HJR 12-CONST. AM: BUDGET RESERVE FUND REPEAL  8:10:37 AM CHAIR SEATON announced that the first order of business was HOUSE JOINT RESOLUTION NO. 12, Proposing amendments to the Constitution of the State of Alaska relating to the repeal of the budget reserve fund. [Before the committee was CSHJR 12(W&M).] 8:10:50 AM REPRESENTATIVE JOHN HARRIS, Alaska State Legislature, presented HJR 12 on behalf of the House Special Committee on Ways and Means, sponsor. Before beginning his testimony, Representative Harris offered his condolences to Chair Seaton who recently lost his mother. REPRESENTATIVE HARRIS stated that the proposed resolution would amend the Alaska State Constitution in regard to the constitutional budget reserve (CBR). He said the CBR has two provisions: a three-quarter vote to access the CBR; and the sweep provision, which sweeps funds that are eligible into the CBR, unless there is a provision in the budget that reverses those sweeps. He added that the reverse sweep motion [requires] a three-quarter vote. 8:12:12 AM REPRESENTATIVE HARRIS said his vision, and that of others, is to remove the CBR from the constitution and put it into another constitutionally protected fund, but one that is a capital generation fund. The earnings of that fund would be used for capital construction and maintenance repair of state facilities throughout Alaska. Representative Harris said some people say that would take away the minority's leverage in the three- quarter vote; however, he stated that it would actually give the minority more leverage, ultimately. He explained, "The reason I say that is: it also takes away the pot of money that the legislature has ... used over the years to balance the budget ...." He indicated that taking away the CBR would allow the state to have a fiscal plan to operate on like other states do. He said other states have to balance their budgets, and they seldom have to dip into reserve funds. He offered examples. 8:13:38 AM REPRESENTATIVE HARRIS said Alaska has so many unfunded capital and deferred maintenance needs throughout the state, including airports, schools, and roads, and the state needs to consistently put money into the upgrades of those facilities. He noted that the resolution would create a [percent of market value (POMV)] to automatically give inflation proofing of the fund. He added, "If you believe that interest rates will be higher than 5 percent - determine that 5 percent will be the amount." He said HJR 12 would require the state to "develop revenue, long-range," rather than dipping into the CBR whenever the state doesn't have the will to tax its people or use the earnings of the permanent fund. 8:15:48 AM REPRESENTATIVE HARRIS said concern has been expressed regarding cash flow problems and whether the state can balance its budget or bring money forward. He said rather than have another mechanism set up, there currently exists in state statute a statutory budget reserve. The proposed resolution would take $600 million from the CBR, which could be used by the state government to "borrow from and return back." He said he would like to see bigger fences put around the money so that it's more difficult for the legislature to get at it, because his intention is that the money would be an interest-bearing, cash availability fund for the administration to use. 8:18:26 AM REPRESENTATIVE GARDNER said she is thrilled to see this as a possible first step towards a fiscal plan for the state, which is long overdue. She asked Representative Harris if the CBR is currently invested in such a way that the state is earning about 4 percent interest. 8:18:57 AM REPRESENTATIVE HARRIS said he doesn't know the exact numbers. He added, "It's invested more for liquidity than ... the permanent fund is, for instance, because ... it's a cash flow issue and you need the cash available." 8:19:09 AM REPRESENTATIVE GARDNER remarked, "So, right off the top, this plan, in changing the structure, would potentially generate a higher interest rate than we're getting now, so if we just want to talk about cold cash that's in the state, we'd be ahead." REPRESENTATIVE HARRIS answered that's correct. 8:19:24 AM CHAIR SEATON stated his presumption that the $600 million, which would be the cash flow account, would have to be a liquid investment. 8:19:54 AM REPRESENTATIVE ELKINS concurred with Representative Gardner that HJR 12 is "headed in the right direction," and he stated his support for the resolution. 8:20:07 AM REPRESENTATIVE HARRIS admitted that the proposed resolution is not without controversy, and he reiterated that his intent is not to penalize the minority. He added that he has been working with Representative Croft on this issue. He stated that if the public votes for this resolution, it would put the state in the position of having to begin adopting a long-range fiscal plan to support its services. He said it will be an uphill battle to get this issue to the ballot. He talked about other controversial proposals, such as the use of the permanent fund. Representative Harris mentioned the price of oil per barrel and the need to consider that a lower price per barrel would diminish Alaska's CBR in a matter of years. He said the budget will only continue to increase. He said, "We're dependent on one source of revenue, and if that ... volume of revenue does not continue to increase, we're putting ourselves in a bad situation." He emphasized the importance of addressing the issue now. 8:23:44 AM CHAIR SEATON stated his support of HJR 12. He asked Representative Harris to explain to the committee how the statutory budget reserve fund is used. 8:24:08 AM REPRESENTATIVE HARRIS offered his understanding that although it's an act, there is nothing currently in it at present. 8:24:51 AM CHAIR SEATON said he would like that information. 8:26:05 AM CHAIR SEATON, after ascertaining that there was no one else to testify, closed public testimony. The committee took an at-ease from 8:26:27 AM to 8:32:34 AM. 8:32:55 AM REPRESENTATIVE GARDNER moved to report CSHJR 12(W&M) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHJR 12(W&M) was reported out of the House State Affairs Standing Committee.