MINUTES SENATE FINANCE COMMITTEE January 22, 1999 9:02 AM TAPES SFC-99 # 5, Side A CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:02 AM PRESENT Senator Sean Parnell, Senator John Torgerson, Senator Randy Phillips, Senator Dave Donley, Senator Gary Wilken, Senator Lyda Green, Senator Al Adams and Senator Pete Kelly. Also Attending: Representative Gail Phillips; Tam Cook, Director, Legislative Legal and Research Services, Legislative Affairs Agency; David Teal, Director, Division of Legislative Finance; Dan Spencer, Chief Budget Analyst, Office of Management and Budget; Jim Baldwin, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law. SUMMARY INFORMATION SENATE BILL NO. 28 "An Act relating to the increase of an appropriation item based on additional federal or other program receipts." The bill was heard and held in committee. REPRESENTATIVE GAIL PHILLIPS, Chair of the Legislative Budget and Audit Committee, spoke to the bill. She said this legislation was introduced at the request of the 20th Legislature Legislative Budget and Audit Committee. This bill would revise the procedure the governor must follow when the Legislative Budget and Audit Committee does not approve or does not take under consideration a revised program request. Representative Phillips testified. She stated that the need for revision to the "45-day rule" stemmed from the recent actions by the Governor and the committee's strong desire to protect the appropriation power of the Legislature. She explained that the proposed revisions to the 45-day rule would not stop the Governor from ultimately proceeding with expenditure that had been disapproved or not considered by the committee. Instead, SB28 strengthened the Legislature's appropriation power by delaying the commencement of any expenditure until after the full Legislature has been in regular session at least thirty days. She continued saying that the thirty day period was designed to provide for additional discussion between the Governor and the full Legislature and would allow the full Legislature to consider any action deemed appropriate concerning the Governor's determination to proceed with any expenditure. The Representative stressed that SB 28 did not create any major obstacles for the Governor in terms of proceeding with expenditure. The legislation merely allowed the full Legislature to consider the issue and provide for addition safeguards to the legislative appropriation power. She urged the committee member to support the legislation. Senator Sean Parnell noted similar legislation passed the year before and vetoed by the Governor. He asked TAM COOK, Director, Legal and Research Services, Legislative Affairs Agency, to address those actions. Ms. Cook said the prior bill (SB 347) was a simplified version compared to this bill. It only delayed the expenditure authority from the 45-days to "after the Legislature had been in session for thirty days." She stated that SB 28 was a bit more elaborate. She had concerns with the timing of the notice requirement in SB 347. Under the current 45-day rule, the Governor has to give notice of an intention to expend, she explained. This version, SB 28 ensured that the Legislative Budget and Audit Committee received the notice before the thirty-day period began. Her concern with SB 347 was the possibility of the Legislative Budget and Audit Committee disapproving an expenditure, the Governor took no action until the Legislature was in session for 28 days and then the Governor submitted notice. SB 28 built in a time period of thirty days and ensured that the notice was received before that period started running. It also addressed the question of what would happen if Legislative Budget and Audit Committee simply didn't act. It took the approach that if Legislative Budget and Audit Committee didn't act within ninety days the Governor could then give notice of intent to expend, according to Ms. Cook. However, the delayed expenditure would apply even in those situations. Senator Al Adams wanted to know about the 45-day rule and if that wasn't an agreement made between the Legislature and the Executive Branch twenty years ago as a way to settle a lawsuit. Ms. Cook replied explaining this section (AK 37.07.080h) did indeed have a history. It was originally enacted in 1977 and permitted appropriations on approval of both the Governor and the Legislative Budget and Audit Committee. Several different types of expenditures were allowed under this provision; program receipts were just one. Shortly after it was enacted there was a lawsuit filed titled Kelly v Hammond? This lawsuit was filed by former legislator, Ramona Kelly against then Governor, Jay Hammond. A decision was never issued by was eventually was settled. However, presiding Judge Stewart issued a number of opinions one of which said that the Legislature could not delegate the power of appropriation to one of its committees and in the case of the power of the Governor, an a violation of separation of powers. The Legislature took the matter was to the voters in the form of a proposed constitutional amendment in 1978. The voters rejected that effort. The current 45-day rule was the Legislatures response following the rejection of the proposed constitutional amendment. Senator Sean Parnell wanted to know if there was any inappropriate delegation of power to the Legislative Budget and Audit Committee under this bill? Ms. Cook supposed there could be some question regarding how long the Legislature could statutorily delay an expenditure. She stated that was a fine point. However, the 45-day delay had not been challenged. She surmised that the court would probably find in the favor of it being a reasonable delay. She used the argument that the court would agree that the Legislature would want to have a chance to be convened when the ultimate decision was made regarding an expenditure. She said there was an additional question on the current practice of whether the Legislature could appropriate money conditioned on Legislative Budget and Audit Committee review. This system that had been utilized for years and had not been challenged, she qualified. Ms. Cook added that there was a case that had arisen from different types of conditions that the Legislature imposed on one of its budgets. The Governor made four vetoes on conditional language with respect to different appropriations. The question was on appeal before the Supreme Court as to whether the legislature could impose a condition on an appropriation at all and if so, what the dimensions of that condition were. She said it was possible that decision could have an implication for this situation. If the legislature has power to condition anything it seemed to Ms. Cook that this type of condition ought to be justified as reasonably related to an appropriation that was so general in nature as the types of appropriations seen of undesignated, unknown amounts of program receipts. Assuming the Legislature survived the current litigation, Ms. Cook felt the provisions listed in this bill would be an acceptable legal condition. Senator Sean Parnell clarified the bottom line was that Ms. Cook thought the Legislature could survive a legal challenge. Ms. Cook agreed and explained that, with exception of the longer delay period, the challenge could equally be made with respect to existing statutes. Right now, the Legislature was passing appropriations conditioned on Legislative Budget and Audit Committee review, she stipulated. Senator Al Adams asked what was the timeline for the Supreme Court decision. Ms. Cook said first set of briefs were due next week. There would then be an opportunity to do reply briefs. She anticipated oral arguments would not begin before the end of the session. She attributed past court case delays to administrative changes in the Supreme Court. She also suggested that either party could request a delay, which would extend the process even further. DAN SPENCER, Chief Budget Analyst, Office of Management and Budget testified to the similar bill from the prior year that was vetoed. In his veto message, Governor Knowles made note that the bill could hinder prompt distribution of funds to various programs. Mr. Spencer said he planned to give a historical overview of the Legislative Budget and Audit Committee process. He read front section language saying, "Unanticipated receipts from various sources that are received by programs in the course of the fiscal year may be expended conditioned upon review by the Legislative Budget and Audit Committee." He gave an example of a program having authority for $100,000 of federal funds in its budget. If an unanticipated grant of $125,000 was received, the Office of Management and Budget prepared a write-up for the Legislative Budget and Audit Committee and work with the committee chair to schedule a meeting. The Legislative Budget and Audit Committee would review the write-up and make a recommendation whether or not to proceed. If the committee recommended not to proceed with the expenditure, the Office of Management and Budget would resort to the provisions allowing for the Governor to again review the program and decide whether or not it was the best interest of the State to allow the expenditure. At that point the Governor would send a letter to the Legislative Budget and Audit Committee chair saying the expenditure would commence. Mr. Spencer pointed out that eight or nine years ago the whole process involved general fund program receipts and several other receipts. For the last three or four years, he said, program receipts had not been part of the front language. Therefore that funding source had come off the table and the front section contained only federal receipts, corporate receipts and EVOS receipts. He addressed the "45-day rule" expressing that the name was a misnomer. Existing statute read 45 days would lapse if the committee did not meet and make a recommendation. His interpretation was that the Office of Management and Budget could send the Legislative Budget and Audit Committee an RPL and begin counting down 45days until the Governor could proceed with the expenditure if the committee failed to respond. Spoke further about 45-day rule. The decision on whether to proceed with expenditure of funds was not made lightly and was done only five or six times since the agreement was reached in the 1970s, according to Mr. Spencer. Each time the expenditure was made it was because of a timing issue, he added. The cases where the governor had evoked 45-rule had been made only after talking with legislatures and having their support. He gave a Sitka Airport project as an example. Senator Randy Phillips asked for clarification. Mr. Spencer responded that the Legislators consulted might not be Legislative Budget and Audit Committee members but someone else in the Legislature. Mr. Spencer interpreted the current structure of the bill as follows. If the Legislature was in the last thirty days of a session or had just adjourned and the Legislative Budget and Audit Committee held a meeting on an RPL brought up for that particular fiscal year and if the LB&A recommended not to proceed, RPL would be dead. The committee would have effectively vetoed the appropriation he assessed. In many cases, waiting until thirty-days into the next regular session, while not having the fiscal year expire, came pretty close, in his opinion. If there was a timing issue involved, it could effectively kill the RPL. Mr. Spencer continued saying that the importance of this varied because in the past there had been excess funds in budget so the Office of Management and Budget did not have to specify each individual receipt of federal funds that was expected. This was no longer the case with the smaller funding amounts. He suggested that this legislation would place a bigger burden for Legislative Budget and Audit Committee. He referred to difficulties in scheduling a meeting were adequate members could attend. Senator Randy Phillips responded that the committee had managed to meet and address Raps every time. Mr. Spencer conceded but said that as unexpected timing issues came up then the Legislative Budget and Audit Committee process became more important. If there was a situation where the committee made the decision not to proceed, and if the Governor wanted to review that decision, under this bill the Governor might not have an opportunity because of the provision to wait until thirty days into the next regular session. Senator Lyda Green requested a list of all occasions where the Governor went against the recommendation of the Legislative Budget and Audit Committee. Senator Randy Phillips responded that there were two instances under Governor Hickel. Under this Administration, there were between six and eight. Co-Chair John Torgerson said details would be distributed to the committee. Senator Dave Donley asked Ms. Cook if it was her understanding of the bill that if the Legislative Budget and Audit Committee voted against authorizing a request that the committee would be unable to revisit the issue again if a new compelling argument was made in its favor. Ms. Cook said she didn't see anything in the bill to prevent Legislative Budget and Audit Committee from revisiting an issue. Mr. Spencer agreed with the idea of the committee reconsidering its decision and he knew of several instances where the committee did so. His point was that the Governor might not have the ability to reconsider. Further discussion ensued between Senator Dave Donley and Mr. Spencer about the possibility for the Legislative Budget and Audit Committee to revisit an issue if a sufficient argument was made in favor. Senator Randy Phillips asked if there were any RPLs or potential RPLs that the Governor's office did not submit to the Legislative Budget and Audit Committee. Mr. Spencer said there were. Senator Randy Phillips offered that there then were some RPLs that the Legislature might like to consider, but was unable to because the Governor failed to submit to the committee. Mr. Spencer could not think of a case that a Legislator liked that the Office of Management and Budget did not take forward. There was further discussion on this particular topic. Senator Al Adams had a question of procedure as proposed in the bill. If the Legislative Budget and Audit Committee twice rejected an RPL and the Governor submitted the same RPL to the full Legislature for consideration and if the Legislature took no action on the matter in the next thirty days, did the Governor then have the authority to spend the funds? He then wanted to know what formal action the Legislation had to take to stop the expenditure. Would it require a majority of both bodies? Mr. Spencer said that he asked that question of the bill from the prior year. Ms. Cook explained that the substance law would only delay the time which expenditures could occur. It did nothing more. It did not create in itself a remedy for the Legislature. As to a particular RPL, she said it might indeed be very difficult to prevent that expenditure on the part of the Governor. Under to provisions of the bill, all the Governor had to do was give notice that he intended to make an expenditure despite it having been disapproved by the Legislative Budget and Audit Committee She continued her explanation. With respect to any particular program receipt that has been disapproved, the remedies available to the Legislature would depend on how that appropriation was structured in the front section. If the money was appropriated in very general terms as seen now, then it might be difficult for the Legislature to peel out a particular type of program receipt and to disappropriate it. The only thing the Legislature could do in that case would be to attempt to identify the program receipts and to amend the prior year budget saying that they were appropriating all but this program receipt. That would require the enactment of legislation, which was pretty difficult to do in thirty days with the possibility of a veto of the Governor. Ms. Cook explained suggestions of David Teal, Director of Division of Legislative Finance. He had suggested that if there were particular types of appropriations in the budget process that concerned the Legislature, that at least it should create the opportunity by creating a statutory delay in expenditure so that in the appropriation process, the Legislature could identify certain types of extra program receipts and provide a lapse date. Rather than the Legislature affirmatively having to change an appropriation act and have to pass a bill, particularly sensitive appropriations would lapse if the Legislature didn't act to amend that bill to prevent the lapse, she continued. She concluded her argument saying that there might be a number of techniques that might be used and that might be helpful as to some particular types of expenditures of program receipts. At the very least, the Legislature would have the full Legislature would have a thirty-day period to seek to influence the Governor politically. Mr. Spencer concluded saying that Office of Management and Budget didn't think the current process was broken and therefore didn't need to be fixed. JIM BALDWIN Asst. Attorney General, testified to the bill. He said the Department of Law position was similar to its stand on last year's bill. He didn't disagree with the Legislative legal council advice. However he expressed some differences. He felt it was important to keep in mind what brought about the existing law, which was a compromise between the Governor and the Legislature to resolve a dispute. He detailed that dispute. The Governor's position was that certain trust and custodial receipts which could only be spent on items or objects of expenditure, which were specified by others outside of state government did not need to be appropriated. The Legislature did not agree with that and felt a delegation of authority needed to be made to the Legislative Budget and Audit Committee. Mr. Baldwin stated that because there had been no litigation over the present system somehow validated it under the law was false reasoning. Just because the Administration had not challenged the 45-day rule did not mean the Legislature could extend it. He spoke of the meaning of compromise. He defined the delegation issue saying that the constitution said that the Legislature was made up of two houses and when significant powers were given to a legislative committee, the committee was invested with the powers of the full Legislature. In this instance where the Legislative Budget and Audit Committee had the power to veto an expenditure that had been authorized to a certain extent by the full Legislature then as an institution it had many dangers. He asked the committee to consider this argument that the committee was given full power not just oversight powers. He also pointed out that it had been described to the Senate Finance Committee that the Department of Law was litigating with the Legislature to the extent that they wanted to say that the Legislature could not impose a condition at all on an appropriation. He countered that that information was not exactly correct. His interpretation of the litigation was to say that the Legislature could not impose conditions that violated the confinement requirement in the constitution. Co-Chair John Torgerson asked if the expedition of the 45- rule didn't do just that. Mr. Baldwin replied that it set out a way of action. Co-Chair John Torgerson argued that this bill just extended 45-day rule and said he didn't follow the argument. Mr. Baldwin suggested that it might end the Administration's ability to spend the money. Co-Chair John Torgerson suggested that the real fix was to eliminate the appropriation of federal funds in the front language and instead grant the authority to the Legislative Budget and Audit Committee. Mr. Baldwin felt the existing compromise was a good budgetary tool and that appropriation of federal funds was a good thing. However, if the funds were not appropriated at all then there would be extreme pressure for the Governor to take action and spend those funds. Co-Chair John Torgerson suggested it was time for another compromise because this committee's interest plus that of the Legislature with the passage of SB 327 was that they wanted a fix to what they perceived as a major problem. Senator Dave Donley wanted to know if the Department of Law had an opinion of the constitutional validly of the other end of compromise that the Governor could expend funds without constitutional budget authorization from the Legislature. Mr. Baldwin said there were old opinions on the books that said exactly that. Senator Dave Donley wanted to know if those were Attorney General opinions. Mr. Baldwin affirmed. Senator Dave Donley wanted to know if there were court decisions. Mr. Baldwin replied that there were from other states but none for this state. Senator Dave Donley continued asking questions on this topic and summarized that this was another argument in favor of having and elected Attorney General. He stressed that the Attorney General serves at the pleasure of the Governor and therefore was going to make arguments to support the Governor's positions. Co-Chair John Torgerson ordered bill held in committee for further considerations. He made announcements regarding future meeting schedules. ADJOURNED Senator Torgerson adjourned the meeting at 9:50 AM. SFC-99 (11) 1/22/99