SJR 5-CONST. AM: APPROP LIMIT; BUDGET RESERVE  2:21:10 PM CHAIR HOLLAND reconvened the meeting announced the consideration of SENATE JOINT RESOLUTION NO. 5, Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit; and relating to the budget reserve fund. 2:21:35 PM SENATOR HOLLAND moved to adopt Amendment 1, [work order 32- GS1664\A.2]: 32-GS1664\A.2 Marx 5/5/21 AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR HOLLAND TO: SJR 5 Page 1, line 5: Delete "Except" Insert "(a) Except as provided in (b) of this  section and except [EXCEPT]" Page 2, following line 20: Insert a new subsection to read: "(b) The legislature may appropriate an additional amount in excess of the appropriation limit under (a) of this section for capital projects, if the appropriation is approved by a majority of the qualified voters of the state who vote on the question. Appropriations for capital projects that exceed the appropriation limit shall not be used in calculating the appropriation limit in subsequent fiscal years." SENATOR SHOWER objected for discussion purposes. 2:21:43 PM SENATOR HOLLAND explained Amendment 1. He read: This amendment adds a subsection which allows the legislature to exceed the spending limit for capital projects, if we find ourselves in a better financial situation in the future. The process for exceeding the spending cap is the same as issuing a general obligation bond, which is already exempted from the cap. By putting this type of spending on par with issuing debt, it avoids pushing future legislators toward issuing debt when the state has the funds to pay for capital projects. The last sentence of the new subsection is critical to ensure that approving spending above the cap doesn't reset the spending limit to a higher level. 2:22:47 PM NEIL STEININGER, Director, Office of Management and Budget, Office of the Governor, Juneau, Alaska, stated that Amendment 1 uses different language than the Alaska Constitution related to general obligation (GO) bonds. Amendment 1 uses the term "capital projects" rather than "capital improvements" language used in GO bond language. The administration does not have a position on this. It is the legislature's policy call on how capital spending is considered in the cap. 2:23:25 PM SENATOR SHOWER recalled that several years ago, the legislature discussed placing a limit on the "waterfall provision" or going over the spending cap. He asked whether the sponsor was amenable to placing a cap on the spending limit. 2:24:18 PM CHAIR HOLLAND asked if Amendment 1 should be amended to change the wording from "capital projects" to "capital improvements." MR. STEININGER answered yes. He stated that "capital projects" in the capital budget typically include things that are not physical or durable assets. He said "capital improvements" is a stricter definition. 2:25:32 PM SENATOR HUGHES said she would like to consider capital projects for alternative energy projects in the villages to move away from the high cost of fossil fuel use. She asked if the language "capital improvements" was used, the legislature would need to use the funds for an existing project. 2:26:06 PM SENATOR SHOWER asked if both terms could be used. MR. STEININGER deferred to Mr. Milks. 2:26:44 PM MR. MILKS responded that "capital projects" is the language in the current appropriation limit. However, Article IX, Section 8, on state debt uses the term "capital improvements. The current appropriation limit uses "capital projects" but the appropriation limit has not been particularly effective. He said that "capital improvements" used in Article 9, Section 8, for GO bonds has not been considered an improvement of an existing capital asset. He offered his view that "capital improvements" is a broader term. CHAIR HOLLAND referred to Senator Hughes' example of sustainable energy in rural Alaska. He offered his view that it might be seen as an improvement of the power system rather than an improvement of a diesel generator. MR. MILKS replied that capital projects would usually be interpreted to mean some type of physical asset. He suggested that the most important is considering what the committee wants to be covered by the term. Currently, the bill refers to "capital projects". He agreed with Mr. Steininger that "capital improvements" is a broader term. When interpreting the Alaska Constitution, it is important to consider what an ordinary person would think of as a "capital project." He suggested it would likely be some kind of hard asset. Further, it is important to consider the intent of the committee. The committee could undoubtedly refine the language. 2:30:11 PM SENATOR KIEHL recalled that capital improvements for GO bonds must be durable and fixed, so a fire truck would not qualify according to legal opinions. Maintenance can qualify as a capital improvement, but preventative maintenance cannot. However, a capital project is defined in statute, such that it must be more than $25,000 and a one-time occurrence. The language is much broader and could include a software license even though it is not permanent or durable. 2:32:14 PM ED KING, Staff, Senator Roger Holland, Alaska State Legislature, Juneau, Alaska, stated that the Alaska Constitution uses capital improvements in Article IX, Section 8 and capital projects in Article IX, Section 16. He offered his view that Amendment 1 appears to be consistent with language for GO bonds, so using the language "capital improvements" would be more consistent. He said it would be acceptable for the legislature to provide more latitude and include projects beyond improvements, which is a policy call. Amendment 1 would require a vote of the people. MR. KING stated that Senator Shower described how this bill evolved over the previous legislative cycle. At the time, he testified about a waterfall provision. However, that provision was explicitly related to situations in which revenues exceeded the cap and how to distribute those revenues. This resolution would deposit those revenues owed to the CBR into the Constitutional Budget Reserve (CBR), and it is silent on the funds not owed to the CBR. He characterized Amendment 1 not as a waterfall provision but rather as an exemption to the spending limit for capital projects or improvements, consistent with issuing GO bonds. Without this language, the legislature has an incentive to issue debt to avoid the cap and use its debt capacity to reduce its general funds. Using this language allows the legislature to fund capital projects in the same way that the legislature would fund debt without actually issuing debt. 2:34:20 PM SENATOR SHOWER asked if the terms "capital projects" and "capital improvements" should both be used for consistency purposes, but the committee should place some type of limit. He asked if another amendment should cover that because the intent was not to spend every penny. He suggested the waterfall provision is necessary since the state needs to catch up on capital improvements. 2:35:13 PM MR. KING replied he leans toward not using both capital projects and capital improvements in Amendment 1, since it seems that capital projects encompass capital improvements. He suggested the committee should use one or the other. In terms of the waterfall provision, because Amendment 1 requires a vote of the people, it is not necessary to have a limit. When the legislature discussed this issue previously the vote of the people was not necessary. 2:35:55 PM SENATOR MYERS argued against the waterfall provision. He spoke in favor of Amendment 1 because without this language the legislature would have the ability to pile on more debt. Amendment 1 will allow the legislature to accomplish the projects but requires a vote by the people to exceed the spending limit. With the waterfall provision, the legislature could spend funds from regular revenue sources but also issue a GO bond. In fact, in 2010 or 2012 when revenue was still ample, the legislature went into debt and the voters agreed to pass a GO Bond proposal. 2:37:31 PM SENATOR HUGHES asked if the legislature would need to repay the CBR before this provision would be triggered. MR. KING stated he misspoke earlier. The payback provision is eliminated in the resolution so without amending the resolution, there is no obligation to repay the CBR. SENATOR HUGHES asked how calendaring would work. For example, if the resolution passed, it would require placing something on the ballot for a general election. MR. STEININGER responded that under Amendment 1, the process would mimic the GO bond process so the appropriations would not be valid until after the next statewide election was held. 2:39:11 PM SENATOR KIEHL asked if Amendment 1 requires the appropriation to be approved during a general election rather than a primary or special election. MR. STEININGER answered that he may have misspoken on the type of election. He deferred to Mr. Milks to speak to the mechanics of GO bond proposals. He said the language "if the appropriation is approved by a majority of the qualified voters of the state" who vote on the question creates a condition so the state cannot spend against the appropriation until that condition is met. 2:40:06 PM MR. KING offered his belief that GO bonds can be voted on in a special election. MR. MILKS confirmed that GO bond bills can be submitted to the voters at a general election or special election. 2:40:48 PM SENATOR KIEHL stated that if the GO bonds are not approved by the voters, the bonds are not sold. Amendment 1 does place any such requirement. The legislature and governor might agree on a perceived need and later submit the issue to the voters for approval, which would be ratification after the fact, he said. MR. STEININGER related his understanding of the hypothetical scenario, that the legislature and the administration would appropriate and expend funds prior to meeting the conditions as laid out in the Constitution. SENATOR KIEHL pointed out that currently, long-standing practices and attorneys general opinions allow those processes to occur. He offered his view that sometimes funds are expended in anticipation of an appropriation despite a statute that makes that action a crime. MR. STEININGER asked if the attorney general opinion he was referring to states that after the legislature appropriates funds, the governor can inform the OMB director these funds will not be vetoed so the state can begin to expend the funds. 2:43:22 PM SENATOR KIEHL recalled that the Alaska Budget Report previously criticized the legislature for its supplemental appropriations. MR. STEININGER asked if he was referring to the supplemental appropriation process in which an unanticipated expenditure has occurred and a supplemental appropriation is required to complete the fiscal year without running out of funding. SENATOR KIEHL pointed out that the state also ratifies negative balances. He questioned why the legislature couldn't just use this provision to ask the voters after the fact. 2:44:24 PM MR. STEININGER responded that ratifications occur when the state expends funds in anticipation of federal funding but later the federal agency determines the expenditures were ineligible. This would not be considered an expenditure outside of the appropriation since the legislature has validly appropriated the ability to collect the revenues. It means the state must come back to the legislature for a supplemental appropriation to backfill the uncollectible funds. The legislature typically expends funds in the advance of receiving federal funding because that is how federal programs operate. The administration is not expending funds without a valid appropriation. It is characteristically different. MR. STEININGER explained that Amendment 1 would establish a condition within the Constitution to set a contingency upon how an appropriation for a capital project could be executed upon. If the administration expended funds for a capital project without having met this contingency, it would be in violation of the Constitution. However, that is not a reason to not consider this issue. The possibility of a future executive branch choosing to violate the Constitution would be a separate issue. It would require a vote of the people before the executive branch could execute on it. He said he has faith in future OMB directors to ensure that contingencies are met on appropriations before expenditures. 2:46:36 PM SENATOR HUGHES referred to Amendment 1. She asked if the language on line 7 uses "may" because if one legislature decided to put something before the voters it might require the next legislature to make the appropriation. MR. KING answered that using "may" is simply to provide conditionality rather than strict guidance. It would not read "shall" because this is an option and not a requirement. The opportunity for the legislature to appropriate above the cap would be generated by this amendment. Once the appropriation is made by the legislature, it become valid once it goes before the voters for approval. There is not any need for secondary approval. SENATOR HUGHES questioned the constitutionality of Amendment 1 because this language would allow a subsequent legislature to decide whether to include it in the budget. 2:48:46 PM SENATOR SHOWER interjected that this speaks to contingency language on something that already occurred. He related his understanding that it provides contingency language upon approval and if it fails, the funds would not be spent. 2:49:00 PM MR. KING responded that this would be the same process currently used in the capital project process. One legislature approves a project with a multi-year appropriation but a future legislature can reappropriate or decide not to continue a project. The fact that a future legislature can influence the expenditure does not negate that the appropriation occurred. He clarified that there is not any second appropriation requirement for a future legislature once the voters approve the measure. SENATOR HUGHES reiterated that one legislature would appropriate the amount in the budgetary process but it would not go through unless approved by the legislature so a subsequent legislature would not do anything further. MR. KING added that the legislature would not simply put an appropriation in the budget but would define the projects that are being approved. 2:49:56 PM SENATOR KIEHL asked if appropriations are subject to or available for reappropriation. MR. KING deferred to Mr. Milks. 2:50:28 PM MR. MILKS reminded members that SJR 5 is amending the Constitution. He reviewed Amendment 1, which read, in part: (b) The legislature may appropriate an additional amount in excess of the appropriation limit under (a) of this section for capital projects, if the appropriation is approved by a majority of the qualified voters of the state who vote on the question. 2:50:59 PM MR. MILKS said this means the legislature may appropriate an additional amount for capital projects if the appropriation is approved by a majority of the qualified voters. He suggested that a reasonable interpretation would be that once the legislature appropriates funds and the voters approve the appropriation for capital projects, the appropriation process is completed. Thus, it is a two-part process, with the legislature appropriating and the voters approving the appropriation. It is unlike a standard appropriation, in which only the legislature is acting on it and could return the funds. MR. MILKS said that generally with constitutional amendments, the language itself is considered, any legislative discussion during committees is considered in an attempt to understand what the voters were informed by. 2:52:00 PM At ease 2:53:52 PM CHAIR HOLLAND reconvened the meeting. 2:53:56 PM SENATOR SHOWER removed his objection. There being no further objection, Amendment 1 was adopted. 2:54:27 PM SENATOR HOLLAND moved to adopt Amendment 2, [work order 32- GS1664\A.4]: 32-GS1664\A.4 Marx 5/5/21 AMENDMENT 2 OFFERED IN THE SENATE BY SENATOR HOLLAND TO: SJR 5 Page 1, line 9: Delete "State savings account" Insert "State account or fund that requires a  subsequent appropriation from that account or fund as  prescribed by law, appropriations for payment of the  unfunded liability of a State retirement system" SENATOR SHOWER objected for discussion purposes. SENATOR HOLLAND explained Amendment 2: This amendment attempts to clarify a potential ambiguity in the exclusions to the spending limit. For example, a litigant could argue that the over $1 billion appropriation to the Public Education Fund is exempt from the spending limit. Then, because the expenditures from that fund do not require further appropriation (AS 14.17.300), this litigant could also argue that the grants provided to school districts are also exempt from the cap. In this way, a future legislature could theoretically avoid the spending limit through a series of transfers that are not subject to further legislative action. This amendment makes clear that only transfers between accounts that maintain legislative control are exempt (just like a transfer between your checking and savings account isn't part of your household budget). It also allows transfers to the two accounts that should not be under the cap to be excluded Appropriations to the Permanent Fund and payments to reduce our unfunded pension obligation. 2:55:33 PM SENATOR HUGHES asked for further clarification on Amendment 2. 2:55:55 PM MR. KING stated that just as in SJR 6 of the previous legislature, the language, "subject to further appropriation" was included to ensure that accounts that require further legislative action aren't considered part of the appropriation process and don't contribute to the spending cap. However, expenditures or appropriations to funds that are not subject to further appropriation, including the Public Education Fund, the Abandoned and Derelict Vessel Fund, the Oil and Gas Credit Fund and a series of other funds should be considered as appropriations when the transfer is made. Amendment 2 makes it clear that any account subject to further appropriation is simply a transfer between accounts. The legislature still maintains control so those transfers shouldn't contribute to the spending cap. 2:57:10 PM MR. STEININGER stated that Amendment 2 further defines state savings accounts and provides additional clarity on this issue. 2:57:28 PM SENATOR KIEHL asked how it would treat a future legislature's decision to deposit funds in a fund that does not require appropriation for some alternate use. For example, a future legislature could decide to use the Abandoned and Derelict Vessel Funds for some other purpose. MR. KING said that when the appropriation is made to the fund, the use of those funds is limited. If those funds were repealed, the funds would lapse back to the general fund. 2:58:16 PM MR. STEININGER said he agrees with Mr. King. If those funds were repealed, the funds would lapse back to the General Fund. If the funds were used elsewhere, the funds would be an expenditure subject to the cap. 2:58:42 PM SENATOR KIEHL asked if those dollars would count twice. The funds would count when deposited and count when expended. MR. KING clarified that would be true if the legislature appropriated funds to the Derelict Vessel Fund, that the fund was subsequently depopulated, and another appropriation was made in the same year. He did not think that that would be true in most situations. The expenditure would apply to the cap when the appropriation to the fund was initially made. The funds would again be counted towards the cap in a future year when the funds were returned to the General Fund and are expended again. 2:59:21 PM SENATOR KIEHL expressed concern about the opportunity cost that the state would lose. When the state is up against the cap, and those funds competed against all other uses of the funds, some other public need is not met. Even if the funds were drawn out in a subsequent year, if those funds count again towards the cap, it will displace the public needs twice. MR. KING pointed out that there is also a revenue component. In the scenario described, there is an expenditure, a revenue, and another expenditure. The revenue and expenditure components would cancel one another out so it will net out as one expenditure. SENATOR KIEHL agreed that he is describing the accounting procedures, but it would not be considered a new revenue. CHAIR HOLLAND asked the administration to comment. 3:00:37 PM MR. STEININGER responded that the administration sees the expanded definition and clarification as positive. The exemption of the unfunded liability of a state retirement system is a policy call of the legislature. 3:01:03 PM SENATOR SHOWER removed his objection. SENATOR KIEHL objected. 3:01:12 PM A roll call vote was taken. Senators Myers, Shower, Hughes, and Holland voted in favor of Amendment 2 and Senator Kiehl voted against it. Therefore, Amendment 2 was adopted by a 4:1 vote. 3:01:43 PM SENATOR HOLLAND moved to adopt Amendment 3, [work order 32- GS1664\A.5]: 32-GS1664\A.5 Marx 5/4/21 AMENDMENT 3 OFFERED IN THE SENATE BY SENATOR HOLLAND TO: SJR 5 Page 1, lines 11 - 13: Delete "[, INCLUDING REVENUES OF A PUBLIC ENTERPRISE OR PUBLIC CORPORATION OF THE STATE THAT ISSUES REVENUE BONDS]" Insert ", including revenues of a public enterprise or public corporation of the State that issues revenue bonds" SENATOR SHOWER objected for discussion purposes. 3:01:50 PM SENATOR HOLLAND explained Amendment 3. He read: This amendment restores the exemption for corporate receipts. Public corporations are run like private business, with fees for service funding the operating costs of the corporation. Restoring the existing language in the constitution allows those self-funded operations to function outside of the limitation of government growth. CHAIR HOLLAND asked the administration to comment. MR. STEININGER said the administration supports Amendment 3 since there were unintended consequences by removing this from the exemptions in the original drafting of SJR 5. 3:02:45 PM SENATOR KIEHL said that the corporations must issue revenue bonds. He asked if appropriations to the corporations are considered revenues of the corporations. MR. STEININGER responded that an appropriation of unrestricted general funds (UGF) would be subject to the cap. The operational costs funded through the activities of the corporation would not be subject to the cap. Additional infusion of UGF would be subject to the cap since it is a state revenue and not revenue of the corporation. 3:03:54 PM MR. KING responded that funds provided by the state other than fees for service contractual obligations are not considered revenues of the corporation. Corporate receipts are revenues generated by the corporation and the operation of their business and not any subsidy that the government might appropriate from the general fund. 3:04:20 PM SENATOR KIEHL offered his view that the state could use the public corporation model to directly levy fees on Alaskans and use the corporation to shift state functions off the books. MR. KING related he has previously held this conversation. He identified the concern that funding that is currently in the operating budget could be shifted outside of the cap by creating a corporation. The revenues of the corporation are fees for services of the corporation so it is possible to circumvent the cap by creating a corporation with a public infrastructure such as a toll road or bridge. However, the function of the corporation would pay for itself since it would generate revenue to pay for its operations. For example, the Knik Arm Bridge and Toll Authority (KABATA) could be a public corporation that generates revenues outside the cap. However, the idea is that corporations generate revenue based on the services they provide. These corporations are not funded by taxpayer dollars. If the intent of the spending limit is to limit government growth and restrict the generation of taxes, the existence of corporations should be viewed differently than a type of government program. 3:06:15 PM SENATOR KIEHL agreed public corporations should be viewed differently. He related that Anchorage had a public corporation to handle downtown parking fees. Corporations are unelected, unaccountable entities created to provide what is otherwise a public service. He disagreed with incentivizing public corporations in the Constitution. 3:07:19 PM SENATOR MYERS related his understanding that if Amendment 3 is not adopted, the ticket of a tourist for the Alaska Railroad (ARRC) would be subject to the cap. However, if Amendment 3 passes, those fees would no longer be subject to the cap and the ARRC could spend the revenue to further its operations. 3:08:06 PM SENATOR HUGHES pointed out that the Alaska Marine Highway System (AMHS) might be restructured. The state wants the AMHS to provide services. She offered her belief that creating a corporation for the AMHS could save the ferry system. SENATOR KIEHL said it has great potential. He said if the state needs to have a legislative process to keep the revenue bonding self-funding corporation under control. 3:08:56 PM SENATOR SHOWER removed his objection. SENATOR KIEHL objected. 3:09:07 PM A roll call vote was taken. Senators Shower, Hughes, Myers, and Holland voted in favor of Amendment 3 and Senator Kiehl voted against it. Therefore, Amendment 3 was adopted by a 4:1 vote. 3:09:30 PM SENATOR MYERS moved to adopt Amendment 4, [work order 32- GS1664\A.8]: 32-GS1664\A.8 Marx 5/6/21 AMENDMENT 4 OFFERED IN THE SENATE BY SENATOR MYERS TO: SJR 5 Page 3, line 3: Delete "(b) [OR (c)]" Insert "[(b) OR] (c)" Page 3, lines 4 - 16: Delete all material.    Renumber the following resolution sections accordingly. Page 3, lines 22 - 26: Delete all material and insert: "Section 31. Budget Reserve Fund Transition. The 2022 amendments to the budget reserve fund (art. IX, sec. 17) apply to the fiscal year ending June 30, 2024, and thereafter. * Sec. 4. Article IX, sec. 17(b), Constitution of the State of Alaska, is repealed." Renumber the following resolution section accordingly. CHAIR HOLLAND objected for discussion purposes. 3:09:41 PM SENATOR MYERS explained Amendment 4. He said that is similar to how the process currently works. Article IX, Section 17, Budget Reserve Fund, has four subsections. Amendment 4 will not change SJR 5, subsection (a), which establishes the revenue limit. Subsection (b) establishes the conditions under which the legislature can spend from the Constitutional Budget Reserve (CBR) with a majority vote. In fact, the legislature has never been able to spend out of the CBR with a majority vote. That will not change unless the legislature radically alters the way designated general funds are handled. Amendment 4 will remove subsection (b). Subsection (c) outlines how to spend CBR funds with a three-fourths vote. Subsection (d) provides for a repayment provision. He explained that SJR 5 removes subsections (c) and (d). Amendment 4 would bring a subsection (b) and restore subsections (c) and (d). This means the legislature is still required to payback CBR funds and either stop the payback or withdraw funds with a three-fourths vote. CHAIR HOLLAND asked the administration for comments. 3:11:38 PM MR. STEININGER answered that the administration is neutral on Amendment 4 because it is a policy decision for the legislature to decide whether to make repayments to the fund or eliminate repayment provisions and the three-fourths vote requirement. SENATOR HUGHES asked if it would maintain the way it currently operates. SENATOR MYERS agreed. CHAIR HOLLAND removed his objection. There being no further objection, Amendment 4 was adopted. 3:12:45 PM SENATOR KIEHL moved to adopt Amendment 5, [work order 32- GS1664\A.7]: 32-GS1664\A.7 Marx 5/6/21 AMENDMENT 5 OFFERED IN THE SENATE BY SENATOR KIEHL TO: SJR 5 Page 2, line 26: Delete "directly" CHAIR HOLLAND objected for discussion purposes. 3:12:51 PM SENATOR KIEHL explained Amendment 5. The committee previously held discussions about removing "directly" from Article IX, Section 17 (a). He shared a memo from Legislative Legal Services attorney Marie Marx, dated April 30, 2021. The Office of Management and Budget (OMB) provided a letter dated April 11, 2019, from the Attorney General immediately prior to today's meeting, which he has not had an opportunity to review. Amendment 5 would make sure the amounts in dispute were deposited into the CBR on the same terms they were for decades. He acknowledged that the memo describes changes. He said the changes affect tariff disputes, tax disputes, and audit disputes that are determined years later. The CBR was written to address windfalls, which should go in the savings account. He asked how Chair Holland would like to proceed. CHAIR HOLLAND suggested that he withdraw Amendment 5 and take it up in the Senate Finance Committee. 3:15:42 PM SENATOR KIEHL, in response to a question by Senator Hughes, referred to a letter from the Attorney General dated April 11, 2019. CHAIR HOLLAND asked Mr. Milks to speak to the letter. 3:16:10 PM MR. MILKS said he is familiar with a letter from the Attorney General dated April 11, 2019. The purpose of adding "directly" on page 2, line 26, is to stop some disagreements between the Department of Law and Legislative Legal Services. Currently, the Constitutional Budget Reserve (CBR) is an exception to the constitution prohibiting dedicating revenues. When the voters approved establishing the CBR, a certain revenue stream could be deposited to the CBR and not go to the general fund. There is only one other exception related to dedicated revenues in the Constitution, which is the Permanent Fund. Two Attorneys General, Lindemuth and Clarkson, reviewed the issue whether royalty amounts or oil and gas taxes in dispute are required to be deposited to the CBR. Other types of legal disputes involve tariff litigation. When ultimately resolved, it often means producers pay more taxes to the state. The question was whether resolution of tariff litigation should be deposited to the general fund or the CBR. Both attorneys general addressed this issue for the Legislative Budget and Audit Committee as outlined in the letter of April 11, 2019. MR. MILKS said the Department of Law highlighted why the funds should be deposited to the general fund. In its lengthy legal analysis, it referred to the Alaska Supreme Court decision in Wielechowski v. State. The Alaska Supreme Court said the prohibition against dedicating revenues is intended to be broadly applied and the exceptions are narrow. Since tariffs are not even mentioned in the Constitution, the Department of Law (DOL) found that depositing tariff-related revenues the CBR was too expansive. The DOL opined it should be deposited to the general fund. The letter indicated that in the 1990s, Attorney General Bothelo also determined tariff-related revenues should be deposited to the general fund. Nonetheless over time the revenues were deposited into the CBR. Legislative Legal identified that the issue is not fully resolved. In fact, it describes another way to interpret the law that determines that tariff-related revenues should be deposited to the general fund. 3:21:05 PM MR. MILKS said that Amendment 5 seeks to insert the word "directly" into the CBR provision to removing any ambiguity regarding what should be deposited to the CBR and in the general fund. He related his understanding that legislative legal agrees Amendment 5 would remove any ambiguity. He said the background is laid out in the letter of April 11, 2019. CHAIR HOLLAND asked the administration for comments. 3:23:01 PM MR. STEININGER said the administration opposes Amendment 5. As Mr. Milks illustrated, there is a necessity to add clarification and remove any ambiguity from the current constitutional language. 3:23:34 PM SENATOR KIEHL offered to redraft Amendment 5, to make it clear that the CBR should be funded with tax money after tariff settlements. He related his understanding that the CBR was created after the Trans Alaska Pipeline Settlements (TAPS). 3:24:04 PM CHAIR HOLLAND removed his objection. SENATOR KIEHL withdrew Amendment 5. He offered to revise it. 3:24:26 PM SENATOR HOLLAND stated he would not offer Amendment 6. 3:24:40 PM SENATOR HOLLAND moved to adopt Amendment 7, [work order 32- GS1664\A.10]: 32-GS1664\A.10 Marx 5/7/21 AMENDMENT 7 OFFERED IN THE SENATE BY SENATOR HOLLAND TO: SJR 5 Page 2, line 2: Delete "three" Insert "two" SENATOR SHOWER objected for discussion purposes. 3:24:43 PM CHAIR HOLLAND explained Amendment 7. He read: This amendment attempts to clarify the allowable increase in the spending limit from year to year. In the version before the committee, the limit is calculated by averaging the previous three years' budgets, which are typically increasing for inflation. It then allows the budget to grow by the cumulative rate of inflation over the previous three years. This approach ends up allowing the budget to grow by more than inflation from year to year. The amendment reduces the cumulative inflation adjustment to two years, limiting growth to a number closer to the rate of inflation. 3:25:34 PM At ease 3:25:53 PM CHAIR HOLLAND reconvened the meeting. 3:26:05 PM MR. STEININGER said that the administration does not have a position on Amendment 7. SENATOR KIEHL asked if Amendment 7 would adjust three years of spending with two years of inflation. He asked whether it would lead to a reduction of the real dollar spending over time. MR. STEININGER answered not necessarily. He said this would take a three-year average of prior year appropriations and apply an inflationary factor. Amendment 7 would clarify two versus three years of inflationary pressure and change the time period for inflation. He said he has not created any models since he just received this today. 3:27:23 PM MR. KING responded that this is basically a mathematical model. He explained that stripping out the volatility and assuming that the rate of budget growth is the rate of inflation, the three- year average rate budget will be equal to the budget two years prior. This means taking the average of three years will be the budget that was two years ago. Adding one year of inflation would take us to the current year; adding a second year provides inflation adjustment for the future year being budgeted. Adding a third year would give a kicker so the allowable growth is beyond the rate of inflation. 3:28:18 PM SENATOR KIEHL asked if that didn't set as its initial case that the prior three years matched inflation, which would prevent that from happening. MR. KING asked for clarification on the question. SENATOR KIEHL related his understanding that the three years used in the calculation of the base case in the mathematical model for the nominal dollar budgets reflected the actual cost of government. MR. KING nodded yes. SENATOR KIEHL said that the assumption becomes invalid once this factor is applied because only two years of inflation can be used. The base case of three years of inflation cannot exist. MR. KING responded that is not mathematically accurate. He explained that every time this is used for the next year, it provides the previous budget plus inflation. Staying at the limit will always draw out two years of accumulated inflation. 3:29:36 PM SENATOR KIEHL asked for modeling. MR. KING responded that this represents a simple mathematical exercise. He characterized it as a mathematical model and not a computer model. 3:29:49 PM SENATOR HUGHES asked Mr. Steininger to comment. MR. STEININGER said that Mr. King and OMB staff have discussed the mathematics and agree the math is accurate. 3:30:25 PM SENATOR KIEHL expressed concern that the way SJR 5 is written, it can only adjust for population or inflation but not both. He offered his view that it will be necessary to cut real government spending every year forever. He characterized it as a problem. 3:31:29 PM SENATOR SHOWER agreed that it could be a problem but for the last five to six years the state has experienced a net population outflow yet government growth continues to rise. 3:32:05 PM SENATOR HUGHES asked Mr. King if it will be necessary to cut real government spending every year forever. MR. KING responded that on a nominal basis that it is definitely not true. The inflation adjustment means some government spending would be increasing at the rate of inflation. He said that whether the rate of inflation is commensurate with what the public needs is a different question. Under SJR 5, there is no adjustment for population. In the event that population increases the real per capita spending will be reduced year by year. However, the real spending in total dollars will not be reduced. MR. STEININGER agreed the math as Mr. King laid it out is accurate. 3:33:02 PM SENATOR KIEHL said that real dollar was the wrong economic term to use; rather, it is the state's ability to meet Alaskans' needs to adjust for population and inflation. He acknowledged that this would not require cuts when population shrinks. This will leave the state lagging in any kind of growth scenario since SJR 5 will change the Constitution permanently. 3:33:46 PM CHAIR HOLLAND removed his objection. He offered to request that Senate Finance review this part of the resolution. 3:34:07 PM SENATOR HUGHES offered her view that the original spending limits in the Constitution allowed for population and inflation, but it rose too high. 3:34:43 PM SENATOR SHOWER removed his objection. SENATOR KIEHL objected. 3:34:51 PM A roll call vote was taken. Senators Myers, Hughes, Shower and Holland voted in favor of Amendment 7 and Senator Kiehl voted against it. Therefore, Amendment 7 was adopted by a 4:1 vote. 3:35:23 PM SENATOR KIEHL offered to bring a revised Amendment 5 forward as soon as Legislative Legal can provide it. 3:35:39 PM At ease 3:39:46 PM CHAIR HOLLAND reconvened the meeting. 3:39:55 PM CHAIR HOLLAND stated his intention to move the resolution today. 3:40:24 PM SENATOR SHOWER moved to report SJR 5, Version A, as amended, from committee with individual recommendations and attached fiscal note(s). SENATOR KIEHL objected. He said it is always disappointing when a judiciary committee lacks adequate time to have deep, meaningful, and informed conversations on legal questions when considering measures to change the Alaska Constitution. The short timeframe has limited the administration's ability to provide answers to questions in advance of meetings. 3:41:40 PM SENATOR KIEHL offered his view that this proposal attempts to put artificial caps on what Alaskans can ask of their government. It is an attempt to write into Alaska's foundational document limits that will ensure that Alaska's government will have a difficult time when times are good. Currently, times are tough since revenues are down, inflation is negative and population is dropping as people leave the state. Although Alaska is experiencing budget constraints, Alaskans have been in this situation before. In those situations, Alaskans have elected legislators who have reduced the budget. Alaska's Constitution allows Alaskans to set the priorities in a republican form of government. This proposal attempts to put limits on what Alaskans can achieve from their government. It does so in ways that place irresponsible restraints on Alaskans' ability to meet their needs from government. He acknowledged that the old spending limit did not work. While he appreciated some changes in the resolution, ultimately the legislature either trusts people to elect legislators to do the job or it can set up a situation in which no matter what Alaskans choose they cannot achieve it. CHAIR HOLLAND offered his view that the committee heard from legal experts. He offered his willingness to trust them. 3:45:07 PM SENATOR HUGHES spoke about the process. She stated that this resolution has been in the committee for several months. During that time concerns could have been raised, conversations that with the administration could have occurred before the resolution was scheduled for a hearing. She recalled times when she has had to withdraw amendments and work with the next committee of referral. She offered her belief that this is not an unusual process. 3:46:08 PM A roll call vote was taken. Senators Myers, Shower, Hughes, and Holland voted in favor of moving SJR 5, Version A, as amended, from committee and Senator Kiehl voted against it. Therefore, the CSSJR 5(JUD) was reported from the Senate Judiciary Standing Committee by a 4:1 vote.