Legislature(2019 - 2020)GRUENBERG 120
03/12/2020 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB307 | |
| HB285 | |
| HJR31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 190 | TELECONFERENCED | |
| *+ | HB 307 | TELECONFERENCED | |
| *+ | HJR 31 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 285 | TELECONFERENCED | |
HJR 31-CONST AM: PERMANENT FUND; POMV;EARNINGS
3:22:43 PM
CO-CHAIR FIELDS announced that the final order of business would
be HOUSE JOINT RESOLUTION NO. 31, Proposing amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund and to appropriations from the Alaska permanent
fund.
3:22:57 PM
CO-CHAIR KREISS-TOMKINS, as prime sponsor of HJR 31, relayed
that the proposed resolution is for a constitutional amendment
pursuant to a resolution from the Alaska Permanent Fund
Corporation (APFC) board of trustees stating support for an
endowment model, which would constitutionally protect the
entirety of the permanent fund under the percent of market value
(POMV) structure. It would protect the permanent fund from
being overspent unsustainably.
CO-CHAIR KREISS-TOMKINS mentioned the committee substitute (CS)
for HJR 31, which contains some language changes recommended by
APFC and includes an "escape hatch" allowing an unsustainable
amount of money - greater than the 5 percent POMV - to be
withdrawn in one year with a five-sixths "super majority" vote.
The motive behind that provision is that in only the most
extraordinary and exceptional of circumstances should the
legislature be allowed to overspend.
CO-CHAIR FIELDS confirmed for Representative Vance that the CS
is Version 31-LS1566\S, Nauman, 3/11/20.
3:25:28 PM
The committee took a brief at-ease.
3:27:48 PM
CO-CHAIR FIELDS moved to adopt the CS for HJR 31, Version 31-
LS1566\S, Nauman, 3/11/20, as the working document. There being
no objections, Version S was before the committee.
CO-CHAIR KREISS-TOMKINS confirmed for Representative Thompson
that the intent of the proposed resolution is to
constitutionally protect the whole permanent fund, and a five-
sixth vote would be needed to withdraw more than the 5 percent
POMV in exceptional circumstances.
REPRESENTATIVE THOMPSON expressed that in Alaska's present
fiscal situation, he does not want to see the legislature
prevented from providing public safety and health by a
requirement of 34 House members and 17 Senate members voting to
withdraw funds.
CO-CHAIR KREISS-TOMKINS responded that the alternative is
spending down the permanent fund itself - the ultimate "kicking
the can down the road." In the present situation, the
legislature has a variety of options available to it - cutting
the budget, raising revenues, or through a bond. He declared
that the issue is whether the permanent fund is regarded as
permanent or whether it is regarded as a saving account that can
be spent down. Unless the legislature decides that the
permanent fund is not a savings account that can spent down,
then it probably will be. Future generations of Alaskans will
be in a far worse position than current Alaskans.
REPRESENTATIVE THOMPSON stated that there are ways for the
permanent fund corpus to be drawn down. The federal government
could require the state pay retirement to employees and, thus,
demand that the state pay it out of the principle. He expressed
that the voting threshold would be a "steep climb" in a dire
situation.
CO-CHAIR KREISS-TOMKINS responded that even providing an escape
hatch as described in Version S is very lenient. In his
discussions with APFC, the preference is that there be no escape
hatch and that the permanent fund be regarded as a true
endowment to be managed for intergenerational equity for long-
term benefit to the state. He maintained that the proposed
constitutional amendment would force the legislature to balance
the state budget with some combination of cuts, spending, and
raising revenues, but not with the permanent fund.
3:33:45 PM
CO-CHAIR FIELDS asked whether the proposed amendment would put a
strict spending cap in the constitution.
CO-CHAIR KREISS-TOMKINS answered that it would be a supply-side
spending cap instead of the permanent fund being a "spigot" of
cash to be opened unsustainably. It would put the legislature
within the confines of a sustainable draw from the permanent
fund. He added, "Two-thirds to three-quarters of all general
fund (GF) revenue, it already is at present, at least in the
current operating budget, so it effectively would constitute a
spending cap for that two-thirds to three-quarters of the
budget.
3:35:06 PM
REPRESENTATIVE VANCE cited the APFC resolution [Resolution 20-
01, 2a], which read in part: "The Board recommends having a
mechanism built into state law that would require APFC to
revisit this return assumption every few years ...." She
maintained that locking the 5 percent POMV draw into the
constitution would ignore the request of the APFC and raise
concerns over the sustainability of the fund over the long term.
CO-CHAIR KREISS-TOMKINS questioned the understanding of the
legislature of "real value" versus "nominal value" of the
state's funds and management of those funds. He said that the 5
percent POMV draw reflects the preponderance of analysis and
legislator and public comment. He noted that the legislature is
not required to draw the full 5 percent, but probably always
will do so to balance the budget. He stated that nominally the
value of the fund grows, but in real terms - in 2020 dollars -
it shrinks over time. He maintained that the legislature must
confront the question: "Are we going to manage the permanent
fund for growth - for real growth, not just nominal growth - or
are we, the legislature, going to manage the fund and just
maintain it?" He said that the 5 percent draw is the
"maintenance" option; a lower draw, such as 4.75 percent,
provides for growth in real terms. He expressed that he prefers
short-term pain and long-term gain, that is, a smaller draw to
manage the fund for growth in the long term.
CO-CHAIR KREISS-TOMKINS pointed out that the APFC resolution
addresses earnings reserve account (ERA) shortfalls under the
current fund structure; the proposed constitutional amendment
would collapse the ERA and the principle together; therefore,
there would be no more ERA shortfalls.
3:41:14 PM
REPRESENTATIVE VANCE referred to page 1, lines 5-6, of HJR 31,
which read:
At least twenty-five percent of all mineral lease
rentals, royalties, royalty sale proceeds, federal
mineral revenue sharing payment and bonuses received
by the State shall be placed in a permanent fund.
REPRESENTATIVE VANCE asked whether the sponsor had considered
statutory royalty or any other percentage going into the corpus
for the long-term growth of the fund.
CO-CHAIR KREISS-TOMKINS answered that the management of the
permanent fund has evolved tremendously in the 40 years since
inception. When the fund was first created, investment was very
conservative and restrictive; only investment in bonds was
allowed. Over the next 40 years, investments began to include
stocks and private equity, and currently it has a massively
diversified portfolio. With the initial investment constraints,
having a principle and an ERA made sense. In the current
context of how the APFC invests the money, that structure - of a
principle and an ERA - no longer makes sense, which is why the
APFC trustees passed Resolution 20-01.
CO-CHAIR KREISS-TOMKINS, in response to Representative Vance's
question about depositing other revenue streams into the
permanent fund, stated he has not explored that possibility. He
suggested that the question relates to the larger issue:
diverting funds from GF into the permanent fund presents
challenges for funding education and public safety but would
enhance the permanent fund and its growth. It is a decision for
the legislature.
3:44:39 PM
CO-CHAIR FIELDS offered that the declining oil revenue and the
transition from oil revenue to revenue from permanent fund
earnings presents a strong argument for growing the permanent
fund now. He asked whether that assessment is a fundamental
calculation in considering the POMV rate in the proposed
resolution.
CO-CHAIR KREISS-TOMKINS suggested that the "maintenance versus
growth" conversation has not occurred; the emphasis during the
Thirtieth Alaska State Legislature [Senate Bill 26, signed into
law 6/13/18] was to establish a POMV. He expressed that he
subscribes to the approach that it is better to suffer from
austerity in the short term for greater prosperity in the long
term; therefore, a lower draw makes sense.
CO-CHAIR FIELDS expressed his preference that the fund grow to
$100 billion in real terms, recognizing that the share of the
budget currently funded by the earnings would require that
amount for Alaska to be fiscally independent. He posed the
question: "How do you grow to that rate with the least economic
damage now, maximizing the revenue potential now, which isn't
intimately related to the oil industry?" He cited the declining
oil industry and stated that Alaska's traditional revenue stream
will not be available in 40 years; therefore, Alaska needs to be
fiscally independent in 40 years. He mentioned the possibility
of raising revenues from high-earning people now so that Alaska
can be fiscally independent in the not-so-distant future. He
suggested that as the oil industry declines, so do other revenue
options such as income taxes.
CO-CHAIR KREISS-TOMKINS relayed that his outlook - independent
of restructuring the permanent fund as recommended in the APFC
resolution - is that "things are quite a bit worse than we
think" as far as production from Alaska's oil fields, the
uncertainty regarding the price of oil, the performance of oil
stocks, and the emergence of renewable energy. He added that
the state has been subsidizing the [operating] budget for the
past six years by not passing a capital budget, which is wholly
unsustainable in a state that is so infrastructure dependent.
When the state again has capital expenditures, that will present
another cash demand that the state has been evading. He
concluded that it is a difficult "math problem" which emphasizes
the importance of taking a long-term view of the state's assets.
3:50:18 PM
CO-CHAIR FIELDS agreed with the importance of growing the
permanent fund; it was set up to be the "renewable energy source
for Alaska when oil was gone." That industry is aging, and
Alaska has a dwindling number of years to build up the fund to
provide fiscal sustainability. He mentioned two questions to be
asked: Do we need the structure proposed under HJR 31 and can
Alaska afford to pay any permanent fund dividend (PFD)?
REPRESENTATIVE HOPKINS stated that Resolution 20-01 from APFC
presented two options and asked why Representative Kreiss-
Tomkins chose option 1 over option 2. The first option was the
constitutional amendment [described under 1a of the [APFC]
resolution and proposed under HJR 31]. The second option was
described under number 2 of the [APFC] resolution, which read in
part:
2. Adjustments to the existing rules-based system
governing fund transfers into and out of the Principal
and ERA, ...
a. The Board recommends having a mechanism built into
state law that would require APFC to revisit this
return assumption every few years ...
b. To hedge this risk, the Board supports a change to
the existing rules-based system to maintain a balance
in the ERA of at least four times the expected annual
POMV draw ("4X Buffer").
CO-CHAIR KREISS-TOMKINS expressed his understanding that the
trustees preferred option 1 over option 2, but in the absence of
1, 2 is better than nothing. He said that he agrees with their
assessment.
REPRESENTATIVE HOPKINS offered that option 1 does not require
action by the legislature every year, but option 2 does.
REPRESENTATIVE VANCE asked whether, in addition to changing the
constitution to combine the ERA with the corpus and adding the 5
percent POMV draw, the sponsor considered enshrining the PFD in
the constitution as part of HJR 31.
CO-CHAIR KREISS-TOMKINS answered no. He said that he has
supported doing so in past years and believes it to be the best
solution to addressing the dividend; however, because there are
so many diverse perspectives on the PFD, layering the dividend
question on top of the question of protecting the permanent fund
would create division, and it would be impossible to reach
consensus.
REPRESENTATIVE VANCE suggested that linking the protection of
the fund with the PFD would demonstrate to Alaskans that they
would get their share of the resources while the state's portion
is "wrapped up tight."
3:55:48 PM
CO-CHAIR FIELDS commented that he would like to see a modeling
of lifetime earnings from the fund for individual Alaskans,
comparing the rate of return through the permanent fund
investments with the rate of return through investments
available to individuals. He mentioned that he, himself, cannot
earn at the same rate as the fund.
CO-CHAIR KREISS-TOMKINS offered that HJR 31 represents one of
the most important questions that the legislature can broach and
is very timely. In response to Representative Vance, he stated
that there is broad agreement that the permanent fund should not
be overspent; HJR 31 adheres to that principle rather than
introducing other issues such as an income tax or the dividend.
CO-CHAIR FIELDS stated that HJR 31 would be held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 31 Work Draft Committee Substitute ver S 3.11.20.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HJR 31 ver U 3.10.2020.PDF |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HJR 31 Sponsor Statement 3.10.2020.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HJR 31 Sectional Anaylsis 3.10.2020.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HJR 31 Supporting Document - APFC Resolution 20-01 3.5.2020.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HJR 31 Fiscal Note OOF-DOE 3.8.2020.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HB 190 ver A 1.24.20.PDF |
HSTA 2/25/2020 3:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 190 |
| HJR 31 Explanation of Changes v. U to v. S 3.11.2020.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HJR 31 Sectional Analysis v. S 3.11.2020.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |
| HB 190 Sponsors Statement 1.24.20.pdf |
HSTA 2/25/2020 3:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 190 |
| HB 190 Fiscal Note DOR-PFD 2.22.20.pdf |
HSTA 2/25/2020 3:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 190 |
| HB 307 v. A 3.9.2020.PDF |
HSTA 3/10/2020 3:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 307 |
| HB 307 Sponsor Statement v. A 3.9.2020.pdf |
HJUD 3/23/2020 1:00:00 PM HSTA 3/10/2020 3:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 307 |
| HB 307 Sectional Analysis v. A 3.9.2020.pdf |
HSTA 3/10/2020 3:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 307 |
| HB 307 Fiscal Note DOC-IDO-03-06-20.pdf |
HSTA 3/10/2020 3:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 307 |
| HB 307 Supporting Document - Reentry Coalitions Letter 3.11.2020.pdf |
HJUD 3/23/2020 1:00:00 PM HSTA 3/12/2020 3:00:00 PM |
HB 307 |
| HB 307 v. A Proposed Amendment #1 HSTA 3.12.2020.pdf |
HSTA 3/12/2020 3:00:00 PM |
HB 307 |
| HJR 31 Letter of Opposition - Testimony 3.11.20.pdf |
HSTA 3/12/2020 3:00:00 PM |
HJR 31 |