Legislature(2015 - 2016)HOUSE FINANCE 519
04/16/2016 08:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB196 | |
| SB210 | |
| SB196 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 196 | TELECONFERENCED | |
| += | SB 210 | TELECONFERENCED | |
| += | HB 245 | TELECONFERENCED | |
| += | HB 250 | TELECONFERENCED | |
| += | HB 249 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR SENATE BILL NO. 196(FIN)
"An Act relating to the amount appropriated for power
cost equalization; relating to the use of certain
unexpended earnings from the power cost equalization
endowment fund; and providing for an effective date."
Co-Chair Neuman MOVED to ADOPT the proposed committee
substitute for CSSB 196(FIN), Work Draft 29-LS1383\R
(Nauman, 4/16/16). There being NO OBJECTION, it was so
ordered.
9:15:46 AM
PETE ECKLUND, STAFF, REPRESENTATIVE MARK NEUMAN, relayed
that after the cost of the power cost equalization program
(PCE) was paid, the current version would allow that excess
earnings to be used in 3 ways: $30 million would fund
renewable energy grants, bulk fuel revolving loan fund, and
the rural system power upgrades, any remaining funds would
flow back to the PCE fund.
9:17:11 AM
Representative Edgmon believed that he understood what was
being proposed in the legislation.
Representative Munoz requested another review of the
changes to the legislation found in the current version of
the bill.
Mr. Ecklund responded that the changes included that the
excess earning of the PCE fund, after paying out the
program costs, would go toward the $30 million fund that
would pay for the new community assistance program, a $25
million fund for renewable energy grants, bulk fuel
revolving loan fund, and the rural system power upgrades,
any remaining funds would flow back to the PCE fund.
Representative Munoz asked how this version compared to the
original bill.
Mr. Ecklund explained that the original bill had contained
a mechanism that allowed for 50 percent of the excess PCE
funds to be placed in the $30 million fund for the
community assistance program. The current version did not
split out the percentages, but stipulated that the $30
million be honored first with any additional PCE funds.
9:19:21 AM
Vice-Chair Saddler asked about the change in the assumed
return on the fund from 7 percent to 5 percent.
Mr. Ecklund suggested that 5 percent was a more realistic
number, while the 7 percent was more aggressive and
volatile.
Representative Kawasaki asked whether the overflow funds
would be replenished annually.
Mr. Ecklund responded that it would dependent on the actual
returns. He stated that if there was a return of 6 percent,
$17 million would be given to community assistance in FY
18, with no funds flowing to rural energy or back to PCE.
He said that the money flow would be determined by future
returns.
9:21:02 AM
Representative Kawasaki understood that any excess in a
calculated year would first flow to community revenue
sharing, up to $30 million.
Mr. Ecklund stated that Representative Kawasaki was
correct.
Representative Kawasaki understood that if the PCE in 2017
generated $44 million, the balance going into the community
revenue sharing account would be approximately $5 million.
Co-Chair Thompson remarked that Mr. Teal was available to
answer questions.
Representative Kawasaki spoke to fiscal note 2, which
estimated the cost of funding the PCE program for FY17 at
approximately $40 million.
9:23:14 AM
AT EASE
9:25:28 AM
RECONVENED
Representative Kawasaki noted the change between the
previous and current bill versions.
9:26:25 AM
Co-Chair Neuman stated that because the state no longer had
revenue to "share" the community revenue sharing should now
be called the community assistance program. He thought that
the highest priority for the state should be to help
communities across Alaska, particularly in rural Alaska, to
support basic government services. He felt the formulation
of the fund distribution was equitable.
9:28:52 AM
Representative Edgmon wanted assurances that the endowment
would be protected with the fund.
9:29:10 AM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
explained that the first priority of the program was to pay
PCE. He relayed that in order to protect the fund the
senate version of the bill would always put some of the
excess earnings back into the fund. He said that the house
version was exactly the same as the senate version, as long
as excess earning exceeded $55 million. He furthered that
if the excess earnings were less than $55 million, the
house version favored community assistance up to $30
million. He stated that the current version did not
strongly protect the endowment because in years with excess
earnings between $0 and $55 million, no money would be
returned to the endowment.
Co-Chair Thompson queried how many times in the past the
earnings had not exceeded $55 million.
Mr. Teal replied that the earnings had fluctuated between
negative 13 percent, to plus 24 percent. He said that he
could not speculate what the earnings in the future would
be, but pointed to the document titled, "PCE Endowment
Analysis of SB 196 for CS" pages 1 and 2(copy on file),
which offered a sampling of high positive, medium, low, and
negative rates. He said that when there was an excess of
$55 million, the fund would be protected, and that the
historical numbers would be of better use in predicting
future income than the constant 6 percent.
9:32:29 AM
Co-Chair Thompson understood that the second page of the
document used an average of 6 percent.
Mr. Teal stated that he was correct.
Representative Edgmon stated that previous legislation had
changed the earning threshold of the fund from 7 percent,
to achieve at least a 4 percent nominal return over a 5-
year period. He felt that if the fund were managed less
aggressively, reaching the $55 million threshold would be a
challenge. He asserted that speculation on reaching a 10
percent rate of return would be an academic argument.
9:34:16 AM
Mr. Teal stated that there were 2 things that should be
considered in order to address the concerns. He referred to
the change from 7 percent, to 5 percent, in Section 2 of
the bill. He related that the change had nothing to do with
the return on the fund, but was related to the payout rate.
He said that even with negative returns, the 5 percent
payout would go to PCE. He explained that bad return years
would result in the PCE program being prorated.
9:35:26 AM
Representative Edgmon contended that the current version
offered more protection to the PCE program because the
excess was guaranteed to be put back into the corpus of the
fund.
9:35:59 AM
Mr. Ecklund interjected that regardless of the assumed
percentage of return, as long as the percentage was under 5
percent, the PCE program would receive a payout. He added
that there were no guarantees in life; if the state
experienced negative returns the legislature would face the
choice of short funding the PCE program, taking more out of
the PCE fund to fully fund the program, or using general
funds to pay the PCE program.
9:36:47 AM
Representative Edgmon disputed that the original bill
offered 4 steps that the money would have to take before
being put back in the fund, the current bill version only
offered 2 steps.
Mr. Teal thought the issue could be resolved by inflation
proofing the fund. He agreed with Representative Edgmon
that if there was less than $55 million now, none of it
went back to protect the PCE fund.
9:38:28 AM
Representative Gara surmised that the argument was whether
the PCE fund would be used to primarily fund and protect
the PCE fund, or whether the fund became primarily used to
fund revenue sharing before protecting the fund. He asked
whether the fifth column of the chart reflected excess
earnings above the PCE payment.
Mr. Ecklund responded in the affirmative.
Mr. Teal added that the column labeled "earnings" reflected
the earnings that the earnings rate would produce. He noted
that the next column listed program costs, which were not
paid for out of earnings, but out of a 5 percent POMV. He
stated that if earnings were negative in a year, the 5
percent payout would cover program costs. He felt that it
was important to examine the last column on the chart in
order to be sure that the payout did not exceed 5 percent
because if it did PCE would be prorated. He stated that the
negative 7.2 in the column, "2nd Prior Fiscal Year Earnings
in Excess of Program Costs" was subtracted from $33.2
million in earnings from FY15, meaning that there was be no
excess earnings in that year and no money would flow to any
other accounts. He furthered that in FY 18, there were
excess earnings of 17 million, which was the result of
taking the $58 million earned in FY 16, subtracting the $41
million in program costs in FY 18 from the $58 million
earned in FY 16, which left $17 million in earnings to be
distributed. He noted that the entire $17 million could go
into community assistance, and if the number were larger,
it would continue to go into community assistance - up to
$30 million. He relayed that if there were more than $55
million total, the excess after community assistance and
rural energy programs would be used to inflation proof the
fund.
9:42:09 AM
CSSB 196(FIN) was HEARD and HELD in committee for further
consideration.
Co-Chair Neuman asserted that there was not extra money in
FY 17 for the renewable energy fund, bulk fuel fund, and
rural power system upgrades. He contended that the highest
priority should be community assistance, and that the
solution should be that any excess funds after community
assistance should be rolled directly back into the PCE.
Representative Edgmon hoped a resolution could be reached.
CS FOR SENATE BILL NO. 196(FIN)
"An Act relating to the amount appropriated for power
cost equalization; relating to the use of certain
unexpended earnings from the power cost equalization
endowment fund; and providing for an effective date."
6:54:17 PM
Co-Chair Neuman MOVED to ADOPT the proposed committee
substitute for CSSB 196(FIN), Work Draft 29-LS1383\R
(Nauman, 4/16/16). There being NO OBJECTION, it was so
ordered.
6:55:17 PM
ADAM BERG, STAFF, REPRESENTATIVE BRYCE EDGMON, spoke to the
changes in the work draft. He noted that the only change
was the reorder of the flow of how surplus earnings from
the endowment would be spent. He said that the intent was
to split the $50 million, after the $30 million had been
paid out, and put half in the endowment and half into
either the renewable energy fund, the bulk fuel revolving
loan fund, or rural power system upgrades.
6:56:32 PM
Representative Edgmon relayed that the latest version
addressed his concern about having some of the surplus
money flow back to the endowment for inflationary purposes.
Co-Chair Thompson noted that many people had come together
to craft a workable bill.
Representative Wilson queried the $25 million cap written
into the legislation.
Mr. Berg replied that the previous version allowed for $25
million to flow to the renewable energy grant fund, among
other funds, and the current version split the funds 50/50
between the endowment and the renewable energy grant fund;
the renewable energy grant fund would be capped at $25
million.
Representative Wilson offered an example of her
understanding of how the fund functioned.
Mr. Berg offered the example that out of $60 million, $30
million would go to the community revenue sharing fund, $15
million would go back into the endowment, and $15 million
would go to the renewable energy grant fund.
Representative Wilson hypothesized that out of $100
million, $30 million would automatically go to the
community revenue sharing fund, leaving $70 million left
over, of which no more than $25 million could be put back
into the extra funds, and the remainder would go back into
the PCE program.
Mr. Berg answered that she was correct in her hypothetical.
Representative Kawasaki pointed to the $55 million to $80
million change in the current bill version.
Mr. Berg replied that earlier version had used $30 and $25
million in order to get a total of $55 million. He said
that because the funds were now going to be split 50/50,
the $25 million would become $50 million: $50 million plus
$30 million is equal to $80 million.
Representative Kawasaki surmised that those numbers were
unlikely in a single year. He asked whether the 50 percent
number had been modeled.
Mr. Berg responded that it had not been tested, but the
outlook seemed positive after reviewing the history of the
earnings of the fund, the bill would assure that the
endowment was replenished at 2.5 percent interest on the
fund's current balance.
6:59:58 PM
Representative Gattis wondered about years when there could
be no earnings on the fund.
Mr. Berg replied that the worst case scenario would mirror
the current situation; if enough earnings were not spun off
to fully fund PCE payments then money from the endowment
would be used, or the payments could be supplanted with
general funds.
Representative Gattis asked whether the bill contained
sideboards.
Mr. Berg responded that the bill only addressed the PCE
payout. He added that the legislation would not stop the
legislature from using the PCE fund at their discretion.
Representative Gara asked whether the sponsor of the bill
supported the current bill version.
Mr. Berg responded that he could not speak to whether the
sponsor supported the current version of the bill.
Vice-Chair Saddler addressed the 2 fiscal notes attached to
the bill.
7:02:46 PM
Representative Wilson asked how the $17 million, reflected
in FN 1, had been estimated.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
explained that FN 1 was for illustrative purposes only. He
stressed that there was no way to know what the excess
earnings would be. He noted that $17 million would not
fully fund the community assistance program. He said that
the numbers could range from $30 to $80 million, and that
the fiscal impact for FY17 would be zero either way.
Representative Wilson asked whether the $17 million would
have originally been paid out of the general fund.
Mr. Teal replied in the affirmative. He said that there
would be a reduction of general funds for up to $0 million
for community assistance and up to $25 million for rural
energy programs. He stated that the fiscal note could show
a fund change of anywhere from zero to $55 million. He
stated that the $17 million was likely a low estimate.
Mr. Teal furthered that if the earnings were zero, or
negative, there would be no replacement of unrestricted
general funds with excess earning from the PCE fund. He
said that there would be budget variations from year-to-
year, some years could have no excess earnings and the
state may decide to appropriate undesignated general funds
to the community assistance program, or not fund it in that
year; the appropriation process was up to the legislature.
7:06:40 PM
Co-Chair Neuman MOVED to REPORT HCS CSSB 196(FIN) out of
Committee with the accompanying fiscal notes. There being
NO OBJECTION, it was so ordered.
HCS CSSB 196(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one previously published zero
fiscal note: FN2 (CED); and one previously published fiscal
note: FN1 (SFC for Various).
7:07:10 PM
AT EASE
7:08:30 PM
RECONVENED
Co-Chair Thompson discussed housekeeping and RECESSED to
the Call of the Chair. [Note: the meeting never
reconvened].
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 196 CS WORKDRAFT HFIN vT.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 196 |
| CS SB 210 HFIN WORKDRAFT vN.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 210 |
| 4 14 16 SB 210 to status quo FY18-19.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 210 |
| Copy of 4 15 16 PCE Endowment Analysis of SB 196 for CS.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 196 |
| PAGE 2 of 4 15 16 PCE Endowment Analysis of SB 196 for CS.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 196 |
| SB 210 HCS FIN NEW FN FUND CAP.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 210 |
| 4-14-16 SB210 Letter to House Finance w-attach.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 210 |
| SB 196 HCS WORKDRAFT FIN vR.pdf |
HFIN 4/16/2016 8:30:00 AM |
SB 196 |