of federal  funding,  the                                                               
three-year average would make more  sense because adjustors could                                                               
be  changed  to  allow  for  more  growth.    Alternatively,  the                                                               
committee could amend the bill and  establish a new floor for the                                                               
spending cap.   Regardless of  the policy direction,  she advised                                                               
that  the  solution   should  be  statutory  to   allow  for  the                                                               
legislature to respond to important issues as they arise.                                                                       
12:53:14 PM                                                                                                                   
REPRESENTATIVE  PRAX expressed  his support  for the  idea [of  a                                                               
spending cap] while noting that he  preferred it in the form of a                                                               
constitutional amendment.   Nonetheless, he believed  a statutory                                                               
cap would be a step in the right direction.                                                                                     
12:54:24 PM                                                                                                                   
REPRESENTATIVE STORY  discussed the  idea of resetting  the floor                                                               
rather than implementing a  three-year average; additionally, she                                                               
highlighted  the needs  of Alaskan  communities.   She asked  the                                                               
bill sponsor  how the backlog  of deferred maintenance  and other                                                               
exclusions would be addressed.                                                                                                  
12:56:30 PM                                                                                                                   
MS.  FOLEY relayed  that in  its current  form, HB  141 puts  all                                                               
capital spending  under the appropriation  limit and  provides no                                                               
exclusions  for  deferred  maintenance or  extraordinary  capital                                                               
needs.   She  suggested that  a percentage  of the  cap could  be                                                               
devoted to  capital if it  were the will  of the committee.   She                                                               
concluded that there are plenty  of ways to exclude spending that                                                               
the legislature wishes to prioritize.                                                                                           
CHAIR SPOHNHOLZ said she  shared Representative Story's concerns.                                                               
cited Bill Popp's testimony from  a previous hearing about making                                                               
strategic investments in communities to  ensure that Alaska is an                                                               
attractive place to  live, work and play.  She  shared a personal                                                               
anecdote.   She  reiterated that  the  bill is  imperfect in  its                                                               
current form and  welcomed specific feedback about  ways to amend                                                               
and improve the legislation to  allow for strategic investment in                                                               
the state.                                                                                                                      
1:00:13 PM                                                                                                                    
REPRESENTATIVE STORY [announced that HB 141 was held over.]                                                                     
1:00:29 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
[Representative Story returned the Gavel to Chair Spohnholz.]                                                                   
1:00:52 PM                                                                                                                    
CHAIR SPOHNHOLZ provided the committee's upcoming schedule.                                                                     
1:01:26 PM                                                                                                                    
There being no further business before the committee, the House                                                                 
Special Committee on Ways and Means meeting was adjourned at                                                                    
1:01 p.m.                                                                                                                       

Document Name Date/Time Subjects
HJR 6 HWAM OMB Presentation 4.29.21.pdf HW&M 4/29/2021 11:30:00 AM
HJR 6 Hearing Request Letter.pdf HW&M 4/29/2021 11:30:00 AM
HJR006-1-2-021821-GOV-N.PDF HW&M 4/29/2021 11:30:00 AM
HJR 6 Approp. Limit, Excess Revenue TL.pdf HW&M 4/29/2021 11:30:00 AM
HB 141 Sponsor Statement.pdf HW&M 4/29/2021 11:30:00 AM
HW&M 10/14/2021 10:00:00 AM
HB 141
HB 141 Sectional Analysis.pdf HW&M 4/29/2021 11:30:00 AM
HB 141