SJR 19-CONST. AM: APPROP LIMIT  1:31:36 PM CHAIR HOLLAND announced the consideration of SENATE JOINT RESOLUTION NO. 19, Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit. 1:32:09 PM SENATOR MYERS, speaking as the sponsor, stated that the committee heard Senate Joint Resolution 301 during the third special session. He noted that SJR 19 incorporated the identical language from that resolution. 1:32:26 PM MICHAELLA ANDERSON, Staff, Senator Robert Myers, Alaska State Legislature, Juneau, Alaska, on behalf of the sponsor, stated that as SJR 19 is identical to the language in committee substitute (CS) Senate Joint Resolution 301 (JUD) that passed out of committee in the third special session. MS. ANDERSON summarized SJR 19. This appropriation limit would effectively be 14 percent of the five-year rolling average of the personal income of Alaskan private employees. The income of state and local government employees would not contribute to the calculation, nor would the limit include permanent fund dividend income. MS. ANDERSON stated the exceptions to the limit: Exceptions to the limit would include appropriations for payment of permanent fund dividends, appropriations to the Alaska Permanent Fund, appropriations from federal funds, appropriations from other nonstate sources and trusts such as corporate receipts, appropriations to oblige a disaster declaration, appropriations to pay off revenue bonds, appropriations to state accounts or funds that have subsequent appropriations from the accounts, such as the constitutional or statutory budget reserve accounts, and general obligation bonds. The limit could be exceeded to fund capital projects with a 2/3 vote of each body. 1:33:54 PM MS. ANDERSON explained that the spending cap would need to pass by constitutional amendment standards in both bodies and subsequently require voter approval. If approved by the voters, the legislature could approve the spending cap by a simple majority vote of the legislature. However, the spending limit could never exceed 14 percent. MS. ANDERSON stated that the purpose of the spending limit is not to ratchet down current spending but rather to create a meaningful spending cap when the state has additional revenue, such as oil revenue. It would smooth out future spending to prevent overspending and save those excess funds for a rainy day. It would also smooth out capital budget expenditures and prevent spikes for infrastructure maintenance when the state may not have the funds to do so. SJR 19 would also help create predictability for the construction industry. MS. ANDERSON noted that Alexei Painter was online to answer any technical questions. 1:34:49 PM CHAIR HOLLAND stated his intention to set aside SJR 19 until next week after committee discussions. 1:35:03 PM SENATOR SHOWER noted that three Fiscal Policy Working Group (FPWG) members also serve on this committee. He asked him to compare the proposed constitutional spending limit in SJR 19 to the Fiscal Policy Working Group's recommendations for a spending cap. 1:36:04 PM SENATOR MYERS said he did not have the FPWG report in front of him. Still, he recalled that the report recommended the state institute a reasonable spending cap without specifying details. He stated that Representative Kaufman suggested the original concept. He expressed his preference for SJR 19's approach for a spending cap because it would not immediately put pressure on the state's budget. He noted the legislature has appropriating authority for the budget. The point of the cap is to avoid a run-up in future spending. He said if the state experienced another boom similar to the one from 2006 to 2014, it would force the state to save more revenue and constrain spending to diminish issues when the boom is over. He highlighted that the state's economy has been based on oil revenue historically. Since that industry tends to be boom or bust, it has resulted in boom or bust state spending, with the bust portion challenging to navigate. 1:37:31 PM SENATOR MYERS explained that the state's constitutional appropriation limit or spending cap was initially based on Gross Domestic Product (GDP). He stated that this proposal uses personal income tied directly to the state's economy. He predicted the state will face a dilemma because a substantial amount of the state's budget would be based on Alaska Permanent Fund income. However, the state no longer has a direct tie to the states' economy. Other states' tax revenue provides links to their economies. If these states suffer a downturn, their tax revenue diminishes. This provides these states with an incentive to ensure that their economies do well. As Alaska becomes more removed from any ties to its economy, the state's spending correlates more with what is happening in the stock market. He and Representative Kaufman wanted to ensure that Alaska has incentives to ensure that state government finances are doing well and that Alaskans prosper. 1:38:59 PM SENATOR MYERS explained that under SJR 19, if the state's economy does not grow, it will limit state government spending. As the state's economy grows, the state can grow with it. As Alaska's economy grows, especially during resource booms, the state could add state services such as more police and schools needed because of population growth. Thus, the tie between personal income and the state's economy is necessary. 1:39:49 PM SENATOR SHOWER asked how closely he had followed the Fiscal Policy Work Group (FPWG). He offered to talk offline with the sponsor to tie the structure in SJR 19 to the FPWG's recommendations. 1:41:03 PM SENATOR HUGHES acknowledged that the FPWG's recommendations included adopting a meaningful spending cap. She said that "meaningful" meant that the spending cap would need to endure over time. She appreciated that this proposal was a constitutional amendment rather than a statutory change. She noted some colleagues were leaning towards a statutory fix. She expressed concern that allowing the legislature to change the percentage may conflict with the Alaska Constitution's express authority for legislative appropriation. She asked whether the sponsor consulted with Legislative Legal Services or the Department of Law on whether the legislature would need to adhere to the 14 percent if SJR 19 were to pass, and that it could not veer away from it. SENATOR MYERS said the committee addressed that issue last fall in Senate Joint Resolution 301. The committee passed an amendment to ensure that the legislature could adjust the percentage under two conditions. First, it would need to pass a bill that is not an appropriation bill. This would prevent the legislature from overriding the spending limit by passing the budget. Second, the current 14 percent in SJR 14 creates an upper limit. The legislature could ratchet it down, but it could never exceed the 14 percent limit. 1:43:35 PM SENATOR HUGHES asked how he arrived at the 14 percent limit. 1:43:52 PM SENATOR MYERS referred to a PowerPoint, slide 2, Proposed Constitutional Appropriation Limits Based on State Private Personal Income. He explained that Representative Kaufman originally suggested tying the 14 percent limit to the Gross Domestic Product (GDP). He offered his view that using 14 percent gave the state a fair amount of headroom. However, the vast majority of the headroom disappeared when SJR 19 was based on personal income. Although the spending limit was tighter than initially planned, it is still above last year's spending and this year's proposed spending. 1:44:31 PM SENATOR KIEHL stated that he compromised on the spending cap during the FPWG deliberations when the committee changed the proposed state spending limit in the third special session when discussing Senate Joint Resolution 301. He characterized the amendments adopted in that legislation as putting the state in a "not debilitating" position. That language was incorporated into SJR 19. He recalled the overall effect would give the legislature an estimated "headroom" of $600,000 to $700,000. He asked if that was correct. 1:46:19 PM SENATOR MYERS responded that it sounded right, but he offered to double-check the figures. SENATOR KIEHL suggested that the committee tweak it a little since the spending cap could never exceed the 14 percent upper limit. 1:46:47 PM CHAIR HOLLAND held SJR 19 in committee.