Legislature(2019 - 2020)ADAMS 519
03/10/2020 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB306 | |
| HB300 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 300 | TELECONFERENCED | |
| *+ | HB 306 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 300
"An Act relating to deposits into the dividend fund
and income of and appropriations from the earnings
reserve account; relating to the community assistance
program; and providing for an effective date."
2:06:19 PM
REPRESENTATIVE ADAM WOOL, SPONSOR, thanked the previous
presenter for laying down some groundwork pertaining to the
current fiscal situation. He noted that the House Finance
Committee had heard many presentations about the percent of
market value (POMV) draw and the situation that needed
resolution. He remarked that in his six years with the
legislature, many months had been spent trying to solve the
dilemma of balancing revenues with expenditures. He pointed
out that the PFD was very much a part of the issue.
Representative Wool provided a PowerPoint presentation
titled "HB 300 - POMV Allocation: A Sustainable Solution
for Alaska" (copy on file). He noted that graphs would be
reviewed for the committee by the Legislative Finance
Division (LFD) the following day. He relayed that the bill
was a conversation starter and was perhaps a novel way to
look at the Permanent Fund Dividend (PFD) and the POMV
draw. He began on slide 2 titled "The 2018 Passage of SB26
Largely Solved the Budget Crisis." He highlighted that the
POMV structure provided a stable funding stream to support
state government and had been a historic compromise. He
characterized the passage of SB 26 as a paradigm shift for
the state. He detailed that the state had been in a tight
position where revenue had declined very quickly, and the
state had been faced with the need to make some cuts. He
elaborated that the legislature had made some severe cuts
to the capital and operating budgets over the first few
years. He reviewed that the PFD had first been vetoed by
former Governor Bill Walker to 50 percent of the statutory
formula and the legislature had passed the same amount the
next year. He expounded that since that time, the
legislature had selected $1,600 as number it believed was
affordable in the past couple of years. He noted that the
first couple of years the number had been $1,000 (50
percent of the formula at the time).
Representative Wool discussed that the state had gone from
an economy paid for with oil (oil had paid for the state
budget for many years) and the Permanent Fund paid for the
PFD. When oil had declined, the Permanent Fund had been
tapped to pay for the state budget with a 5.25 percent
structured draw (scheduled to drop to 5 percent in 2022).
He continued to the third bullet point on slide 3 and
stated that the bill [SB 26] passed by the Senate had been
stripped down - it had not included a new PFD formula and
had not removed the old PFD statute. He referenced cries
for the legislature to follow the law and pay a full
statutory PFD. He pointed out that the formula called for a
$3,000 PFD, an amount that had never been paid. He noted a
$1,200 supplemental heating check had been distributed
during the Palin Administration [in 2008] when oil prices
had been particularly high. The high oil prices had helped
the state budget but hurt people trying to heat their
homes. He elaborated that the state had worked to get money
to residents in different ways, particularly in rural
Alaska where heating oil was extremely expensive. He noted
the cost had exceeded $4 per gallon in Interior Alaska and
heating bills had skyrocketed. He added that the
supplemental check had not been paid the following year.
2:10:51 PM
Representative Wool continued to discuss slide 2. He
remarked that people had been happy to receive the
supplemental energy check and had understood when it had
not been provided the following year. He reiterated that SB
26 did not delete the old [PFD} formula and did not include
a new one. He highlighted that the existing formula was not
being followed and legislators on both sides of the aisle
and the executive branch were all calling for a new
formula.
Representative Wool moved to slide 3 read the first two
bullet points:
• The amount available for the general fund equals the
total POMV draw less whatever is appropriated for
Permanent Fund Dividends
• For as long as the PFD remains subject to intense
annual debate, the state cannot depend on a
predictable revenue stream
Representative Wool spoke to the need for revenue
predictability. He noted that the past several weeks had
thrown the issue into turmoil. He detailed that oil revenue
had been steadily declining for decades; the oil price had
fluctuated over time and production had been declining. He
elaborated that the price had declined in 2014 and had
recently dropped again. He discussed that the volatile
revenue source could not be relied upon. He stated that the
POMV was a much more stable revenue source.
2:12:04 PM
Representative Wool moved to assumptions on slide 4 titled
"There is no consensus on the size of the dividend...but
large dividends equal large budget deficits." He
highlighted that the governor's budget proposal of $4.6
billion was largely what the House had passed. The fall
2019 revenue forecast was $2 billion, but he believed it
would be updated soon. He noted that the committee had been
told that the forecast for the following year would be
lower than originally thought and with recent events it
would be considerably lower. Currently, there was no new
revenue. There was a motor fuel tax and other small taxes
and revenue sources in the works, but there was no broad-
based income tax or sales tax.
Representative Wool addressed possible options on slide 4.
He began with the governor's plan to pay a $3,000 PFD,
which would cost about $1.9 billion to fully implement. The
second option he reviewed was a 50/50 plan that had been
discussed over the past year, which would result in a
$2,400 PFD and a deficit of $1.1 billion. The third option
was a 67/33 plan, which was roughly what had been used in
the past several years and would add to the deficit. The
surplus plan was the last option on the slide. He detailed
that at one point the surplus plan had resulted in a $700
PFD, which was no longer the case. He stated there were
problems with the specific plan.
2:13:31 PM
Representative Wool turned to slide 5 and detailed that his
proposal in HB 300 was an allocation model that combined
different ideas. He noted that he did not invent the model
in its entirety. He believed the Anchorage mayor had
mentioned doing a 45/45/10 POMV split going to the
government, PFD, and communities, respectively. The
proposal was a slight variation with prioritizing other
items in addition to government and the PFD. He reviewed
the proposal on slide 5:
FY2021 POMV will be $3,095 million
• 40% designated for K-12 education ($1,238
million, fully funds BSA)
• 10% designated for the University of Alaska ($310
million; restores FY2019 funding level)
• 10% designated for capital projects (doubles
recent amounts)
• 10% designated for a Community Dividend (expands
the Community Assistance" Program and replaces
current programs
• The remaining 30% split 50/50
o 15% to the General Fund
o 15% to Permanent Fund Dividends ($464
million, about $725 each)
Representative Wool elaborated on slide 5. The first bullet
point identified 40 percent for education (approximately
$1.2 billion in FY 21, which was approximately what had
been funded in the current year). The bill would set
education funding as a percentage of the POMV in statute.
Under the legislation, the University of Alaska would
receive 10 percent of the POMV ($310 million in FY 21,
which was close to the $302 million funded in FY 20). He
stated that both education items were in the constitution
and he believed they should be supported. He reasoned that
putting the items in the formula guaranteed that the two
entities would not have to wonder what funding they would
receive on an annual basis. He stressed that the two items
were very important in growing Alaska's future. He relayed
that other states that had faced tough times had doubled
down on their investment in education. He added that
investing in education primary and higher education would
keep young people in Alaska.
Representative Wool continued to address the allocation of
the POMV on slide 5. The bill would allocate 10 percent of
the POMV draw to capital projects, which would double
recent amounts to approximately $300 million. He expounded
that in recent years capital budgets had been funded at the
bare minimum of about $150 million to receive the federal
match. He remarked that legislators repeatedly heard about
the need for a capital budget to increase jobs for talented
workers who were leaving the state for employment in other
locations. Additionally, there was a need to build and
maintain the state's infrastructure (e.g. roads and
bridges). He highlighted that deferred maintenance was a
major problem - the University alone had $1 billion in
deferred maintenance.
Representative Wool detailed that the remaining 30 percent
of the POMV draw would be split 50/50 between the General
Fund and the PFD. He recognized that the amount was lower
than the 80/20 split proposed in the previous presentation
[on HB 306]; however, the community dividend would offset a
portion of the cut.
2:16:34 PM
Representative Wool advanced to an illustration on slide 10
showing how funds would be allocated. He detailed that 40
percent of the POMV would go to education. He listed other
items that would receive funding including the University,
the community dividend, and 30 percent divided 50/50
between the General Fund and PFD. He shared that he had
done different variations on ways to split the 30 percent
(e.g. 20/10). He believed it was important to look at the
community dividend portion.
Representative Wool returned to slide 6 and stated that the
problem with a surplus dividend was that no one knew what
it would be and there was fear there would be more
spending, which would make the PFD smaller. He stated that
the need for a statutory PFD was agreed upon. He relayed
that a 20 percent POMV (a 20/10 split instead of a 15/15
split) would result in a PFD of approximately $966 (similar
to the 80/20 split in HB 306).
Representative Wool moved to slide 7 and relayed that some
form of the community dividend had been in place since
1969. He detailed that the formula had been changed several
times. The current formula distributed $30 million per year
through the Community Assistance Program. The bill would
increase the amount to $300 million (10 percent of the
total POMV draw). He noted there were variations he would
explore in the analysis the following day that would change
the number to 5 percent. The bill would increase the
borough base from $300,000 to $1 million, the city base
from $75,000 to $250,000, and the base for unincorporated
communities from $25,000 to $83,333. He explained that the
calculation multiplied the original base by thirty-three
and one-third. The left over funding would be divided
between all state residents to determine a per capita
number (capped at $1,200 per capital in each community).
2:19:09 PM
Representative Wool turned to slide 8 and reviewed benefits
of a community dividend. He detailed that the community
dividend would bring the funds closer to the individual. He
explained that the money would not be distributed as a
check in residents' pockets but would be money in the
community. He believed that when the PFD had been created,
former Governor Jay Hammond had expressed desire to take
the money out of the state's hands and put it in the hands
of the people because the people knew how to spend the
money best. He believed it had worked for a while and
people had been spending money from the dividend since its
inception.
Representative Wool explained that the bill would not
eliminate a dividend; it would bring money into community
coffers instead of state coffers. He highlighted various
communities including Anchorage, Aniak, Fairbanks, and
Bethel and explained that all communities would receive a
substantial amount of money. He furthered that community
members could solicit community leaders with their needs
and priorities instead of people coming to the legislature
with a list of needs. He stated the community leaders would
be responsive and that community members knew what they
needed best. Additionally, there would be a higher per
person distribution for smaller communities.
Representative Wool explained that if Anchorage received a
base of $1 million, the per capita would be a little over
$300 (in addition to the base). He elaborated that the
amount would be slightly over $300 once the $1 million was
factored in. He furthered that dividing $1 million by
300,000 residents resulted in a little over $3 per person,
which would be added to the per capita of $300. Whereas,
for smaller communities that would receive between $83,000
to $250,000, the money would be divided between residents
in addition to the $300. He elaborated that for smaller
communities it meant residents would receive $900 to $1,200
in a community dividend and a PFD of $700, which was close
to $2,000 per person.
Representative Wool clarified that the $1,200 per person
went to the community, not to individuals' bank accounts.
He explained that residents could benefit from the funding.
For example, a community could install energy devices or
buy fuel in bulk and sell it at a discount to community
members. He reiterated that a community dividend would
bring the money closer to communities and rural/smaller
communities would receive more per capita. He highlighted
that it somewhat offset the problem of cutting the PFD -
cutting the PFD had an adverse impact on small communities
that had smaller economies, less cash, and fewer jobs. He
stated that the community dividend would provide more
autonomy to communities and would give local residents a
voice on how the money was spent.
2:22:10 PM
Representative Wool turned to slide 9 and discussed budget
impacts of the bill. He relayed that HB 300 would increase
the current budget. He detailed that the bill would add to
the capital budget, the University budget, and a
substantial amount to community assistance. He highlighted
areas that could potentially be decreased in the budget. He
detailed that school bond debt could be passed to
communities because communities would be receiving money
[via a community dividend]. He noted he had a complete
table of every community and had included an excerpt
showing examples later in the presentation [slide 14].
Representative Wool continued to list potential decreases
in the budget including miscellaneous municipal and
university debt support and a municipal portion of the
Public Employees' Retirement System (PERS)/Teachers'
Retirement System (TRS). He relayed that he had not gone
into any of the PERS/TRS calculations and he understood
that communities strongly advocated against any change. He
considered that if Anchorage received $90 million, perhaps
it could afford to spend more on PERS/TRS. He identified
community block grants as a budget item that could be
addressed at the community level. He reasoned that
communities knew what they needed best and would have the
funds to provide things like opioid treatment and support
homeless shelters. He pointed to public safety as another
area that could be decreased because more money would be
available for communities to provide their own public
safety services. For example, communities could hire a
village police officer.
Representative Wool identified transportation maintenance
as an area of the budget that could potentially be
decreased. He referenced a budget amendment that had been
offered in committee on the Quinhagak airport. The
community could not afford to maintain its airport. He
explained that under the legislation, Quinhagak would
receive $450,000 per year. He explained that some of the
money could be used by communities to maintain local rural
airports. He highlighted that the state would save about
$600 million if it did not pay a $1,600 PFD.
2:24:05 PM
Representative Tilton asked how the bill accounted for the
state's growing Department of Health and Social Services
(DHSS) budget. She wondered how the DHSS budget would be
administered and taken care of.
Representative Wool agreed that DHSS reflected a growing
portion of the budget. The remaining 15 percent of the POMV
in addition to oil revenue would still be available for the
other budget items. He had not allocated to DHSS
separately. He agreed on its importance and relayed that it
would be paid out of the budget as under the current
process.
Representative Tilton asked if the scenario would mean
communities would play a bigger role in providing DHSS
services.
Representative Wool answered that he had not looked at the
particular option, but it was not off the table. He stated
it would depend on how the numbers panned out. He would not
expect Medicaid funding to go through local communities,
but there were other health costs including treatment
centers and other. He noted that a sobering center had
recently opened in Fairbanks. He relayed that some of the
health and behavioral health items could be funded with the
community dividend.
2:26:02 PM
Vice-Chair Ortiz thanked the sponsor for bringing forward
the proposal, which he believed contained merit. He
believed the 40 percent going to education would act as a
spending cap. He asked for verification the bill would not
allocate any other funding sources to education other than
the 40 percent [of the POMV draw].
Representative Wool answered that he was not thinking of
the amount as a cap, but as a floor. He supposed that more
funding could be provided, not less. He noted that the
education community would know what the funding would be
[under the 40 percent allocation]. He relayed that 40
percent was slightly less than the current funding;
however, it would increase over time. He remarked that the
POMV was a five-year rolling average; therefore, even if
there was a bad month or year the impact would not be as
strong (unless there were multiple bad years). He informed
committee members that the upcoming graph would show a
steady increase, which he believed would alleviate much of
state educators' anxiety. He believed the same was true for
some of the other entities.
Representative Tilton spoke to the increase of community
involvement under the bill. She asked how the funds going
to communities and individuals would be administered. She
explained that there were administrative fees associated
with distributing community assistance funds.
Representative Wool answered that the bill would be modeled
on the existing community assistance program. The funds
would be distributed in the same way as they were
currently, but in amplified amounts.
2:28:55 PM
Representative Knopp highlighted that all of the fiscal
notes talked about designated general funds. He noted that
the [state] constitution prohibited designated funds. He
supposed they could probably refer to it as an
appropriation if they used the method in the legislation.
He reasoned that things would be fine if revenue grew over
time but considered what would happen in the next five or
six years if the markets were down and revenue dropped. He
noted that the proposal did not include the DHSS budget,
which was the largest budget item. He provided a scenario
where there was an additional $2 billion in revenue outside
of the POMV draw. He asked if there would be enough money
left to cover the state's obligations to bond debt, other
formula driven programs, and DHSS. He wondered if there
would be willingness to live with the structure if the POMV
draw declined in several years. He wondered how the
proposal would be implemented and adhered to over time when
it was not possible to bind the hands of future
legislatures.
Representative Wool replied that it was a valid point. He
referenced the POMV draw implemented under SB 26 [Permanent
Fund legislation passed in 2018] that the legislature had
been adhering to for since its implementation [in 2018]. He
hoped the legislature would continue adhering to the
legislation. He remarked that the legislature was not
currently adhering to the PFD formula. He would like to
have HB 300 adhered to and would like to adhere to SB 26.
He hoped the legislature would adhere to the bill. He
supposed that if things got really bad, they could opt to
not fund the capital budget.
Representative Knopp considered that the bill dedicated the
POMV draw, which he kind of liked. He was concerned about a
time when the $3 billion started to drop and the
legislature was no longer happy with funding the University
was receiving. He reasoned the legislature would have to
adjust the structure under the bill or to other funds. He
considered what the trickledown effect would be.
2:31:55 PM
Representative Wool stated that much of the bill was
intended as a conversation starter. He had another model
that he had not included in the presentation. He thought
the structure proposed in the bill may be a tool to "get us
on the road" that could perhaps be revisited in five years.
He had another model that lowered the percentage of the
POMV designated for the capital budget and the community
dividend to 5 percent each to give more flexibility
depending on the market.
Representative Wool turned to a bar chart on slide 11
showing the PFD amount from FY 21 to FY 29 using 15 percent
of the POMV draw. The PFD was calculated at $724 in FY 21
and almost $900 in FY 29. He moved to a chart on slide 12
showing education funding from FY 21 to FY 29 using 40
percent of the POMV draw. Education funding would be $1.2
billion in FY 21 and increase up to $1.5 billion over ten
years. Capital projects (including the University) at 10
percent of the POMV draw were illustrated in a bar chart on
slide 13, beginning at $309 million in FY 21 and increasing
to $381 million by FY 29.
2:33:25 PM
Representative Wool moved to proposed community dividends
for various communities on slide 14. The slide included
some larger communities with the $1 million base and other
communities with the $250,000 and $83,000 bases. He used
Anchorage as an example and pointed out that the current
FY 20 assistance was $4.5 million, while under the bill the
assistance would increase to $96 million or $328 per
person. He considered that Anchorage could do a lot with
the substantial sum annually, including work on the Port of
Anchorage and payment towards bond debt reimbursement. He
highlighted that the community dividend would be $362 per
person in Juneau. He pointed to the small communities of
Nulato and Gulkana that would hit the cap at $1,200 per
capita. He detailed that St. Mary's would receive the
$83,000 base, resulting in $765 per person. He explained
that the structure would help with the rural/urban divide
where a larger city would receive less per person and a
smaller community would get more per person (not more
total, but more per person). He reasoned that despite a
proposed cut to the PFD, the local communities would
benefit and have the ability to help their residents.
Representative Wool shared there would be more modeling the
following day. He reported that the fall forecast had been
used, which would be updated in the near future. He noted
there would be a model where the percentage of the POMV
designated for the capital budget and the community
dividend was lowered to 5 percent each. He elaborated that
the change would bring capital funding to $150 million
(closer to the current expenditure) and the community
dividend would also receive $150 million, which was still a
substantial amount of money. He stated that the funding
would help offset a PFD cut in rural Alaska.
Co-Chair Johnston asked the sponsor to model what the state
should be paying in statute for school bond debt and
capital program for rural villages the following day.
Representative Wool agreed to provide the information.
HB 300 was HEARD and HELD in committee for further
consideration.
Co-Chair Johnston reviewed the schedule for the rest of the
week. She shared that public testimony on HB 300 and HB 306
would take place on Thursday afternoon.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 306 Bicameral Permanent Fund Working Group Report 1.20.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 APFC Resolution 10.17.2018.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 LegFin Modelling 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 Sponsor Statement 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 300 Sponsor Statement 3.9.20.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 300 |
| HB 300 Presentation Wool POMV 3-9-20.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 300 |
| HB 306 Presentation 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 Sectional Analysis 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |