Legislature(2003 - 2004)

03/27/2003 01:37 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 11                                                                                                             
     "An  Act relating  to deposits to  the Alaska  permanent                                                                   
     fund  from  mineral lease  rentals,  royalties,  royalty                                                                   
     sale proceeds,  net profit shares under  AS 38.05.180(f)                                                                   
     and  (g),  federal  mineral   revenue  sharing  payments                                                                   
     received by  the state from mineral leases,  and bonuses                                                                   
     received by the state from  mineral leases, and limiting                                                                   
     deposits from  those sources to the 25  percent required                                                                   
     under  art. IX, sec.  15, Constitution  of the  State of                                                                   
     Alaska; and providing for an effective date."                                                                              
REPRESENTATIVE   NORMAN  ROKEBERG,   SPONSOR,  testified   in                                                                   
support  of the  bill.   He  explained  that the  legislation                                                                   
returns  the percentage  of all mineral  lease royalties  and                                                                   
bonuses   deposited   into   the  Permanent   Fund   to   the                                                                   
constitutionally mandated 25 per cent.                                                                                          
Representative  Rokeberg  maintained   that  the  bill  would                                                                   
provide Alaska  with a source  of general fund  revenue while                                                                   
staying true  to the purposes  of the Permanent Fund  and the                                                                   
intent  of  the Constitution.    He  referred to  Article  9,                                                                   
Section  15 of the  Alaska State  Constitution, which  states                                                                   
"At least twenty-five per cent  of all mineral lease rentals,                                                                   
royalties,  royalty sale  proceeds,  federal mineral  revenue                                                                   
sharing payments  and bonuses received by the  State shall be                                                                   
placed in a permanent fund".                                                                                                    
Representative   Rokeberg   observed   that   in   1980   the                                                                   
legislature recognized that the  state had "excess revenues".                                                                   
He pointed out that the general  fund expenditure during that                                                                   
legislative session  was $4.07  billion.  He speculated  that                                                                   
the current budget was roughly one third of that amount.                                                                        
Representative  Rokeberg pointed  out the  fiscal gap  facing                                                                   
the current  Legislature.   He proposed  that the bill  would                                                                   
generate  approximately $42  million per  year over  the next                                                                   
seven years.                                                                                                                    
Representative  Rokeberg  speculated  that  contributions  of                                                                   
smaller  fields such  as  Alpine and  North  Star offset  the                                                                   
decline in  the production  at major  fields such as  Prudhoe                                                                   
Bay.    However   he  maintained  that  the   replacement  of                                                                   
resources was  not entirely equitable.   He pointed  out that                                                                   
Prudhoe  Bay was  contributing  75 percent  into the  General                                                                   
Fund and 25 percent into the Permanent Fund.                                                                                    
Representative Rokeberg  refuted criticism that  the bill was                                                                   
"a raid on the  permanent fund". He maintained  that the bill                                                                   
merely redirects monies being  deposited while taking nothing                                                                   
out of the Permanent Fund.  He  also maintained that the bill                                                                   
would have little effect on the  dividend program, projecting                                                                   
zero impact in the first two years,  potentially growing to a                                                                   
$20 per dividend impact within ten years.                                                                                       
Representative  Rokeberg  summarized   that  the  bill  would                                                                   
diminish the draw on the Constitutional  Budget Reserve (CBR)                                                                   
and minimized the need for more general taxation programs.                                                                      
Co-Chair Williams  asked for  clarification on the  criticism                                                                   
of the  bill.   Representative Rokeberg  reiterated  that the                                                                   
bill would  withdraw no monies  from the Permanent Fund.   He                                                                   
conceded  that to  put less  into  the Fund  might result  in                                                                   
lesser  output.   He maintained  that  market conditions  had                                                                   
much greater impact  on the Fund's performance.   He drew the                                                                   
analogy that increasing savings  while in a deficit might not                                                                   
be prudent management.  He suggested  that this bill might be                                                                   
a step toward correcting the state's fiscal situation.                                                                          
Representative Rokeberg  suggested that many  potential plans                                                                   
for  correcting  the  state's   finances,  such  as  possible                                                                   
taxation,  had  the effect  of  withdrawing income  from  the                                                                   
economy, thereby  curtailing economic growth.   He maintained                                                                   
that   since  the   bill   merely  redirects   funding   from                                                                   
investment,  it  would not  have  a  negative effect  on  the                                                                   
state's economy.                                                                                                                
Representative  Croft asked  for  a distinction  to be  drawn                                                                   
between  not depositing  money and  depleting the  fund.   He                                                                   
maintained that failing  to place money into  the account had                                                                   
the same effect as taking money out.                                                                                            
Representative Rokeberg cited  his experience in business and                                                                   
contended  that  not  depositing  funds  was  different  than                                                                   
withdrawing  funds.   He maintained  that if  funds were  not                                                                   
available, they should not be deposited.                                                                                        
Representative  Hawker referred to  the debate regarding  the                                                                   
difference   between    long-term   fiscal    solutions   and                                                                   
incremental steps  toward a solution.   He asked  whether the                                                                   
sponsor  viewed   the  legislation   as  a  solution   or  an                                                                   
increment,  and if  an increment,  whether consideration  was                                                                   
given  to a  long-term solution  which did  not include  this                                                                   
Representative  Rokeberg noted  that the  legislature in  the                                                                   
past  had considered  this concept  as part  of a  long-range                                                                   
plan.  He characterized it as  a "common sense" first step in                                                                   
narrowing  a fiscal gap.   He  observed that  it only  had an                                                                   
impact of $43 million on the general  fund, which he conceded                                                                   
might be  an optimistic projection.   He suggested  that this                                                                   
step  presented  the  least  detriment,   since  it  did  not                                                                   
implement  a  "tax"  but  rather  only  affected  prospective                                                                   
future income.                                                                                                                  
Representative  Whitaker observed  that the  change from  the                                                                   
constitutional requirement from  25 to 50 percent occurred in                                                                   
1980, when  the general  fund budget was  $4.07 billion.   He                                                                   
maintained  that the  legislature implemented  the change  at                                                                   
that  time  since the  funding  was  not  needed.   He  asked                                                                   
whether the  money was needed  at this time, with  the budget                                                                   
at roughly one third of that in 1980.                                                                                           
Representative Rokeberg maintained  that the money is needed,                                                                   
especially  considering the  fluctuating  price of  oil.   He                                                                   
speculated  that  if the  bill  had  been  in place  for  the                                                                   
current  fiscal  year,  some  $57  million  would  have  been                                                                   
available  to spend  in FY03.   He maintained  that the  bill                                                                   
freed funding for use, without  the negative impacts of taxes                                                                   
and user fees.                                                                                                                  
Representative Croft asked how  this could extend the life of                                                                   
the  CBR.   Representative  Rokeberg  replied  that the  bill                                                                   
minimized the  amount of the draw  on the CBR by  making more                                                                   
general funds available.                                                                                                        
Representative  Croft  commented  that  in effect  the  funds                                                                   
would  be  moved   from  the  Permanent  Fund   to  the  CBR.                                                                   
Representative  Rokeberg   conceded  that  this   theory  was                                                                   
somewhat valid, but pointed out  that the money was therefore                                                                   
available  in  the General  Fund.    He speculated  that  the                                                                   
legislature might  choose to spend  the general  funds rather                                                                   
than reserving them in the CBR.                                                                                                 
Representative Croft  asked if it was the intention  to spend                                                                   
the funds or to  extend the life of the CBR.   Representative                                                                   
Rokeberg responded  by pointing  out that the  current budget                                                                   
contained some  recommendations with which he  did not agree.                                                                   
He  observed   that  the   Governor  maintains  a   budgetary                                                                   
principal  whereby,  if  the  legislature  disagrees  with  a                                                                   
recommendation,  they  may  suggest an  alternative  that  is                                                                   
still in keeping with the Administration's  budget goals.  He                                                                   
suggested  that  the  bill  fit this  type  of  process,  and                                                                   
recommended  that the  legislature would  be wise to  embrace                                                                   
such a concept for budget making.                                                                                               
Representative Joule  asked if Representative  Rokeberg would                                                                   
support  the revenue  being  directed  to a  dedicated  fund,                                                                   
which   would  require   a   change  in   the   Constitution.                                                                   
Representative  Rokeberg  acknowledged  that  some  dedicated                                                                   
funds currently  function, but  noted his  own belief  in the                                                                   
constitutional  principle of  avoiding dedicated  funds.   He                                                                   
clarified  that, while  the legislature  had  the ability  to                                                                   
choose whether or not to spend  the funds, he himself did not                                                                   
advocate spending but rather increased flexibility.                                                                             
ED MARTIN,  SR., SOLDOTNA,  testified via teleconference,  in                                                                   
opposition  to  the  proposed  legislation.    He  read  from                                                                   
prepared testimony (copy on file),  maintaining that the bill                                                                   
erodes  the dividend  program,  encourages overspending,  and                                                                   
undermines voter's confidence in the legislature.                                                                               
FRED  STURMAN,  SOLDOTNA,  testified  via  teleconference  in                                                                   
opposition to the  bill.  He noted that he  had not perceived                                                                   
any "cutting  of the  budget" support  from the  Legislature.                                                                   
He countered that taking the Permanent  Fund was not a viable                                                                   
option.   He observed,  "everyone  seems to  want more".   He                                                                   
encouraged budget cuts rather than spending.                                                                                    
JAMES  PRICE,   NIKISKI,  testified  via   teleconference  in                                                                   
opposition  of  HB 11.    He  commented  that the  only  work                                                                   
currently being done  by the Legislature was  the proposal of                                                                   
"user  fees".   He  stressed  that HB  11  was not  a  viable                                                                   
solution  and speculated  that  the root  of  the problem  is                                                                   
bringing spending to a workable level.                                                                                          
Representative Croft MOVED to ADOPT Amendment #1:                                                                               
     Page 1, line 6, after Alaska insert:                                                                                       
     "and relating to the disposition of permanent fund                                                                         
     Page 2, after  line 19, a new subsection is  added to AS                                                                   
     37.13.145:   "(e) AS 37.13.140 and AS 37.13.145  (b) may                                                                   
     not  be  amended  unless  the amendment  is  approved  a                                                                   
     majority of the voters voting on the question."                                                                            
Co-Chair Williams OBJECTED.                                                                                                     
Representative Croft  summarized that the  Amendment recalled                                                                   
efforts in 1999  to present the concept [fiscal  plan] to the                                                                   
Alaskan  people.     He   suggested  that,  considering   the                                                                   
initiative and  referendum power in  the state of  Alaska, no                                                                   
fiscal  plan  would  succeed without  the  agreement  of  the                                                                   
Co-Chair Williams  disagreed.   He expressed his  belief that                                                                   
it was  wrong in 1998  and 1999 to  send this message  to the                                                                   
people.    He  recalled  that   when  the  initial  bill  was                                                                   
presented  to the  Senate  and the  Governor,  the House  had                                                                   
agreed that  there would  not be  a vote by  the people.   He                                                                   
further  recalled that  at that  time, the  Governor and  the                                                                   
Senate recommended  that the bill receive a public  vote.  He                                                                   
maintained  that HB  11 did  not  represent a  "raid" on  the                                                                   
Permanent Fund.                                                                                                                 
Representative  Rokeberg  echoed  comments made  by  Co-Chair                                                                   
Williams.   He    proposed   that   the    amendment   claims                                                                   
unconstitutional  delegations of authority.   He  pointed out                                                                   
that the amendment  would require a constitutional  amendment                                                                   
for implementation.                                                                                                             
Representative   Stoltze   observed    that   the   amendment                                                                   
practically  represented  a  non-binding  advisory  vote  and                                                                   
suggested  that it  be presented  in that way  to voters  for                                                                   
full disclosure of its true function.                                                                                           
Co-chair  Harris objected  to  the amendment.   He  commented                                                                   
that the Legislature  could conceivably ask the  public every                                                                   
year about  budgetary  spending.  He  strongly expressed  his                                                                   
belief that this did not present good public policy.                                                                            
Representative  Croft   maintained  that  the   dividend  was                                                                   
established  to generate  public  support  for the  Permanent                                                                   
Fund by giving  people "a stake in" the fund.   He noted that                                                                   
this resulted  in a public sense  of ownership.   He proposed                                                                   
that this sense  of ownership must be recognized.   He agreed                                                                   
that the legislature  could change statue, which  made it not                                                                   
"legally binding",  however he maintained that  the amendment                                                                   
helped establish an important principal.                                                                                        
Co-Chair Harris asserted  that the people of  Alaska voted on                                                                   
the  constitutionally  mandated  25 percent  [permanent  fund                                                                   
deposit].  He  pointed out that when the  legislature changed                                                                   
the amount  to 50 percent in  adopting the statute,  they did                                                                   
not ask  for another  public vote.   He  maintained that  the                                                                   
circumstances  at that time  were different  than today.   He                                                                   
proposed that  the current Legislature must now  determine if                                                                   
the  additional, statutorily  mandated  25  percent might  be                                                                   
shifted into the general fund.                                                                                                  
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Moses, Stoltze, Croft, Joule                                                                                          
OPPOSED: Myer, Whitaker, Foster, Hawker, Williams, Harris                                                                       
Representative Chenault was not present for the vote.                                                                           
The MOTION FAILED (4-6).                                                                                                        
Representative Foster MOVED to  report HB 11 out of Committee                                                                   
with  individual recommendations  and  with the  accompanying                                                                   
fiscal note.                                                                                                                    
Representative Croft OBJECTED.                                                                                                  
Representative  Croft observed that  the effect of  the bill,                                                                   
assuming that  it did not  increase current spending  levels,                                                                   
was to  transfer $43  million per year  that would  have gone                                                                   
into the  Permanent Fund  into the  CBR.    He asserted  that                                                                   
this proposition did not make sense.                                                                                            
Representative   Croft   noted   that  the   Permanent   Fund                                                                   
historically  earned 9.5  percent,  with projected  long-term                                                                   
earnings of 8 percent.   He contrasted that the  CBR earned 6                                                                   
percent  annually, since  up to  half of that  fund could  be                                                                   
withdrawn at any time.  He summarized  that the net effect of                                                                   
the bill would either be to spend  the funds on government or                                                                   
to transfer  it to another account  with lower earnings.   He                                                                   
maintained that this was not good public policy.                                                                                
Co-Chair Williams  contended that one must consider  the best                                                                   
use of funds for  the state of Alaska.  He  stated his belief                                                                   
that the  bill would allow  additional tools to  advocate the                                                                   
best  fiscal interest  of the  people.   He  pointed out  the                                                                   
history leading  to the current budget reductions,  and noted                                                                   
the lack  of change  in management  of the state's  financial                                                                   
resources.   He maintained  that the  rejection of  the House                                                                   
plan  in 1998  by the  Senate and  a subsequent  vote of  the                                                                   
people contributed to the current financial difficulties.                                                                       
Co-Chair Harris noted that the  bill might be one in a series                                                                   
of  steps  aimed  at  balancing  the  budget  based  on  true                                                                   
revenues.   He pointed  out the  distinction between  the CBR                                                                   
and general  fund monies:  use  of the CBR requires  a three-                                                                   
quarter  vote  of   both  sides  of  the  legislature.     He                                                                   
speculated  that  use of  the  CBR  might  result in  a  more                                                                   
partisan budget  process.  He  stressed that the  money would                                                                   
go to the general fund and not the CBR.                                                                                         
TAPE HFC 03 - 40, Side A                                                                                                      
Co-Chair  Harris  went  on to  observe  that  expenditure  of                                                                   
general fund monies  required only a simple  majority of both                                                                   
bodies.  He noted his opinion  that Alaska was the only state                                                                   
that required a three quarter  vote to spend certain types of                                                                   
funding.    He  maintained  that  the  bill  facilitated  the                                                                   
addition  of  $40 to  $50  million  of General  fund  revenue                                                                   
without requiring  a three quarter  vote.  He  suggested that                                                                   
the bill would enable a balanced  budget without such a vote.                                                                   
Co-Chair Harris  also stated his desire to  create mechanisms                                                                   
that did not  require a state income tax. He  maintained that                                                                   
a tax  would not improve economic  growth.  He  proposed that                                                                   
the  bill  encouraged economic  growth  without  a  tax.   He                                                                   
contended  that the bill  did not  severely impact  Alaskans,                                                                   
resulting  in  only an  eventual  $20 reduction  to  dividend                                                                   
Co-Chair Harris  stressed that  the bill intended  to balance                                                                   
the  budget,  and  not  to  increase  spending  as  had  been                                                                   
Representative  Stoltze thanked  Representative Rokeberg  for                                                                   
his work in  introducing the bill.  He expressed  his caution                                                                   
about the bill but his willingness to discuss the issues.                                                                       
Representative Whitaker  suggested that the  primary debating                                                                   
points related to the actions  of the 1980 Legislature, which                                                                   
was  operating  with a  more  than  $4  billion budget.    He                                                                   
maintained that current spending  was significantly lower and                                                                   
that funds were needed to meet the now $2 billion budget.                                                                       
Representative  Joule  noted  his continued  support  of  the                                                                   
legislation.    He suggested,  however,  that  at some  point                                                                   
discussion must occur regarding  generating broad based state                                                                   
revenue and  the fate  of the Permanent  Fund.  He  expressed                                                                   
disappointment  that these  discussions  were not  occurring.                                                                   
He speculated  that the bill  could be  part of a  package of                                                                   
legislation aimed  at addressing  these issues.   He exhorted                                                                   
the   Majority  to   show  leadership   in  beginning   these                                                                   
Representative   Rokeberg  thanked   public  testifiers   and                                                                   
concurred with  Co-Chair Harris  in not wishing  to institute                                                                   
taxation.   He  suggested that  the bill  presented a  viable                                                                   
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Whitaker,  Foster,  Hawker, Joule,  Meyer,  Harris,                                                                   
OPPOSED: Moses, Stoltze, Croft                                                                                                  
Representative Chenault was not present for the vote.                                                                           
The motion PASSED (7-3).                                                                                                        
HB  11  was  REPORTED  out of  Committee  with  a  "do  pass"                                                                   
recommendation  and  three  fiscal   impact  notes  from  the                                                                   
Department of Revenue(#1, zero; #2 & #3, fiscal impact).                                                                        

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