HOUSE BILL NO. 58 1 "An Act relating to the budget reserve fund established under art. IX, sec. 17, Constitution of the State of Alaska." Co-Chair Larson clarified that CSHB 58 (JUD) is the version before the Committee. Co-Chair Larson provided members with a proposed committee substitute for HB 58, prepared by the Department of Law (copy on file). Representative Martin MOVED to ADOPT the proposed committee substitute. Representative Brown OBJECTED for purpose of discussion. She requested more information on the proposed committee substitute. JIM BALDWIN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW explained that the proposed committee substitute states that Article IX, sec. 17(b) of the Constitution refers to the annual recurring unrestricted and undesignated revenues of the State. He stated that the proposed committee substitute addresses what is covered by Article IX, sec. 17(b), not what is not covered. Mr. Baldwin explained that program receipts are included under (A)(1)(b). New Language is contained in (1)(A)(2) to compare revenue sources from year to year. He added that (1)(A)(3) is a new subsection, to explain that supplements are not included in calculations of the total amount appropriated from the Budget Reserve Fund. Mr. Baldwin noted that subsection (d) contains language to clarify that a three-fourth vote pertains to any expenditure other than those necessary to remedy a shortfall situation. Representative Navarre asserted that the legislation will set a precedent. He expressed concern that litigation will result. He maintained that the legislation is in conflict with other portions of the Constitution. Representative Martin echoed his concern. Representative Navarre asserted that the debate and discussion which took place during deliberations of the creation of the Budget Reserve Fund were inadequate. He claimed that under the statutes money in the Permanent Fund is available for legislative appropriation. He asked the likelihood of litigation. Mr. Baldwin agreed that litigation is likely. He stressed that the court would probably defer to the legislative body which has the power of appropriation. 2 In response to a question by Representative Brown, Mr. Baldwin explained that other funds are not considered in the calculations. He referred to the 6 percent for mental health trust funds. He explained that the funds are appropriated and restricted by a prior appropriation. Mr. Baldwin clarified that federal funds are not included in calculations of revenues used to decide if there has been a shortfall from the previous year. He noted that the State cannot control the amount of federal funds received. Representative Brown pointed out that oil revenues are also outside of the Legislature's control. Mr. Baldwin suggested that the inclusion of all funds would require revolving loan funds to be included and expended prior to Budget Reserve Fund access. Representative Brown disagreed that revolving loan funds would have to be liquidated if they were included in the calculations. Representative Grussendorf recounted a brief history of the passage of HCS CSSJR 5 (FIN)am H which placed on the ballot the proposal to create a constitutionally protected Budget Reserve Fund. He was Speaker of the House when HCS CSSJR 5 (FIN)am H was passed by the Legislature and approved by the voters. He noted that some legislators wanted to create a means to allow windfall payments to be saved without deposit into the corpus of the Permanent Fund to assure future access. Other legislators wanted to assure that the anticipated revenues would not be spent at once. He reflected, that as Speaker of the House, he met on the issue daily, with other legislators, over a three week period. He stressed that his understanding, at the time, was that federal funds were not to be included in the calculations of state revenues used to determine if an appropriation from the Budget Reserve Fund would be allowed. He added that he understood that the Earnings Reserve of the Permanent Fund was to be available. He added that enterprises of the State such as AIDEA and the Alaska Housing Finance Corporation would not be included in calculations. He maintained that unrestricted general funds and the Earnings Reserve Account were meant to be included. Representative Hanley observed that section (b) states that: "If the amount available for appropriation for a fiscal year is less than the amount appropriation for the previous year, an appropriation may be made from the budget reserve fund." He concluded that the program would be used to keep spending at the same level as the previous year. He added that it would take a three-fourths vote to spend more than the previous year. He maintained that the addition of AHFC and other funds would prevent less money from being available than what was appropriated in the previous year. He concluded that (b) did not intend to include the other 3 funds. Representative Grussendorf observed that members supporting a spending limit plan were involved in the deliberations. Co-Chair Larson asserted that deliberations on the constitutional amendment did not maintain that the State is expected to consume itself prior to access to the Budget Reserve Fund. Representative Navarre recalled that he and other members who favored a spending limit tried to ensure that the Budget Reserve Fund would work as a spending limit. He asserted that discussions linked the Budget Reserve Fund to a spending limit. (Tape Change, HFC 94-27, Side 2) Representative Navarre argued that the legislation would negate the role of the Budget Reserve Fund as a spending control. Co-Chair Larson provided members with a memorandum by Mary Halloran, to Hugh Malone, dated 5/22/90, in regards to the Budget Reserve Fund (copy on file). Representative Martin discussed his perception of the Budget Reserve Fund ballot amendment. He asserted at the time that the Budget Reserve Fund would be a spending account of the State's oil windfalls. Representative Hoffman referred to "unrestricted revenue accruing to the general fund." He noted that "money is not restricted by law." He maintained that the Earnings Reserve Account is not "restricted by law". In response to a question by Representative Hoffman, Mr. Baldwin clarified that the legislation is not intended to include strictly dedicated funds. "It is intended to include those funds which by statute or by appropriation have been restricted in the accounting sense." He noted that the Constitution says that the money should go to the General Fund unless otherwise provided by law. He concluded that the Legislature has "otherwise provided by law," by creating the Earnings Reserve Account within the Permanent Fund. Representative Grussendorf observed that the vehicle used to pass the resolution for creation of the Budget Reserve Fund was a Senate spending limit bill (SJR 5). Representative Brown noted that subsection (d) makes 4 specific reference to the General Fund. She noted that the specific language "General Fund" is absent from the proceeding sections. She discussed the letter by Mary Halloran. She stated that Ms. Halloran's interpretation is a good indication of what was meant at the time the amendment was passed. She concluded that the intent was that the Budget Reserve Fund be difficult to spend. In response to a question by Representative Brown, Mr. Baldwin clarified that the Department of Law does not intend to issue an opinion regarding the interpretation of Article IX, sec. 17(b). Representative Brown asserted that all funds should be counted in determining the meaning of Article IX, sec. 17(b). Representatives Navarre and Brown noted that they would not vote against adoption of the proposed committee substitute, but that they do not support its contents. Representative Brown WITHDREW her OBJECTIONS to the motion to ADOPT the proposed committee substitute. There being NO OBJECTION, it was so ordered. CSHB 58 (FIN) was HELD in Committee for further discussion.