HOUSE JOINT RESOLUTION NO. 9 Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit. Co-Chair Harris MOVED to ADOPT Work Draft 23-LS0435, Version Z dated 3/19/04. There being NO OBJECTION, it was so ordered. MR. PETER ECKLUND, STAFF TO CO-CHAIR WILLIAMS, explained that line 7 in Section 16, would change the average to three of four fiscal years from an average of two of four fiscal years in the previous version. He said that it is an attempt to smooth out the starting point between fiscal years, which Mr. Tangeman could explain, and he noted the chart (copy on file) showing it in visual format. MR. BRUCE TANGEMAN, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION stated that the previous version included one base year two years prior in order to get an accurate base year. He explained that it was because last year, or our current FY 04, does not yet include supplemental appropriations. The problem was that it could allow a stair-step of the appropriation: if the Legislature doesn't appropriate the full limit one year, but does the following year, there would be a gap causing a stair step in future years. TAPE HFC 04 - 62, SIDE B  Mr. Tangeman continued stating that the change smoothes out the low years when less than the full limit is appropriated. Mr. Ecklund continued discussing the changes in Work Draft Version Z. The change to Section 16(b) on page 1, line 16, would provide that if a future Legislature desired to exceed the spending limit, it could do so by two methods. Exceeding by 2% would require a 2/3 vote of both houses, and exceeding by a further 2%, for a total of 4%, would require a ¾ vote of both houses. Mr. Ecklund explained that the change on page 2, line 7, in the last part of (b) states that any exceeding of the limit must be done in a separate appropriation bill. A future Legislature wishing to exceed the spending limit by, or up to, 2% or 4% would have to introduce separate legislation and get a 2/3 vote for 2%, and a ¾ vote for 4% increases. Representative Croft questioned whether the change on page 1 would recreate the supplemental problem in the new draft by using the earliest 3 of the 4 preceding fiscal years. Mr. Tangeman clarified that FY 04 would be skipped, and FY 01, FY 02 and FY 03 would be averaged. Representative Croft asked how the "anti-log rolling" section would work if the operating and capital budgets both passed but exceed the limit by 4%, and which of the two would require the 2/3 vote. He asked if it would be similar to the Constitutional Budget Reserve special vote provisions. Mr. Ecklund replied, with a limit that used the prior three fiscal years averaged and adjusted for half of the population and the income increase, that would be the limit for the operating and capital budgets. To exceed that limit- to go over 3.5%- for capital or operating spending, a separate piece of legislation would have to be introduced and voted on. Representative Croft continued discussing a hypothetical situation and reiterated his question of which appropriation would stand alone. Mr. Ecklund clarified through example that if the cap were $3.5 million, the operating and capital budgets could not exceed it. As the budgets were developed, if it appeared that they would exceed the cap, items would be pulled and put in a separate piece of legislation. The intent was to highlight and separate the exceeding of the limit instead of burying it in the operating and capital budgets requiring a lot of successive votes. The intent was to make it less confusing. Representative Croft questioned how it would work in practical effect, if the budgets run up to the cap in every fiscal year. He said that a separate appropriation might be needed each year to assure the gap in the operating budget would be filled. Mr. Ecklund replied that it is hard to anticipate future events, but the concept is based on a hard limit that can't be exceeded. The intent is to build in a safety valve to highlight what the percentage exceeding the limit is, and to conduct separate votes on separate pieces of legislation. Co-Chair Williams commented that he and Representatives Stoltze and Hawker, and Mr. Ecklund worked with Ms. Frasca to draft the changes. Mr. Ecklund continued discussing the changes. On page 2, line 21, the debt service of General Obligation (GO) Bonds was added to the exemptions from the limit. On page 3, line 1, (12) the new language mirrors that in statute, in order to include an exception such as the Kodiak Launch Facility. He explained this is intended not to penalize the Facility for getting more business income. In Section 30 on page 3, the language stating the ballot proposition would come up again in 2010 wasn't changed. He explained that a "yes" vote means the voter wants to keep the spending limit, and a "no" vote means the voter rejects it. Representative Hawker commented that the base indexing is the average annual percentage rate change for state population and personal income. One factor that is not in the index is the inflation factor or Consumer Price Index (CPI). He asked the sponsor's and committee's thoughts on whether the CPI ought to be in the base indexing. He referred to a chart by Legislative Finance (copy on file) which shows that population and income projected from the base year of 1996 is a higher number than combining population and the CPI. Representative Stoltze offered that his original intent was not to have any indexing at all. He agreed to use the Governor's Office formula of personal income. He was open to hearing the committee's thoughts. Representative Hawker MOVED to ADOPT Amendment #1. Co-Chair Williams OBJECTED for purposes of discussion. Amendment #1 reads: Page 2, line 12: Delete "of Alaska permanent fund income" Insert "from the Alaska permanent fund" Representative Hawker explained that the amendment involves an addition to the exemptions not subject to the spending limit. The Permanent Fund money dedicated to dividends should be exempted. On page 2, line 12, the language reflects the current statute in which dividends are paid from Permanent Fund income, and Amendment #1 would make the language more encompassing: to appropriations from the Permanent Fund for payments of dividends. He believed that the language would accommodate either a POMV or the current statute, depending on what the public decides. Representative Stoltze asked if the spending limit would allow for money to come out of the Permanent Fund principal by the nature of this language. He asked for guidance from legal counsel. Ms. Cook did not think it would create the concern that Representative Stoltze articulated. She did not see subsection (c) as granting authority to make any particular type of appropriation. It simply states that an appropriation would not be counted toward the spending limit. She said that the extent of the power of the Legislature to make an appropriation will be handled under the constitutional provision for the Permanent Fund in Section 15, whether it is amended or not. Ms. Cook pointed out that if it is not amended, and HJR 9 were to pass, obviously any appropriation from the Fund would have to be from income. She continued, if it is amended, and HJR 9 were to pass, obviously there would be no distinction between income and principal, but any appropriation made would be subject to a limit based on Percent of Market Value. Representative Stoltze expressed that if HJR 9 were to pass, the legislative record would be very important. He asked Ms. Cook to provide her comments as a legal opinion to the committee. Ms. Cook replied that she would. There being NO further OBJECTION, Amendment #1 was adopted. Co-Chair Williams MOVED to adopt Amendment #2. Representative Stoltze OBJECTED for the purposes of discussion. Amendment #2 reads: Page 3, line 7, following "Section 30.": Insert "Contingent Effect and Effective Date;" Page 3, line 7: Delete "(a) The" Insert "(a) The 2004 amendment relating to an appropriation limit (art. IX, sec. 16) takes effect only if a 2004 amendment relating to and limiting appropriations from the Alaska permanent fund based on an averaged percent of the fund market value (art. IX, sec. 15) is approved by the voters and takes effect. If the 2004 amendment relating to an appropriation limit (art. IX, sec. 16) under this subsection takes effect, it takes effect on the effective date of the 2004 amendment relating to and limiting appropriations from the Alaska permanent fund based on an averaged percent of the fund market value (art. IX, sec. 15). (b) If the" Page 3, line 8, following "(art. IX, sec. 16)": Insert "takes effect under (a) of this section, it" Page 3, line 10: Delete "(b) Notwithstanding Section 1 of Article XIII," Insert "(c) If it takes effect under (a) of this section," Page 3, following line 15: Insert "(d) To the extent this section conflicts with Section 1 of Article XIII, this section prevails." Co-Chair Williams explained that Amendment #2 basically states that if the POMV doesn't pass, this measure doesn't pass. Representative Joule commented that it would be asking the voters to approve two constitutional amendments, but Amendment #2 would link one to the other. He questioned what would happen if the voters chose only one, and he asked if their votes don't count. Vice-Chair Meyer agreed with Representative Joule. He suggested that the spending limit should move forward because if some new sources of revenue were passed, the Legislature would want to guarantee a limit to spending. If the voters were to approve HJR 9, that is also what they would want, regardless of passage of the POMV. He objected to the amendment. Representative Hawker agreed that the spending limit amendment would stand on its own merits. The real impetus for the sponsorship of HJR 9 was to avail of some of the Permanent Fund earnings for general government so that the public would have confidence that future legislatures would not spend the money frivolously. He stated that HJR 9 was originally brought forth as part of a fiscal legislation package, and he felt that there is strong merit to having them linked. Representative Hawker said that he didn't feel this disrespects the individual voter who might adamantly prefer one to the other. He has listened to the counsel from the Minority Leadership who require a comprehensive fiscal package that will work for future years. He concluded that he supports Amendment #2. Representative Stoltze expressed that passage of the POMV will require building the trust of the voters. He did not think that tying HJR 9 with the POMV would build that public confidence. He thought that both measures should prevail or fall on their own merits. He did not want to lose votes on his measure. He stated that he did not support Amendment #2 although he respected the motivations of its sponsor. Representative Croft commented that it prohibits the dividend protection as a spending cap. He thought that a logical approach would be to spend no more money than is available and not touch the revenue source, which is the type of limit that individuals impose on themselves. He voiced concern with the proposed approach while commending the process presented by Representative Stoltze. He said that Amendment #2 precludes the people from choosing the alternative form of spending cap. He stated that if the public rejects dividend protection, they don't get a spending cap, and the public will get neither if they vote down the POMV. Representative Croft pointed out the tenor in Amendment #2 is that the Legislature can be trusted to manage the Permanent Fund, but it cannot be trusted on spending in future years. He expressed concern that the POMV and the spending cap should not be tied together. He felt that constitutional amendments must be done thoughtfully and carefully because they remain in effect for a long time. He worried that it is inappropriate to say, "if you don't let us take half your dividend, we won't promise to be good with your money." Co-Chair Williams commented that he has heard talk that the only way he would support the POMV is if a spending cap was put on it. He stated he has been, and remains, opposed to a spending cap because he believes it goes against the Constitution to give up the Legislature's right to appropriate. He expressed concern that the way the bill is currently written, a 2% increase requires 27 votes, and a ¾ vote on 4% would put the Legislature in the same position that it's in at the end of session with the ¾ vote [CBR]. He expressed that he does not distrust the electorate and he supports the amendment, A roll call vote was taken on the motion to adopt Amendment #2. IN FAVOR: Fate, Foster, Hawker, Williams OPPOSED: Chenault, Croft, Joule, Meyer, Moses, Stoltze, Harris The MOTION FAILED (4-7). Amendment #2 was not adopted. HJR 9 was heard and HELD in Committee for further consideration.