#sjr3    CS FOR SENATE JOINT RESOLUTION NO. 3(JUD)  Proposing an amendment to the Constitution of the State of  Alaska relating to an appropriation limit and a spending  limit.      This was the tenth hearing for this bill in the Senate Finance  Committee.    Co-Chair Wilken specified that this legislation would implement  a Constitutional spending limit.    Senator Dyson moved to adopt the committee substitute, Version  23-LS0296\Z as the working document.    Senator Hoffman asked for confirmation that the Version "Z"  committee substitute encompasses previously adopted amendments.    Senator Dyson responded affirmatively.    There being no objection, the Version "Z" committee substitute  was adopted as the working document.    Senator Dyson, the bill's sponsor, noted that the Administration  has explained that due to four years of "budget restraints,"  there is "an artificial distortion in the application of the  formula in the out years." Therefore, he continued, the  Administration had requested that the base years' numbers be  adjusted "in order to make the formulas smooth and work for the  expected and reasonable expansion of the budget." He attested  that this had been done. Subsequent to that, he continued, the  adoption of Amendment #12 at the previous meeting, "distorted  how the formula works" in that it exempted all University  receipts from the appropriations calculation.    CHERYL FRASCA, Director, Office of Management and Budget, Office  of the Governor, noted that the action of "amending out the  University of Alaska's receipts had the affect of removing" $150  million of spending from the total amounts available for  appropriation for FY 04 and FY 05. Therefore, she recommended  that $150 million be removed from the appropriation calculation  formula base years of FY 2004 and FY 2005 as specified in Sec.  2, subsection Section 30 (1) and (2) on page three, lines 21 and  22 in Version "Z". She specified that this would reduce these  numbers to $3,150,000,000 and $3,250,000,000, respectfully.    Ms. Frasca also noted that a grammatical correction should occur  in Section 1, subsections Section 16 (1) on page one, lines 13  and 15, and Section 16 (2) on page two, line 3, in which the  words "second" and "third" should be replaced with the word  "two." This language currently reads as follows.     (1) the percentage rate of change in the Consumer  Price Index for all urban consumers for the Anchorage  metropolitan area compiled by a federal agency during the  second and third calendar years preceding the calendar year  during which the immediately preceding fiscal year began,  but not to exceed the percentage change in personal income  of State residents during the second and third calendar  years preceding the calendar year during which the  immediately preceding fiscal year begins; plus   (2) the percentage rate of change in the State  population during the second and third calendar years  preceding the calendar year during which the immediately  preceding fiscal year began compiled by a State department.    Co-Chair Green asked whether changing this language would have  an affect on the calculation formula.    Ms. Frasca responded that it would not.    Amendment #13: As a result of exempting University of Alaska  receipts from the appropriations calculation, this amendment  reduces the total FY 04 and FY 05 appropriation amounts  reflected on page three, lines 21 and 22 from $3,300,000,000 to  $3,150,000,000 and from $3,400,000,000 to $3,250,000,000,  respectfully.    Co-Chair Green moved for the adoption of Amendment #13 and  objected for discussion.    Co-Chair Green asked for a review of the calculation formula  from which the original FY 04 and FY 05 base year levels of  $3,300,000,000 and $3,400,000,000 were derived.    BRUCE TANGEMAN, Fiscal Analyst, Legislative Finance Division,  informed the Committee that these amounts were determined by  reviewing the appropriation amounts for several years prior to  FY 2004, as he informed, the FY 2004 and FY 2005 amounts were  unavailable. He stated that the resulting calculation provided a  base to which a growth factor was applied. Therefore, he  concluded that the formula provided "a safe, fairly known  calculation for what's going to happen in 06."    Co-Chair Green understood therefore, that this methodology  provided a "floor" from which to determine future calculations.    Senator Dyson stated that Co-Chair Green's comment is correct.  Continuing, he clarified that this legislation would establish a  "floor on the spending limit, not on our spending."    LUCKY SCHULTZ, Staff to Senator Fred Dyson, noted that another  consideration in the "adjusted base year" calculation was to  determine an amount that would provide adequate growth,  respectful of the funding reductions that occurred over the past  several fiscal years and of how the "no ratchet down provision  is written." He continued that were these adjustments not  incorporated, the end result would have been a "no-growth limit"  for the first several years after the legislation's enactment,  which, he attested, would have resulted in a difficult situation  under which to operate.    Co-Chair Green ascertained therefore, that, rather than  incorporating two formulas, the calculation was adjusted to  provide for FY 04 and FY 05.    Senator Dyson agreed and noted that this is addressed in the  bill via the term "transition."    Senator Hoffman asked whether a chart has been provided to  reflect the funding reductions proposed in this amendment.    Mr. Tangeman responded that a corresponding chart has not, of  yet, been provided.    Senator Dyson pointed out that the slope of line would be the  identical to that depicted in the CS SJR 3 chart [copy on file]  except that the line would be positioned approximately $150  million lower on the graph. He noted that an updated chart would  be provided.    Senator B. Stevens asked what constitutes the $150 million in  University receipts.    Ms. Frasca responded that, originally, the University receipts  category amounted to approximately $200 million. She reminded  that earlier Committee action exempted the University's tuition  revenue, amounting to approximately $50 million, from the  calculation. Therefore, she stated, Amendment #12 served to  exclude the remaining $150 million balance.    Senator Hoffman inquired whether inflation-proofing and  population projections attributed to the decision to exempt  University receipts from the calculation.    Ms. Frasca responded that she could not provide an answer, as  rather than being an amendment proposed by the Administration,  the amendment was proposed by a Committee member.    Co-Chair Green asked for confirmation that the University's  previous years' receipt revenues had been excluded from the  calculation used to determine the adjusted base year levels.    Mr. Tangeman assured that they had been.    Senator Dyson, responding to Senator Hoffman's question,  characterized the University receipts being excluded as  "enterprise activity" receipts generated from such things as  ticket proceeds from hockey programs or book sales. He viewed  these activities as having "no impact on the general fund," and  furthermore, he stated, were the University's economic analysis  to reflect that they should or could charge more for activities,  the Legislature should not restrict them from doing so.    Co-Chair Green asked whether other State entities might request  similar exemptions.    Ms. Frasca responded that no others had opted to make a request  of this nature to the Administration. Furthermore, she stated  that the Administration's "challenge" is to provide sufficient  "general fund dollars to support core responsibilities of  government." Continuing, she noted that several State programs,  such as the Division of Motor Vehicles, generate receipts in  excess of "what it costs to perform their functions." Therefore,  she continued, it would be expected that were excess receipts  generated by a program, that program would not be entitled to  spending the excess funds as some contribution to core  government services, such as the Department of Corrections which  does not generate receipts, should be expected. She stated that  a program's ability to generate revenues does not signify that  the program has "first claim," to spending them. Therefore, she  concluded that every program "should compete to the degree  that's appropriate" for general fund dollars.    Co-Chair Green commented that general fund monies are annually  distributed based on competing needs via the appropriation and  priority process.    Ms. Frasca agreed and stated that a "scrutiny" process evolves  from which a determination of expenditures is made. She noted  that other legislation is pending that proposes to reclassify  designated funds and deposit them into the general fund column.    Co-Chair Wilken reviewed the effects of the amendment on the  amounts detailed in the FY 04 D-24 component, the FY 05 E-24  component, the FY 06 F-24 component, and the FY 07 G-24  component of the "SJR 3" chart [copy on file] that was provided  by Legislative Finance.    Mr. Tangeman replied that the FY 04 D-24 component and the FY 05  E-24 component on the aforementioned chart would each be reduced  $150 million, to $3,150,000,000 and $3,250,000,000,  respectfully; the FY 06 F-24 component would be reduced to  approximately $3,330,000,000; and the FY 07 G-24 component would  change to an undetermined amount.    Co-Chair Green removed her objection.    There being no further objection, Amendment #13 was ADOPTED.    Conceptual Amendment #14: This amendment changes language in  Section 1, subsections Section 16 (1) on page one, lines 13 and  15, and Section 16 (2) on page two, line three, in that the  words "second" and "third" would be replaced with the word  "two." This language would read as follows.     (1) the percentage rate of change in the Consumer  Price Index for all urban consumers for the Anchorage  metropolitan area compiled by a federal agency during the  two calendar years preceding the calendar year during which  the immediately preceding fiscal year began, but not to  exceed the percentage change in personal income of State  residents during the two calendar years preceding the  calendar year during which the immediately preceding fiscal  year begins; plus   (2) the percentage rate of change in the State  population during the two calendar years preceding the  calendar year during which the immediately preceding fiscal  year began compiled by a State department.    Co-Chair Wilken moved to adopt Amendment #14.    There being no objection, Amendment #14 was ADOPTED.    Co-Chair Wilken asked for further information regarding the Fund  Code language that is included as depicted in the handout titled  "Fund Codes Included in Limit" [copy on file]; specifically  whether the reference to such things as the Alaska Marine  Highway (AMH), code 1076, would signify that an increase in the  passenger fares or ridership would be subject to the spending  limit.    Mr. Tangeman confirmed that they would be.    Co-Chair Wilken questioned the rationale for this provision.    Ms. Frasca theorized that an increase in AMH revenue as a result  of increased fares or ridership might result in AMH requiring  fewer general fund dollars as those monies would be deposited  into the AMH fund to fund AMH operation expenses. She  additionally noted that this legislation is a limit on spending  as opposed to limiting fund sources.    Co-Chair Wilken asked whether the $91 million denoted for the  International Airport Fund, Code 1027, is an enterprise fund  comprised of such things as landing fees.    Ms. Frasca affirmed.    Co-Chair Wilken asked the rationale for its inclusion, as he  likened it to "discretionary funding on behalf of the  Legislature."    Ms. Frasca noted that the proceeds from bonds that were sold,  and whose the debt service was paid by the International Airport  Fund, are excluded in the Capital Budget. Continuing, she  pointed out that the Fund Code list includes several fund  sources that would continue into the future. Furthermore, she  stated that the question is how much would they increase from  one year to the next. She exampled that were a new terminal to  open within the next four years and result in a significant  increase in revenue, it might "cause some concern."    Co-Chair Wilken asked regarding the Alaska Aeronautical  Development Corporation (AADC), Fund Code 1101, whose "budget is  characterized by feast or famine" in that it might receive ten  million dollars one year and zero the next.    Ms. Frasca responded that AADC funding primarily consists of  federal receipts, which are exempt from the limit. She noted  that revenue from such things as contracts with private firms  for certain services would also be exempt.    Mr. Tangeman also noted that these fund sources reflect current  funding conditions. He noted that were this legislation to be  adopted, more in-depth analysis would be conducted on the  components of each fund source as he exampled that included in  the AADC Fund Code 1101 might be a combination of revenues such  as private contract revenue.    Co-Chair Wilken asked whether the sale of State land,  specifically Fund Code 1153, would count against the general  fund spending limitation.    Ms. Frasca responded that currently it would. However, she noted  that the proceeds from those sales would normally support  functions within the Department of Natural Resources. Continuing  she noted that general fund dollars have been supplanted with  the State land proceeds. She reiterated that this legislation  addresses how funds are spent rather than how funds are  generated.    Ms. Frasca further noted that the International Airport Fund  Code might consist of contractual relationship between the  airlines and the airport, which she reiterated would be exempt  from the limit.    Senator Dyson commented that this is an informative list as it  "really is the delta between the numbers that we see and what we  generally think of as general fund."    Co-Chair Wilken asked the identity of the Fund Cod 1180 A/D P&T  Fd as listed on the list.    Ms. Frasca identified it as the Alcohol and Drug Prevention and  Treatment Fund.    Co-Chair Wilken asked regarding Fund Code 1168 Tob ED/CES and  Fund Code 1170 SBED RLF.    Ms. Frasca, Mr. Schultz, and Committee Members identified those  Fund Codes as the Tobacco Education and Cessation Fund and the  Small Business Economic Development Revolving Loan Fund.    Senator B. Stevens asked whether any Fund codes were excluded  from the list.    Mr. Tangeman replied that the Fund codes not included in the  list would be those of the university; those that are federally  funded; trust funds; and approximately 15 dedicated fund codes.    Ms. Frasca stated that approximately 20 fund codes not are  included.    Senator B. Stevens asked for confirmation that the fund code  identified as 1179 PFC is the Permanent Fund Corporation.    Ms. Frasca replied that this Fund code pertains to the operation  of the Corporation itself.    Senator B. Stevens asked for further information, such as  whether this Code pertains to billable amounts or is the result  of a formula distribution.    Ms. Frasca responded that it is based on the budget.      SFC 04 # 70, Side A 10:42 AM      Senator B. Stevens asked for specific information regarding how  the amount was determined.    Ms. Frasca responded that in terms of the Corporation itself,  the number is based on the budget approved by the Legislature.  Continuing, she noted that this item might be related to  management fees of the Permanent Fund. She noted that were a  large amount being invested, "there is the potential for it to  be extraordinary." This situation, she stated might require  Legislative action.    Co-Chair Wilken stated that staff has informed him that rather  than Fund Code 1179 pertaining to the Permanent Fund Corporation  it pertains to Passenger Facility Charges.    Mr. Tangeman concurred that Fund Code 1179 is, in fact,  Passenger Facility Charges [PFC] and that Fund Codes 1041 and  1105, which are not included on the list, pertain to the  Permanent Fund Corporation.    Senator B. Stevens asked whether the Passenger Facility Charges  Fund Code is a component of the Alaska Marine Highway System or  the Department of Transportation and Public Facilities.    TRACI CARPENTER, Staff to Senator Green, responded that the  Passenger Facility Charges are airport fees.    Senator B. Stevens questioned therefore, whether the inclusion  of this Fund in the Appropriation Limit would negatively affect  the spending limit were an increase in international or tourism  travel to occur as a result "of success in a non-government  entity."    Ms. Frasca responded that that could occur.    Senator B. Stevens asked, therefore, that the PFC component's  inclusion in the Limit be further reviewed. Continuing, he asked  whether "encouraging non-government enterprise to utilize  renewable resources," such as the Timber Receipts Fund Code  1155, for example, could have the same result as the PFC  component.    Mr. Tangeman concurred that it would.    Senator B. Stevens voiced the understanding that this  legislation is a limit on spending as opposed to a limit on  revenue. However, he voiced concern regarding the process were  an increase in revenue to occur. He asked for verification that  the revenues generated from various Fund Codes would be  deposited into the general fund.    Ms. Frasca responded that while the revenue would be deposited  into the general fund, it would be allocated to these designated  Receipt Funds, which have been established by the Legislature.    Senator B. Stevens surmised therefore that these Fund Source  Codes are established to fund such things as the Department of  Natural Resources "or some other mechanism."    Ms. Frasca affirmed. She stressed that the challenge is how to  place a limit on how much the State could spend regardless of  where the funds generated. She attested that "this is the  spending side of the equation."    Senator Dyson reminded that, in the State's "foreseeable  future," what would be diminished were a spending limit in  place, would be the amount spent from the Constitutional Budget  Reserve (CBR). Continuing, he stated that rather than "limiting  new business and new enterprises and growth" in the future this  legislation would limit the amount of money that the State would  have "to borrow ? while significantly increasing our financial  stability and our wealth."    Co-Chair Wilken asked, for clarification, whether an "available  annual growth" increase of one million dollars from the FY 05  level of $12.4 million to an FY 06 level of $13.4 million in  Fund Code 1179 PFC would decrease the overall FY 06 amount  available for appropriation by the same amount.    Mr. Tangeman responded that this scenario might not be accurate  as he noted that while the FY 05 base is $3.25 billion, it does  not mean that the entire amount would be appropriated. He stated  that were the actual appropriation to be less and were the FY 06  appropriation to be to the limit, then the affect would be an  increase above the FY 05 limit of $86 million. He reminded that  the FY 06 amount is based on estimates for FY 04 and FY 05.  Therefore, he declared that the FY 06 number would be affected  by how much was actually appropriated in FY 04 and FY 05.    Co-Chair Wilken advanced, therefore, to the FY 09 fiscal year  limit specified on the aforementioned CS SJR 3 chart, and noted  that the information depicts that $95 million would be available  in FY 09. Continuing, he asked whether a one million dollar  increase in the PFD Fund Code in FY 09 would serve to reduce the  $95 million to $94 million.    Mr. Tangeman asked that the question be further clarified.    Co-Chair Wilken clarified that it has been experienced in the  past, that when the State received a grant or when the State  "increased the cost of providing government service directly to  the provider," a problem arose in "that that counted as State  spending" with the result being that the State was required to  reduce State spending "somewhere else in the budget an equal  amount." Therefore, he restated his question by asking whether a  one million dollar increase in the PFC Fund would require a one  million dollar reduction somewhere else in the budget such as in  K-12 education.    Mr. Tangeman responded that were the State's spending to be at  the appropriation limit, yes.    Co-Chair Wilken understood, therefore, that were any of the Fund  Code components that are included in the Limit to increase, a  dollar for dollar decrease in the amount available to spend in  that fiscal year would be required.    Ms. Frasca responded that the assumption is that were another  dollar raised, another dollar could be spent by a program.  However, she continued, "the challenge is to say that these  activities don't necessarily have first claim on every dollar  that they bring in. It could be that they also have a general  fund subsidy that is supporting the program." Therefore, she  stated, that general fund subsidy dollar could be replaced with  the excess money raised by the Fund, and the general fund  subsidy could be used, for instance, to support another program  such as K-12 education. That, she attested, is the balance that  could be applied.    Senator Hoffman stated, "therein lies the problem," as he  exampled that were a Legislature's majority party to not support  a certain department's budget, rather than supporting one of the  department's program with excess money the aforementioned  scenario might produce, whatever is determined by the majority  "to be a priority area" would be the area that would receive  that additional funding. This he declared "is a key problem."    Senator Dyson reiterated that for the four-years this  legislation would be in effect, the money that would be reduced  is the money that would be withdrawn from the CBR, and in  addition, he stressed, State debt would be reduced. He declared  that both he and Senator B. Stevens desire that the money that  has been withdrawn from the CBR should be repaid in order "to  rebuild that bridge to the future, and be promise keepers." He  stressed that "the focus" should be that any additional revenues  from these Fund Code sources should "be going to build fiscal  stability, reduce our borrowing, and repay our Rainy Day  accounts. " He declared that, "this is very, very important to a  State that depends so much on the sale of natural resources that  are sold on a world commodity market."    Senator Bunde announced that this legislation "would not result  in a problem that does not already exist," as a Legislative  majority could increase or "attempt to control spending"  regardless of whether a spending limit were in effect. He stated  that were the CBR unavailable then more control might be  exerted, based on "philosophical points of view."    Senator Hoffman responded that "therein lays the argument for  having a spending limit."    Senator Hoffman asked how a one-time emergency or extraordinary  circumstance would be addressed were this legislation enacted,  as he remarked that it is unclear whether the appropriation  language pertaining to emergencies and extraordinary  circumstances, as identified in Section 16, subsection (2)(d)  and (e) located on page two, line 27 through page three, line  five, would be considered a component of the base.    Mr. Shultz pointed out that language in Section 16, on page one,  lines six through ten "is meant to indicate" that emergencies  and extraordinary circumstances would be exempt from the  establishment of a base, and that the base would be the amount  appropriated the previous year.    Senator Hoffman asked whether "the substantial changes" being  made this year to the education budget to address the Public  Employees Retirement System (PERS) /Teachers Retirement System  (TRS) and the student base foundation funding formula would be  considered a component of the base or would, on an annual basis,  be addressed as an extraordinary circumstance.    Mr. Shultz responded that were the expenditure to exceed the  appropriation limit, then it would be required to be considered  as an extraordinary circumstance.    Co-Chair Wilken referred to the aforementioned chart and asked  whether an approximate $50 million dollar PERS/TRS obligation is  included in the FY 06 appropriation limit of approximately $86  million, as identified in Cell (f) (25) of the chart.    Mr. Shultz responded that the base year numbers would allow some  "headroom" for the PERS/TRS obligation for FY 06 and FY 07.    Co-Chair Wilken noted that a $50 million TRS obligation would be  expected for several forthcoming fiscal years. He asked whether  this has been accounted for in the chart.    Mr. Shultz responded in the affirmative. He noted, however, that  the FY 06 number, rather than being the actual number, is  elevated as it is based on an adjusted base year.    Senator Bunde moved to report the committee substitute for SJR  3, Version "Z," as amended, from Committee with individual  recommendations and accompanying fiscal notes.    Co-Chair Wilken objected for discussion.    Senator Hoffman objected. He characterized the Legislature as  being fugal, as it has not budgeted to an established spending  limit in the past. Furthermore, he stated that as priorities are  determined, the Legislature would budget accordingly. While he  understood that this legislation would establish a four-year  spending limit that would be reviewed; he declared, "that the  current system is working quite well." He removed his objection.    Co-Chair Wilken stated that an updated chart and a population  change analysis would be forthcoming to accompany the bill as it  progresses.    Senator Dyson voiced that it would be useful to have "a general  graph" developed to reflect how current spending would be  portrayed were a spending limit in place. He voiced that the  graph should start in the early 1970's in order to reflect the  boom years the State underwent with its oil wealth. However, he  noted that this suggestion has been characterized as being  difficult to produce.    Co-Chair Green asserted that this chart would be "woefully  difficult" to develop as every piece of legislation that  affected the budget would require analysis. She, therefore,  remarked that the current information is adequate.    Co-Chair Wilken remarked that this request would be considered  by Legislative Finance staff.    Senator Hoffman recalled that when the State had a large  quantity of "extraordinary income," and a tremendous amount of  money was available, most votes to use discretionary funds for  such things, as capital projects were unanimous.    Co-Chair Wilken removed his objection.    There being no further objection, CS SJR 3 (FIN) was REPORTED  from Committee with a new $1,500 fiscal note from the Division  of Elections, dated January 28, 2004.