Legislature(2007 - 2008)HOUSE FINANCE 519

02/14/2008 01:30 PM House FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 200 WORKERS' COMP: DISEASE PRESUMPTION TELECONFERENCED
Heard & Held
+= HB 147 TOURISM CONTRACT MATCHING FUNDS TELECONFERENCED
Moved CSHB 147(FIN) Out of Committee
<Teleconference Listen Only>
+= SB 72 COMMUNITY REVENUE SHARING TELECONFERENCED
Heard & Held
<Teleconference Listen Only>
+ Bills Previously Heard/Scheduled TELECONFERENCED
CS FOR SENATE BILL NO. 72(FIN)                                                                                                
                                                                                                                                
     "An Act relating to the community revenue sharing                                                                          
     program; and providing for an effective date."                                                                             
                                                                                                                                
1:45:22 PM                                                                                                                    
                                                                                                                                
Representative  Thomas MOVED  to  ADOPT the  work draft  for                                                                    
CSSB  72(FIN), labeled  25-LS0506\F, Cook,  2/13/08.   There                                                                    
being NO OBJECTION, it was so ordered.                                                                                          
                                                                                                                                
1:46:04 PM                                                                                                                    
                                                                                                                                
SUZANNE  ARMSTRONG,  STAFF,  CO-CHAIR MEYER,  recalled  that                                                                    
last  year during  testimony on  SB 72  there were  elements                                                                    
that  surfaced   as  important   in  a   statutory  program:                                                                    
fairness,  stability,   affordability,  and  sustainability.                                                                    
She maintained  that the Community Revenue  Sharing proposal                                                                    
contains these elements.                                                                                                        
                                                                                                                                
Ms.  Armstrong referred  to  a  handout entitled  "Community                                                                    
Revenue  Sharing"  (copy  on   file.)    She  explained  the                                                                    
elements  of the  proposed revenue  sharing:  the fund,  the                                                                    
formula, and the mechanics.                                                                                                     
                                                                                                                                
Ms. Armstrong highlighted page  4, Community Revenue Sharing                                                                    
Fund.   The  purpose of  the  fund is  for making  community                                                                    
revenue sharing payments to local  communities.  It consists                                                                    
of  appropriations of  20 percent  of the  revenue generated                                                                    
under the  progressivity surcharge, not to  exceed the great                                                                    
of $50  million or the amount  to bring the fund  balance to                                                                    
$150  million.     Interest  earned  on  the   fund  may  be                                                                    
appropriated to  the fund.  The  money in the fund  does not                                                                    
lapse and is not a dedicated fund.                                                                                              
                                                                                                                                
Ms. Armstrong explained the formula on  page 5.  If the fund                                                                    
balance at the end of the  fiscal year, June 30, is at least                                                                    
$50  million,  there  will  be  revenue  sharing.    Without                                                                    
further   appropriation,   the   Department   of   Commerce,                                                                    
Community  and  Economic  Development  will  distribute  one                                                                    
third of the fund balance  as revenue sharing payments.  The                                                                    
amount of distribution  is very similar to  the amounts used                                                                    
during the  last two years  - $50  million as grants  in the                                                                    
capital budget.                                                                                                                 
                                                                                                                                
Ms. Armstrong turned to the chart  on page 6 to show how the                                                                    
basic payments are distributed.                                                                                                 
                                                                                                                                
1:48:23 PM                                                                                                                    
                                                                                                                                
Representative  Nelson  asked  if these  were  place  holder                                                                    
numbers  or actual  numbers.   Co-Chair  Meyer replied  that                                                                    
they  are good  place  holders and  work  similarly to  last                                                                    
year's capital budget distribution.                                                                                             
                                                                                                                                
Representative  Gara pointed  out  that in  2007 there  were                                                                    
Energy Assistance and PERS, instead  of revenue sharing.  He                                                                    
asked if  there was  a PERS reduction  this year.   Co-Chair                                                                    
Meyer said this legislation is separate from PERS/TRS.                                                                          
                                                                                                                                
Ms. Cunningham  related that this  bill is separate  from SB
125, which deals  with PERS/TRS changes.   In previous years                                                                    
revenue sharing was not done  through statutory program, but                                                                    
as  grants in  the capital  budget, and  was used  to assist                                                                    
communities  with energy  assistance  and rising  retirement                                                                    
costs.                                                                                                                          
                                                                                                                                
1:50:29 PM                                                                                                                    
                                                                                                                                
Representative  Kelly thought  it  was  important to  follow                                                                    
through with  Representative Gara's  point.  He  agreed that                                                                    
it was an addition to the PERS/TRS payment.                                                                                     
                                                                                                                                
Co-Chair  Meyer compared  it to  a  three-legged stool:  the                                                                    
PERS/TRS fix,  revenue sharing, and  education funding.   He                                                                    
added that the  $50 million figure was a place  holder.  The                                                                    
Governor is proposing $75 million.                                                                                              
                                                                                                                                
Representative  Nelson  noted   that  under  the  Governor's                                                                    
proposal  it would  be a  50  percent increase  and would  a                                                                    
matching grant program.   The revenue sharing  could then be                                                                    
used   for  operating   costs  as   well   as  for   capital                                                                    
expenditures,  which  she  thought  was  good  because  some                                                                    
communities ran into  red tape in the past.   Co-Chair Meyer                                                                    
said  there were  no strings  attached.   Anchorage will  be                                                                    
using it for property tax relief.                                                                                               
                                                                                                                                
Representative  Nelson  recalled   the  heroes  list,  those                                                                    
communities  that paid  retirement  costs  into the  future.                                                                    
She wondered if the hero  communities would be accounted for                                                                    
in other areas  of the budget.  Co-Chair  Meyer thought that                                                                    
would happen in the PERS/TRS fix.                                                                                               
                                                                                                                                
Ms. Armstrong agreed that would be addressed in SB 125.                                                                         
                                                                                                                                
1:54:18 PM                                                                                                                    
                                                                                                                                
Representative Gara  pointed out that the  minimum amount an                                                                    
unincorporated city  would get is $20,000  to $25,000, which                                                                    
he thought  was low.   He recalled that last  year's minimum                                                                    
was closer  to $40,000.  He  shared a history of  the amount                                                                    
allotted for  revenue sharing.   He expressed  concern about                                                                    
cutting  the amount.   Co-Chair  Meyer noted  different ways                                                                    
revenue sharing has been implemented throughout the years.                                                                      
                                                                                                                                
Ms.  Armstrong explained  that the  basic  payments in  this                                                                    
bill are  similar to the  basic payments allowed for  in the                                                                    
capital budget grant last year.   There is also a per capita                                                                    
distribution on  top of the  basic payment.   Representative                                                                    
Gara repeated  that $20,000 was  too small.   Co-Chair Meyer                                                                    
agreed,  but  thought the  amount  would  go to  very  small                                                                    
communities that didn't need as much money.                                                                                     
                                                                                                                                
1:56:18 PM                                                                                                                    
                                                                                                                                
Ms.   Armstrong   turned  to   page   7,   the  Per   Capita                                                                    
Distribution.   She explained that the  remaining balance of                                                                    
the $50 million  is distributed per capita.   Communities in                                                                    
an  unorganized borough  cannot  have a  total payment  that                                                                    
exceeds the city  basic payment.  The excess  amount is then                                                                    
distributed to  the remaining qualifying communities  in the                                                                    
unorganized  borough.  The  population  of each  city  in  a                                                                    
borough is deducted from the total borough population.                                                                          
                                                                                                                                
Ms.  Armstrong  addressed  what   happens  when  the  amount                                                                    
available is larger  than $50 million, page 8.   The formula                                                                    
has a "floating" basic payment structure.                                                                                       
                                                                                                                                
Ms.  Armstrong described  what happens  when  there is  less                                                                    
than $50  million available, page  9.  The  floating payment                                                                    
kicks  in, but  in reverse.    The basic  rationale is  that                                                                    
every community would retain their slice of the pie.                                                                            
                                                                                                                                
1:58:26 PM                                                                                                                    
                                                                                                                                
Representative Nelson  asked if it was  a 50/50 distribution                                                                    
regarding base and  per capita.  Ms.  Armstrong replied that                                                                    
it was actually 40 percent  basic payment and 60 percent per                                                                    
capita.   Representative Nelson asked if  that was flexible.                                                                    
Co-Chair Meyer said it was.                                                                                                     
                                                                                                                                
Representative  Crawford  asked  who does  the  counting  of                                                                    
population.   Ms. Armstrong reported that  the Department of                                                                    
Commerce does  it.  There  is language in the  bill defining                                                                    
how population  is considered.   She recalled it was  by PFD                                                                    
qualification or by an allowable  method that the department                                                                    
determines appropriate.                                                                                                         
                                                                                                                                
1:59:49 PM                                                                                                                    
                                                                                                                                
Representative  Gara  said  he  understands  there  are  two                                                                    
methods  of   revenue  sharing,   an  appropriation   or  an                                                                    
endowment.  He related that  he does not understand creating                                                                    
a $150 million endowment to  spin off $50 million.  Co-Chair                                                                    
Meyer  reported the  Senate's concept  of the  progressivity                                                                    
rate for three years so municipalities could adjust.                                                                            
                                                                                                                                
Ms.  Armstrong added  that it  was to  provide stability  to                                                                    
communities.                                                                                                                    
                                                                                                                                
Ms. Armstrong continued with page  10.  She explained that a                                                                    
minimum base has  been inserted in order  to protect smaller                                                                    
communities when  there is less  than $50  million available                                                                    
for a  program.   The minimum borough  basic payment  in the                                                                    
draft proposal is $220,000.                                                                                                     
                                                                                                                                
Ms. Armstrong showed page 11  to explained the minimum basic                                                                    
payments when the program is at $36 million                                                                                     
                                                                                                                                
Ms.  Armstrong  turned  to  page  12  to  explain  the  fund                                                                    
mechanics.  Each  of the three years there would  have to be                                                                    
a payment of  $50 in order to keep the  fund balance at $150                                                                    
million.                                                                                                                        
                                                                                                                                
Ms. Armstrong  explained page 13, a  hypothetical example of                                                                    
what happens when  oil prices fall below $60  per barrel and                                                                    
remain there through FY 2013.                                                                                                   
                                                                                                                                
2:03:56 PM                                                                                                                    
                                                                                                                                
Ms. Armstrong reported  on page 14 that the  fund has bounce                                                                    
back potential.   Interest may  be appropriated to  the fund                                                                    
by the  legislature.   Other revenue  such as  general funds                                                                    
may be  appropriated to  the fund.   Most  importantly, when                                                                    
higher  oil  prices  trigger the  surcharge,  the  fund  can                                                                    
immediately recover  to the $150 million  level and payments                                                                    
the following year would be $50 million.                                                                                        
                                                                                                                                
Ms.  Armstrong summarized  the  revenue  sharing program  on                                                                    
page 15.   She reviewed the four elements need  to decide if                                                                    
it meets  the test: fairness, stability,  affordability, and                                                                    
sustainability.   The  fund has  basic payments  that adjust                                                                    
with the  funds available  for the  program, coupled  with a                                                                    
per-capita  payment.    The communities  will  know  payment                                                                    
levels  well in  advance.   The program  is funded  when the                                                                    
surcharge  is triggered  or other  appropriations are  made.                                                                    
The fund has  quick "bounce back" potential, as  long as the                                                                    
total  cost of  the program  is a  sustainable cost  for the                                                                    
state.                                                                                                                          
                                                                                                                                
Co-Chair  Meyer commented  that  public  testimony would  be                                                                    
held at  another time.   He noted  that there is  an on-line                                                                    
revenue sharing model  available to look at.   He emphasized                                                                    
that there was  an attempt to keep  the distribution similar                                                                    
to the last two year's distributions.                                                                                           
                                                                                                                                
2:06:50 PM                                                                                                                    
                                                                                                                                
Representative Thomas  asked if  the overhead could  be made                                                                    
available.     Ms.  Armstrong  said   she  would   make  the                                                                    
information available.                                                                                                          
                                                                                                                                
Representative  Gara requested  more  information about  the                                                                    
progressivity surcharge  formula on page  5, lines 4  and 5,                                                                    
"20 percent  of the money  received by the state  during the                                                                    
previous calendar  year under AS 43.55.011".   Ms. Armstrong                                                                    
said that was the  statutory reference.  Representative Gara                                                                    
asked  for  a  projection  of  20  percent  at  various  oil                                                                    
projections.     Ms.  Armstrong   agreed  to   provide  that                                                                    
information to  the committee.   She referred  to subsection                                                                    
(b) on page 5 as a work in  progress.  The intent is that it                                                                    
would  be  20  percent  of  the  money  received  under  the                                                                    
surcharge in an amount not to  exceed $50 million or what it                                                                    
would  take   to  capitalize  the  fund   at  $150  million.                                                                    
Representative Gara  inquired if  the intention is  that the                                                                    
fund  never exceeds  $150 million.    Ms. Armstrong  replied                                                                    
that subject  to legislative appropriation, it  could.  This                                                                    
draft bill idealizes a $50  million revenue sharing program.                                                                    
Representative Gara commented that it  makes it a maximum of                                                                    
$50 million,  which will decrease  with inflation.   He said                                                                    
he liked the progressivity element.                                                                                             
                                                                                                                                
2:10:25 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer commented  on what  happens when  oil prices                                                                    
are higher.                                                                                                                     
                                                                                                                                
Representative  Kelly noted  that there  are at  least three                                                                    
competing schemes for the same oil dollars.                                                                                     
                                                                                                                                
Representative Crawford  thought that  this bill might  be a                                                                    
direct conflict  with the progressivity  piece.   He thought                                                                    
the concepts should be combined.                                                                                                
                                                                                                                                
Ms. Armstrong  pointed out  that a  constitutional amendment                                                                    
would trump statute.                                                                                                            
                                                                                                                                
2:13:06 PM                                                                                                                    
                                                                                                                                
Representative  Joule  said  that   there  is  nothing  that                                                                    
prohibits the legislature from  earmarking funds for revenue                                                                    
sharing down the line.  The  challenge could be in the first                                                                    
five years.                                                                                                                     
                                                                                                                                
Ms. Armstrong  referred to documents that  portrayed how the                                                                    
payments would look under several scenarios.                                                                                    
                                                                                                                                
Representative Gara  wished to hear from  the Administration                                                                    
on the bill.                                                                                                                    
                                                                                                                                
CSSB 72(FIN)  was heard  and HELD  in Committee  for further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2:16:09 PM                                                                                                                    
                                                                                                                                

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