Legislature(2019 - 2020)ADAMS ROOM 519

05/20/2019 01:30 PM FINANCE

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Audio Topic
01:30:04 PM Start
01:30:36 PM HB1001
02:49:47 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Scheduled but Not Heard
<Bill Hearing Canceled>
                  HOUSE FINANCE COMMITTEE                                                                                       
                   FIRST SPECIAL SESSION                                                                                        
                       May 20, 2019                                                                                             
                         1:30 p.m.                                                                                              
1:30:04 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Wilson  called the House Finance  Committee meeting                                                                    
to order at 1:30 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Tammie Wilson, Co-Chair                                                                                          
Representative Jennifer Johnston, Vice-Chair                                                                                    
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Andy Josephson                                                                                                   
Representative Gary Knopp                                                                                                       
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick                                                                                                    
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
MEMBERS ABSENT                                                                                                                
Representative Ben Carpenter                                                                                                    
ALSO PRESENT                                                                                                                  
Meghan  Wallace,   Director,  Legislative   Legal  Services,                                                                    
Alaska  State  Legislature;  Heidi  Teshner,  Administrative                                                                    
Services  Director,   Department  of  Education   and  Early                                                                    
Development,   Office  of   Management  and   Budget;  Lacey                                                                    
Sanders, Budget  Director, Office of Management  and Budget;                                                                    
Cori  Mills,  Special  Assistant,  Office  of  the  Attorney                                                                    
General, Department of Law.                                                                                                     
HB 1001   APPROP:  2020 EDUCATION FUNDING/REPEAL                                                                                
          HB 1001 was HEARD and HELD in committee for                                                                           
          further consideration.                                                                                                
HOUSE BILL NO. 1001                                                                                                           
     "An Act making appropriations for public education and                                                                     
     transportation of students; repealing appropriations;                                                                      
     and providing for an effective date."                                                                                      
1:30:36 PM                                                                                                                    
MEGHAN  WALLACE,   DIRECTOR,  LEGISLATIVE   LEGAL  SERVICES,                                                                    
ALASKA  STATE LEGISLATURE,  discussed  the  question of  the                                                                    
legality of  forward funding  education in  2018 for  FY 20.                                                                    
She  communicated  that  the opinion  of  Legislative  Legal                                                                    
Services was  that the bill  was unnecessary.  She indicated                                                                    
that  in 2018  the legislature  passed HB  287-Approp: Pupil                                                                    
Transportation; Education,  which fully  funded kindergarten                                                                    
through  grade  12  (K-12)  education  as  well  a  one-time                                                                    
appropriation of $30  million for FY 2020. She  spoke to the                                                                    
governor's  proposal  to  repeal  the  forward  funding  and                                                                    
appropriate new  FY 20  funding in  HB 1001.  Legal Services                                                                    
opinion was that  the HB 287 appropriations  were binding by                                                                    
law and  the governor would be  constitutionally required to                                                                    
execute the  appropriations. She  had reviewed  the attorney                                                                    
generals   (AG) opinion  regarding the  forward funding  and                                                                    
reiterated that the appropriations in  HB 287 were valid and                                                                    
would  withstand a  constitutional  challenge. She  remarked                                                                    
that  the  legislature  had  a   long   history  of  forward                                                                    
funding education through a variety  of mechanisms and had a                                                                    
 strong legislative history  for  the reasoning behind using                                                                    
forward  funding especially  for  education. She  emphasized                                                                    
that funding education was constitutionally mandated.                                                                           
Co-Chair Wilson  informed the committee that  certain topics                                                                    
could not be discussed in case  the issue ended up in court.                                                                    
Ms. Wallace  would determine whether  it was  appropriate to                                                                    
answer a question.                                                                                                              
Representative  Knopp  asked  about the  attorney  general's                                                                    
opinion   related   to    the   constitutionality   of   the                                                                    
appropriation. Ms. Wallace answered  that the AG highlighted                                                                    
several reasons why  he challenged the validity  of the 2018                                                                    
appropriation.  She  ascertained  that the  main  issue  was                                                                    
whether  the   forward  funding  violated   the  prohibition                                                                    
against dedicating  revenues. In  addition, the  AG advanced                                                                    
other  arguments   with  respect  to  the   impacts  on  the                                                                    
governor's annual  budgeting  requirements, veto  power, and                                                                    
whether it was consistent with the Executive Budget Act.                                                                        
Co-Chair  Wilson interjected  that representatives  from the                                                                    
Attorney General Clarkson's office would testify next.                                                                          
Representative  Knopp  referenced  the  prohibition  against                                                                    
dedicating   revenues.  He   wondered  whether   the  yearly                                                                    
budgeting process that appropriated  money for the following                                                                    
year was dedicating funds.                                                                                                      
1:35:15 PM                                                                                                                    
Ms.  Wallace  answered that  in  various  cases, the  Alaska                                                                    
Supreme  Court  had  recognized  the  conflict  between  the                                                                    
dedicated  fund prohibition  and the  legislator's power  to                                                                    
appropriate  that   were  distinct  provisions   within  the                                                                    
constitution.  She  offered that  the  court  would need  to                                                                    
decide on the  conflict in the current  case. She maintained                                                                    
that all budgeting  was prospective and if  the AGs  opinion                                                                    
was  strictly applied  the legislature  would  be unable  to                                                                    
prospectively  budget  even one  fiscal  year  ahead if  the                                                                    
state  had to  wait to  receive the  funding the  budget was                                                                    
based on.  Currently, the legislature was  appropriating the                                                                    
FY 20 budget with revenue not yet received.                                                                                     
Vice-Chair Johnston stated that  the legislature had forward                                                                    
funded  numerous things  over the  years. She  asked whether                                                                    
there  had  been  a  history  of  forward  funding  spanning                                                                    
administrations. Ms.  Wallace responded in  the affirmative.                                                                    
She  provided  an   example  of  2005  and   2006  when  the                                                                    
legislature  forward funded  capital education  projects one                                                                    
year  in advance  that  had  crossed administrations.  Vice-                                                                    
Chair   Johnston  stated   that   the  supplemental   budget                                                                    
contained $20 million in funding  that could be construed as                                                                    
forward funding. She asked if  the supplemental was a way an                                                                    
administration could  gain flexibility to deal  with funding                                                                    
from a  prior year.  Ms. Wallace  answered that  any forward                                                                    
funded appropriation made by the  legislature was subject to                                                                    
amendment or repeal  by the governor or  the legislature the                                                                    
following session.                                                                                                              
1:38:20 PM                                                                                                                    
Representative   Josephson  discussed   that  Representative                                                                    
Carpenter had offered an  operating budget amendment related                                                                    
to  the  issue earlier  in  session  to remove  the  forward                                                                    
funding language.  The amendment  was rejected  in committee                                                                    
and on  the House floor.  He asked  if the rejection  by the                                                                    
31st legislature that had expressly  looked at the issue and                                                                    
endorsed  the  prior  legislatures  action  was  potentially                                                                    
relevant.   He    wondered   whether   it    reflected   the                                                                    
 imprimature  of  the thirty-first legislature and  acted as                                                                    
a stamp  of approval for  the prior action of  the thirtieth                                                                    
legislature.  Ms. Wallace  responded that  if the  court was                                                                    
deciding  the  issue  it   would  consider  the  legislative                                                                    
history of  the current  legislatures  action  regarding the                                                                    
appropriation  made   in  2018.  She  deemed   that  it  was                                                                    
reasonable to think that the  court might view the action as                                                                    
a ratification  by the legislature  in its refusal  to amend                                                                    
or   reappropriate  the   funds.  Representative   Josephson                                                                    
discerned that  every day that  passed since  the amendments                                                                    
by Representative Carpenter had  been rejected and the issue                                                                    
was prevalent  in the  media was  reflective of  the current                                                                    
legislature's  desire  to  fund education  pursuant  to  the                                                                    
action taken in HB 287.                                                                                                         
1:40:40 PM                                                                                                                    
Ms. Wallace answered  that it may be relevant  if the matter                                                                    
was litigated.                                                                                                                  
Vice-Chair  Johnston discussed  that the  bill repealed  the                                                                    
legislature's  action.  She  asked whether  the  repeal  was                                                                    
necessary  if  the  action was  not  considered  valid.  Ms.                                                                    
Wallace responded that until the  appropriation made in 2018                                                                    
was  rendered  invalid  by  a  court it  would  need  to  be                                                                    
Representative  Josephson  referenced   testimony  by  David                                                                    
Teal,  Director,  Legislative   Finance  Division  (LFD)  in                                                                    
response  to  a  series  of  inquiries  on  the  matter.  He                                                                    
indicated   that  Mr.   Teal  reminded   members  that   the                                                                    
constitution prohibited binding  future legislatures, but it                                                                    
did  not forbid   frustrating the  governor.  He  asked what                                                                    
Legislative Legal thought of of  the states  strong governor                                                                    
model.  He   offered  a   scenario  where   the  legislature                                                                    
appropriated eight years of funding  and the governor signed                                                                    
the legislation and an incoming  governor was stuck with the                                                                    
funding. He  assumed that a  governor would try  to persuade                                                                    
the incoming  legislature to  reappropriate the  funding. He                                                                    
asked what she thought of the hypothetical scenario.                                                                            
1:43:19 PM                                                                                                                    
Ms.  Wallace  did   not  want  to  speculate   how  far  the                                                                    
legislature  could  go  in  the  current  circumstance.  She                                                                    
articulated   that  regarding   the   issue   at  hand   the                                                                    
legislature appropriated  one fiscal year  out. It may  be a                                                                    
question for  the future in  terms of  the length of  time a                                                                    
legislature  could  go  with   forward  funding  before  the                                                                    
appropriation  turned into  a continuing  appropriation. She                                                                    
pondered whether the appropriation   took the debate off the                                                                    
table  and  if it was  still considered an  appropriation by                                                                    
the  legislature as  part of  the annual  budgeting process.                                                                    
She  concluded that  the legislature  had  made a  conscious                                                                    
decision to maintain  the funding it had  approved the prior                                                                    
Vice-Chair Ortiz asked if there  was anything different with                                                                    
the  way the  legislature  had forward  funded education  in                                                                    
2018.  He  understood  that   one  of  the  administration's                                                                    
positions was that it was  different because a valid funding                                                                    
source had  not been  identified. Ms. Wallace  answered that                                                                    
the  appropriation  made  in 2018  appropriated  the  FY  20                                                                    
funding and the one-time $30  million funding with a delayed                                                                    
effective  date of  July  1, 2019.  She  indicated that  the                                                                    
delayed  effective   date  was  identified  as   unusual  or                                                                    
different from  other forward funding.  In the past,  it had                                                                    
been  the legislature's  process to  overfund the  education                                                                    
fund with revenue  from the current year for  the purpose of                                                                    
forward  funding. She  reiterated that  there were  examples                                                                    
from  2005 and  2006  where the  legislature forward  funded                                                                    
education capital  projects using  a delayed  effective date                                                                    
and was not unprecedented.                                                                                                      
1:46:29 PM                                                                                                                    
HEIDI TESHNER, ADMINISTRATIVE  SERVICES DIRECTOR, DEPARTMENT                                                                    
OF  EDUCATION AND  EARLY DEVELOPMENT,  OFFICE OF  MANAGEMENT                                                                    
AND  BUDGET,  provided   a  PowerPoint  presentation  titled                                                                    
"HB1001 - Approp: FY2020  Education Funding: Presentation to                                                                    
the House  Finance Committee," dated  May 20, 2019  (copy on                                                                    
file). She began on slide 2 and reviewed the bill sections:                                                                     
      Section 1     appropriates   $30,000.0   as   one-time                                                                    
     funding to be distributed as grants                                                                                        
     to school districts based on the adjusted average                                                                          
     daily membership                                                                                                           
      Section 2                                                                                                                 
      (a) appropriates the amount necessary, estimated to                                                                       
     be $1,172,603.9, for the Foundation Program                                                                                
      (b) appropriates the amount necessary, estimated to                                                                       
    be $77,214.6, for the Pupil Transportation Program                                                                          
      Under both subsections, funds are appropriated from                                                                       
     the general fund to the public education fund                                                                              
      Section 3     repeals the FY2020 appropriations made                                                                      
     under HB287 (Ch. 6, SLA 2018)                                                                                              
      Section 4     appropriations   made   in   Section   2                                                                    
     capitalize the public education fund and do not lapse                                                                      
      Section 5     Section 3 is effective June 30, 2019                                                                        
      Section 6     Remaining sections are effective July                                                                       
     1, 2019 (FY2020)                                                                                                           
Co-Chair Wilson asked why the  governor believed the funding                                                                    
in HB  1001 was  the appropriate  amount versus  the funding                                                                    
level  he   proposed  in  his  February   2019  budget  that                                                                    
eliminated approximately $320 million.                                                                                          
Ms.  Teshner replied  that the  governor in  discussion with                                                                    
the legislature  and the commissioner  of the  Department of                                                                    
Education and  Early Development  (DEED) determined  that it                                                                    
was  not the  appropriate time  to reduce  education funding                                                                    
and  would undertake  education reform  during the  interim.                                                                    
Co-Chair  Wilson asked  for confirmation  that the  governor                                                                    
endorsed the amount appropriated  for education in the bill.                                                                    
Ms.  Teshner reiterated  that the  administration would  not                                                                    
reduce  funding  for  education  at  the  current  time  and                                                                    
remained  focused  on   student  outcomes.  Co-Chair  Wilson                                                                    
requested the data justifying the  funding level proposed in                                                                    
the  governors   amended  budget released  on  February  13,                                                                    
2019.  She  asked  whether the  data  existed.  Ms.  Teshner                                                                    
replied,  not  specifically.  She commented that  there were                                                                    
conversations about  why the amount was  chosen. However, at                                                                    
the  time,  discussions about  what  was  needed to  improve                                                                    
educational outcomes  and the amounts that  districts had in                                                                    
reserves was just beginning. Co-Chair  Wilson asked how many                                                                    
districts  had  enough  surplus funds  to  cover  the  prior                                                                    
proposed cuts and how many did not.                                                                                             
1:50:42 PM                                                                                                                    
Ms.  Teshner replied  that  she did  not  have the  specific                                                                    
information,   she  offered   to   provide  the   districts                                                                     
unreserved  fund  balances.  She furthered  that  not  every                                                                    
district had  an unreserved fund balances  and none exceeded                                                                    
the allowable  unreserved fund balance. She  could provide a                                                                    
breakdown for the committee. Co-Chair  Wilson asked if there                                                                    
had been  a backup plan  for districts that had  no reserves                                                                    
and would be forced to make cuts.                                                                                               
LACEY  SANDERS, BUDGET  DIRECTOR, OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET, reported  that she did  not have the  information at                                                                    
the time.                                                                                                                       
Co-Chair Wilson  requested the information. She  voiced that                                                                    
many  of the  small districts  maintained much  higher costs                                                                    
than  larger   school  districts.  She  emphasized   that  a                                                                    
question that had  never been answered was  what happened to                                                                    
districts that lacked reserve funds  and how deep their cuts                                                                    
would be.                                                                                                                       
Representative  Josephson   asked  how   the  administration                                                                    
proposed to fund  the education budget in HB 1001  vis a vie                                                                    
the  February 13th  budget. Ms.  Sanders  answered that  the                                                                    
funding was  currently a part  of the conversation  in front                                                                    
of the legislature.                                                                                                             
Co-Chair  Wilson asked  whether  HB 1001  left the  decision                                                                    
about how the appropriations would  be funded entirely up to                                                                    
the   legislature.  Ms.   Sanders   answered   it  was   the                                                                    
legislature's duty  to appropriate funding.  Co-Chair Wilson                                                                    
noted  that  normally  an appropriation  bill  identified  a                                                                    
funding source.                                                                                                                 
1:53:33 PM                                                                                                                    
Ms. Sanders moved to slide 3                                                                                                    
            Education   is  one   of   the  most   important                                                                    
     obligations of the State, and  it is vital that we have                                                                    
     constitutionally valid  funding to  send out  to school                                                                    
     districts come July 1.   As it  stands right  now, that                                                                    
     does   not   exist,   and  we   cannot   rely   on   an                                                                    
     unconstitutional appropriation.    This  bill  provides                                                                    
     the  appropriation necessary  to ensure  the State  can                                                                    
     legally distribute funds for education.                                                                                    
            Appropriations  are law, and  like all  laws can                                                                    
     be  repealed   at  a  future  date   if  priorities  or                                                                    
     circumstances change. The  constitution, however, makes                                                                    
     it  clear that  no law  can dedicate  a future  revenue                                                                    
     stream for  a specific  purpose. The ability  to repeal                                                                    
     such a law  at a future date does not  make it any less                                                                    
     a violation  of the prohibition against  the dedication                                                                    
     of funds.                                                                                                                  
Co-Chair Wilson  asked if the administration  contended that                                                                    
using  general   fund  (GF)  money   was  illegal   and  the                                                                    
legislature should  take the money  from the  Permanent Fund                                                                    
Earnings Reserve  Account (ERA).  Ms. Sanders  answered that                                                                    
the education funding was part  of the operating and capital                                                                    
budgets  and needed  a valid  appropriation backed  by valid                                                                    
revenue to  be appropriated on  July 1, 2019.  She furthered                                                                    
that  regardless of  the source,  the education  funding was                                                                    
part of  a whole budget package.  Co-Chair Wilson understood                                                                    
the  process.  She  recalled that  Ms.  Sanders  stated  the                                                                    
funding had to be available  on July 1, 2019, and therefore,                                                                    
what  the  legislature  proposed  was  not  valid.  She  was                                                                    
attempting  to verify  Ms. Sanders  statements. Ms.  Sanders                                                                    
responded that the administration  did not believe there was                                                                    
a valid  appropriation to presently distribute  funding. Co-                                                                    
Chair Wilson inquired that  whether the administration would                                                                    
consider GF  as the  funding source inappropriate,  like the                                                                    
2018 appropriation.                                                                                                             
CORI  MILLS,  SPECIAL  ASSISTANT,  OFFICE  OF  THE  ATTORNEY                                                                    
GENERAL,  DEPARTMENT OF  LAW,  clarified  what the  attorney                                                                    
general's  opinion was  that was  counter  to Ms.  Wallaces                                                                     
interpretation of  the AGs  opinion. She  explained that the                                                                    
AGs   opinion focused  on the  year the  appropriations were                                                                    
intended for; in any given  year the appropriations were for                                                                    
the   following   fiscal   year   excluding   supplementals.                                                                    
Therefore,   current  revenues   were  revenues   that  were                                                                    
available  for the  year  the  appropriations were  budgeted                                                                    
for.  She  purported   that  the  constitutional  convention                                                                    
minutes  and dedicated  funds clause  cases  focused on  the                                                                    
idea that  all the  states  programs  needed to  compete for                                                                    
funding annually.                                                                                                               
Co-Chair Wilson  expressed confusion and emphasized  that HB                                                                    
1001  was  a  separate   appropriation.  She  explained  her                                                                    
understanding of Ms.  Sanders  testimony that the  use of GF                                                                    
in  2018  was  not   appropriate;  therefore,  illegal.  She                                                                    
concluded  that  according  to the  administration,  if  the                                                                    
legislature used general funds  in the current appropriation                                                                    
bill  it would  be  illegal. Ms.  Mills  clarified that  her                                                                    
interpretation of the  administration's point was incorrect.                                                                    
She  reiterated that  the legislature  could use  GF if  the                                                                    
appropriation  was for  the current  appropriating year  and                                                                    
not  two years  ahead. She  furthered that  when HB  287 was                                                                    
passed the future years revenue was lacking.                                                                                    
1:58:38 PM                                                                                                                    
Co-Chair  Wilson  understood  that  the  administration  was                                                                    
saying  that the  HB 287  revenue was  not available  at the                                                                    
time of  appropriation. However, any  funding for FY  20 was                                                                    
not available  yet either. The appropriations  began on July                                                                    
1, 2019 and the revenue  was collected through the following                                                                    
June 30, 2020.  She was not understanding  how using general                                                                    
funds for the  FY 20 budget that were  not currently sitting                                                                    
in the fund and were based  on projections exactly as it had                                                                    
been in 2018  was not valid or different.  She believed that                                                                    
the administration was making the legislatures case.                                                                            
Vice-Chair  Johnston asked  if it  was the  administration's                                                                    
 feeling  that through  passage of the bill  there would not                                                                    
be a need to address the issue of forward funding.                                                                              
Co-Chair  Wilson interjected  that she  wanted the  data not                                                                    
the governors feeling.                                                                                                          
Ms.   Sanders  moved   to  slide   4  titled    HB  1001                                                                        
Appropriation: History  of  Forward-Funding   Education. She                                                                    
explained  that  historically,   when  the  legislature  had                                                                    
forward funded  education it  appropriated a  current year's                                                                    
revenue for  the following year  and the practice  had begun                                                                    
in Session  Law Year  (SLA) 2006 when  a surplus  of revenue                                                                    
had  been available.  The legislature  deposited two  years'                                                                    
worth of  revenue via a supplemental  appropriation into the                                                                    
Public Education  Fund (PEF) that  left one year  of revenue                                                                    
into the PEF  after the first year of  funding was expended.                                                                    
The  process   had  continued  until   SLA  2017   when  the                                                                    
legislature experienced  a steep decline in  revenue and had                                                                    
stopped  appropriating   an  extra  year  of   revenue.  She                                                                    
expounded  that  the  declines marked  the  end  of  forward                                                                    
funding education and  brought the fund balance  to a single                                                                    
year available  for distribution in the  appropriating year.                                                                    
She maintained that in SLA 2018,  with the passage of HB 287                                                                    
forward funding changed. The appropriation  into the PEF was                                                                    
still for  one year but  with an effective  date  earmarking                                                                    
future revenue   to be deposited  into the PED for  FY 2020.                                                                    
She   emphasized  that   the  transaction   did  not   mimic                                                                    
historical  future  funding   and  merely  earmarked  future                                                                    
revenue.  She   believed  that   the  transaction   was  the                                                                    
 distinguishing factor  from  prior forward funding compared                                                                    
to the  forward funding  in HB  287. She  added that  if the                                                                    
legislature had  deposited two years' worth  of revenue into                                                                    
the PEF for HB 287 it  would be reflective of the historical                                                                    
formula, but  the administration  believed that  the funding                                                                    
was  an  earmark  and the  appropriation  was  invalid.  The                                                                    
administration was  asking the  legislature to  authorize an                                                                    
appropriation and deposit money into the PEF for FY 20.                                                                         
2:03:32 PM                                                                                                                    
Vice-Chair  Johnston understood  that  in 2005  or 2006  the                                                                    
capital appropriation  for building was forward  funded. Ms.                                                                    
Sanders was  unfamiliar with  the capital  appropriation Co-                                                                    
Chair   Johnston  mentioned.   She   relayed  that   capital                                                                    
appropriations   had  several   types   of  forward   funded                                                                    
appropriations but  each one used  current year  revenue and                                                                    
were not  earmarking future revenue.  She turned to  slide 5                                                                    
titled   HB   1001-Appropriation:  Appendix/Definitions   to                                                                    
illustrate her point:                                                                                                           
            Multi-Year     Appropriation           operating                                                                    
     appropriation  of current  year revenue  with authority                                                                    
     to expend over multiple fiscal years.                                                                                      
            Capital  Project      capital  appropriation  of                                                                    
     current year revenue with authority to                                                                                     
     expend over multiple fiscal years.                                                                                         
            Fund Capitalizations    appropriation of current                                                                    
     year  revenue  into  fund  to  be  distributed  without                                                                    
     further appropriation for a  purpose stated in statute.                                                                    
     Examples include the  Community Assistance and Disaster                                                                    
     Relief Funds.                                                                                                              
Vice-Chair  Ortiz looked  at slide  3 that  stated education                                                                    
was one of  the most important obligations of  the state. He                                                                    
asked if  it was  accurate that  the administration  was not                                                                    
opposed to the concept  of forward funding understanding the                                                                    
value to  districts  funding processes. Ms.  Sanders replied                                                                    
in the  affirmative. She maintained that  the funding needed                                                                    
to have a valid appropriation behind it.                                                                                        
2:06:18 PM                                                                                                                    
Representative  Josephson noted  there  was  an opinion  and                                                                    
belief that when former Governor  Bill Walker had not vetoed                                                                    
any part of HB 287 that  it was incumbent on the governor to                                                                    
execute the law by appropriating  the funds. He deduced that                                                                    
if  the legislature  did not  advance HB  1001, it  would be                                                                    
incumbent  on  the  governor to  start  the  litigation.  He                                                                    
related an argument  that the burden was on  the governor to                                                                    
make  the  case for  forward  funding.  He voiced  that  the                                                                    
administration  was attempting  to convince  the legislature                                                                    
that  it was   wrongheaded  over  the issue  and he  did not                                                                    
believe  that  the  legislature's opinion  would  shift.  He                                                                    
asked for comments.                                                                                                             
Ms. Mills answered that the  issue had gone through a myriad                                                                    
of attorneys  at the  Department of  Law who  had determined                                                                    
the law was  invalid. She asserted that there was  a duty to                                                                    
uphold  the  constitution  and   defend  statutes  and  from                                                                    
Attorney General Clarkson's perspective  it was invalid. She                                                                    
added that  in order to have  valid funding a valid  law was                                                                    
necessary. She hoped that litigation could be avoided.                                                                          
Co-Chair Wilson  asked why the  AG was not  here considering                                                                    
the significance of the issue.                                                                                                  
2:09:33 PM                                                                                                                    
Ms. Mills  replied that Attorney  General Clarkson  would be                                                                    
happy to  discuss the issue  with the committee at  a future                                                                    
date.  She remarked  that she  had not  received a  specific                                                                    
notice that  the legal issue  would be discussed  during the                                                                    
Co-Chair  Wilson  clarified  that  she did  not  create  the                                                                    
PowerPoint  presentation and  that the  legal issue  was put                                                                    
forward  by  the administration.  She  assumed  that the  AG                                                                    
would  have   testified  before  the  committee   since  the                                                                    
legality was the focus of the presentation.                                                                                     
Representative   Josephson  determined   that  HB   287  had                                                                    
referenced  GF  as  a funding  source.  Each  years   budget                                                                    
process  was  a   best  guess    of  anticipated  funds.  He                                                                    
wondered why the  language that identified GF  as the source                                                                    
was not enough.  Ms. Mills replied that the  issue was about                                                                    
the  dedicated  funds  clause  and  not  the  appropriations                                                                    
clause. She  noted that the prohibition  in the constitution                                                                    
against  earmarking  funds  was  specific.  The  prohibition                                                                    
required  that funding  should be  determined  on an  annual                                                                    
basis.  She  summarized  the   question  of  whether  future                                                                    
revenue  was   taken  off  the   table  before   the  future                                                                    
legislature could  determine where and how  the money should                                                                    
be spent. She read the  following snippets from the cases of                                                                    
 Meyers versus  the Alaska Housing Finance  Corporation  and                                                                    
from Sonneman  relating to the Alaska  Marine Highway System                                                                    
      The  Alaska  Constitution prohibited  the  legislature                                                                    
     from  dedicating   future  revenues  directly   to  any                                                                    
     special purpose.                                                                                                           
     The   constitutional   framers    believed   that   the                                                                    
     legislature  would   be  required  to   decide  funding                                                                    
     priorities  annually  on  the  merits  of  the  various                                                                    
     proposals presented.                                                                                                       
     The   constitutional  framers   knew  that   dedicating                                                                    
     revenues was  an attractive idea  but decided  that the                                                                    
     good that might  come from the dedication  of funds for                                                                    
     a particular  purpose was  outweighed by  the long-term                                                                    
     harm to state  finances that would result  from a broad                                                                    
     application of the practice.                                                                                               
Ms.  Mills  believed  that  the  Alaska  Supreme  Court  had                                                                    
focused on  the issue to  ensure that every  legislature for                                                                    
every year  had an  opportunity to determine  the priorities                                                                    
of the budget  with the current years   revenue. The balance                                                                    
was  between  the  appropriation clause  and  the  dedicated                                                                    
funds clause.                                                                                                                   
2:13:29 PM                                                                                                                    
Co-Chair  Wilson  requested  the  information  for  members'                                                                    
Vice-Chair  Ortiz stated  that  Attorney General  Clarkson's                                                                    
perspective to  focus on  the dedicated  fund issue  and his                                                                    
reliance on his interpretation  negated the whole concept of                                                                    
any  type  of  forward  funding  for  education.  Ms.  Mills                                                                    
replied  that  the  legislature could  prioritize  budgeting                                                                    
using  the current  years  revenues  to flow  out in  future                                                                    
years. She  stressed that  HB 287  was different  because it                                                                    
 earmarked future  revenues.  Vice-Chair Ortiz asked  if the                                                                    
constitution  mandating the  adequate  funding of  education                                                                    
did  not  weigh  in  the consideration  at  all.  Ms.  Mills                                                                    
answered   that   education    funding   was   a   competing                                                                    
constitutional   requirement    that   merely    meant   the                                                                    
legislature    had   to    fund   education    through   the                                                                    
constitutionally mandated  appropriation process  within the                                                                    
bounds  of  the  dedicated funds  clause.  Vice-Chair  Ortiz                                                                    
returned to the current year  funding cycle. He asked if the                                                                    
$20  million appropriated  in HB  287  was appropriate.  Ms.                                                                    
Mills  answered that  it was  appropriate. Vice-Chair  Ortiz                                                                    
asked  for  clarification.  Ms.   Mills  answered  that  the                                                                    
appropriation  was  a  valid expenditure  if  there  was  no                                                                    
change by the end of the fiscal year.                                                                                           
Representative  Sullivan-Leonard  asked   whether  the  bill                                                                    
solved the issue of the  earmarked funds appropriated for FY                                                                    
20  in HB  287. Ms.  Sanders was  uncertain about  the issue                                                                    
Representative    Sullivan-Leonard    was   referring    to.                                                                    
Representative Sullivan-Leonard stated  she was referring to                                                                    
the issue  of distribution.  Ms. Sanders responded  that the                                                                    
current  version   of  the   operating  budget   before  the                                                                    
legislature did not include  an appropriation for education.                                                                    
She  maintained that  adding an  appropriation  to a  budget                                                                    
bill  or  passage  of  HB  1001  would  result  in  a  valid                                                                    
appropriation that allowed the distribution of funds.                                                                           
2:18:25 PM                                                                                                                    
Co-Chair Wilson  asked Co-Chair Foster if  there was forward                                                                    
funding  in the  current operating  budget. Co-Chair  Foster                                                                    
answered in the affirmative.                                                                                                    
Representative  Merrick  asked how  much  it  would cost  to                                                                    
litigate the matter. Ms. Mills  answered that the department                                                                    
received  requests often  to estimate  the cost  of lawsuits                                                                    
and was difficult to answer.  She guessed that the range was                                                                    
around  $100,000 and  she  would  follow up.  Representative                                                                    
Merrick asked  who would be  responsible for the  costs. Ms.                                                                    
Mills replied that  it would be owed by  the legislature and                                                                    
the Department of Law.                                                                                                          
2:20:14 PM                                                                                                                    
Vice-Chair  Johnston recalled  the  statute  related to  the                                                                    
Permanent  Fund  Dividend (PFD)  and  surmised  that if  she                                                                    
applied the  administration's logic, the  legislature needed                                                                    
to appropriate the dividend but  not necessarily by statute.                                                                    
Ms. Mills  replied in  the affirmative.  She noted  that the                                                                    
interpretation  had  been  decided in  the  Wielechowski  vs                                                                    
State case in 2017 by  the Alaska Supreme Court that decided                                                                    
that money for  the dividend had to be  appropriated and the                                                                    
appropriation did not rely on a statue.                                                                                         
Co-Chair   Wilson  asked   whether  the   bill  before   the                                                                    
legislature that requested  four years' worth of  PFDs was a                                                                    
violation similar  to forward  funding education.  Ms. Mills                                                                    
replied that the distinguishing  feature between the two was                                                                    
that  the current  situation included  earmarking funds  and                                                                    
the PFD bill proposed to  withdrawal funds from the ERA. Co-                                                                    
Chair Wilson countered that the  calculation for the ERA was                                                                    
based on  future earnings that  was not yet  determined. Ms.                                                                    
Mills responded  that current  revenues were  available even                                                                    
if it depended on a calculation in the future.                                                                                  
Co-Chair Wilson asked  about Ms. Mills comment  that the $20                                                                    
million  would be  paid out  unless  something changed.  She                                                                    
asked  for  comment about  what  would  change. Ms.  Sanders                                                                    
answered that if  the legislature took action  to repeal the                                                                    
appropriation as proposed by the  governor the funding would                                                                    
no longer  be distributed.  Co-Chair Wilson surmised  that a                                                                    
repeal  left  the legislature  open  to  a lawsuit  and  the                                                                    
districts  may  sue the  state.  She  was certain  that  the                                                                    
Fairbanks  North Star  Borough investigated  the issue.  Ms.                                                                    
Sanders answered  that she could not  speak to unpredictable                                                                    
outcomes. She  reiterated that if the  legislature chose not                                                                    
to repeal the $20 million  appropriation and it was based on                                                                    
valid  funding, the  money would  be  distributed to  school                                                                    
2:23:24 PM                                                                                                                    
Representative  Josephson noted  that  the  $20 million  was                                                                    
duly  authorized  and  appropriated.   He  thought  that  an                                                                    
executive  could hold  other funds  hostage  that were  duly                                                                    
appropriated  in a  current fiscal  year  seeking to  repeal                                                                    
them for  use by another  agency, in effect defying  the law                                                                    
that  mandated  execution  of  the  appropriation  that  was                                                                    
signed  off by  a  governor. He  elaborated  that there  was                                                                    
significant   unhappiness  about  the $20  million that  was                                                                    
due   in  six   weeks  without   any  indication   that  the                                                                    
legislature desired to  repeal it. He asked  what would stop                                                                    
an administration  from  husbanding any other  agencys  last                                                                    
series  of  checks    under  the  same  repeal/reappropriate                                                                    
argument. Ms. Sanders responded  that the $20 million repeal                                                                    
had  been proposed  by  the governor  in  the February  13th                                                                    
budget. She could not speak to  the legality of the issue or                                                                    
whether the  governor would withhold any  other funding from                                                                    
distribution.  She concluded  that because  he proposed  the                                                                    
action  in  a bill,  the  funding  was  being held  until  a                                                                    
determination was made.                                                                                                         
Co-Chair  Wilson thought  that  the governor  was setting  a                                                                    
precedence.  She asked  how districts  could plan  ahead and                                                                    
depend  on funding  that an  administration  felt that  they                                                                    
could cut.  She wondered whether  OMB would act in  the same                                                                    
way in the future  and withhold appropriations for something                                                                    
else. How could agencies  and districts rely on appropriated                                                                    
money that may or may not be distributed.                                                                                       
2:26:40 PM                                                                                                                    
Ms.  Sanders   answered  that  the  administration   had  no                                                                    
intention  of   withholding  money  for  any   purpose.  She                                                                    
reported  that education  funding  would  be distributed  as                                                                    
usual on  the 15th  of each month.  She believed  that there                                                                    
was historical  precedence for  the situation.  She informed                                                                    
the  committee that  when agencies  did  not fill  positions                                                                    
within the  same fiscal  year it  was considered  a negative                                                                    
supplemental.  The  legislature  had  historically,  revoked                                                                    
some  of the  funding  that  was not  utilized  to fill  the                                                                    
position.  The  current  issue was  an  instance  where  the                                                                    
funding was  not yet distributed, and  the governor proposed                                                                    
to repeal the appropriation. She  could not speak to setting                                                                    
precedence in the  future. She reiterated that  there was no                                                                    
intention to  withhold money to any  agency. Co-Chair Wilson                                                                    
surmised  that the  school districts  should not  anticipate                                                                    
the  $30 million  because  the funding  could  be vetoed  or                                                                    
withheld, which  reflected the precedence she  spoke of. She                                                                    
wondered why  districts would believe  the same  thing would                                                                    
not  happen  again.  Ms.  Sanders  clarified  she  had  been                                                                    
speaking  to  the  $20  million  and  not  the  $30  million                                                                    
appropriation.   Co-Chair   Wilson   reiterated   that   the                                                                    
districts  were counting  on the  $30 million  but with  the                                                                    
governors   recent actions  regarding the  $20 million,  the                                                                    
districts could  not count on  the funds  being distributed.                                                                    
She asked if  districts should see the action  as a one-time                                                                    
deal or prepare  for non-distribution of the  $30 million as                                                                    
well.   Ms.   Sanders    answered   that   school   district                                                                    
distributions  were  all  subject  to  appropriation  on  an                                                                    
annual  basis.   She  reiterated   her  argument   that  the                                                                    
appropriation in HB 287 was not valid.                                                                                          
2:30:10 PM                                                                                                                    
Co-Chair Wilson asked if Ms.  Saunders was stating that both                                                                    
the  $20 million  and the  $30  million appropriations  were                                                                    
invalid. Ms. Sanders replied in  the negative. She clarified                                                                    
that  the $30  million  appropriation was  invalid. The  $20                                                                    
million would  be distributed when the  operating budget was                                                                    
Representative   Knopp   reiterated   the   administrations                                                                     
argument  that the  appropriation  was  invalid. He  deduced                                                                    
that  the   succeeding  legislature   had  the   ability  to                                                                    
reappropriate the  funds in  any manner  they chose  and the                                                                    
same was  true for the  current year. He believed  that even                                                                    
though the  fund source was  not yet available,  the delayed                                                                    
effective  date  clearly  showed   the  intention  that  the                                                                    
funding  would  come  from  future  revenue.  He  could  not                                                                    
distinguish  the  difference  since  the  budgeting  process                                                                    
always  relied  on  future  revenues. He  did  not  see  the                                                                    
difference and  did not think  the legislatures   hands were                                                                    
tied.  He  asked how  other  legislatures  with a  two  year                                                                    
budget  cycle  handled the  issue.  Ms.  Mills replied  that                                                                    
Alaskas  dedicated funds clause  was unique among the United                                                                    
States.  Most states  merely had  an appropriations  clause.                                                                    
Most states were only able  to freely appropriate roughly 17                                                                    
percent of their revenues because  the other 80 percent were                                                                    
dedicated, which was why Alaska  adopted the dedicated funds                                                                    
2:33:30 PM                                                                                                                    
Representative Knopp  indicated that he was  struggling with                                                                    
the concept of a dedicated fund clause.                                                                                         
Co-Chair Wilson asked  to hear from Ms.  Wallace for closing                                                                    
Ms.   Wallace  noted   that  there   was   nothing  in   the                                                                    
presentation that  would change  the opinion  of Legislative                                                                    
Legal Services. She was happy to answer questions.                                                                              
Representative  LeBon  asked  about the  difference  between                                                                    
forward  funding  and  an earmark.  He  thought  an  earmark                                                                    
denoted an intent rather than  an appropriation. Ms. Wallace                                                                    
was not  certain how  a court  would categorize  the forward                                                                    
funding mechanism  the legislature  used. She  believed that                                                                    
the  term  earmark  was  not   appropriate  in  the  current                                                                    
scenario.  She   indicated  that  typically  the   term  was                                                                    
restricted  to   the  earmarking   of  taxes   for  specific                                                                    
purposes.  The legislature  had  appropriated the  education                                                                    
funding.  She noted  that  in  her opinion  it  had been  an                                                                    
appropriation. Representative  LeBon recounted  the argument                                                                    
being  made  by  the   administration  against  the  forward                                                                    
funding.  He wondered  whether the  current legislature  had                                                                    
the authority  to change  the amount  of the  forward funded                                                                    
appropriation. Ms. Wallace answered  in the affirmative. The                                                                    
key  about   whether  the   legislature  had   violated  the                                                                    
dedicated   fund  prohibition   was  if   the  appropriation                                                                    
eliminated  a  future  legislature's ability  to  alter  the                                                                    
appropriation  in   their  annual  budgeting   process.  She                                                                    
reported that  the current  legislature considered  the $1.2                                                                    
billion  education funding  appropriation  and ensured  that                                                                    
adequate   revenue  existed   to  fund   all  general   fund                                                                    
appropriations, including  the education  appropriation. The                                                                    
legislature  had   the  power   to  amend  or   repeal  both                                                                    
appropriations.  She specified  that the  legislature had  a                                                                    
long  history of  forward  funding  education and  repealing                                                                    
funding when  revenue was  insufficient. She  cited examples                                                                    
from 2015 when  the legislature revoked $1  billion from the                                                                    
Public   Education  Fund   and  in   2014  the   legislature                                                                    
appropriated  one-time funding  for the  subsequent 3  years                                                                    
and had repealed  the FY 16 and FY 17  funds. In both cases,                                                                    
the  state no  longer  had adequate  resources. She  advised                                                                    
that last  years  appropriation was not  compulsory and like                                                                    
the examples she shared was subject to repeal or amendment.                                                                     
2:39:04 PM                                                                                                                    
Representative  LeBon   asked  what  would  happen   if  the                                                                    
legislature  ran short  on money  before the  current fiscal                                                                    
year  ended.  Ms. Wallace  answered  that  if there  was  no                                                                    
longer money  to adequately fund the  remaining fiscal year,                                                                    
the legislature  could amend the  budget or  find additional                                                                    
funds  from  the ERA  or  Constitutional  Budget Reserve  to                                                                    
transfer  into   the  general  fund.   Representative  LeBon                                                                    
surmised that the legislature did  not have a  crystal ball                                                                     
and budgeted  based on projected  revenue as  best  it can.                                                                     
He ascertained  that if  the legislature  did not  amend the                                                                    
prior years education appropriation it would stand.                                                                             
Representative Knopp deemed that the  prior action in HB 287                                                                    
had  no  more  binding  effect on  the  legislature  than  a                                                                    
resolution had but did bind  the governor. He suspected that                                                                    
that  the  current  administration   could  not  change  the                                                                    
appropriation without a reappropriation by the legislature.                                                                     
2:41:32 PM                                                                                                                    
Representative  Knopp  clarified that  it  did  not tie  the                                                                    
hands of a  future legislature but did tie the  hands of the                                                                    
administration.  Ms.  Wallace  answered that  the  education                                                                    
appropriations did  not bind either a  future legislature or                                                                    
the governor. The  appropriation in HB 287  had been subject                                                                    
to the governor's  veto power. She delineated  that the veto                                                                    
power was not  specific to a particular governor  but to the                                                                    
office  of  the governor.  The  current  governor sought  to                                                                    
amend  and  repeal  some of  the  education  appropriations;                                                                    
therefore, was not binding on the governor.                                                                                     
Representative Josephson cited slide  4 of the presentation.                                                                    
He  pointed to  the reference  to the  dual funded  years of                                                                    
2006  and  2007  for  education   funding  that  crossed  an                                                                    
election  cycle.  He  concluded   that  if  the  legislature                                                                    
disapproved of  the forward funding  for education  in 2007,                                                                    
they had the  power to amend or repeal and  chose not to. He                                                                    
felt  that his  point  was the   essence   of Ms.  Wallaces                                                                     
2:43:30 PM                                                                                                                    
Ms.  Wallace affirmed  his conclusion.  She  added that  the                                                                    
legislature  had a  prior record  of  amending or  repealing                                                                    
forward funding mechanisms employed the previous year.                                                                          
Vice-Chair  Johnston turned  to slide  6 titled   HB 1001                                                                       
Appropriation:  Appendix/Definitions   of  the  presentation                                                                    
that had not been previously discussed.                                                                                         
     Examples of Forward Funding Appropriations:                                                                                
      Community  Assistance  Program    Fund  capitalization                                                                    
     made  each  year,  from available  revenue,  to  ensure                                                                    
     balance  of   the  fund  in  the   subsequent  year  is                                                                    
    sufficient for the desired statutory distribution.                                                                          
      Temporary  Increments (IncT)     Programs  with a  set                                                                    
     duration,  requires  appropriation in  each  subsequent                                                                    
     year.  IncT designation  provides clarity  of temporary                                                                    
     nature of program and anticipated duration.                                                                                
      Ch.  171, SLA  1984    Continuing appropriations  from                                                                    
     the general  fund to the Power  Cost Equalization fund,                                                                    
     Susitna River  Hydroelectric project, and  Bradley Lake                                                                    
     Hydroelectric project to occur on July 1 each year.                                                                        
     Struck down as unconstitutional by the superior court.                                                                     
     (Trustees for Alaska v. State, 3AN-84- 12053.)                                                                             
Vice-Chair  Johnston  pointed  to the  Community  Assistance                                                                    
Program  (CAP) and  noted that  the funding  was based  on a                                                                    
formula  and  recalled  that  there was  a  year  where  the                                                                    
legislature either had  to fully fund the  program or change                                                                    
the calculation. She asked for confirmation.                                                                                    
Ms.   Sanders   answered   that  Vice-Chair   Johnston   was                                                                    
referencing   the   Community    Assistance   Program.   She                                                                    
elucidated  that the  funding formula  relied on  depositing                                                                    
the  current  years   appropriation  and  one-third  of  the                                                                    
balance  flowed  out  of  the  fund.  The  formula  remained                                                                    
unchanged.  The formula  that determined  the amount  of the                                                                    
deposit  was based  on historical  revenue. The  CAP funding                                                                    
mechanism remained the same; each  year $30 million (instead                                                                    
of the  prior $90 million)  was deposited into the  fund and                                                                    
$30 million  was appropriated  based on  the balance  of the                                                                    
fund. If the  balance of the fund  declined, one-third would                                                                    
still flow  out of  the fund in  the following  fiscal year.                                                                    
She  emphasized  that the  fund  was  capitalized using  the                                                                    
current years revenue.                                                                                                          
Co-Chair Wilson  thought that Power Cost  Equalization (PCE)                                                                    
was  part  of the  funding  as  well and  the  appropriation                                                                    
relied  on   a  waterfall  effect  where  some  funding  was                                                                    
appropriated  to PCE  and some  amounts appropriated  to CAP                                                                    
and  the Alaska  Energy Authority  (AEA). She  asked whether                                                                    
her statement was correct. Ms.  Sanders responded that there                                                                    
was a  formula in place under  the PCE program where  in the                                                                    
event of excess earnings, the  money could be made available                                                                    
to appropriate to CAP, AEA,  and other rural energy projects                                                                    
under  the capital  budget. She  furthered that  if the  PCE                                                                    
fund  did  not  earn  enough   to  waterfall,  GF  could  be                                                                    
deposited to cover the shortfall.  The funding mechanism was                                                                    
a   funding  formula   to  allow   excess  earnings   to  be                                                                    
distributed in  a particular manner. Co-Chair  Wilson stated                                                                    
the legislature  was appropriating  funds that were  not yet                                                                    
earned.  She stated  that the  scenario was  similar because                                                                    
the  appropriation happened  automatically depending  on the                                                                    
funds earnings.                                                                                                                 
2:47:54 PM                                                                                                                    
Ms.  Sanders  clarified  that   the  appropriation  was  not                                                                    
automatic. The  legislature had  to take  an active  role in                                                                    
the appropriation.                                                                                                              
Vice-Chair  Johnston  stated  that  the  original  programs                                                                     
formula was  a type of  waterfall and based on  oil revenue.                                                                    
The  funding  mechanism assumed  the  money  would be  there                                                                    
until it  was not. Ms.  Sanders answered that  the mechanism                                                                    
was the  same methodology  of distribution; each  year based                                                                    
on oil  revenue approximately  $90 million was  deposited to                                                                    
keep the  balance at $180  million and one-third  would flow                                                                    
out of the fund. She stressed  that the deposit relied on an                                                                    
annual appropriation by the legislature.                                                                                        
Co-Chair Wilson  would reach out  to the sponsor of  the CAP                                                                    
bill to obtain further information.                                                                                             
Co-Chair  Wilson noted  public testimony  would be  heard at                                                                    
5:00 p.m.                                                                                                                       
HB  1001  was  HEARD  and  HELD  in  committee  for  further                                                                    
2:49:47 PM                                                                                                                    
The meeting was adjourned at 2:49 p.m.                                                                                          

Document Name Date/Time Subjects
HB1001 Presentation to HFC 5.20.19.pdf HFIN 5/20/2019 1:30:00 PM
HB 1001 Public Testimony pkt 1.pdf HFIN 5/20/2019 1:30:00 PM