ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 13, 2023
6:03 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Jamie Allard
Representative Tom McKay
Representative Kevin McCabe
Representative Cathy Tilton
Representative Andrew Gray
Representative Cliff Groh
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 2
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit.
- HEARD & HELD
HOUSE BILL NO. 38
"An Act relating to an appropriation limit; relating to the
budget responsibilities of the governor; and providing for an
effective date."
- HEARD & HELD
PRESENTATION(S): RESPONSIBLE ALASKA BUDGET ON SPENDING LIMITS
- HEARD
PRESENTATION(S): SPENDING CAPS
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HJR 2
SHORT TITLE: CONST. AM: APPROP LIMIT
SPONSOR(s): REPRESENTATIVE(s) STAPP
01/23/23 (H) READ THE FIRST TIME - REFERRALS
01/23/23 (H) W&M, FIN
01/30/23 (H) JUD REFERRAL ADDED BEFORE W&M
01/30/23 (H) BILL REPRINTED
02/15/23 (H) JUD AT 1:00 PM GRUENBERG 120
02/15/23 (H) Heard & Held
02/15/23 (H) MINUTE(JUD)
02/27/23 (H) JUD AT 1:30 PM GRUENBERG 120
02/27/23 (H) Moved CSHJR 2(JUD) Out of Committee
02/27/23 (H) MINUTE(JUD)
03/01/23 (H) JUD RPT CS(JUD) 3DP 1DNP 1NR 2AM
03/01/23 (H) DP: C.JOHNSON, CARPENTER, ALLARD
03/01/23 (H) DNP: GROH
03/01/23 (H) NR: GRAY
03/01/23 (H) AM: EASTMAN, VANCE
03/11/23 (H) W&M AT 9:00 AM DAVIS 106
03/11/23 (H) <Bill Hearing Canceled>
03/13/23 (H) W&M AT 6:00 PM DAVIS 106
BILL: HB 38
SHORT TITLE: APPROPRIATION LIMIT; GOV BUDGET
SPONSOR(s): REPRESENTATIVE(s) STAPP
01/19/23 (H) READ THE FIRST TIME - REFERRALS
01/19/23 (H) JUD, W&M, FIN
01/27/23 (H) JUD AT 1:00 PM GRUENBERG 120
01/27/23 (H) Heard & Held
01/27/23 (H) MINUTE(JUD)
02/15/23 (H) JUD AT 1:00 PM GRUENBERG 120
02/15/23 (H) Heard & Held
02/15/23 (H) MINUTE(JUD)
02/27/23 (H) JUD AT 1:30 PM GRUENBERG 120
02/27/23 (H) Moved CSHB 38(JUD) Out of Committee
02/27/23 (H) MINUTE(JUD)
03/01/23 (H) JUD RPT CS(JUD) 3DP 1DNP 1NR 2AM
03/01/23 (H) DP: C.JOHNSON, CARPENTER, ALLARD
03/01/23 (H) DNP: GROH
03/01/23 (H) NR: GRAY
03/01/23 (H) AM: EASTMAN, VANCE
03/11/23 (H) W&M AT 9:00 AM DAVIS 106
03/11/23 (H) <Bill Hearing Canceled>
03/13/23 (H) W&M AT 6:00 PM DAVIS 106
WITNESS REGISTER
REPRESENTATIVE WILL STAPP
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As prime sponsor, presented CSHJR 2(JUD)
and CSHB 38(JUD).
BERNARD AOTO, Staff
Representative Will Stapp
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Assisted in presenting CSHJR 2(JUD) and
CSHB 38(JUD), answered questions and gave the sectional
analyses, on behalf of Representative Stapp, prime sponsor.
QUINN TOWNSEND, Policy Manager
Alaska Policy Forum
Anchorage, Alaska
POSITION STATEMENT: Gave the PowerPoint presentation, titled
"Responsible Alaska Budget on Spending Limits."
ROB CARPENTER, Deputy Director
Legislative Finance Division
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation on
appropriation limits and spending caps.
ACTION NARRATIVE
6:03:02 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:03 p.m. Representatives Tilton,
McCabe, McKay, Allard, Groh, Gray, and Carpenter were present at
the call to order.
HJR 2-CONST. AM: APPROP LIMIT
HB 38-APPROPRIATION LIMIT; GOV BUDGET
6:03:56 PM
CHAIR CARPENTER announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 2, Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit. and HOUSE BILL NO. 38, "An Act relating to an
appropriation limit; relating to the budget responsibilities of
the governor; and providing for an effective date." [Before the
committee was CSHJR 2(JUD) and CSHB 38(JUD).]
6:05:05 PM
The committee took a brief at-ease at 6:05 p.m.
6:05:47 PM
REPRESENTATIVE WILL STAPP, Alaska State Legislature, as prime
sponsor, presented CSHJR 2(JUD) and CSHB 38(JUD). He explained
that the need for a spending cap is not new in the state's
history. In 1982 Alaska had identified the potential for
overspending and imposed appropriation limits. However, this
decision was tied to the economy of the time, and he explained
that the problem now is the limit does not effectively limit
appropriations. He further explained that a decade ago Alaska
had $10 billion in revenues and $18 billion combined in the
constitutional budget reserve (CBR) and the statutory budget
reserve (SBR). At that time the House Finance Committee was
presented a 10-year budget forecast from the Office of
Management and Budget (OMB), and the 10-year forecast did not
predict that the state would spend its reserves or make
Permanent Fund draws to pay for state services. He advised that
one of the effective ways to ensure a strong and stable economy
would be to apply "commonsense solutions to complex problems."
He expressed the opinion that an appropriation limit would be
the first of many commonsense solutions.
6:08:21 PM
BERNARD AOTO, Staff, Representative Will Stapp, Alaska State
Legislature, on behalf of Representative Stapp, prime sponsor,
assisted in presenting CSHJR 2(JUD) and CSHB 38(JUD). He
referred to language from [a portion of Article IX, Section 16,
of] the Constitution of the State of Alaska, regarding
appropriations, which relates that appropriations from a fiscal
year shall not exceed $2.5 billion by more than the cumulative
change. He explained that one-third of the income shall be
reserved for capital projects and loan appropriations, while
voter approved projects would be able to exceed the limit. He
said CSHJR 2(JUD) would apply a different metric for calculating
an appropriations limit by using the gross domestic product
(GDP). He said that the proposed resolution would take a five-
year trailing average of real GDP based on calendar years. The
calculation would take 14 percent of the five-year average, and
this would be the spending cap. He advised that if established
before fiscal year 2024 (FY 24), the number would be $6.25
billion. He explained that the reason for 14 percent is it
would set a limit near the current spending levels, and this
would allow stable and predictable spending in the future.
6:10:20 PM
MR. AOTO drew attention to a PowerPoint backup slide [hard copy
included in the committee packet]. He stated that the
expenditures subject to the proposed limit would be unrestricted
general funds (UGF) operating expenditures, UGF capital
expenditures, and payments for retirement benefits. He stated
the expenditures not subject to the limit would be permanent
fund dividends (PFDs), appropriations to the Permanent Fund,
appropriations to the Power Cost Equalization Endowment Fund,
appropriations to the state savings account, appropriations to
capitalize state retirement accounts, direct spending from a
disaster declaration, and proceeds of bonds which are approved
by voters.
6:11:24 PM
MR. AOTO, presenting another backup slide, explained that the
graph illustrates the current appropriations subject to a limit,
the current constitutional limit, and the limit under the
proposed bills. He noted that the graph accounts for the
administration's amended and supplemental FY 24 budgets. He
pointed out that while CSHJR 2(JUD) would exceed the cap CSHB
38(JUD) proposes, it would not exceed the current limit as set
by the state constitution. Mr. Aoto stated that HJR 2 has one
primary goal: to create an effective appropriations limit to
allow for stable long-term fiscal viability.
6:12:33 PM
MR. AOTO gave the sectional analysis for CSHJR 2(JUD) [included
in the committee packet], which read as follows [original
punctuation provided, with some formatting changes]:
Section 1:
Amends Article IX, sec. 16 of the Constitution of the
State of Alaska to slightly revise appropriations
subject to the limit as well as the conditions that
determine the appropriation limit. Sets a maximum
statutory cap at 14% of Real GDP (not including
government spending).
Exceptions List [Article IX, Sec. 16]
• Adds appropriations to the Alaska permanent fund to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Adds Appropriation of GO Bond proceeds to exceptions
list
o Moved with slight variation from Appropriation
Limit Section to Exceptions List
• Adds payment of principal and interest on revenue
bonds to exceptions list
• Adds 'appropriations to a state account or fund that
requires a subsequent
appropriation from that account or fund as prescribed
by law' to exceptions list.
• Adds 'appropriations to meet a state of disaster
declared by the governor as prescribed by law to
exceptions list.
o Moved from Appropriation Limit Section to
Exceptions List
• Removes "Appropriation of Revenue of a public
enterprise or public corporation.
of the state that issues revenue bonds"
Appropriation Limit Conditions [Article IX, Sec. 16]
• Adds (Appropriations Not to Exceed) an amount
prescribed by law equal to a percentage of the average
Real GDP (not including government spending) for the
first five of the last six years. This measure of
Real GDP is estimated by state government as
prescribed by law.
• Removes Old appropriation limit anchored to $2.5
Billion + Pop. and infl. (since 7/1/81)
• Removes language reserving 1/3 for capital projects
and loan appropriations.
• Removes language adding exceptions to appropriations
subject to the limit from this Appropriation Limit
Conditions section and moves these to the exceptions
list. section.
• Removes specific language surrounding Capital projects
exemptions.
Section 2:
Adds a new section to Article XV of the Constitution of
the State of Alaska (Schedule of Transitional
Measures), section 30, which sets an 'effective date'
of the end of the fiscal year immediately following the
next possible opportunity for Alaskans to ratify a
proposed amendment to the constitution.
Section 3:
Includes the provision that the constitutional
amendments proposed by this resolution must be placed
before the voters at the next general election.
6:15:20 PM
REPRESENTATIVE GRAY requested that Representative Stapp speak to
the purpose of CSHJR 2(JUD).
REPRESENTATIVE STAPP explained that the intent of CSHJR 2(JUD)
is to smooth out the boom-and-bust cycles in the state's
budgeting, and this would be to ensure long-term viability and
establish fiscal certainty in Alaska. He said this could also
help private sector performance. He explained that private
sector entities are wary of investing because the state is
struggling to create stability.
REPRESENTATIVE GRAY suggested that the proposed legislation
would help control spending and avoid overspending.
REPRESENTATIVE STAPP concurred with the statement. In response
to a follow-up question concerning why the PFD is not included
in the spending limit, he pointed out that there has been
contention in the state over the PFD for the last eight years,
and he expressed the opinion that the PFD "needs its own
solution." He said CSHJR 2(JUD) would be setting out to solve a
larger fiscal problem which has existed in the state longer than
the PFD "tug-of-war." He pointed out that the struggle over the
PFD ebbs and flows.
6:18:00 PM
REPRESENTATIVE STAPP, in response to a question from
Representative Allard, explained that CSHJR 2(JUD) contains an
exception for PFD appropriations. He said the legislature would
have the ability to take funds not within the cap and
appropriate them as it chooses. He suggested that this could be
to pay the dividend or repay draws from CBR.
6:19:39 PM
REPRESENTATIVE MCCABE brought up the Fiscal Policy Working
Group's (FPWG's) recommendations, pointing out that FPWG had
separated the PFD intentionally, as well as proposed a separate
spending limit. He opined that the PFD does not belong in the
budget. He surmised that Representative Stapp wrote CSHJR
2(JUD), as is, because there are already solutions to the PFD
which are working.
REPRESENTATIVE STAPP responded that a spending cap was one of
FPWG's proposals. He pointed out that a spending cap would not
be dependent on any other aspect of the situation. He said that
he is not opposed to others seeking a "holistic" solution;
however, he expressed belief in the merits of the proposed bills
and stated that they stand independently.
REPRESENTATIVE MCCABE expressed the understanding that FPWG did
not "cherry-pick," and it knew the proposals would be separate,
but the group also wanted all the proposals to "march together."
He noted FPWG expressed that a constitutional spending limit is
important, and he thanked Representative Stapp for bringing
CSHJR 2(JUD) forward and suggested that the matter bears
investigating.
6:22:24 PM
REPRESENTATIVE TILTON asked Representative Stapp to elaborate on
using the GDP formula over the population-plus-inflation
formula. She also asked him to explain the funding limit's
design.
REPRESENTATIVE STAPP stated that the private sector element is
important. He referenced various countries in Europe, like the
Nordic countries, which have a strong private sector economy.
He expressed the opinion that the past private sector growth in
Alaska has been anemic. He suggested that to get to a holistic
economy in Alaska, members in the House must take measures
towards a strong private sector economy. He commented that this
concerns looking at decades ahead.
6:24:13 PM
MR. AOTO relayed that the current population-plus-inflation
formula would need to be tied to a figure in order for it to be
effective, and it is currently tied to $2.5 billion. He said
there is difficulty applying the formula with any figure,
especially when enshrining a figure into the constitution,
because in 10 years the figure could balloon out of control. He
pointed out that this is happening now with the current limit
set out in the constitution. He pointed out the graph which
illustrates how the current constitutional spending limit
formula has led to spending levels the state could not even hope
to achieve at its current economic level. He explained that a
one-year dip in population and inflation could drastically
affect the current formula limit. Alternatively, the formula
that CSHJR 2 proposes bases the limit on five trailing years,
which allows one bad year to not create an issue. He surmised
that if there were five years of economic decline, the
legislature would try to take action to reverse the decline to
avoid the "shock value" which had resulted in 2015 from the
decline in oil prices.
6:26:02 PM
REPRESENTATIVE GROH questioned Representative Stapp's awareness
concerning FPWG's recommendation of "revising Alaska's spending
limits as part of a comprehensive solution," but without
offering what this solution would be.
REPRESENTATIVE STAPP responded that the answers to these
questions are the prerogative of the committee.
6:27:17 PM
CHAIR CARPENTER suggested that characterizing FPWG as having a
recommended action is a mischaracterization of the group's
report. He said that its report put forward a revision to the
concept of Alaska's spending limits, because the limits have not
been effective. He questioned the relationship between the
proposed bills.
6:27:57 PM
MR. AOTO explained that the connection is the proposed bills are
designed to coincide with one another and mimic each other's
language. He said this provides an aligning and stable spending
limit, with the main difference being percentages. He
contrasted the current 14 percent and the proposed statutory
11.5 percent, in that the statutory limit sets a two-thirds vote
requirement for the legislature to exceed the limit.
CHAIR CARPENTER questioned whether this could be for any need or
only for capital spending.
6:29:00 PM
REPRESENTATIVE STAPP responded that, conceptually, it would be
for capital spending, but the money could be appropriated for
other means. He expressed the intention to ensure that [the
state] has the ability to maintain a level of revenue which
could be appropriated for capital spending for the future.
6:29:39 PM
MR. AOTO, at the invitation of Chair Carpenter, offered
information regarding CSHB 38(JUD), which he highlighted as the
statutory companion to CSHJR 2(JUD). He explained that the
current statutory limit, set under AS 37.05.540(b), mostly
aligns with the appropriations limit under Article IX of the
Constitution of the State of Alaska, which states,
"Appropriations from the treasury made in a fiscal year may not
exceed appropriations made in the preceding fiscal year by more
than five percent plus the change in population and inflation
since the beginning of the preceding fiscal year." He further
explained that the change in population is based on an annual
estimate by the Department of Labor and Workforce Development,
and the change in inflation is based on the consumer price
index, as prepared by the U.S. Bureau of Labor Statistics.
MR. AOTO said CSHB 38(JUD) would use the trailing average of the
five previous calendar years of the real GDP for the state as
the metric for the limit. He explained that the real GDP is
calculated by taking data for the standard GDP calculations by
government agencies, subtracting government spending, and
adjusting for inflation. He stated that 11.5 percent of the
total average would be the limit for all appropriations not
listed as exceptions. He noted that, if enacted by FY 24, this
figure would be $5.1 billion. He explained that the
appropriations subject to the limit under the proposed bills
mimic each other; however, CSHB 38(JUD) would add an additional
exemption of appropriations made from the Alaska Mental Health
Trust Authority settlement income account. He said that this
was put into the bill because of Weiss v. State, 939 P.2d 380
(1997), and the language was left unaltered at the advice of the
Legislative Legal Services, because any change to it may subject
the legislature to litigation and reopen Weiss v. State.
6:32:34 PM
MR. AOTO showed a graph depicting the current statutory limit.
He said the figure varies when compared to appropriations
subject to the constitutional limit. He offered further details
and noted that any supplementals made in a fiscal year count
toward this fiscal year. He stated that the two primary goals
of CSHB 38(JUD) are to create an effective appropriations limit
to allow the state more stable long-term fiscal viability and to
align Alaska statute with the constitutional proposal. He then
presented a graph which represented appropriations subject to
the constitutional limit, appropriations subject to the
statutory spending limit, the current limit, the limit under
CSHJR 2(JUD), and the limit under CSHB 38(JUD). He noted that,
historically, the constitutional limit is stable at an incline;
however, the statutory limit is volatile because of the metric
designed for the limit.
6:35:09 PM
MR. AOTO gave the sectional analysis for CSHB 38(JUD) [included
in the committee packet], which read as follows [original
punctuation provided, with some formatting changes]:
Section 1:
Amends AS 37.05.540(b) to conform to changes made by
HJR 2. Changes affect the list of appropriations
subject to the limit as well as the conditions that
determine the appropriation limit. Defines a
calculation for an appropriation cap at 11.5% of a
trailing average of Real Gross Domestic Product (GDP)
(not including government spending).
• Exceptions [37.05.540(b)]
o Adds Appropriation of general obligation
Bond proceeds to exceptions list
o Adds payment of principal and interest on
revenue bonds to exceptions list
o Adds 'appropriations to a state account or
fund that requires a subsequent appropriation from
that account or fund as prescribed by law' to
exceptions list
o Adds 'appropriations to meet a state of
disaster declared by the governor as prescribed by
law' to exceptions list.
• Appropriation Limit Conditions [37.05.540(b)]
o Adds (Appropriations Not to Exceed) 11.5%
of the average Real GDP (not including government
spending) for the first five of the last six years.
o Removes Old cap of 5% more than last year
+ the change in population and inflation since
beginning of preceding fiscal year.
o Removes language describing determination
of change in population based on annual estimate by
DLWD.
o Removes language describing change in
inflation based on Consumer Price index (CPI) for all
urban consumers for Anchorage.
Section 2:
Adds a new subsection (f) to AS 37.07.020 which
requires a comparison of the governor's budget
requests, supplemental requests, and budget amendments
to the calculated appropriation limit.
6:36:46 PM
REPRESENTATIVE STAPP pointed out the current statutory limit on
the graph and characterized it as a roller coaster. He echoed
the comments that because of the design of the current statutory
appropriations limit, it can be violated without even knowing
because of the nature of the supplemental budget process. He
further pointed out that because of how the current statutory
limit is calculated, there could be a $3 billion swing in one
fiscal year. He expressed the understanding that this would not
be what the legislature wishes to encourage when trying to find
long-term fiscal stability.
6:38:17 PM
REPRESENTATIVE GROH asked Representative Stapp to describe the
theory behind a constitutional and statutory spending limit. He
noted that a constitutional limit is effective but questioned
the purpose of the statutory limit with differing metrics.
REPRESENTATIVE STAPP explained that the purpose of the statutory
limit is to have a mechanism to ensure effective capital
spending without reaching the constitutional limit. He
reiterated that the goal would be to ensure future fiscal
stability, which he determined comes from a sound appropriations
process. He noted that Alaska already has constitutional and
statutory limits, so the idea is to make the current limits
effective and work together.
REPRESENTATIVE GROH asked if the reason to have a separate
statutory limit is because this is where there is room for
additional capital spending.
REPRESENTATIVE STAPP replied, "Not necessarily." He said there
can be effective capital spending within a statutory limit; it
just depends on how the legislature decides appropriate funding.
He said that when there is year-over-year private sector growth,
there could also be years where all spending falls under the
statutory limit.
6:40:13 PM
MR. AOTO noted that the limit also requires two-thirds of the
legislature to go over the 11.5 percent limit. He said that
theoretically, capital spending could be used but would also
still require two-thirds vote of support from the legislature.
6:40:47 PM
CHAIR CARPENTER announced that HJR 2 and HB 38 were held over.
6:40:54 PM
The committee took an at-ease from 6:40 p.m. to 6:42 p.m.
^PRESENTATION(S): Responsible Alaska Budget on Spending Limits
PRESENTATION(s): Responsible Alaska Budget on Spending Limits
6:42:25 PM
CHAIR CARPENTER announced that the next order of business would
be on the responsible Alaska budget on spending limits
presentation.
6:43:11 PM
The committee took a brief at-ease at 6:43 p.m.
6:43:58 PM
QUINN TOWNSEND, Policy Manager, Alaska Policy Forum, gave a
PowerPoint presentation, titled "Responsible Alaska Budget on
Spending Limits." She showed slide 2 and stated that the Alaska
Policy Forum (APF) is a 501(c)(3) nonprofit, nonpartisan state-
based think tank, and it does not accept any form of government
funding. Moving to slide 3, she addressed spending limits and
how it would affect Alaska's long-term fiscal health. She
pointed out that Alaska is the only state in the modern era to
have repealed its income tax. She said that the challenge for
policy makers is implementing a policy based on economic
principles, while also considering what makes Alaska unique.
She said that Alaska has a history of high spending during
periods of economic growth, which has led to the fiscal
struggles today, and she suggested that reigning in spending
over time would be a meaningful spending cap. She noted that
Alaska currently has state statutory and constitutional spending
limits; however, the base of the constitutional limit is
meaningless today, and a more effective spending cap would help
stabilize future budgets. She stated that economic literature
shows an effective spending cap, if structured correctly, would
be beneficial in curbing the growth of state spending. When
coupled with low taxes, research shows that lower state spending
has resulted in income, population, employment, and net cross-
state immigration growth, as well as a higher GDP.
6:47:02 PM
MS. TOWNSEND moved to slide 4 and said that Colorado has had the
best success implementing a spending limit, and it uses the
Taxpayer's Bill of Rights (TABOR), to implement a spending cap,
as TABOR is considered the gold standard. She explained that
TABOR is designed to limit state spending and revenue growth.
It uses the previous fiscal year as a base year and uses the
inflation-plus-population formula for growth. She noted that
increases to the limit would be decided by voters. If the state
collects more revenue than TABOR allows, then the money is
returned to taxpayers as a refund. If a public agency in
Colorado wishes to spend the surplus revenue, it must place the
request on the ballot. She recognized that the refund aspect
would not apply to Alaska, as there are individual taxpayers in
Colorado. She stated that TABOR has put the "purse strings"
back in the hands of Colorado taxpayers.
MS. TOWNSEND moved to slide 5, which outlined the aspects of a
meaningful spending cap. She said first is enforcement,
advising that a constitutional limit would be more resilient to
the "ups and downs" of politics than a statutory limit. Second
is what the cap actually limits, in that a cap which allows for
spending loopholes is not what is wanted, and instead the base
of spending limited by the cap needs to be broad and include
supplemental spending. She said that an example of an
expenditure which should be exempt is spending for a disaster or
emergency. She stated that APF does not hold a position on the
permanent fund dividend (PFD); therefore, the materials on the
budget provided by APF do not include the PFD.
MS. TOWNSEND continued that the third aspect of a well-designed
spending cap is how it limits spending. She said that most
states have a two-step process for the spending cap with a base
and a calculation to grow the limit. She said that economic
literature acknowledges that Alaska's economy is unique;
therefore, the state is sometimes excluded from national
analysis. She suggested that using a running average of GDP
minus government services as a way to calculate Alaska's private
sector for an effective base; however, as it is not a
calculation other states use, it is not possible to look at
other states to see how effective it is. Furthermore, economic
literature has demonstrated that spending caps which grow using
a population-plus-inflation formula, rather than by a
calculation of personal income, are typically more effective.
She said that an effective cap should be difficult to override
and have few exceptions, and spending past the limit should
require a vote of residents.
6:51:43 PM
MS. TOWNSEND moved to slide 7. She related that APF publishes
The Responsible Alaska Budget (RAB) annually. She pointed out
that for the fiscal year 2024 (FY 24) RAB published [the
estimate] of $7.71 billion in state funds. She said that this
was calculated by taking the FY 23 enacted budget, and
increasing the figure by 4.87 percent, with the rate of growth
of population and inflation. She clarified that APF includes
the undesignated general funds, designated general funds, and
other state funds as part of the total state funds. Excluded
from the $7.71 billion figure were fund transfers into the PFD,
as well as expenditures or appropriations from the Permanent
Fund. She said that the goal of the paper and accompanying
figure is to provide for what a general spending limit would
look like in Alaska, and to demonstrate how a spending limit
could positively benefit Alaskans.
MS. TOWNSEND said that a true spending limit would differ from
RAB depending on several factors, such as the base year. She
said there are other ways to calculate the base other than just
off the previous fiscal year, such as a running average of GDP
from the previous five years. Also, RAB does not look at total
state spending, but just state funds within the enacted budget.
She relayed to members that Alaska relies heavily on
supplemental spending above the enacted budget. She stated that
a limit which does not take total state spending into
consideration leaves room for future policy makers to spend
outside the limit, which would make the limit ineffective.
6:54:00 PM
MS. TOWNSEND moved to slide 8. She said that RAB does not take
into consideration how local funding and spending interact with
state funding. She said that some states include specific
requirements on local funding and spending. She stressed that
RAB is a general example of a broad-funding limit. She recapped
the presentation and advised that policy makers consider the
following: what is included in the spending limit; what state
spending is; how local spending is affected; what the base is;
whether the limit should be statutory or within the
constitution; how it can be bypassed; and how the limit grows.
She stated that Alaska would benefit from an effective limit,
and every dollar spent by the state is a dollar not used by the
private sector. She said that Alaska needs a strong private
sector, given the recovery of the COVID-19 pandemic and current
workforce shortages. She reiterated that an effective spending
limit provides stability to businesses and employers.
6:55:42 PM
REPRESENTATIVE GROH asked Ms. Townsend about the RAB figure, in
that the way it was calculated appears to be the same as the
current statutory spending limit. He asked if that is correct.
MS. TOWNSEND shared that she is not familiar with the statutory
limit in Alaska but allowed that he may be correct. She
reiterated that the other states with a spending cap would use
the same calculation as APF. In response to a follow-up
question, she confirmed that other states with spending limits
generally use a population-plus-inflation calculation, and a
formula using a running five-year average of GDP is not one
other states with a spending cap currently use.
6:58:46 PM
MS. TOWNSEND, in response to a series of questions from
Representative Gray, began by answering that an effective
spending cap would improve net in-migration because of the
stability it would bring to the state budget. She said many
business owners do not want to take the risk of being in a state
[with a volatile economy]. Regarding consequences of spending
limits in Colorado, she expressed the inability to speak to
Colorado; however, there are always issues [regarding the
funding] policymakers must prioritize. In response, she
expressed uncertainty why spending limit proposals are not
passing in other states, but she stated she would follow up on
the issue.
7:02:40 PM
MS. TOWNSEND, in response to Chair Carpenter, stated that a
large net in-migration will indirectly affect the stabilization
which occurs when there is a meaningful spending cap.
CHAIR CARPENTER commented that an increase in net in-migration
is tied to employment growth, as there would be a demand for
more workers with the economic activity. He expressed the
understanding that there is a connection, but not conclusive in
that implementing a spending cap naturally means in-migration.
7:07:34 PM
The committee took an at-ease from 7:07 p.m. to 7:08 p.m.
^PRESENTATION(S): SPENDING CAPS
PRESENTATION(S): SPENDING CAPS
7:08:43 PM
CHAIR CARPENTER announced that the next order of business would
be a presentation on spending caps.
7:09:54 PM
ROB CARPENTER, Deputy Director, Legislative Finance Division,
Legislative Affairs Agency, provided invited testimony and
presented a PowerPoint presentation on appropriation limits and
spending caps [hard copy included in the committee packet]. He
said the state's current limit, as set out in the Constitution
of the State of Alaska, is $2.5 billion, and it would grow by
cumulative changes in population and inflation. He said a key
factor is that the limit uses "the fiscal year" versus "for a
fiscal year." The limit currently exempts PFDs, revenue bond
proceeds, service on general obligation (GO) bonds, federal
funding, revenue of public enterprises and corporations, and
school debt reimbursement. He said the limit in fiscal year
2024 (FY 24) was $11.2 billion, based on the constitutional
formula. Furthermore, there is a requirement that one-third of
the funding within the limit be reserved for capital projects;
therefore, the remaining two-thirds can go to operations.
7:11:01 PM
MR. CARPENTER presented a graph on slide 4 which shows the
constitutional spending limit since 1983. He explained that the
blue bars represent agency operations, green represents
statewide operations, red represents the capital budget, and the
thin black line is the constitutional spending limit. He
pointed out the limit is high above the current budget.
7:11:31 PM
CHAIR CARPENTER asked why the bars never reached the black line.
MR. CARPENTER answered that the calculation for the spending
limit has never been reached.
CHAIR CARPENTER suggested that it is because the limit was
established too high, or there was not enough money to reach the
limit.
MR. CARPENTER noted that what is missing from the graph is
transfers to savings.
7:12:48 PM
MR. CARPENTER said that the division has been reviewing the
state's limit calculation. He walked the committee through the
equation. He continued that the language around a spending cap
in the constitution is not very clear and noted that the word
"and" typically denotes addition in mathematics.
7:14:29 PM
MR. CARPENTER moved to slide 6 to show that the wording of the
calculation makes a difference. The slide shows the graph from
slide 4 but with an additional purple line, which denotes the
spending limit under the new calculation. He stressed that the
language of the calculation is subject to interpretation and
would require a court case to determine which calculation is
intended. He pointed out that if this alternate calculation was
used, the state would have exceeded the limit. Furthermore,
between the two calculation interpretations, FY 24 would either
have a $11 billion limit or an $8 billion limit.
MR. CARPENTER moved to slide 7 and reiterated that the key
difference with Alaska's statutory spending limit is it is based
on appropriations made in a fiscal year, versus for a fiscal
year. For example, this limit applies to appropriations made in
FY 23 for the FY 24 budget and supplemental appropriations for
FY 23. He noted that the statutory limit uses similar
exclusions as the constitutional limit. He stated that, given
the constitutional power of appropriation, the statutory limit
has largely been ignored.
7:16:29 PM
MR. CARPENTER moved to slide 8, which depicts state
appropriations graphed with the state's statutory limit. He
said it appears volatile because the limit is based off the
prior budget year. He said that appropriations made in FY 23
were impacted by what happened in FY 22, which had a larger
capital budget, making the statutory limit this year much
higher.
MR. CARPENTER moved to slide 9 to discuss calculations and
modeling assumptions for CSHJR 2(JUD) and CSHB 38(JUD). He
pointed out the applicability of "the five calendar years
immediately preceding the previous fiscal year." He said that
if the bills were to be enacted today for FY 24, the previous
fiscal year would be considered FY 23. He said that the
proposed bills would take the previous five calendar years prior
to the previous fiscal year; therefore, the five years would be
2021 "back to 2017." He said there is firm public GDP data for
those fiscal years. Mr. Carpenter explained how the limit would
be calculated under the proposed bills: take the average value
of real GDP for calendar years 2017 to 2021; reduce by
government spending; then multiply by the 11.5 percent under
CSHB 38(JUD) or the 14 percent under CSHJR 2(JUD). Under CSHB
38(JUD), the spending limit for FY 24 would be $5.1 billion, and
under CSHJR 2(JUD) it would be $6.2 billion.
7:20:17 PM
MR. CARPENTER presented a graph on slide 11, which showed the
following: operating appropriations as the orange bars; capital
appropriations as the blue bars; the current constitutional
limit as the black line; the current limit reinterpreted as the
purple line; the CSHJR 2(JUD) limit as the red line; and the
CSHB 38(JUD) limit as the blue line. The graph spans FY 04 to
FY 23 with data from the governor's FY 24 amended budget. He
moved to slide 12 to show the same graph as to slide 11 but with
data projecting out to FY 33. The graph assumes inflation at
2.5 percent, GDP growth at 1.5 percent, and budget growth at 1.5
percent. He said that if the budget is grown at 1.5 percent,
then the budget would stay in line with the proposed 11.5
percent spending limit. He moved to slide 13 to show a
different variation on the graph. He explained that the blue
shaded area represents unrestricted general funds (UGF) revenue,
excluding the percent of market value (POMV). The green shaded
area represents POMV revenue, less than 50 percent for the PFD.
In response to Chair Carpenter, he said the revenue projections
were from the Department of Revenue's 10-year forecast.
7:23:19 PM
MR. CARPENTER, in response to Representative McCabe, explained
that the POMV split revenue the state would receive in the
future is on the table for lawmakers to decide. He continued
that the green shaded area before the vertical black line is
actual POMV split revenue, and the projections past the line
assume a 50 percent POMV split to the general fund. In response
to a follow-up remark, he commented that the shaded areas are
considered UGF revenue. He said the appropriations subject to
the limit are not just restricted to UGF funds; there are other
funding sources. He said it is assumed that projected capital
spending is accounted for in the orange bars, since he applied
the figure from the FY 24 governor's amended budget and applied
a 1.5 percent growth rate.
7:26:23 PM
MR. CARPENTER, in response to a question from Chair Carpenter,
explained that the vertical bars are the assumed appropriations
subject to the limit, both operating and capital appropriations,
and he reiterated that not all the revenue subject to the
spending limit is accounted for in the graph, just UGF revenue.
7:28:01 PM
MR. CARPENTER moved to slide 14 to show another variation of the
previous graph with a GDP growth variable set at 2.5 percent.
He pointed out that if the state had a growing GDP, it would
have a growing statutory or constitutional spending limit. He
showed the same graph on slide 15 but with GDP growth projected
at 5 percent. He said there is potential that the budget could
grow with the spending cap if there is effective growth in GDP.
7:28:54 PM
CHAIR CARPENTER, in response to a query from Representative Gray
about the necessity of a spending limit, said the 1.5 percent
growth assumption on the chart may be excessive, but "we have to
start the conversation somewhere."
7:32:13 PM
MR. CARPENTER confirmed that the previous comment is accurate.
He expressed uncertainty as to how behavior would have changed
if a spending limit like the one presented today was implemented
earlier. He said Representative Gray is correct, in that the
state had a self-imposed spending limit in the form of putting
money into savings. He pointed out that Alaska repaid
constitutional budget reserve indebtedness in anticipation of
needing it.
CHAIR CARPENTER observed that in FY 08 the legislature had the
revenue to exceed the constitutional spending limit, but
ultimately the limit was not exceeded, and this was because the
legislature chose to put the revenue into savings. He said
similar actions took place around FY 11 to FY 13.
7:34:07 PM
REPRESENTATIVE MCCABE highlighted the large shift in UGF revenue
between FY 14 and FY 18 and pointed out that spending levels
never dropped. He questioned whether the dates are when the
state spent out of savings.
MR. CARPENTER answered that Representative McCabe is correct.
He commented that spending did decline by $3 billion from FY 14
to FY 18.
7:35:18 PM
MR. CARPENTER, in response to a query from Representative Tilton
as to a definition of government spending, answered that local,
state, and federal funding fall under the definition of
government spending. In response to Chair Carpenter, he
confirmed the definition is common. He added that when he
researches GDP figures, the government spending factor can be
removed.
7:36:56 PM
MR. CARPENTER, in response to a series of questions from
Representative Groh, indicated he was not certain why the 11.5
percent and 14 percent amounts were selected, but he suggested
it had something to do with the Fiscal Policy Working Group. He
confirmed that the spending levels shown on slide 13 are
nominal. He proffered that FY 15 contained $5.8 billion in
spending, and FY 24 is at $5.5 billion. He clarified that
energy relief payments were excluded from the figures being
presented. He said he has heard of a report from Legislative
Legal Services showing Alaska's spending limits since the 1970s
but has not seen the report.
7:40:47 PM
CHAIR CARPENTER thanked the presenter.
7:41:41 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:42 p.m.