SENATE JUDICIARY COMMITTEE FIRST SPECIAL SESSION OF THE 21ST LEGISLATURE May 23, 1999 1:20 p.m. MEMBERS PRESENT Senator Robin Taylor, Chairman Senator Rick Halford, Vice-Chairman Senator Dave Donley Senator Johnny Ellis MEMBERS ABSENT Senator John Torgerson OTHERS PRESENT Senator Lyda Green Senator Jerry Ward COMMITTEE CALENDAR SENATE JOINT RESOLUTION NO. 28 Proposing an amendment to the Constitution of the State of Alaska relating to the appropriation limit. PREVIOUS SENATE COMMITTEE ACTION SJR 28 - No previous Senate action. WITNESS REGISTER Tam Cook, Director Division of Legal Services Legislative Affairs Agency 130 Seward St. Juneau, AK 99081-1182 POSITION STATEMENT: Discussed the legitimacy of the hearing David Teal, Director Division of Legislative Finance PO Box 113200 Juneau, AK 99811-3200 POSITION STATEMENT: Answered questions about SJR 28 ACTION NARRATIVE TAPE 99-38, SIDE A Number 001 CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to order at 1:20 p.m. Present were Senators Halford, Donley, Ellis and Taylor. Senators Green and Ward were also present. The committee took up SJR 28. SJR 28-CONST AM: APPROPRIATION LIMIT SENATOR ELLIS raised a point of order and stated SJR 28 does not conform to the call of the special session and therefore is not properly before the Legislature at this time. He stated he does not object to scheduling SJR 28 to be discussed in a work session, but he does object to hearing it in an official committee meeting. He asked Chairman Taylor to request a legal opinion from the Director of the Division of Legal Services on the question. SENATOR DONLEY informed committee members that according to Ms. Cook, it would not be consistent with the call for the Legislature to act on this legislation on the House and Senate floors, but it is within the call for committees to take up individual bills that pertain to the subject matter of the special session. SENATOR ELLIS stated he interprets the "Legislature" to include subdivisions of it as well as the Legislature as a whole. He asked that Ms. Cook be in attendance to address the question if Chairman Taylor plans to proceed. CHAIRMAN TAYLOR said he would request her attendance. Number 054 SENATOR HALFORD noted there is no reason the committee cannot continue to consider this legislation at the committee level. He stated he does not think it is reasonable to call a special session on a fiscal plan and exclude a constitutional limitation on spending as part of the plan. SENATOR DONLEY commented he spoke with Ms. Cook about the Legislature's ability to deliberate legislation anticipating that the Governor may expand the call of the special session. He added the Governor cannot limit action during the special session to specific pieces of legislation, the Governor can only limit it to specific subjects. CHAIRMAN TAYLOR pointed out that he concluded, from a memo written by Ms. Cook on the previous day, that the committee had the authority to proceed with this legislation. Number 114 SENATOR ELLIS asked why the committee would want to work on legislation and move it to the floor where no action could be taken. He asked that the committee vote on whether the Chair's ruling to proceed with the hearing is proper. CHAIRMAN TAYLOR agreed. SENATOR HALFORD interjected and said he would like to wait to hear from Ms. Cook who would be arriving shortly. CHAIRMAN TAYLOR announced the vote would be delayed until Ms. Cook addressed the committee. Number 125 SENATOR DONLEY, sponsor of SJR 28, said the legislation amends the existing appropriation limit in the Alaska Constitution to better reflect a dramatic change in Alaska's revenue picture. In addition, the existing appropriation limit never worked as anticipated and has never been effective in restraining spending. Over the years, several attorneys general opinions have been written on the meaning of the constitutional limit; those opinions counter the plain English meaning of the language and allow the Legislature and government to avoid the requirement that one-third of the budget be appropriated for capital expenditures. The average person can no longer read the existing constitutional language and understand what it means since legal opinions say otherwise. According to the simple English explanation of a one- third spending limit on the capital budget, the Legislature exceeded that limit by $361 million in the FY 2000 operating budget. If one interprets the language to exclude federal and other revenue sources, the Legislature is about $3 billion under the limit. He maintained it is important to clarify which funding sources that constitutional provision applies to so that it has a meaningful effect upon the state budgetary process. SENATOR DONLEY explained that he chose the $2 billion amount because the current FY 2000 budget proposal contains general fund expenditures of $2,266,000,000. SJR 28 allows an escalator of the base $2 billion limit up to $2.2 billion with a two-thirds vote of each house. The limit will require a reduction of about $66 million in general funds in the first year. The concept of what escalator is used in a fiscal year needs to be addressed. Existing language in the Constitution references an escalator factor based on population and inflation. The cost-of-living indicators are available two years prior to the budget cycle. That issue can be addressed by statute. SENATOR DONLEY stated the most important question, other than the actual dollar amount assigned, is how to treat funds expended by and received from public corporations, such as the Alaska Housing Finance Corporation. SENATOR HALFORD suggested treating those corporations under the limit, while recognizing that the $2 billion will have to be changed to pick up the indexes because under the current limit they are not considered in the calculation of that category. Number 227 CHAIRMAN TAYLOR informed Ms. Cook that Senator Ellis raised a point of order at the beginning of the meeting. He asked her to respond to that point of order. TAMARA COOK, Director of the Division of Legal Services, Legislative Affairs Agency, reiterated the question before the committee is whether the committee may meet formally on SJR 28 during the special session. She stated she agrees with Senator Ellis in that SJR 28 does not appear to be within the call of the special session, which was precise. MS. COOK noted the Governor's call does not contain the state's long-term financial plan as a general subject despite what the press has reported. MS. COOK stated the issue, with respect to the committee meeting, is what the constitutional provision means that says the Governor may limit the subject of a special session. She said the Constitution refers to limiting legislation, which she interprets to mean the consideration of, or passage of, specific legislation by each body is limited to the subject. In jurisdictions other than Alaska, in which a legislature failed to adhere to the limitations of a governor's call, the remedy was to invalidate the legislation enacted. She indicated one might argue on policy or legal grounds that the type of work that a standing committee can do should be limited, but she thinks it is unlikely that the Alaska court would seek any action against a committee that operated during a special session, even on a topic outside of the call. She concluded that the Constitution prevents the Senate from enacting SJR 28 during the special session but it does not go so far as to control the activities of the legislative committees during a special session. She noted this question has never been addressed by the Alaska court nor can she find any useful precedent from any other jurisdiction. Number 282 SENATOR WARD informed committee members that the subject matter of SJR 28 was incorporated into another bill by the Senate Finance Committee yesterday. He asked Ms. Cook if they were wrong to do that. MS. COOK replied: "Through the Chair, Senator Ward, as far as I know - the only thing that I have seen at all has been the notion of including a question about something like SJR 28, an amendment to the Constitution in an advisory vote, which is a different matter because the Proclamation particularly permits advisory votes on long term fiscal plans and I think that, if you phrase it as an advisory vote about amending the state Constitution, that that actually probably fits within the Proclamation. But it is a different thing from actually placing the constitutional amendment before the voters." CHAIRMAN TAYLOR noted the subtle distinction is whether an advisory vote or an actual binding vote on a constitutional amendment is to be placed before the voters. Advisory votes on long term fiscal plans would fit within the Governor's call. SENATOR WARD questioned whether the Governor does not want any constitutional amendments to be addressed during this special session. CHAIRMAN TAYLOR said the Governor specifically did not provide for that within the call. MS. COOK indicated the Governor's Proclamation was specific in discussing an advisory vote on something that she considers to be general: a long term financial plan. If the committee is talking about an advisory vote context, she believes the Legislature could put any number of items, for example a tax, on the advisory vote because such things could impact a long term financial plan. The key is that the Governor has limited his proclamation to advisory votes only. Number 315 SENATOR DONLEY stated with that reasoning, SJR 28 would be a proper vehicle with which to place an advisory vote before the public on whether or not to place a constitutional amendment before the public on an issue that would impact long range fiscal planning. MS. COOK replied she thinks that is incorrect because in order to get an advisory vote placed on the ballot, she would want to argue that a law has been enacted. She added even the Legislature would never want to take the position that the Lieutenant Governor could act outside of the law to place questions on the ballot. A Senate joint resolution does not require enactment of a law, in fact it can't because a law is subject to veto and a Governor has no right to veto a proposed constitutional amendment. She noted a resolution and bill have different legal significance. SENATOR DONLEY asked whether it would be appropriate to work on an advisory vote resolution that references a specific bill which contains a constitutional amendment, so that the public will know the details of the proposal the legislature is asking them to vote on, even though the bill is not enacted. MS. COOK said that is a policy matter rather than a legal problem and that it certainly could be used to justify this particular use of committee time. Number 342 SENATOR HALFORD asked Senator Ellis whether his point of order was resolved by Ms. Cook's testimony. SENATOR ELLIS maintained his point of order because the work the committee will take up does not conform to the call. He asked for a vote on that point. SENATOR HALFORD asked if that point is contrary to the written opinion of legal counsel. SENATOR ELLIS said he does not believe so. SENATOR HALFORD read from the second sentence of Ms. Cook's memo: "In my opinion, the Constitution does not prohibit committee action during a special session." SENATOR ELLIS stated he perceives that the purpose of the meeting is to move a constitutional amendment forward, and that action does not conform to the call. He repeated that convening a work session on this subject is not objectionable to him, however official committee action is out of order. He maintained that if the committee's intent is to move SJR 28 during this special session to prepare it for floor action during the next regular session, the legislation will be weakened if a legal challenge occurs. SENATOR DONLEY said that is a ridiculous legal analysis since the Chair could waive SJR 28 to its next committee of referral at any time. CHAIRMAN TAYLOR said the legal opinion discussed today expands his perception of a special session. He noted he is curious as to what additional committee actions could occur to move legislation that may be outside of the call yet germane, and how legislation may be advanced in anticipation of a subsequent special session or the next general session. He stated he believes SJR 28 is before the committee appropriately and that the committee has the authority to act on it. A roll call vote was taken on the motion to sustain the Chair's ruling to continue the hearing on SJR 28. The motion carried with Senators Halford, Donley, and Taylor voting "yea," and Senator Ellis voting "nay." Number 391 SENATOR WARD requested the Senate Judiciary Committee send a letter to the Governor asking him to expand the call of the special session to consider reductions in state spending. He then gave the following testimony. "Mr. Chairman, I would like to come and speak on behalf of this proposal, as well as this proposal that was presented yesterday at the full Finance Committee, which received an 8 to 1 vote and has been placed into an advisory vote. I find that it's very curious that this Administration has allowed the opportunity to have a straw poll on such an important question but not a constitutional amendment. I think that this is very interesting that the government doesn't really want the people to decide in a lawful manner whether it's nothing to be left to chance. On the subject of a spending limit. I believe that this particular bill - I am very pleased that I was given the opportunity to sign on as a cosponsor after the sponsors introduced the legislation and I think that this is something that is absolutely - it is one of the most important pieces of legislation that we have down here at this time. There's tremendous talk about budget shortfalls and about the growth of government. This year, Mr. Chairman, we're going to be spending more money than we spent last year. One of the things that I want to draw to the attention of this committee as to why I signed on to this legislation, and I think that it needs to be addressed, is whether it's - tens of millions of dollars go into the Denali Commission or Alaska Railroad spending money on I don't know what, but there's a lot of government monies that are going that are not contained in this bill at this time. But I think that the public in general understands the concept, and the concept is [indisc.] and living within your means. Government has clearly shown to the citizens of the State of Alaska they don't have the political will to live within their means and they need to be put on an allowance. And, whether it's Proposition 13 or a tax cap of Anchorage, the system does work and the citizens should have a right to tell their legislature and their governor that we believe that you need to have a ceiling. You're good people and all that stuff, but you need to be put on an allowance and live within this. I think that this simple act will do more for benefitting the State of Alaska than any other. I think that it will cause prioritizing of state functions and I think that this is good. I think that we will, instead of taking the what I've heard it referred to as an over across the board cut, and things like that, I think that it will cause a looking at entire departments to see if this is what the Constitution has said that we should do. We all know we're supposed to do education, public safety, and things like that, but I could find nowhere in the Constitution that we're supposed to do science and technology, Mr. Chairman. Those kind of things, with a spending cap, would stand on their own or fall on their own, and I think this is something that would be very good for the citizens. With that, I just wanted to come down and say that I was very pleased when Senate Finance put this into theirs, but now that I truly understand that it's no more than a straw poll beauty contest, it's pretty well, in my opinion, meaningless. I think that we need a constitutional amendment. If we wouldn't have had a constitutional amendment on the Permanent Fund, I think the system would have already stolen it. With that I really urge the passage of this." Number 436 SENATOR DONLEY said he is trying to deal with the issue of how to address direct expenditures by public corporations for their activities. He thought that any dividends coming to the state, even if the dividends are for the activities of the corporation, should be counted in the total, but the direct activities of the corporations that do not involve state money should be outside of the limit. DAVID TEAL, Director of the Division of Legislative Finance, stated he reads SJR 28 to do that already. The operations of the Alaska Railroad, AHFC, AIDEA and the Science and Technology Foundation would be excluded from the expenditures, however the dividends from AIDEA and AHFC are counted as revenue. SENATOR DONLEY asked Mr. Teal what language in the resolution leads him to that opinion. MR. TEAL replied it is an appropriation limit rather than a spending limit therefore it only takes into account appropriations by the Legislature, not total state expenditures. The money spent by corporations is not appropriated money. CHAIRMAN TAYLOR asked if the Division of Legislative Finance has looked at the average state income over the years because it has fluctuated every year and any parameters set should be based on Alaska's history and experience. MR. TEAL stated the Division has both revenue and appropriation history dating back about 20 years. He noted the appropriation limit is based on past appropriations rather than on revenue. A constitutional provision exists that says the state cannot deficit spend; the proposed limit will state that if revenues are high, spending will be restrained further than the available revenues allow. CHAIRMAN TAYLOR said his concern is the constitutional admonition that the Legislature cannot deficit spend which will somehow prevent the Legislature from doing so. He said a prime example is the fact that government spending was $1.2 billion more than its revenue; that expenditure came out of reserve funds. He noted at that rate, the state is spending 50 percent more than it receives. MR. TEAL said that is precisely the point of a long term plan. TAPE 99-38, SIDE B CHAIRMAN TAYLOR stated he becomes very concerned when people talk about plans that extend more than three to five years into the future. He noted the price of a barrel of oil has fluctuated 50 percent over the past four months and asked how one could be comfortable with a 20 year plan. He asked Mr. Teal to prepare something for the committee showing an average budget from historical data. Number 507 SENATOR HALFORD referred to a handout and explained it shows that $70 billion of unearned income went through the political process in the State of Alaska over the past 30 years. He stated that skews any analysis of what we get, what we got, and what we can afford and it should scare everyone to death in terms of the capacity of this system to absorb and expend unbelievable amounts of money. Public support of some kind of a constitutional spending limit confirms the people's fear of government spending. SENATOR DONLEY maintained that the work that needs to be done on SJR 28 lends itself to the committee substitute process. He offered to bring a proposal back to the committee. CHAIRMAN TAYLOR announced a Senate Judiciary meeting would start at 11:00 a.m the next day. SENATOR ELLIS asked Chairman Taylor if he intends to follow up on Senator Donley's suggestion to request that the Governor expand the call of the special session to include a constitutional spending limit. CHAIRMAN TAYLOR said he would be happy to send a letter. SENATOR ELLIS said if the letter is written on behalf of the committee, he objects to it because the matter is complicated and will require a time commitment that members are not willing to make. CHAIRMAN TAYLOR said he would note Senator Ellis's objection. CHAIRMAN TAYLOR asked Mr. Teal the status of outstanding taxes owed to the state by the oil industry as well as the current status of settlements. MR. TEAL replied most of the big settlements have already occurred and that the settlements now go directly into the Constitutional Budget Reserve (CBR). The anticipated flow of those settlements is approximately $120 million per year over a ten year period, however the amount is not necessarily the same each year. CHAIRMAN TAYLOR asked if that money is part of the Finance Committee's projections for new revenue. MR. TEAL said it is considered existing revenue and is built into the cash flow projections for the CBR. CHAIRMAN TAYLOR asked Mr. Teal if tax payments are current. MR. TEAL did not know but said the Departments of Revenue and Law could collectively answer that question. CHAIRMAN TAYLOR asked if that information could be received in a generic fashion to avoid the confidentiality hoops. MR. TEAL stated he could try to get that information however he suggested it might be better for Chairman Taylor to request it. CHAIRMAN TAYLOR thanked everyone for participating and announced the committee would meet at 11:00 a.m. the following day. He adjourned the meeting at 2:12 p.m.