HB 78 - AMEND DEFINITION OF "PROGRAM RECEIPTS" The next order of business to come before the House State Affairs Standing Committee was HB 78, "An Act relating to the definition of certain state receipts; and providing for an effective date." Number 1550 JAMES BALDWIN, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law, was the first person to testify in Juneau. The purpose of the bill was to establish in the budget the program receipts as their own funding sources to provide an incentive for agencies to engage in revenue generating activities that would finance state governmental operations. The funding sources would not be considered a part of the unrestricted general fund. The idea was to emphasize that these activities would receive more favorable budget treatment. Mr. Baldwin cited an example whereby the Department of Law discovered that processing judgments was beneficial to the department. MR. BALDWIN further explained there were allegations that the bill could create a dedicated fund. However, the statutes addressed in the bill made it very clear that the money would not be dedicated. In other words, the power of the legislature was not restricted to appropriating the money to the purpose designated in law. That was why they were referred to as "designated program receipts". The statute generally indicated that the legislature "may" appropriate the money. It was not required by law; it was a statement of intent by the legislature which almost always was honored. Mr. Baldwin cited the Marine Highway Fund as an example. The bill, therefore, would have the effect of a separate funding source in the budget. It also recognized another type of funding source - corporate receipts. The bill also provided for the receipts of test marketing programs such as the fisheries. Number 1773 CHAIR JAMES stated her biggest concern was that these programs were, currently, kept separate. She was also concerned about the practice of companies paying a large amount of money to speed up the permitting process, as well as the Governor's concept of "open for business". In addition, she wondered who should pay the government to provide services - the big companies? TAPE 97-33, SIDE B Number 0001 CHAIR JAMES asked who would take care of the little guy who could not afford to speed up the permitting process. She wondered why the collection of the judgments was not already being done, because it was the job of the department. She asked: Why would it only consider doing the job if the money stayed in the department? She said this was an attitude about government that she did not want to go towards. Number 0034 MR. BALDWIN replied that the department was largely funded by the general fund; when there was a budget cut, it was the area that received the most scrutiny, requiring a shift of resources to areas of the greatest need. There were also areas that generated revenues but were not very glamorous. Therefore, by having that revenue source available, the department could devote resources away from the other general fund activities. MR. BALDWIN further stated that there was a statute that said the department could not charge the public for the provision of a normal government service unless authorized by law. Therefore, the control rested with the legislature. The bill would not change that either. The bill controlled the development of the program receipts as a funding source for activities that were sustaining and providing revenue for the state treasury. Program receipts should not be held to the same standards as other unrestricted general fund activities that were viewed differently by the legislature. Number 0165 CHAIR JAMES asked Mr. Baldwin whether it would be possible for the Department of Law to ask for authorization from the legislature for the collection of the judgments. Number 0186 MR. BALDWIN replied that the request would convert general fund money into contractual money. Number 0195 CHAIR JAMES replied that the program receipts were still general funds. Number 0207 MR. BALDWIN replied that general funds were what the legislature said they were. They were decided and defined by law. He said we did not want to create a designation of the money by law, taking away the power of the legislature. He cited the court case of Salmon v. Hickel that validated the approach. Number 0267 MIKE GREANY, Legislative Fiscal Analyst, Legislative Finance Division, Legislative Agencies and Offices, was the next person to testify in Juneau. Number 0277 CHAIR JAMES asked Mr. Greany why the bill was needed and what the benefits were. Number 0283 MR. GREANY replied that from a budgetary standpoint, it was a policy call that the legislature would have to make. It was a question of how budget sources should be characterized in the budget. When the Legislative Finance Division created a general appropriation bill, it contained three columns: general funds, other funds and total funds. House Bill 78 allowed for the funds from the program receipts now in the general funds to be moved into the "other funds" column. The funds would not be counted as state funds or as caps. MR. GREANY further stated that the framers of the constitution intended that all of the fees and taxes would be on the table for the legislature to appropriate as it saw fit. At statehood, there were approximately two dozen different funding sources. Now, there are 70, and each fund had a good reason for being created. The constitutional budget reserve issue was a wake-up call because it forced the sorting of the funds available. MR. GREANY said he was not arguing against the bill. He saw good reasons for it. It was a way of keeping certain program receipts out of the budgetary discussions. The Marine Highway Fund, for example, was swept at the end of each fiscal year to meet the Constitutional Budget Reserve (CBR) repayment provisions. There was also the provision to restore the funds back into the program. It was a good business practice as many private sector businesses practiced. Number 0746 CHAIR JAMES replied that this was not a private business; this was government. She asked Mr. Greany whether there were three columns in the budget currently. MR. GREANY replied that for appropriation purposes, there were only "general funds" and "other funds" that were broken down further. For example, there were the pure general fund, the general fund match, and the general fund program receipts that were broken down even further. The Administration about two years ago took the general fund program receipts and carved out the designated portion. Right now, the designated program receipts were still part of the general fund. The bill would take the designated general fund program receipts and point to other funds. Number 0852 CHAIR JAMES stated that the legislature was cutting the budget based on the general fund, with which she did not agree. She asked Mr. Greany how the bill would affect the bottom line of the budget. Number 0924 MR. GREANY replied that it would depend on how the legislature chose to view the budget. Some believed that every fund type should be scrutinized, even federal funds. The biggest scrutiny had been over the general funds. However, more were now looking at the total budget. Therefore, by identifying different funding sources, they could be tracked separately. Number 1031 REPRESENTATIVE ELTON stated that the letter from the Governor dated January 16, 1997, asserted that the bill would not sacrifice fiscal information or legislative prerogative. The testimony of Mr. Greany almost indicated that the bill would preclude legislative prerogative on how the program receipts could be spent. Number 1064 MR. GREANY replied that that was not his intent. It was a matter of how the funds would be tracked and where they would appear in the appropriation bill. Number 1089 REPRESENTATIVE ELTON asked Mr. Greany, whether the receipts from a test fishery would be identified as a program receipt, then appropriated through the appropriation process. MR. GREANY said yes, it could be appropriated for any other purpose. REPRESENTATIVE ELTON asked Mr. Greany: If the bill provided for a way to show that if the receipts were cut, did it not affect the budget gap? In addition, the bill would provide a way of showing that money did not need to be cut in another area to make up for the growth of receipts. Number 1189 MR. GREANY replied that it depended on how the fiscal gap was defined. Was it defined in terms of general funds or in terms of the entire state budget? The fiscal gap up to this point was looked at in terms of the general fund only. The bill would take the designated program receipts out of the fiscal gap. Number 1313 REPRESENTATIVE ELTON stated that any governmental service had to meet a market test from those that paid for the service, unlike a general fund revenue. If a segment of the economy was willing to pay for a service, it met the market test. Therefore, if a receipt was taken away, it would hurt the people willing to pay for it. He described general fund dollars as those that were coming through the tax receipts. Number 1381 MR. GREANY replied that that was the philosophy that the dedicated fund states operated under. Oregon's highway dedicated fund was established to fund its Department of Transportation. The constitutional framers rejected that type of model, however, for Alaska. In addition, Mr. Greany wondered whether the money from the motor vehicle services was a user fee or a tax, for example. Therefore, should it be used as a dedicated fund or as a general fund? It had been characterized as a general fund, but it was special because it had a program receipt designation. The division took in more money than it spent, and the rest went into the general fund. Number 1553 CHAIR JAMES announced she would hold the bill in the committee to think about it further.