HB 58: ADMINISTRATION OF BUDGET RESERVE FUND Number 476 CHAIRMAN PORTER stated that the next agenda item was HB 58, and that four people had signed up to testify on that bill thus far. He called Rep. Ron Larson to address the committee first. Number 480 REP. RON LARSON said that there was a need for a clarification regarding the constitutional budget reserve fund. When a bill became law, it was open for interpretation, he noted, and that interpretation did not always correspond with legislative intent. He stated that HB 58 sought to clarify the legislative intent behind a recent constitutional amendment adopted by the voters. REP. LARSON commented that approximately one year ago, when money was put into the constitutional budget reserve fund and later removed, the matter came up before the Legislative Budget and Audit Committee, which Rep. Larson chaired at that time. A subcommittee chaired by Rep. Kay Brown was formed to address the matter of what monies should properly be deposited into the fund. The subcommittee was asked to create a proposed bill clarifying several points, including the status of revenues collected as a result of informal conferences, and how money should be repaid to the constitutional budget reserve fund and what monies could be used for that repayment. REP. LARSON noted that HB 58 dealt with some complicated procedures. He asked to bring Rep. Kay Brown to the table to outline provisions of the bill. He stated that the House Finance Committee had introduced HB 58 as a result of concerns raised by the Legislative Budget and Audit Committee. Number 543 CHAIRMAN PORTER thanked Rep. Larson for his comments and then called Rep. Kay Brown to the witness table. Number 546 REP. KAY BROWN said that she was a former member of the Legislative Budget and Audit Committee, and a current member of the House Finance Committee. She stated that she saw two major policy issues addressed in HB 58. REP. BROWN said the first major policy issue centered around what money should go into the constitutional budget reserve fund. Specifically, what was meant by the term "administrative proceeding" in the constitutional amendment? REP. BROWN said that the second large issue was, under what conditions could money in the constitutional budget reserve fund be spent? Specifically, what did the term "available for appropriation" mean in the constitutional amendment? REP. BROWN described to the committee members the history of the constitutional amendment that created the budget reserve fund. In the 1990 legislative session, the constitutional amendment was proposed. The legislature's intent at the time was to capture "windfall" revenues resulting from long standing oil and gas royalty and tax litigation. The intent was to keep those litigation dollars from coming into the general fund in a "lumpy" way, causing wild variations in state revenues. The concern was that depositing these large lump sums into the general fund would undermine efforts to control state spending. Number 545 REP. BROWN stated that at that time, there was a fiscal policy subcommittee, of which she was a member. The subcommittee also included Rep. Swackhammer and (now) Sen. Rieger. One of the subcommittee's recommendations was that a mechanism was needed to capture the windfalls, but to leave them in an accessible location so that they could be used to fill out gaps during years of lower revenues. REP. BROWN said that in addition to the disputes in litigation, there were a lot of disputed back tax claims being handled by the Department of Revenue. Gov. Cowper's budget chief, Mary Halloran, coined the term "administrative proceeding" to describe the procedures under which the ongoing disputes were being handled. That language ended up being enacted into law. At that time, she noted, back taxes at the Department of Revenue exceeded $3 billion. REP. BROWN said that in November 1990 the question of establishing the constitutional budget reserve fund was approved by the voters. In January 1992 a draft opinion by the attorney general's office said that its interpretation of "administrative proceeding" included only those tax cases that were in the formal adjudication stage. REP. BROWN explained that at the Department of Revenue, a tax bill was sent to the taxpayer. If the taxpayer agreed with the bill, it was paid and deposited into the general fund. If the taxpayer did not agree with the bill, several scenarios were possible. If the taxpayer did nothing, the department could initiate litigation against the taxpayer. Or, the taxpayer could ask for either an informal or a formal conference. The attorney general's opinion said that only the proceeds from the settlement of those cases that were in the formal stage would be deposited into the constitutional budget reserve fund. Money from the settlement of other cases would go into the general fund. REP. BROWN said that the legislative intent had been to capture all of the back taxes pending at the Department of Revenue. In April 1992 a more formal opinion was issued by the Department of Law, reiterating that only settlement monies from those cases in the formal adjudication stage could go into the constitutional budget reserve fund. Money was transferred out of the constitutional budget reserve fund based on the Department of Law's opinion, she noted. REP. BROWN said that during the first special session in 1992, the House unanimously passed a letter of intent saying that all money should remain in the budget reserve fund unless appropriated, and also stating that the House intended to initiate court proceedings to contest the attorney general's opinion. REP. BROWN stated that shortly after the first special session adjourned, she and Rep. Larson and others decided to try to work with the administration to find a compromise, instead of going to court. They got the administration to agree that during the interim they would segregate any money that came in and was in dispute between the legislature and the administration as to whether it should go into the general fund or the budget reserve fund. REP. BROWN said that a special account for this money was established within the general fund. The account now held over $100 million, she added. The legislature had asked the Department of Revenue for an accounting of all the back tax money that had come in: the exact amount of money in the special account; where it came from; and what other money came in but was not put into the special account. REP. BROWN said that during the 1992 interim, the Legislative Budget and Audit subcommittee worked on the language for HB 58. She acknowledged the work of John Lindback from her staff, and Assistant Attorney General Jim Baldwin in drafting the bill. She expressed an opinion that if litigated, the legislature would win on the issue of the definition of "administrative proceeding." But, she said, she felt it was more constructive to try to find another solution that would result in the legislature meeting its original goal of placing all of the back taxes into the budget reserve fund. REP. BROWN explained that the bill proposed that if the dispute had been in informal conference status for longer than six months, then the money would go into the constitutional budget reserve fund. Any settlement that resulted from the informal conference procedure prior to that time would go into the general fund. If a dispute was the subject of a formal hearing, then the settlement money would go into the constitutional budget reserve fund. If a taxpayer simply did not pay taxes to the Department of Revenue, money received from the resulting litigation would go into the budget reserve fund. Number 575 REP. BROWN said that HB 58 also addressed future taxes that would be affected by the resolution of an administrative proceeding, but had not yet been received. So, she said, if a settlement laid out conditions that would affect future monies coming in, the bill provided that those monies would go into the general fund. This provision was proposed by the administration, she noted. REP. BROWN said that HB 58 also defined the phrase "money available for appropriation." The phrase specifically did not include the permanent fund, the earnings reserve account, or money previously appropriated for an expenditure or to a special fund or account established by law. REP. BROWN called the members' attention to an amendment, which said that if the amount available for appropriation for a fiscal year was less than the amount appropriated during the previous fiscal year, an appropriation could be made from the budget reserve fund. The amendment said that the permanent fund earnings reserve was not considered "available for appropriation." Nor were any other special accounts or funds, including the Railbelt Energy Fund, AIDEA, AHFC, the Science and Technology fund, etc. REP. BROWN indicated that she believed that HB 58 and the amendment represented good policy for the state and would serve the state's needs well over the years, as the state gets into the situation of needing to access money in the constitutional budget reserve fund. The amendment provided a mechanism whereby money could be appropriated from the constitutional budget reserve fund to get back to the previous year's level of revenues, with a majority vote. REP. BROWN noted that the amendment also provided that for any public purpose, 3/4 of the legislature could vote to take money from the reserve. This, she said, was viewed as a "disaster clause" to be used if some overriding reason existed that necessitated dipping into the budget reserve fund. REP. BROWN called the members' attention to a legal opinion issued by Tam Cook of the Legal Services Division. Returning to the text of HB 58, REP. BROWN said that the bill addressed the repayment of money to the constitutional budget reserve fund. A transfer of the amount of money available on June 30 would occur by November 15. REP. BROWN said that interest was covered by the language in the amendment. She also mentioned that some people were concerned that oil companies would have the ability to choose an informal versus a formal adjudication process, and effectively be able to decide into which fund the proceeds of their settlement agreement would go. She pointed out that that was the case now, whether or not HB 58 passed. REP. BROWN stated that the six-month period was put into the bill to allow for resolving accounting errors or other legitimate differences of opinion that might come up regarding a taxpayer's liability. Number 756 REP. PHILLIPS asked Rep. Brown to repeat what she had said about interest. Number 758 REP. BROWN called Rep. Phillips' attention to Article IX, Section 17 of the Alaska Constitution, and said that it was her belief that the language in that section included interest, although it was not specifically listed. Number 767 REP. PHILLIPS said she agreed with Rep. Brown that interest was included, although not specifically set forth. Number 770 REP. BROWN stated that an attorney said it was not necessary to specifically mention interest. She said that she thought that the legislative intent was clear that it wanted the interest to be covered. Number 775 REP. PHILLIPS said that it would be prudent to make that intention clear. Number 777 CHAIRMAN PORTER commented that he agreed with Rep. Phillips that the word "interest" should be added to the language of HB 58. Number 786 REP. PHILLIPS asked if "past due taxes and penalties" would refer to the Alyeska settlement from the previous year relating to the oil spill. Number 790 REP. BROWN said that settlement was not covered, due to language in the constitutional amendment itself. TAPE 93-4, SIDE B Number 000 REP. NORDLUND asked why the dividing line between settlement money going into the general fund versus settlement money going into the reserve fund was six months. Number 014 REP. BROWN indicated that a line had to be drawn somewhere. If no line was drawn, she said, then settlements stemming from disputes over simple miscalculations of taxes by the Department of Revenue could also find their way into the budget reserve fund. The legislature wanted to acknowledge that small errors that did not result in huge, protracted disputes existed. The intent was not to capture so much of the income stream that the state was deprived of its ongoing, projected revenue stream in the state's normal course of business. The intent was to capture settlement monies from long standing tax disputes that amounted to more than $3 billion. The intent was not to capture every tax dollar that was 30 days past due, she added. Number 054 REP. NORDLUND stated that the amount of money that could be constitutionally dedicated to a fund was being proposed to be changed statutorily. He asked how this could be accomplished through a change in statute, rather than going back into the constitution. Number 068 REP. BROWN responded that the language in the constitution said "administrative proceeding." Through statute, they were attempting to define that term. She said that she understood that it was proper for the legislature to enact statutes that further defined and clarified the language in a constitutional amendment. She added that many legislators felt that the April 1992 attorney general's opinion completely misconstrued the intent of the legislature. Number 098 CHAIRMAN PORTER asked Rep. Brown if both the formal and informal adjudication processes were covered under the Administrative Procedures Act. Number 107 REP. BROWN indicated that both were set out in the Alaska Administrative Code, in regulations adopted by the Department of Revenue. She said that Department of Revenue officials could more specifically answer his question. Number 112 CHAIRMAN PORTER said that if the informal and formal adjudication processes were under the same procedure, the argument to divide in the middle would be even more spacious. He asked Rep. Brown if any thought had been given to drawing the line at a dollar amount instead of after a given amount of time. Number 135 REP. BROWN stated that she did not recall whether or not that had been discussed. She suggested that Assistant Attorney General Jim Baldwin could elaborate on that point. Number 146 REP. JAMES commented that it made sense, from an accounting perspective, to do this instead of allowing windfalls to come into the general fund whenever they were received. Windfalls would not be desirable in certain years, she added. She said that it might be a good idea to draw the line in a different way than the arbitrary six month line. Number 175 REP. BROWN said that taxpayers had 60 days in which to pay their tax bill. If the tax was not paid at that time, taxpayers had to choose whether they wanted to go through an informal or a formal administrative proceeding. She said that this 60-day period would be another logical place at which to draw the line. Her initial proposal was to draw the line earlier than at six months, and her understanding was that the administration wanted the line to be drawn at a period longer than six months. Number 196 REP. JAMES said that shortening the time might give the administration some incentive to speed up the collection process so they could have the money in the general fund. Number 212 REP. BROWN noted that now the period was between 60 days and six months was when the administration could work out collection of the taxes. Number 213 CHAIRMAN PORTER thanked Rep. Brown for addressing the committee. He then called Department of Revenue Commissioner Rexwinkel to the witness table. Number 221 DARREL REXWINKEL, COMMISSIONER OF THE DEPARTMENT OF REVENUE, addressed the committee members on HB 58. He said SB 56 was a companion measure in the Senate. He noted that tax returns to the state were filed by the taxpayer on a voluntary basis. After a tax return was filed, the Department of Revenue performed a desk audit. If the Department determined that obtaining additional tax proceeds was possible, a physical audit was performed. Every oil and gas producer was put through a physical audit, he noted. Many times after the audit was performed, he continued, an assessment of additional taxes was made. COMM. REXWINKEL commented on the complexity of oil and gas taxation. After an assessment was made, he said, a taxpayer had 60 days in which to appeal that assessment and to request a formal or an informal conference. He noted that the informal conference stage was an important one, where information missed by field auditors could be uncovered and discussed. Often, he said, taxpayers would settle during the informal conference stage. Other times, however, the informal conference was followed by a formal conference and litigation. Number 300 COMM. REXWINKEL noted the complexity of the issues and the high dollar amounts involved in this process. He mentioned the confusion over the term "administrative proceeding." He noted that the attorney general's opinion indicated that a formal hearing triggered an administrative proceeding. An informal hearing was really an extension of the audit process. He stated the Department of Revenue had requested an opinion on the constitutional budget reserve, effective for all receipts received after July 1, 1990. When the department received the attorney general's opinion, they wanted to go back and review the payments that had been received. This, however, was a difficult process due to the involvement of three different departments: Natural Resources, Revenue, and Administration. Number 332 COMM. REXWINKEL said that during this investigation it was found that the Department of Natural Resources had put some money into the constitutional budget reserve fund, while the Department of Revenue had put money collected in the same settlement into the general fund. This money had to do with the TAPS tariff, which, he noted, was determined by the Alaska Public Utilities Commission. It was not, in his view, the result of an "administrative proceeding." That situation was later straightened out, he noted. Number 345 COMM. REXWINKEL mentioned the accounting of funds which Rep. Brown had mentioned previously. He noted that it had been done already, but he felt that it needed to be reworked. At this time, he noted, there was about $640 million in the constitutional budget reserve fund, most of which came from royalty settlements. "Administrative settlements" were payments received after the notice of assessment had been issued but before a formal hearing was requested, he said. There was about $210 million worth of administrative settlement proceeds now, he added. The issue of where these administrative settlement amounts would go was an important one, he stated. He agreed with the attorney general's opinion on what constituted an administrative proceeding and therefore what went into the constitutional budget reserve fund. He noted that the opinion was not based on money, but on legal cases. COMM. REXWINKEL mentioned that Department of Revenue projections showed that cash flow would "go negative" in June 1994 if general fund revenues, statutory budget reserve fund revenues, and unexpended amounts in the Mental Health Trust Income Account were combined, according to low case revenue projections. He noted that if the administrative settlement revenues were taken out, cash flow would go negative, using low case revenue scenarios, in October 1993. Number 399 CHAIRMAN PORTER asked if the October 1993 estimate took into account the $210 million in administrative settlements. Number 400 COMM. REXWINKEL said that it did. He noted that the committee's desire to add the word "interest" in HB 58 was a good idea. He spoke about the difference between when a formal hearing was requested and when it actually began, and said that the language in HB 58 should be tinkered with to address that difference. He noted that HB 58 did not address the issue of refunds. He also noted that the informal conference process was really a finalization of the audit and nothing more. The formal hearing process was what triggered a formal, adjudicative proceeding, he said. Number 446 REP. JAMES asked Commissioner Rexwinkel if the audit process were a normal administrative process of the Department and not a special administrative proceeding. She asked about percentages of these audits which resulted in additional assessments to oil companies. Number 460 COMM. REXWINKEL said that production tax receipts had averaged about ten percent over the last few years, based on assessments. Number 472 CHAIRMAN PORTER asked Rep. James to clarify her question. Number 476 REP. JAMES said that she had wanted to know what percentage of audits resulted in increased tax assessments. Number 482 COMM. REXWINKEL indicated that nearly every audit resulted in an increased assessment. Number 483 REP. JAMES said that she was trying to determine whether this was a common administrative procedure to increase an assessment through an audit. She noted that although a taxpayer might voluntarily file a return, he or she would not volunteer to be assessed. Number 488 COMM. REXWINKEL said that his department assessed additional taxes. He added that the reason that there was such a huge amount of back taxes outstanding was because they were looking into the old windfall profits and ceiling prices and other old issues. Today, he noted, taxpayers were paying on spot prices, so no big, new assessments were being created. They did not consider this to be a "windfall situation," he added, but just a simple instance of routine tax collection. Number 507 REP. PHILLIPS asked about the incident to which the commissioner had referred earlier in which the Department of Revenue and the Department of Natural Resources had disagreed about what fund a certain $60 million should go into. Number 516 COMM. REXWINKEL responded that the money had gone into the general fund. He noted that he never said it was $60 million. He said that Rep. Larson had spoken about $60 million coming out of the constitutional budget reserve fund and Rep. Brown mentioned $60 million in some context. He said that there was more money involved in the TAPS issue. He noted that some money had been taken out of the general fund and moved into the constitutional budget reserve fund. An audit had shown the "misapplication" of some receipts. He noted that the audit was not yet complete. Number 540 CHAIRMAN PORTER asked if transfers had been already made due to the auditing process. COMM. REXWINKEL replied that transfers had been made both ways, both from the general fund to the constitutional budget reserve fund, and from the reserve fund to the general fund. Number 543 REP. PHILLIPS asked if there were currently $210 million in the administrative settlement account. COMM. REXWINKEL said that there was approximately that amount in the administrative settlement account, and approximately $625 to $640 million in the constitutional budget reserve account. Number 556 CHAIRMAN PORTER asked about the approximately $3 billion still in dispute. COMM. REXWINKEL said that, including interest and penalties, the amount was higher than that. Number 560 CHAIRMAN PORTER asked how much of that amount would go into the budget reserve fund instead of into the administrative settlement account. Number 564 COMM. REXWINKEL said that at this time, most of that money was not in the formal hearing process, but still in the informal hearing process. He estimated that probably less than one-fourth of the money would go into the budget reserve fund. He noted that some of these matters went back as far as 1978 and were very difficult to settle. Number 577 CHAIRMAN PORTER stated that under the present situation, $2.5 billion could potentially come into the general fund. Number 583 COMM. REXWINKEL said that was possible. CHAIRMAN PORTER asked if Commissioner Rexwinkel would call that a "windfall." COMM. REXWINKEL said that he would not refer to it as a windfall, but rather a collection of taxes due the state. He said that he did not view the collection of a debt as a windfall. Number 593 CHAIRMAN PORTER asked why there was sometimes a delay of two years between the request for a formal hearing and the date that hearing began. Number 597 COMM. REXWINKEL said that he did not know how long these hearings were delayed. He added that formal hearings were very expensive undertakings. Number 602 CHAIRMAN PORTER asked if he had misunderstood about the delay of up to two years in initiating a formal hearing. Number 603 COMM. REXWINKEL said there was often a long period of time between the request for a formal hearing and the initiation of that hearing. Once a formal hearing was complete, he added, the department needed to do additional work to finalize the process. He likened the formal hearing process to a trial, where much of the work was done before and after the actual "trial" occurred. Number 619 CHAIRMAN PORTER asked if the approximately $210 million in the administrative settlement account was to be expended in fiscal year 1994. Number 624 COMM. REXWINKEL noted that the account that Chairman Porter was referring to was a sub-account of the general fund. The purpose of that sub-account was not to hold it in reserve, but simply to keep track of it in case adjustments needed to be made later. Number 635 REP. PHILLIPS asked if the department were pretty sure that the administrative settlement money was general fund money, or if there were a possibility that it would end up in the constitutional budget reserve fund. Number 639 COMM. REXWINKEL replied that his department was reviewing the settlements which had come in since July 1, 1990, to make sure that the receipts were deposited into the correct fund. Out of the $210 million, he noted, about $150 million was thought to have been collected after the six-month period. Number 651 CHAIRMAN PORTER asked about the additional taxes assessed by the Department of Revenue as a result of audits, and the impact of HB 58 on where those additional tax revenues would go. Number 660 COMM. REXWINKEL said that three-quarters of the back taxes owed were production taxes and one-fourth were income taxes. He commented that, currently, the amount of additional assessments were very little, due to changes in the way that taxes were calculated. Number 700 CHAIRMAN PORTER ascertained that committee members had no further questions for Commissioner Rexwinkel. He thanked the commissioner for appearing before the committee. TAPE 93-5, SIDE A Number 000 JIM BALDWIN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, addressed the committee next. He thanked Rep. Brown for introducing HB 58. He said that he and Attorney General Charlie Cole stood behind the opinion they issued last year. He explained how that opinion was formed. MR. BALDWIN explained that the constitutional amendment was drafted, to a great extent, on the floor of the House of Representatives. Substantial consideration was given to a bill that had been adopted by the House Finance Committee, but that bill was combined with another measure on the House floor to create the constitutional amendment. Consequently, he noted, there was not a comprehensive set of minutes relating to the amendment with which to determine intent. He said that determining intent for a constitutional amendment was different than determining intent for a statute. Because constitutional amendments appeared on the ballot, the intent of the voters and the intent of the drafters of the amendment must all be taken into consideration. Number 100 MR. BALDWIN stated that the Department of Law attempted to consider the intent of the legislature and the voters when the opinion was drafted. Statements made by the drafters of the amendment now, after adoption of the amendment, would not be considered relevant by a court, which would look at pre-enactment statements of intent. He said the Department of Law had attempted to clarify the intent of the amendment through a legal opinion. Another way to clarify an amendment was for the legislature to pass further legislation. The courts would use a new statute as evidence of an attempt to clarify an ambiguous provision. MR. BALDWIN noted that by passing clarifying legislation, the legislature would be acting more like a court than like a legislative body. The legislature's opinion would be weighed just like a judge's opinion or the attorney general's opinion. Number 130 MR. BALDWIN said that the Department of Law saw no rationale for HB 58's imposition of an arbitrary six-month time limit. They saw it as an unacceptable compromise. He said other provisions of HB 58 were very helpful. As for the six-month time limit, he urged the committee to stick with the structure set out in the attorney general's opinion - that "administrative proceeding" did not begin until a formal conference was requested. He said that he agreed with Rep. Brown that one deadline was the same as another deadline in terms of strategy when dealing with taxpayers. However, he noted that setting out a particular time period, at which revenues would cease to enter one pool of money and begin to enter another, would give a strategic advantage to the "other side." MR. BALDWIN stated that he felt it was unwise to have a set date in time at which funds would be channeled into a particular pot of money. He noted that usually what triggered a request for a formal conference was a hard and fast determination of dollar and time costs. He added that the Department of Law never based decisions on where the money would go, but just worked toward getting those dollars in the first place. They did not want to have to look at where the money would be going. MR. BALDWIN said that a very valuable provision of HB 58 could be found on page 2, lines 3-7. He stated that this provision clarified what future settlements or outcomes of litigation would not go into the constitutional budget reserve fund. Number 210 MR. BALDWIN then called the committee members' attention to page 2, lines 8-13, of HB 58. He noted his concern over the wording on line 12. He felt that the language could be very broadly interpreted. He said this particular provision of HB 58 sought to clarify that the trigger for use of the budget reserve funds would come before the state had exhausted every conceivable pot of money it held. However, he noted that he still felt that the language in the bill was imprecise and open to interpretation. Number 293 MR. BALDWIN noted another concern that he had with HB 58, located on page 2, lines 16-21. He said the amendment held that money taken out of the budget reserve fund and used for government operations had to be replaced the following year. He said HB 58 provided for that replacement through a device known as a "transfer." He noted that this amounted to the legislature giving Commissioner Rexwinkel the power to select money and put it into the budget reserve fund without going through the appropriation process. He said he was uncomfortable with this provision because the legislature wielded the power of appropriation. He stated that this provision could deprive future legislatures of the power to appropriate funds to the budget reserve fund. Number 343 REP. NORDLUND asked if Mr. Baldwin would agree that a lot of ambiguity existed in the constitution in terms of what an administrative proceeding was. He added that HB 58 attempted to provide some definition. He noted that he was not sold on the arbitrary six-month dividing line. He asked if Mr. Baldwin had a counter-proposal to offer. Number 355 MR. BALDWIN stated that he did not have a counter-proposal. He indicated that Attorney General Cole was more skeptical than he about the legislature's ability to clarify a constitutional provision. He cited language in the constitution and said that the Department of Law's view was that the language referred to litigation and situations similar to litigation. He reiterated Commissioner Rexwinkel's view that the informal conference stage consisted solely of wrapping up audit issues and defining further issues. He noted that the Department of Law, in its legal opinion, was attempting to preserve the legislature's powers and harmonize those powers with the provisions in the constitutional amendment. He said the legislature had the sole power to appropriate funds, and the amendment deprived the legislature of some of that power. Number 397 REP. NORDLUND stated that he appreciated the Department of Law's attempts to preserve the legislature's powers, but he felt that this would continue to be a problem and ought to be solved through legislation. Number 400 MR. BALDWIN indicated that he agreed with Rep. Nordlund. He added that, out of the four points about HB 58 discussed, he felt that two of them were excellent, one of them needed more work, and he did not agree with the fourth point. He noted his willingness to work with the legislature on a compromise. CHAIRMAN PORTER commented that, as a voter, he had been under the impression that the bulk of the money that was still in dispute would go into the budget reserve fund instead of into the general fund. Under the Department of Law's interpretation, however, it seemed like the bulk of the disputed funds would end up back in the general fund. In his opinion, that violated the intent of the constitutional amendment. Number 424 MR. BALDWIN said that the legal opinion did not look at the money, but rather at the text of the amendment. They did not look at the issue of whether or not the state would have general fund dollars or less-accessible budget reserve fund dollars. He stated that he stood behind the legal opinion, but added that the amendment itself was ambiguous and open to interpretation. Number 464 CHAIRMAN PORTER asked if there would have been a different result if numbers had been addressed, instead of days, when determining the cut-off point for funds. Number 475 MR. BALDWIN said that if this had been addressed in the body of the amendment itself, that would have been better, but it was difficult to speculate. He said that the court system said that the legislature's interpretations in the form of statutes would be given great weight if they were not clearly erroneous. He cautioned the committee to not radically depart from the wording of the constitutional amendment. He felt that the definition of terms used in the amendment would be a more defensible action. Number 489 CHAIRMAN PORTER asked if the formal and informal conference procedures were internal Department of Revenue policy, or part of the Administrative Procedures Act. MR. BALDWIN said that those tax procedures were not covered by the general Administrative Procedures Act. CHAIRMAN PORTER asked Mr. Baldwin if he would characterize the informal and formal conference process as being part of the same procedure. Number 505 MR. BALDWIN commented that they were two separate processes. The informal conference procedure was more or less a wrap-up of the audit process, he noted. Once the taxpayer crossed the line into the formal process, he said, rights became an issue and were adjudicated. Number 520 REP. JAMES asked what "administrative proceeding" would mean if money were not involved. Number 538 MR. BALDWIN said that in their opinion, they sought to define "administrative proceeding," starting with the dictionary. The definitions that they gleaned told them that proceeding meant something similar to litigation. He said that to answer Rep. James' question, he would need her to provide more information. Number 555 REP. JAMES said that she was referring to any complaint that a person would have against an agency. She cited an example of a member of the public having a dispute with a clerical worker in a state agency, and the matter perhaps being referred to a supervisor, and later to the commissioner of the department. Where in that process, she asked, would Mr. Baldwin call it an "administrative proceeding?" Number 582 MR. BALDWIN said that he could not give her a legal answer to her question. He noted that there were many different administrative procedures in state law, including the Administrative Procedures Act. Often, departments had their own procedures, however. He said that the legal opinion was tailored to the procedures used by the Department of Revenue. Number 600 REP. JAMES said that she was trying to address what the general public would consider an administrative proceeding. Number 604 CHAIRMAN PORTER determined that the committee had no further questions for Mr. Baldwin. He noted that he felt it would be premature to take a vote. He invited Rep. Brown and Rep. Larson to address the committee again. Number 612 REP. LARSON mentioned a letter that he had received from the administration which stated: "As a follow-up to our meeting this morning, the Administration has agreed that the administrative settlements which the Attorney General previously identified as erroneously deposited in the constitutional budget reserve fund will be placed in a separate account." REP. LARSON added that the letter also stated that the action was taken with the following understanding: "The Administration will access these funds should the Commissioner of Revenue determine it is necessary to do so because the cash available in the general fund is insufficient to meet the state's obligations." and (2) "The Legislative Budget and Audit Committee and Administration will work on legislation during the interim for introduction next session which will clarify implementation of the constitutional amendment." REP. LARSON said he assumed from the letter that the money in dispute was in a separate account. He said he would like to know if that were true or not. He would also like to know that, if it were not in a separate account, when there had been insufficient funds to meet the state's needs, therefore requiring that the money be taken out. Number 634 CHAIRMAN PORTER said that if he recalled correctly, the commissioner of Revenue said that the money referred to in the amendment was separately accounted for. He added that the commissioner had indicated that the $210 million was scheduled, to a certain extent, to be spent in fiscal year 1994. He added that the statutory reserve amount at the end of fiscal year 1993 was $27 million. If the $210 million was a part of that total, he noted, it had been depleted by a considerable amount. Number 649 REP. LARSON said that they were dealing with a moving target. He stated that on August 27, 1992, the Legislative Finance Division showed adjustments to fiscal year 1992 revenues as $140.6 million, which included a $61 million reversal of deposits in the constitutional budget reserve fund. On December 3, 1992, the constitutional budget reserve fund had $620.5 million, which included the adjustments by the Department of Revenue in line with the attorney general's opinion. Number 661 REP. BROWN said that, in response to her request for an accounting of how much money was in the settlement account, on December 2, 1992, she was told that there was $103+ million in the account as of October 31, 1992. That amount included the $94.3 million in the account plus $8.9 million in interest. She added that she was now very confused to learn today that the amount had grown to $210 million. She reiterated the need for a good accounting of what is going on with the money. REP. BROWN said she agreed with Commissioner Rexwinkel's comments about the language at the top of page 2 in HB 58. She said she recommended that the word "begun" on line 2 be changed to "been requested" so that the request was the triggering point. REP. BROWN indicated that she felt that the legislature's intent was clear with regard to the term "administrative proceeding." She stated that she was shocked when the attorney general's opinion came out, and she had asked for Tam Cook's opinion on the attorney general's interpretation. She said that she would provide that opinion to the committee. She said Ms. Cook's opinion differed from that of the attorney general. She noted that the term "administrative proceeding" was already in Title 43 of the Alaska statutes. Number 720 REP. BROWN stated that her understanding was that HB 58 would not affect the current budget, nor the monies in the administrative settlement fund. She noted that HB 58 was not retroactive. She said she understood that the legislature could, if it wished to, do something about the money which was now in the general fund. However, she saw that as a separate issue. CHAIRMAN PORTER asked Rep. Larson if he thought HB 58 could be amended so as to allow for the resolution of differences between the legislature and the administration. REP. LARSON replied that he thought it was possible. Number 749 MR. BALDWIN said that he did not have the authority to compromise on the issue of where the dividing line stood. He suggested that the sponsor discuss the issue with the attorney general. He said the legislature had the authority to further define the constitutional amendment. He said he could not promise that the policy issue could be resolved, however. Number 761 CHAIRMAN PORTER said that it appeared, from a letter from Shelby Stastny of the Office of Management and Budget, that the original intent was to try to work out an agreement between the administration and the legislature as to how to interpret the constitutional amendment. He suggested that the committee delay action on HB 58 until Rep. Larson and his designee(s) participated in negotiations with the attorney general to try to come up with acceptable language. Number 780 REP. LARSON indicated that he, Mr. Baldwin, Attorney General Cole, and a member of the Judiciary Committee could discuss language for HB 58. Number 785 CHAIRMAN PORTER said that either he or Vice Chair James would serve on that "subcommittee." He invited any other Judiciary Committee members who wanted to participate in the negotiations as well. Without objection, he told Rep. Larson to set up a meeting on the issue. He added that he would reschedule HB 58 when the subcommittee came up with acceptable language. REP. NORDLUND asked that the subcommittee clarify whether or not HB 58 was retroactive. REP. BROWN noted that if the bill were to be retroactive, that would have to be specifically spelled out in the language of the bill. Number 811 REP. DAVIDSON asked if Rep. Brown and Rep. Larson preferred that HB 58 be retroactive. Number 812 REP. LARSON said that his preference was to not make the bill retroactive. Number 821 CHAIRMAN PORTER thanked Rep. Brown and Rep. Larson for appearing before the committee. He called the committee members' attention to three additional bills which the court system was asking the Judiciary Committee to introduce on its behalf. He asked committee members to look over the bills and said they would discuss their introduction the following week. He stated that he and Senator Taylor intended to appoint a joint subcommittee to address the recommendations of the Sentencing Commission. Number 847 REP. NORDLUND commented that there might already be bills introduced that could be amended to incorporate some of the Sentencing Commission recommendations. Number 858 REP. PORTER indicated that he had hoped to have Terry Cramer of the Legal Services Division brief the committee on the new ethics law prior to holding hearings on the public members of the Ethics committee, but her absence indicated that she had not yet finished briefing members of the Senate Judiciary Committee. He added that he would try to contact her and pass on any specific, important points that she might have to the members via memorandum. ADJOURNMENT CHAIRMAN PORTER adjourned the meeting at 3:22 p.m.