Pension Funding and Fairness Act

Pension Funding and Fairness Act

Summary

The Act combines a traditional spending limit with debt paydown, rainy day fund, and taxpayer refund provisions.  First, the Act establishes a Spending Growth Index of inflation plus population growth which is used as a limit on state spending each year.  Second, the Act requires remaining general funds to be used to pay down past due debt through a Past Due Paydown Fund.  Once the state’s past debt has been paid down, revenues above the Spending Growth Index will be placed in a Budget Stabilization Fund equal to no more than 8 percent of the General Revenue Fund’s total spending and could only be accessed during revenue shortfalls and economic downturns.  Finally, once state debt has been paid down and the Budget Stabilization Fund is fully funded, revenues above the Spending Growth Index will be sent to a Taxpayer Relief Fund, which will issue refunds to taxpayers annually according to the number of exemptions filed on their most recent tax return.

Model Legislation

{Title, enacting clause, etc.}

Section 1. {Definitions.}
(A) Emergency. “Emergency” means extraordinary circumstances outside the control of the Legislature, including:

(1) Catastrophic events such as a natural disaster, terrorism, fire, war and riot;

(2) Court orders or decrees.

(B) Increase in Revenue. “Increase in revenue” means any legislation or tax levy that is estimated to result in a net gain in state revenue of at least 0.01 percent of General Fund revenue in at least one fiscal year, and:

(1) Enacts a new tax (or fee);

(2) Increases the rate or expands the base of an existing tax (or fee);

(3) Repeals or reduces any tax exemption, credit or refund; or

(4) Extends an expiring tax increase (or fee).

(C) Inflation adjustment factor. “Inflation adjustment factor” means the increase in the appropriate inflation factor for locality for the most recently available calendar year as calculated by the United States Department of Labor, Bureau of Labor Statistics. The inflation adjustment factor may not be less than zero but never more than 10 percent.

(D) State spending. “State spending” means any authorized state appropriations and allocations.

(E) Population adjustment factor. “Population adjustment factor” means the average annual percentage increase in population for the three most recent years for which data is available, as determined annually by the United States Department of Commerce, Census Bureau. The population adjustment factor may not be less than zero.

(F) Revenue. “Revenue” means taxes and fees collected by the State.

(G) Tax. “Tax” means any amount raised for the general support of government functions.

Section 2. {Spending Growth Index.}
(A) State Spending Growth Index. Beginning with the fiscal year that starts after this section takes effect, the maximum annual percentage change in state fiscal year spending in the categories specified equals the inflation adjustment factor plus the population adjustment factor and any increases attributable to measures approved under “Approval of revenue increases.” This limitation must be calculated separately for the following categories:

(1) General Fund;

(2) Highway Fund; and

(3) Other Special Revenue Funds.

Section 3. {Exceptions.}
(A) The following may not be counted in calculating expenditure limitations:

(1)  Amounts returned to taxpayers as refunds of amounts exceeding the expenditure limitation in a prior year;

(2) Amounts received from the Federal Government;

(3) Amounts collected on behalf of another level of government;

(4) Pension contributions by employees and pension fund earnings;

(5) Pension and disability payments made to former government employees;

(6) Amounts received as grants, gifts or donations that must be spent for purposes specified by the donor;

(7) Amounts paid pursuant to a court award; or

(8) Reserve Transfers.

Section 4. {Approval of expenditure increases.}
(A) The following form of approval is required to adopt an increase in state spending beyond the limitation:

(1) For an increase in state spending:

(a) The measure must be approved by a three-fifths supermajority vote of all members of each House of the Legislature; and

(b) The measure must be approved by a majority of voters.

(B) Exceptions. Voter approval is not required if the spending is as a result of an increase in state revenue under “Approval of revenue increases.”

(C) Approval by voters; emergency approval. The question of whether to adopt legislation to impose an increase in State spending beyond the limitation must be submitted to the voters for approval at the next general election. If the Legislature determines by a three-fifths supermajority vote that legislation to increase spending beyond the limitation should take effect sooner than the next general election, the Legislature may provide for submission of the question to the voters at any regular or special election.

(D) Spending estimates. A measure submitted to the voters must include an estimate of the spending increase by the measure for the first three fiscal years of its implementation.

(1) Notice. At least 30 days before an election, the Secretary of State shall mail, at least cost, a titled notice or set of notices addressed to “All Registered Voters” at each address of every active registered voter. Notices must include the following information and may not include any additional information:

(a) The election date, hours, ballot title and text, and local election office address and telephone number.

(b) For each proposed spending increase, the estimated or actual total of fiscal year spending for the current year and each of the past four years, and the overall percentage and dollar change; and

(c) For the first full fiscal year of each proposed spending increase, estimates of the maximum dollar amount of each increase and of fiscal year spending without the increase.

(d) Ballot questions for spending increases must begin: “Shall state spending increase by (amount of first or, if phased in, full fiscal year dollar increase) annually for the purpose of . . .?”

(E)  Costs. The State shall reimburse municipalities for the costs of a special election.

Section 5. {Approval of Revenue Increases.}
(A) Approval of increase. The following form of approval is required to adopt an increase in state revenue:

(1) For an increase in revenue of the State:

(a) The measure must be approved by a three-fifths supermajority vote of all members of each House of the Legislature; and

(b) The measure must be approved by a majority of voters.

(B) Exceptions. Voter approval is not required if:

(1) Annual state revenue is less than annual payments on general obligation bonds, required payments relating to pensions and final court judgments; or

(2) The measure is an emergency tax.

(C) Approval by voters; emergency approval. The question of whether to adopt legislation to impose an increase in revenue of the State must be submitted to the voters for approval at the next general election. If the Legislature determines by a three-fifths supermajority vote that legislation to increase revenue via an emergency tax should take effect sooner than the next general election, the Legislature may provide for submission of the question to the voters at any regular or special election.

(D) Revenue estimates. A measure submitted to the voters must include an estimate of the amount to be raised by the measure for the first three fiscal years of its implementation.

(E) Notice. At least 30 days before an election, the Secretary of State shall mail, at least cost, a titled notice or set of notices addressed to “All Registered Voters” at each address of every active registered voter. Notices must include the following information and may not include any additional information:

(1) The election date, hours, ballot title and text and local election office address and telephone number.

(2) For each proposed revenue increase, the estimated or actual total of fiscal year spending for the current year and each of the past four years, and the overall percentage and dollar change; and

(3) For the first full fiscal year of each proposed revenue increase, estimates of the maximum dollar amount of each increase and of fiscal year spending without the increase.

(4) Ballot questions for revenue increases must begin: “Shall (description of the tax increase) to increase state revenues by (amount of first or, if phased in, full fiscal year dollar increase) annually for the purpose of . . .?”

(5) The State shall reimburse municipalities for the costs of a special election.

Section 6. {Emergency Taxes.}
(A) Emergency taxes permitted; condition. The state may impose emergency taxes only in accordance with this section:

(1) The tax must be approved for a specified time period by a three-fifths majority of the members of each House of the Legislature;

(2) Emergency tax revenue may be spent only after other available reserves are depleted and must be refunded 180 days after the emergency ends if not spent on the emergency; and

(3)  The tax must be submitted for approval by the voters at the next regular election.

(B) Absence of approval. If not approved by the voters as provided in this section, an emergency tax expires 30 days following the election.

Section 7. {Past Due Paydown Fund.}
(A) Establishment. The Past Due Paydown Fund, referred to in this section as “the fund,” is established and must be administered for the purposes identified in this section.

(B) Transfer to fund; limits. At the close of each fiscal year beginning in 2011, the State Comptroller shall identify the amount of General Fund unappropriated surplus above the Spending Growth Index limitation and transfer to the fund any amount necessary up to the total past due operating debt owed by the state as of the close of fiscal year 2010.

(C) Use of fund. The Legislature must authorize transfers, appropriations and allocations from the fund only to fund the costs of paying down the remaining past due debt until such debt is zero. Remaining funds shall be transferred to the Budget Stabilization Fund.

Section 8. {Budget Stabilization Fund.}
(A) Establishment. The Budget Stabilization Fund, referred to in this section as “the fund,” is established and must be administered for the purposes identified in this section.

(B) Transfer to fund; limits. At the close of each fiscal year, the State Comptroller shall identify the amount of General Fund unappropriated surplus above the state Spending Growth Index expenditure limitation and above the amount necessary to fully fund and pay down the past due operating debt to zero. The fund may not exceed eight percent of the total General Fund revenues received in the immediately preceding fiscal year.

(C) Use of fund. The Legislature may authorize transfers, appropriations and allocations from the fund only to fund the costs of State Government up to the expenditure limit calculated under “Expenditure Limitation” in years when state revenues are less than the amount necessary to finance the level of expenditures permitted under “Spending Growth Index Expenditure Limitation.” Transfers require a three-fifths supermajority vote of the Legislature.

(D) Investment of funds; proceeds. The money in the fund may be invested as provided by law, with the earnings credited to the fund. At the close of every month during which the fund is at the eight percent limitation, the State Comptroller shall transfer the excess to the Taxpayer Relief Fund.

Section 9. {Taxpayer Relief Fund.}
(A) Establishment. The Taxpayer Relief Fund, referred to in this section as “the fund,” is established and must be administered for the purposes identified in this section.

(B) Transfer to fund; limits. At the close of each fiscal year, the State Comptroller shall identify the amount of General Fund unappropriated surplus above the state expenditure limitation and above the amount necessary to fully fund the Past Due Paydown Fund and the Budget Stabilization Fund.

(C) Notification. By September 1st annually, the State Comptroller shall notify the Legislature and the Department of Revenue of the amount in the fund as a result of the transfers.

(D) Refund. If the amount in the fund exceeds 1 percent of General Fund expenditures, the Legislature shall, by September 15th, enact legislation to provide for the refund to taxpayers of amounts in the fund. Refunds may take the form only of temporary or permanent broad-based tax rate reductions.

(E) Refund in case of legislative inaction. If the Legislature does not enact legislation by September 15th to provide refunds, then the State Comptroller shall, by September 30th, notify the Department of Revenue of the amount in the fund. The Department of Revenue shall calculate a one-time bonus personal exemption refund. The amount of the personal exemption refund must be calculated by dividing the amount in the fund identified by the State Comptroller by the number of personal exemptions claimed on income tax returns filed for tax year beginning in the previous calendar year. The Department of Revenue shall issue a refund by October 15th to a taxpayer who filed an income tax return by April 15th of the same calendar year based on the number of exemptions claimed (times refund per exemption) on the taxpayer’s return without regard to the taxpayer’s tax liability for the year.

Section 10. {Severability clause.}

Section 11. {Repealer clause.}

Section 12. {Effective date.}

 

Approved by ALEC Board of Directors on September 16, 2011