02/09/2007 03:34 PM House W&M
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
February 9, 2007
3:34 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Chair
Representative Anna Fairclough, Vice Chair
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
MEMBERS ABSENT
Representative Sharon Cissna
COMMITTEE CALENDAR
HOUSE BILL NO. 68
"An Act relating to adoption and revision of a comprehensive
long-range fiscal plan for the State of Alaska."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 68
SHORT TITLE: LONG-RANGE FISCAL PLAN
SPONSOR(s): REPRESENTATIVE(s) GRUENBERG, HARRIS, DOLL, WILSON
01/16/07 (H) PREFILE RELEASED 1/5/07
01/16/07 (H) READ THE FIRST TIME - REFERRALS
01/16/07 (H) W&M, FIN
02/09/07 (H) W&M AT 3:30 PM HOUSE FINANCE 519
WITNESS REGISTER
No witnesses to record
ACTION NARRATIVE
CHAIR MIKE HAWKER called the House Special Committee on Ways and
Means to order at 3:34:12 PM. Present at the call to order were
Representatives Hawker, Roses, Seaton, Wilson, and Gruenberg.
Representative Fairclough arrived as the meeting was in
progress.
HB 68-LONG-RANGE FISCAL PLAN
3:34:44 PM
[Contains discussion of a proposed committee substitute (CS) for
HB 125, Version 25-LS0546\C, Cook, 2/8/07, which the committee
indicated would become the vehicle for the concepts embodied in
both HB 68 and HB 125.]
CHAIR HAWKER announced that today the committee would consider
HOUSE BILL NO. 68, "An Act relating to adoption and revision of
a comprehensive long-range fiscal plan for the State of Alaska".
3:36:00 PM
REPRESENTATIVE GRUENBERG, speaking as joint prime sponsor of HB
68, explained that a prior version of this bill had been
introduced as House Bill 52 in a previous legislative session.
In prior legislative sessions, past versions of this bill have
gone to the House Finance Committee, but not beyond that. The
bottom line is that HB 68 requires the state to adopt a fiscal
plan.
REPRESENTATIVE GRUENBERG asked leave of Chair Hawker to refer
from time to time to proposed committee substitute (CS) for HB
125, Version 25-LS0546\C, Cook, 2/28/07. He directed the
committee's attention to AS 37.07.020(b), which is referenced in
Section 1 of the proposed CS for HB 125. This statute requires
the governor to submit to the legislature a capital improvements
program and financial plan. This statutory requirement has not
really been fleshed out or gone anywhere recently, he told the
committee. However, since it already exists in statute, it has
been considered in crafting the proposed legislation to require
the legislature or the state to adopt a long-range fiscal plan.
He explained that ever since a planning group from a prior
legislature took up the issue of Alaska's financial problems,
there has been a real recognition of the state's need for a
fiscal plan. He disclosed that in 2002 Alaska had the largest
percentage fiscal gap (around 37 percent) of any state. This
realization of the extent of Alaska's fiscal issues led some
legislators to consider the need to adopt some type of fiscal
planning structure, with the exact form to be decided by the
legislature, he said. This year, with the leadership of Chair
Hawker, there have been a number of meetings regarding long-term
state revenue issues, he noted. These meetings have been
designed to culminate in some type of action by this committee
and the legislature, he opined.
REPRESENTATIVE GRUENBERG explained that the proposed CS for HB
125 directs the executive branch to prepare a fiscal plan. He
believes this is a better approach than HB 68 for a variety of
reasons. First, the executive branch employs hundreds of
professionals whose job it is to develop and implement plans for
running state government; therefore this type of work may be
best suited for the executive branch. Second, AS 37.07.020(b)
already requires the governor to submit a financial plan, so it
makes sense to modify this requirement to require a long-term
fiscal plan. Last, the recent initiative which limits
legislative sessions to 90 days shortens the amount of time
available to the legislature to thoroughly consider and develop
a quality long-range fiscal plan, he noted. He reminded the
committee that the legislature is usually a reactive institution
that must respond to whatever bills are introduced that session.
This makes the legislature less suited to come forth with
general policy proposals. In contrast, the executive branch may
have a broader, more statewide perspective than individual
legislators, and may therefore be better suited to develop
proposals for a long-term financial plan for the state.
3:45:20 PM
REPRESENTATIVE GRUENBERG noted the proposed CS for HB 125
requires the governor to prepare and submit a 10-year fiscal
plan. This timing takes advantage of the governor's four to
eight year term in office. The proposed CS for HB 125 does not
specifically state what the legislature must do in response to
the governor's plan. Therefore, Representative Gruenberg
suggested, one item this committee needs to consider is whether
to put anything in the proposed CS for HB 125 which invites or
requires a legislative response to the governor's fiscal plan.
He compared HB 68 with the proposed CS for HB 125, and pointed
out that HB 68 contained a legislative findings requirement in
Section 1. He sought the committee's input as to whether some
type of legislative findings section should be included in
whatever version of HB 68 the committee considers in the future.
He said that HB 68 requires the governor to submit a 5-year
fiscal plan, while the proposed CS for HB 125 extends that time
period to 10 years. The 10-year requirement would provide some
consistency and long-term planning beyond any one governor's
term, he explained.
CHAIR HAWKER thanked Representative Gruenberg for his counsel in
this matter and for his review of HB 68 and noted that the
committee has been provided with the proposed CS for HB 125, to
review for consideration next week.
REPRESENTATIVE SEATON offered the possibility of considering the
proposed CS for HB 125 as an amendment to HB 68 for ease of
discussion.
CHAIR HAWKER reminded the committee it was considering a
potential amendment to HB 68 that might follow some of the
language of the materials in the committee packet.
3:53:45 PM
REPRESENTATIVE SEATON observed that a requirement for a governor
to annually submit a fiscal plan covering the next 10 years
could overlap into an incoming governor's term. Furthermore, he
noted that it could be very difficult, if not overwhelming, for
a new governor to develop a 10-year plan at the same time the
new governor is working on a budget. Budgets are time consuming
to prepare he reminded the committee, noting that this year's
budget will not be ready until March. He suggested that perhaps
the governor should only be required to submit a long-range
fiscal plan every two years, which would give a new governor one
year to prepare a plan.
CHAIR HAWKER reminded the committee that an important policy
consideration is whether the term "fiscal plan" means a
continually evolving process, or whether it is a set plan. He
stated that many legislators have been told by their
constituents that the state needs "a fiscal plan"; however he
suggested that a more useful approach may be a continuing
process through which to approach state spending and revenues.
A continuing fiscal planning process could transcend individual
legislators and administrations in favor of a long-range
planning process with its own integrity, he suggested. This
process could be built on by succeeding legislatures and
administrations. Long-term forecasting is already done by the
Department of Revenue (DOR) in its "Revenue Sources Book," and
each revenue forecast builds on the prior ones; this concept
could help with fiscal planning if it was considered as a
continual, long-range process, he offered.
3:59:05 PM
REPRESENTATIVE GRUENBERG proposed that he would draft an
amendment that takes into consideration the suggestion that a
new governor would not have to submit a fiscal plan until his or
her second year in office. Since AS 37.07.020(a) requires that
the governor's proposed budget be released annually by December
15th, he suggested that any fiscal plan could also be released
December 15th. Furthermore, it might be a good idea to allow an
incoming governor until December of the year after he or she
takes office to release a fiscal plan, he opined.
REPRESENTATIVE SEATON observed that development of a fiscal plan
could be a very time-consuming process and indicated there are
different possibilities for what could constitute a fiscal plan.
He noted that it can be hard to plan for a period as long as 10
years. He suggested that maybe it is a process, but
acknowledged that it takes a lot of effort to do a good job.
4:04:07 PM
CHAIR HAWKER assured the committee that the sponsors of HB 68
did take these aforementioned types of concerns into
consideration, although he acknowledged that critical details
still need to be worked out. He explained that the eventual
wording will be critical, but that this is not designed to be a
budget, or just revenue, but rather a projection of the sources
and uses of funds in aggregate. The preparation of a fiscal
plan is not designed to be an overwhelming burden on anyone,
particularly if the planning entity is able to incorporate
already completed work, such as that in DOR's "Revenue Sources
Book." Chair Hawker said he recognizes that any predictions
will get less precise farther out into the 10-year forecast. In
considering any amendments to HB 68, the emphasis should be on
significant sources and uses of funds, he suggested. He
referred favorably to language on page 2, line 9 of the proposed
CS for HB 125, which provides that the proposed long-range
fiscal plan "may" provide certain recommendations, emphasizing
the optional language leaves room for policy considerations.
4:07:59 PM
REPRESENTATIVE FAIRCLOUGH endorsed the efforts of the committee
to bring this issue forward and offered some suggestions for
consideration. First, she questioned whether there is some way
to assure legislative approval of any fiscal plan, noting that
if the legislature does not agree with the parameters of the
plan, the governor will not be able to implement it. She
offered that perhaps there could be legislative confirmation or
acceptance of some kind. Second, she opined that when the
legislature uses one-time money for expenses, it can contribute
to instability in a program. She suggested that one-time use of
money could perhaps be limited to capital projects, or other
one-time expenses so as to achieve sustainability for important
long-term programs. Next, she raised the issue of the need to
consider which groups or services should or can pay their own
way, and which groups or users the legislature may want to
subsidize or invest in to a certain extent. Furthermore, she
questioned whether any fiscal planning requirement should
require the governor to identify the plan's revenue sources and
to identify what expenses should be subsidized or invested in.
Last, she suggested that the legislature may want to give the
governor direction by developing some type of matrix system that
would allow the governor or legislature to consider the effect
of certain scenarios on any fiscal plan.
REPRESENTATIVE FAIRCLOUGH referred to the constitutional
mandates which require the legislature to provide for public
education, safety, and healthy communities and noted that it is
important to consider how much to invest in all Alaskans to make
sure all citizens are treated with dignity and respect. In
making this determination, she referenced the difficulty the
legislature faces in determining how to allocate scarce funds
among competing user groups, and suggested that the University
of Alaska could perhaps ask its researchers to develop a matrix
system that would provide guidance to those who must make
funding decisions. She agreed with a prior observation that it
may be difficult for a new governor to come up with a meaningful
plan in a timely fashion; therefore a year's delay for a new
governor may be advisable.
4:17:33 PM
REPRESENTATIVE GRUENBERG advised the committee that he intends
to consider the comments made so far today and hopes to take
them up in more detail next week.
REPRESENTATIVE FAIRCLOUGH acknowledged that there is a need to
manage the state's cash flow in a meaningful way.
CHAIR HAWKER endorsed the free flow of debate on the issue of
fiscal planning and noted that this committee considers matters
to which there is often no ready solution.
4:20:21 PM
REPRESENTATIVE WILSON observed that it may be a very good idea
to give a new governor a year to come up with a plan that
reflects the new administration's goals. She supports the
positive benefits of fiscal planning and emphasized the need to
plan ahead for items such as deferred maintenance.
4:23:08 PM
CHAIR HAWKER raised the issue of whether a new governor should
potentially have a year's hiatus to produce the "Revenue Sources
Book."
REPRESENTATIVE SEATON reminded the committee that past governors
and legislatures have presented solutions to budget issues
through policy suggestions. For example, former governor Tony
Knowles proposed a state income tax, ex-governor Frank Murkowski
proposed a statewide sales tax and the House membership of a
prior legislature adopted a percent of market value methodology
for the permanent fund. None of these proposals ever became
law, he reminded the committee, and this raises the issue of how
effective any long-range plan can be if the policies behind the
plan are not ever enacted into law. He opined that planning for
10 years without agreement as to the source of funding would not
be useful. He observed that a governor could suggest a single
revenue source, such as the earnings reserve account, but if the
legislature does not approve of using that fund, the entire
long-term plan just hits a brick wall. He suggested it may be
more helpful to concentrate on the issues that are creating
serious revenue shortfalls, such as revenue sharing or
retirement benefits funding, and really focus on solving those
issues.
CHAIR HAWKER observed that Representative Seaton's point
supported the argument that the fiscal plan should be more of a
noun than a verb.
4:27:15 PM
REPRESENTATIVE FAIRCLOUGH observed that there are a number of
problems that influence the state's financial situation. She
suggested that perhaps the legislature could somehow put forth
some goals it would like to accomplish and the means to achieve
those goals.
REPRESENTATIVE ROSES said he supports the planning process, but
cautioned that plans which lack funding go nowhere. He offered
that planning can be very helpful in areas such as deferred
maintenance where a group or agency could be told how much level
funding it can expect to receive for maintenance for the next 10
years. This type of budgeting allows an entity to plan for
future maintenance based on the funding allocated, and requires
the entity to budget in a responsible way, he said.
4:31:30 PM
CHAIR HAWKER acknowledged the difficulty of planning when external
factors, such as the price of oil, change annually. This is why the
planning process should perhaps require an unspecified response from
the legislature, so that the legislature retains flexibility in ways
to solve fiscal problems. He said he looks forward to continuing
this dialogue and recognizes that with all the factors to consider,
it is too complex to propose an amendment to HB 68.
REPRESENTATIVE GRUENBERG suggested the committee consider the
comments made today and proceed in the future with a proposed CS to
HB 125.
REPRESENTATIVE SEATON emphasized the need to consider how a
governor's proposed policy can actually come to fruition and
suggested that the committee consider ways to make any long-range
fiscal plan functional.
REPRESENTATIVE GRUENBERG suggested that the committee may want to
consider the possibility that any legislation on this matter contain
some type of funding alternatives.
4:40:19 PM
REPRESENTATIVE FAIRCLOUGH posed the possibility that the governor be
restricted to using existing funds when developing a long-range
plan. This could allow creativity on the part of the governor to
use existing funds to achieve policy goals, but would also assure
that the means to achieve those goals were available. This approach
would not prohibit the governor from suggesting new sources of
revenue, or changes in state spending patterns. It would allow a
way to measure a governor's effectiveness, both in use of known
resources and in the governor's ability to develop other sources of
income, she suggested.
CHAIR HAWKER commented that since Alaska is a resource-based
economy, whether the aforementioned suggestion include revenue
projections of both known and unknown natural resources.
REPRESENTATIVE FAIRCLOUGH replied that some revenue projections,
such as the "Revenue Sources Book," are produced by year-round staff
in the spring and fall. This type of information could be used to
provide a range of possible revenue scenarios which consider the
possible fluctuations in the price of oil.
[HB 68 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means was adjourned at 4:44:49 PM.
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