Legislature(2021 - 2022)BUTROVICH 205

05/03/2021 01:30 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SJR 6 CONST. AM: PERM FUND & PFDS TELECONFERENCED
<Bill Hearing Rescheduled to 05/07/2021>
+= SJR 5 CONST. AM: APPROP LIMIT; BUDGET RESERVE TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+= SJR 7 CONST. AM: STATE TAX; VOTER APPROVAL TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                          May 3, 2021                                                                                           
                           1:33 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Roger Holland, Chair                                                                                                    
Senator Robert Myers                                                                                                            
Senator Jesse Kiehl                                                                                                             
Senator Shelley Hughes                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Mike Shower, Vice Chair                                                                                                 
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE JOINT RESOLUTION NO. 7                                                                                                   
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to prohibiting the establishment  of a state tax without                                                               
the approval  of the  voters of  the state;  and relating  to the                                                               
initiative process.                                                                                                             
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
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.                                                                                                                   
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
SENATE JOINT RESOLUTION NO. 6                                                                                                   
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to  the Alaska permanent  fund, appropriations  from the                                                               
permanent fund, and the permanent fund dividend.                                                                                
                                                                                                                                
     Postponed to 5/7/21                                                                                                        
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SJR  7                                                                                                                  
SHORT TITLE: CONST. AM: STATE TAX; VOTER APPROVAL                                                                               
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/22/21       (S)       READ THE FIRST TIME - REFERRALS                                                                        

01/22/21 (S) STA, JUD, FIN 02/04/21 (S) STA AT 3:30 PM BUTROVICH 205 02/04/21 (S) Heard & Held 02/04/21 (S) MINUTE(STA) 02/11/21 (S) STA AT 3:30 PM BUTROVICH 205 02/11/21 (S) Scheduled but Not Heard 02/23/21 (S) STA AT 3:30 PM BUTROVICH 205 02/23/21 (S) Moved SJR 7 Out of Committee 02/23/21 (S) MINUTE(STA) 02/24/21 (S) STA RPT 1DP 3NR 02/24/21 (S) DP: SHOWER 02/24/21 (S) NR: HOLLAND, KAWASAKI, COSTELLO 04/28/21 (S) JUD AT 1:30 PM BUTROVICH 205 04/28/21 (S) -- MEETING CANCELED -- 04/30/21 (S) JUD AT 1:30 PM BUTROVICH 205 04/30/21 (S) Heard & Held 04/30/21 (S) MINUTE(JUD) 05/03/21 (S) JUD AT 1:30 PM BUTROVICH 205 BILL: SJR 5 SHORT TITLE: CONST. AM: APPROP LIMIT; BUDGET RESERVE SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR

01/22/21 (S) READ THE FIRST TIME - REFERRALS

01/22/21 (S) STA, JUD, FIN 02/04/21 (S) STA AT 3:30 PM BUTROVICH 205 02/04/21 (S) Heard & Held 02/04/21 (S) MINUTE(STA) 02/11/21 (S) STA AT 3:30 PM BUTROVICH 205 02/11/21 (S) Scheduled but Not Heard 02/23/21 (S) STA AT 3:30 PM BUTROVICH 205 02/23/21 (S) Moved SJR 5 Out of Committee 02/23/21 (S) MINUTE(STA) 02/24/21 (S) STA RPT 1DP 2NR 1AM 02/24/21 (S) DP: HOLLAND 02/24/21 (S) NR: SHOWER, COSTELLO 02/24/21 (S) AM: KAWASAKI 04/28/21 (S) JUD AT 1:30 PM BUTROVICH 205 04/28/21 (S) -- MEETING CANCELED -- 04/30/21 (S) JUD AT 1:30 PM BUTROVICH 205 04/30/21 (S) Heard & Held 04/30/21 (S) MINUTE(JUD) 05/03/21 (S) JUD AT 1:30 PM BUTROVICH 205 WITNESS REGISTER MIKE BARNHILL, Deputy Commissioner Department of Revenue Juneau, Alaska POSITION STATEMENT: Answered questions on SJR 7 on behalf of the administration. WILLIAM MILKS, Senior Assistant Attorney General Legislation & Regulations Section Civil Division Department of Law Juneau, Alaska POSITION STATEMENT: Answered questions related to taxes during the hearing on SJR 7. NEIL STEININGER, Director Office of Management & Budget Office of the Governor Juneau, Alaska POSITION STATEMENT: Answered questions on SJR 7 on behalf of the administration. CAROLINE SCHULTZ, Policy Analyst Office of Management & Budget Office of the Governor Juneau, Alaska POSITION STATEMENT: Answered questions on SJR 7 on behalf of the administration. WILLIAM MILKS, Senior Assistant Attorney General Legislation & Regulations Section Civil Division Department of Law Juneau, Alaska POSITION STATEMENT: Answered legal questions during the hearing on SJR 5. ACTION NARRATIVE 1:33:08 PM CHAIR ROGER HOLLAND called the Senate Judiciary Standing Committee meeting to order at 1:33 p.m. Present at the call to order were Senators Myers, Kiehl, and Chair Holland. Senator Hughes arrived shortly thereafter. SJR 7-CONST. AM: STATE TAX; VOTER APPROVAL 1:33:42 PM CHAIR HOLLAND announced the consideration of SENATE JOINT RESOLUTION NO. 7, Proposing amendments to the Constitution of the State of Alaska relating to prohibiting the establishment of a state tax without the approval of the voters of the state; and relating to the initiative process. [SJR 7 was previously heard on 4/30/21.] 1:34:12 PM MIKE BARNHILL, Deputy Commissioner, Department of Revenue, Juneau, Alaska, offered to answer any questions the committee may have. 1:34:56 PM SENATOR KIEHL asked for the vision of democracy contained in this proposed change to the Alaska Constitution. MR. BARNHILL answered that SJR 7 would create a constitutional symmetry between direct democracy and representative democracy when enacting new taxes. SENATOR KIEHL suggested SJR 7 would tilt the field against new taxes rather than providing a consistent philosophy. He asked what would constitute a new tax under this language since the term is not defined. For example, he wondered if eliminating a tax break would be considered a new tax. 1:37:13 PM MR. BARNHILL said he reviewed how the state defines constitutional terms. The Alaska Supreme Court first considers dictionary definitions, then legislative history and the content of legislative hearings. Therefore, new taxes are ones that the state does not currently impose. For example, if the state imposed a new sales tax, a value-added tax, gross-receipt tax, or a personal income tax it would be a new tax. 1:37:59 PM SENATOR KIEHL said the state exempts taxes on natural gas from Cook Inlet for use in state. He characterized it as a $125 million investment in affordable power for the Anchorage Bowl and Kenai Peninsula. He asked if this exemption were removed if it would establish a new tax. MR. BARNHILL recalled that question was asked last year and Mr. Milks responded by writing a letter that is part of the legislative history. He recalled that deleting exemptions does not constitute a new tax. 1:39:22 PM WILLIAM MILKS, Senior Assistant Attorney General, Legislation & Regulations Section, Civil Division, Department of Law, Juneau, Alaska, acknowledged that Mr. Barnhill just explained how terms are defined in the Alaska Constitution. He reviewed a number of recent Alaska Supreme Court cases that state what the court considers during its review. First, the court looks to the plain meeting and purpose of the provision. It is what an ordinary, reasonable, practical understanding of what the words mean. Ultimately, the voters approve the Alaska Constitution. Second, the court considers the intent of the framers. Further, the court looks at the legislative history, and as Mr. Barnhill mentioned, the court considers the dictionary definition. The court may consider other uses of the words, he said. MR. MILKS said SJR 7 is somewhat different than the resolutions previously proposed. The specific language "establishes a state tax." He opined that removing an exemption is not establishing a new tax. However, legislators could always modify the language in the resolution. Currently SJR 7 will establish a state tax, which would mean creating a new tax. 1:41:35 PM MR. BARNHILL remarked that the letter he referenced by Mr. Milks was dated April 15, 2019, in response to Senator Hughes's question. He read: I stated in hearing testimony the administration's intent is that changes to deductions, credits, and exemptions from an existing state tax would not be considered an increase in the rate of an existing state tax and thus would not require voter approval. MR. BARNHILL related that Senator Kiehl's question was whether that would be construed as a new tax, not as an increase in the tax rate. He offered his view that the response would be the same. 1:42:19 PM SENATOR KIEHL remarked that removing an exemption from an existing tax could significantly change what is taxable. He asked if the corporate income tax that applies only to "C" corporations were extended to B" or "S" corporations if it would establish a new tax. MR. BARNHILL responded that he believes a Colorado case ruled on the matter. He acknowledged that just because the Colorado Supreme Court decided one way does not mean the Alaska courts would decide in the same way. He offered to research precedent in other states and report back to the committee. 1:43:39 PM MR. MILKS restated that tools the court would use include a plain language interpretation, a dictionary definition, legislative history, constitutional convention history and discussions in committee. He stated that he does not disagree with Mr. Barnhill's responses. There would be a much fuller record if any dispute arose in court, he said. 1:45:07 PM SENATOR KIEHL asked how user fees would fall within the framework of establishing a new tax. He asked if user fees would be treated differently and if so, does it matter if the fees cover more than the program cost. MR. BARNHILL said the distinction between user fees and taxes is the subject of many tax cases in the Lower 48. However, the administration does not intend user fees to apply. He said a user fee is a charge assessed by a state agency to defray the cost of providing a specific service to the public, such as a driver's license. A new user fee established to provide a service such as a driver's license would not require voter approval, he said. He pointed out that Senator Kiehl asked a more difficult question, which is what if the user fees recover more than the cost of providing the particular service. He related his understanding that precedent from the Colorado Supreme Court addresses that issue. The same caveat would apply since it is not an Alaska Supreme Court decision. He said he was not sure it would be helpful to predict what the court will do. However, it is the administration's intent not to characterize or interpret user fees established to defray the cost of providing a particular service as a tax requiring voter approval. 1:47:50 PM SENATOR HUGHES related that if the voters establish a new tax through an initiative process, the legislature must meet in joint session to approve or reject it. If the legislature chose not to meet, the initiative would be considered rejected. If so, it is possible that decision could be made by a single presiding officer refusing to meet in joint session. She referred to subsection (c) on page 2, lines 6 - 13, which read: (c) A law enacted by the voters through the initiative process under Article XI that establishes a state tax shall not take effect unless the legislature, by resolution, approves the initiated law by a majority vote in joint session before the adjournment of the next regular session occurring after the lieutenant governor certifies the election returns. If approved by the legislature, the initiated law becomes effective ninety days after approval. If the legislature fails to approve the initiated law before the adjournment of the regular session, the initiated law is rejected and does not take effect. 1:49:01 PM SENATOR HUGHES asked if one leader could cause the initiative to fail. She asked if she is reading something into this. MR. BARNHILL responded that he terms that as "a pocket form of veto." This language requires approval by a majority vote, failing that it would not take effect. However, there does not appear to be any prohibition against a pocket veto. 1:49:58 PM MR. MILKS referred to page 2, lines 11-13 of SJR 7, which read: If the legislature fails to approve the initiated law before the adjournment of the regular session, the initiated law is rejected and does not take effect. He said this means if the legislature fails to act, the law is rejected. In terms of the question about the authority of a single presiding officer, the legislature's rules of procedure are the Uniform Rules, which the legislature could change. The language is currently clear on the failure to act, he said. 1:51:04 PM SENATOR MYERS recalled a recent Alaska Supreme Court decision related to the legislature not holding a joint session to confirm governor appointees to boards and commissions. He suggested the legislature should consider changing this language. The legislature could approve appointees by resolution in the normal legislative process for passing legislation rather than in joint session. He acknowledged that if a presiding officer could theoretically slow it down or block it, legislators would not be on record. MR. MILKS responded that is a policy call for the legislature to consider. SENATOR HUGHES offered her view that passing a resolution would open it up for multiple chairs to block the resolution. 1:54:24 PM SENATOR MYERS recalled Senator Kiehl raised an issue at the last hearing by asking what is broken that SJR 7 would fix. He offered his view that SJR 7 does not attempt to fix policy or process but rather it addresses a lack of trust. He argued that the legislature does not hold the trust of the people. For one thing, two-thirds of the legislature changed in the last few elections. The referendum to repeal Senate Bill 21 was used to uphold Alaska's taxes on oil companies. He acknowledged that the initiative or referendum process is a lengthy and often expensive process. SJR 7 attempts to address voter distrust by allowing the voters to have the last say on any new taxes the legislature proposes. Without this final say, the legislature would have an incentive to tax the people least able to protest, since it takes time, effort and funding to organize an initiative. He suggested that placing it on the ballot is a change for the better. SENATOR HUGHES commented that the initiative and referendum process is already available to those wishing to initiate or repeal a tax. However, it would constrain the legislature because voters could reverse a tax passed by the legislature. The legislature can repeal a tax passed by initiative after a two-year delay. She viewed SJR 7 as affecting legislative actions more than those done by voter initiatives. 1:58:37 PM SENATOR HUGHES asked if the prior legislature narrowed the process to broad-based taxes. MR. BARNHILL recalled that the prior legislative committee held discussions but did not narrow the resolution. [SJR 7 was held in committee.] SJR 5-CONST. AM: APPROP LIMIT; BUDGET RESERVE 1:59:36 PM CHAIR HOLLAND announced the consideration of 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. 2:00:35 PM NEIL STEININGER, Director, Office of Management & Budget, Office of the Governor, Juneau, Alaska, stated that in response to a graph presented at the hearing on April 30, 2021, a new graph was created. The question was about the current constitutional spending limit and setting its base at $2.5 billion. The prior graph was adjusted to clearly depict the spending limit in FY 1982. 2:01:11 PM CAROLINE SCHULTZ, Policy Analyst, Office of Management & Budget, Office of the Governor, Juneau, Alaska, responded to Senator Hughes's question in an earlier meeting about whether voters believed they were implementing a spending limit that was lower than the current spending levels. The answer is no. It was because the provision in the current constitutional spending limit as written in Article IX, Section 16 excludes capital appropriations. She referred to the graph on today's handout, which adds two more lines. The UGF Agency operations is represented by the blue line and UGF Agency + statewide [the purple line], which represents the total operating budget. She said members can see that UGF Agency Operations and UGF Agency + Statewide fall well below the constitutional spending limit. 2:02:24 PM SENATOR KIEHL said he was interested in the rationale behind limiting the budget to population growth or inflation. It seemed to him if the state experiences a growing economy that happens to coincide with inflation, it could hamstring the state's ability to meet the needs of an influx of population. He asked if it could be a combination of the two. MR. STEININGER explained that the reason for selecting the "greater of population or inflation" was made by examining the existing constitutional spending limit. Compounding of inflation and population together in the existing spending limit results in a spending limit that grows much faster than is reasonable, compared to the growth and need for state services. In examining how to set the proper adjustor factor on a spending limit, it's important that it is not so great that it will not limit spending. That is the effect of compounding with the state's current spending limit, he said. However, as Senator Kiehl alluded to, it does adjust and account for things that create pressure on state spending. He stated that both population and inflation can create pressure on the cost of providing government services. One through the demand and the other through the cost of providing those services. However, compounding the two is not necessarily a perfect analogy for the pressure on state spending. He concluded that was why the greater of the two was selected to ensure that if significant inflation or a significant jump in population occurred, the state could respond. However, it would not create unconstrained growth. 2:05:14 PM SENATOR KIEHL acknowledged the effects of compounding, such that the existing spending limit compounds from a fixed reference year. Regardless of what the legislature actually spends, it will rise. He asked the reason for the approach of the greater of one or the other factor when it also changes from a fixed reference year to a three-year average of actual expenditures. He asked if it would prevent massive compounding but still allow the state to deal with the actual needs. 2:05:58 PM MR. STEININGER stated that one thing shown on the graph based on the ten-year plan is the difference without a fixed base using the three-year average. This graph shows the difference that is inherent in the spending decisions made in any given year, he said. There's a difference between whether the legislature continues to constrain spending, as shown based on the ten-year plan, or if the legislature chooses to maximize spending. If the legislature chooses to maximize spending using the three-year average, the legislature can still achieve unconstrained growth by using compounding factors because it allows the legislature to continue to spend more each year, thereby driving up the three-year average. At that point, the legislature would still have the ability to achieve less constrained growth even though it's not using the fixed base. It will be more aligned to the state's actual spending because of the three-year average. Using compounding allows for the expenditure maximization scenario to be less constrained as shown on the graph. This also assumes future legislatures and executive branches will try to maximize their expenditures. Although that does not necessarily pose a high risk, it is something to consider as the legislature sets up the calculation for a spending cap in SJR 5. 2:07:45 PM SENATOR KIEHL stated that he did not think the risk was that high either unless there is a genuine need for additional state services. 2:08:00 PM SENATOR MYERS recalled at the previous hearing he agreed that the $1 billion in federal COVID-19 funding qualified as money received from a non-state source for a specific purpose. The legislature will need to decide whether to use the extra billion of federal funding to backfill the deficit or if it should be used for programs. For example, the governor has discussed providing relief for tourism businesses. If the state were to receive future windfall monies from outside the state's funding sources, it seems as though it will create a perverse incentive. It essentially translates to "what is beneficial in the short run is not beneficial in the long run." MR. STEININGER acknowledged that the administration has been considering how to cope with that type of situation. He pointed out that the state routinely receives some discretionary federal revenues but it typically represents a rounding error in the overall federal funding. These funds are not significant enough to take into consideration, he said. However, it should be considered since the state is currently facing that situation. As SJR 5 is currently written, if the federal funding were entirely used to offset general fund expenditures, it would result in lowering the three-year average, so it could create a perverse incentive in terms of how to allocate the federal funds. 2:12:17 PM SENATOR HUGHES referred to the chart that shows the effects of the constitutional spending limit from FY 1982 to FY 2022. She said the legislature did not foresee that the spending limit would not constrain spending but would allow for astronomical increases in per capita spending. She wondered why the voters thought passing the constitutional amendment was the right thing to do. She asked if he had any background information on the ballot measure, including voting statistics on the measure. MR. STEININGER deferred to Mr. Milks. 2:14:25 PM WILLIAM MILKS, Senior Assistant Attorney General, Legislation & Regulations Section, Civil Division, Department of Law, Juneau, Alaska, explained that whenever a constitutional amendment is before the voters, it is included in the election pamphlet, which is sent to all the voters. The Division of Election's pamphlet will contain a description of the proposed ballot measure. The legislative affairs agency prepares a summary of the changes proposed in the constitutional amendment. The pamphlet also contains a statement in favor and a statement in opposition to the amendment. He did not specifically paraphrase the 1982 constitutional amendment but the document explained why some residents wanted an appropriation limit. He opined the 1982 voter pamphlet would be the best source document. 2:16:21 PM MR. MILKS said Senator Hughes posed a question at a previous hearing on SJR 5. She asked whether the language of the entire constitutional amendment is on the ballot that voters have in the voting booth. He answered no, it is not. Instead, the ballot contains an impartial summary of the constitutional amendment. The Division of Elections' polling place posts the full constitutional amendment language. The Division of Elections' pamphlet mailed to each voter also contains the language of the constitutional amendment, a neutral summary, a statement in support and a statement in opposition to the amendment. SENATOR HUGHES related her understanding that in 1982, the legislature was concerned about overspending. She surmised legislators must not have had projections. She stated she was just handed information on the November 1982 vote; that the vote was 61 percent in favor and 31 percent in opposition to the constitutional amendment limiting increases in appropriations. 2:18:01 PM CHAIR HOLLAND related his understanding that the Constitutional Budget Reserve (CBR) would become a nonissue once Art. IX, Secs. 17 (c) and 17 (d) are repealed and the spending cap is in place, because the spending cap applies to all spending, including spending from the CBR. Thus, the language in Sec. 3 could be unnecessary. Further, the language in Sec. 2 may be unnecessary because without Secs. 17 (c) and 17 (d), there is no difference between monies in the CBR and monies in the general fund. He asked whether all of Art. IX, Sec. 17 should be removed or if it should just maintain the super majority vote for access. MR. STEININGER responded that he would not necessarily agree that the CBR no longer becomes relevant. It would effectively state that certain revenues, as listed in Art. IX, Sec. 17 (a) will be deposited into a Rainy Day Account, which would be available for expenditures if ordinary revenues to the state are insufficient. The legislature could access the Rainy Day Account with a simple majority vote. He characterized the current CBR as a Rainy Day Account but with more stringent access provisions. SJR 5 will simplify the access provisions but retain a formal general fund Rainy Day Account. 2:20:39 PM SENATOR MYERS expressed concern about repealing Art. IX, Secs. 17 (c) and 17 (d) because it was likely that the legislature would cease repayments to the CBR unless a windfall occurred. In the event the state encountered future hard times, it would enter any slumps without any reserves, he said. 2:22:53 PM MR. STEININGER addressed the concern by explaining that under the current revenue projections the state's ability to repay the CBR is fairly constrained. The state does not anticipate future years with significant excess revenue to repay the CBR. However, that is not necessarily a reason to remove the repayment provision. He explained that in the context of other structures, SJR 5 will create a ceiling of true constraints on expenditures. In the event that the revenue projections are wrong and the state experiences increased revenue, an expenditure cap will limit the state's ability to spend that windfall. The state would need to save it or put it somewhere. This would provide constrained options for a revenue surplus, including depositing the funds into the CBR as a state savings account. If the CBR becomes a more formalized Rainy Day Savings Account for revenue downturns, it would be prudent to deposit funds into the CBR. Once the state resolves the other state fiscal problems, it may not be necessary to build up the CBR to $12 billion. Ultimately, whether to erase the CBR debt is a policy call for the legislature and the people to make. 2:25:43 PM CHAIR HOLLAND asked if Mr. Milks had any comments. MR. MILKS answered no. 2:26:14 PM SENATOR KIEHL recalled that in 1982 when the current constitutional spending limit was adopted, the state had experienced an average of 9 percent inflation per year for 8 years, four years of which exceeded 11 percent. He said it is difficult to think of the CBR as a Rainy Day Account once the constitution removes the restricted access provision. In reviewing the language in SJR 5, he found several ways that the legislature could drain the CBR. He asked how the CBR under SJR 5 would differ from the Statutory Budget Reserve (SBR) since both can be accessed with a simple majority vote. MR. STEININGER agreed that the SBR did function similarly to how SJR 5 envisions the CBR from an expenditure side, that it takes a simple majority vote to access the Rainy Day Account when revenues are low. He stated that the state structurally needs to have the financial tool such as the Rainy Day Account, with revenues dedicated to it, so it can repopulate itself. This account could be the CBR as drafted, repopulating the SBR, or the current option of using the Earnings Reserve Account. SJR 5 would establish the CBR as that account, he said. He expressed an interest in discussing any loopholes to identify if they are drafting errors or intended ones. 2:29:19 PM SENATOR KIEHL referred to a Legislative Legal Memo dated April 30, 2021, that discusses the significant reduction of deposits to the CBR by deleting the word "directly." He offered his view that the Rainy Day Account will not function as one if the state significantly reduces funds deposited to the CBR, making it easy for the legislature to access with a simple majority vote. He noted that all proceeds on General Obligation (GO) Bond Debt would be added to the exemptions. He said he previously expressed concern about the projects in the administration's GO Bond proposal because many of the projects were appropriations for routine capital improvements. He expressed concern that this exemption would encourage maximizing debt, especially as revenues decline. MR. STEININGER responded that it was not necessarily maximizing borrowing. He said the voters consent through the ballot measure process inherent in GO Bonds so it is exempted in SJR 5. 2:31:46 PM CHAIR HOLLAND suggested allowing spending above the limit only on capital projects and in the same manner used for GO Bond proposals. MR. STEININGER responded that was certainly something to consider when considering the current constitutional spending. He stated that SJR 5 is drafted so that all capital spending is under the cap. 2:32:30 PM SENATOR HUGHES asked the administration to provide a snapshot of the state's current condition, including the state's population, economy and operating budget spending compared to other states, even though Alaska has unique challenges and provides services in communities that normally would be provided by local government. She recalled some studies, including the number of state employees per capita. She offered her belief that the government sector doesn't produce any wealth, but the private sector supports it. She said every dollar that is drained from the private sector to support government is a dollar that cannot be used for the economy. The multiplier effect of a dollar in the private sector is greater than the multiplier effect of a dollar in the government sector. She said she would like documentation. SENATOR HUGHES asked whether the legislature should consider addressing the spending cap in statutes and not in the Alaska Constitution. MR. STEININGER answered that generally speaking, placing the spending limit in the Alaska Constitution creates a hard limit; that the statutory spending cap likely could be exceeded by a legislative appropriation and would be less enforceable. 2:36:28 PM MR. MILKS agreed with Mr. Steininger that a constitutional spending limit is binding and a statutory spending limit is not since the legislature retains the power of appropriation. 2:37:03 PM SENATOR HUGHES maintained her belief that dollars that swirl around the state, such as government funds, do not provide any growth. It is the private sector dollars that can draw money in from outside Alaska and strengthen Alaska's economy. She offered her belief that the only value of a statutory spending cap is that the constituents will react if the legislature exceeds it. 2:37:55 PM CHAIR HOLLAND recalled Senator Kiehl raised the issue at the last hearing on SJR 5, such that the term "state savings account" was broad and a subsequent legislature could create another state savings account not subject to the constitutional spending limit. He asked if narrowing the language "state savings account" to language "an appropriation to the budget reserve fund" or "appropriations to the state retirement trust fund" would address that issue. MR. STEININGER responded that such an approach would provide more specificity. However, it is hard to predict future accounts that may fund future programs. For example, the Alaska Marine Highway System Fund revenues are deposited into that fund and the legislature appropriates from the fund. It is counted as spending at the time an appropriation is made from the account. During times when the AMHS experiences a bad revenue year, the legislature appropriates additional monies into the fund. Monies being appropriated into the fund are not counted against the cap. Instead, those funds are merely considered deposits to a savings account. It is counted as spending once expenditures are made from the account. This raises the issue of whether the appropriation would be counted both times; if it will only count when the fund is spent for actual services or when deposits are made. He explained that listing the accounts in the Alaska Constitution would limit the ability to use that type of financial tool for future programs. He said it would create a constraint the administration does not intend in SJR 5. He clarified that deposits to some accounts are counted, such as the Vaccine Assessment Account, which is capitalized with monies paid to the state and monies from the state to pay for purchasing vaccines. Monies deposited to the account count as spending because those funds can be used by the Department of Health and Social Services (DHSS) to make bulk purchases. When those purchases are made, the state does not count it as an expenditure. Thus, there are two ways to address some of the accounts. It is generally counted when the funds are committed to a specific purpose and cannot be redirected. The AMHS Fund is available for general appropriation. When the monies are deposited to that account, they are not counted because the legislature has the authority to spend it elsewhere. 2:42:25 PM SENATOR KIEHL remarked that he does not share Senator Hughes's view on private sector and public sector spending. Alaskans create businesses that innovate and generate efficiency, which creates economic growth. He disagreed that dollars circulating within Alaska do not create growth. Further, when companies and workers earn money in Alaska and take it to the Lower 48, it does not help Alaska's economy. SENATOR KIEHL said currently there is very little connection between economic activity and support for the state's economy, except corporate income tax does provide some support. If the state maintains this model, when it experiences good economic and population growth, the state will need additional state services. He related his understanding that one incentive will be to devolve government services to other levels. SJR 5 will not limit on total government spending, just what comes out of the state treasury. For example, if the legislature decided it needed $18 million of spending authority, it could give second class boroughs police power and cut the entire Alaska State Trooper staff from the Fairbanks North Star Borough area. It would essentially shift the burden to the Fairbanks taxpayers. He asked if that would give the state additional spending. MR. STEININGER responded that if the legislature needed to generate additional room to meet a need, the legislature would need to weigh that against other state expenditures. It would require an offsetting reduction, either to the trooper staff, to education or other services. He explained that creating a constraint will limit government growth. If the state would like to add a new program, the legislature would need to find room within the spending cap to do so. The intent is to limit new programs and constrain government growth. This is difficult to do as revenues decline, he said. 2:45:59 PM SENATOR KIEHL expressed concern that SJR 5 does not institute a spending cap on government but rather it caps the state's current spending. 2:46:21 PM CHAIR HOLLAND offered his view that the inflation adjustment in SJR 5 is generous. The cumulative change in inflation over three years is about 7 to 9 percent allowable growth. That figure will be applied to the three-year average spending, which would normally be about 2 to 3 percent below the prior year's spending. The current language allows budget growth by more than inflation. He asked whether the cumulative growth factor should be two years instead of three years. 2:47:09 PM MR. STEININGER related his understanding that he was interested in additional modeling using a different inflationary factor as shown on a graph. He offered to report back to the committee with a graph using a different inflationary factor. [SJR 5 was held in committee.] 2:48:16 PM There being no further business to come before the committee, Chair Holland adjourned the Senate Judiciary Standing Committee meeting at 2:48 p.m.

Document Name Date/Time Subjects
SJR 5 Legal memo.pdf SJUD 5/3/2021 1:30:00 PM
SJR 5