Legislature(2021 - 2022)DAVIS 106
05/18/2021 11:30 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB37 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 37 | TELECONFERENCED | |
HB 37-INCOME TAX; PERMANENT FUND; EARNINGS RES.
3:29:13 PM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 37, "An Act relating to deposits into the
dividend fund; relating to income of and appropriations from the
earnings reserve account; relating to the taxation of income of
individuals, partners, shareholders in S corporations, trusts,
and estates; relating to a payment against the individual income
tax from the permanent fund dividend disbursement; repealing tax
credits applied against the tax on individuals under the Alaska
Net Income Tax Act; and providing for an effective date."
3:29:31 PM
The committee took an at-ease from 3:29 p.m. to 3:31 p.m.
3:31:48 PM
CHAIR SPOHNHOLZ took up amendments on HB 37.
REPRESENTATIVE JOSEPHSON moved to adopt Amendment 1 to HB 37,
labeled 32-LS0275\A.1, Nauman, 5/14/21, which read:
Page 3, line 17:
Delete "20"
Insert "10"
Page 3, line 20:
Delete "80"
Insert "90"
Page 27, line 25:
Delete "under AS 37.13.145(b)"
Insert "[UNDER AS 37.13.145(b)"
Page 28, following line 13:
Insert new bill sections to read:
"* Sec. 12. AS 43.23.028(a) is amended to read:
(a) By October 1 of each year, the commissioner
shall give public notice of the value of each
permanent fund dividend for that year and notice of
the information required to be disclosed under (3) of
this subsection. In addition, the stub attached to
each individual dividend disbursement advice must
(1) disclose the amount of each dividend
attributable to legislative appropriations [INCOME
EARNED BY THE PERMANENT FUND FROM DEPOSITS TO THAT
FUND REQUIRED UNDER ART. IX, SEC. 15, CONSTITUTION OF
THE STATE OF ALASKA];
(2) [DISCLOSE THE AMOUNT OF EACH DIVIDEND
ATTRIBUTABLE TO INCOME EARNED BY THE PERMANENT FUND
FROM APPROPRIATIONS TO THAT FUND AND FROM AMOUNTS
ADDED TO THAT FUND TO OFFSET THE EFFECTS OF INFLATION;
(3)] disclose the amount by which each
dividend has been reduced due to each appropriation
from the dividend fund, including amounts to pay the
costs of administering the dividend program and the
hold harmless provisions of AS 43.23.240;
(3) [(4)] include a statement that an
individual is not eligible for a dividend when
(A) during the qualifying year, the
individual was convicted of a felony;
(B) during all or part of the qualifying
year, the individual was incarcerated as a result of
the conviction of a
(i) felony; or
(ii) misdemeanor if the individual has been
convicted of a prior felony or two or more prior
misdemeanors;
(4) [(5)] include a statement that the
legislative purpose for making individuals listed
under (3) [(4)] of this subsection ineligible is to
(A) provide funds for services for and
payments to crime victims and operating costs of the
Violent Crimes Compensation Board;
(B) provide funds to pay restitution owed
to crime victims;
(C) provide funds for grants to nonprofit
organizations for services for crime victims and for
mental health services and substance abuse treatment
for offenders;
(D) provide funds for the office of
victims' rights;
(E) provide funds to the Council on
Domestic Violence and Sexual Assault for grants for
the operation of domestic violence and sexual assault
programs; and
(F) obtain reimbursement for some of the
costs imposed on the Department of Corrections related
to incarceration or probation of those individuals;
(5) [(6)] disclose the total amount that
would have been paid during the previous fiscal year
to individuals who were ineligible to receive
dividends under AS 43.23.005(d) if they had been
eligible;
(6) [(7)] disclose the total amount
transferred or appropriated for the current fiscal
year under AS 43.23.048 for each of the accounts,
funds, and agencies listed in AS 43.23.048.
* Sec. 13. AS 43.23.045 is amended by adding a new
subsection to read:
(f) Each fiscal year, the legislature may
appropriate to the dividend fund an amount equal to 30
percent of all mineral lease rentals, royalties,
royalty sale proceeds, bonuses, net profit shares
under AS 38.05.180(f) and (g), and federal mineral
revenue sharing payments received by the state during
that fiscal year."
Renumber the following bill sections accordingly.
Page 29, line 2:
Delete "Section 17"
Insert "Section 18"
Page 29, line 5:
Delete "11, 13, and 15"
Insert "11 - 13, 15, and 17"
Page 29, line 6:
Delete "18 - 20"
Insert "20 - 22
CHAIR SPOHNHOLZ objected for the purpose of discussion.
3:32:24 PM
REPRESENTATIVE JOSEPHSON explained that Amendment 1 would create
a 90/10 split, as opposed to an 80/20 split, while keeping the
same income tax and replacing the other 10 percent of the
percent of market value (POMV) draw with the language from HB
202. The result would be a dividend amounting to approximately
$1,000 in the current year [fiscal year 2021 (FY 21)]. He said
he likes that the proposed legislation adopts the argument that
royalty is the true measure of the state's interest in mineral
holdings. Further, that the bill combines a portion of the POMV
with the royalty interest. He suggested that despite the income
tax feature in HB 37, which makes the legislation self-
sustainable, a 90/10 split would ensure that public services are
not impacted.
CHAIR SPOHNHOLZ asked Mr. Bell to describe how Amendment 1 would
impact dividends in the near future, questioning the size of the
permanent fund dividend (PFD) according to HB 37 if Amendment 1
were to pass.
3:35:40 PM
CONOR BELL, Fiscal Analyst, Legislative Finance Division, shared
his understanding that reducing the dividend to 10 percent of
the POMV draw would result in a dividend of $430 per person in
FY22. If 30 percent of total royalties were to be added to
that, the dividend would increase to $950.
3:36:34 PM
REPRESENTATIVE WOOL, prime sponsor of HB 37, expressed his
support for Amendment 1. He said he liked that the dividend
would be partially tied to oil revenue; consequently, the PFD
would increase if oil performed well and decrease if it
performed poorly. He noted that the 10 percent POMV, estimated
at about $500, is the more predictable component; therefore, if
oil were to decline to zero, there would still be a portion of
the dividend that could be relied upon.
3:37:59 PM
REPRESENTATIVE EASTMAN asked whether any language [in the
amendment] listed the amount attributable to royalties.
REPRESENTATIVE JOSEPHSON sought to confirm that Representative
Eastman was asking whether the public would be informed of the
calculation on royalties as part of their receipt of the
dividend.
REPRESENTATIVE EASTMAN remarked, "It says that we're going to
designate the amount from the legislative appropriations. I'm
just wondering if we're going to explain to them where the rest
of it's coming from."
REPRESENTATIVE JOSEPHSON said he was unsure to what language
Representative Eastman was referring.
3:39:08 PM
The committee took an at-ease from 3:39 p.m. to 3:41 p.m.
3:41:37 PM
CHAIR SPOHNHOLZ noted that Emily Nauman from Legislative Legal
Services was now available for questions and invited
Representative Eastman to restate his question.
3:41:58 PM
REPRESENTATIVE EASTMAN directed attention to page 1, line 20, of
Amendment 1, which required the amount of each dividend
attributable to legislative appropriations be disclosed.
Additionally, the proposed amendment included appropriations
from royalties. He asked whether there was similar language
that would disclose the amount attributable to royalties.
3:42:42 PM
EMILY NAUMAN, Legislative Legal Services, Legislative Agencies
and Offices, asked whether Representative Eastman was referring
to the royalties contributed per Amendment 1 on page 3, lines 9-
12.
REPRESENTATIVE EASTMAN confirmed yes.
MS. NAUMAN said the proposed amendment would not require the
commissioner to specifically break [down] that appropriation
from any other legislative appropriation that would go towards
dividends. She noted that this form of contribution to
dividends in the language in question [page 3, lines 9-12] is
also any appropriation, which is why it would be included.
REPRESENTATIVE JOSEPHSON asked whether Ms. Nauman was suggesting
that by the use of the term "may appropriate" on page 3, line 9,
that the [30 percent of all royalties] would become disclosable
because of page 1, line 20, of Amendment 1.
MS. NAUMAN confirmed that is correct. She explained that
Section 12, appearing on page 1, line 15, of Amendment 1, is the
existing statute relating to a notice attached to each
individual dividend, which sets out from where the calculation
for the dividend originates. Therefore, per the language added
on page 1, lines 20-21, the commissioner would have to disclose
the amount appropriated for the dividend.
REPRESENTATIVE EASTMAN considered a scenario in which the
dividend was 100 percent attributable to legislative
appropriations and asked what information would be provided
through this disclosure.
MS. NAUMAN pointed out that Section 12 continues on line 2,
wherein adjustments are considered. She explained that the
calculation on the attached notice would start with the amount
attributable to legislative appropriation and flow through
paragraph (3)-(6) to lay out for the dividend recipient where
portions of the total amount appropriated may have gone.
3:45:54 PM
REPRESENTATIVE EASTMAN sought to clarify his question. In
reference to page 1, line 20, he asked whether "the amount
dealing with the royalty is going to be broken out" or if that's
at the discretion of the department.
MS. NAUMAN responded that currently, the amendment does not
require the commissioner to break that amount out. She believed
the decision to do so could be made per the commissioner's
discretion, but it's not required under statute.
3:46:32 PM
CHAIR SPOHNHOLZ removed her objection to the motion to adopt
Amendment 1 to HB 37.
REPRESENTATIVE EASTMAN objected. He said he appreciated the
creativity of the approach; however, he didn't think his
constituents would see the proposed amendment as an improvement
to the statute.
3:47:01 PM
A roll call vote was taken. Representatives Wool, Josephson,
Schrage, Story, and Spohnholz voted in favor of the adoption of
Amendment 1. Representative Eastman voted against it.
Therefore, Amendment 1 was adopted by a vote of 5-1.
3:47:46 PM
REPRESENTATIVE SCHRAGE moved to adopt Conceptual Amendment [2].
CHAIR SPOHNHOLZ objected for the purpose of discussion.
REPRESENTATIVE SCHRAGE said Conceptual Amendment [2] would align
the deductions in HB 37 with the Internal Revenue Service (IRS)
deductions.
CHAIR SPOHNHOLZ removed her objection.
3:48:07 PM
REPRESENTATIVE EASTMAN objected, explaining that he was still
processing Conceptual Amendment [2]. He questioned whether the
proposed amendment was intended to increase the tax deductions
because under the federal tax code, those deductions already
exist. He asked if that was correct.
REPRESENTATIVE SCHRAGE answered yes. He believed that the
benefit would be the exemption of additional income from
taxation beyond the original bill; therefore, it would reduce
the amount of revenue collected through this legislation by a
nominal amount.
3:49:05 PM
REPRESENTATIVE WOOL expressed his support for Conceptual
Amendment [2], citing its alignment with the federal tax code
for individuals and the addition of categories, such as head of
household and joint filers. He noted that the bill in its
original form has $10,000 per individual and $20,000 per joint
filers; however, the proposed amendment would increase those
figures to $12,500, $25,000, and $18,800 for head of household.
He shared that Conceptual Amendment [2] would help out lower
income people that are getting a dividend by exempting more of
their income from taxation.
3:50:15 PM
CHAIR SPOHNHOLZ said she supported the idea of increasing the
floor; however, she expressed her concern that the number was
still low. She highlighted that in Alaska, the poverty line was
16,090. She suggested that the measure could be viewed as a
compromise measure, as it would require low-income individuals
to participate in an income tax; nonetheless, she characterized
an individual who is trying to live on $12,500 in Alaska as
"untenable."
REPRESENTATIVE WOOL clarified that he was not advocating for
people to live on an income of $12,000 - $16,000, adding that
such circumstances are unfortunate. However, he reiterated that
someone in that income bracket would receive a PFD free of tax.
CHAIR SPOHNHOLZ suggested further defining "head of household"
versus "taxpayer."
3:53:24 PM
KEN ALPER, Staff, Representative Adam Wool, relayed that the
goal of Conceptual Amendment [2] was to align HB 37 with the
federal standard deduction. He directed attention to page 2 of
the proposed amendment, which adds a new definition for "head of
household" to the definitions section of the underlying bill.
He indicated that head of household is defined as a single
person or a married person that files separately from his/her
spouse who has at least one additional dependent in the
household. He continued to explain that "head of household" is
different than a single person and joint filer with or without
dependents because "it's a single filer with children or elderly
people that [he/she] would be responsible for caring for." He
noted that within the federal code there are additional
deductibles for dependents, which are not included in HB 37;
nonetheless, the idea of "dependent" is carried forward into the
definition of head of household.
3:54:53 PM
REPRESENTATIVE EASTMAN inquired about the plural "dependents" in
"qualified dependents." He asked whether a single parent with
one child would qualify.
MR. ALPER was certain that all grammatical technicalities would
be "cleaned up" by drafters, should the conceptual amendment
pass. He clarified that the per the sponsor's intent, more than
one dependent would not be required to qualify.
CHAIR SPOHNHOLZ asked Ms. Nauman to speak to the process of
cleaning up conceptual language.
MS. NAUMAN said to the extent that the committee adopts
Conceptual Amendment [2] and gives Legislative legal Service the
authority to make conforming changes, the amendment will be
aligned with the drafting manual, which includes the use of
singular rather than plural.
3:56:38 PM
REPRESENTATIVE EASTMAN directed attention to the bottom of page
1 of the conceptual amendment and asked how it would work if the
federal government were to change its income tax brackets.
REPRESENTATIVE WOOL reiterated that the intent is to align with
federal law. He understood that if the federal government were
to change the income exemption levels on the federal tax return,
the state would automatically align itself with those changes.
REPRESENTATIVE EASTMAN inquired about the impact of the federal
government changing the income tax brackets.
REPRESENTATIVE WOOL stated that HB 37 would implement a flat tax
of 2.5 percent rather than a bracketed tax. He reiterated that
if the state would track federal changes to income exemptions,
but not income tax brackets.
3:58:36 PM
MR. ALPER conveyed that the underlying bill had the standard
deduction of $10,000 and $20,000 that was indexed to inflation
based on Alaska-specific inflation; however, in the section of
the Amendment referenced by Representative Eastman, those
references are being deleted in favor of the IRS's definition of
standard deduction for which a new number is published every
year. He added that as the IRS updated those numbers annually,
Alaska's income tax would use the IRS standard deduction
figures.
REPRESENTATIVE SCHRAGE spoke to the level of deductions with
respect to lower income households and the idea that someone
making $13,000 would be above the exemption levels. He
explained that of the $13,000 in income, only $450 would be
taxed at 2.5 percent. Therefore, the tax would be less than $20
for that individual.
4:00:13 PM
REPRESENTATIVE EASTMAN asked whether unused deductions could be
carried over to the next tax year.
REPRESENTATIVE SCHRAGE offered his understanding that unused
deductions could not be carried over.
4:00:46 PM
REPRESENTATIVE EASTMAN maintained his objection to the motion to
adopt Conceptual Amendment [2].
4:01:04 PM
A roll call vote was taken. Representatives Wool, Josephson,
Schrage, Story, Prax, and Spohnholz voted in favor of adopting
Conceptual Amendment [2]. Representative Eastman voted against
it. Therefore, Concept Amendment [2] was adopted by a vote of
6-1.
CHAIR SPOHNHOLZ invited question from the committee.
4:02:11 PM
REPRESENTATIVE STORY expressed her appreciation for both
amendments. She believed the 90/10 split recognizes the need
for services, such as senior benefits, while still providing a
dividend of around $1,000. Further, she appreciated that
Conceptual Amendment [2] acknowledges the stress of being on a
limited income. She reiterated her support for both changes.
4:03:36 PM
REPRESENTATIVE EASTMAN shared his belief that there's popular
support for the considerable compensation received by those the
who manage the permanent fund investments. He argued that
currently, the investors' work is largely done on behalf of the
state and the public; however, under HB 37, as amended, 90
percent of their work would be done on behalf of the state while
10 percent would be for the people. He wondered whether the
public's support of the investors' salaries might wane if this
bill were to become law.
REPRESENTATIVE SCHRAGE, in response to Representative Eastman,
pointed out that the majority of the Alaska Permanent Fund
Corporation's (APFC's) work has gone toward funding the
government with a relatively small portion going to dividends.
He contended that HB 37 wouldn't be implementing a large change
in that regard. He posited that the proposed legislation would
maintain the status quo of the last 5 to 6 years; further, that
the public wouldn't have cause to forego their support of APFC.
He commended the committee for tying the dividend to resource
production in Alaska in a tangible way while still retaining a
link to the permanent fund in case of fluctuating oil revenue in
variant years. Additionally, he highlighted the benefit of
providing sustainability for Alaska. He emphasized that HB 37
would maintain the dividend program and increase the amount to
nearly $1,000 in addition to balancing the budget to avoid
overdrawing the ERA. He believed it would allow Alaska to meet
its basic needs as a state and ideally, increase the capital
budget while still providing for a dividend. He characterized
the proposed legislation as the best of both worlds, as it
offers a comprehensive solution that presents as a compromise
between HB 202 and various flat tax proposals.
REPRESENTATIVE JOSEPHSON said he is mystified as to how some
Alaskans have struggled with [the legislature's] "current
position" and think that there is a conspiracy of some sort or
that [the legislature] is hiding the money. He asserted that
[some Alaskans] seem to believe that "all can be the way it was
in FY 12 or FY 13, which isn't possible, he indicated. He
mused that a dividend of $3,000 would be fine if one million
barrels of oil was being generated per day at $130 per barrel.
He argued that if HB 37 were to pass, "the glass is easily half
full and then some," as Alaska is the only state that can
sustainably draw $3,000 in perpetuity. He shared his belief
that the dividend needs to be reformed; however, he expressed
his intent to oppose any major reforms until revenue is part of
the package. Given that circumstance, he stated his support for
the proposed legislation.
4:11:18 PM
REPRESENTATIVE PRAX conveyed his opposition to HB 37 as a
solution to the revenue problem. He said the legislation
includes several factors to which he philosophically objects.
He argued that the bill would change the PFD into a royalty, as
opposed to a dividend, which is conceptually different.
Further, he posited that it would put the income volatility risk
on private citizens. He reiterated his objection on a
conceptual level, arguing that the people should be considered
the sovereigns as opposed to the state. He alleged that the
resistance to the governor's previously proposed budget, in
which public services were significantly reduced, was less of a
public outcry and more so organized by groups that primarily
benefit from state spending.
REPRESENTATIVE WOOL, in response to Representative Eastman's
comments regarding 90 percent of the POMV going to the state as
opposed to the public, argued that the public benefits from some
of that percentage in terms of public schools, public safety,
and public health. He pointed out that without public safety or
education, Alaska would be a tough place to live. In response
to Representative Prax, he contended that a 10 percent POMV draw
is not volatile; however, the royalty could be perceived as
volatile, he said. Further, he argued that contrary to
Representative Prax's assertion, the public responded in "mass,
unorganized, organic fashion" to the governor's proposed budget
cuts, adding that he had never received more emails in his life
in such a short amount of time. He pointed out that without a
PFD, the current budget is balanced, arguing that there's no
sustainable way to pay for the dividend without drawing down yet
another state account, the ERA. Consequently, he opined that
any PFD proposal should include a funding mechanism. He
reiterated that HB 37 would allocate 10 percent of the POMV draw
and 30 percent of royalties towards the dividend while the tax
revenue would go directly into the general fund along with 90
percent of the POMV draw. He remarked "I'm not sure you can
have your cake and eat it too, where we can pay for all our
state services, everyone in the state gets a check ... and yet,
we're not taxed." He acknowledged that it was possible in the
"glory days" of oil, but those days are less prevalent now, he
said. Additionally, he recalled that the permanent fund was
created to sustain the state when its finite resource started to
dwindle, which it has. He believed it should continue to be
used for that purpose and preserved without overdrawing. He
opined that HB 37 solves that problem.
4:19:23 PM
CHAIR SPOHNHOLZ applauded the committee for its important work.
In response to Representative Eastman's characterization of the
bill "turning the permanent fund into working for the state,"
she said the state is designed to provide services for which a
profit cannot be made, and capitalism cannot deliver. Further,
she highlighted the constitutional obligations to provide for
public education, health, and safety of Alaskans. She also
noted several ways in which the state supports commerce, such as
resource development, business licensing, and the court system.
She remarked, "We cannot buy enough public safety with a $3,000
dollar dividend to make up for the difference. I couldn't take
... the difference between the statutory PFD and a $1,000 dollar
PFD and buy all the public education and safety that I get as an
Alaskan citizen." She emphasized that government is not
inherently evil, adding that it simply provides for things that
cannot be achieved individually. She went on to point out that
the structural deficit has persisted for seven years now,
sharing her belief that "it [Alaska] won't be able to drill our
way out of this problem any time soon." She said that Alaska
has become an investment state and contemplated how to build an
Alaska that is prosperous for future generations. She recalled
that when the governor had introduced his budget in 2019, she
received over 4,000 emails from people who were terrified of how
gutting state services would impact the state. She thanked
Representative Wool for having the courage to introduce HB 37,
as it would help balance the budget, create fiscal certainty,
fund a reasonable PFD, fund capital budgets, and start to
rebuild the state's fiscal situation. Additionally, she noted
that the proposed legislation would increase the CBR to nearly
$8 billion by FY 30 and allow the permanent fund to grow. She
concluded by reiterating her support for the bill.
4:23:51 PM
REPRESENTATIVE SCHRAGE moved to report HB 37, as amended, out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 37(W&M) was
reported out of the House Special Committee on Ways and Means.
CHAIR SPOHNHOLZ offered closing remarks and authorized
Legislative Legal Services to make technical and conforming
changes to CSHB 37(W&M).
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 37 Amendment #1.pdf |
HW&M 5/17/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Sponsor Statement.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Sectional Analysis.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 ITEP Flat Tax Report 12.2020.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Fiscal Note DOA-OAH 5.7.21.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Fiscal Note DOR-TAX - Updated 5.11.21.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Presentation 5.13.21.pdf |
HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Fiscal Model.pdf |
HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Testimony - AML Resolution 2019-06.pdf |
HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Testimony - Opposition as of 5.15.21.pdf |
HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Fiscal Note DOR-TAX-PFD 5.18.21.pdf |
HW&M 5/18/2021 11:30:00 AM |
HB 37 |