ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
May 2, 2003
7:00 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Jim Whitaker, Co-Chair
Representative Cheryll Heinze
Representative Vic Kohring
Representative Norman Rokeberg
Representative Bruce Weyhrauch
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Dan Ogg
Representative Paul Seaton
Representative Jim Holm
COMMITTEE CALENDAR
BAR GRAPH PRESENTATION ASSUMING VARIOUS BUDGET SCENARIOS
HOUSE JOINT RESOLUTION NO. 9
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit and a spending limit.
- MOVED CSHJR 9(W&M) OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 26
Proposing amendments to the Constitution of the State of Alaska
relating to and limiting appropriations from and inflation-
proofing the Alaska permanent fund by establishing a percent of
market value spending limit.
- MOVED CSHJR 26(W&M) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HJR 9
SHORT TITLE:CONST AM: APPROPRIATION/SPENDING LIMIT
SPONSOR(S): REPRESENTATIVE(S)STOLTZE
Jrn-Date Jrn-Page Action
01/31/03 0102 (H) READ THE FIRST TIME -
REFERRALS
01/31/03 0102 (H) STA, JUD, FIN
01/31/03 0102 (H) REFERRED TO STATE AFFAIRS
02/11/03 (H) STA AT 8:00 AM CAPITOL 102
02/11/03 (H) Heard & Held
MINUTE(STA)
03/28/03 0687 (H) COSPONSOR(S): ROKEBERG
04/04/03 0797 (H) W&M REFERRAL ADDED BEFORE STA
04/04/03 0797 (H) REMOVED FROM STA REFERRED TO
W&M
04/09/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/09/03 (H) Heard & Held
MINUTE(W&M)
04/17/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/17/03 (H) Heard & Held
MINUTE(W&M)
04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/24/03 (H) Heard & Held
MINUTE(W&M)
04/29/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/29/03 (H) Heard & Held -- Location
Change --
MINUTE(W&M)
04/30/03 (H) W&M AT 8:00 AM HOUSE FINANCE
519
04/30/03 (H) Heard & Held
MINUTE(W&M)
05/02/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
BILL: HJR 26
SHORT TITLE:CONST. AM: PF APPROPS/INFLATION-PROOFING
SPONSOR(S): RLS BY REQUEST OF LEG BUDGET & AUDIT BY
Jrn-Date Jrn-Page Action
04/17/03 1025 (H) READ THE FIRST TIME -
REFERRALS
04/17/03 1025 (H) W&M, JUD, FIN
04/17/03 1025 (H) REFERRED TO WAYS & MEANS
04/22/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/22/03 (H) Heard & Held
MINUTE(W&M)
04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/24/03 (H) Heard & Held
MINUTE(W&M)
04/25/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/25/03 (H) Heard & Held
MINUTE(W&M)
04/29/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/29/03 (H) Heard & Held -- Location
Change --
MINUTE(W&M)
04/30/03 (H) W&M AT 8:00 AM HOUSE FINANCE
519
04/30/03 (H) Heard & Held
MINUTE(W&M)
05/02/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
WITNESS REGISTER
LARRY PERSILY, Deputy Commissioner
Office of the Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Presented bar graphs as requested by the
committee co-chairs and answered questions from the members.
REPRESENTATIVE BILL STOLZE
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As sponsor of HJR 9 commented on the
committee substitute and answered questions from the members.
TAMARA COOK, Director
Legislative Legal and Research Services
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided a legal opinion on proposed
amendments to HJR 9 and answered questions from the members.
BOB BARTHOLOMEW, Chief Operating Officer
Alaska Permanent Fund Corporation
Juneau, Alaska
POSITION STATEMENT: Testified on HJR 26 and answered questions
from the members.
ACTION NARRATIVE
TAPE 03-21, SIDE A
Number 0001
CO-CHAIR JIM WHITAKER called the House Special Committee on Ways
and Means meeting to order at 7:13 a.m. Representatives Hawker,
Whitaker, Heinze, Kohring, Weyhrauch, Wilson, and Moses were
present at the call to order. Representatives Rokeberg and
Gruenberg arrived as the meeting was in progress.
Representatives Ogg, Seaton, and Holm were also present.
BAR GRAPH PRESENTATION ASSUMING VARIOUS BUDGET SCENARIOS
Number 0143
LARRY PERSILY, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, presented bar graphs at the request of
the committee co-chairs, and answered questions from the
members. The first graph, titled "CBRF End-of-Year Balance",
was developed with the assumption that there would be a 5
percent of market value [POMV] distribution of the permanent
fund starting in FY 06, which would come after a general
election vote of the public in November of 2004, he explained.
This graph also assumes that the sales tax [HB 293] would pass
[the legislature and be signed into law by the governor], and
that there has been a full fiscal year in which $300 million in
sales tax revenue has been brought in. Furthermore, this graph
also assumes the passage of Representative Rokeberg's bill, HB
11, which reduces the royalty deposits into the permanent fund
to the constitutional level of 25 percent.
Number 0324
CO-CHAIR WHITAKER interjected that it is extremely important
that the members understand that this first bar graph shows that
without an annual sales tax or other revenue measures, the
beginning bar graph will be significantly less.
MR. PERSILY added that the budget base would be zero if no other
revenue measures pass [the legislature]. He went on to say that
in the spring of 2003, revenue forecasts predicted that the
state would be out of money in FY 06. However, with the
assumptions that were given for this chart, it shows [the state]
starting with $1 billion in the CBR [Constitutional Budget
Reserve] rather than zero. Those assumptions are the reason the
FY 06 CBR balance could be $1 billion.
CO-CHAIR WHITAKER commented that the situation is not as "rosy"
as it appears. It is only as reasonable as it appears [on the
graph] because there is the assumption that some type of
significant revenue measure has passed [the legislature, the
governor has signed it into law] and thus it is in place. He
noted that the graph also assumes that HB 11 has become law.
Number 0456
MR. PERSILY added that there is also the assumption that the
POMV [constitutional amendment in HJR 26] has been put before
the voters and passed. The resolution would allow for a 5
percent distribution of the [percent of] market value of the
fund. The assumption is that it would pass in November of 2004
and that revenue would be received by FY 06. He explained that
the first chart shows the end of year balance of the CBR under
three different distribution scenarios of the 5 percent of
market value. The first option [shown in] the tan column
distributes 60 percent to dividends and 40 percent to public
services. That option shows a much more rapid decline to a
negative on the CBR end-of-year balance. The next option, shown
in yellow, is the 50 percent for dividends and 50 percent for
public services; and the final option, shown in blue, is the 40
percent to dividends and 60 percent to public services. Mr.
Persily pointed out that the higher the percentage from the
permanent fund distribution that is put into public service, the
healthier the CBR balance remains.
CO-CHAIR HAWKER asked Mr. Persily to explain the third line of
the chart, [which says (Assumes House FY 2004 budget as the
base, with no spending increase and no other new taxes)].
MR. PERSILY responded that the other premise which was used in
developing the chart is that there had to be some assumption of
what spending would be. The Department of Revenue took the
House FY 2004 budget, that has already been adopted, and used it
as the base with the assumption that there will be no other new
taxes, other the $300 million broad based [sales] tax that the
department was told to insert. For the purposes of this chart
the department assumed no spending increases. This is a flat
$2.5 billion general fund budget. He pointed out that the
members could look at this chart and see that if there are
additional spending needs, that [appropriation] will reduce the
CBR balance or a cut [in the budget] would increase the balance.
Number 0651
REPRESENTATIVE WILSON asked Mr. Persily what percent of market
value has been used for the dividends in the past five years.
Number 0713
MR. PERSILY asked if she wanted him to take the current dividend
distribution and convert it to what percent of market value has
been used in [the] past [five] years. To Representative
Wilson's positive response, he said he believes it has been
about 4 percent or 80 percent of the 5 percent distribution.
REPRESENTATIVE WILSON asked if there is any correlation as to
how the permanent fund dividend is currently being distributed
in the three different scenarios [presented in the chart].
MR. PERSILY responded that there is no correlation. The three
scenarios that are presented are those that the department was
asked to chart out. He pointed out that according to this chart
the [legislature] cannot afford to give more to dividends and
still have enough to pay for public services. He also offered
that politically [the legislature] also could not afford to give
less to dividends. He suggested that the range will probably be
40-60 percent.
CO-CHAIR WHITAKER announced for the record that Representatives
Gruenberg and Rokeberg had joined the committee.
MR. PERSILY asked the members to look at the second chart
[titled "CBRF End-of-Year Balance"] that has the same
assumptions in terms of starting points for the budget: $300
million in taxes, the 5 percent permanent fund endowment
distribution [POMV], and the passage of HB 11. The difference
this chart shows is what happens to the CBR balance if there is
a 2 percent spending increase factored in each year. He pointed
out that a constant spending increase does seriously affect the
CBR balance.
Number 0857
CO-CHAIR HAWKER pointed out the difference between the two
graphs. In looking at the first one, the situation is such that
the legislature has exercised the discipline to control
spending. Chart 2 is a modeling component that increases
spending cumulatively 2 percent per year. In the recent past,
the legislature has had the discipline not to spend. The real
purpose of the two charts is to emphasize the importance of
[spending] discipline. If the legislature does exercise that
latitude and increase [spending] 2 percent cumulatively every
year, there is a significant [impact] such a decision would have
on how quickly the CBR funds would be exhausted. Co-Chair
Hawker reiterated his comments by saying that the two charts
demonstrate the difference between the legislature's action in
adding 2 percent or holding the [spending] steady.
REPRESENTATIVE WILSON commented that [2 percent increased
spending] is not even keeping up with inflation. She pointed
out that the legislature is really "going backwards" in the
amount of money actually being spent, and the budget is still in
trouble.
Number 1052
REPRESENTATIVE GRUENBERG asked what the affect would be if the
legislature used the first model and implemented no spending
increases, given the current rate of inflation. He inquired as
to the effective decrease in today's dollars.
MR. PERSILY responded that the permanent fund assumes about a 3
percent rate of inflation, although the state is below that now.
REPRESENTATIVE GRUENBERG interjected that it would be about a 36
percent reduction in today's dollars.
Number 1201
MR. PERSILY replied that argument could be made if the state
loses 3 percent per year to inflation.
CO-CHAIR WHITAKER commented that Representative Gruenberg has
made his point, but that there is a counter argument to that
point.
MR. PERSILY agreed that that is a counter argument. He went on
to say that assuming there is inflation and assuming that
spending is held flat, something has to give. It will be
necessary to cut expenses if dealing with an inflationary
increase. On the other hand, if the legislature decides to
increase spending it is important to know that it will be
necessary to find revenue to pay for the increases.
CO-CHAIR WHITAKER told the members that is a good point to lead
back to the basic assumptions that the members are discussing.
Even with the following basic assumptions: the POMV method will
be used, a $300 million tax of some sort will be implemented,
and HB 11 will pass, there still are significant challenges with
regard to future budgets.
Number 1256
MR. PERSILY commented that if the legislature decides there are
additional needs, then it will be necessary to look for
additional revenue.
MR. PERSILY asked the members to look at the next two charts,
titled "Amount Available for Public Services" and "Annual Per-
Capita Dividend Under POMV Sharing," which show the three
percentage options of how much is available each year in
hundreds of millions of dollars. The first chart shows options
for public services and what share of that 5 percent POMV
distribution could be used to pay for those public services.
The next chart shows the estimated per capita dividend based on
three percentage options. These [estimates] assume that in
November of 2004 the voters pass a constitutional amendment for
5 percent of POMV and that in this session the legislature
passes and the governor signs HB 11. He pointed out that these
models are obvious in that the more money held back for public
services, the lower the dividend will be, the more money given
to the dividend, less money will be available for services. Mr.
Persily commented that it is a set pot, so the question is how
to divide it.
MR. PERSILY said the next chart provides actual dollars from the
data from previous charts. These include the amount available
for public services, the dividend [amount per capita], flat
budget figures, 2 percent increase [to the budget], and a 3
percent increase [to the budget].
MR. PERSILY directed attention to the last chart titled "State
Expenditures with Constitutional Spending Limit HJR 9" [2%
Annual Budget Increase]. He turned to the question of what
would be the total state spending number for FY 04, under HJR 9,
that will become the base for FY 06. The department worked with
the Office of Management & Budget and began with the governor's
amended FY 04 [budget] total statewide funds. As per HJR 9 the
department subtracted appropriations to the permanent fund
dividend, operations, the Disaster Relief Fund, the general
obligation revenue bond proceeds, the debt service payments, the
federal receipts, and the interagency transfers of the same
dollars. Mr. Persily announced that the total state funds that
would be subject to the spending limit in HJR 9 is $3.19
billion. If starting with the $3 billion as a base in FY 06 and
if the legislature increases spending 2 percent per year, this
chart shows where spending will be in FY 12, he said.
Number 1620
CO-CHAIR HAWKER reemphasized Mr. Persily's last point that this
charts shows state expenditures if there is a 2 percent per year
increase in spending. He noted that this chart is for
discussion purposes, and not a plan that is being recommended as
the appropriate way to go.
MR. PERSILY agreed with Co-Chair Hawker that this chart was
graphed to show a continuing trend. He said then there are the
questions of what is inflation; what is population growth; what
is the public service need; and of course, what are the two
constraints - the political will to spend and the cash available
to spend.
HJR 9-CONST AM: APPROPRIATION/SPENDING LIMIT
Number 1737
CO-CHAIR WHITAKER announced that the first order of business
would be HOUSE JOINT RESOLUTION NO. 9, Proposing amendments to
the Constitution of the State of Alaska relating to an
appropriation limit and a spending limit. [Contains discussion
of HB 11]
CO-CHAIR WHITAKER announced that CS for HJR 9 (W&M), 23-
LS0435\D, Cook, 4/30/04, is before the committee. He asked the
members to look at the last chart reviewed [titled "State
Expenditures with Constitutional Spending Limit HJR 9, 2% Annual
Budget Increase"], where a 2 percent increase requires a simple
majority vote. If the legislature chooses to exercise that
option, then he asked members to look at the chart titled "CBRF
End-of-Year Balance" [second chart in the packet], which assumes
a 2 percent spending increase and no other new taxes. He
pointed out that this chart shows what happens to the CBR given
an annual 2 percent increase in spending. Co-Chair Whitaker
asked the members to compare this chart to the chart that is
being handed out [titled "CBRF End-of-Year Balance, Assumes 5%
POMV, $300 Million Annual Sales Tax, and Passage of HB 11",
(Assumes House FY 2004 budget as the base, with a 3% spending
increase and no other new taxes)] and note what happens when the
legislature spends 3 percent. Although 3 percent does not sound
like much, this chart shows what happens very quickly [to the
CBR]. Co-Chair Whitaker urged the members to keep in mind the
assumptions upon which this discussion is based - $300 million
of new taxes and HB 11 having been in place a year and a half.
Number 1919
REPRESENTATIVE GRUENBERG told the members that there is one
other factor that has not been discussed. That factor is the
affect of required federal programs and unfunded federal
mandates or federal programs that continue with the federal
dollars going away after a period of time. He also said that it
would be important to consider the "Stevens'" factor, which is
what happens when Senator Stevens is no longer in Congress. He
asked if Mr. Persily would comment on any or all of those
issues.
MR. PERSILY said if he understood Representative Gruenberg's
point correctly in referring to the constitutional spending
limit [HJR 9], federal funds are exempted from the cap.
However, it would be a difficulat situation for the legislature
if a program that previously received federal funds did not, in
a subsequent, year. He noted that there are escape clauses in
that a two-thirds vote [of the legislature] can increase
[spending] an additional 2 percent, and a three-quarters vote
[of the legislature] can increase [spending] another 2 percent.
Number 2030
REPRESENTATIVE GRUENBERG clarified his question by asking if the
Department of Revenue can estimate the impact that would have on
this chart.
MR. PERSILY asked Representative Gruenberg which chart would he
prefer he use.
CO-CHAIR WHITAKER noted that the committee recognizes that there
is a factor there; this is only an estimate and it would be
difficult to quantify.
MR. PERSILY responded that he really could not guess. Of the
federal money that comes to Alaska, much of it goes out in
grants and federal payroll and a significant amount of federal
money is earmarked for transportation projects. Mr. Persily
said he could not estimate how much money that goes into the
operating budget might have to be replaced by [general fund]
money if the federal money stopped [coming in], or how much the
legislature might want to replace as opposed to just letting the
programs go away. Common sense says that if the federal money
is cut back, the state would definitely end up with some holes
in its budget, he said.
Number 2226
REPRESENTATIVE OGG asked if these calculations included
consideration for economic growth, a flat economy, or an
economic decline.
MR. PERSILY replied that those factors were omitted. He
explained that he was thinking with a fiscal note mentally when
making up the charts. He explained that fiscal notes do not
factor in growth or inflation, they are flat lined. This
assumes that a $300 million broad based tax in FY 06 is going to
generate $300 million in tax revenue in FY 12. He advised that
the Department of Revenue will make up another set of graphs
assuming some reasonable growth factor. Looking at this
cumulatively, for example, if there were $300 million in annual
broad based tax revenues starting in FY 06 and if with
inflation, population growth, and economic development it could
be increased 3 percent per year, the cumulative result by 2012
would be an additional $200 million. Mr. Persily commented that
factoring that in can be a significant gain.
Number 2336
CO-CHAIR WHITAKER asked if a growth factor was included in the
POMV. He also asked if there was growth factor included in the
$300 million in taxes. In response to Mr. Persily's negative
response, he asked if the same assumptions were used with regard
to growth on [tax revenues], what would the cumulative numbers
be.
MR. PERSILY replied that by FY 12 it would be cumulatively $200
million in additional revenue for the CBR.
CO-CHAIR HAWKER commented that in not including the [growth
factor] in some ways it mitigates not including the inflation
factor in the base general fund.
Number 2415
MR. PERSILY pointed out that the State of Alaska does not have
any revenue source that grows with economic activity. If there
were a broad base [tax], whether it is a sales tax or an income
tax, hopefully there would be increased revenue to meet the
increased needs as the population grows, inflation grows, and
the demand for services increases. Although there would be some
growth in revenue, it certainly would not be enough to cover it
all, he said.
REPRESENTATIVE OGG asked if there is economic growth factor in
the HB 11 option.
MR. PERSILY explained that HB 11 is a function of the price of
oil and how much oil is pumped out of the ground. These numbers
are based on the spring of FY 03 revenue oil forecast which
[assumes] a long-term oil price of $22 [per barrel] and
production holding steady at about 1 million barrels per day.
REPRESENTATIVE OGG asked if there is a growth factor [included
in the forecast].
MR. PERSILY replied no growth factor would be included.
However, if there were additional discoveries that number would
increase.
CO-CHAIR WHITAKER pointed out that that number will increase
sometime in the future, perhaps even before 2012.
Number 2540
REPRESENTATIVE HEINZE asked Mr. Persily to give the members an
idea how this picture would look without the $300 million sales
tax. What would the impact be on either chart, she asked.
MR. PERSILY highlighted that the first chart uses the following
assumptions: no spending increase, no sales tax revenue in FY
04 of about $125 million because it is a fraction of a year.
Under the aforementioned scenario, the state would not get $300
million per year in FY 05 through FY 12, so there would be $2.5
billion less revenue. If the $300 million broad base tax did
not exist and in FY 12 the legislature put 60 percent of the
permanent fund distribution into public services and 40 percent
into dividends, the CBRF would be more than a billion dollars in
the hole instead of ending FY 12 with a $1 billion and a half
[in the CBRF]. It would make a significant difference, Mr.
Persily commented.
Number 2703
REPRESENTATIVE ROKEBERG said he wanted to correct one statement
made by Mr. Persily. He said Mr. Persily forgot to indicate
that oil and gas production growth does have a positive tax
impact.
REPRESENTATIVE ROKEBERG asked if there is any way to display
these same types of graphics showing the current situation in FY
03 or FY 04. What he would like to see, he said, is a base line
start because it would show the impacts of no action on the CBRF
and the spending lines would be used as starting points. Also,
as Representative Heinze asked, it would be interesting to see
the impacts of HB 11 or the lack of that component. He
commented that he is not shilling for HB 11, but he said he
believes that a chart would show the failure or cumulative
impact in 10 years. There would either be no dividends or
decreased dividends. This would show the long-term cumulative
affect of a small component as well as help to make judgments as
to the importance of taxation and spending variables.
Representative Rokeberg said another chart he would like to see
is a 1 percent decrease in spending.
Number 2936
CO-CHAIR HAWKER responded that those charts will be before the
committee tomorrow.
REPRESENTATIVE HOLM questioned whether the legislature has
considered reducing spending and whether the administration
plans some kind of reduction in spending.
CO-CHAIR WHITAKER commented that is certainly something that the
legislature can do. The legislature has reduced the budget in
the past and can certainly do it again.
REPRESENTATIVE GRUENBERG surmised that the charts take into
consideration that as the CBR goes down it will earn less, and
therefore there will be some kind of geometric affect.
MR. PERSILY responded that is correct. These charts assume that
whatever balance is in the CBR generates investment earnings and
[those earnings] are put back in for appropriation. The less
money in the CBR, the less it earns, and the less is available
for appropriation.
Number 3147
REPRESENTATIVE BILL STOLZE, Alaska State Legislature, as sponsor
of HJR 9, commented on the committee substitute and answered
questions from the members. He observed that the CS liberalizes
the constitutional spending limit significantly. It allows for
three times the increases that the original resolution proposed.
He asked why a section was taken out that would have directed
the governor to make necessary reductions in expenditures to
meet the spending limit. He said he was not involved in the
process [of writing the CS].
CO-CHAIR WHITAKER responded that the section that would have
required the governor to make necessary reductions in
expenditures to meet the spending limit was removed because of
concerns that the governor would be constrained and left without
the option of spending in a manner deemed appropriate. He said
there was the recognition that there would be consequences to
that change in terms of budgets ramifications.
REPRESENTATIVE STOLTZE said he wanted it noted on record that
this is the Co-Chair's choice, and not his.
Number 3344
REPRESENTATIVE GRUENBERG, commenting as a lawyer, remarked that
the language on page 2, Section 16(c), lines 17-21, would have
resulted in allowing the governor to reduce expenditures and
divest the legislature of the authority to override those
vetoes. He asked if that was Representative Stoltze's intent.
REPRESENTATIVE STOLTZE replied that he believed the language was
clear and that [his intent] was that he wanted the governor to
comply with the spending limit.
REPRESENTATIVE GRUENBERG reiterated his belief that a lawyer or
judge would interpret the language to mean that it clearly
divests the legislature of any participation in the process.
REPRESENTATIVE STOLTZE clarified that his intent was that the
legislature pass the budget. The governor could call the
legislature back into session, or the legislature could demand
to come back into session with the requisite number of votes, he
said. Representative Stolze said he does not believe there is
an abrogation [of powers].
Number 3557
REPRESENTATIVE ROKEBERG moved to adopt a conceptual amendment to
CSHJR 9, Version H. He said the amendment would remove language
on page 2, lines 11-16.
REPRESENTATIVE ROKEBERG objected for purposes of discussion.
REPRESENTATIVE ROKEBERG explained the current [work] draft
allows for three incremental increases of 2 percent. The
proposed amendment would eliminate the second level of 2 percent
increase and a two-thirds vote of each house. Therefore, it
would limit the cap to 4 percent with a standard 2 percent
increase and would require a three-quarter vote for any increase
in the budget. Representative Rokeberg said that the 6 percent
increase annually really does not look like much of a spending
cap to him, and that is the rationale for this amendment.
CO-CHAIR WHITAKER stated that Conceptual Amendment 1 to HJR 9
would delete subsection (b), page 2, lines 10-16.
Number 3721
REPRESENTATIVE GRUENBERG objected.
REPRESENTATIVE WILSON said that she really has a problem with
this amendment because in thinking realistically of the future
of the state she sees many problems, such as the teacher
shortage. This is a crisis situation and she predicted that in
order to attract teachers it will be necessary to increase their
pay. Representative Wilson said that if the legislature puts
itself in too tight of a box, the state will be in big trouble.
She emphasized that the legislature needs to think realistically
and face the future.
REPRESENTATIVE KOHRING asked for the sponsor's reaction to the
Conceptual Amendment 1.
REPRESENTATIVE STOLTZE responded that it is an improvement [from
the committee substitute].
A roll call vote was taken. Representatives Weyhrauch,
Rokeberg, Kohring, Heinze, Whitaker, and Hawker voted in favor
of Conceptual Amendment 1. Representatives Moses, Gruenberg,
and Wilson voted against it. Therefore, Conceptual Amendment 1
passed by a vote of 6-3.
Number 3921
CO-CHAIR HAWKER moved Amendment 2 [23-LS0435\H.1, Cook, 5/1/03]
which read as follows:
Page 2, line 16, following "made":
Insert ", excluding appropriations listed in
(a)(1) - (10) of this section"
Page 2, line 22, following "made":
Insert ", excluding appropriations listed in
(a)(1) - (10) of this section"
Number 3934
CO-CHAIR WHITAKER objected and noted that Amendment 2 was
developed by Legislative Legal and Research Services. He
explained that Amendment 2 clarifies that if the legislature
does obtain the supermajority level for expenditures, it does
not become part of the base for future appropriations.
REPRESENTATIVE WILSON asked for further explanation of the bill.
CO-CHAIR HAWKER told the members that this Amendment 2 adds a
line on page 2, line 22, at the end of the paragraph, which says
if the legislature makes an appropriation that exceeds the
amount allowable under this [constitutional] amendment, it will
require three-quarters of each house of the legislature to do
it; [Amendment 2] makes it very clear that the amount of the
appropriation may not exceed 2 percent. The 2 percent is based
on the amount appropriated in the two fiscals years preceding
the years for which the appropriations are made. That 2 percent
does not apply to those exceptional items in Section 16 (a)(1)-
(10), on page 1, lines 10-16 and page 2, lines 1-10. It is
strictly a 2 percent increment based on the base level of
government expenditures. This would not include the permanent
fund distributions, disaster response, general obligation bond
issues, reappropriation money, and all the other items listed in
(1)-(10). This amendment would clearly restrict the overriding
capacity of the legislature to the base amount in the
constitutional amendment.
The committee took an at-ease from 7:55 to 7:56 a.m.
Number 4300
CO-CHAIR WHITAKER withdrew his objection to Amendment 2. There
being no objection, Amendment 2 was adopted.
Number 4351
REPRESENTATIVE ROKEBERG proposed Amendment 3. He asked the
members to look at Version A of HJR 9, which is the original
version of the bill as offered by the sponsor. Representative
Rokeberg explained that on page 2, lines 17-21, the provision
that the sponsor talked about with respect to directing the
governor to make a cut in funding if the legislature failed to
do so, should be reinserted. He said that he would like to
insert that language in as subsection (c) on page 2.
Representative Rokeberg read [subsection (c) of Version A] which
said: "(c) If appropriations for a fiscal year exceed the
amount that may be appropriated under (a) and (b) of this
section, the governor shall reduce expenditures by the executive
branch for its operation and administration to the extent
necessary to avoid spending more than the amount that may be
appropriated under (a) and (b) of this section." He commented
that this was excised from the original resolution and he would
like to reinsert this language.
Number 4614
REPRESENTATIVE ROKEBERG moved Amendment 3 as follows:
On page 2, line 17,
Insert the following:
"(c) If appropriations for a fiscal year exceed the
amount that may be appropriated under (a) and (b) of
this section, the governor shall reduce expenditures
by the executive branch for its operation and
administration to the extent necessary to avoid
spending more than the amount that may be appropriated
under (a) and (b) of this section."
REPRESENTATIVE GRUENBERG objected.
TAPE 03-21, SIDE B
Number 4650
REPRESENTATIVE GRUENBERG told the members he is not sure how
this amendment would work, and would have no objection to
Amendment 3; however, he sees two different ways this language
could be interpreted. For example, the language could be
interpreted to mean that even though $1 million has been
appropriated for the Alaska Department of Fish and Game, the
governor does not need to spend all of that money and [the
administration] should make its best efforts not to do so. This
language could also be interpreted to mean that if the
legislature appropriated too much money under the Constitution
[under this amendment], the governor could veto the
appropriations bill and the legislature would constitutionally
have no power to override that veto. Representative Gruenberg
highlighted the legal importance of knowing the intent of the
amendment. It has got to be clear in the language, he said, and
asked for the intent of this language.
REPRESENTATIVE STOLTZE commented that he would have a better
appreciation for the members' concerns about passing powers to
the governor if Representative Gruenberg had not voted for a $20
million unallocated reduction for the governor to make as a
budget amendment.
Number 4354
REPRESENTATIVE ROKEBERG agreed that Representative Gruenberg
raised a very good and interesting point with respect to the
amendment and the issue of constitutional separation of powers.
REPRESENTATIVE GRUENBERG reiterated that he would have no
problem with Amendment 3 if the intent is the first
interpretation of the amendment.
REPRESENTATIVE ROKEBERG commented that there may be some
ambiguity in the amendment and would like to get counsel's
opinion on this issue.
CO-CHAIR HAWKER responded that he does not have a legal
background so his approach is the doctrine of common sense. If
the purpose of [HJR 9] is as stated on page 1, line 6,
"Appropriations made for a fiscal year shall not exceed", [the
word] "shall" seems to be an imperative. He asked the members
to look at the proposed additional language which says, "If
appropriations exceed". There seems to be a contradiction
within the amendment itself, he commented. Co-Chair Hawker said
that with all due respect, this is a constitutional amendment
proposition and it appears that this language would build a
conundrum into the Constitution.
Number 4214
REPRESENTATIVE ROKEBERG responded that everyone knows that
because of supplemental appropriations [the budget can exceed
the spending limit]. The other factor is if there is a
legislature or governor that is predisposed to [increase] rather
than decrease spending, there could be the problem of a
constitutional challenge. He said he looks at this amendment as
a further check on that separation of powers. He went on to say
that the ability of the legislature to override by veto is an
important question.
CO-CHAIR WHITAKER pointed out that the next committee of
referral is the House Judiciary Standing Committee where he
believes that issue will be discussed at great length.
Number 4052
REPRESENTATIVE SEATON told the members that he believes there
are constraints put on the legislature that prevent the members
from living up to this matter in the amount spent on capital
expenditures. He noted that he is in favor of this amendment
because it inserts a dual requirement that if the legislature
does not appropriate the way the Constitution says, which is now
the case with the capital budget, then the governor is directed
to make these changes. Representative Seaton summarized his
comments by saying he thinks the amendment is appropriate.
REPRESENTATIVE GRUENBERG commented that his question still
remains unanswered, and asked if Ms. Cook would provide an
interpretation.
Number 4003
TAMARA COOK, Director, Legislative Legal and Research Services,
Alaska State Legislature, provided a legal opinion on HJR 9 and
proposed amendments, and answered questions from the members.
Ms. Cook asked if Representative Gruenberg's question is whether
the legislature would retain veto power if the language in
subsection (c) from the original bill is reinserted. In
response to Representative Gruenberg's affirmative response, she
commented that everyone who has touched upon the issue is
correct, this is an issue that needs to be addressed. If the
issue is not addressed she believes the legislature would not
have veto power because the override power applies to vetoes.
This is clearly not a veto; it is direction to the governor not
to spend money that has, in fact, been appropriated.
MS. COOK told the members that she does not know of any
mechanism in the Constitution whereby the legislature can veto a
decision of the [governor] not to spend money that has been
appropriated. She pointed out that the Sheffield case dealt
with that situation with the North Star Borough. In that case,
then-Governor Bill Sheffield ordered a reduction in certain
expenditures due to the state facing a decrease in revenues and
a budget that was not balanced. The time for him to veto the
appropriation had long since expired. He was not vetoing an
appropriation in the sense that the legislature would then have
something to override. He was directing the executive branch
[of government] not to spend money that had, in fact, been
appropriated, she said. That [action] resulted in litigation.
She pointed out that the reductions by [the then-Governor
Sheffield] were overturned in court. The legislature responded
by coming back into session and ratifying those reductions.
Ultimately the decisions that then-Governor Sheffield made were
upheld by the action of the legislature. She said that as she
reads this provision, absence any clarification, she believes
[the amendment] would be building that kind of situation into
the Constitution. She said that what this does is tell the
governor that despite the fact that the money has been
appropriated, it will be the governor's decision not to spend
it. In fact, the governor must decide not to spend some money
that is appropriated to the Executive Branch since he cannot
reduce money to the Judicial or Legislative Branches of
government. The governor must elect to not spend some money if,
in fact, the money appropriated exceeds the spending limit as a
constitutional matter.
Number 3710
REPRESENTATIVE ROKEBERG withdrew Conceptual Amendment 3.
However, he said he hopes it will be considered during the
bill's referral to the House Judiciary Standing Committee.
Number 3627
REPRESENTATIVE GRUENBERG said he does support a mechanism to get
state spending under control; however, he is not sure how it
should be done. Representative Gruenberg expressed concern that
this measure may tie the hands of the legislature at a time when
it is important to have options to make very difficult
decisions. He pointed to the 1970s where the state experienced
runaway inflation, which is something beyond the control of
legislature in the constitutional sense. Another issue might be
some kind of situation that does not fall into one of these
escape clauses. He expressed concern that the committee adopted
Amendment 1 and thus eliminated subsection (b), which would have
been helpful. On page 2, line 20, the resolution specifies that
the legislature cannot under any circumstances exceed 2 percent
of the previous amount. That 2 percent figure is going be grave
and in stone. Representative Gruenberg said he would feel more
comfortable about this resolution if there were some method of
giving the legislature, under some circumstances, the ability to
get around that. Representative Gruenberg pointed out that
something may occur that no one in this room could have
foreseen, something that could require an immediate
appropriation; the only way that the legislature would be able
to make that appropriation is by amending the Constitution,
which could not be done until the next general election.
Number 3237
REPRESENTATIVE HEINZE moved to report CSHJR 9, as amended, out
of House Special Committee on Ways and Means with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHJR 9(W&M) was reported from the House Special
Committee on Ways and Means.
HJR 26-CONST. AM: PF APPROPS/INFLATION-PROOFING
Number 3153
CO-CHAIR WHITAKER announced that the final order of business
would be HOUSE JOINT RESOLUTION NO. 26, Proposing amendments to
the Constitution of the State of Alaska relating to and limiting
appropriations from and inflation-proofing the Alaska permanent
fund by establishing a percent of market value spending limit.
He noted that CS for HJR 26, 23-LS1006\I, Cook, 4/29/03, is
before committee.
The committee took an at-ease from 8:15 to 8:17 a.m.
[Due to technical difficulties the log numbers from this point
through the end of the minutes are ascending, rather than
descending.]
Number 3151
CO-CHAIR HAWKER moved Amendment 1 to CS for HJR 26, Version I,
which reads as follows:
On page 1, line 3
delete the word "ensure"
insert the word "assure"
On page 1, line 4
delete "is preserved"
insert "will be preserved over the long term"
On page 2, line 3
after the words "will be preserved"
insert "over the long term"
CO-CHAIR WHITAKER objected for purposes of discussion.
CO-CHAIR HAWKER said that there have been lengthy discussions in
earlier meetings on prefacing language. He commented that the
original version of the resolution had predicate language and it
now has a prefacing clause. As a result of those discussions,
this amendment was drafted in coordination with the Alaska
Permanent Fund Board and Legislative Legal and Research
Services.
Number 3319
CO-CHAIR HAWKER explained that the changes from "ensure" to
"assure" revolve around a legal subtlety that is better
explained by an attorney. He told the members that the
amendment restores one important clause in the prefacing
language clarifying that this amendment is intended to refer to
"over time" as over the "long term". He explained that the
words "long term" seemed to be more definitive language than
"over time". Co-Chair Hawker said that the third change is just
additional conforming language [on the same issue]. He
recommended the committee adopt this amendment since it is most
closely akin to that which was introduced by the Permanent Fund
Corporation. He noted that HJR 26 will go to the House
Judiciary Standing Committee where it may be more appropriately
reviewed from a legal prospective. He commented that the House
Special Committee on Ways and Means focus is a bit more
financial than judicial. He noted his confidence that the House
Judiciary Standing Committee will give the resolution a more
appropriate hearing. He summarized his statement by saying that
he believes the committee is in agreement as to the financial
appropriateness, correctness, and quality of this resolution
with the inclusion of Amendment [1].
Number 3507
REPRESENTATIVE GRUENBERG stated that he strongly supports
Amendment [1].
Number 3535
There being no objection, Amendment 1 was adopted.
Number 3537
REPRESENTATIVE HEINZE moved to report CSHJR 26, as amended, out
of committee with individual recommendations and the
accompanying fiscal notes.
REPRESENTATIVE KOHRING objected. He told the members that he
has concerns about this legislation and will be voting against
it. He said he can see the writing on the wall as far as the
support for this resolution and he said he respects the members
of the committee. He said that he also respects the efforts to
address the fiscal situation [of the state]. However, he views
this legislation as a creative way for more money to be spent on
government appropriations from the permanent fund.
Representative Kohring said he is concerned because he believes
the proposal before the legislature is based on the value of the
fund, as opposed to the performance of the fund. He said he
thinks it could be a potential bonanza if the value of the fund
were to go up as far as what could be made available for
expenditures. He said he does not see a problem that warrants
this kind of filter since the legislature has exercised good
fiscal discipline with years of effort in cutting spending. He
believes the legislature should go a lot further [in cutting
spending] particularly in the areas of making government more
efficient through mergers, consolidations, and other measures.
He also expressed concern that these monies could take away the
incentive to engage in serious spending reductions in the
future. The one saving grace, he commented, is that if it
passes the legislature it will go before the voters and maybe
the voters will see the wisdom of turning this [constitutional
amendment] down. Representative Kohring stated that he will
campaign against the passage of this constitutional amendment.
REPRESENTATIVE KOHRING removed his objection, but restated he
does not support the legislation.
Number 3745
REPRESENTATIVE HEINZE stated for record that she would like to
clarify the main difference between this resolution and the
initiative, which was defeated in 1999. She explained that she
sees this resolution as a way to protect the dividend, and that
is far from [the purpose of the resolution] that was before the
voters in 1999.
Number 3814
REPRESENTATIVE GRUENBERG stated for the record that the
resolution that will be passing out of the committee deletes on
page 1, line 10, the word "in". He said that he missed some of
the discussion on the bill and asked for clarification on this.
He also asked for clarification on the language on page 2, line
5, where it says "the first five of", and asked why is the last
year of the preceding six years being eliminated. Why will a
five-year reference be used, instead of a six-year average, once
removed.
Number 3923
BOB BARTHOLOMEW, Chief Operating Officer, Alaska Permanent Fund
Corporation, explained that the line to which Representative
Gruenberg is referring defines which five-year-average will be
used. The objective of going back and not using the most recent
fiscal year is to allow the legislature and the governor to know
at the time the budget is being prepared exactly what is
available.
REPRESENTATIVE GRUENBERG responded that answers his question.
He stated he has no objection to moving the resolution.
CO-CHAIR WHITAKER objected for the purposes of continuing the
discussion of the resolution.
Number 4013
CO-CHAIR HAWKER acknowledged Representative Kohring's personal
position against the bill, his statesmanship, and true courage.
He said he appreciates his willingness to move a bill forward
that he does not support, knowing that it will ultimately be
placed before the people of Alaska for a concurrence vote. Co-
Chair Hawker said that he hopes all the members of the body will
take a lead from Representative Kohring in his demonstration of
true statesmanship in this matter. Co-Chair Hawker removed his
objection.
Number 4103
REPRESENTATIVE WILSON commented for the record that this is a
step to protect the permanent fund dividend and will help to
assure continuity and stability in the dividend that will not be
there otherwise.
REPRESENTATIVE HOLM pointed out that percent of market value is
not a very well understood term. He said he believes it is very
important that it is made clear what it does and does not do,
and how volatile it is.
With no further objections, CSHJR 26, as amended, was reported
out of the House Special Committee on Ways and Means.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
8:30 a.m.