Legislature(2015 - 2016)SENATE FINANCE 532
04/27/2015 01:30 PM Senate FINANCE
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| Audio | Topic |
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| Start | |
| Alaska's Fiscal Crisis | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
April 27, 2015
1:39 p.m.
1:39:02 PM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 1:39 p.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Cori Mills, Assistant Attorney General, Department of Law;
Bill Milks, Assistant Attorney General, Department of Law;
Jerry Burnett, Deputy Commissioner, Treasury Division,
Department of Revenue; Senator Cathy Giessel.
SUMMARY
^ALASKA'S FISCAL CRISIS
1:39:41 PM
Co-Chair MacKinnon remarked that there were recent
conversations about Alaska's revenue, and budget deficit.
She announced that there was an FY 15 budget shortfall of
$3.9 billion. She stated that there was an anticipated
budget shortfall of $3.2 billion or $4 billion depending on
revenue in FY 16. She emphasized that 90 percent of
Alaska's revenue came from the monetization of oil and gas
resources through property tax, corporate income tax,
production tax. She wondered if she had overlooked any
other sources of revenue from oil and gas.
Vice-Chair Micciche announced that the state also received
revenue from leasing acreage.
Co-Chair MacKinnon announced that there were recent
meetings that addressed Alaska's state debt. She stated
that there was a recent meeting about a cash deficiency
plane. The conversations surrounded the state constitution,
and developed questions. She referred to page 30, Article 9
of Alaska's constitution. She stated that the day's
conversation would be centered on those questions in that
section.
CORI MILLS, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,
introduced herself.
BILL MILKS, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,
introduced himself.
Co-Chair MacKinnon looked at Article 9, Section 10, as
related to "interim borrowing." She read from the
constitution, "the state, in its political subdivisions may
borrow money to meet appropriations for any fiscal year in
anticipation of the collections of revenues for that year,
but all debt so contracted shall be paid before the end of
that fiscal year." She specifically wondered who would be
considered "The State." She urged the committee members to
elaborate on that question.
Senator Dunleavy queried the definition of "The State", and
wondered if the governor and administration could borrow
under that definition. He further wondered if there was a
law that defined "The State. Ms. Mills replied that the
Department of Law opined that "The State" referred to the
Executive Branch of government, specifically the
commissioner of the Department of Revenue (DOR).
Senator Dunleavy surmised that the legislature had seeded
some aspect of its authority to the administration. Ms.
Mills replied did not know of the original provision of the
constitution rested with the legislature, but she announced
that the provision rested in the state. She stated that the
provision specifically anticipated covering gaps throughout
the year, as revenue did not necessary flow as anticipated.
She stated that the provision was intended for the
executive branch to ensure that the legislative
appropriations could be implemented.
1:45:09 PM
Senator Dunleavy asked for a restatement of Ms. Mills' last
sentence. Ms. Mills restated that the provision was drafted
with understanding that revenue did not always arrive in
time to be spent under the legislative appropriations.
Senator Dunleavy wondered if the time gap was taken into
consideration. Ms. Mills replied that the time period
mattered, only related to anticipation of the revenue for
that year.
Senator Dunleavy stated that the state may not know when
the revenue would arrive, because of the volatility of the
price of oi. Mr. Milks replied that there must be focus of
specific circumstances. He stated that the language in the
constitution was specifically related to the anticipation
of revenues for the year. The appropriation bills were
often passed in anticipation of the revenues. He stressed
that there was no case interpreting Article 9, Section 10,
so one could only refer to the conversations during the
Constitutional Convention. He stated that they anticipated
times when tax revenues may not meet expectations in a
particular year.
Senator Dunleavy hypothesized that $5 was needed to cover
anticipated expenses, but oil production and prices were
low. The cost of government was higher than the current
revenue. He further hypothesized that there was only $2.50,
so he wondered if the article allowed the governor to draw
from various pools of money that were legislatively
allocated to meet the anticipated shortfalls. Ms. Mills
asked for a question restatement.
Senator Dunleavy restated his question. Ms. Mills responded
that most of the accounts were in the general fund, so they
were available for appropriation.
1:50:41 PM
Senator Bishop felt that the drafting of Article 10 was
smartly drafted. It specifically states that the debt must
be paid out the following year. Mr. Milks agreed.
Co-Chair MacKinnon felt that the borrowing constraints were
linked to the fiscal year. She looked at Article 9, Section
10, and queried the statute number that provided the
borrowing. Ms. Mills replied that the statute was AS
43.08.010.
Co-Chair MacKinnon wondered if the debt could be
refinanced, if the commissioner of DOR exercised power and
issued short term financing, and the price of oil fell to
$35 per barrel during the year post-budget approval. She
asked if the debt could be continued year to year. Mr.
Milks replied that the statute was tracking the
constitutional provision and provided the commissioner the
authority to borrow money on behalf of the state, when the
judgment of the commissioner becomes necessary to meet the
appropriations for any fiscal year in anticipation of
collection of revenues for that year. He stressed that
there must be the judgment, so there was an anticipation of
repayment of the notes.
1:55:32 PM
Co-Chair MacKinnon stressed that the debt must be paid in
its entirety in one fiscal year, and announced that the
commissioner of DOR could not refinance in anticipation of
the following year's projections. She remarked that there
was concern regarding debt management, because there was
currently no agreement on a three-quarter vote to access
the CBR. She noted that this provision gave the
administration the opportunity to provide short-term
financing to meet the obligations. Ms. Mills agreed.
Senator Hoffman explained that the administration must
implement the budget following adjournment. He wondered if
the administration could borrow money with the knowledge
that there would be continued revenue shortfalls. Ms. Mills
responded that the language was intended to outline the
maximum amount of time to repay the debt.
Senator Hoffman stressed that he was looking at the literal
interpretation of the constitution. Ms. Mills looked at AS
43.08.035, which addressed an annual appropriation.
Mr. Milk furthered that the borrowing would be linked to
meet appropriations for any fiscal year in anticipation of
collecting revenues for that particular year.
2:00:14 PM
Senator Hoffman remarked that he was specifically looking
at the constitutional interpretation, rather than the
history of the actions of the state. Mr. Milks replied that
there was a difference between borrowing and what was
linked to meet appropriations for the current year.
Vice-Chair Micciche felt that the constitution was clear
that debt, so contracted, shall be paid before the end of
the following fiscal year.
Senator Dunleavy remarked that there were financial tools
that have been added since the constitution's
ratifications. He wondered if the state subaccounts could
be accessed by the administration to help pay for
government. He specifically queried the financial tools
available to the governor and administration to help close
the budget gap. Ms. Mills replied that she did not want to
address the possible financial tools, as that is not her
expertise. She stated that everything was circumstantial.
The constitution contemplated the collection of revenues,
and borrowing or transferring based on the collection of
revenue. If there was no anticipation of revenue, there is
a harder question to address.
Co-Chair MacKinnon remarked that there was some suggestion
to borrow money and risk the money on the market to make up
the difference, otherwise known as "arbitrage." She did not
believe that states could engage in arbitrage, because
states were not directly taxed. Mr. Milks could not
conclusively comment on that assertion.
2:05:01 PM
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, commented in response to the
question of arbitrage. The state's investment earnings were
limited when the state issued tax free debt, and would be
obligated to pay the IRS if they state invested at a higher
rate than was borrowed. He shared that the state could earn
arbitrage if the state borrowed in the taxable market.
Revenue anticipation notes could be taxable or tax free,
depending on the circumstances.
Co-Chair MacKinnon wondered if the commissioner of DOR
would speak to the legislature before implementing
arbitrage. Mr. Burnett responded that he could not speak
directly for the commissioner of DOR. He assumed that
arbitrage would be vetted by the legislature.
2:07:19 PM
AT EASE
2:08:13 PM
RECONVENED
2:08:20 PM
Co-Chair MacKinnon wondered if the administration would be
limited in borrowing to the $2.2 billion in anticipated
revenue. Ms. Mills replied that she believed that the
borrowing was based on the evidence of the revenue at the
time. She stated that the current anticipated revenue was
based on the spring forecast, and furthered that the fall
forecast may show a different possibility for the year.
Co-Chair MacKinnon noted that the state had enormous
reserves and an outstanding credit rating. The state needed
to access the reserves, and wondered if it was a finance
question that limited the ability to borrow or was it the
annual revenue.
2:11:35 PM
AT EASE
2:14:09 PM
RECONVENED
2:14:12 PM
Ms. Mills explained that Section 10 of the Constitution
limited the circumstances. She stressed that there must be
anticipated revenue.
Co-Chair MacKinnon surmised that the limiting factor was
currently $2.2 billion. Ms. Mills agreed.
Senator Dunleavy felt that Section 11 made exceptions to
Section 10. Ms. Mills responded that Section 11 was more an
exception to Section 8 on state debt. Section 11 stated
that the public enterprise revenue could take out the
issuance of revenue based on their revenue, but did not
take the general obligation of the state.
Senator Dunleavy surmised that Section 11 contemplate
revenue bonds to be used by subdivisions. Ms. Mills replied
that Section 11 related to public corporations, not
subdivisions.
Senator Dunleavy wondered if Alaska Housing Finance
Corporation (AHFC) was considered a public corporation. Ms.
Mills replied in the affirmative.
Senator Dunleavy asked if school districts could be
considered public corporations. Mr. Milks replied that
Section 11 related to revenue bonds, which were usually for
a project. He offered that a school district could use
those bonds for a specific project.
Ms. Mills furthered that Section 10 was meant to be the
exception to cover operating expenses.
Co-Chair MacKinnon asked for Senator Dunleavy to read
Section 11. Senator Dunleavy read Section 9, Article 11.
Exceptions of the constitution:
The restrictions on contracting debt do not apply to
debt incurred through the issuance of revenue bonds by
a public enterprise or public enterprise or public
corporation of the State or a political subdivision,
when the only security is the revenues of the
enterprise or corporation. The restrictions do not
apply to indebtedness to be paid from special
assessments on the benefited property, nor do they
apply to refunding indebtedness of the State or its
political subdivisions.
Senator Dunleavy did not believe that there could be bonds
to cover operations under Section 11. He was attempting to
understand how Section 11 related to Section 10. He asked
if a school district could be considered a public
corporation. Ms. Mills replied that Section 10 and 11 were
separate provisions to address different circumstances. She
announced that Section 10 was envisioned for the operations
of the state, and not considering any project.
2:20:16 PM
Vice-Chair Micciche felt that Section 11 may have been
useful with a traditional capital budget. Ms. Mills agreed.
Co-Chair MacKinnon looked at Article 9, Section 17, and
noted the inclusion of the CBR.
Senator Dunleavy interjected that Section 10 determined
that the state was considered the "administration" not the
legislature, because of AS 43.08.035. Ms. Mills agreed.
Co-Chair MacKinnon looked at Article 9, Section 17, and
noted the inclusion of the "Budget Reserve Fund." She
stated that it was related to the CBR. Ms. Mills agreed.
Co-Chair MacKinnon addressed sub-articles (b) and (c) of
Article 17. She queried a court provision on (b) that
precluded and required the three-quarter vote. She wondered
why the legislature needed a three-quarter vote during a
substantial revenue shortfall, which inhibited an automatic
withdrawal from the CBR. Mr. Milks replied that (c) was
more expansive in the use of the funds, because it was for
"any public purpose." He furthered that (b) was the
majority vote, but only with access to the difference
between previous and current fiscal years.
Co-Chair MacKinnon announced that the legislature had
reduced the budget by over $800 million, and felt that it
had met the criteria outlined in those sub-articles.
2:26:07 PM
AT EASE
2:30:06 PM
RECONVENED
2:30:13 PM
Mr. Milks explained that sub-article (b) related to the
majority vote and (c) was related to the supermajority
vote. He explained that (b) addressed the issue of current
year appropriations being lower than the previous year. He
stated that the Alaska Supreme Court in the case of Hickel
vs. Cooper addressed that issue. Based on their
determination, significant funds would be available for
appropriation.
Co-Chair MacKinnon surmised that the court made that
determination. Mr. Milks agreed.
Co-Chair MacKinnon remarked that the legislature has chosen
to fund the budget with the CBR.
Senator Dunleavy wondered if the ruling was from the
Supreme Court. Mr. Milks responded that the ruling was from
the Alaska Supreme Court.
Vice-Chair Micciche commented that the Senate had a three-
quarter vote to access the CBR.
Senator Dunleavy thanked the co-chairs for their efforts
during the current legislative session.
Co-Chair MacKinnon hoped that there would not be any more
Senate Finance meetings for the current session.
ADJOURNMENT
2:35:11 PM
The meeting was adjourned at 2:35 p.m.
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