Legislature(2007 - 2008)HOUSE FINANCE 519
03/04/2008 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB326 | |
| HJR28 | |
| HB330 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 330 | TELECONFERENCED | |
| + | HB 336 | TELECONFERENCED | |
| + | HB 359 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HJR 28 | TELECONFERENCED | |
| += | HB 326 | TELECONFERENCED | |
HOUSE JOINT RESOLUTION NO. 28
Proposing an amendment to the Constitution of the
State of Alaska relating to the production tax revenue
fund, dedicating a portion of the petroleum production
tax to the fund, and limiting appropriations from the
fund.
Vice-Chair Stoltze MOVED to ADOPT work draft 25-LS1217\L,
Cook, 3/3/08, as the version of the bill before the
Committee. There being NO OBJECTION, it was adopted.
REPRESENTATIVE RALPH SAMUELS, SPONSOR, addressed previous
discussion in the Committee comparing the long and short
versions. He noted that by adopting the \L work draft, the
short version had been adopted. The draft legislation
removes funds from the progressivity and places it into the
Constitutional Budget Reserve (CBR). At the same time, it
changes the payout methodology into an endowment style
payout.
Representative Samuels pointed out the chart as submitted
by David Teal at the Division of Legislative Finance.
(Copy on File). The chart highlights assumptions from the
Department of Revenue and was based on an $85 dollar per
barrel for oil, indicating the automatic payment made into
the fund and then the payout amount. The concept is to
save as much as possible while oil prices are high.
2:26:05 PM
Co-Chair Meyer asked if the sponsor supports the short
version as adopted. Representative Samuels replied he
does. The long version would phase in over time, however,
the short one address concerns voiced during the Committee
process.
Representative Joule realized the Committee had previously
passed a revenue sharing bill, which taps progressivity
dollars. He asked if HJR 28 passes, what will happen to
revenue sharing. Representative Hawker recalled the text
of the revenue sharing bill uses progressivity as a
measuring device, not an appropriation of funds. The bill
clarifies an amount equal to a certain calculation based on
progressivity. HRJ 28 actually dedicates funds.
2:28:13 PM
Co-Chair Meyer referenced the handout, highlighting revenue
versus expenditures, while providing a mechanism for the
payout. Representative Kelly wanted to see more
information on anticipated budget growth, which was not
included in the handouts. Co-Chair Meyer pointed out the
evenue Sources Book", which he thought addressed those
concerns voiced by Representative Kelly. (Copy on File).
Co-Chair Meyer agreed that the bill provides merit in how
to use the savings for a long range benefit to the State.
2:31:14 PM
Co-Chair Meyer noted the Department of Revenue fiscal note
needs a replacement.
Vice-Chair Stoltze MOVED to REPORT CSHJR 28 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. Co-Chair Meyer OBJECTED in
order that Representative Gara could ask a question.
Representative Gara asked to make sure that the analysis
from the Legislative Finance Division (LFD) had been
distributed. Representative Samuels apologized that the
chart previously mentioned had not been handed out.
2:34:50 PM
Representative Gara understood that under the proposed
bill, the model will become effective in 2009; he asked the
projected spending as compared to anticipated revenues. He
stipulated his concern about dedicating money to the point
where the funding brings the State into a budget deficit.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
referenced the graph, which highlights the information
given an assumption based on a 3% General Fund spending
growth, in which oil is at $90 dollars per barrel. He
apologized that he had not had enough time to make the
model legible. The Division did opt not to hand out the
spreadsheet. The spreadsheet goes back to the November
2007 model, determining the percentage base. The Division
has provided only one chart at $90 dollars per barrel; he
added that at $40 dollars, there would be no surcharged
revenue.
Representative Gara noticed that all changes are projected
onto the price of oil. He realized that when the Division
was requested to project next year's surplus, they used the
$60 dollars per barrel price. He requested the projected
numbers used by the Department of Revenue. Mr. Teal
responded that they (DOR) had projected oil at $66 dollars
per barrel. A new forecast is due out soon and that the
projected forecast simply determines the model. It is the
actual price which determines how much flows into the
proposed account. The model can configure any price
entered. Mr. Teal offered to assist Representative Gara,
entering various price assumptions.
Representative Gara pointed out the 3% growth rate, which
was chosen in the General Fund budget. He noted that in
the last three years, it has been closer to 10%. Mr. Teal
acknowledged that it has been 10% or higher, a lot of which
is catch-up agency growth to the statewide operating costs.
There is investment credit paid to the small producers. He
reiterated that it is the statewide increases that are the
cause of the 10% growth rate and that agency budgets are
not growing, retirement costs will no longer be increasing
and credits are fully funded. Those numbers were backed
out.
Representative Gara requested a projected oil price
projection. He said that at the anticipated $66 dollars
per barrel, he imagined the crossover point would be where
expenditures start exceeding revenue at about 2012. Mr.
Teal thought the start date would be 2011.
Representative Gara requested a chart indicating the
Department of Revenue's projected oil price at a 3% and a
6% General Fund increase. Mr. Teal replied he would
provide that info. Co-Chair Meyer encouraged that Mr. Teal
work directly with Representative Gara and Representative
Kelly.
2:41:24 PM
Representative Kelly mentioned growth in the General Fund
budget. Representative Gara reiterated that he did not
think the 3% increased number was correct. Representative
Kelly recommended a 3%-6%-9% projection analysis. Mr. Teal
offered to work with Representative Gara and Representative
Kelly on various numbers used in the model. He added that
the concern is the varying assumptions within the operating
budget and in order to include many prices of oil, one
would need to make many graphs. Each graph looks very
similar unless it is closely scrutinized.
Representative Gara maintained that if the State assumes a
higher price of oil, the State will not hit deficit mode
for many years; however, assuming a lower price, places the
State in deficit mode much sooner [2011]. Either way, it
will affect legislative judgment. He reiterated the
request for the price used by the Department of Revenue.
He asked if the State assumes $66 dollar a barrel for oil
with a 6% budget growth, would it bring Alaska closer to
2011 projection on when the deficit mode is reached. Mr.
Teal responded it would be 2010.
In response to Representative Gara, Mr. Teal explained that
the lower the price, the lower the anticipated revenue.
The faster the growth rate chose for the appropriation, the
higher the expenditures. The deficit is simply a function
of revenue and expenditures.
Representative Gara asked if the deficit was reached
because the $66 dollars per barrel was used. He
anticipated that in 2010, if that number was used, there
could be that much less revenue. He questioned how much
less would be deposited under the bill's proposal. Mr.
Teal advised that under the official revenue forecast, the
amount that goes into the fund is the CBR balance itself.
When making the determination, he used the current CBR
balance of approximately $3.2 billion dollars and assumed
that the $2.6 billion dollar in the supplemental bill was
accepted. The State would begin with a balance of over $5
billion dollars plus whatever is deposited in 2009. It is
anticipated that in 2010, an approximate $400 million
dollars would be deposited and would move through the life
of the resolution, which is 2014.
Representative Gara clarified that it would begin in 2010 @
$66 dollars per barrel. Mr. Teal said yes, the revenue
forecast assumes that it would be in the mid $60's and then
drops to the $45 dollar per barrel price, which means no
revenue surcharge would be accessed.
Representative Gara stated that beginning in 2010, assuming
the $66 dollars a barrel price, all the CBR balance would
have been swept; the State would be starting with an even
budget by 2010. That year, no CBR money would be counted
because the funds had been swept. In 2010, the State will
hit the point where it will be spending $400 million more
than it is taking in. Mr. Teal explained that the number
starts out at $100 million dollars and stays that way
through 2014, at which point, the revenue forecast falls
into the $40 dollar range and the deficit increases over $2
billion dollars. Representative Gara wondered if that
assumed that in 2014, the price of oil moved down to $45
dollars per barrel. Mr. Teal said yes.
2:47:16 PM
Representative Kelly supported placing money into the
proposed fund; he thought it could provide the State a
"soft landing device" into the future. Mr. Teal noted that
if the State uses the Department of Revenue's forecast for
oil prices, there will be no soft landing cushion. He
pointed out the graph indicates that expenditures are
currently lower than revenue if oil stays at $90 dollars
per barrel. It depends on what is done with that surplus
savings. If spent, the money is gone; if saved, those
dollars would be available in the future. He emphasized
that all that moves into that account is the surcharge.
When the oil revenue is high, there will be a surplus
because the oil revenue will be sufficient. The surcharge
goes away rapidly when oil approaches the $60 dollars per
barrel price. At $60 dollars per barrel, the surcharge is
zero. If oil prices fall rapidly, the account will not be
stocked up. The model indicates that kind of information
using various assumptions.
Representative Samuels agreed that at $60 dollars per
barrel oil price, no new money would be flowing into the
CBR. He spoke to his philosophy of the bill, to save as
much money as possible right now so that future generations
will continue to have a safety net.
2:50:46 PM
Vice-Chair Stoltze interjected that the State does not
have a budget shortfall but rather a spending surplus. He
added that it is always a delicate process to achieve a
super majority vote. He indicated his support for the
proposed approach.
Representative Joule asked if the principle of the fund
would be accessible. Representative Samuels said no. The
CBR would become an endowment style fund with 5% available
for spending by the legislature each year.
Representative Joule believed that essentially, the State
would then have two permanent funds. Representative
Samuels disagreed given the methodology of the payout.
Presently, the Legislature can access all the earnings;
however, if the market tanks, the earnings go away. The
payout methodology proposed in HJR 28 is different with two
separate mechanisms. He predicted that as oil production
declines over time, the State will be facing problems.
Representative Joule stated he does not support "fencing
the dollars off" completely.
2:55:01 PM
Representative Gara assumed that most of the projected
payout will come from the first two-year deposits at
roughly $6 billion dollars. There is a projected deficit
spending of nearly $400 million dollars per year. He noted
concern for the out-years and voiced support in creating an
endowment using present dollars. He was confused how a
constitutional amendment would put something away that no
one could ever touch. He realized that the bulk of this
future payout comes from the first two years of deposits.
Mr. Teal responded that is true under the Department of
Revenue forecast and at $85 dollar per barrel oil, the
deposits would amount to approximately $1.2 billion dollars
per year for four years. Depending on the price of oil,
there could be up to another $5 billion dollars placed into
the fund between 2010-2014.
Representative Gara inquired how it works once the voters
approved it. Representative Samuels explained that the
legislation would restructure the CBR.
Representative Gara asked when the State would be able to
start accessing those funds. Representative Samuels
responded that at present time, legislators are not able to
access the corpus of the Permanent Fund either.
2:58:11 PM
Representative Crawford noted if there was a statewide
disaster, the constitution can always be changed. The
Legislature can always "right a wrong. He stated that he
supports the legislation. Representative Samuels agreed
with the comments made by Representative Crawford.
Representative Joule addressed his concerns with any
attempt to change the Alaska Constitution.
TAM COOK, DIRECTOR, LEGISLATIVE LEGAL SERVICES, LEGISLATIVE
AFFAIRS AGENCY, explained that the Constitution can only be
amended by a 2/3 vote of the Legislature. A proposal must
be approved by the voters and can be presented to the
voters only during a general election.
Co-Chair Meyer requested that the Department of Revenue
revise fiscal notes 3 & 4.
Co-Chair Meyer WITHDREW his OBJECTION. There being NO
further OBJECTION, it was so ordered.
CSHJR 28 (FIN) was reported out of Committee with a "do
pass" recommendation and with zero note #1 by the
Department of Administration, fiscal note #2 by the Office
of the Governor, fiscal note #4 by the Department of
Revenue and new note by the Department of Revenue.
3:02:04 PM
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