Legislature(2021 - 2022)
03/10/2022 11:30 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB260 | |
| HB223 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 260 | TELECONFERENCED | |
| += | HB 223 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 260-PFD: 50/50 POMV SPLIT
11:38:39 AM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 260, "An Act relating to use of income of the
Alaska permanent fund; relating to the amount of the permanent
fund dividend; relating to the duties of the commissioner of
revenue; and providing for an effective date."
11:39:06 AM
REPRESENTATIVE LIZ SNYDER, Alaska State Legislature, prime
sponsor, introduced HB 260. She said the bill should look
familiar because the committee first heard the bill as HB 4008
during a special session. She stated that HB 260 addresses the
permanent fund dividend (PFD) formula.
11:40:03 AM
ALLIANA SALANGUIT, Staff, Representative Liz Snyder, Alaska
State Legislature, on behalf of Representative Snyder, prime
sponsor, presented a sectional analysis of HB 260 [included in
the committee packet and titled "SECTIONAL ANALYSIS HB 260: PFD:
50/50 POMV SPLIT"]. She explained Section 1 would amend AS
37.13.140-Income by removing the original statutory formula so
there is no longer any conflicting language. She said no
changes would be made to the percent of market value (POMV)
rate, but language would be added stating that the amount
available for appropriation cannot exceed the balance in the
earnings reserve account.
MS. SALANGUIT explained Section 2 would amend AS 37.13.145(b)
Disposition of Income by providing the new appropriation
guidelines for the permanent fund dividend (PFD) and POMV draw.
She explained that if state revenue outside of the POMV and 50
percent of the POMV can flat fund the calculated baseline
budget, then the other 50 percent of the POMV draw would go
towards the PFD. The baseline budget would be calculated using
a five-year trailing average that is cumulatively adjusted for
inflation and population changes, she said. For example, the
fiscal year 2023 (FY 23) budget baseline calculation would
incorporate the budgets for FY 17 and FY 21; conversely, if
changes occur in FY 24, then those changes wouldn't show up
until FY 26. She stated that the average annual appropriation
that would be used in this calculation is defined as the
operating, capital, and mental health budget minus
appropriations for the PFD, the appropriations for inflation
proofing of the permanent fund, and other state revenues such as
taxes, grants, leases, loans, and federal funds.
MS. SALANGUIT explained Sections 3, 4, and 5 would add
conforming language. She said Section 6 would direct the Alaska
Permanent Fund Corporation (APFC) to annually compute the net
income of the fund [on the last day of] each fiscal year. She
related that Section 7 would add conforming language to the
amount of the dividend [AS 43.23.025(a)]. She advised that
Section 8 would add repealers for AS 37.13.145-Disposition of
Income because those provisions would now be in Section 1. She
stated that Section 9 would add an effective date of 7/1/22.
11:42:09 AM
REPRESENTATIVE SNYDER provided a PowerPoint presentation titled
"HB 260" [hard copy included in the committee packet]. She said
HB 260 is the result of several months of speaking to various
legislators, members of the legislature's Fiscal [Policy]
Working Group, and her own constituents, so she received very
diverse viewpoints and priorities to consider while drafting the
bill. She spoke to the second slide, "Considerations
Incorporated into HB 260," which read as follows [original
punctuation provided]:
•50/50 split
•Sustainable, reliable, and high-quality government
services
•Constitutional obligations
•Need to remedy conflicting statutory language
•Need for fiscal plan
•Need for flexibility in challenging budgetary
climates
•Household and economic benefits of direct payments
•Fiscal [Policy] Working Group recommendations
timestamp
REPRESENTATIVE SNYDER drew attention to the four-page report
distributed to members during the committee meeting titled
nd
"FISCAL POLICY WORKING GROUP FINAL REPORT 32 ALASKA
LEGISLATURE." She said many of the considerations on the second
slide were identified in the report as necessary parts of a
comprehensive fiscal solution [bullet points on page 3]. She
said HB 260 would be conducive to achieving the following bullet
points listed on page 3:
• Constitutional, single-account Permanent Fund
structure with draws limited by POMV
• Constitutional certainty for the Permanent Fund
Dividend (PFD)
• Healthy capital budget
• New revenues
• Budget reductions
• Spending cap reform
• Constitutional Budget Reserve reform
• Process: a comprehensive solution must be negotiated
and agreed to as whole, not be taken up one part at a
time
REPRESENTATIVE SNYDER, regarding the bullet point, "Spending cap
reform," added that the bill would inch toward a spending cap by
use of its five-year rolling average calculation of the baseline
budget, which is the starting point for a baseline budget and
can be viewed as guidance similar to what a spending cap could
achieve.
REPRESENTATIVE SNYDER stated that HB 260 would deliver on the
following bullet points listed on page 3:
• New POMV-based PFD formula
• Several-year 'transition period' with one-time fiscal
measures
REPRESENTATIVE SNYDER stated that the bullet point, "Resilience
to fiscal stress," is a key driver of HB 260 and would allow a
thoughtful response in times of fiscal stress.
REPRESENTATIVE SNYDER, regarding the bullet point, "Process: at
all times, keep in mind what can realistically pass the
legislature," maintained that of the suite of options before the
legislature, HB 260 may be the most likely to draw support
across the aisle.
11:48:54 AM
REPRESENTATIVE SNYDER continued to the third slide, "Components
of HB [260]." She said the bill would maintain the current
language regarding the 5 percent POMV draw, eliminating the
conflicting language; provide guidance on the distribution of
the POMV draw between the general fund and the dividend fund;
and provide conforming language.
11:49:41 AM
REPRESENTATIVE SNYDER turned to the diagram on the fourth slide
illustrating the mechanics of HB 260. She explained that the
legislature directs earnings from the permanent fund to PFDs and
a portion of state services, and that revenues support the
remaining portion of state services. She said the bill would
pull a 5 percent POMV, that 5 percent POMV draw would be added
to revenues, and this would be the start of calculating how that
money will be spent and how it will be distributed between
government services and the PFD calculation. She specified that
under HB 260, if 50 percent of the POMV draw plus revenue flat
funds the previous year's budget, which is calculated as a five-
year average, then 50 percent would go to the PFD and 50 percent
would be directed towards government services. However, she
continued, if 50 percent of the POMV [plus revenue] does not
flat fund the previous year's budget, then under HB 260 the
legislature would be directed to pull whatever percentage is
necessary from the other 50 percent that could go to PFDs to
flat fund the budget; in other words, the POMV split is adjusted
to fill the gap. Representative Snyder pointed out that in both
cases, the bill is designed so that the door is left open to new
cuts in the budget as well as new revenue added to the budget.
She said the rationale for why this plan could be a good way
forward is that it would eliminate conflicting language in
statute, protect against unsustainable growth, protect against
damaging year to year budget fluctuations, increase pressure to
pass reasonable revenue measures and locate efficiencies, and
provide a win on both sides of the aisle.
11:52:58 AM
MS. SALANGUIT addressed the fifth slide, "HB 260 Modeling
Assumptions," regarding different revenue scenarios. She
explained that Scenario 1 is for flat funding and no revenue if
HB 260 is adopted; Scenario 2 is for a minus $100 million
decrease in appropriations and no revenue; Scenario 3 is for an
additional $100 million and no revenue; and Scenario 4 is for an
additional $100 million in appropriations and an additional $200
million in revenue. She explained that for these modeling
assumptions the sponsor worked closely with Conor Bell of the
Legislative Finance Division (LFD); the appropriations in the
scenarios incorporate numbers from "HCS 1," which is about a
$600 million add from subcommittees and includes the $1,300
energy rebate; the revenue estimates were provided by LFD; and
the POMV estimates are all the same and are outlined on this
slide and 50 percent of the POMV is also depicted on this slide
[for fiscal years 2023-2031].
11:54:08 AM
MS. SALANGUIT turned to the sixth slide, "Scenario 1: Flat fund,
no new revenue." She noted that Scenario 1 flat funds the
budget from FY 23 and uses those adjustments throughout FY 31
and has no new revenue. She explained that the bars on the
graph depicting Scenario 1 represent the entire POMV, the blue
is the amount that is left for the [PFD] once the baseline
budget is funded, the pink-orange line represents 50 percent of
the POMV draw, and the dark orange line shows the dividend
payout in normal US dollars as opposed to in millions for the
amount left for the PFD and the budget baseline.
REPRESENTATIVE SNYDER added that these next few slides look
similar under these different scenarios. However, she said, the
last line in the table on each of the slides gives insight into
how the percent of the POMV directed toward the PFD from year-
to-year changes over time, and over time it is slowly creeping
towards that 50 percent while maintaining some consistency in
service funding.
11:55:56 AM
REPRESENTATIVE EASTMAN asked whether the expectations of
permanent fund growth are based on assumptions that were made
before or after Russia invaded Ukraine.
REPRESENTATIVE SNYDER deferred to Mr. Bell to provide an answer.
11:56:16 AM
CONOR BELL, Fiscal Analyst, Legislative Finance Division (LFD),
Alaska State Legislature, responded that the division hasn't
updated the permanent fund for returns since the Department of
Revenue's fall forecast, so the oil price and permanent fund
return assumptions used in this model are from that fall
forecast. He advised that there probably is some loss to the
permanent fund returns at this point, but that the higher oil
prices aren't incorporated in this modeling. He stated that the
Department of Revenue will be releasing its spring forecast
soon, at which time his division will incorporate the updates
[into the modeling].
CHAIR SPOHNHOLZ noted that the updated forecast is expected on
3/15/22.
11:57:15 AM
REPRESENTATIVE WOOL inquired whether "appropriations less
revenue" is the budget.
MS. SALANGUIT replied that "appropriations less revenue" is the
operating, capital, and mental health budget, and then it takes
away other state revenue such as taxes, grants, loans, and
federal funds. Then, she continued, there is an exclusion for
appropriations for the dividend and inflating proofing of the
permanent fund.
11:58:02 AM
REPRESENTATIVE WOOL surmised that the baseline budget of $2.5
billion in Scenario 1, flat fund, no new revenue, is a low
budget. He further surmised that oil revenue is not being taken
into account.
MS. SALANGUIT answered that she believes it is. She said the
baseline budget shown [on the sixth slide] is cumulatively
adjusted for population change and inflation.
CHAIR SPOHNHOLZ clarified that "appropriations less revenue" is
the total operating capital plus mental health budgets less
traditional revenue, non-POMV related revenue. So, she said, it
is sort of a net number excluding projected oil revenue and
other items. It is a very different nomenclature than what is
typically used when referencing the budget, she added.
REPRESENTATIVE WOOL noted that oil revenue is the number one
non-POMV revenue and it is growing. "It is less all revenue,"
he continued, "so you are stripping it out the revenue and basic
elements of the budget with POMV alone."
MS. SALANGUIT confirmed that that is correct.
CHAIR SPOHNHOLZ offered her belief that the spring revenue
forecast will change this substantially. She noted that there
is also the understanding that what goes up will come down
again, so [legislators] must think about fiscal policy decisions
that are made in all possible operating context. She allowed
that sometimes [the legislature] has fallen short of its
fiduciary responsibility for the state by making long term
fiscal policy decisions based on a moment in time and it is
known that oil is a highly volatile commodity.
12:00:26 PM
REPRESENTATIVE WOOL, regarding [Scenario 1] which flat funds the
budget, asked why the budget goes down for FY 23 to FY 24 and
then goes up again.
REPRESENTATIVE SNYDER replied that it is because the flat budget
is not simply from the year before, it is the rolling five-year
average; the oldest year is dropped, and a more recent year is
picked up. Therefore, she continued, it will bounce around a
bit because the five-year bucket from which the average is being
calculated bounces around a bit and gives a slightly different
number when moving forward year to year.
REPRESENTATIVE WOOL sought to confirm that the baseline budget
has nothing to do with revenue because if oil revenue were to
fluctuate the line above that would fluctuate since a different
amount is being subtracted and oil is not just a straight graph
upwards.
REPRESENTATIVE SNYDER responded yes. She stated that the talk
about "appropriations less revenue" is because the focus is on
what percent of the POMV is needed to ensure flat funding the
budget once the amount from other sources is calculated. To the
point about fluctuating oil prices, she argued that HB 260 gives
more flexibility to respond appropriately and ensure that
continuity in services is maintained. She said HB 260 does not
prescribe a hard and fast distribution on how to divvy up the
POMV. The 50/50 is conditional, she explained, the 50 percent
is directed only if there is the ability to flat fund, and if
that cannot be done, "then we get to backfill." Whereas, she
continued, if it is hard and fast and the market tanks and the
percentage doesn't cover the baseline, then alternatives would
have to be figured out that aren't necessarily in line with
statute.
12:03:07 PM
REPRESENTATIVE JOSEPHSON asked why he should be fixated on a
five-year average when he thinks there has been tremendous
underserving of need.
REPRESENTATIVE SNYDER answered she has her own part of the
answer but would like for Mr. Bell to answer the question
because she worked with him to select that calculation.
MR. BELL responded that he can't speak to the legislative intent
behind taking a five-year average budget, but the idea is that
it's adjusting of the budget for inflation. He said if there is
fluctuation in a given year, such as emergency funding that is
unanticipated, it balances out some of those swings in the
budget. He stated that if the budget grows in real terms over
time, "yes it would not track that." He added that this would
be more catered towards mostly unanticipated large spikes in
government spending due to any number of factors.
12:05:06 PM
REPRESENTATIVE STORY inquired whether inflating proofing the
budget under HB 260 includes inflation proofing the base student
allocation (BSA) for grades K-12.
REPRESENTATIVE SNYDER turned to Mr. Bell to answer the question.
MR. BELL replied that it isn't directly addressed, it is
adjusting for inflation and population, and would be assumed to
be a component of that inflationary growth. There is not a
separate assumption for the growth rate for education or
anything else, he stated. The Legislative Finance Division, he
explained, has a baseline agency operations assumption and LFD's
top-level modeling doesn't always break out the education
specifically.
12:06:31 PM
REPRESENTATIVE STORY remarked that when fully funding education
[the legislature] never accounts for inflation proofing that
number of $1.2 billion, it is kept the same. She said she
therefore wouldn't expect for it to be in here, but that it is
something which needs to be thought about.
CHAIR SPOHNHOLZ said she thinks the bill's language says
adjusting for inflation and not necessarily inflation proofing.
The bill is designed to take an average of the operating capital
and mental health budgets, with a lagging five-year average, and
then adjust it for population and inflation to level out
volatility in the dividend and in the budget. She said the
committee needs to understand the impacts of the sticky issues
that it is identifying. She asked Ms. Nauman whether HB 260
would constrain the legislature's ability to appropriate outside
the formula for the operating, capital, and mental health
budgets if the legislature wanted to do that.
12:08:00 PM
EMILY NAUMAN, Legislative Legal Counsel, Legislative Legal
Services, Alaska State Legislature, answered, "No, the
legislature is free to appropriate any amount of available
revenue and balances of accounts in any year." So, she said,
even if this bill passed, just as the dividend statutes
currently read, the legislature would still be free to
appropriate any amount for the dividend or any other budget.
CHAIR SPOHNHOLZ stated that that is a constitutional requirement
that the legislature has the ability to appropriate.
MS. NAUMAN responded, "Yes."
REPRESENTATIVE SNYDER noted that constitutionally and through
the courts it has been reaffirmed that the legislature can
appropriate funds as it sees fit. She pointed out that HB 260
would also allow for adding to the budget and reducing the PFD
or the proportion of the POMV sent to the PFD in any year. It
would simply be a conversation that would have to be had and
agreed upon within the legislature with the necessary votes to
increase the budget and as a result decrease the PFD, she added.
12:09:37 PM
REPRESENTATIVE EASTMAN noted that HB 260 would not amend the
constitution and the limits in the bill would not necessarily
constrain the legislature's activity. He requested the sponsor
to speak to what she was referring to when she used the word
constitutional in her opening presentation.
REPRESENTATIVE SNYDER replied it was simply to say that nothing
in HB 260 would violate what is currently permitted or required
in the constitution. She said the bill is also conducive to any
future additional activities as discussed and recommended by the
Fiscal Policy Working Group.
12:10:19 PM
REPRESENTATIVE EASTMAN asked about how the population adjustment
would be made and whether a certain threshold of population
change must happen before adjustment occurs. He further asked
about how recent the population data is that triggers the
adjustment. He also asked whether people leaving the state
would trigger the same kind of adjustment or whether it is
anticipated that the state population will continue to grow.
MS. SALANGUIT offered her belief that the population adjustments
are done annually using data from the Department of Labor and
Workforce Development.
12:11:24 PM
REPRESENTATIVE SNYDER displayed the seventh slide, "Scenario 2:
-$100 budget, no new revenue," and resumed her presentation.
She directed attention to the bottom row of the table and
related that if the budget was cut by $100 million with no new
revenue, the percent of POMV for the PFD would bounce a bit
because there is variation in the calculation of the baseline
budget and other assumptions, but that the percent would slowly
increase.
REPRESENTATIVE SNYDER continued to the eighth slide, "Scenario
3: +$100 budget, no new revenue." She related that if the
budget was increased by $100 million with no new revenue, and
all other assumptions remained the same, there would again be a
slight variation [and the percent of POMV for the PFD would
increase]. She offered her belief that the Fiscal Policy
Working Group's recommendation for revenue generation was $500
million to $700-plus million and said that it would more quickly
move toward the 50/50 split. She argued that a take-away with
HB 260 is that it could, for some, increase pressure or increase
motivation for identifying new revenue sources.
12:13:31 PM
REPRESENTATIVE WOOL asked whether the $100 million would be a
one-time addition or an addition every year.
MS. SALANGUIT responded it would be an addition of $100 million
every year beginning in FY 24 and that will be the same
assumption for future models; any changes in appropriations or
revenue will begin in FY 24 and go through FY 31.
CHAIR SPOHNHOLZ stated that the annual addition is an important
data point for committee members.
REPRESENTATIVE SNYDER addressed what would happen under HB 260
if new revenue was generated. She explained that if the state's
various sources of revenue - including taxes, federal funds,
plus 50 percent of the POMV - would flat fund the budget, then
the other 50 percent of the POMV would go to the PFD. Any new
revenue, she explained, would first go toward ensuring that the
baseline budget is flat funded. Once the baseline budget was
flat funded, she stated, the legislature would be free to use
any remainder to increase the budget and not direct it toward a
50 percent PFD. But, she continued, if the legislature decided
not to increase the budget, the first next step would be
bringing up the PFD to 50 percent. Representative Snyder
further explained that if the budget was kept flat and a 50
percent PFD was achieved with the new revenue, the legislature
would be able to direct any remainder of that new revenue.
However, she specified, that remainder could not go to the PFD
because the bill says the cap is 50 percent, so it could go to
savings, expanding the budget, or whatever made sense.
12:16:52 PM
REPRESENTATIVE SNYDER turned to the nineth slide, "Scenario 4:
+100 Budget, +200 Revenue." She noted she has other scenarios
available to share as well as scenarios utilizing the governor's
amended budget. She said Scenario 4 is still the HCS 1 and
models an addition of $100 million to the budget with $200
million in new revenue. She drew attention to the progression
in the last row of the table [from 23 percent of POMV for PFD in
FY 23 to 38 percent in FY 31].
12:17:28 PM
REPRESENTATIVE EASTMAN asked how the next year's dividend would
be impacted if money went towards savings instead of the PFD.
REPRESENTATIVE SNYDER answered that money directed towards
savings would not be calculated into the new baseline budget.
REPRESENTATIVE EASTMAN asked how that would impact the value of
the next year's dividend.
REPRESENTATIVE SNYDER replied that it would be the same as in
any other scenario it would take the five-year rolling average
not including funds that were directed towards savings.
REPRESENTATIVE EASTMAN posed a scenario in which $10 billion is
added to savings. He asked whether that would impact the amount
of the next year's dividend or whether that would be a separate
calculation.
REPRESENTATIVE SNYDER offered her understanding that it wouldn't
impact it. She deferred to [Mr. Bell] to answer further.
MR. BELL confirmed Representative Snyder's answers are correct.
If the revenue was higher than the appropriations in the budget,
he explained, that surplus money would automatically lapse into
the constitutional budget reserve (CBR). If there was a year in
which a significant amount of money was lapsed into the CBR, he
continued, the adjusted appropriations would be much lower than
the revenue. That would lead to raise the calculated PFD
amount, he said, but it wouldn't be counted as an appropriation.
12:19:38 PM
REPRESENTATIVE WOOL commented that when lots of revenue comes in
there is temptation historically to spend more. He posed a
scenario in which the PFD is at 40 percent instead of 50/50 and
said there would be pressure to get it up to 50 percent. He
posited that many people would demand that the 50/50 happens
first before any extra spending on the budget.
REPRESENTATIVE SNYDER responded that that pressure is being
experienced now and has been for several years. She said a
benefit of HB 260 is that the legislature would then be
following the law, which is heard a lot from constituents and
reasonably so. The way HB 260 is written, she asserted, would
add positive pressure in both directions. Pressure would be
added for new revenue, she continued, because then in theory
more could be directed to the PFD. The bill would also allow
the legislature to increase the budget, but because it would
come at the cost of a larger PFD it would rightfully put
pressure on legislators to ensure the budget is being grown in a
smart way and that it can be justified.
12:22:37 PM
REPRESENTATIVE WOOL asked whether pressure to raise new revenue
to pay a PFD up to the 50/50 level could be a problem.
REPRESENTATIVE SNYDER answered that there are different ways to
answer the question and she can only answer from her
interpretation. She said revenue is raised in a different way
under different formulas and impacts different Alaskans at
different levels. The PFD is the same amount to every Alaskan,
she continued, so a dollar out of the PFD impacts Alaskans
differently than, say, a dollar collected through something like
an income tax.
CHAIR SPOHNHOLZ stated that from her perspective the answer to
the question is that the first place the revenue goes is to the
budget, not to the dividend. If there is additional revenue,
she said, that revenue doesn't flow directly to dividends, it
flows to the budget as the first point in time, and the dividend
formula is based on the balance at that point in time.
12:25:14 PM
REPRESENTATIVE EASTMAN requested a real-world example of how
last year's dividend would have been impacted had HB 260 been
law at that time.
CHAIR SPOHNHOLZ asked whether there is retrospective modeling.
MS. SALANGUIT replied yes, but [the modeling] wasn't included in
the presentation because then it would have been too crowded.
She said the sponsor will share those numbers after the hearing.
12:26:02 PM
REPRESENTATIVE SNYDER thanked the committee for hearing HB 260.
[HB 260 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 260 Sponsor Statement.pdf |
HW&M 3/10/2022 11:30:00 AM HW&M 4/14/2022 11:30:00 AM HW&M 4/21/2022 11:30:00 AM |
HB 260 |
| HB 260 Sectional Analysis.pdf |
HW&M 3/10/2022 11:30:00 AM HW&M 4/14/2022 11:30:00 AM HW&M 4/21/2022 11:30:00 AM |
HB 260 |
| HB 260 Fiscal Note - OMB.pdf |
HW&M 3/10/2022 11:30:00 AM HW&M 4/14/2022 11:30:00 AM HW&M 4/21/2022 11:30:00 AM |
HB 260 |
| HB 223 Amendment #1, Spohnholz.pdf |
HW&M 3/10/2022 11:30:00 AM |
HB 223 |
| HB 223 Amendment #2, Josephson.pdf |
HW&M 3/10/2022 11:30:00 AM |
HB 223 |
| HB 223 Amendment #3, Josephson.pdf |
HW&M 3/10/2022 11:30:00 AM |
HB 223 |
| HB 260 Presentation.pdf |
HW&M 3/10/2022 11:30:00 AM HW&M 4/21/2022 11:30:00 AM |
HB 260 |
| HB 223 v. B Amendments #1-3 HW&M Final Votes 3.10.22.pdf |
HW&M 3/10/2022 11:30:00 AM |
HB 223 |