Monday afternoon, the Senate Judiciary Committee returned to consideration of Gov. Michael J. Dunleavy’s proposal to create a spending cap in Article IX of the Alaska State Constitution.

Senate Joint Resolution 6 is one of three constitutional amendments put forth from the governor’s office, alongside SJR5 – which would enshrine the old statutory formula used to calculate Permanent Fund dividend amounts – and SJR4 – which would require any new taxes, or tax increases, to be approved by voters.

The first limit on appropriations was added, via constitutional amendment, in 1982. Voters were asked to limit appropriations for a fiscal year to $2.5 billion, allowing annual adjustments for inflation and population changes. One-third of the limited amount was accorded to fund capital projects and repay loans and the other two-thirds could be spent for general purposes. Voters approved it by a margin of over 20 points.

“The appropriation limit in this section has never limited appropriations, largely because the base of $2.5 billion was high, from a historical perspective in Alaska, and because revenues available for appropriation did not continue to increase as dramatically as foreseen at the time,” Gordon Harrison wrote in Alaska’s Constitution: A Citizen’s Guide. “Meanwhile, inflation and population growth continued apace.”

Not everyone was thrilled about the efficacy of the original appropriations limit.

“This bogus spending limitation will not take effect until fiscal year 1984,” former State Rep. Dick Randolph (L-Fairbanks) wrote in Freedom for Alaskans in 1982. “This gives these politicians another year of feverish spending before their so-called limit goes into effect. So hold your hats!”

Randolph now serves as Dunleavy’s “special adviser on constitutional amendments.”

The new proposal would limit State spending to the average of the budgets passed in the previous three-year period, allowing for adjustments to accommodate inflation and population growth. SJR6 caps any growth at two percent overall, and sides with whichever amount winds up less. It also repeals and reenacts the Constitutional Budget Reserve (CBR), which serves as a de facto savings account. Largely because of slumping oil prices and the resultant state deficits left in their wake, the CBR has dwindled to $1.7 billion.

SJR6 would rename the CBR the Savings Reserve Fund and remove the provision allowing the legislature – by three-quarters vote – to use portions of it to fund government services. Currently, leftover funds from capital projects that don’t end up getting used are “swept” into the CBR at the end of a fiscal year to be usable for other purposes. Under the governor’s proposal, they would automatically be shuffled wholesale to the Permanent Fund.

In his first “State of the State” speech in January, Dunleavy described the idea that would become SJR6 as a “spending limit and savings plan that will keep politicians from spending every penny we have, one that allows us to save excess revenue when possible for future Alaskans.”

However, with continued deficits on the horizon, even if Dunleavy’s proposed budget cuts and SJR6 pass, any future savings are highly theoretical and will come at the cost of other government services. More immediately, there are concerns whether the new spending cap would pass a constitutional review.

Amendment or a Revision?

A memo dated March 29 from Megan Wallace, Director of Legal Services for the Legislative Affairs Agency (counsel for the legislature), raised initial concerns regarding the constitutionality of SJR6.

Wallace called attention to the question of whether the proposal was a constitutional amendment or a revision. Amending the constitution was a process designed by the Alaska State Constitution’s authors to adapt relatively minor changes when time and circumstance deemed them necessary. As such, the bar for amendments is lower than for revisions; two-thirds of the members of each legislative chamber must agree to the proposal, in which case it is put to a public vote requiring a simple majority.

Revisions, on the other hand, “give the constitution a major overhaul,” as the Citizen’s Guide defines it. For that order of redress, a constitutional convention must be called.

Case law affords legislators only a single case in deciphering between what constitutes an amendment or a revision. In Bess v Ulmer (1999), the Alaska Supreme Court was confronted with three proposed constitutional amendments, all of which were challenged by citizen groups alleging they were revisions and, thus, could not appear on a ballot.

Having no existing precedent in state history to guide the Court, they developed a standard of review that was a hybrid of the approaches employed in California and Florida and applied it to the three proposed constitutional amendments that year. There was a different outcome for each.

A proposal that sought to strip prisoners of all rights accorded by the Alaska State Constitution, instead only permitting recognition of the protections provided for by the U.S. Constitution, was struck down.

“Not only would the proposal… ‘substantially alter the substance and integrity of the state Constitution as a document of independent force and effect,’ but… it also would potentially alter as many as eleven separate sections of our Constitution,” then-Alaska Supreme Court Justice Warren Matthews wrote in the Bess ruling, which found the measure to be “an impermissible constitutional revision.”

A second proposed constitutional amendment, known as the now-defunct marriage amendment, was allowed to proceed to the ballot and became law. But the second half of the original proposal – “No provision of this constitution may be interpreted to require the State to recognize or permit marriage between individuals of the same sex” – didn’t survive.

“The court cracked one of those proposed constitutional amendments in half because the second proposed sentence of it was so radical and so far reaching that it would have had consequences that would have been felt throughout the constitution,” Sen. Jesse Kiehl (D-Juneau) told his colleagues. “And so the court struck it.”

A third, regarding legislative apportionment, was allowed to remain untouched.

In her legal memo, Wallace noted that if SJR6 were to be challenged in court, the Bess decision instructed that its provisions would face similar scrutiny.

“SJR 6 does not simply amend the existing appropriation limit,” she wrote. “It also drastically changes the composition of the constitutional budget reserve fund in art. IX, sec. 17, Constitution of the State of Alaska, by (1) renaming it; (2) changing the requirements for deposits of settlement proceeds; (3) changing withdrawal requirements; (4) repealing and eliminating the provision authorizing withdrawals for any public purpose with a three-fourths vote of each house of the legislature; and (5) repealing and eliminating the constitutional sweep.”

Wallace added that Bess was not sufficient in addressing the constitutional challenges SJR6 might face, because Bess – the lone contextual guide – dealt with prisoners’ rights, marriage rights, and apportionment. SJR6, on the other hand, dealt with an inherent right vested in the legislative branch of government.

“The power of appropriation… is a foundational power of the legislative branch. The changes proposed in SJR 6 by the executive branch significantly restrict the legislative power of appropriation as it currently exists under our state constitution.”

Wallace followed the first memo up with a second, reiterating her appeal for caution.

“In sum, in its current form SJR 6 undeniably restricts the legislature’s power of appropriation and, if challenged, these changes may be deemed to be so significant as to create a need to consider the constitution as an organic whole and may be the “sweeping change” that I discussed in my March 23, 2019, opinion.”

Forfeiting the Power of Appropriation

“It got my attention. On the surface I thought, you know, I want to make certain that what we’re doing would pass constitutional muster,” Senate Judiciary Chair Shelley Hughes (R-Palmer) told Wallace during Monday afternoon’s hearing. “As I considered each of the items, I thought, ‘Is that significant? Is that minor or is that major?’” She concluded that, though there are multiple changes, they were minor and didn’t “seem extremely significant.”

“You went on, on the page, to talk about [how] this is restricting the legislative power of appropriation,” Hughes continued. “That’s what indeed a spending cap – an appropriations limit – does. It does restrict the appropriation ability to some extent. And we already have that in the constitution…. I don’t feel like we’re all of a sudden changing that restriction. We’re making some adjustments, we’re moving some levers.”

“Is it relevant that the CBR didn’t exist then?” Kiehl asked, noting that the original appropriation limit was approved eight years before the amendment creating the CBR.

“That’s one of several components that the court would look at when determining whether or not that would be a revision,” Wallace replied. “We kind of have to pull what we can from Bess to give you the analysis of what we think a court might do the next time that it has to decide whether a proposal is an amendment or a revision. But, the court hasn’t ever looked at the appropriation limit itself and made a determination whether that limit, as it went into the constitution, had an effect on the legislature’s power of appropriation or whether it was so restrictive [as to qualify as a revision].”

“I think the intent is to cap spending. I think that for at least a decade, legislators have not been spending responsibly with balanced budgets. I think cleaning out the Constitutional Budget Reserve and the Statutory Budget Reserve… is tying the hands of future legislatures because the money’s gone,” Sen. Lora Reinbold (R-Eagle River) told Wallace. “That’s why I think this constitutional amendment is so doggoned important. I feel like our hands are tied, bound, and handcuffed…. It sure seems to me that all of this stuff inhibits the legislature’s appropriations ability, does it not? All the federal regulations on Medicaid, and education, and the [base student allocation], and, you know, all this stuff.”

“To the extent that the legislature has a constitutional obligation to adequately provide for education, you’re correct,” Wallace answered. “That’s a constitutional requirement.”

“It just says we have to keep schools open. So, make sure, if you’re going to state the constitution, you know, that it’s stated properly,” Reinbold offered sharply. “It doesn’t say we have to do the BSA.”

Wallace chose to let the comment echo in lieu of a response.

Assistant Attorney General Cori Mills proceeded Wallace and offered the committee a defense of SJR6.

“The Department of Law considered [Bess] as we were drafting this amendment for the governor. We felt very comfortable that if it is challenged, we feel comfortable defending it, and we feel the court is likely to uphold it,” Mills said. “We feel like… these amendments do not go so far as to be a foundational, fundamental change to the constitution, and therefore we view it as an amendment instead of a revision.”

Hughes said the backing of the Department of Law gave her an added sense of confidence.

Deliberation over SJR6 was interrupted after an amendment offered by Sen. Peter Micciche (R-Soldotna) was approved, 3-2, with Kiehl and Reinbold dissenting. The mostly innocuous change replaced the 50 percent adjustment for inflation or population growth (or two percent maximum) with a five year average based on the consumer price index (CPI) for Anchorage. Micciche described it as an attempt to avoid “spikes and dips” should they clash with the rigidity of the proposal’s initial language. Department of Revenue Commissioner Bruce Tangeman, who was present during the committee meeting, said the administration had no objection.

“It’s just a more realistic way of dealing with that increase,” Micciche offered.

“It’s just one more opportunity for government to grow and increase the appropriation limit,” Reinbold responded, visibly frustrated. She walked out subsequent to the vote to attend a Senate Resources Committee meeting in progress.

SJR6 has already cleared the first of its three committees of referral in the Senate, passing State Affairs on March 27. Reinbold and Sen. Mike Shower (R-Wasilla) recommended passage, Micciche offered no recommendation, and senators John Coghill (R-North Pole) and Scott Kawasaki (D-Fairbanks) recommended the bill be amended.

Judiciary held the bill over and will meet again on Wednesday afternoon. Should it clear Judiciary, it’s next stop would be Finance.

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