Legislature(2019 - 2020)ADAMS ROOM 519
04/29/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB20 | |
| Presentation: a Look-back in Criminal Justice Reform | |
| HB96 | |
| HB31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 31 | TELECONFERENCED | |
| + | HB 96 | TELECONFERENCED | |
| + | HB 49 | TELECONFERENCED | |
| += | HB 145 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 20 | TELECONFERENCED | |
HOUSE BILL NO. 31
"An Act making a special appropriation to the Alaska
permanent fund; and providing for an effective date."
3:40:32 PM
REPRESENTATIVE JOHNATHAN KREISS-TOMPKINS, BILL SPONSOR,
indicated that HB 31 was a simple bill that transferred
$5.5 billion from the Earnings Reserve Account (ERA) to the
corpus of the Alaska Permanent Fund (PF). He introduced the
PowerPoint presentation: "HB 31: $5.5 billion transfer from
the ERA to the Corpus." The presentation had a number of
slides that would contextualize the impacts of the
legislation or such a transfer especially given actions
taken in the other body on the previous Friday. He would
discuss the impacts of different sizes of transfers. He
noted that the House was interested in the concept before
the Senate.
Representative Kreiss-Tompkins turned to slide 2: "If the
deficits continue, the CBR is most likely gone." He
reported that since he became a legislator in 2013, he had
seen the legislature collectively spend down all the
state's savings. He found it discouraging and thought it
was a collective action problem. The genesis of the ERA to
principal transfer reflected his grave fear and concern
that the legislature might soon regard the ERA as just
another savings account that was available to spend down as
opposed to an intergenerational asset for the benefit of
future generations of Alaskans.
Representative Kreiss-Tompkins spoke to slide 3: "Other
ERA-to-principal transfer proposals." He reported that in
the previous year in the operating budget, Amendment 58 was
considered but not voted on. The amendment reflected a $5.5
billion transfer from the ERA to the principal of the
Alaska PF. On the previous Friday, the Senate Finance
Committee dropped a bomb shell by amending the budget to
reflect a $12 billion transfer from the ERA to the
principal. The amendment was passed without objection from
the minority Democrats to the Mat-Su Republicans to the co-
chair. He thought the action taken by the Senate Finance
Committee made his bill containing a $5.5 billion transfer
look like minor league baseball in comparison.
3:44:35 PM
Representative Kreiss-Tompkins discussed slide 4: "History
of Legislative Appropriations to the Principal." He relayed
that it was not out of the ordinary for the legislature to
have transferred funds from the ERA to the principal of the
PF. The legislature had an inflation-proofing transfer most
years. There were a couple of missed years in recent
history. Most years the legislature abided by the operating
budget. The current year included the inflation transfer.
The slide showed an inventory or summary of all the other
ERA-to-Principal transfers above and beyond inflation
proofing. The high-water mark was $1.3 billion even if the
figure was inflation adjusted. The numbers that had been
proposed, $5.5 billion or $12 billion, were well in excess
of the highest recorded number. He noted that the balance
of the ERA was at an all-time historic high.
Representative Kreiss-Tompkins moved to slide 5: "Permanent
Fund Account Structure." He reported that the slide
reflected the year-end projections of the account balances
for the PF. He noted that there were large amounts in both
the principal and the ERA.
Representative Kreiss-Tompkins turned to slide 6: "Earnings
Reserve Account: $18.9 billion balance." He reported that
HB 31 called for a $5.5 billion transfer. The number was a
carryover from the operating budget in the previous year.
The number in the previous year was not random. It was
based on an analysis of prudence and conservatism. Under
SB 26 [Legislation passed in 2018: Short Title:
Appropriations Limit and Permanent Fund Dividend and
Earnings], there was a structure and framework to sustain
and properly manage the PF and manage it for future
generations. He indicated that the legislature would not
want to take more than 5 percent of market value in any 1
year after the first 3 years. He continued that the $5.5
billion figure, as proposed in the operating budget in the
previous year, would have drawn down all of the money in
the ERA until an amount equal to 4 times the 5 percent draw
was left in the account. If the math was calculated with
the numbers in the PF in the prior year, the pink number on
the slide would have been $5.5 billion. Moving forward a
year, the ERA accumulated more earnings. Applying the same
analysis would lead to about an $8 billion transfer
presently. He indicated that the $8 billion was a number
that should be considered by the committee. He suggested
that transferring $8 billion for the ERA to the principle
would still leave 4 times the 5 percent POMV [Percent of
Market Value] draw amount in the ERA while protecting a
huge amount of money permanently and for the benefit of
future generations.
3:48:05 PM
Representative Kreiss-Tompkins turned to slide 7:
"Scenario: Moderate bear market from FY 21- FY 23." He
suggested that when the legislature considered the amount
of money to transfer from the ERA to the principal, it was
a balance and a legitimate conversation that needed to
happen. The transfer amount needed to be balanced against
the function of the ERA - the only pot of cash the
legislature had to pay for dividends and state services. He
added that the ERA could fluctuate depending on market
conditions. If the state had poor returns, the ERA would
get smaller which could happen quickly. He indicated that
the scenario on the slide, as worked out by the Legislative
Finance Division, projected 3 consecutive years of 3
percent returns. He noted it wound not be that bearish of a
market.
Representative Kreiss-Tompkins mentioned the recession in
2008 and 2009 the state had -17.9 percent return and the
year preceding there was a -3.6 return. He admitted it was
a severe recession, but it helped to provide context. If
the stock market was not doing well, the legislature would
be starting to play with fire the more money it
transferred. Some liquidity needed to be maintained in the
account - a shock absorber for bad market years. He pointed
out that the 3 graphs demonstrated how the ERA would
perform in a moderate bear market. He noted that with a
transfer of $5.5 billion there would be a significant
amount of shock absorption left in the ERA after 3
consecutive bear market years. A transfer of $8 billion
would leave slightly less of a cushion. A transfer of
$12 billion would leave just enough in the account but
would be riskier. He noted that a $13 billion transfer when
the bear market was slightly worse would leave the balance
at zero. There would be no money to pay for dividends or
public services. At such a point, the legislature would be
up against a hard wall.
Representative Merrick asked where the other body got the
$12 billion and $14 billion figures. Representative Kreiss-
Tompkins did not know.
Co-Chair Wilson thought it was not appropriate to comment
on the reasoning of the other body.
Representative Kreiss-Tompkins commented that a person
could consider the ERA in isolation and what amount might
make sense to transfer to the principal. There were
constitutional amendments moving through the legislature
currently. He was a sponsor of a constitutional amendment
that would create a constitutional POMV and combine the
earnings reserves and the principal. If and when the
combination were to happen, it would eliminate the problem
of the ERA hitting zero because of a simpler classic
endowment model. There could be some merit in moving a
large amount of cash to the principal if it was done in
tandem with restructuring the PF to have a constitutional
cap and combine the ERA and the principal.
Representative Sullivan-Leonard asked if the Director of
the Alaska Permanent Fund Corporation offered an opinion on
the transfer of $12 billion versus $5.5 billion.
Representative Kreiss-Tompkins responded that he had not
spoken directly with her, though, he thought she was
online.
3:52:40 PM
ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION (via teleconference), responded that the Alaska
Permanent Fund Corporation (APFC) did not take a position
on the amount.
Vice-Chair Ortiz indicated that the slide showed what might
happen if a bear market were to start in FY 21. He asked if
Representative Kreiss-Tompkins agreed that if a bear market
were to begin in FY 20, the model would potentially look
significantly worse. Representative Kreiss-Tompkins
responded in the positive. He suggested that if the bear
market were 4 years instead of 3 years or 1 percent instead
of 3 percent, all of the charts would look worse. He eluded
to his previous reference of playing with fire.
Vice-Chair Johnston understood why 2.72 percent was used in
the prior year. She asked if the draw should have been 2.9
percent in the current year.
3:54:39 PM
KEVIN MCGOWAN, STAFF, REPRESENTATIVE JONATHAN KREISS-
TOMPKINS, responded that the percentage was used because of
the effective date was immediate. If the bill were to pass
in the current year, it would be effective immediately. If
it did not pass until the following year, it would make
sense to adjust it.
Vice-Chair Johnston referred to the charts on slide 7. She
had been reminded that in 2008, when the ERA went under, it
was the first time the legislature looked at paying the
dividend with general fund dollars. She was a firm believer
in putting funds into the corpus but wanted to bring up the
issue.
Representative Josephson asked if the other proposal, where
all funds would be placed in the corpus, would be workable
because it would have to be accompanied by the allowance
for the legislature to use the corpus in a sustained way.
Representative Kreiss-Tompkins did not want to respond to
what the other body might be thinking. He thought it made
sense if the legislature moved all or almost all of the
funds (about $14 billion) into the corpus in tandem with
restructuring the fund to be all constitutionally protected
and combining the ERA with the principal. His suggested
scenario would eliminate risk of a bad market year and not
having enough money to pay for dividends or public
services.
Representative Josephson had some concerns relative to the
2007-2009 period. He asked if Representative
Kreiss-Tompkins used 3 percent in a bear market in his
hypothetical scenario. He noted it was not a bad
experience, not like presently. He thought Representative
Kreiss-Tompkins had mentioned -17 percent in a calendar
year. He asked if he had heard the representative
correctly.
Representative Kreiss-Tompkins replied that he was
accurate. He emphasized that it was a moderate bear market
rather than a severe market. In 2008 and 2009 the market
returns were -18 percent and -3.5 percent. In 2001 and 2002
immediately following September 11th, the market turndown
was -3.25 percent and -2.25 percent respectively for 2
consecutive years. All of the graphs would look
substantially worse if they were modeled over those
scenarios which had happened before and would certainly
happen again.
3:58:25 PM
Representative Josephson shared the concern of the history
of postponement of fiscal planning and that the legislature
might draw down all of its earnings. He wondered about
undermining the use of a POMV or devastating the dividend.
Representative Kreiss-Tompkins asked Representative
Josephson to repeat his question.
Representative Josephson suggested that even with the 2
deterrents from an overdraw and reckless spending - the
lack of a dividend and the lack of sustainability of a POMV
- the legislature might still abuse the ERA.
Representative Kreiss-Tompkins replied, "Yes, that's my
concern." He had only been around the legislature for 7
years but had heard a marked shift in public dialog about
the inviolateness of the PF. He wanted to severe the
conversation from how large the dividend should be.
However, he thought all of the legislators could or should
agree on not spending down the PF. It would be easy to do
for a year or two, even if it put the state in a tough
position a generation from present day. Based on recent
discussions, he thought it was very possible to spend down
the fund. He explained when the legislature struggled to
balance the budget or reach a fiscal plan, it kicked the
can down the road. His goal was to have enough money
protected permanently in the PF that the legislature could
continue to have the argument about how to spend the money.
However, if the legislature spent that money down
currently, the state would not have money in 20 years to
argue about how it should be spent or how large the
dividend should be.
Co-Chair Wilson clarified that the committee was currently
talking about the PF Earnings Reserve. The Permanent Fund
Corpus could not be touched by anyone without a vote of the
people.
4:01:20 PM
Representative Carpenter thought it was disconcerting that
legislators were having conversations about what to do with
the money when there were laws in place dictating where it
should be spent. Lawmakers had subsequently disregarded the
laws. The money in reference was supposed to go out to the
people over the previously several years in the form of
dividend checks that instead, stayed in the ERA. There were
individuals that were rightly upset about it. Presently,
the committee was having a conversation about taking the
money and not paying it to them as requested. Instead, what
was being suggested was to lock it away forever, a portion
of which would come back in the form of future PF
dividends.
Co-Chair Wilson corrected Representative Carpenter about
what was being discussed. The bill did not take all of the
money in the ERA. Currently, the bill was in committee and
reflected $5.5 billion. It did not reflect the back pay or
the dividend. Both could still be paid even with the
transfer. She did not want the wrong message sent to
Alaskans.
Representative Carpenter explained that the question he was
getting to was about the requirement to back the
Constitutional Budget Reserve (CBR). The state had a very
small balance in the CBR and an unfunded liability of sorts
to fund it. He asked why it would be more appropriate,
considering it was important for the legislature to follow
the law, to put it into the PF corpus rather than the CBR
to meet its obligation.
Representative Kreiss-Tompkins responded that the
representative first talked about money that was not
distributed as dividends but stayed in the ERA. He thought
the instance referred to the time Governor Walker vetoed
part of the dividend. The money was retained in the ERA.
Speaking to that scenario, it was a small fraction of the
total amount of cash in the ERA presently. He elaborated
that the vast majority, $16 billion or $17 billion of the
$18.9 billion in the ERA, was from market returns
independent of the point Representative Carpenter was
making. The reason there was so much money in the ERA was
mostly independent of the decisions made by past governors
regarding dividends.
Representative Kreiss-Tompkins addressed Representative
Carpenter's question about the CBR account replenishment.
The Constitutional Budget Reserve Account was designed to
be spent down when the legislature deemed the need
sufficient. The goal was to protect the PF monies forever
for the benefit of future generations. There were different
purposes for the CBR and the ERA. Taking money from the PF
and putting it into the CBR was effectively equivalent to
spending down the PF. There would be a time delay, but it
would be tantamount to spending the PF.
Co-Chair Wilson added, for the purpose of accuracy, that
Governor Walker vetoed the dividend 1 year and the
legislature in the following 2 years chose an amount out of
the sky versus following the prescribed formula.
Representative Carpenter did not understand the equation
between spending down the PF when the corpus was not
getting spent, while spending down the CBR, the account in
which the legislature was required to pull from in lean
times.
Co-Chair Wilson explained that the POMV draw came from the
PF ERA. The difference between putting $5.5 billion into
the corpus versus the CBR was to protect the savings from
being used except with a vote of the people. She emphasized
that once money was placed into the corpus, it could not be
accessed without a vote of the people. If the money was
placed into the CBR, it could be used to fulfill the budget
as had been done in the past. If the legislature wanted to
protect the ERA, which only required a vote of 21/11, the
money could be placed into the corpus of the PF or into the
CBR. The money in the CBR could be spent by the
legislature. If the legislature truly wanted to protect the
earnings, it would be best to transfer the money into the
corpus because it required a vote of the people to spend.
The question came down to how much the legislature wanted
to protect the PF.
4:07:01 PM
Representative Carpenter understood the reasons. He pointed
to the requirement for the legislature to pay back the CBR.
He thought they were effectively ignoring the requirement
to repay the CBR if the money went towards the PF corpus.
Co-Chair Wilson asked the sponsor to follow up with a
reference to the statutory requirement for the money to go
to the CBR first. She appreciate Representative Carpenter
bringing up the point.
Representative Kreiss-Tompkins would look up the statutory
requirement. He noted that the state had other obligations
such as paying down the oil tax credits, the unfunded
liability of the state pension, and the replenishment of
the CBR. All of the obligations exist, but there was sort
of a Chinese wall with the PF. The money in the ERA was not
available for government spending whether it was
replenishing the CBR or paying down the pension obligation.
Everything under the 5 percent draw was fair game, but
everything above that amount should be off limits. The
legislature had set rules around the 5 percent mark in
order to guarantee a sustainable PF. He did not want to
take more than 5 percent from the PF in any given year.
Representative LeBon recalled that funding for the CBR
began about 15 years previously. High oil prices and a
significant throughput allowed for a build up in the CBR
over a 5 or 6 year period. He asked if his recollection was
accurate. Representative Kreiss-Tompkins deferred to the
Legislative Finance Division.
Representative LeBon iterated his point of the ramp up of
the CBR due to a higher price for oil and revenue rather
than from earnings from the PF or the ERA. If he was
correct, the legislature enacted a decision to spend down
the money. If the money were to be replaced, he wondered if
it should be from business and oil revenues at a future
date versus earnings of the PF.
4:10:25 PM
Co-Chair Wilson addressed the constitutional mandate to
repay the CBR. She was unclear about where the money could
come from to repay the CBR.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
addressed the question about which money went to the CBR
and indicated that the requirement was defined in the
Alaska Constitution rather than in statute. He explained
that at the end of each year general fund balances were
swept into the CBR as long as there was a liability to the
CBR. The legislature has typically reversed the sweep each
year so that the state was not repaying unless there was a
surplus. The state would not be repaying unless it truly
had a surplus as the state did when oil prices increased as
they did a few years prior. At the time, the state repaid
all of its liability to the CBR. He suggested that the
legislature could appropriate earnings reserve balances.
They would not normally be swept into the CBR, but they
could be appropriated there if the legislature chose to do
so.
Representative LeBon asked if repaying the CBR from normal
revenue sources would be predicated on the price and
production of oil.
Mr. Teal answered it was the way foreseen by the
constitution. The surplus revenue was automatically swept
into the CBR without an appropriation. The legislature also
appropriated general funds to the CBR in addition to the
constitutional requirement. The logic behind that action
was that if the money was swept constitutionally, the
legislature received no credit for repaying the CBR. In
times of a large surplus there was an effort to appropriate
money to the CBR as well.
Representative Carpenter asked about earnings. He asked if
the legislature was trading the PF earnings as revenue. He
suggested that it all spent the same by the government.
Mr. Teal answered they did not consider the ERA as revenue.
If it was considered revenue, the state would currently
have a general fund surplus of $ 18 billion. He indicated
that the ERA was not shown as a general fund balance, it
was a balance in the PF. In the PF section of the
constitution stated that earnings of the PF went into the
general fund unless otherwise specified by law. There was a
statute that stated that the earnings reserves are part of
the PF. If the legislature wanted to it could require the
entire ERA appear as general fund revenue; however, LFD
looked at revenue as a cashflow issue. Therefore, the PF
balance should not be counted as general fund revenue. The
only portion of the earnings reserve that was counted as
revenue was the 5 percent or 5.25 percent POMV payout. The
state counted approximately $3 billion from the ERA as
general fund revenue.
4:15:47 PM
Representative Josephson wanted to confirm that the CBR
language in Section 17 of Article 9 referred to repayment
but did not designate a timeline. He was struck that given
the state's other obligations and because there was no
interest requirement, he suggested the legislature did not
receive credit for repayment.
Mr. Teal responded that there was no timeline on repayment.
He relayed that the timing envisioned by the constitution
was that if there was a surplus, the state would make
repayment. If there was not a surplus, the state might have
additional draws from the CBR if needed. However, the
constitution did not envision a repayment schedule, nor was
interest assessed.
4:17:05 PM
Co-Chair Wilson OPENED Public Testimony.
4:17:16 PM
Co-Chair Wilson CLOSED Public Testimony.
Co-Chair Wilson indicated the bill would be set aside.
Amendments for HB 31 were due in her office by Thursday,
May 2, 2019 at 5:00 p.m. The meeting scheduled at 5:00 pm
in the current day was canceled.
HB 31 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2019 House Finance Criminal Justice Reform.pdf |
HFIN 4/29/2019 1:30:00 PM |
HFIN |
| HB031 Sponsor Statement 4.24.19.pdf |
HFIN 4/29/2019 1:30:00 PM |
HB 31 |
| HB031 Sectional Analysis ver U 4.24.19.pdf |
HFIN 4/29/2019 1:30:00 PM |
HB 31 |
| CSHB 96 Sectional Analysis Version M 4.24.19.pdf |
HFIN 4/29/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| CSHB 96 Sponsor Statement 4.24.19.pdf |
HFIN 4/29/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| CSHB 96 Summary of Changes Version M to Version U 4.24.19.pdf |
HFIN 4/29/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| CSHB 96 Supporting Document Combined Letters of Support 4.24.19.pdf |
HFIN 4/29/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| CSHB 96 Supporting Document PPT Presentation 4.24.19.pdf |
HFIN 4/29/2019 1:30:00 PM |
HB 96 |
| HB031 Presentation 4.29.19.pdf |
HFIN 4/29/2019 1:30:00 PM |
HB 31 |
| HB 96 Supporting Doc. Support .pdf |
HFIN 4/29/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB 96 Supporting Doc Petition of Support.pdf |
HFIN 4/29/2019 1:30:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |