Legislature(2021 - 2022)DAVIS 106
04/27/2021 11:30 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Overview: the Need for a Fiscal Plan & the Cost of Inaction by Business & Community Members | |
| Presentation: State Budget Decisions & Impact to Local Governments | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
April 27, 2021
11:35 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Adam Wool, Vice Chair
Representative Andy Josephson
Representative Calvin Schrage
Representative Andi Story
Representative Mike Prax
Representative David Eastman
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW: THE NEED FOR A FISCAL PLAN & THE COST OF INACTION BY
BUSINESS & COMMUNITY MEMBERS
- HEARD
PRESENTATION: STATE BUDGET DECISIONS & IMPACT TO LOCAL
GOVERNMENTS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BILL POPP
Anchorage Economic Development Corporation
Anchorage, Alaska
POSITION STATEMENT: Testified on the need for a fiscal plan and
the cost of inaction.
MICHAEL MARTIN, President
Alaska Bankers Association
CEO, Northrim Bank Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified on the need for a fiscal plan and
the cost of inaction.
CRAIG DAHL, Executive Director
Greater Juneau Chamber of Commerce
Juneau, Alaska
POSITION STATEMENT: Testified on the need for a fiscal plan and
the cost of inaction.
QUINN TOWNSEND
Alaska Quality Forum
Anchorage, Alaska
POSITION STATEMENT: Testified on the need for a fiscal plan and
the cost of inaction.
WILL WEBB
Alaska Professional Design Council
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "The Need for a Sustainable Operating & Capital Budget,"
dated 4/27/21.
DAVID GAMEZ
Alaska Professional Design Council
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation,
titled "The Need for a Sustainable Operating & Capital Budget,"
dated 4/27/21.
NILS ANDREASSEN
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Impacts of State Decisions on Local Governments," dated
4/27/21.
ACTION NARRATIVE
11:35:22 AM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 11:35 a.m. Representatives
Schrage, Story, and Spohnholz were present at the call to order.
Representatives Eastman, Prax, Wool, and Josephson arrived as
the meeting was in progress.
^OVERVIEW: The Need for a Fiscal Plan & the Cost of Inaction by
Business & Community Members
OVERVIEW: The Need for a Fiscal Plan & the Cost of Inaction by
Business & Community Members
11:36:56 AM
CHAIR SPOHNHOLZ announced that the first order of business would
be an overview by business and community members on the need for
a fiscal plan and the cost of inaction.
11:37:04 AM
BILL POPP, Anchorage Economic Development Corporation, (AEDC),
read the following position paper on behalf of AEDC's Board of
Directors [original punctuation provided]:
The Anchorage Economic Development Corporation is a
leader in economic development for Southcentral
Alaska. With more than 220 member companies, AEDC
represents top businesses in every industry in the
state, as well as some of Alaska's largest employers
since 1987. Since 2015, AEDC has advocated for a
balanced approach to addressing the fiscal policy
crisis that has limited our state's ability to grow
its economy and communities. We have encouraged
responsible spending, new broad-based sources of
revenue, and sustainable management of the permanent
fund, and despite six years of recession, the state
has yet to develop a comprehensive, long-term strategy
to address Alaska's ongoing fiscal uncertainty and has
nearly depleted Alaska's Constitutional Budget and
Earnings Reserves.
The COVID-19 pandemic has further threatened the
economic well-being of our communities and businesses.
Following a recent months-long effort by the AEDC
board and membership to evaluate additional options to
resolve the crisis facing our state, the AEDC Board of
Directors today recommends the following strategies as
key components of a solution for the state's ongoing
fiscal policy crisis: limited targeted budget cuts
while maintaining and improving the central programs
and services; a statewide sales tax that protects
municipal sales tax collections and contributes new
revenues to the state treasury; and adopting a
constitutional amendment incorporating a percent of
market value (POMV) strategy into the state
constitution to protect the permanent fund for current
and future generations.
The AEDC Board of Directors believes there needs to be
a sense of urgency in addressing Alaska's ongoing
fiscal crisis. We can no longer kick the can down the
road, and we cannot view federal pandemic relief
funding as a solution to the state budget deficit.
AEDC recognizes that a comprehensive solution will
require several elements, including identification of
stable revenue sources, disciplined budgeting, and
measured spending.
The 2021 AEDC Business Confidence Survey (BCI)
represents the views of 210 Anchorage businesses. The
survey identifies common themes in alignment with
views held by the AEDC Board of Directors. When asked
what issues were most important to the Anchorage
economy, 79 percent of the businesses surveyed ranked
"sustainability of state of Alaska operating budget"
as most important. Other key takeaways from the
report are as follows: 73 percent of respondents
support reductions to state spending; 70 percent of
respondents support a statewide sales tax; 74 percent
of respondents support a reduction of the permanent
fund dividend payout.
11:40:47 AM
While supportive of measured and targeted budget cuts,
the AEDC board also recognizes the need to deliver
critical state and local services. We cannot cut our
way out of the state's fiscal crisis. Affordable
healthcare, housing, community safety, and workforce
development are key elements to a sustainable, vibrant
economy. Investments in quality education from pre-K
to the University of Alaska not only prepare and train
our future workforce, they're also essential to
attracting vistal business investment and fostering
thriving communities. State support of healthcare
services improves our wellbeing, while funding our
social welfare programs addresses challenges faced by
our most vulnerable citizens.
Current state spending is already insufficient to
support many of these essential services, and future
cuts should be done with great care and moderation.
If we are to take steps towards fiscal stability, we
must consider new and sustainable sources of revenue.
A statewide sales tax is the best option and should be
designed in a less regressive manner with exemptions
on essential items and services, such as nonprepared
foods, housing, and medical care, at priority given to
local communities to levy a sales tax. The addition
of a statewide sales tax would provide a level of
predictability to the state budgeting process, and
Alaska would remain well below national state tax
burden averages.
A comprehensive fiscal strategy for Alaska must
include consideration of the permanent fund, which is
a critical component of the state's overall fiscal
health. Alaska's transition from a state reliant on
oil revenues to a state reliant on the permanent fund
for more than 70 percent of unrestricted state
revenues. While the current POMV opted by the
legislature in 2018 promotes long-term sustainability
of the permanent fund, future changes in leadership
threaten the long-term fiscal discipline necessary to
provide lasting protection of the fund for all future
generations of Alaskans.
The AEDC Board of Directors supports placing before
the voters an amendment creating a constitutionally
protected POMV to ensure protection of the fund in
perpetuity and encourages the legislature to act in
time to get the issue on the 2022 ballot. In closing,
our state has suffered through fiscal instability long
enough. The AEDC Board supports a comprehensive
strategy to end this fiscal crisis and asks for action
to be taken now. Alaskans deserve economic stability,
investment in our state and local economies, and
continuity of disciplined spending to put Alaska on
the path to sustained growth and prosperity. AEDC
stands ready to collaborate with the legislature and
be an active participant in this process. We welcome
the opportunity to support these recommendations with
our organization's perspective, expertise, and
leadership.
MR. POPP stated that AEDC's position on policy speaks volumes in
terms of the board's desire for specificity in deeds and actions
by the legislature and the administration to bring forward
solutions to the current instability in the state's economy in
addition to the instability created by COVID-19.
11:45:05 AM
REPRESENTATIVE PRAX asked whether AEDC had modeled its specific
tax proposal.
MR. POPP answered no. He said AEDC looked at the potential of a
sales tax in terms of the gross values it could generate based
on certain percentages. He believed a sales tax was a needed
part of the solution. The regressive nature of sales tax was a
concern of the members of the working group and the Board of
Directors, he said. He added that as AEDC developed this policy
position, they recognized that "the devil is in the details,"
and that there would need to be a collaborative effort to make
sure exemptions were aligned with municipal exemptions. He
acknowledged that it's a complex issue; nonetheless, he believed
it's a solvable problem and a key component towards an overall
solution to the statewide fiscal crisis.
11:46:46 AM
REPRESENTATIVE PRAX asked whether AEDC had considered how
productivity could be increased in the private sector. He
believed that the gross state product needed to increase to
replace the declining oil revenue. Further, he asked whether
AEDC had looked at ways to make Alaska more attractive to
investors.
MR. POPP confirmed that the subject had been a topic of
discussion for years. He explained that Alaska was a
noncompetitive state, meaning that Alaska did not compete on a
national scale for investment. He pointed out that in Alaska,
the high cost of doing business was mostly due to the geography
and the environment in addition to the lack of reinvestment in
the state. He indicated that Alaska was not focused on
attracting a new workforce, which was necessary for a vital and
growing economy; further, the issues pertaining to quality of
life were challenging. He cited examples in Anchorage, such as
housing, community setting, walkability, public transportation,
a vital downtown, and a vibrant university district, all of
which could be improved upon to attract a critically needed
workforce and the investment that chases that workforce. He
reported that a recent corporate survey of decision makers who
make decisions within hundreds of companies throughout the U.S.
on where to invest, found that "availability of skilled
workforce" was the number one concern; "quality of life issues"
was the fourth highest concern, as workforce was gravitating to
communities that offered a high quality of life. He noted that
Alaska had been experiencing a net outflow of people in the past
several years. Last year, Anchorage alone lost 3,500 citizens
in the last reporting. He opined that the state appeared to be
"asleep at the wheel" in terms of a willingness to solve its
fiscal problems and become more competitive to attract a
workforce with which investment would follow.
11:50:46 AM
REPRESENTATIVE SCHRAGE recounted hearing in conversation that if
a tax were instituted, people and businesses would bear that
burden and leave the state; further, that generating more
revenue would solve Alaska's fiscal problems. He asked Mr. Popp
to address those perceptions from his perspective.
MR. POPP explained that any good business needs revenue to
reinvest in the business. He said "the magic money tree" theory
of government and business does not work anymore, as Alaska does
not have an unending well of funds from the oil industry or the
federal government. He noted that the pandemic relief funding
was "one-off dollars," adding that long-term plans are not built
on that. He said AEDC's board recognizes that communities need
to be invested in to position the state for greater growth in
the future. He believed that a measured tax that's managed
appropriately would not be burdensome to the community to the
point where people would leave. He pointed out that Alaska has
the lowest tax burden in the country. He acknowledged that the
state's tax burden is offset by the higher cost of living;
nonetheless, growing and expanding Alaska's base of population
and the economies of scale associated with that growth would put
Alaska on the track towards longer-term prosperity.
11:53:43 AM
CHAIR SPOHNHOLZ questioned why AEDC advocated for a sales tax
instead of an income tax given that sales taxes are historically
considered in the jurisdiction of local communities.
MR. POPP relayed that when the board and the working group
considered various options, sales tax seemed to be the most
balanced and fair method on a statewide basis, as it would
capture revenue from nonresidents. He believed it would be
appropriate to add additional revenues that provided the benefit
of a tax cut to Alaskan citizens, which a sales tax would
accomplish. He noted that a payroll tax would achieve the same
objective; however, AEDC's survey work had indicated that a
payroll tax was one of the least desirable options amongst its
membership. Alternatively, he explained that a sales tax had
significant support and could be crafted in various ways to
mitigate the regressive nature, as well as to give first
priority to municipalities for collection. Additionally, he
believed it was the most likely option to pass [the
legislature].
11:56:12 AM
REPRESENTATIVE EASTMAN asked whether AEDC had assessed the
impact of adopting a sales tax.
MR. POPP said because the tax would be collected from online
purchases, it would provide an equal taxation model for both in-
state and out-of-state businesses. He pointed out that
nationwide, there are numerous successful cities that have
benefited from implementing significant sales and consumption
taxes while continuing to see the volume of businesses grow on
an annual basis. For those reasons, he believed that a
statewide sales tax would be the best option and the least
onerous.
REPRESENTATIVE EASTMAN questioned whether the economic activity
in the private sector would remain unchanged after implementing
a sales tax.
MR. POPP confirmed, especially if the sales tax applied to out-
of-state purchases.
11:58:09 AM
REPRESENTATIVE EASTMAN remarked:
If you have economic activity occurring in the private
sector currently, and then you can withdraw the
resources that provide for that economic activity and
shift that to the public sector and then you can have
increased economic activity in the public sector, it
kind of seems like you're double counting the
resources that are being used to shift the resources
to the public sector. I'm just wondering if that
makes sense.
MR. POPP said that did not make sense from AEDC's point of view.
He contended that instead of "double accounting," AEDC
recognizes that the revenue would be reinvested in the state to
provide a better quality of life to make Alaska more competitive
in workforce development, education, and to provide key factors
that investors are looking for. Additionally, a sales tax that
would collect several hundred million dollars at best was
fractional within the overall impact on the broader economy. He
emphasized that it would not diminish the overall economy and
argued that if it were reinvested correctly, the economy would
grow.
REPRESENTATIVE EASTMAN asked whether a [negative] impact would
be felt at a certain level of sales tax.
MR. POPP said AEDC had not modeled a threshold for decline. He
speculated that to have a detrimental effect on the broader
economy, a sales tax would have to be collecting in the billions
of dollars.
12:01:39 PM
REPRESENTATIVE WOOL recalled that Mr. Popp had stated that
nonresidents would contribute substantially to the sales tax.
He asked how that compares to a payroll or income tax on the
out-of-state workers who work on the North Slope and take their
wages out of state.
MR. POPP stated that AEDC had not completed an apples-to-apples
comparison between a sales tax and an income tax in terms of
total revenue and how the out-of-state factor would compare. He
explained that part nonresidential factors are fungible in
nature, as a sales tax on the tourism industry today would
collect next to nothing; however, several years ago, the revenue
collected would have been fairly substantial. He confirmed that
an income tax would collect significantly more, but the AEDC
board believed that an income tax would be "implausible"
politically. He reiterated his belief that a sales tax would be
a reasoned first step towards a broader solution that would
ideally include the POMV proposal, as well as a careful look at
future cuts to state spending.
CHAIR SPOHNHOLZ noted that over 20 percent of Alaska's workers
were nonresidents.
12:04:53 PM
MICHAEL MARTIN, President, Alaska Bankers Association; CEO,
Northrim Bank Alaska, read the following prepared remarks
[original punctuation provided]:
The Alaska Bankers Association represents the several
banks that have operations in Alaska. Our banks
safeguard over 14 billion dollars in combined
deposits, employ more than 2,200 essential workers
across the 121 branches statewide, and make over 85
percent of the nonpublic commercial loans in Alaska.
Alaska bankers are job creators, and we fuel the
Alaska economy by providing credit, businesses, and
families (indisc.) need to grow. Our member banks
stepped up during the pandemic by lending over $1.4
billion through the first round of the Paycheck
Protection Program (PPP) and currently, during the
second round of PPP, we have made approximately 10,000
loans for an additional $700 million dollars.
Alaska banks are committed to continue supporting
communities, businesses, and individuals to help build
a prosperous future for Alaska. The Alaska Bankers
Association and all seven member banks have long
advocated for a stable, sustainable budget. We have
outlined the actions the state needs to take as the
following: continued but measured fiscal reforms over
time; predictable tax laws; utilization of Alaska
Permanent Fund earnings based on a rules-based
framework; a meaningful capital budget; and not
overdrawing the Earnings Reserve Account to preserve
these assets for future years. Together, these
actions will support a responsible, balanced, stable,
and sustainable state budget.
Alaska banks make financial commitments for 10, 20,
and 30 years, and look to the Alaska economy well
beyond the next election cycle. We urge you to do the
same. One other point is that the way the state
spends revenue has important impacts and not all
spending has the same effect on the economy. State
funds spent on dividends through the operating budget
and capital budget are not all the same. I submit to
you that spending through the capital budget addresses
badly needed deferred maintenance for our state's
assets, creates jobs, and ultimately stimulates the
economy. Thank you for the opportunity to express the
Alaska Bankers Association's views today and thank you
all for your service to the state of Alaska.
12:08:12 PM
CRAIG DAHL, Executive Director, Greater Juneau Chamber of
Commerce, noted that the Greater Juneau Chamber of Commerce
represents over 300 businesses and organizations and does its
best to watch over the economic health of the community. He
stressed the importance of a sound fiscal plan that's consistent
and reliable to encourage outside investment and future
development. He emphasized the importance of a fair and
consistent distribution of funds for capital projects,
specifically infrastructure projects that create jobs, as well
as consistent and reliable funding mechanisms, such as the
school bond debt reimbursement, which provides support to the
local municipality. Further, he believed there should be an
overriding concern for the entire state, rather than services
and jobs being taken away from one community and given to
another without regard to the importance of those services to
the local economy.
MR. DAHL indicated that Juneau is heavily reliant on state
government as the foundation of its local economy. He said that
as more state jobs are moved out of Juneau, the impact of these
losses becomes more severe and evident. For perspective,
between 2003 and 2019, Juneau lost nearly 1,000 government jobs,
he reported. Nonetheless, the Hecla Greens Creek silver mine,
the Coeur Kensington gold mine, and a growing cruise industry
provided the desired diversification. He recalled that Alaska's
capital city was feeling positive about its future when it got
hit with two-plus years of severe budget cuts from the state
that brought along increased pressure to use the permanent fund
to help stabilize the government. Furthermore, the pandemic hit
when the community was still reeling from the severe budget
cuts. With that, Juneau lost the entire 2020 and 2021 cruise
seasons. This was devastating to the local business community
and heavily impacted the City and Borough of Juneau's revenue,
he said.
MR. DAHL continued by sharing his belief that it is essential
for outside investment to have the confidence in a stable,
fiscal policy in the state of Alaska if they are going to put
their capital at risk. The development of the state's natural
resources, he said, as well as the appropriate use of state and
federal funding for infrastructure projects, would create jobs
and help stabilize and grow the economy. He concluded by noting
that the chamber encourages responsible use of the permanent
fund as a means to stabilize state spending. He commended the
legislature for its work on these challenging issues,
reiterating that it was "absolutely essential" for the state to
develop and adhere to a sound fiscal plan that would encourage
private investment to return to Alaska.
12:13:30 PM
QUINN TOWNSEND, Alaska Quality Forum, stated that even before
the business closures, tanked oil prices, and high unemployment
in response to the pandemic, Alaska had a spending problem. Now
that the state is beginning to see the effects of the stalled
economic activity, she said, Alaska's looming fiscal crisis is
even larger. She conveyed that a functional constitutional cap
was one tool to avoid the temptation of overspending, which
would hinder not help the state's economy. She reported that
Alaska spent over 20 percent of its gross domestic product (GDP)
and personal income on state government, which is nearly double
the average of the highest economically performing states in the
country. In contrast, the highest performing state governments
spend about 11 percent of the GDP and personal income. She
relayed that the highest performing states - those that spend
less and have lower taxes - experience better unemployment
growth, larger net in-migration, higher population growth,
higher income growth, and higher GDP. Alternatively, states
with ineffective limits, such as Alaska, fair no better
economically than states with no spending limit. She
highlighted the characteristics of successful constitutional
spending caps. She opined that Alaska would see much economic
growth by implementing a meaningful sending cap. She believed
that a revised constitutional spending limit would be a first
step towards responsible budgeting and would encourage a
thriving economy to take Alaska into the future.
12:17:00 PM
WILL WEBB, Alaska Professional Design Council, informed the
committee that the Alaska Professional Design Council (APDC) is
a cooperative effort to advance the common interests of Alaska's
design professionals. He noted that APDC represents
approximately 5,000 people through its nine member
organizations, including architects, engineers, land surveyor,
landscape architects, and interior designers.
12:17:49 PM
DAVID GAMEZ, Alaska Professional Design Council, provided a
PowerPoint presentation, titled "The Need for a Sustainable
Operating & Capital Budget." He noted that he was a licensed
professional engineer and the past president of the Alaska
section of the American Society of Civil Engineers (ASCE). He
explained that civil engineers made it possible to have clean
drinking water and functioning roads, airports, dams, railroads,
and ports. Additionally, they were responsible for ensuring
that schools and hospitals were safe and structurally sound
during catastrophic events, such as earthquakes. One of ASCE's
critical missions, he said, was to advocate for the state's
infrastructure needs, as failing infrastructure impacted the
economy as well as the safety of all Alaskans. Turning to slide
2, he reported that in 2017, ASCE released the first report card
on Alaska's infrastructure, which was a comprehensive evaluation
of 9 infrastructure categories based on 8 key criteria. He
recalled that over 40 volunteers came up with a cumulative grade
of C- for the state's infrastructure. A common theme throughout
the report is that Alaska's infrastructure was aging and needed
repair. Further, lack of funding for capital improvements and
deferred maintenance projects were the number one barrier to
improving the infrastructure. He encouraged the committee
members to read the entire report card at
www.infrastructurereportcard.org/Alaska.
12:20:15 PM
MR. GAMEZ continued to slide 4, which read as follows [original
punctuation provided]:
How Can We Raise the Grades?
• Make state and federal funding for improvements a
priority
• Better coordinate among state, federal, and
Alaska Native programs
• Perform system evaluations to identify and assess
risks and incorporate into planning efforts
• Develop and implement innovated technology and
operations
• Focus on durable and sustainable system designs
to reduce lifecycle and O&M costs
• Bridge the gap in O&M funding to allow
communities to maintain existing infrastructure
12:21:14 PM
MR. WEBB discussed the capital budget on slide 5. The graph
featured Alaska's capital budget over the past 20 years. He
noted that APDC recommends a $2.1 billion capital budget. He
recalled that for much of the past two decades, Alaska had
budgeted well above the recommended amount, which helped tackle
that backlog of needs. However, despite past spending, roofs
continue to degrade over time, roads continue to wear out, and
steel continues to corrode. He emphasized that that
sustainable, predictable funding mechanisms would allow for
long-term items to be systematically dealt with, so that
everyone could continue to benefit from the state's public
facilities without interruption and with fewer costlier
emergency repairs. In addition to infrastructure, the state's
budget also affects the design communities, he said. He
explained that uncertain budgets were a hardship for everyone,
which is why APDC supports revenue options that would provide a
reasonably predictable level of support year after year for the
state. He noted that APDC relies on the state to adopt building
codes, review building plans, and regulate the profession. He
added that such activities had either slowed or experienced
difficulties as budgets have changed over the past several
years. For example, in 2021, the state still operates with 2012
building codes, which is not ideal for public safety and makes
APDC's work more difficult. Furthermore, he said that
predictable, consistent state funding is vital for business. He
indicated that layoffs were bad for the public because it can
result in the loss of technical knowledge; further, it takes a
toll on the university when students must go elsewhere for
employment opportunities. He stated that the "boom and bust"
dynamic is especially hard on smaller companies that don't have
the excess capacity to capitalize on good times and lack the
flexibility to handle the bad times. He concluded that a
reasonable revenue and spending plan that could be maintained
year over year would provide a solid base for everyone who
supports public facilities. It would help maintain knowledge
and expertise, and help the university attract students who see
Alaska as a viable, long-term home. Additionally, it would help
ensure that existing infrastructure was reliable and useful for
industry, commerce, and the public (slide 6).
^PRESENTATION: State Budget Decisions & Impact to Local
Governments
PRESENTATION: State Budget Decisions & Impact to Local
Governments
12:25:26 PM
CHAIR SPOHNHOLZ announced that the final order of business would
be a presentation by Nils Andreassen, Alaska Municipal League
(AML).
12:25:51 PM
NILS ANDREASSEN, AML, introduced a PowerPoint presentation,
titled "Impacts of State Decisions on Local Governments." He
directed attention to slide 2, highlighting that local
governments are political subdivisions of the state. He
reported that in terms of state funding, the combined total
revenue from local governments is between investment revenue at
20.8 percent and petroleum revenue at 19.7 percent. He
explained that revenue from local governments funds the factors
discussed by Mr. Popp, such as quality of life and
infrastructure, which helps attract and retain Alaskan
residents, families, and workers. He advanced to slide 3, which
featured three data sets from a recent poll of AML members:
financial status, federal relief, and choices for the next
fiscal year. With regard to financial status, he explained that
each local government would be faced with different choices for
the next fiscal year. Most, he said, will need to think
conservatively about spending; maintain adequate levels of
service; keep flat spending; and defer capital infrastructure
improvements. He added that many local governments are drawing
from savings. He addressed the second data set, federal relief,
explaining that it will provide the ability to make up for lost
revenue replacement and allow struggling local governments to
provide some level of economic support to businesses and
residents. He expressed his hope that for some, federal relief
would also result in reinvestments into infrastructure.
12:29:22 PM
MR. ANDREASSEN discussed local government revenues on slide 4,
noting that the majority of such revenues comes from property
tax, despite it being the least prevalent form of tax among
local governments. He pointed out that there are a number of
different types of taxes available to local governments;
however, a net income tax and the taxation of resource rights
are examples of taxes that are reserved for the state alone. He
advanced to slide 5, which addressed local government
expenditures. He stated that local governments are making
reinvestments into the community that residents, families, and
businesses depend on. Local government expenditures are focused
on public education, public infrastructure and public safety, in
addition to quality of life. He noted that local government
expenditures have decreased since the onslaught of the statewide
fiscal crisis; therefore, residents are experiencing a statewide
reduction in the provision of services on top of a local
reduction in services, resulting in a compounded level of harm.
12:32:01 PM
MR. ANREASSEN touched on unfunded mandates on slide 6. He
informed the committee that most of the state's unfunded
mandates fall on school districts but also apply to local
governments. He emphasized that requirements of the state only
increase costs at the local level. He believed that conducting
a thorough review of the unfunded mandates would increase
government efficiency at all levels. He reviewed FY 20 and FY
21 vetoes on slide 7 and highlighted the drastic uncertainty
they caused. He pointed out that many of the proposed vetoes
fell heavily on local government that had already passed
budgets, which made it difficult to respond and plan ahead.
12:34:49 PM
MR. ANREASSEN continued to slide 8, explaining that the overall
implications from state budget decisions leave local governments
facing various scenarios in terms of how to respond. Firstly,
they could consider increasing or adding new taxes. Secondly,
they could cut costs at the local level by reducing staff,
reducing capital investments and maintenance, and reducing the
provision of services. He discussed state programs and specific
budget decisions that impact local governments on slide 9, which
read as follows [original punctuation provided]:
Leveraging Partnerships
1970 State Revenue Sharing Reimburse for Services
(Police, Roads, Fire, etc)
1985 Community Revenue Sharing $140M, or $300M if
adjusted for inflation
1997 Safe Communities, focus on public health and
safety
2003 Community Assistance zeroed out
2009 -$180M fund with $60M distribution
2016 -$90M fund with $30M distribution
2020 Vetoed recapitalization results in distribution
$20m, or base
12:39:10 PM
MR. ANREASSEN progressed to slide 10, which outlined "building
trust." He believed that trust between local governments,
political subdivisions, and the state has been eroded by broken
commitments on the state's behalf. He highlighted school bond
debt reimbursement and port and harbor reimbursements as
examples of commitments that have been viewed as optional. He
shared his understanding that local governments are less likely
to trust the state going forward, which results in the loss of a
partnership. He discussed planning for growth on slide 11,
noting that most programs implemented at the local level are not
adjusted for inflation, which has resulted in decreases over
time. He argued that all programs should keep pace with
inflation; further, that growth should be consistent. However,
in reality, growth has not been planned for, he said.
12:42:05 PM
MR. ANREASSEN continued to slide 12, "Measuring what Matters,"
which featured four different graphs, all indicating that
investments into Alaska Marine Highway System (AMHS), community
assistance, regional jails, and base student allocation (BSA)
had not kept pace with inflation. He summarized the contents of
slide 13, which provided a list of questions to consider
regarding a spending cap as well as the floor. He encouraged
the committee to think about state expenditure requirements and
how those fit into the objectives of state economic policy. He
pointed out that there has been multiple instances over the past
several years that highlighted whether the state could carry out
its constitutional and statutory obligations. He advised
reconsidering the base line budget if the current one isn't
adequate. Mr. Andreassen turned to slide 14 and addressed the
infrastructure deficit. He indicated that there is $21.9
billion in infrastructure needs and questioned how to plan for
that in terms of time and resourcing. He expressed his concern
that Alaska's capital infrastructure needs lack consistent
funding. Further, he pointed out that there is no central
clearing house for assessing infrastructure needs, as many of
them are siloed across and outside state government.
12:46:20 PM
MR. ANREASSEN turned to slide 15, which exemplified one piece of
that infrastructure deficit: school construction and major
maintenance. He explained that funding for such projects has
been inadequate, noting that on average, the legislature funds
about 8 percent of all submitted projects. Furthermore, he
explained that school districts are required by the state to
submit those projects and have a capital improvement plan, which
costs money to develop in a way that DEED can track effectively.
He touched on improving the state's credit rating on slide 16,
which read as follows:
Improving Our Credit Rating
Local governments carry $2.2B in GO bond debt, and $1B
in revenue bonds
Not a lot of alternative structures in Alaska for
bonding, or pooling bonds
• Anchorage, Fairbanks, and Juneau higher than the
State's, but most others rely on bond bank
Alaska Municipal Bond Bank critical for
State's bond rating is directly relevant to the bond
bank's rating
Downgraded over the last few years, as the State's has
diminished
Leads to costs higher than they would be otherwise
Affecting refinancing current obligation spread right
now is "narrow" .3-.4% vs 1.5-2%
Delaying new bond debt because of cost, even with low
rates generally
For illustration -$350 million bond is "just" the
amount needed to fully fund 100% of school
construction and major maintenance grants this year.
MR. ANDREASSEN emphasized that implementing a fiscal plan would
help improve both state and local government's ability to
address infrastructure.
12:49:39 PM
MR. ANREASSEN presented a case for revenue on slide 17. He
stressed that local governments depend on a partnership with the
state but are losing the trust necessary to fully implement that
partnership. He shared his belief that state funding is
inadequate to meet its obligations and the needs of residents
and businesses. He opined that so many of Alaska's priorities
have been underfunded, which makes it impossible to reinvest in
economic recovery and growth. Further, the huge infrastructure
deficit is hindering that same growth, he argued. He added that
any further delay in addressing the revenue issue would make it
increasingly challenging to support any of the aforementioned
factors. He continued to slide 18, which illustrated the tax to
GDP metric. He confirmed that Alaska is last in terms of state
taxation relative to other states; alternatively, Alaska is
"middle of the road" regarding the local tax to GDP, which
varies from .3 percent to 10 percent. He noted that a statewide
tax would disproportionately affect some regions of the state
with a high tax to GDP ratio. He added that national data
supports a "tipping point," indicating that ineffective taxing
of GDP results in falling behind. Alternatively, effectively
taxing GDP leads to greater growth, which is why high-growth
countries have high levels of taxation and make reinvestments
into public health, education, welfare, and safety. He
concluded that reinvestment has a compounding effect that would
help to grow Alaska's economy.
12:53:20 PM
MR. ANREASSEN discussed how to grow Alaska's GDP on slide 19.
He reiterated that state investment into current programs would
"pay dividends" and help to address the state's seed corn. He
further noted that Alaska's GDP has grown significantly over the
years. He advanced to slide 20, which highlighted eight
different objectives that would propel the state to firm fiscal
footing: fulfill constitutional debt and statutory obligations;
implement a broad-based tax and other revenue measures; ensure
sustainable draw from the permanent fund; make appropriate
changes to the dividend formula; address the infrastructure
deficit; leverage partnerships to achieve goals; provide
targeted economic relief; and adopt a reasonable spending cap.
He believed that a combination of interests would help the state
move forward.
1:00:22 PM
MR. ANREASSEN concluded on slide 22, emphasizing that Alaska's
mayors are committed to working towards recovery now and into
the future. The position from the Alaska Conference of Mayors
advocated for addressing the state's revenue shortfalls;
maximizing federal relief; continuing to meet public health
needs; returning to active economic activity; collaboration
between levels of government to address the infrastructure
deficit; and addressing lessons learned from the pandemic.
1:02:07 PM
REPRESENTATIVE EASTMAN asked how much money is currently on hang
in the AML investment pool.
MR. ANREASSEN said that the AML investment pool (AMLIP) is
governed by local governments. He explained that it's a tool
set up by the legislature to allow pooling of assets. He
reported that the current amount is just under $500 million,
which represents operating dollars that can earn some level of
return at a time when local governments need it the most. He
noted that not all governments participate in that pool, adding
that it's similar to a "GFONSI" account at the state level.
CHAIR SPOHNHOLZ asked for the definition of "GFONSI."
MR. ANREASSEN did not know what the acronym stood for; however,
he said it's "the state's operating account for multiple
accounts."
1:03:35 PM
REPRESENTATIVE EASTMAN asked how AMLIP accumulates money.
MR. ANREASSEN explained that instead of putting money into a
savings account, funds could go into AMLIP and potentially earn
a greater rate of return. He indicated that the money could
accumulate in a variety of ways, such as allocated accounts
based on grants for funding that is disbursed to different
programs. Essentially, he said it is a bank account used to
move money in and out quickly and effectively while hoping for
some level of return.
1:04:37 PM
REPRESENTATIVE EASTMAN asked how many Alaskan communities have a
local version of the Alaska Permanent Fund.
MR. ANREASSEN was unsure. He surmised that local governments
are doing a similar due diligence in the stewardship of their
funds as the state does through its permanent fund and other
investment vehicles. How local governments manage those funds
and the investments they make are with the same goals and in the
public interest, he said.
CHAIR SPOHNHOLZ noted that GFONSI stood for "General Fund and
Other Non-Segregated Investments (GFONSI)."
1:05:32 PM
REPRESENTATIVE WOOL asked Mr. Andreassen to repeat his previous
statement regarding the taxing of GDP.
MR. ANREASSEN clarified that GDP typically utilized
international data and nation-to-nation comparisons. He
reported that those [states] with a tax-to-GDP ratio greater
than 12.5 percent had greater economic growth than those with
less than 12.5 percent due to their ability to fund things, like
education, health, safety, and welfare.
REPRESENTATIVE WOOL pointed out that some people prioritize the
PFD while others prioritize the capital budget, whereas AML
seems to prioritize the operating budget. He asked Mr.
Andreassen to comment on that analysis.
MR. ANREASSEN believed that everyone can have a different
opinion on where to cut and invest. He opined that with the
current level of state spending, the greatest negative impact
would be further reduction of the state budget.
REPRESENTATIVE WOOL shared that he found the GDP data
fascinating, adding that Alaska needs to diversify its economy
and invest in capital budgets. In response to Ms. Townsend, he
contended that the revenue deficit, not a spending cap, should
be the state's main priority. He pointed out that the state had
cut its operating budget by 25 percent over the past 5 years in
addition to the capital budget. Further, the state's oil
revenue was at an all-time low.
1:12:00 PM
REPRESENTATIVE JOSEPHSON, referring to slide 9, asked what a
community with significant financial problems or a community
that has discontinued municipal operations looks like on the
ground.
MR. ANREASSEN clarified that the table being referenced is in
direct relation to the 2003 decision to cut community revenue
sharing entirely. He indicated that the table highlighted the
effects of that decision, which resulted in the adoption or
increase of a sales tax by many local governments. He expounded
that on the ground, communities couldn't afford to pay employees
to staff the city offices and were less able to help the state
conduct REAA school board elections or help support utilities,
nor were they in the position to support a Village Public Safety
Officer (VPSO). He said in some cases, those responsibilities
transferred to a Tribe; however, most responsibilities would
have fallen back on the state. He reiterated that as
communities become stressed, the cost to the state likely
increases in the delivery of services to a remote community that
would have otherwise been provided by the local government.
1:15:18 PM
CHAIR SPOHNHOLZ questioned why an income tax is more efficient
in regard to the tax to GDP metric.
MR. ANREASSEN emphasized that a statewide tax would affect each
community differently. He believed that an income tax would
most effectively hit all the different sectors of Alaska's
economy and would not be exclusionary because it's outside the
bounds of local government taxation; consequently, it would make
sense that the state would prioritize the tax that is exclusive
to it, he said.
CHAIR SPOHNHOLZ asked what prohibits local governments from
having an income tax.
MR. ANREASSEN answered state statute. He offered to follow up
with the specific statute citation.
1:19:24 PM
CHAIR SPOHNHOLZ concluded by noting that the committee had
worked hard to present a diversity of opinions on how to fix the
state's fiscal situation, as well as the challenges of not
fixing it. She remarked on the upcoming schedule.
1:20:38 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
1:20 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| APDC House Ways Means Committee Presentation 4.27.21.pdf |
HW&M 4/27/2021 11:30:00 AM |
|
| RDC Fiscal Plan Letter 4.26.21.pdf |
HW&M 4/27/2021 11:30:00 AM |
|
| AML Impacts of State Budget Decisions 4.27.21.pdf |
HW&M 4/27/2021 11:30:00 AM |
|
| APF Testimony 4.27.21.pdf |
HW&M 4/27/2021 11:30:00 AM |