Legislature(2021 - 2022)ADAMS 519
05/17/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB202 | |
| HB70 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 70 | TELECONFERENCED | |
| + | HB 202 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 202
"An Act relating to the Alaska permanent fund;
relating to dividends for state residents; relating to
the use of certain state income; and providing for an
effective date."
1:35:50 PM
AT EASE
1:36:31 PM
RECONVENED
REPRESENTATIVE KELLY MERRICK, SPONSOR, introduced the
legislation. She read from the following prepared remarks:
Good afternoon, vice chair Ortiz, co-chair Foster, and
members of the House Finance Committee. For the
record, Representative Kelly Merrick, District 14 in
Eagle River.
Before the committee is House Bill 202, "An Act
relating to the Alaska Permanent fund; relating to
dividends for state residents; relating to certain
state income."
This is a conversation that is necessary as part of
our budgeting process and long overdue in paying a
sustainable dividend into the future.
As this committee is very aware, the state has
struggled to pay for both required services and the
dividend using the 43-year-old formula. Since FY17,
with the actions of former Governor Walker, the
dividend has been an ad hoc draw.
The 2016 legislature recognized this problem, and
restructured our budget around the POMV framework that
meets our constitutional obligations for services and
provides a type of spending cap.
Legislators have since had difficult decisions to
make, as part of our responsibility to make our state
fiscally sustainable in the long-term. There are three
areas we can change to solve our financial problems:
our spending, our revenues, and the PFD.
The operating budget has been cut year after year, and
while I still support a smaller budget, we have
recognized that the big, easy, change-making cuts are
gone. The capital budget has been cut by more than
90%.
When we protect the POMV, we maintain fiscal stability
and a low-tax environment for both families and
businesses. Many don't support additional or increased
taxes, and my district is one of them. That leaves the
PFD.
Mr. Vice Chair, and members of the committee, we have
all heard our constituents say, "Follow the law, or
change the law." This bill changes the law.
While the foundation of the permanent fund is oil
money and other resource development, the dividend is
no longer based on Alaska's natural resources.
Instead, it's based on investments by the Permanent
Fund Corporation.
This bill goes back to the intent of the dividend, and
ties it directly to resource development, by setting
aside a portion of the royalties received by the state
for payout. Specifically, 30% of the royalties
currently going to the General Fund would be paid to
Alaskans before the general fund receives its cut of
royalties outside the POMV.
There's been growing recognition in the last few years
that following the 1982 dividend statute does not make
our state fiscally sustainable and requires violating
the POMV spending cap. HB 202 addresses these problems
by repealing the current formula and replacing it with
one that is simpler and sustainable.
1:39:32 PM
That's the big picture, and that's the tough decision,
Mr. Co-chair. I don't think there's one person in this
building who wants to hand out a small dividend,
especially after the last year of business closures
and unemployment. But putting Alaska on a stable
financial track is just as important.
With that, I'll have my staff, Tally Teal, go over the
bill in more detail.
Vice-Chair Ortiz acted as chair for part of the meeting. He
noted that Representative LeBon and Representative
Rasmussen had joined the meeting.
1:40:03 PM
TALLY TEAL, STAFF, REPRESENTATIVE KELLY MERRICK,
highlighted the two main sections of the bill beginning
with Section 1. She explained that Section 1 removed
language related to the income available for distribution
of the Permanent Fund Dividend (PFD). She pointed to
Section 7, which defined the new PFD formula in HB 202 that
designated 30 percent of all mineral lease royalties
received by the state during that fiscal year for
distribution of dividends. She noted that the language "may
appropriate" in Section 7 rather than shall was more
suitable based on the 2018 Wielechowski case. She
elucidated that the court decided that the dividend was
subject to appropriation and the permissive language was
more appropriate.
Vice-Chair Ortiz noted that Representative Johnson and
Representative Thompson had joined the meeting.
1:41:19 PM
Ms. Teal referenced a handout depicting a flowchart in
members' bill packets from Co-Chair Merrick's office titled
"HB 202" (copy on file). She pointed to the statutory
definition of natural resource income that was collectively
referred to as royalties. The lines underneath the
definition pointed to the distribution of the royalties.
She elaborated that 25 percent of all royalty income would
be deposited into the Permanent Fund (PF) corpus plus an
additional 25 percent from new fields from oil leases
signed after December 1, 1979, that also included the
Percent of Market Value (POMV) payout. She emphasized that
the formula reflected current law and was unchanged in HB
202. She turned to the second line that indicated 30
percent of all income went to dividends and the third line
showed that the remainder was deposited into the General
Fund (GF). She turned to a second handout from the
Legislative Finance Division (LFD) showing a model
[pertaining to HB 202] containing various graphs with
projections (copy on file). She highlighted that on the
bottom left chart the reserve balances continued to grow
through FY 2030. The middle right graph showed that the
value of the PF continued to grow into the future. She
continued that the top right graph depicted a significantly
smaller PFD under HB 202 than the current statutory formula
but grew over time. The top left graph showed a sustainably
balanced budget. She concluded that that the legislation
would create a reasonable, sustainable, and stable fiscal
environment.
1:43:48 PM
Vice-Chair Ortiz OPENED public testimony.
CLIFF GROH, SELF, ANCHORAGE (via teleconference), shared
that he had been involved in creating the Permanent Fund
Dividend in 1982. He believed that the state needed a
comprehensive strategy to address the deep structural
deficit that looked beyond the next fiscal year. The
comprehensive plan should include a revised PFD formula,
protection of the PFD from overspending, and new revenues
to help pay for public services. He commended the sponsor
for introducing legislation that recognized the need for a
sustainable PFD formula. However, he believed the bill went
too far balancing the budget on the backs of PFDs in order
to avoid collecting taxes from high earning individuals
that included non-residents. He referenced the upcoming
special session called by the governor and hoped the
legislature and governor engage in tradeoffs that produced
a fair and sustainable dividend formula and legislation
generating new revenues.
Representative Rasmussen had heard many people mention that
the [lower] dividend placed a burden on the backs of
children. She asked about the level of funding for
kindergarten through twelfth grade (K-12) education and
felt that education spending was a direct benefit for
children and families in the state. Mr. Groh answered that
the state had a constitutional requirement to fund K-12
education. He indicated that LFD had shown that the K-12
budget had been cut over the last 8 years. He supported a
strong and healthy K-12 education system and universal Pre-
K. He was concerned that cutting the PFD to avoid taxes on
high earners was not the correct approach. He advocated for
a revised PFD formula and additional revenues.
1:48:28 PM
QUEEN PARKER, SELF, STERLING (via teleconference), spoke
against the bill. She wanted her statutory PFD. She agreed
with all of those who opposed the bill.
1:49:37 PM
TERRI LYONS, SELF, WASILLA (via teleconference), testified
against the bill. She believed the legislature did not care
and would not follow the law. She thought that the
legislature looked after special interests first. She
supported Governor Dunleavy's plan for a 50/50 split
[between paying for government expenditures and the
dividend].
1:50:54 PM
AT EASE
1:51:44 PM
RECONVENED
CAMMY TAYLOR, SELF, ANCHORAGE (via teleconference),
testified in support of the bill and supported protecting
the principal of the Permanent Fund. She shared that she
was a resident of the state prior to the PFD program and
while income tax was still collected. She believed that HB
202 was sustainable and would protect both the PF corpus
and the POMV draw. She urged support for the bill.
1:53:06 PM
CRIS EICHENLAUB, SELF, WASILLA (via teleconference),
testified against the bill. He believed the state was
grossly mismanaging its resources. He did not support
digging into the pockets of the people to support more
government. He stated that the PFD was last on the
legislature's agenda and thought it should be first. He
emphasized that the people of Alaska owned the resources.
He felt that the POMV model would deplete the fund. He
supported the earnings model that had worked for 42 years
until the legislature had overspent on the budget. He
opposed the bill.
Representative Rasmussen asked if the royalty split was
increased from 50 to 70 percent whether it would be
agreeable. Mr. Eichenlaub replied that he supported the
non-POMV model. He pondered what would happen if the fund
had a 40 percent loss like in 2008. He opined that they
[legislature] were putting all the state's eggs in one
basket. He felt that a POMV model was unsustainable.
1:57:20 PM
Representative Rasmussen shared many of the concerns. She
believed a stronger spending cap was needed and she
believed it should be in the constitution. She believed
that the general feeling from Alaskans was that the PFD was
their share of oil revenues. She believed that if the PFD
was more tied to mineral royalties as in HB 202, it would
incentivize more production. She asked Mr. Eichenlaub if he
thought the bill would be more supported if the majority of
exclusively the resource wealth was paid to Alaskans versus
government. Mr. Eichenlaub stressed that the people of
Alaska owned all the resources. He believed the people
needed to be paid first. He spoke to the reason government
could not be trusted. He thought that the legislature
needed to show some constraint.
2:00:01 PM
Representative Wool believed that the reason for a POMV
model was because oil revenue dropped from $10 billion to
under $1 billion. He reminded the testifier that the PF had
averaged 8 percent in earnings over the last 40 years. He
emphasized that Alaska was not a business it was a state.
2:00:45 PM
Vice-Chair Ortiz noted that Representative Carpenter and
Representative Edgmon joined the meeting.
BERT HOUGHTALING, SELF, BIG LAKE (via teleconference),
testified against the bill. He felt that statements like
the legislature had cut the budget to the max was grossly
misrepresentative of the situation. He believed that the
states healthcare and education costs were the highest in
the nation and would not be the case if more was cut. He
believed in taxing the one percent instead of cutting the
PFD. He opined that a statutory PFD would lift people out
of poverty and that a lower PFD was a tax on children.
2:03:01 PM
JEAN HOLT, SELF, PALMER (via teleconference), spoke against
the bill. She believed the bill was wrong. She thought that
the bill was being fast tracked and would eliminate
Alaskans fair share of the states mineral wealth. She
supported the governor's PFD bills and asked legislators to
vote no in HB 202.
2:05:29 PM
ALEX MCDONALD, SELF, FAIRBANKS (via teleconference),
opposed the bill. He remarked that the state's population
had not changed significantly, but the budget had
increased. He believed that the legislature had mismanaged
the state's money and the budget was bloated. He remarked
that the people knew how to spend their money better than
government.
2:07:07 PM
CHARLES MCKEE, SELF, ANCHORAGE (via teleconference), spoke
against the bill. He referenced a May 4, Alaska Daily News
article about foster youth finding out their money was
being pocketed by state agencies. He mentioned his
personal lawsuit against the state and associated remarks
that were unrelated to HB 202.
2:08:48 PM
PHILLIP DELAND, SELF, ANCHORAGE (via teleconference),
opposed the legislation. He shared that he had lived in
Anchorage his whole life and had graduated from the
University of Alaska. He believed that the PFD was
established to compensate citizens for ceding their mineral
rights to the state. He stated that the people did not have
the rights to minerals on their own property. He stressed
that the PFD was not the state's money but belonged to the
people as a share of their mineral resources. He emphasized
that the Permanent Fund did not belong to the legislature
and its role was to manage the resource for the citizenry.
He believed the law should be followed and wanted full PFD
payouts. He felt that the recent lower PFDs reflected an
unlawful capping of the dividend and was confiscation
of money that belonged to Alaskans.
Representative Rasmussen shared that she had also been born
and raised in Anchorage. Currently the state was
constitutionally mandated to pay 25 percent of oil revenues
to the funds corpus. She asked if he would be more
supportive of a higher percentage of royalties dedicated to
dividends. Mr. DeLand did not support changing the PFD
formula. He supported following the law and not caping the
payout. He stated that he could really use that money.
He did not believe it was the state's decision to
confiscate funds from people's PFDs in recent years. He
supported the way payments were currently working. He
thought there was enough money in the Permanent Fund to pay
out statutory dividend. He listed ways people used the PFD
funds and were dependent on the dividend.
2:13:22 PM
Representative Rasmussen agreed that a sustainable plan was
needed. She shared that a member of the committee had
proposed a full dividend during the budget process, but
staff had pointed out that paying a full dividend without
major cuts and taxes would drain the fund within a few
years. The balance the committee was working towards
ensured there would be a PFD for many generations and
continued resource development.
2:14:45 PM
AT EASE
2:14:59 PM
RECONVENED
Vice-Chair Ortiz CLOSED public testimony.
Representative LeBon thanked Co-Chair Merrick for bringing
forward an option for the committee and legislature to
consider. He hoped that the legislature could reconcile its
differences and acknowledged that a resolution would not
please everyone.
Representative Edgmon echoed the comments by Representative
LeBon. He appreciated that Co-Chair Merrick had brought the
issue forward to consider. He shared that he had been born
and raised in Alaska. He wanted the PFD to be around
forever. He stressed that 72 percent of the governor's
budget was funded using PF earnings. He reported that
Alaska was the only state in the nation and entity in
Western Civilization funding its government through an
endowment. He stressed the importance of protecting the
endowment.
2:17:19 PM
Representative Wool favored the bill and tying the PFD to
the performance of oil. He pointed to the FY 22 to FY 28
projections of $333 million to $477 million that would pay
a PFD and would not be deposited into the GF. He asked if
there was enough surplus in the GF for the out years. He
favored a bill like the one proposed if it was sustainable
and if the state could absorb the reduction to the general
fund.
Co-Chair Merrick replied that Angela Rodell, Executive
Director, Alaska Permanent Fund Corporation (APFC) had
spoken to the issue - the royalties were a small amount in
comparison to the remainder going to a fund with billions
of dollars. She offered that what made the plan unique was
that 100 percent of the POMV would be used for state
services and would not be competing with the PFD. She
thought that many people were having a hard time with the
current situation where state services were competing for
funding. She liked the plan because the PFD was directly
tied to oil and mineral development in the state. She
addressed some of the comments by callers. She emphasized
that the plan paid the PFD first, before government
services and separated it from the POMV draw. She addressed
comments regarding Alaskans share of the mineral rights
and emphasized that the bill utilized Alaska's share of the
mineral rights. She shared that she was also born and
raised in Alaska and had used her PFD money to go to
college, which she otherwise could not afford. She wanted
her kids to be able to have money to go to college with
PFDs. She stressed that the plan was about a sustainable
PFD. She voiced that the other high dollar dividend plans
depleted the dividend in a few years. She reminded the
committee that PFDs were sent to every resident and was not
needs based. She stated that many times Alaskans who relied
on their PFDs also needed state services. The state could
not afford to provide for Alaskans in need and pay a huge
dividend.
HB 202 was HEARD and HELD in committee for further
consideration.
2:21:37 PM
RECESSED
4:01:47 PM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 202 Fiscal Model Output REVISED (002).pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 202 |
| HB 202 Public Testimony by 051621.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 202 |
| HB 202 Flowchart.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 202 |
| HB 202 Sectional Analysis 5.5.2021.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 202 |
| HB 202 Sponsor Statement 5.5.2021.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 202 |
| HB 70 Agency Summary HSC1 All Funds.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 70 |
| HB 70 AgencySummary HCS1 UGF Only.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 70 |
| HB 70 HCS WorkDraft vG.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 70 |
| HB 70 ProjectDetailByAgency HCS1 Supplemental Items Compare to Senate SCS1.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 70 |
| HB 70 ProjectDetailByAgency HCS1 Compare to Gov Amend Total.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 70 |
| HB 70 Public Testimony by 051921.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 70 |
| HB 202 Public Testimony by 051921.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 202 |
| HB 202 Public Testimony by 052121.pdf |
HFIN 5/17/2021 1:30:00 PM |
HB 202 |