Legislature(2001 - 2002)

03/25/2002 09:27 AM FIN

Audio Topic
* first hearing in first committee of referral
+ 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 Mulder MOVED to ADOPT  the work draft, #22-LS1207\B,                                                                   
Cook,   3/25/02.     Representative   Davies   OBJECTED   for                                                                   
discussion purposes.                                                                                                            
Representative Davies  inquired the changes made  to the work                                                                   
Co-Chair Williams outlined the  changes that had been made to                                                                   
the draft:                                                                                                                      
     ·         Delay effective date for changing to POMV                                                                        
               until June 29, 2003.                                                                                             
     ·         Intend to transfer $300 million dollars from                                                                     
               the earnings reserve to the general fund in                                                                      
               2002 (for the FY03 budget).                                                                                      
     ·         Language referring to the dividend as being                                                                      
               $1540  this October, since  the State  will be                                                                   
               leaving  the current  formula in effect  until                                                                   
               next year.   He emphasized that  nothing would                                                                   
               change with this year's dividend.                                                                                
Representative  Croft observed that  the changes  would delay                                                                   
it for a year  and the 7% would then be in effect.   He asked                                                                   
if it  would change the percent  of distribution from  45% to                                                                   
55% mix-government.                                                                                                             
Co-Chair Mulder restated  the MOTION to ADOPT  the work draft                                                                   
"B" as the  working document before the Committee.   Co-Chair                                                                   
Williams OBJECTED.                                                                                                              
Representative  Lancaster observed  that the  rate of  return                                                                   
had been changed  from 7.95% to 8.25%.  He  noted information                                                                   
listed on the spreadsheets.  [Copies on File].                                                                                  
Discussion  followed  amongst   Committee  members  regarding                                                                   
information contained on the spreadsheet.                                                                                       
Co-Chair  Williams  stated that  the  payout  7.65% would  be                                                                   
delayed starting in FY04.                                                                                                       
Representative  Davies commented  on the  delay and  how that                                                                   
would affect  the Capital Budget  Reserve (CBR).  One  of the                                                                   
tests used was determining what  would be left in the CBR and                                                                   
what the impact would be.                                                                                                       
Representative  Hudson  commented  that  this  is a  work  in                                                                   
progress.   The  Committee had  passed the  sales tax,  which                                                                   
would  generate  $250  million  dollars.   Taking  that  into                                                                   
consideration and the $300 million  proposed dollars from the                                                                   
legislation, the  State would  be about $250 million  dollars                                                                   
short.  He commented that with  all the pieces of legislation                                                                   
passed,  the State  would be down  to a  $300 million  dollar                                                                   
draw rather than $750 million dollar draw.                                                                                      
Co-Chair  Williams WITHDREW  his  OBJECTION  to adopting  the                                                                   
work  draft.   There  being NO  further  OBJECTION, the  work                                                                   
draft was adopted.                                                                                                              
Representative Hudson MOVED to  report CS HB 304 (FIN) out of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal note.  Representative Croft OBJECTED.                                                                       
Representative Croft indicated  his concern that there is not                                                                   
a spreadsheet  available  regarding how  it would affect  the                                                                   
CBR and reiterated his concern  with how the legislation will                                                                   
affect poor Alaskans.                                                                                                           
Co-Chair Williams  noted that the bill previously  passed had                                                                   
a pay  out of  7.65%, which  was agreed  to by the  Permanent                                                                   
Fund Corporation.   He  claimed, with  that amount,  there is                                                                   
enough  remaining in  the general  fund to  not have to  deal                                                                   
with  taxes of  any  kind.   He reiterated  that  he did  not                                                                   
support any taxation and believed  that the proposed solution                                                                   
would be appropriate.                                                                                                           
Co-Chair  Williams  stated  that  the  manner  in  which  the                                                                   
original bill was written, there  was $258 million dollars in                                                                   
FY05 to  cover the  capital projects.   He  added that  those                                                                   
projects would  be cut back.   The State should not  be taxed                                                                   
economically  when the  State is depressed.   He  recommended                                                                   
keeping  the original  numbers.   He claimed  that it is  not                                                                   
right to  tax the  people of  the State  when there  exists a                                                                   
dividend.   Co-Chair Williams  emphasized that Alaska  is the                                                                   
largest,  socialist State  in the  world.   Alaska should  be                                                                   
able to manage  it finances.   He urged that the bill  not be                                                                   
Co-Chair Mulder provided the idea  of the legislation and the                                                                   
spreadsheet.  With  CS HB 304 (FIN) and if HB  303 and HB 229                                                                   
were to be put  in place, the estimated $300  million from HB
304 and  $150 million  dollars additional  tax revenues,  the                                                                   
net  amount would  total $450  million  dollars.   Offsetting                                                                   
that is  the fact  that the oil  revenue spring forecast  for                                                                   
FY03, if  spending is  held in  line, the  oil market  is now                                                                   
healthier, the State would be  considering a draw estimate of                                                                   
about  $750 million  dollars absent  any new  revenues.   The                                                                   
$750 million minus the $450 million  dollars would be about a                                                                   
$300 million  dollar draw from the  CBR.  The balance  in the                                                                   
CBR would be in excess of $2 billion dollars.                                                                                   
Representative  Davies claimed  that the only  way that  is a                                                                   
"healthy" outlook  for the  CBR is if  people are  willing to                                                                   
consider that  the State will not  be able to do  anything in                                                                   
the future to address infrastructure concerns.                                                                                  
TAPE HFC 02 - 65, Side A                                                                                                      
Representative  Davies stated  that is  not a "rosy"  picture                                                                   
for the State of Alaska.                                                                                                        
Co-Chair  Mulder stated  that was  only a  "capsule" view  of                                                                   
where the  State would be at  the conclusion of FY03.   There                                                                   
will  be a  2%  growth allotment,  and  with  the percent  of                                                                   
market  value (POMV)  provisions  related  to permanent  fund                                                                   
earnings, as  well as the  additional revenue  generated from                                                                   
State  tax dollars,  those amounts  would  go a  long way  to                                                                   
filling that gap.                                                                                                               
Co-Chair Mulder  asked if  a spreadsheet  would be  needed to                                                                   
move the bill from Committee.                                                                                                   
Representative  Croft replied  that it was  not needed  as he                                                                   
assumed that  there were enough  votes to move the  bill from                                                                   
Committee.  He indicated for the  record that he did not want                                                                   
the proposal to move forward.                                                                                                   
Representative  Whitaker   asked  about  the   infrastructure                                                                   
development in the capital budget.                                                                                              
Co-Chair  Mulder responded  that in  relation to  HB 304  and                                                                   
because  it has been  delayed for  a year,  there will  be no                                                                   
effect on  the upcoming capital  budget.  He claimed  that in                                                                   
the  future, there  would  be a  $250  million dollar  stream                                                                   
moving  toward infrastructure  development.    He added  that                                                                   
there  would be  capital  to provide  more  than an  adequate                                                                   
stream  for   school  construction,   maintenance   and  road                                                                   
Representative  Whitaker  asked  if  for  FY03,  the  capital                                                                   
budget would be  somewhere in the range of  $100-$150 million                                                                   
Co-Chair  Williams noted  that  the capital  budget would  be                                                                   
$114 million dollars,  which would be rolled  to $193 million                                                                   
dollars.  He thought that it would be a 50/50 split.                                                                            
Representative Whitaker  asked if it were a  fair conclusion,                                                                   
that  given  the  adoption  of  HB  304,  there  would  be  a                                                                   
significant growth  in the capital  budget this year  for the                                                                   
State of Alaska.                                                                                                                
Representative Davies  asked if that growth  would be general                                                                   
fund dollars.                                                                                                                   
A roll call vote was taken on the motion.                                                                                       
IN FAVOR:      Foster, Harris, Hudson, Lancaster, Whitaker,                                                                     
               Bunde, Mulder                                                                                                    
OPPOSED:       Williams, Davies, Moses, Croft                                                                                   
The MOTION PASSED (6-4).                                                                                                        
CS HB  304 (FIN)  was reported  out of  Committee with  a "do                                                                   
pass" recommendation and a new  fiscal note by the Department                                                                   
of Revenue.                                                                                                                     

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