Legislature(2003 - 2004)
03/27/2003 01:37 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 bill. 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 income" 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 people. 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 payments. Co-Chair Harris stressed that the bill intended to balance the budget, and not to increase spending as had been implied. 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 discussions. 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 alternative. A roll call vote was taken on the motion. IN FAVOR: Whitaker, Foster, Hawker, Joule, Meyer, Harris, Williams 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).