Article IX Section 17 (The Constitutional Budget Reserve Fund) allows for use of the CBR with a simple majority if the revenues available for the next fiscal year are less than the amount appropriated in the current fiscal year. The language from the Constitution is set out below:

(b) If the amount available for appropriation for a fiscal year is less than the amount appropriated for the previous fiscal year, an appropriation may be made from the budget reserve fund. However, the amount appropriated from the fund under this subsection may not exceed the amount necessary, when added to other funds available for appropriation, to provide for total appropriations equal to the amount of appropriations made in the previous calendar year for the previous fiscal year.

The language sets out two tests. The first test determines whether 17 (b) is available to the Legislature. The second test determines how much is available under 17 (b). The language below has been color-coded to illustrate how the tests function together.

Test #1: Can we use a simple majority appropriation?

If the amount available for appropriation for a fiscal year is less than the amount appropriated for the previous fiscal year, an appropriation may be made from the budget reserve fund.

The amount appropriated for Fiscal Year 2003 was $6.981 billion. The amount available for Fiscal Year 2004 is $6.426 billion. Therefore, the answer to the first test is yes.

Test #2: How much of the CBRF is available by simple majority?

However, the amount appropriated from the fund under this subsection may not exceed the amount necessary, when added to other funds available for appropriation, to provide for total appropriations equal to the amount of appropriations made in the previous calendar year for the previous fiscal year.

Green + Red = Blue
$0.555 + $6.426 = $6.981

Blue - Red = Green
$6.981 - $6.426 = $0.555

The key to 17 (b) is the amount of revenue available in FY04. Using the projections of the Department of Revenue and the Office of Management and Budget, we are able to get a reasonable estimate of what revenues will be available for FY04.

New revenue measures passed by the Legislature this session (HB 11, HB 170, HB 271, SB 106, HB 155) result in additional revenues that are available ($79 million). Also, the deposit of the ASTF endowment into the general fund makes an additional $86 million available. Finally, the AIDEA dividend ($18 million) is available as well. Therefore, the 17 (b) figure needs to be adjusted downward by $183 million.

Why did we need to make the transfers under Section 68?

If oil revenue is higher than projected, the amount available under 17 (b) goes down. Likewise, if oil prices go down, the amount available under 17 (b) goes up. These fluctuations in oil prices do not make a difference in whether or not the amount available under 17 (b) fills the gap because the Legislature can spend increased oil revenues without concern.

While each of these revenue adjustments have little practical affect on whether 17 (b) works for the purposes of filling our budget gap this year, there is one revenue fluctuation that presents real concerns. If Permanent Fund revenues come in higher than projected, there will be more total revenue available but less available under 17 (b). The problem is that Permanent Fund revenues aren't available politically. So, we needed to make sure there is enough cushion in the amount available under 17 (b) in the event Permanent Fund revenue comes in higher than expected in FY04. That is one reason we made the various transfers in Section 68 of the capital budget. Those transfers create an additional $340 million in "head room" to make sure the Legislature isn't faced with having to appropriate Permanent Fund earnings.

What transfers were made under Section 68?

1. makes the deposit of the ASTF into the general fund effective June 30 rather than July 1-that takes it off the table for FY 04
2. transfers what's left in the earnings reserve of the Permanent Fund (after PFDs and inflation-proofing) into the principal of the fund itself. This transfer will leave $100 million in the ERA on July 1
3. allows the administration to use the CBRF for cash flow purposes during the next fiscal year
4. makes it absolutely clear that we are using Section 17 (b)
5. repeals the operating budget transfer of the ASTF since we have already done that in part (1) above
6. repeals the inflation-proofing transfer at the end of fiscal year 2004 since we have essentially made that transfer to principal at the beginning of fiscal year 2004

What about the Dividend?

The transfers made under section 68 will have zero impact on the dividends paid out this fall (October 2003). There is very little-if any-threat to the Permanent Fund Dividend for October 2004. The Alaska Permanent Fund makes $70 million every month on Bonds, Real Estate holdings, and dividends from stocks-that will be more than $800 million over the next 12 months. With the projected amount of next year's dividend less than $500 million, we will have plenty of cash available to pay dividends.

The only threat to next year's dividend under this scenario is if the market crashes-in which case the PFD is threatened anyway. If we get to the end of next year's session and it appears necessary, the Legislature will make a special appropriation to hold the Dividend harmless.

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