Legislature(2003 - 2004)
03/31/2004 09:05 AM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 31, 2004
9:05 AM
TAPES
SFC-04 # 64, Side A
SFC 04 # 64, Side B
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:05 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Ben Stevens
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: LINDA HALL, Director, Division of Insurance,
Department of Community and Economic Development; JANET SIETZ,
Staff to Representative Norm Rokeberg; LUCKY SCHULTZ, Staff to
Senator Dyson; BRUCE TANGEMAN, Fiscal Analyst, Division of
Legislative Finance; CHERYL FRASCA, Director, Office of Management
and Budget, Office of the Governor
Attending via Teleconference: There were no teleconference
participants.
SUMMARY INFORMATION
SB 357-INSURANCE
The Committee heard from the sponsor, another legislator, and the
Department of Community and Economic Development. An amendment was
adopted and the bill was held in Committee.
SJR 3-CONST AM: APPROPRIATION/SPENDING LIMIT
The Committee heard from the sponsor, the Division of Legislative
Finance, and the Office of Management and Budget. Six amendments
were considered and five were adopted. The bill was held in
Committee.
SB 366-STATE SALES TAX
This bill was scheduled but not heard. Senator B. Stevens informed
that an updated fiscal note was received, which he would review.
CS FOR SENATE BILL NO. 357(L&C)
"An Act relating to the regulation of insurance, insurance
licenses, qualifications of insurance producers, surplus
lines, fraud investigations, electronic transactions, and
compliance with federal law and national standards; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill, sponsored by the Senate Labor and
Commerce Committee, "is known as the insurance omnibus bill and
contains numerous to insure that State statutes are consistent with
federal law, model act standards and guidelines."
LINDA HALL, Director, Division of Insurance, Department of
Community and Economic Development, deferred to Senator Bunde to
introduce the bill.
Senator Bunde testified that the Senate Labor and Commerce
Committee sponsored this bill at the request of the Murkowski
Administration. He also characterized this legislation as an
insurance omnibus bill and a "technical clean-up" bill that
proposes numerous changes to Title 21 of Alaska Statutes. He
explained this bill would insure that the State is consistent with
federal law and the National Association of Insurance Commissioners
model act standards and guidelines. He noted this legislation would
update procedures and transactions within the Division of
Insurance.
Senator Bunde listed six key elements of the bill as follows.
1. provides for electronic communication
2. provides for changes in the reinsurance capabilities in
Alaska
3. implements recommendations for licensing revisions as
suggested by National Association of Insurance Commissioners
4. makes changes in the liability for civil damages when
filing a report concerning fraudulent acts
5. contains provisions that clarify that a guarantee fund
deposit is required for title insurance companies
6. makes changes to taxes and late penalties to be more
consistent with Department of Revenue statutes.
Senator Bunde summarized this bill would "promote consistency
between Alaska and other states, should promote more efficient
operation."
Amendment #1: This amendment inserts a new bill section on page 2,
following line 11 to read as follows.
Sec. 2. AS 21.07.010(b) is amended to read:
(b) A contract between a participating health care
provider and a managed care entity that offers a group managed
care plan may not contain a provision that
(1) has as its predominant purpose the creation of
direct financial incentives to the health care provider for
withholding covered health care services that are medically
necessary; nothing in this paragraph shall be construed to
prohibit a contract between a participating health care
provider and a managed care entity from containing incentives
for efficient management of the utilization and cost of
covered health care services;
(2) requires the provider to contract for all
products that are currently offered or that may be offered in
the future by the managed care entity; or [AND]
(3) requires the health care provider to be
compensated for health care services performed at the same
rate as the health care provider has contracted with another
managed care entity.
New Text Underlined [DELETED TEXT BRACKETED]
Co-Chair Wilken moved for adoption. He announced that this bill
would not be reported from Committee at this hearing.
Senator Dyson relayed his understanding that significant cost
shifting occurs by health care providers. He exampled that
hospitals are unable to recover expenses incurred from surgery
procedures and subsequently charges higher amounts for other
services, which are ultimately shifted to third-party payers. He
asked if the State has a responsibility to ensure that insurers are
only paying for costs actually incurred and not for providers'
unrecoverable debts from other services.
Ms. Hall replied this is a philosophical question she was not
currently prepared to answer. She assured she would discuss the
matter with Division staff responsible for primary oversight of the
health insurers and undertake additional research.
Senator Dyson commented this would be a wise choice.
Senator Dyson remarked on the "unfortunate" circumstances whereby
third party payers, large insurance carriers and self insured
negotiate with providers for lower rates, while requiring uninsured
patients to pay 100 percent. He also stated that some patients must
pay the cost recovery of other services offered by the provider. He
wanted to ensure that self-payers get same discount as third party
payers.
Ms. Hall responded that she would further discuss this matter with
Senator Dyson.
Ms. Hall testified on the bill as follows.
The purpose of the bill is to make some changes that are
required in the accreditation process that the Division of
Insurance goes though with the National Association of
Insurance Commissioners. It also makes some changes to
correspond with some of the national producer licensing
requirements.
There's six major areas of change. One, as Senator Bunde has
pointed out is electronic communication; the ability to allow
various communications for the services we provide to be
preformed electronically. We have financial forms that are
filed electronically and we're trying to gradually increase
the ability to communicate with our public in that manner.
Second area is late tax payments. Currently we have some
fairly high penalties that are mandatory for late payments.
There are four sections in the bill that revise the penalties
to make them more consistent with the Department of Revenue.
We also add a new section that is up to $10,000 penalties for
willful late payments of taxes.
The reinsurance piece of the bill is probably the most
complex. It is the only area of the bill that I've received
any comments from industry on. There are two sections. One is
reflected in Version "H", it is a c.s. Originally, the bill
proposed that the Division of Insurance must approve
reinsurance treaties that insurance companies entered into
with reinsurance insurers. We have changed that merely to
require that they file their signed agreements with us. In
some financial examinations, we've had difficulty getting
signed reinsurance agreements and we want to be sure we have
those available for our review when we're reviewing our
domestic insurance companies.
The forth area of the bill makes some changes in licensing to
be consistent with the Producer License Model Act and federal
law. We've eliminated some training licensing; we've added
crop insurity licenses. We have removed some language on
limited lines that made it more difficult - they made barriers
for Alaskans to have licenses. We have required that surplus
lines brokers also be licensed as producers. These license
agreements don't have any particularly strong impact on our
current group of agents but they do bring us more into
compliance with federal national areas.
The fifth area that I'd like to address briefly is the surplus
lines area. There are several sections dealing with the
surplus lines and without going into a lot of technical
discussion, I would like to point out that these are based on
a task force that met over the summer. We had a group of
surplus lines brokers, both from Alaska and from out of state,
come in and work with the Division staff and each other to
streamline the process of surplus lines. Basically a surplus
lines company is a company that is not under a requirement to
file their forms and taxes. We talked about document coverage,
what types of documents needed to be given to the consumer. We
placed some additional responsibility on brokers to make sure
the consumer receives notice of their responsibility. There
are certain-what we call disclosures, given in the surplus
lines arena, which require surplus lines brokers to make sure
the consumer understands the nature of a surplus lines
placement that is not subject to form and rate filing, it also
is not covered by the guarantee association. And that is a
requirement in current statute that we want to make sure stays
there and we've added another layer to that.
The last major section I'd like to address deals with
fraudulent activity. Section 40 of the bill provides that a
person involved in the prevention and detection of fraudulent
acts would not be subject to civil liability when filing a
report or furnishing information to others also involved in
prevention and detection of insurance fraud. This addition to
the current statute would allow fraud investigators from
insurance companies to communicate with each other. Currently,
fraud investigators from one insurance company can't
communicate with fraud investigators from a second insurance
company without fear of some kind of prosecution. They end up
doing that through our office. Company "A" comes to us, thinks
that there's fraud involved in a policy, [and] asks that we
get information from Company "B". We'd like to facilitate
communication to help prevent fraud in insurance in Alaska.
Those are the six major areas. As I said, I won't go through
all 28 pages. I would be happy to entertain questions. But the
general overview of the entire bill is to bring Alaska more in
line with the NAIC requirements and model regulations.
Senator Olson questioned, if this is "cleanup" legislation, why it
was not submitted prior to the current gubernatorial
administration.
Ms. Hall clarified the bill is "cleanup" in that it is intended to
conform to national changes. She was unable to speak to actions of
the prior administration, although she noted that changes to the
NAIC reinsurance language were recent, as well as new areas
identified that need additional oversight. She also stated that
changes to federal regulations must be complied with. She informed
that this legislation would provide "a more stable, stronger
oversight ability."
Senator Olson asked whether any opposition has been voiced to this
legislation.
Ms. Hall told of the two hearings this bill received in the Senate
Labor and Commerce Committee in which no one appeared to testify
and noted the absence of any testifiers at the present hearing. She
relayed she has received two "areas" of comments, one which
resulted in the committee substitute and the other matter, which
she determined should remain in the legislation as it would
strengthen the Division's oversight and ability to ensure solvency
in reinsurance agreements.
Senator Olson clarified that industry is not in opposition to this
bill.
Ms. Hall qualified that parties have not "jumped up and down" in
support of the legislation, but none have objected or testified
against it or contacted her to voice concern.
Senator Olson referenced concerns with insurance companies
discontinuing operations in Alaska and asked if any provision of
this bill would give incentive to insurance companies to do
business in Alaska.
Ms. Hall replied she was unaware of any. She stressed the need to
attract more insurance companies to do business in Alaska.
Senator Dyson asked the extent of insurance fraud committed in
Alaska. He assumed most fraudulent activity is committed by
providers rather than insurance companies.
Ms. Hall informed that the Division receives three to four new
reports of activities each month. She told of the fraud
investigators operating within the Division. She stated that most
cases involve consumers, and exampled claims for damage to a
vehicle that occurred prior to the purchase of a policy. She
asserted that fraud affects the rates charged to other consumers.
Senator Dyson asked if the Division therefore does not experience
many fraud cases involving providers.
Ms. Hall affirmed, noting that it is a small percentage.
Co-Chair Green commented on the timeliness of this bill. She
extolled Ms. Hall's many years of experience in the insurance
industry stating she is likely the most qualified Division director
to serve in the position.
Co-Chair Green told of expanded fraud investigation efforts of the
past several years at the national level involving a consortium of
huge corporations and the Federal Bureau of Investigations. She
predicted these efforts could impact Alaska, although not directed
at this State.
Co-Chair Wilken objected to adoption of Amendment #1 for
clarification. He noted it is drafted to the original legislation
and asked if it is applicable to the Senate Labor and Commerce
committee substitute.
JANET SIETZ, Staff to Representative Norm Rokeberg, testified the
amendment applies to the committee substitute. She stated that the
change of "and" to "or" in the existing statutory language of AS
21.07.010(b) would clarify that none of the three provisions are
allowable. She noted that current language could be construed to
imply that so long as all three provisions are not present, one or
two would be allowed.
Co-Chair Green asked the definition "participating health care
provider" and "managed care entity" stated in the amendment.
Ms. Sietz exampled that a doctor or dentist would qualify as a
provider and stated that managed care entity would include the
organization that provides vision care services to the State of
Alaska.
Co-Chair Green asked what other parties are managed care entities.
Ms. Sietz replied that insurance contracts where the provider is
signing up to participate in program that offers patients certain
benefits. This, she said, prevents the provider from being forced
by the managed care entity to accept all the products offered by
the provider. She stated this gives health care providers a choice
in what services it would provide.
Co-Chair Green asked if this relates to the preferred provider
organization (PPO).
Senator Olson asked if the language would pertain to health
management organizations (HMO).
Ms. Sietz replied that no HMOs operate in Alaska.
Senator Olson asked if this would change in the future and HMOs
would begin to operate in the State.
Ms. Sietz characterized "managed care entity" as a "term of art"
utilized in the language of this bill.
Co-Chair Green asked if "managed care entity" is defined in
statute.
Ms. Hall relayed that as she discussed Amendment #1 with the
Division's lead life and health actuary staff, it was agreed that
the intent was to attempt to stipulate that the contracts would not
be required of providers. She noted the specific instance that
prompted this amendment related to a vision plan. She stressed the
Division does not support requiring a provider to provide all
available services in order to have a contract with an insurer.
Co-Chair Wilken asked if the Division supports or opposes the
amendment.
Ms. Hall answered that the she supports the amendment.
Ms. Sietz cited the definition of managed care in AS 21.07.090(10)
as "…includes insurer, hospital, medical service organization,
health maintenance organization, employer or employee health care
organization, managed care contractor that operates a managed care
plan, or a person who has a financial health care services provided
to an individual."
Senator Olson asked if any input has been received from health care
providers on this amendment, as he perceived this to offer
protection to health care providers.
Ms. Sietz replied this amendment was submitted at the request of
some health care providers. She referenced a letter from Dr.
Faulkner [copy not provided,] indicating that the current language
is onerous.
Senator Olson wanted a more specific example of organizations such
as the dental society, Alaska State Medical Association, nurse
practitioner group, etc.
Ms. Sietz informed that Dr. Falkner is Executive Director of the
Alaska Optometric Association.
Co-Chair Wilken withdrew his objection to the adoption of the
amendment and it was ADOPTED.
Co-Chair Wilken ordered the bill HELD in Committee.
CS FOR SENATE JOINT RESOLUTION NO. 3(JUD)
Proposing an amendment to the Constitution of the State of
Alaska relating to an appropriation limit and a spending
limit.
This was the seventh hearing for this resolution in the Senate
Finance Committee.
Senator Dyson outlined Amendment #5 and Amendment #6. He explained
that Amendment #5 would repeal the appropriation limit
constitutional amendment in four years and that legislative action
and voter approval would be required to reenact the provisions. By
contrast, he stated that Amendment #6 would also repeal the
language adopted by this resolution, but provides that in four
years the Constitution would revert to the current language
providing for an appropriation limit, which he noted is no longer
valid, and that the existing stipulation that one-third of all
appropriations must be for capital projects, would be reenacted.
Amendment #5: This amendment deletes "Reconsideration" and inserts
"Repeal" on page 3, line 7, deletes "and applies thereafter" on
line 9, and replaces the language of Section 30(b) in Section 3 on
lines 12-17 of the committee substitute, Version "B". The amended
language reads as follows.
Sec. 3. Article XV, Constitution of the State of Alaska, is
amended by adding a new section to read:
Section 30. Application and Repeal. The 2004
amendment relating to an appropriation limit (art. IX,
sec. 16) first applies to appropriations made for fiscal
year 2006. The 2004 amendment relating to deposits to the
budget reserve fund (art. IX, sec. 17(d)) first applies
at the end of the fiscal year 2005 and applies
thereafter.
(b) Section 16 of Article IX (appropriation limit)
is repealed on July 1, 2009.
Senator Dyson moved for adoption.
Co-Chair Wilken objected to allow the Committee an opportunity to
comment. There were no comments and he removed his objection.
The amendment was ADOPTED without objection.
Amendment #6: This amendment deletes "Reconsideration" and inserts
"Repeal" on page 3, line 7, deletes "and applies thereafter" on
line 9, and replaces the language of Section 30(b) in Section 3 on
lines 12-17 of the committee substitute, Version "B". The amended
language reads as follows.
Sec. 3. Article XV, Constitution of the State of Alaska, is
amended by adding a new section to read:
Section 30. Application and Repeal. The 2004
amendment relating to an appropriation limit (art. IX,
sec. 16) first applies to appropriations made for fiscal
year 2006. The 2004 amendment relating to deposits to the
budget reserve fund (art. IX, sec. 17(d)) first applies
at the end of the fiscal year 2005 and applies
thereafter.
(b) On July 1, 2009, Section 16 of Article IX
(appropriation limit) is repealed and readopted as it
read on January 1, 2003.
This amendment was NOT OFFERED.
AT EASE 9:39 AM / 9:40 AM
Amendment #7: This amendment adds "and except as provided in (d),
(e), and (f) of this section" to subsection (a) of Article IX,
Section 16 of the Constitution of the State of Alaska, repealed and
readopted by Section 1 of the committee substitute Version "B". The
amended language on page 1, lines 6 - 9 read as follows.
Section 16. Appropriation Limit. (a) Subject to (b) of
this section, and except as provided in (d), (e), and (f) of
this section, appropriations made for a current fiscal year
shall not exceed the average amount appropriated for the
earliest three of the four fiscal years immediately preceding
that current fiscal year by more than the sum of the
following:
…
This amendment also replaces subsection (d) with new language, on
page 2, lines 23 - 29 to read as follows.
(d) An appropriation that exceeds the appropriation limit
under this section may be made for any public purpose
identified in a declaration of emergency that is issued by the
governor as prescribed by law.
(e) If the governor declares that an extraordinary
circumstance exists, upon the affirmation vote of at least
two-thirds of the members of each house, the legislature may
pass an appropriation that exceeds the appropriation limit
under this section to address the extraordinary circumstance.
The declaration shall identify the specific extraordinary
circumstance, specify the amount of each appropriation the
governor requests, and identify the time period during which
expenditures under each appropriation will be made.
(f) If the legislature, by law, declares that an
extraordinary circumstance exists, upon the affirmative vote
of at least two-thirds of the members of each house, the
legislature may pass an appropriation that exceeds the
appropriation limit under this section to address the
extraordinary circumstance. Notwithstanding Section 17 of
Article II, a bill declaring an extraordinary circumstance
passed by the legislature may not become law unless signed by
the governor.
Senator Dyson moved for adoption.
Co-Chair Wilken objected for an explanation.
LUCKY SCHULTZ, Staff to Senator Dyson, testified that contrary to
the provisions in the original version of this resolution, this
amendment would provide a legislature to declare an extraordinary
circumstance.
Co-Chair Wilken gave an example of $100 million Medicaid
expenditures as an extraordinary circumstance and asked the process
to exceed the spending limit and appropriate funding for unusual
expenses.
Mr. Schultz explained that a two-thirds majority of both houses
must approve such a declaration in the form of an appropriations
bill. He noted that unlike regular legislation, the governor must
either veto a declaration of extraordinary circumstances bill or
sign it into law, as it could not become law without gubernatorial
action.
Senator Hoffman furthered that if the governor vetoed the
appropriation bill or utilized line-item veto authority to reduce
expenditures, a three-quarters vote of both house would be required
to override the governor's action.
Co-Chair Wilken stated that the legislation would be addressed as a
normal appropriation bill with the exception of the three-quarters,
or super majority, vote requirement.
Co-Chair Green cautioned that this legislation would create a new
"class" that would subsequently allow the legislature to declare an
extraordinary circumstance and is therefore "treading on dangerous
ground". She relayed five or six examples have been posed as
situations that could be constituted as extraordinary
circumstances. She did not consider Medicaid expenditures
extraordinary. She was reminded of the legislature's difficulty in
changing the definition of "disaster" in legislation considered in
a previous session. She warned against not clearly defining
"extraordinary circumstances".
Senator Dyson appreciated Co-Chair Green remarks, sharing that he
has "struggled" to anticipate the situations that could arise
necessitating additional funding than stipulated by the spending
limit. He decided against changing the definition of "emergency",
opting instead that the governor should address disaster
declarations as currently provided. He noted this is the reason to
require a super majority legislative vote to increase
appropriations. He informed that the state of Connecticut has this
provision in its spending limit constitutional amendment. He
qualified that he inadvertently gave incorrect information relating
to the system implemented in Connecticut.
Mr. Schultz corrected comments made at the previous hearing that
the extraordinary circumstances provision has not been invoked in
the state of Connecticut. He stated that the governor has invoked
the provision four times when excess revenues were appropriated to
pay off debt incurred in previous years.
Senator Hoffman asked if extraordinary expenses could be contained
in the normal operating budget legislation with some sections of
the bill requiring a three-quarter vote, similar to the current
system in which a three-quarter vote is required for some sections
of the operation budget legislation to authorize appropriations
from the Constitutional Budget Reserve (CBR) fund.
Senator Bunde commented that Co-Chair Green's concerns were valid.
He reminded that the "genius" of the Alaska Constitution is that it
did not stipulate specifics, but instead provided flexibility for
future legislatures. Although he opposed a "loophole" he was
assured that the powers provided in this amendment would be
limited, and stressed that future legislatures should be granted as
least as much confidence as current legislatures are provided.
Co-Chair Green wanted the Committee to avoid unintentionally
defining extraordinary circumstances in the various examples given
during these discussions.
Co-Chair Wilken shared this concern, and questioned whether the
stipulation of a two-thirds majority vote itself could provide a
threshold of an extraordinary circumstance.
Senator Bunde agreed with Co-Chair Green that the record should
reflect that the examples used in discussions on this resolution
are not indications that the current Senate Finance Committee
considers them to be extraordinary circumstances. He explained that
the use of certain examples should not establish a precedence of
factors constituting an extraordinary circumstance.
Senator Dyson surmised that the provisions of an extraordinary
circumstance could be defined in statute by either the current or a
future legislature.
Co-Chair Wilken suggested this could be considered as a conceptual
amendment.
Senator Dyson affirmed this is an option, but he preferred the
Committee adopt the current language proposed in the amendment.
Co-Chair Wilken removed his objection to the adoption of the
amendment and Amendment #7 was ADOPTED.
SFC 04 # 64, Side B 09:52 AM
Amendment #8: This amendment adds a new subsection to Article IX,
Section 16 (c) in Section 1 of the committee substitute on page 2,
following line 21 to read as follows.
(9) of money previously appropriated for a different
purpose or to a different recipient; and
Senator Dyson moved for adoption.
Co-Chair Wilken objected for discussion purposes.
Senator Dyson informed that this amendment is offered at the
request of the Murkowski Administration and would clarify language
relating to duplicate payments.
BRUCE TANGEMAN, Fiscal Analyst, Division of Legislative Finance,
testified that the current language refers to interagency receipts,
and defined this as general funds appropriated to one agency and
authority to receive those funds from that agency is authorized to
another agency. He stated the intent is that these transactions
should not be counted twice. The amendment, he noted, would
incorporate interagency receipts as well as other funding sources.
Senator Dyson characterized these transactions as almost
intergovernmental transfers that therefore should not be counted
twice.
Mr. Tangeman affirmed.
Co-Chair Wilken removed his objection and the amendment was
ADOPTED.
Amendment #9: This amendment inserts "Transition" in the title of
Section 30 of Article XV of the Alaska Constitution, in Section 3
of the committee substitute. This amendment also inserts language
in subsection (a) of Section 30 on page 3, line 9, following
"thereafter", and places the remaining language of subsection (a)
into a new subsection. The amended language of Section 30, on page
3, following line 6 reads as follows.
Section 30. Application, Transition, and Reconsideration.
(a) The 2004 amendment relating to an appropriation limit
(art. IX, sec. 16) first applies to appropriations made for
fiscal year 2006 and applies thereafter. However, for purposes
of making calculations under the appropriation limit for
fiscal years 2006 through 2008 it shall be assumed that,
excluding appropriations listed under Section 16 (c) of
Article IX, the amount appropriated for
(1) fiscal year 2004 equals $3,300,000,000; and
(2) fiscal year 2005 equals $3,400,000,000.
(b) The 2004 amendment relating to deposits to the budget
reserve fund (art. IX, sec. 17(d)) first applies at the end of
fiscal year 2005 and applies thereafter.
(c) If the 2004 amendment relating to an appropriation
limit (art. IX, sec. 16) is adopted, the lieutenant governor
shall place the same 2004 proposition for amendment on the
ballot every four years. However, notwithstanding Section 1 of
Article XIII, if the voters reject the proposition, Section 16
of Article IX shall be readopted as it read on January 1,
2003, and the lieutenant governor shall not again place the
2004 proposition on the ballot under this subsection.
Senator Dyson moved for adoption.
Co-Chair Wilken objected for discussion purposes.
Senator Dyson remarked this amendment would address "what I
inappropriately" termed as "fiddling with the base numbers in order
to get the results we wanted." He predicted that the final budget
for FY 04 and the amount approved would likely reduce the amount of
adjustments necessary. He explained this amendment would "smooth
the curve and eliminate the flat first two or three years because
of the budget reductions that were done." He relayed this amendment
is the request of the Murkowski Administration to allow flexibility
for the first years this spending limit is in place and to allow
for reasonable growth from inflation and population.
Mr. Schultz furthered that the other states with tax and spending
limits, that have allowed "the number to go negative" have
experienced economic distress. Therefore, the advice has been to
never allow the "numbers to go negative" as it would adversely
impact the economy of the State. Instead, he relayed the
recommendation that in years that would otherwise by "negative" the
"numbers" should be held at the same level as the previous year. He
predicted that Alaska would incur several years of level spending.
He referenced the graph accompanying the amendment [copy on file]
to demonstrate this point.
Co-Chair Wilken asked for clarification of the information on the
graph.
Mr. Schultz further detailed and explained the spreadsheet and
graph.
Senator Hoffman understood from discussions at the previous hearing
on this resolution that the spending limit would include a two-year
transition period.
Mr. Schultz replied that the purpose of this amendment is to adjust
the base year and is in response to a request by the Administration
citing that $50 million would not be sufficient.
Co-Chair Wilken asked how the provisions of Amendment #10 are
reflected in the data shown on the graph.
Senator Hoffman recalled two-year growth as adjusted base years. He
had understood that the amounts were "ratcheting down", although
the amendment shows that amounts are the same.
Mr. Schultz clarified the earlier discussion regarding the two-year
growth period would be addressed in Amendment #10. Amendment #9 he
stated, adjusts the base year amount.
Senator Dyson appreciated Senator Hoffman's observation. Senator
Dyson stated that this adjustment to the base year amount would
provide the Administration with the flexibility for "what they
believe to be reasonable budget growth". He informed the two
amendments would accomplish the Administration's goals.
Co-Chair Wilken withdrew his objection to the adoption of the
amendment and Amendment #9 was ADOPTED.
Amendment #10: This amendment deletes language and inserts new
language in subsections (1) and (2) of Article IX, Section 16(a) in
Section 1 of the committee substitute. Deleted language is as
follows: page 1, line 10, "average annual"; line 12, "for the
second, third and fourth"; line 14, "average percentage of the
change in the average personal income of State residents for"; line
15, "third, and fourth"; page 2, line 1, "average annual"; line 2,
"for the second, third, and fourth". The amended language on page
1, following line 5, reads as follows.
(1) the percentage rate of change in the Consumer
Price Index for all urban consumers for the Anchorage
metropolitan area complied by a federal agency during the
second and third calendar years preceding the calendar year
during which the immediately preceding fiscal year began, but
not to exceed the percentage change in personal income of
State residents during the second and third calendar years
preceding the calendar year during which the immediately
preceding fiscal year begins; plus
(2) the percentage rate of change in the State
population during the second and third calendar years during
which the immediately preceding fiscal year began compiled by
a State department.
Senator Dyson moved for adoption.
Co-Chair Wilken objected for discussion purposes.
Senator Dyson explained this amendment would change the averaging
based on population and inflation from three years to two years and
would provide more rational results.
CHERYL FRASCA, Director, Office of Management and Budget, Office of
the Governor, deferred to Mr. Tangeman to detail this amendment.
Mr. Tangeman explained that the bill as is currently written would
use an average annual growth for population and inflation
calculated for three of last four years. This applied to the base,
he stated, gives a substantially lower growth than expected. He
gave an example of population and inflation growth of four percent
each year over three years, the average would be four percent,
which would calculate at 1.3 percent each year applied to the base
year of FY 03 to determine the base amount for FY 06. He stated
this would total approximately $50 million each year, which he
determined is too low. The proposed amendment, he explained would
provide for two years cumulative growth. He assured this would
still be added to the base year of FY 03, but would add 8 percent
growth, or 2.6 percent, resulting in approximately $100 million
each year.
Senator Hoffman remarked the intent of the amendment would be
correct provided that inflation increases each year. He cautioned
that if inflation were to decrease one year, the growth rate would
be slower over a two-year average than a three-year average would
allow.
Mr. Tangeman responded that as the committee substitute is
currently drafted, the growth rate would be even lower.
Senator Hoffman surmised that growth rate would be higher utilizing
a three-year average if the rate of inflation declined during one
year.
Mr. Tangeman qualified that the average growth rate could be lower,
but the average would be applied to a base year of three years ago,
so growth rate would be even lower. He stated he would research
this. He pointed out the language in the bill that would not allow
a decrease in the amount of appropriated from year to year, which
could address this concern.
Co-Chair Wilken requested a timeline graph to demonstrate the look-
back portion.
Ms. Frasca relayed an explanation Mr. Tangeman provided her
earlier. This added the cumulative average of the last two fiscal
years to the spending amount of three years ago.
Co-Chair Wilken asked for an example assuming the plan were in
place currently.
Mr. Tangeman, Senator Hoffman and Mr. Schultz determined that
population and inflation for the years FY 02 and FY 03 would be
applied to an average of FY 01, FY 02 and FY 03 for the base year.
Senator Hoffman asked about the stipulation of calendar year.
Mr. Schultz pointed out that language on page 1 line 10 the bill
pertains to the use of the fiscal year calendar to determine
inflation and language on line 12 stipulates that population data
would be calculated using the calendar year.
Co-Chair Wilken asked how the spending limit amount for FY 05 would
be calculated.
Mr. Tangeman replied that federal data on population and inflation
for calendar years 2002 and 2003 would be added and applied to the
base year average of FY 01, FY 02 and FY 03.
Co-Chair Wilken asked how the population changes during FY 03 would
be determined.
Mr. Schultz responded that population estimates for each calendar
year are published in July of that year.
Mr. Tangeman informed that the Department of Labor and Workforce
Development provides this information.
Co-Chair Wilken asked if an annual population estimate is therefore
established then confirmed with the US census every ten years.
Co-Chair Wilken asked if the inflation consumer price index
utilized in the calculations would also be an estimate.
Mr. Schultz replied this information is provided at end of each
calendar year for that year.
Co-Chair Wilken understood this information is delayed.
Ms. Frasca clarified that the figures are finalized in April for
the previous calendar year.
Co-Chair Wilken asked how the legislature would we be able to begin
drafting a budget in January of each year.
Mr. Schultz responded that the look-back is two years for this
reason.
Co-Chair Wilken understood the population statistics of two years
prior and the inflation rates of one-year prior would be utilized.
He asked how a budget would be drafted before the inflation rates
are known.
Ms. Frasca corrected her earlier statement and listed inflation
rates are determined in February, population rates in March, and
personal income data is available in April.
Mr. Tangeman furthered that data is compiled quarterly, therefore
estimates would be available.
Co-Chair Wilken pointed out that the administration is required to
complete a budget proposal by December 15 and that valid data would
not be available at that time.
Ms. Frasca agreed. She stated that a budget would be prepared
utilizing the estimates. She noted this is currently done with
budgets prepared using projections from the Department of Revenue
and other sources.
Senator Dyson clarified that if the amendment is adopted Co-Chair
Wilken is requesting a graph demonstrating when the data on
population and inflation would be available. Senator Dyson
expressed the execution of this spending limit should be based on
the needs of Alaska, and that spending limits should serve as
guidelines rather than determining public policy. He also stressed
that available revenue should not determine the "upper limits" of
the budget.
Mr. Tangeman clarified that the information utilized for
calculations would be "compiled by a federal agency during the
second and third calendar years preceding the calendar year during
which the immediately preceding fiscal year began." Therefore, he
concluded that the appropriation limit for FY 05 would be
determined using population and inflation data from FY 01 and FY
02. He stated that the data would be finalized rather than
estimated.
Co-Chair Green indicated she would share information compiled by
staff demonstrating that this amendment would clarify the
provision.
Co-Chair Wilken understood this amendment would provide
clarification.
Mr. Tangeman concurred.
Senator Hoffman noted the spending limit would be partially based
on the capital appropriation of FY 05, pointing out that this
appropriation would likely be significantly less than the average
$100 million general funds appropriated in previous years. He
predicted this would create a scenario in which would not allow
expenditure of available funds. He asked if capital expenditures
would qualify as extraordinary circumstances and if not, how such
appropriations would be made.
Senator Bunde responded this resolution would implement
"sideboards" to provide guidance. He hoped that future legislators
would view this as such, but remarked that past experience has
demonstrated that the spending limit would be the base. He pointed
out that the price of oil is currently high and that $200 million
would not need to be transferred from the Constitutional Budget
Reserve Fund to balance the budget. However, he noted that others
consider the $200 million to be new revenue that could be
appropriated to fund education.
Co-Chair Wilken withdrew his objection and Amendment #10 was
ADOPTED.
Senator Dyson indicated that a new committee substitute would be
drafted to reflect the changes in the amendments adopted at this
hearing.
Co-Chair Wilken recalled that Senator Bert Stedman had prepared a
sensitivity analysis on the original resolution showing the impacts
from population and inflation changes. He suggested requesting
Senator Stedman conduct a similar analysis on this amended version.
Co-Chair Wilken asked if comparison of this resolution and the
proposal under consideration by the House of Representatives has
been done.
Ms. Frasca replied the Office of Management and Budget is preparing
to do this. Mr. Gorman
Senator Dyson informed that although the House of Representatives
is considering a spending limit proposal, the Senate is further
into the process and that Representatives are observing the Senate
process.
Co-Chair Wilken expressed an interest in how bond-rating agencies
such as Standard and Poor would view the impact of a constitutional
spending limit.
Co-Chair Wilken ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:28 AM
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