Legislature(2001 - 2002)
03/22/2002 09:20 AM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 304
"An Act relating to disposition of income of the
permanent fund; and providing for an effective date."
Co-Chair Williams observed that a proposed committee
substitute, work draft 22-LS1207\L, 3/21/02 changed the
split ratio to 40/40/20.
PETER ECKLUND, STAFF, CO-CHAIR WILLIAMS explained that the
proposed committee substitute uses the endowment principle
and percent of market value payment method for the Permanent
Fund. He explained that 7 percent of the value of the
Permanent Fund would be taken in FY03, 6 percent in FY04,
and 5 percent thereafter. An education fund of 40 percent
would be created in the General Fund. An infrastructure
account would be created and receive 20 percent of the
funds. Dividends would be paid from the remaining 40
percent. He emphasized that deferred maintenance needs of
the state of Alaska are over one billion dollars.
Representative Hudson acknowledged the work of the chairman.
He agreed with most aspects of the proposed committee
substitute, with one exception. The 5 percent of market
value principal originated with the Alaska Permanent Fund
Corporation. The five percent payout would automatically
inflation proof the fund. He observed that Governor Hammond
referred to a 30/30/30 payout: inflation proofing/
dividend/general government. If you take 5 percent after
inflation proofing and divide it on a 50/50 basis, the
result would be 35 percent to general government and 35
percent to the dividend. He explained that the five-year
average shows a reducing dividend. He spoke in support of a
50/50 dividend/state split, which would keep dividends at
approximately the same level. The FY04 dividend amount would
only be $35 dollars less than the current amount under
Representative Hudson's proposal. He asked the Committee to
consider changing the dividend amount to 50 percent on page
2, line 17. The infrastructure percentage on page 3, line 3
could be 10 to 15 percent and the education account could be
40 - 35 percent. He pointed out that the 50/50 provision has
been well addressed. A 40 percent division would reduce
dividends by $300 per person.
Representative Whitaker observed that the proposed committee
substitute no longer resembles the original legislation, but
indicated that he would support the proposed committee
substitute. He noted that the legislation has become a
reformulation of the Permanent Fund. He recognized the
challenges before the legislation, but stressed that action
must be taken.
Representative John Davies spoke in support of the
legislation. He pointed out that the provisions of the bill
have been well discussed. There was discussion by the Alaska
Permanent Fund Corporation and the fiscal policy group. He
felt that the changes recommended by Representative Hudson
would assist passage of the bill.
Representative Croft spoke in support of a 50/50 split. He
noted that Alaska is the only state that has a common
ownership of its resources. The public might not accept
anything less than 50/50. He maintained that a 50/50 split
would be fair.
Representative Lancaster stressed that the plan would
protect the dividend into the future and expressed support
for the 50/50 provision.
Vice-Chair Bunde summarized that "100 percent of nothing is
still nothing" and pointed out that the dividend is in
danger if no action is taken.
Co-Chair Mulder MOVED to ADOPT proposed committee
substitute, work draft, 22-LS1207\L, Cook 3/21/02.
RECESSED:
The Committee recessed at 10:05 a.m.
RECONVENED:
The Committee reconvened at 2:40 p.m.
Representative Hudson provided members with Amendment 1
(copy on file). He explained that the amendment would pay 45
percent to dividends, 35 percent to education and 20 percent
to the infrastructure or economic development account. The
FY03 dividend would not change. He observed that, under the
amendment, dividends would be $100 dollars less in FY04.
Dividends would still grow, at approximately $100 less than
under the status quo. In FY03, $965 million dollars would be
available for to the General Fund. Approximately $839
million dollars would be available in FY04. By FY10 there
would be approximately $948 million dollars to offset the
deficit. Inflation proofing would continue at 7 percent in
FY03,6 percent in FY04, and 5 percent in FY05 and out.
Representative Hudson MOVED to ADOPT Amendment 1: 45 percent
to dividends, 35 percent to an education fund and 20 percent
to the infrastructure/economic development account.
Representative John Davies questioned why 5 percent was
taken out of education instead of infrastructure.
Representative Hudson responded that the amendment would be
a statutory allocation and pointed out that the legislature
could chose to change the ratio. He stated that he was
responding to the need for deferred maintenance. He observed
that there is a one billion dollar need and reiterated that
it could be changed in the future. He explained that by FY10
the education fund would be more than $600 million dollars.
The intent is to find a middle ground while protecting the
Permanent Fund and dividends.
Representative Croft observed that the spreadsheet's
projected rate of return is 8.25 percent. He thought that
the Alaska Permanent Fund Corporation's projected rate of
return was 7.95 percent. He expressed support for a 50
percent payout to dividends. He stated that he would not
object to the amendment because it moved the legislation
closer to the 50 percent target.
There being NO OBJECTION, Amendment 1 was adopted.
Representative Croft MOVED to ADOPT Amendment 2: 35 percent
to education, 50 percent to dividends, and 15 percent to
infrastructure. Co-Chair Williams OBJECTED.
TAPE HFC 02 - 62, Side B
Representative Whitaker referred to the Constitution of the
state of Alaska, Article 9, section 16. He maintained that
the amendment has been ignored since it was put in place.
The constitutional amendment would dedicate one-third of the
expenditures of the state of Alaska to be spent on capital
projects. He noted that the issues are whether an additional
$100 dollars would go to dividends or be used to build the
state.
Representative John Davies interpreted Article 9, section 16
to mean not more than one-third of the state's budget would
go to infrastructure. He observed that the 1999 ballot
initiative indicated that the public wants to protect
dividends. He emphasized that it is easy for the public to
understand a 50/50 split.
Representative Whitaker spoke against the amendment.
A roll call vote was taken on the motion.
IN FAVOR: Croft, Davies, Foster, Moses
OPPOSED: Bunde, Harris, Hudson, Lancaster, Whitaker,
Williams, Mulder
The MOTION FAILED (4-7).
Representative Foster MOVED to report CSHB 304 (FIN) out of
Committee with the accompanying fiscal note. Representative
John Davies OBJECTED for the purpose of discussion. He noted
that he still supports a 50/50 split.
Representative Foster WITHDREW his motion to move CSHB 304
(FIN)
Co-Chair Mulder MOVED to ADOPT Amendment 3: "The legislation
may appropriate to the dividend fund the additional amount
needed so that the total amount of the 2002 dividend is
$1,540. He explained that the intention is to keep the FY02
dividend at it's current level. There being NO OBJECTION, it
was so ordered.
Co-Chair Mulder MOVED to report CSHB 304 (FIN) out of
Committee with the accompanying fiscal note. Representative
John Davies and Representative Croft OBJECTED.
Representative Croft stressed that there are structural
problems with the manner that the dividend and earnings are
calculated. He maintained that dividend creep has to stop.
He did not think that the proposal would be successful
without substantial sideboards, new revenues and a more
clear and fair distribution.
Representative Hudson spoke in support of the amended
legislation. He maintained that the Permanent Fund was
intended to meet the demand for state support when oil
revenues declined. He stressed that the plan was balanced.
Representative Whitaker spoke in support of the legislation,
but emphasized that it cannot stand-alone. He pointed out
that [the 1999 ballot initiative to use a portion of the
Permanent Fund] was not supported.
Representative John Davies pointed out that the amount
available for the education fund would be diminished in FY
05, but would start to grow again. He stressed that there
would need to be an $80 million dollar increase in general
funds to maintain full funding for education when the fund
dips.
Co-Chair Williams stressed that the legislation is a tool
and that the intent is to fully fund education.
Vice-Chair Bunde maintained that education has never been
reduced, although he acknowledged that it had not been
increased.
A roll call vote was taken on the motion to move the bill
from Committee.
IN FAVOR: Bunde, Foster, Harris, Hudson, Lancaster,
Whitaker, Williams, Mulder
OPPOSED: Croft, Davies, Moses
The MOTION PASSED (8-3).
CSHB 304 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with previously published fiscal
note: REV #1.
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