HB 284-COMPACT FOR A BALANCED BUDGET  1:33:50 PM CHAIR COGHILL announced the consideration of HB 284. "An Act relating to an interstate compact on a balanced federal budget." This was the second hearing. 1:34:03 PM ERNEST PRAX, Staff, Representative Wes Keller, Alaska State Legislature, Juneau, Alaska, sponsor of HB 284, reported that Chip DeMoss and Nick Dranias were available to respond to questions that were raised during the previous hearing. 1:34:47 PM CHIP DEMOSS, Chair and CEO, Compact for America, Houston, Texas, advised that in response to requests during the last hearing, he sent details from the McLaughlin polling. He also sent information from an economic study that was performed by two economists who serve on the Compact for America Advisory Council. It gets to the crux of the matter of prioritization of expenditures at the federal level. CHAIR COGHILL summarized his understanding of the requirements of the compact. The governor is the lead from each state and states are contractually bound unless three-fourths agree to a change. MR. DEMOSS agreed that signatory states are bound once the 38th state joins. It is anticipated that Congress will have approved the congressional resolution by then and the convention would be scheduled about 45 days after the 38th state joins. The convention is limited to 24 hours, so everything would be complete in less than two months. CHAIR COGHILL asked if the convention addresses the language that is sent to Congress. MR. DEMOSS clarified that when a state joins the compact, it is pre-ratifying the language of the Balanced Budget Amendment (BBA). Congress presumably will pass a congressional resolution in the near future agreeing to send the BBA, if it's prepared by the convention, back to the state legislatures for ratification. Because the state legislatures have already provided the pre- ratification in the compact, there is no need for any further legislative action by any member state. CHAIR COGHILL asked for an explanation of the 45 days. MR. DEMOSS explained that the convention will be held in Dallas, Texas 45 days after the 38th state joins the compact. This is assuming that Congress will already have agreed to call the convention in accordance with the compact. 1:38:44 PM SENATOR DYSON offered his understanding of the explanation that it wouldn't be necessary for each state to ratify the language in the compact after the convention. MR. DEMOSS agreed. SENATOR DYSON observed that that implies that every state's call for a convention has to be identical in defining the issue that will be worked on during the convention. MR. DEMOSS agreed; the application is in Article 5 on page 9, lines 9-18. The actual resolution prospectively ratifying the BBA, if it is passed at the convention and if it is referred to the state legislatures for ratification by Congress, is in Article 9 on page 14, lines 17-25. 1:41:55 PM SENATOR MCGUIRE joined the committee. CHAIR COGHILL summarized his understanding of the process. NICK DRANIAS, Director of Policy Development and Constitutional Government, Goldwater Institute, Phoenix, Arizona, said the congressional resolution would be a counterpart to the compact and as currently drafted it would be an omnibus resolution with two parts. The first would be the call of the convention and the second would be the selection of legislative ratification. The goal is to pass the singular resolution thereby locking in Congress's commitment to the selection of legislative ratification. CHAIR COGHILL asked if states are bound once [the 38th] state signs the compact. MR. DRANIAS affirmed that entrenchment occurs once 38 states join the compact. That coincides with the effective date of the application for the convention. The intent is to ensure that none of the signing states back out of the process before the convention can meet and vote the proposed amendment up or down. CHAIR COGHILL asked if the cost per delegate is borne by each state. MR. DRANIAS said yes, but it's optional as to whether the state funds the compact commission as it is currently drafted. The only costs anticipated for delegates are the reimbursement of travel expenses. 1:44:56 PM SENATOR WIELECHOWSKI asked if this applies during times of war. MR. DRANIAS answered yes, although the amendment allows two forms of flexibility in the debt limit. First, the ($21 trillion) debt limit can be thought of as a revolving line of credit. If the government were able to pay down some of that debt, it would free up some of that revolving line of credit for use in emergency situations. The second form of flexibility is the ability to lift the debt limit if a majority of state legislatures approve. He pointed out that the federal government only borrows 40-45 percent of every dollar it spends so it has 55-60 percent of each tax dollar in cash flow. He calculated that military spending accounts for less than 20 percent of the overall budget, so the federal government could double or triple its current military expenditures without having to borrow. SENATOR WIELECHOWSKI questioned how continuing to allow $21 trillion in debt could be construed as seeking a balanced federal budget. MR. DRANIAS replied it's ironic, but the only way to restrict the ratio of spending to taxes, in a way that can't be gamed, is to allow some degree of borrowing flexibility to handle cash flow volatility. A number of states discovered that having a balanced budget requirement in their constitutions also provides for a limited amount of debt capacity. He cited Arizona and New Mexico. The problem was that the states tied the definition of "balanced" to budget projections rather than to cash flow. He acknowledged that the revolving line of credit more reasonably should be $1-2 trillion, but the federal government has accumulated $21 trillion in debt. Fortunately, over time the economic impact of that borrowing capacity will shrink relative to the economy, he said. SENATOR WIELECHOWSKI asked if he foresees that federal funds flowing to Alaska would decrease if this amendment were to pass. He noted that currently that is more than $15,000 per Alaskan. MR. DRANIAS replied it's difficult to predict how the federal government will allocate the more limited funds it has discretion to allocate. SENATOR WIELECHOWSKI wondered if it wouldn't be better to have someone other than the governor to serve as the delegate. MR. DRANIAS responded that it would not threaten the compact for a state to change the default selection from the governor to up to three delegates that the legislature selects, but his opinion is that the better policy is to have the governor as the sole delegate. SENATOR WIELECHOWSKI asked, if the goal is to reduce the national debt, why it shouldn't take two-thirds of the states to increase the debt limit rather than a simple majority. MR. DRANIAS replied he would like the number to be nine-tenths, but if the bar is set too high it won't happen at all. He opined that this isn't perfect, but it's a vast improvement over the status quo. 2:00:34 PM SENATOR WIELECHOWSKI observed that the bill gives the president sweeping authority over the budget process. He asked if the bill basically rewrites Articles 1 and 2 of the U.S. Constitution, which explicitly places all legislative power in Congress. MR. DRANIAS answered no; that reference is to the impoundment regulation in the amendment. Impoundment is the executive ability to delay or reprioritize spending to match cash to bills. The president currently has impoundment power and the amendment simply regulates it saying that the president must impound spending once it gets within 98 percent of the debt limit. Given current borrowing rates, that means that three to six months before reaching a debt limit the president would have to start designating what would be delayed or reprioritized when the debt limit is reached. This would result in more transparency because the president would have to show what he intended to impound and then Congress would have 30 days to pass a concurrent resolution to override the impoundments. This forces more responsible use of the impoundment power and enhances the power of Congress to check and balance any abuse in the process. 2:04:20 PM SENATOR DYSON observed that most state legislatures meet for just a few months and some meet every other year, which would work against states acting with dispatch to accomplish this. MR. DRANIAS said he strongly suspects that states will enjoy exercising their new powers over the federal debt limit, and will amend their laws and policies if necessary. SENATOR DYSON said it appears that there are three or four national organizations working with legislatures on an Article V convention and one or two working against it. The sense of his colleagues is that the effort is twofold: to satisfy each group that is working on the language, and then add Alaska's name to the queue of states calling for an Article V convention. He assumes that as the number of signatory states approaches 38, other states will work quickly to adjust the precise language to achieve the required consistency. He asked Mr. Dranias to comment. MR. DRANIAS responded that because the compact does not become entrenched until 38 states join, there is plenty of opportunity for adjustment along the way. SENATOR DYSON asked him to comment on the groups that are working on variations of this issue and how that should be viewed. MR. DRANIAS said there are three major groups on the center right and at least one major group on the center left. The basic commonality is to dissolve fear of using the Article V amendment power. SENATOR WIELECHOWSKI expressed concern that this creates a commission that appears to have no sunset clause and the state could be funding it with little oversight. MR. DRANIAS pointed to the termination clause in the last provision of the compact. It says the compact is self- terminating seven years after the first state enacts the compact. The funding provision is subject to state law so there is currently no funding obligation in the language. The commission is controlled by the first three states that enact the compact and those representatives will decide how the commission behaves. 2:12:24 PM CHAIR COGHILL announced he would hold HB 284 for further consideration.