Legislature(2021 - 2022)SENATE FINANCE 532

09/09/2021 09:00 AM Senate FINANCE

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09:02:40 AM Start
09:04:22 AM SJR5
10:15:47 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
Bills Previously Heard/Scheduled
                 SENATE FINANCE COMMITTEE                                                                                       
                   THIRD SPECIAL SESSION                                                                                        
                     September 9, 2021                                                                                          
                         9:02 a.m.                                                                                              
9:02:40 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Bishop called the Senate Finance Committee meeting                                                                     
to order at 9:02 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Click Bishop, Co-Chair                                                                                                  
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson (via teleconference)                                                                                        
Senator Bill Wielechowski (via teleconference)                                                                                  
Senator David Wilson                                                                                                            
MEMBERS ABSENT                                                                                                                
Senator Natasha von Imhof                                                                                                       
ALSO PRESENT                                                                                                                  
Neil Steininger, Director, Office of Management and Budget,                                                                     
Office of the Governor; Caroline Schultz, Policy Analyst,                                                                       
Office of Management and Budget, Office of the Governor.                                                                        
SJR 5     CONST. AM: APPROP LIMIT; BUDGET RESERVE                                                                               
          SJR 5 was HEARD and HELD in committee for further                                                                     
SENATE JOINT RESOLUTION NO. 5                                                                                                 
     Proposing amendments to the Constitution of the State                                                                      
     of Alaska relating to an appropriation limit; and                                                                          
     relating to the budget reserve fund.                                                                                       
9:04:22 AM                                                                                                                    
NEIL STEININGER, DIRECTOR, OFFICE  OF MANAGEMENT AND BUDGET,                                                                    
OFFICE OF THE GOVERNOR, introduced himself.                                                                                     
9:04:28 AM                                                                                                                    
CAROLINE SCHULTZ,  POLICY ANALYST, OFFICE OF  MANAGEMENT AND                                                                    
BUDGET, OFFICE OF THE GOVERNOR, introduced herself.                                                                             
9:04:39 AM                                                                                                                    
Mr.  Steininger   discussed  the  presentation,   "State  of                                                                    
Alaska;  Office of  Management  and  Budget; Senate  Finance                                                                    
Committee; SJR  5: Constitutional Spending  Limit; September                                                                    
9th, 2021"  (copy on file).  He addressed slide  2, "Current                                                                    
Limit: Article  IX, Section 16,"  which showed a  graph. The                                                                    
graph showed the current  constitutional spending limit with                                                                    
a black  line. He asserted that  the administration proposed                                                                    
an amendment  to the  constitutional spending  limit because                                                                    
the  current   limit  was   not  effective   at  controlling                                                                    
expenditures  of the  state. He  pointed out  that over  the                                                                    
time limit  of the graph  where there were no  periods where                                                                    
state  expenditures neared  or came  close to  exceeding the                                                                    
constitutional spending limit.                                                                                                  
Mr. Steininger continued  to address slide 2.  He noted that                                                                    
the  green line  represented  revenues and  the orange  line                                                                    
represented expenditures.  He thought it was  clear from the                                                                    
graph that over  the time period represented,  the amount of                                                                    
revenues available was what  had controlled expenditures. He                                                                    
pointed   out  during   times  low   or  flat   of  revenue,                                                                    
expenditures   stayed  roughly   in  line   with  what   was                                                                    
available, while at the same  time the spending limit in the                                                                    
constitution continued to escalate,  which created a gap. He                                                                    
observed that  when revenue  started to  spike in  the early                                                                    
2000s, expenditures went up at  roughly the same rate as the                                                                    
revenues and  there was no  meaningful limit on the  rate of                                                                    
growth. He  thought the forward-looking need  to constrain a                                                                    
run-up  of  state  expenditures   was  the  reason  for  the                                                                    
administration's  recommendation  of  an  amendment  to  the                                                                    
constitutional spending limit.                                                                                                  
Mr. Steininger pointed out the  dotted line, which signified                                                                    
the hypothetical scenario of the  proposed limit laid out in                                                                    
SJR   5  applied   at   the  same   time   as  the   current                                                                    
constitutional limit.  He thought the graph  showed that the                                                                    
limit would have applied a  lot more constraint on growth of                                                                    
expenditures during the time of the run-up in revenue.                                                                          
9:07:22 AM                                                                                                                    
Co-Chair  Stedman remarked  that there  was a  delta between                                                                    
the  dotted line  that showed  a hypothetical  look-back and                                                                    
where the  state expenditures were.  He asked how  the state                                                                    
could have  reduced from $4.5 billion  in state expenditures                                                                    
down to the $3 billion under the scenario.                                                                                      
Mr. Steininger replied that the  slide presented a "what if"                                                                    
scenario,  and  if  the  state   implemented  SJR  5  today,                                                                    
spending would  not be down  at the $3.5 billion  level, but                                                                    
would  be  more  responsive   to  current  expenditures.  He                                                                    
summarized that the administration  was looking to implement                                                                    
a spending  limit that would constrain  future growth rather                                                                    
than to implement a spending  limit that required roughly $1                                                                    
billion in  reductions immediately.  He highlighted  that it                                                                    
was easy  to add expenditures  when there was  state revenue                                                                    
available,  while  it  was  far  more  challenging  to  pull                                                                    
operating costs  out of the  budget when  revenues declined.                                                                    
He thought you  could see a significant revenue  drop on the                                                                    
graph and  then stabilization. He summarized  that the graph                                                                    
was to illustrate that the  proposed spending limit was more                                                                    
restrictive than the current constitutional spending limit.                                                                     
9:09:35 AM                                                                                                                    
Co-Chair  Stedman  shared  that  the  subject  matter  of  a                                                                    
spending  limit had  been before  the committee  many times,                                                                    
and  members  had  all recognized  that  the  constitutional                                                                    
spending limit was quite a  bit above actual expenditures as                                                                    
illustrated  by  the  graph. He  recalled  that  during  the                                                                    
tenure  of  the  previous   administration  there  had  been                                                                    
discussion   about   the   spending   limit   with   similar                                                                    
multipliers   as  proposed.   He  contended   that  if   the                                                                    
legislature had  implemented some  of the  proposed spending                                                                    
caps (including  from the  governor when  he was  serving as                                                                    
senator),  it would  have resulted  in significantly  higher                                                                    
spending than there  was currently. He noted  that the state                                                                    
had  maintained flat  spending over  three legislatures.  He                                                                    
mentioned proposals  by former Senator Dunleavy.  He did not                                                                    
see  the  operating  budget  of  the  state  advancing,  and                                                                    
thought the  state had the  challenge of trying to  meet its                                                                    
obligation. He  thought a significant number  of legislators                                                                    
did not like being up against a spending cap.                                                                                   
Co-Chair  Stedman  continued  his remarks.  He  was  dubious                                                                    
about the  proposal. He questioned whether  the new proposal                                                                    
would   be   more   effective  than   what   was   currently                                                                    
constraining  spending growth.  He  thought  there was  very                                                                    
little  flexibility  with  the  funds available  to  do  any                                                                    
escalation in  growth. He wanted  the chart on the  slide to                                                                    
have   a  look-back   to  the   beginning   of  the   Walker                                                                    
Administration or the end of  the Parnell Administration. He                                                                    
acknowledged   that    the   current   spending    cap   was                                                                    
dysfunctional.  He  thought that  a  new  spending cap  with                                                                    
additional headroom  would garner  a great deal  of interest                                                                    
from  legislators that  wanted  to spend  up  to the  limit,                                                                    
which  he  thought  was  the wrong  direction  to  take.  He                                                                    
requested  for the  slide to  be re-modeled  with a  tighter                                                                    
time frame, starting between 2015 and the present.                                                                              
Co-Chair  Bishop added  that there  was  another former  co-                                                                    
chair  of Senate  Finance sitting  as a  current member.  He                                                                    
mentioned funds that  had been banked. He  mentioned a great                                                                    
deal of  deferred maintenance. He was  curious about capital                                                                    
spending outside the spending limit.  He cited $1 billion in                                                                    
deferred  maintenance  in rural  Alaska  and  $2 billion  in                                                                    
deferred maintenance on state  assets. He mentioned schools,                                                                    
water and sewer, and energy infrastructure.                                                                                     
Mr. Steininger stated that there  was an upcoming slide that                                                                    
addressed  the  reframing the  spending  limit  when it  was                                                                    
implemented in different time periods.                                                                                          
9:16:17 AM                                                                                                                    
Mr.  Steininger  pointed to  slide  3,  "Key Aspects  of  an                                                                    
Effective Appropriation Limit":                                                                                                 
     ?Inhibit excess spending in high revenue years                                                                             
     ?Practical considerations for calculation                                                                                  
          ?Timely data availability                                                                                             
          ?can be calculated in advance of budget deadlines                                                                     
          ?Clearly understood formula                                                                                           
    ?Responsive to long-term and unanticipated changes                                                                          
     ?Avoids unintended consequences or disincentives for                                                                       
     short-term savings                                                                                                         
9:21:02 AM                                                                                                                    
Senator  Olson   thought  there  were  issues   that  needed                                                                    
addressing  in   more  detail,  such   as  changes   to  the                                                                    
Co-Chair Stedman wondered if the  presentation would look at                                                                    
current   status  of   state   operating  expenditures.   He                                                                    
mentioned  a   establishing  a  benchmark   spending  amount                                                                    
relative to  population and inflation. He  cautioned against                                                                    
making a benchmark error.                                                                                                       
Mr.  Steininger  pointed  to slide  2  to  address  Co-Chair                                                                    
Stedman's  comments.  He  looked   at  the  dark  line  that                                                                    
represented  the  current   spending  limit,  which  started                                                                    
roughly in line  with UGF spending in the first  year on the                                                                    
graph.  He  qualified that  spending  during  that time  was                                                                    
categorized differently  and the  example was not  a perfect                                                                    
representation. He  noted that the growth  of population and                                                                    
inflation  exceeded the  growth  of  expenditures. He  added                                                                    
that where  the state was  now, adjusted for  population and                                                                    
inflation, was significantly lower  than in the early 1980s.                                                                    
He  pondered the  appropriate  size of  the  budget for  the                                                                    
current fiscal  year and thought  the decision  was embodied                                                                    
in the annual budget process.  He asserted that the proposed                                                                    
spending limit was  not trying to make  judgement calls, but                                                                    
rather trying to set up a  framework in which to set a limit                                                                    
on what could be added to current expenditures.                                                                                 
9:23:49 AM                                                                                                                    
Co-Chair Stedman recalled  that the early 1980s  were in the                                                                    
oil boom, but the late 1970s  were about on par with current                                                                    
spending   adjusted  for   population   and  inflation.   He                                                                    
discussed   historical  spending   in  the   previous  three                                                                    
administrations.   He   thought   there  would   always   be                                                                    
commentary  that expenditures  exceeded the  ideal, and  the                                                                    
legislature should  be able  to cut  the budget.  He thought                                                                    
the  budget  had been  horizontal  since  2016 through  four                                                                    
different  legislatures. He  mentioned deferred  maintenance                                                                    
and   cautioned  about   backlog  and   the  importance   of                                                                    
maintaining infrastructure.                                                                                                     
Co-Chair Bishop asked Mr. Steininger  to go back to slide 2.                                                                    
He pointed out revenue versus  the UGF spending from 1982 to                                                                    
2006.  He  thought there  was  pent-up  demand for  deferred                                                                    
maintenance going  back 20 years.  He looked at slide  3 and                                                                    
emphasized the  last two bullets  on the slide. He  asked if                                                                    
Mr. Steininger had modelled SJR 5 for outcomes.                                                                                 
Mr.  Steininger relayed  that the  proposed  limit would  be                                                                    
responsive  to inflationary  pressure or  a large  influx in                                                                    
9:28:34 AM                                                                                                                    
Ms. Schultz stated that she  had looked at projections based                                                                    
on  Department of  Labor and  Workforce Development's  high,                                                                    
medium, and low population  projections as well as different                                                                    
inflation  scenarios based  on  historical information.  She                                                                    
noted  that the  model looked  different using  numbers from                                                                    
the  1980s  than  the  current  low  inflation  regime.  She                                                                    
offered to share the information with the committee.                                                                            
Mr.  Steininger addressed  slide  4, "Policy  Considerations                                                                    
for Appropriation Limit Calculations":                                                                                          
     There are three critical policy considerations when                                                                        
     establishing a spending limit calculation:                                                                                 
     What is excluded?                                                                                                          
          Current Article IX, Section 16 Limit                                                                                  
               PFDs, deposits to PF,  bond proceeds, GO bond                                                                    
               debt  service,  disaster spending,  non-state                                                                    
               money  received  in   trust,  revenues  of  a                                                                    
               public     enterprise,    certain     capital                                                                    
          CS SJR 5 (JUD) Proposed                                                                                               
               PFDs, deposits  to PF or other  state savings                                                                    
               accounts,   retirement   unfunded   liability                                                                    
               payments,  bond proceeds,  GO &  revenue bond                                                                    
               debt  service,  disaster spending,  non-state                                                                    
               money  received  in   trust,  revenues  of  a                                                                    
               public     enterprise,    certain     capital                                                                    
     What is the base?                                                                                                          
          Current Article IX, Section 16 Limit                                                                                  
               $2.5 B in 1982 (fixed)                                                                                           
          CS SJR 5 (JUD) Proposed                                                                                               
               Previous average 3 years (moving)                                                                                
Mr. Steininger  explained that  the proposed  spending cap's                                                                    
moving  average  allowed  the   calculation  to  respond  to                                                                    
events. He discussed a growth  rate that was as closely tied                                                                    
to  the real  pressures on  government spending  as possible                                                                    
and mentioned the importance of availability of data.                                                                           
9:32:09 AM                                                                                                                    
Mr. Steininger continued with slide 4:                                                                                          
     How does is grow?                                                                                                          
          Current Article IX, Section 16 Limit                                                                                  
               Inflation population (cumulative)                                                                                
          CS SJR 5 (JUD) Proposed                                                                                               
               Greater of inflation or population (over                                                                         
               previous two years)                                                                                              
Mr.  Steininger  discussed  changing   the  growth  rate  as                                                                    
proposed  in  SJR   5,  which  would  use   the  greater  of                                                                    
population  or  inflation  over  the  prior  few  years.  He                                                                    
thought the  proposal allowed  for the  ability to  grow and                                                                    
respond to events while not  allowing for significant growth                                                                    
above what was necessary to  meet the needs and services. He                                                                    
explained that  the levers and policy  considerations needed                                                                    
to be looked at to ensure  that the change would achieve the                                                                    
goals  of the  legislature and  administration in  setting a                                                                    
spending  limit  without  any  unintended  consequences.  He                                                                    
mentioned  having tools  to deal  with things  like deferred                                                                    
maintenance  but  without  creating  incentives  for  excess                                                                    
Co-Chair  Stedman reiterated  that the  issue of  a spending                                                                    
cap had  been before  the committee many  times, as  well as                                                                    
consideration of  whether the Permanent Fund  Dividend (PFD)                                                                    
should be included or not.  He discussed balancing the needs                                                                    
of the  state and asked why  the PFD would be  excluded from                                                                    
the spending  cap when  it was one  of the  most significant                                                                    
calls for revenue.                                                                                                              
Mr. Steininger  stated that the  primary reason the  PFD was                                                                    
excluded from the  proposed spending cap was that  SJR 5 was                                                                    
not   the   only   constitutional   amendment   before   the                                                                    
legislature.  He detailed  that there  was another  proposed                                                                    
constitutional amendment that would  address the PFD and set                                                                    
the payment in the  constitution and effectively control the                                                                    
expenditure  of the  PFD rather  than being  a discretionary                                                                    
item in  the state  budget under the  purview of  a spending                                                                    
Co-Chair  Bishop   iterated  that  the   administration  was                                                                    
banking on  the other  constitutional amendment  passing the                                                                    
legislature.  He  pondered what  would  happen  if the  bill                                                                    
failed and SJR 5 passed the legislature.                                                                                        
Mr.  Steininger explained  that the  administration did  not                                                                    
consider the  PFD a discretionary appropriation,  but rather                                                                    
something that  should be  done per  the statute.  He stated                                                                    
that  although  the court  had  ruled  that  the PFD  was  a                                                                    
discretionary  item  that  was  part of  the  annual  budget                                                                    
process, the  administration's perspective was that  the PFD                                                                    
would  still be  rules-based  and not  a discretionary  item                                                                    
that should be considered under the spending cap.                                                                               
9:37:11 AM                                                                                                                    
Co-Chair Stedman thought the statutory  formula equated to a                                                                    
PFD  of about  $3,300, while  the administration's  proposed                                                                    
PFD was $2,300. He asserted  that the Supreme Court made the                                                                    
law  of   the  land  for   all  to  follow,   including  the                                                                    
administration.  He  discussed  his  concern  that  previous                                                                    
policy set by governors resulted  in annual dividends to the                                                                    
people.  He recounted  that  the formulation  was  to be  50                                                                    
percent for  the people  and 50 percent  to the  state after                                                                    
adjustment  for  inflation.  The state  had  reinvested  its                                                                    
portion and the Permanent Fund had grown as a result.                                                                           
Co-Chair  Stedman   asserted  that  all  the   citizens  had                                                                    
benefitted  from  the policy  and  growth  of the  fund.  He                                                                    
suggested that if the legislature  had followed the statute,                                                                    
the  value  of  the  Permanent Fund  would  be  roughly  $30                                                                    
billion,  and the  dividend would  be  $1,100. He  cautioned                                                                    
against setting future policy in  a vacuum. He thought there                                                                    
were   issues   to   work  through   before   changing   the                                                                    
constitution. He  hoped the public  would recognize  the $50                                                                    
billion in  added value to  the Permanent Fund,  rather than                                                                    
the legislature spending the funds along the way.                                                                               
9:43:02 AM                                                                                                                    
Co-Chair Bishop  asked for a  definition of  certain capital                                                                    
projects and asked if there was a list.                                                                                         
Ms.   Schultz  replied   that  the   current  constitutional                                                                    
appropriation  limit  in  Article   IX,  Section  16  had  a                                                                    
provision  where under  certain circumstances  a portion  of                                                                    
the  appropriation  limit  needed  to be  spent  on  capital                                                                    
items.  She  continued  that  SJR   5  allowed  for  capital                                                                    
appropriations  that  exceeded  the appropriation  limit  if                                                                    
voted on and approved by a  majority of voters in the state,                                                                    
similar to the provisions  required for a general obligation                                                                    
(GO) bond. The  provision was added in  the Senate Judiciary                                                                    
Committee in  order to  enable capital  expenditures outside                                                                    
the limit, with the added control of a vote by the people.                                                                      
Co-Chair  Bishop asked  if the  capital projects  could only                                                                    
include water  and sewer projects.  He thought the  bill was                                                                    
not definitive on  the type of civil projects  that would be                                                                    
Ms. Schultz explained  that there was some  ambiguity in the                                                                    
wording   regarding  whether   an  item   was  for   capital                                                                    
improvement  or   capital  project.   She  noted   that  the                                                                    
definition  of a  capital  project had  not  been tested  in                                                                    
court  in  Alaska. She  thought  the  conversation would  be                                                                    
academic  in  nature  and   noted  that  Assistant  Attorney                                                                    
General Bill Milks was available for questions.                                                                                 
9:45:45 AM                                                                                                                    
Mr.  Steininger pointed  to slide  5, "SJR  5 Constitutional                                                                    
Appropriation  Limit -  Timing Matters,"  which had  a graph                                                                    
depicting  the  proposed  appropriation  limit  starting  at                                                                    
various  times. He  noted that  the slide  showed a  tighter                                                                    
timeframe than was  shown on the first slide.  He thought it                                                                    
was possible to see that  the result was different depending                                                                    
on  when the  proposed appropriation  limit was  started. He                                                                    
pointed  out  that  the  scenarios in  2000  and  2005  were                                                                    
relatively similar due to the  fact that the time period had                                                                    
relatively  flat  and  stable budgets,  and  the  three-year                                                                    
average calculated by SJR 5 yielded the same results.                                                                           
Mr.  Steininger pointed  out  the  increase in  expenditures                                                                    
leading to 2010, which increased  the three-year average. He                                                                    
thought it was important to note  that if the SJR 5 proposal                                                                    
was implemented  in a time  of higher spending  (unlike what                                                                    
was shown on the first  graph), the initial base calculation                                                                    
would  be  based  on  the  most  recent  three  budgets.  He                                                                    
emphasized that  the calculation was responsive  and ensured                                                                    
that  when the  spending cap  was implemented  it would  not                                                                    
significantly constrain spending  immediately. He noted that                                                                    
if  implemented   2010,  the   proposed  limit   would  have                                                                    
constrained spending  after a few  years. He  commented that                                                                    
as expenditures  went down  to meet  the decline  in revenue                                                                    
subsequent to  FY 15, it  was observable that  the averaging                                                                    
brought the  appropriation limit down with  spending. Growth                                                                    
would be limited to inflation or population growth.                                                                             
Co-Chair  Bishop  commented that  when  the  state had  flat                                                                    
revenue, the  legislature was not over-spending.  He pointed                                                                    
out that  when the state  had more revenue, it  was catching                                                                    
up on  20 years  of deferred  maintenance it  was previously                                                                    
unable to do.                                                                                                                   
9:49:43 AM                                                                                                                    
Mr.  Steininger looked  at slide  6,  "SJR 5  Constitutional                                                                    
Appropriation Limit  - Looking  Forward." He  explained that                                                                    
the slide  the graph on  the slide used OMB's  ten-year plan                                                                    
as well  as the  Department of Revenue's  official forecast.                                                                    
He  explained  that  the  graph   tried  to  show  that  the                                                                    
appropriation limit  in SJR 5  had some flexibility  and was                                                                    
dependent upon choices that were  made. The two black dotted                                                                    
lines represented a range of  where the spending limit could                                                                    
be calculated  in the  future. The top  line showed  that if                                                                    
the state tried to respond to  the limit by treating it as a                                                                    
goal, the amount would increase over time.                                                                                      
Mr. Steininger  continued to address  the graph on  slide 7.                                                                    
He  explained that  the  lower dotted  line  showed that  if                                                                    
spending  was flat,  the line  would meet  the spending  and                                                                    
grow  by population  or inflation  depending upon  which was                                                                    
greater.  The  graph used  a  rate  of one-half  percent  in                                                                    
annual  population  growth  and 2.25  percent  in  inflation                                                                    
growth. He  summarized that the  provisions in the  bill, as                                                                    
currently   drafted,   were  responsive   to   appropriation                                                                    
decisions that were  made and allowed for a  small amount of                                                                    
growth but not a fast run-up of expenditures.                                                                                   
9:51:39 AM                                                                                                                    
Co-Chair  Bishop thought  if the  state  could maintain  its                                                                    
savings discipline,  it could pay the  Constitutional Budget                                                                    
Reserve  (CBR) back  in 16  years with  $1 billion  per year                                                                    
instead of in 130 years by paying $100 million per year.                                                                        
Mr. Steininger  highlighted slide  7, "SJR  5 Constitutional                                                                    
Appropriation Limit - As Amended by Senate Judiciary":                                                                          
     SJR 5 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                                                                           
     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                                                                                   
          ?Payments toward retirement unfunded liability                                                                        
          ?Disaster response                                                                                                    
          ?Non-state funds for a specific purpose                                                                               
          ?Capital projects if approved by voters                                                                               
Mr.  Steininger noted  that  slide 7  and  slide 8  provided                                                                    
details  of what  was in  the  bill. He  suggested that  the                                                                    
provisions  were  areas  for  legislative  consideration  to                                                                    
ensure that  the way the  bill was drafted gave  the ability                                                                    
to address  items such as  deferred maintenance  and capital                                                                    
Co-Chair Bishop asked  if the administration had  a plan for                                                                    
addressing deferred maintenance.                                                                                                
9:54:24 AM                                                                                                                    
Mr.  Steininger stated  that the  current mechanism  used to                                                                    
fund  deferred maintenance  was through  the Alaska  Capital                                                                    
Income  Fund, and  earnings  that went  into  the fund.  The                                                                    
administration  was in  the process  of addressing  deferred                                                                    
maintenance  on a  statewide basis  through the  Division of                                                                    
Facilities Services.  He acknowledged that there  was a need                                                                    
to find more adequate  funding for deferred maintenance, and                                                                    
that the  amount of  money available  in the  Alaska Capital                                                                    
Income Fund  was less than  the ideal  amount if one  was to                                                                    
calculate one to two percent of the asset value.                                                                                
Co-Chair Stedman asked about bond  proceeds and debt service                                                                    
costs.  He  spoke  of  bonded  projects  and  false  numbers                                                                    
represented  in the  budget. He  thought that  bond proceeds                                                                    
should  be included.  He was  curious whether  bond packages                                                                    
should  be  pushed forward  or  not.  He thought  there  was                                                                    
clearly  budgetary  manipulations  that made  bond  packages                                                                    
more attractive  than they should  be. He  questioned taking                                                                    
capital  projects to  the voters  when  the legislature  was                                                                    
elected to make the decisions.                                                                                                  
Co-Chair Stedman continued his  thoughts. He highlighted the                                                                    
unequal distribution  of voters  across the state.  He noted                                                                    
that the  legislature spent  many areas  to ensure  that the                                                                    
call  on the  treasury  was equally  distributed around  the                                                                    
state.  He  thought a  vote  by  the  people could  lead  to                                                                    
inequity with  projects concentrated in  population centers.                                                                    
He  thought  there  were  numerous  examples  to  draw  from                                                                    
relating  to  unfair  allocation  of  resources  around  the                                                                    
Co-Chair Bishop  solicited questions.  He asked  whether the                                                                    
capital projects were  particular to the GO  bond list only,                                                                    
or  if the  bill proposed  to eliminate  the normal  capital                                                                    
budget process.                                                                                                                 
9:59:31 AM                                                                                                                    
Mr. Steininger  explained that under  SJR 5  the legislature                                                                    
would  still provide  for a  normal capital  budget process.                                                                    
The capital  project or  GO bonds  approved by  voters would                                                                    
happen in  a case where there  was a need for  projects that                                                                    
exceeded the proposed appropriation limit.                                                                                      
Co-Chair Stedman  reminded that capital budgets  in the near                                                                    
past had  been federal match  funded only. He  pondered what                                                                    
size of capital budget would  spill over enough to require a                                                                    
vote.  He  reiterated  his  concern  about  equal  treatment                                                                    
around the state. He discussed  examples in rural Alaska and                                                                    
the  perception  that  expenditures  in  the  Railbelt  were                                                                    
supported while smaller rural projects were not.                                                                                
Senator  Hoffman  asked  about excluded  appropriations  and                                                                    
thought a strong  argument could be made for  the Power Cost                                                                    
Equalization Program  to be excluded from  the appropriation                                                                    
limit. He recounted that there  had been expenditures across                                                                    
the Railbelt  to reduce  energy costs in  the area,  and the                                                                    
PCE Fund  was an attempt  to equalize expenditures  as there                                                                    
had been  no infrastructures built  to reduce cost  in rural                                                                    
10:03:01 AM                                                                                                                   
Co-Chair  Stedman considered  ways things  were manipulated.                                                                    
He  observed that  under the  current  enacted budget  there                                                                    
were about $200 million in  expenditures that were not made.                                                                    
He listed  oil tax credits, school  bond debt reimbursement,                                                                    
Regional Educational Attendance  Area (REAA) school funding,                                                                    
and community  assistance. He  discussed using  the proposed                                                                    
three-year average as  a policy of the  executive branch. He                                                                    
discussed vetoes by  the governor. He opined  that there was                                                                    
a difference  in policy  decisions to  increase expenditures                                                                    
and the discussion of paying  the states obligations. He was                                                                    
not sure the proposal did  not hinder the state's ability to                                                                    
meet its  obligations. He had  concerns that using  a three-                                                                    
year   expenditure   average   left   room   for   financial                                                                    
manipulations and political maneuvering.                                                                                        
Mr.  Steininger pointed  to slide  8, "SJR  5 Constitutional                                                                    
Appropriation Limit - As Amended by Senate Judiciary":                                                                          
     SJR 5 amends article 9, section 17 of the Alaska                                                                           
          ?Amends section 17 (a) to clarify deposits to the                                                                     
          ?Removes section 17 (b) which currently allows                                                                        
          simple     majority    access     under    certain                                                                    
     Retains   access   through   three-quarter   vote   and                                                                    
     repayment provisions                                                                                                       
Mr. Steininger detailed that the  bill proposed to address a                                                                    
difference in interpretation of  current language in Article                                                                    
9, Section 17  of the Alaska Constitution.  The change would                                                                    
address  what types  of settlements  went into  the CBR  and                                                                    
would clarify  that there were settlements  directly related                                                                    
oil, gas, and mineral resource issues.                                                                                          
10:07:40 AM                                                                                                                   
Co-Chair  Stedman noted  that the  legislature had  used the                                                                    
access provision  to the CBR  without a  three-quarter vote.                                                                    
He  proposed that  the access  to the  CBR through  a three-                                                                    
quarter  vote   was  always  more  expensive.   He  recalled                                                                    
accessing the CBR without additional  cost, and the creation                                                                    
of the Statutory  Budget Reserve. He thought  the bill would                                                                    
create greater expenditures. He  relayed that normally there                                                                    
was  language  in  the  budget  to  provide  a  backstop  on                                                                    
Co-Chair Bishop summarized that if one wanted to save                                                                           
money, a three-quarter vote was not a good choice.                                                                              
10:12:38 AM                                                                                                                   
Ms. Schulz discussed "CS SJR 5 (JUD) Sectional, Version 32-                                                                     
GS1664\B, (Constitutional Amendment: Appropriation Limit;                                                                       
Budget Reserve Fund), September 9, 2021" (copy on file):                                                                        
     Section 1:  This section would amend  the appropriation                                                                    
     limit amendment  in the  Alaska Constitution  (Art. IX,                                                                    
     sec. 16).                                                                                                                  
     Subsection  (a) begins  by  listing the  appropriations                                                                    
     that would be excluded from the appropriation limit:                                                                       
             appropriations made  under  new subsection  (b)                                                                    
          [Section 2],                                                                                                          
          ? money for permanent fund dividends,                                                                                 
          ? money going into the permanent fund,                                                                                
          ?   appropriations  of   general  obligation   and                                                                    
          revenue  bond proceeds  and  the  payment of  debt                                                                    
          service on those bonds,                                                                                               
          ? appropriations  into a state savings  account or                                                                    
          fund  that  requires  a  subsequent  appropriation                                                                    
          from the account as prescribed by law,                                                                                
          ?  appropriations  for  payment  of  the  unfunded                                                                    
          liability of a State retirement system,                                                                               
          ? appropriations to meet a disaster,                                                                                  
          ?  and appropriations  of money  from a  non-State                                                                    
          source in  trust for a specific  purpose including                                                                    
          revenues  of a  public  corporation  of the  State                                                                    
          that issues revenue bonds.                                                                                            
     The section then sets forth  a new appropriation limit.                                                                    
     The new  limit would require that  appropriations for a                                                                    
     fiscal   year   not   exceed   the   average   of   the                                                                    
     appropriations  for  the  last  three  years  plus  the                                                                    
     cumulative percent change in  the greater of population                                                                    
    or inflation over the previous two calendar years.                                                                          
     Section  2: New  subsection  (b) in  Art.  IX, sec.  16                                                                    
     permits appropriations  for capital projects  in excess                                                                    
     of the  limit if  approved by a  majority of  voters of                                                                    
     the State  and specifies that appropriations  in excess                                                                    
     of  the limit  are not  to be  used in  calculating the                                                                    
     appropriation limit in subsequent years.                                                                                   
     Section 3:  This section would make  limited changes to                                                                    
     section 17(a) of the budget  reserve fund in Article IX                                                                    
     that clarify  what money is  deposited into  the budget                                                                    
     reserve  Office   of  the  Governor  CS   SJR  5  (JUD)                                                                    
     September  9th, 2021  fund and  that deposits  into the                                                                    
     fund are not subject  to the dedicated fund prohibition                                                                    
     in Section 7 of Article IX.                                                                                                
     Section 4: This section  would provide for a transition                                                                    
     provision  to ensure  a smooth  transition between  the                                                                    
     existing appropriation limit and the new limit.                                                                            
     Section 5: This section  would repeal subsection (b) of                                                                    
     the budget  reserve fund in  Section 17 of  Article IX.                                                                    
     Subsection  (b)  currently  allows  for  appropriations                                                                    
     from the budget reserve fund  with a simple majority if                                                                    
     the  amount available  for appropriation  is less  than                                                                    
     the amount appropriated in the previous year.                                                                              
     Section  6:  This  section   would  require  that  this                                                                    
     amendment be placed  on the ballot in  the 2022 general                                                                    
Co-Chair Bishop discussed the agenda for the afternoon.                                                                         
SJR 5 was HEARD and HELD in committee for further                                                                               
10:15:47 AM                                                                                                                   
The meeting was adjourned at 10:15 a.m.                                                                                         

Document Name Date/Time Subjects
SJR 5 CSSJR5(JUD) Sectional 9.9.21.pdf SFIN 9/9/2021 9:00:00 AM
SJR 5 OMB Presentation to SFIN 9.9.21.pdf SFIN 9/9/2021 9:00:00 AM