SENATE BILL NO. 226 "An Act relating to receipts of certain state agencies and the accounting for and disposition of those receipts; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated that this legislation would amend the manner in which the State budget categorizes certain revenue by re- designating 65 special purpose account revenues as general funds. He noted that the Senate Rules Committee by Request of the Governor sponsors this legislation. CHERYL FRASCA, Director, Office of Management and Budget, Office of the Governor, explained that State funds are categorized as General Funds, Federal Funds, or Other Funds. She shared that the goal of this legislation would be to re-categorize funds in order to curb the "erosion" of the General Funds column that is occurring as the result of more fund sources having been designated as Other Funds. Ms. Frasca referred the Committee to the spreadsheet titled "State of Alaska FY 2005 Governor Amended Fiscal Summary," [copy on file] which she identified as being an extraction from the Office of Management and Budget December 2004 Fiscal Summary. To further the position that the Other Funds category, with an FY 04 level of $1.1 billion, has been eroding the General Funds column, she pointed out that the Other Funds category has experienced a 55 percent increase since its FY 96 level of $629 million. During that same timeframe, she continued, the General Funds column has reduced from $2.5 billion to $2.3 billion, and as a result, she noted, "there is much more continued pressure on the General Fund to fund what traditionally are very basic traditional responsibilities of government" such as public safety, the State troopers, the Court System, Department of Corrections the Legislature, the Governor's Office, and Department of Transportation and Public Facilities highway maintenance. In addition, she communicated that the ability of the State to support its traditional responsibilities has also been negatively affected, over time, by the decrease in oil revenues. Ms. Frasca pointed out that the State's Constitution prohibits dedicated funds, with the exception of dedicated funds that were grandfathered at Statehood and the Permanent Fund Program, which was approved via a statewide ballot measure. She read an excerpt from the 1955 Constitutional Convention's Finance and Taxation Committee document titled "Commentary on the Article on Finance and Taxation" [copy on file] which warns against dedicating funds as follows: "Even those persons or interests who seek the dedication of revenues for their own projects will admit that the earmarking of taxes or fees for other interests is a fiscal evil. But if allocation is permitted for one interest the denial of it to another is difficult, and the more special funds are set up the more difficult it becomes to deny other requests until the point is reached where neither the governor nor the legislature has any real control over the finances of the state." Ms. Frasca opined that "in practice," less scrutiny is provided to items funded via Other Funds, and, as a result, she continued, "there is tremendous pressure and demand on the General Funds side of the column." Therefore, she continued, the goal of this legislation would be to "re-cast the way we categorize funds so that the General Funds column has more dollars," that the State could allocate based "on the highest and best use." She shared that in the FY 05 Operating Budget there are 117 designated fund sources of which four are classified as General Funds, eight relate to Federal Funds, and 105 are designated as Other Funds. This legislation, she shared, would shift $160 million currently categorized as Other Funds into the General Fund column. Ms. Frasca noted that a letter she sent to Senator Wilken on March 11, 2004 [copy on file] contains a spreadsheet detailing the $160 million of Other Funds that would be transferred to the General Fund. Ms. Frasca suggested that this legislation be further considered during the upcoming Legislative interim. Senator Bunde categorized it as "ironic" of the Administration is desiring to shift special funds back into the General Fund, as he pointed out that separate legislation is being proposed that would dedicate Permanent Fund earnings for education. Ms. Frasca responded that that issue would require a Constitutional Amendment to be approved by a vote of the people. Senator Bunde expressed that "the underlying argument is still the same, we ought not to tie our hands." Ms. Frasca acknowledged Senator Bunde's comment as being "a good point." Co-Chair Wilken commented that the accounting mechanism being presented in this legislation creates "tension …between a dedicated fund and the concept that the cost causer is the cost payer." He voiced comfort with the current system as he pointed out that the Legislature has the ability to access excess money in dedicated funds or to reappropriate funds elsewhere were it considered that the funds were being used "unwisely." He opined that the Legislature has been "driven" in recent years to "square up the need with the revenue stream." Co-Chair Wilken voiced appreciation for the efforts exerted on this legislation, and agreed that work on it could continue during the interim. The bill was HELD in Committee.