Legislature(2017 - 2018)HOUSE FINANCE 519
02/15/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB115 | |
| Presentation: Modeling by David Teal, Director, Legislative Finance Division | |
| Presentation: Expenditure Reduction Overview by Randall Hoffbeck, Commissioner, Dept. of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 115 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 15, 2017
1:32 p.m.
1:32:50 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
Representative Scott Kawasaki
ALSO PRESENT
David Teal, Director, Legislative Finance Division; Alexei
Painter, Fiscal Analyst, Legislative Finance Division; Ken
Alper, Director, Tax Division, Department of Revenue.
SUMMARY
HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME
HB 115 was HEARD and HELD in committee for
further consideration.
PRESENTATION: MODELING BY DAVID TEAL, DIRECTOR, LEGISLATIVE
FINANCE DIVISION
PRESENTATION: EXPENDITURE REDUCTION OVERVIEW BY RANDALL
HOFFBECK, COMMISSIONER, DEPT. OF REVENUE
Co-Chair Foster reviewed the agenda for the day.
HOUSE BILL NO. 115
"An Act relating to the permanent fund dividend;
relating to the appropriation of certain amounts of
the earnings reserve account; relating to the taxation
of income of individuals; relating to a payment
against the individual income tax from the permanent
fund dividend disbursement; repealing tax credits
applied against the tax on individuals under the
Alaska Net Income Tax Act; and providing for an
effective date."
1:35:04 PM
^PRESENTATION: MODELING BY DAVID TEAL, DIRECTOR,
LEGISLATIVE FINANCE DIVISION
1:35:06 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, was
asked to begin with a review of the status quo [Mr. Teal
used a model on the projector but did not provide a handout
to accompany his presentation]. He turned the presentation
over to Mr. Painter.
ALEXEI PAINTER, FISCAL ANALYST, LEGISLATIVE FINANCE
DIVISION, explained that the graph in the upper left showed
revenue and the budget. The blue bars represented the
typical revenue. The green bars represented Permanent Fund
(PF) revenue not in place yet. He explained that the
orange/brown bars showed draws from the Constitutional
Budget Reserve (CBR) or Statutory Budget Reserve (SBR) and
the red bars were unplanned draws from the Earnings Reserve
Account (ERA).
Co-Chair Foster asked if members had copies of the
presentation. He confirmed that members did not have
copies.
Mr. Painter continued that the lower left graph showed
budget reserves. The orange bars represented the CBR and
the green bars showed the ERA. The top right graph showed
the dividend check. The lines were the same showing the
current scenario, the status quo. Below the dividend check
graph was a graph of the Permanent Fund total balance. The
bottom right graph showed the payout for dividends and
general fund from Permanent Fund plans. The status quo
scenario did not include a plan.
Co-Chair Seaton asked Mr. Painter to distinguish between
the dotted line and the black line in the upper left chart.
Mr. Painter explained that the black line represented the
budget including paid Permanent Fund Dividends (PFD). The
dotted line showed the budget excluding dividends - the
traditional way of showing the budget. He relayed that when
he turned PF plans on in the model, the dividend became
undesignated general fund (UGF). Expenditures would be
reflected on the black bar. He noted that the expenditures
without dividends were constant on the dotted line.
1:38:03 PM
Vice-Chair Gara could not see the charts well. He asked
what the first year was listed on the chart. Mr. Painter
responded that the first year was FY 16 and the last year
was FY 26.
Vice-Chair Gara asked for the projected balance of the CBR
by the end of FY 18. Mr. Painter relayed that without a PF
plan in place there would be approximately $2 billion by
the end of FY 18.
Vice-Chair Gara suggested that at the end of FY 18 the
state would have to start spending from the ERA to balance
the budget unless $1 billion was cut from the budget. He
wondered if he was accurate. Mr. Painter responded
affirmatively. He pointed to the red bar in the budget line
for FY 19, which showed that in order to pay for the
budget, the state would have to have an unplanned draw from
the ERA.
Vice-Chair Gara was looking at the bottom left-hand corner.
He noted that by FY 19 or FY 20 the state would be solely
spending down the PF ERA. He asked if it was by FY 19 or
FY 20. Mr. Painter responded that it would begin in FY 20.
Representative Wilson asked whether the legislature needed
a statute change in order to implement a Percent of Market
Value (POMV) using the earnings reserve, or whether the
legislature could just use a budget mechanism, a bill. She
wondered if a separate bill was needed. Mr. Teal responded
that a bill was not required for the legislature to
appropriate money from the ERA. The bill would provide the
legislature guidelines or a structure to issue a payout. It
would be a computation based on a 5-year moving average of
the market value and a percentage payout. The legislature
could determine what the number was and place it in the
appropriation bill without the current bill.
Representative Wilson asked what the budget amount would be
once FY 17 hit. She wondered if it was $4.2 billion. Mr.
Teal responded that it would be roughly $4.2 billion or
$4.3 billion depending on what happened in the current
year. The assumptions at the top [Mr. Teal pointed to the
Fall forecast in the middle of the screen]. He commented
that no growth was reflected in the budget. The numbers
could be changed, but the chart was started without growth
because there were some legislators who suggested that the
budget had to be raised every year to keep up with
inflation. Whereas, other legislators suggested that the
state would be making cuts every year. The model could be
changed to see the impact of an increasing or decreasing
budget.
Representative Wilson understood that the model reflected
the status quo. She suggested that status quo would reflect
the legislature making reductions in the budget each year,
which she thought the chart should reflect. She asked about
the payout for dividends and the general fund and why the
amount was at zero on the chart in the bottom right graph.
Mr. Teal responded that the bottom right graph was the
payout from the ERA to the GF. There was no payout under
the status quo scenario. Dividends came directly from the
ERA to the dividend fund which was not reflected in the
chart. He explained that as soon as the legislature changed
to a POMV plan, lines would show on the bottom right graph.
Representative Wilson thought that Mr. Teal was only
talking about the dividend. She clarified by asking if he
was talking about the dividend going into the GF or some
part of the earnings reserve going into the GF in the
bottom right graph. Mr. Teal explained that it would not
matter whether it went through the GF on the way to the
dividend fund or went straight from the ERA to the dividend
fund. Mechanically, they were the same; Politically, they
were different. Currently, there was no payout going
through the GF, hence, the line was at zero.
1:43:28 PM
Representative Wilson suggested referring to the top right-
hand chart to see effects on the dividend check. She
thought that anything that went beyond the top right-hand
chart would appear in the bottom right-hand chart as far as
doing more than just paying a dividend check. She was
trying to figure out what she would see that she presently
could not see on the chart. Mr. Teal directed Mr. Painter
to change the model to a POMV plan. Mr. Painter indicated
that the model currently reflected the governor's plan. He
pointed to the green line on the bottom right chart, which
was the payout to the GF. The payout was the planned payout
of the POMV draw. The red line showed the payout to the
dividend fund. Both would go through the GF but were
separated out to show the size of each.
Representative Wilson indicated that the explanation
clarified things for her.
Co-Chair Foster Representative Grenn had joined the
meeting.
Co-Chair Seaton referred to the upper right dividend check
graph. He wondered if it reflected a statutory calculation.
In the bottom left chart, it appeared there was no money to
pay the dividend. He asked if he was interpreting the chart
correctly.
Mr. Painter responded there was a very small amount $100
million left at the end of FY 26. There would be a
sufficient balance to pay the full statutory calculation
that year according to the Legislative Finance Division's
(LFD)'s model. The margin of error in the model was far
greater than $100 million. He did not want to give a false
impression.
Co-Chair Seaton suggested that the bottom left chart showed
that there was no money remaining in the ERA. In the upper
right-hand corner showing the dividend checks. He thought
the chart showed large dividend checks being paid out
continuously because of a statutory requirement even though
there would be no money to pay them. Mr. Painter explained
that the balances were end-of-year balances. Therefore,
there would be money at the beginning of the year to pay
the dividend check. However, at the end of the year the ERA
would be zero.
Mr. Teal thought the co-chair was concerned with what
happened in 2027. By 2026, the state would be at a zero
balance. It also meant that in 2027 the state would have a
difficult time paying dividends, as there would be
insufficient money in the ERA to make the dividend payment.
He noted that every year there were earnings. The state
would earn money in FY 27. However, it was uncertain
whether the earnings in that year would be sufficient to
make payments.
1:47:03 PM
Representative Wilson thought the ERA was being discussed.
She brought up the fact that there would still be money in
the corpus of the fund. The 5-year calculation had to do
with the corpus rather than the ERA. She suggested that as
long as the corpus went untouched, there would still be
money going into the ERA. There might not be enough money
to pay the calculated dividend, but to conclude that there
would be no dividend when the corpus existed, would not be
accurate. She asked if she was correct.
Mr. Teal indicated that the chart reflected the assumption
that government required money first. For example, if the
earnings on the corpus and the ERA equaled $3 billion. The
unplanned draw would equal $2.3 billion to fund government.
It would account for everything but $700 million of the
earnings. If the state earned 7 percent, the state could
continue paying dividends. However, dividends would drop to
$700 million in that year. If the state did not earn what
it hoped, then the state would be short funded and would
have to either choose to pay reduced dividends or to reduce
the budget.
Representative Wilson suggested that there was a difference
between state government taking all the money and not
paying a dividend. The dividend would still exist. The
legislature could either lessen the dividend or reduce the
budget. Her point was that the corpus would continue to
generate earnings. The calculation would still remain in
place. If the state did not reduce its budget, the state
could take all the money and not pay a dividend.
Alternatively, the state could pay a dividend and reduce
the budget or generate other revenue. She suggested that as
long as the corpus remained untouched the people would
receive a dividend unless the state had a bad year in the
stock market.
Mr. Painter asked if the committee wanted to see the
effects of HB 115 in the model. Co-Chair Foster responded
affirmatively.
Vice-Chair Gara asked Mr. Painter to go to the previous
model. He suggested that members had different views around
the table. He supposed the legislature could continue to
massively cut state services in order to be able to pay
dividends. He suggested that the legislature could do both:
the legislature could maintain state services and pay a
dividend by adopting a plan. However, the committee had
heard that every $100 million in reductions would equal
another 1000 to 1500 jobs lost resulting in a 10-year
recession. He did not want a 10-year recession.
1:51:03 PM
Representative Wilson thought it was critical for members
to be able to ask questions to confirm that the facts were
being provided. She wanted to make sure that as the members
were given the charts, they understood that choices would
have to be made regarding the dividend. She wanted to make
sure people understood that as long as long as the corpus
was protected a dividend would be generated. She suggested
what happened after that, based on what the legislature did
with the budget and other issues, was to be determined. She
indicated that every time she asked a question, she felt
that someone took advantage of it. She was tired of it.
Mr. Painter returned to the model for HB 115. The last view
of the model assumed consistent investment returns of 6.95
percent per year. Presently, the model was showing the
actual returns from the previous 9 years. It sort of broke
LFD's model because there was not a sufficient balance to
pay the amount. He noted that with volatility the picture
looked quite different than a stable picture. He indicated
members were seeing the reverse of the previous 9 years.
The great recession happened in a different year. The model
showed the dividend continuing to be paid and then a hole
in government spending. The model assumed the dividend was
paid first then there would be a hole to government
spending. He reemphasized that the model showed the impact
of volatility.
Mr. Teal thought it was important to assume that in each
model or bill, unanticipated things could occur. He
mentioned examples such as low oil prices or lower
earnings. The division applied the notion that history
repeated itself. He thought the information provided a more
realistic scenario than simply assuming a constant 6.95
percent earnings.
Mr. Painter asserted that the model demonstrated the
effects of HB 115. It illustrated the impacts of the POMV
approach and an income tax. He pointed to the dividend in
the upper right chart. The dividend started out about $1100
and steadily increased in the model as the value of the
payout was increasing faster than population. Next, he
pointed to the bottom left which showed the CBR and the ERA
increasing. The bottom right graph showed the payouts with
a two-thirds/one-third model. The graph to the general fund
was twice the graph to the dividend. In showing the
different investment returns in the past LFD used the
previous 9 years. It did not look very pretty, but there
was an earnings reserve balance at the end of each year.
Also, the dividend payment was relatively steady, an
advantage of a POMV plan.
Co-Chair Foster clarified that Mr. Painter was presenting a
look-back of actual returns over the prior 9 years. He
asked if he was correct. He noted a dip in the middle of
the graph. He asked about the returns in that dip period.
Mr. Painter explained that the state had losses greater
than 20 percent.
Mr. Painter continued that the chart he was looking at
showed the prior 9 years reversed. He noted that at the end
of a year there would be no earnings in the ERA. He
emphasized that he was looking at a 1 in 20-year event. He
scrolled back to the more stable view of the model. He
highlighted that the plan had an inflation proofing
provision that equaled 4 times the draw. One of the places
where LFD's model might disagree with the Department of
Revenue's model was the percentage of the investment
returns that were realized in the ERA each year versus held
and unrealized gains. Under a plan that inflation proofed
there was no difference. In switching between assumptions,
the additional investment returns would be inflation
proofed into the principle. In a POMV plan that included
inflation proofing, the assumption was not sensitive.
Whereas, it would be sensitive without a POMV plan.
1:57:21 PM
Co-Chair Foster wondered, under HB 115 with a four times
rule, if the money went back into the principle in each of
the years, some of the years, or none of the years.
Mr. Painter explained that there would be inflation
proofing in some years, but not all.
Vice-Chair Gara asked Mr. Painter for clarification. He
understood that the legislature had not inflation proofed
in 2 years.
Mr. Painter explained that with the conservative assumption
that only 57 percent of gains were realized, there would be
an inflation proofing transfer in FY 18 because the balance
was sufficiently high. There would not be an additional
transfer for several years. He suggested that with a 90
percent return assumption, there would be inflation
proofing consistently from FY 18 and beyond. There was
sensitivity in how much would be realized each year, a
significantly volatile number.
Mr. Teal furthered that inflation proofing would also
depend on the payout rate. As the payout rate fell, more
money would remain in the fund making it easier to reach
the 4 times trigger. There would be more money in the fund,
and the payout would be smaller - 4 times the payout would
become a smaller target. He continued that the lower the
payout rate, the more likely inflation proofing would
occur, and more money would go into inflation proofing. In
fact, it might be possible to over inflation proof the
fund. There would be no trigger, unlike currently, where
inflation proofing was based on the consumer price index
(CPI). A calculation was applied to try to keep pace with
inflation. The 4 times trigger did not keep pace with
inflation, it just deposited money into the fund. It might
or might not cover inflation, or it might be greater than
inflation.
Vice-Chair Gara asked about the 4 times trigger. He
wondered if it meant that once there was a balance of 4
times the payout in the ERA, then the money above that
amount would go into the corpus of the fund. Mr. Teal
responded in the affirmative.
2:00:30 PM
Mr. Painter did not have anything more prepared except to
show the impact of the bill and to answer any questions.
Representative Pruitt thought it would be helpful to use
the model to view the impacts of other scenarios.
Co-Chair Foster invited LFD to present other scenarios, if
possible.
Mr. Painter reviewed the governor's plan in HB 61. He noted
that the plan, although similar to the other, stabilized
reserves. However, it did not balance the budget for
slightly longer, had slightly lower dividends, and no
income tax. The dividend would be held at $1000 for 2 years
and would rise with the formula. It was slightly lower than
the other plan. He continued that the POMV payout was
slightly higher and the dividend formula was different. The
plan could be viewed under different assumptions of
returns. He pointed to the lower left-hand chart that
reflected the previous 9 years. It barely scrapped through.
He also shared that with the reverse it managed to get
through. The dividend payout was relatively stable because
it was based on POMV and royalties, which were less
volatile than earnings.
Co-Chair Foster asked him to re-summarize what he had just
stated. He thought Mr. Painter had stated that it had a
higher POMV and smaller dividends. He asked his to review
what was better in terms of what saved the state more or
less. He also wanted him to speak on the pros and cons of
HB 115 versus the governor's bill [HB 61]. Mr. Painter
deferred to Mr. Teal.
Mr. Teal thought the results were fairly similar. There
would not be an income tax, which meant things did not look
quite as they would under HB 115 because revenue would be
lower. On the other hand, paying lower dividends would mean
that there would be more money left for the general fund.
It would be a partial offset. The governor's bill had a
revenue limit. However, under the current forecast, the
revenue limit would not kick in. The payout rate of 5.25
percent provided more money to the GF and kept reserve
balances high. The timeframe of the model was too short to
show that the 5.25 percent payout eventually began to
payout less than the 4.75 percent payout under HB 115. He
relayed that in the first few years 5.25 percent would pay
more to the GF.
2:04:20 PM
Vice-Chair Gara asked if it was appropriate to model a
scenario. Co-Chair Foster encouraged Vice-Chair Gara to
provide his scenario.
Vice-Chair Gara asked LFD to model 5.25 payout for the
first 2 years, then going down to 5 percent payout with 65
percent going to services and 35 percent going to
dividends. Mr. Painter asked Vice-Chair Gara if the model
reflected what he had in mind. He asked if there were
specific dividend amounts to include.
Vice-Chair Gara replied that if there was a split of 65/35,
with a payout of 5.25 for 2 years and 5 percent afterwards,
he wondered what the dividend payout and the general fund
payout would be from the POMV. Mr. Painter recapped Vice-
Chair Gara's scenario. The dividend would begin at
approximately $1300 and would climb. The difference between
a payout of 5.25 percent and 5 percent was difficult to see
from year to year in the model. He indicated that the draw
to the GF in FY 18 would be $1.6 billion and to the
dividend fund would be $884 million.
Vice-Chair Gara asked if the draw for services began at
$1.6 million and would go up slightly. He wondered if the
amount was similar to the other plans. He noted using a
more aggressive payout. He wondered if the government
services payout would be slightly higher or the same as in
the current version of HB 115. Mr. Painter responded that
in the current version of HB 115 the payout to the GF would
be $1.692 billion. In Vice-Chair Gara's version would be
$1.642 billion. There would be a difference of $50 million.
2:07:30 PM
Co-Chair Seaton asked if the deficit was maintained over
all of the years [in Vice-Chair Gara's example]. Mr.
Painter responded, "Yes it does."
Co-Chair Seaton asked if it was the case in the other
scenario. Mr. Painter replied that in HB 115 with the
income tax there would be no deficit. He noted that without
the income tax the deficit would remain. The governor's
bill closed the deficit eventually but not towards the end
of the period.
Representative Wilson asked about UGF revenue. In the
models the committees had been shown, revenue did not
appear to be moving much. She wondered if a certain
percentage of growth in UGF was assumed in all of the
plans. Mr. Painter responded that the current revenue
streams represented in blue bars were according to DOR's
revenue forecast which did not change. There was a slight
difference because the governor's plan reduced the
percentage going to royalties to the constitutional
minimum, which increased UGF revenue slightly. For the most
part, all of the plans did not make a large change to
existing revenue. A green bar was added that reflected a
payout from the ERA.
Representative Wilson relayed that in the status quo model
the line went straight across and was close to $4.2 billion
or $4.3 billion. She wondered if Mr. Painter was indicating
that the growth was based on one of the bars. She wondered
if the formula was making the line change. Mr. Painter
responded that the dotted line on the upper left-hand chart
did not change through any of the plans. It reflected the
budget less dividends. Instituting any of the plans being
discussed could be seen on the black bar that reflected the
budget including dividends. He returned to the status quo
graphs and pointed to the dotted line which remained
static. He highlighted that the black line that included
the dividends increased due to dividends increasing.
Representative Wilson asked if the numbers reflected the
assumption that oil prices would remain the same. She asked
if she was accurate. Mr. Painter answered that the revenue
numbers that were used were from DOR's revenue forecast for
each year. The department built in an increase in price and
decrease in production over time. Representative Wilson
thought it was difficult to know what each line was doing.
Vice-Chair Gara commented that they were discussing policy
calls within a range that Mr. Teal testified to. He asked
about the impact on the deficit and the CBR by using a
higher percentage payout. Mr. Teal responded that the
amount of payout changed by about $125 million for each
quarter point increase in the percentage. He suggested that
going from a 5.25 percent payout to a 4.75 percent payout
the payout would drop by about $250 million. He continued
that over time the 4.75 percent payout, after 20 years,
would actually payout more than the 5.25 percent payout
because more money would have been left in the corpus and
in the ERA to generate a higher level of income.
2:12:29 PM
Vice-Chair Gara commented that the chart that was presented
on a previous day showed that for the first 20 years the
higher payout provided a greater payout, but afterwards the
payout was smaller. He asked if he was thinking of the
crossover chart from a prior day. Mr. Teal replied, "That's
correct."
Vice-Chair Gara ran another scenario. He suggested a 5.25
percent payout for 2 years, a 5.0 percent payout after the
2 years, with a split of 67 percent to services and 33
percent to dividends. He asked how the scenario would
affect the dividend and the payout. Mr. Painter noted the
change, which was not very large, but reduced the dividend
by about $50. Vice-Chair Gara asked what was added to the
payout for state services. Mr. Painter replied that the
payout of 33 percent to the general fund would be $1.692
million. At 35 percent the GF payout would be $1.642
million. There was a difference of $50 million.
Co-Chair Seaton asked about the deficit amount in the most
recent scenario. Mr. Painter replied that the deficit in FY
26 would be approximately $300 million. Co-Chair Seaton
suggested that the difference between the current scenario
and HB 115 was the income tax. He asked Mr. Painter to
reinsert the income tax revenue. It appeared that the
deficit would be gone in FY 22. Mr. Painter confirmed the
representative was correct. Co-Chair Seaton asked if the
approximate payout would be about $1250 going up to $1500.
Mr. Painter responded affirmatively.
Co-Chair Seaton asked for the comparison of the volatility
with and without an income tax. In other words, the
legislature was trying to smooth out volatility with a POMV
plan but with two different revenue sources. He asked Mr.
Painter to show the committee an example. Mr. Painter
indicated that the chart showed the previous 9-year
investment returns with an income tax. He then switched the
model to reflect the numbers without an income tax. He
noted that the largest difference was the CBR balance. He
relayed that with an income tax there would be a much
larger CBR balance. Without an income tax the CBR balance
would decline.
Co-Chair Seaton asked if Mr. Painter had shown the model
with the reverse 9 years as well. Mr. Painter showed the
reverse with the income tax and then without. The
difference in reserve levels at the end of FY 26 was that
without the income tax it was approximately $6 billion,
with the income tax it was approximately $12.7 billion to
$13 billion.
2:16:35 PM
Representative Guttenberg pointed to the modeling line and
asked about any significant changes beyond the 10-year
period reflected in the model. He wondered about any spikes
or curves. Mr. Painter explained that LFD did not have a
revenue forecast for the years Representative Guttenberg
mentioned. It would be difficult to say if there would be
any difference in an overall picture without a forecast.
Representative Guttenberg was aware that Department of
Natural Resources had certain projections and field
explorations and development plans into the future.
Co-Chair Seaton asked members if they wanted to see any
other scenarios modeled.
Representative Wilson asked Mr. Painter to model Senator
Dunleavy's scenario and Senator Steadman's scenario. Mr.
Painter showed the 50/50 plan. He had not seen a bill
presently for the plan. The plan used the same formula for
payouts to the GF as was used for the dividend currently.
The model had higher dividends and was sensitive to
realized income. It also showed somewhat declining reserves
depending on the assumptions. Senator Dunleavy's plan
included budget cuts of increasing amounts. It was
difficult to show that point in the model. He thought the
cuts equaled $1 billion.
Representative Wilson interjected that the Senate's plan
was to reduce the budget by $750 million in the following 3
years. Mr. Painter indicated that the model currently
showed $750 million in reductions, although taken all in FY
18. The visible impacts included stabilizing reserves and
increasing the ERA.
Representative Wilson asked to see Senator Stedman's
version applied to the model. Mr. Painter modeled SB 21
[Legislation offered in 2017 - Short Title: PERMANENT FUND:
INCOME; POMV; DIVIDENDS]. It reflected a 4.5 percent POMV
with a payout split of 50 percent for dividends and 50
percent for government services. The model included $750
million of cuts. Without the $750 million in cuts there
would be unplanned draws. He added that because the plans
both had higher dividends, there would need to be other
action taken to avoid the unclaimed draws. He relayed that
$750 million in reductions would be an answer.
Representative Wilson asked if the gap for both Senator
Dunleavey's plan and Senator Steadman's plan was $300
million. Mr. Painter did not say an amount. However, with
$750 million of cuts the deficit under SB 21 would shrink
to $150 million by FY 26. Under the 50/50 plan the deficit
would be approximately $287 million. He added that the
50/50 plan used investment returns. If applied to the prior
9 years, the dividend moved significantly and the payout to
services also changed. It would make it through the period,
but it would likely have extreme swings. The reverse had
similar features. Senate Bill 21 had more stable payouts
and dividends. He showed the model with $750 million cuts
and then without.
2:22:01 PM
Vice-Chair Gara asked about the impact on jobs in the state
and the impact on the length of the current recession by
cutting another $750 million from the budget. Mr. Teal
thought Vice-Chair Gara's question should be directed to
someone else. Others had previously addressed the topic.
The Legislative Finance Division focused on the impact to
the treasury.
2:22:54 PM
Vice-Chair Gara mentioned that the only bill that had
passed was the previous year's Senate bill. He asked if
last year's bill and the governor's bill were the same. The
dividend would be about $1000. Mr. Teal responded, "That's
correct, they're very similar bills."
Vice-Chair Gara asked if Representative Millet's bill from
the prior year offered $1000. He asked if the dividend fell
after $1000. Mr. Painter did not recall the modeling of the
bill Vice-Chair Gara was referring to. He believed it was
the same as Senator McGuire's bill.
2:23:50 PM
Representative Grenn asked to for Mr. Painter to use the HB
115 model and change the POMV payout from year-to-year
starting at 5.75 percent and decreasing by .25 percent to
show 5.5 percent, 5.25 percent, then 5 percent. He wanted
to see if anything changed substantially. Mr. Painter
showed the 3 POMV values.
Co-Chair Seaton observed that in the model the deficit
would be gone in 2024. He asked to see the volatility for
the previous 9 years. Mr. Painter reported the model
showing the last 9 years and then the reverse.
Co-Chair Seaton appreciated being able to see the
volatility based on real returns to avoid getting stuck
thinking the state would have a constant return each year.
2:26:15 PM
Representative Guttenberg asked if the model was available
for members to use independently. Mr. Painter indicated
that there were several people in the office that would be
available to run the modeling. Mr. Teal indicated that the
program was not designed to be used for someone unfamiliar
with the program.
Co-Chair Seaton asked if Mr. Teal would provide printed
copies of the scenarios. He wanted members to be able to
request a particular scenario. Mr. Teal responded,
"Absolutely." He suggested that members come to the
Legislative Finance office where there was a large screen
that made it much easier to see the model. The only problem
with printing the scenarios was that they did not come
labeled automatically. Based on the changes the committee
had been discussing in the current meeting, it was
difficult to tell exactly what they were looking at any
point in time. Labeling would have to be carefully done
manually. He reiterated that legislators and staff were
welcome to come to the office to view various scenarios and
to have any of them printed.
Co-Chair Seaton asked Mr. Teal to explain the green area in
the upper left-hand corner. He was specifically interested
in the green bars in FY 25 and FY 26. Mr. Painter relayed
that they were surpluses. The model assumed that they would
go first to the Constitutional Budget Reserve (CBR). There
could be a plan in which they went elsewhere.
Co-Chair Seaton asked to return to the HB 115 scenario. He
asked him to include a budget growth rate of 1 percent. He
wondered if the deficit would be eliminated by FY 25 or FY
26. Mr. Painter relayed that FY 26 was the first year
without a deficit in the scenario.
Co-Chair Seaton asked about the value of the Permanent Fund
itself at the same point in time. He also asked to look
closer at the red and blue bars on the chart. Mr. Painter
reported that the value of the total PF in FY 26 would be
$72 billion.
Co-Chair Seaton asked what the difference was between the
red bar and the blue bar. Mr. Painter responded that the
red bar represented the status quo. He furthered that
because it had the unplanned draws from the ERA, the value
would be $69.1 billion. There was an approximate $3 billion
difference.
2:31:43 PM
Mr. Teal pointed out that on the graph below the PF balance
there was a percent real value. In FY 18 it equaled
118 percent. By FY 26, it was 109 percent. He concluded it
was more than keeping up with inflation. It was another way
to look at the Permanent Fund balance. He suggested that
legislators would want to maintain the real value of the
Permanent Fund.
Vice-Chair Gara asked if Mr. Teal was comfortable with a
draw amount of between 4.5 percent and 5.25 percent. He
realized the percentage was a policy call on the part of
the legislature. He wondered if the range would preserve
the earnings reserve. He asked if between 4.25 percent and
5.25 percent was a safe range as a policy call. Mr. Teal
replied in the affirmative.
Vice-Chair Gara opined that there was presently a crisis.
He asked about a scenario in which for 2 years, 5.5 percent
was used. After 2 years the percent would go down to 5
percent. He asked if the idea would be a safe policy call.
Mr. Teal believed the earnings reserve balance was healthy
enough to support a higher payout for a few years. He
discouraged a 5.5 percent payout. He reiterated that a 5.25
payout was aggressive. Based on the current oil forecast,
the Department of Revenue testified that 5.25 percent
payout was aggressive, but doable. It would not impede the
state's ability to pay out of the ERA. The bottom line was
that it would not likely be too dangerous to have a payout
of 5.5 percent for a few years. However, the state really
did not need that amount as long as there was a reserve
balance that was not endangered. The point was to preserve
the CBR as an emergency reserve fund. He continued that as
long as the legislature did not mind a lower payout from
the ERA, the state would be fine. He relayed that a higher
payout would take more money from the earnings reserve and
less money from the CBR. The state would still need the
same amount of money given a level of expenditures. A lower
payout would provide less money from the ERA, therefore a
larger deficit and a larger draw from the CBR. In the long
run it probably did not matter significantly.
^PRESENTATION: EXPENDITURE REDUCTION OVERVIEW BY RANDALL
HOFFBECK, COMMISSIONER, DEPT. OF REVENUE
2:36:32 PM
Commissioner Hoffbeck was asked to report the department's
progress in reducing government expenditures over the prior
few years. He mentioned having talked with a professor from
the University of Potsdam who had traveled around the world
talking with people associated with sovereign wealth funds
like Alaska's Permanent Fund. The people the professor had
spoken with reported having the same challenge Alaska was
faced with - incorporating sovereign wealth into a fiscal
fix in a changing commodity-based economy. The professor
noted another mutual difficulty was getting policy makers
to decide in the present to prevent an event in the future,
especially when they would be held accountable based on the
draconian nature of their decision. The professor also
emphasized the importance of having the best possible
information available and keeping the public informed in
the process. The professor also suggested cutting first
prior to making other decisions. The commissioner thought
the state had already made appropriate reductions.
2:39:21 PM
Commissioner Hoffbeck began with slide 2: "Expenditure
Reductions to Date." He reviewed the numbers, derived from
LFD, showing an expenditure reduction of 44 percent since
FY 13. He detailed that 28 percent had been cut from the
operating budget and 95 percent had been cut from the
capital budget with the weighted average being 44 percent.
The state had reduced spending from $7.8 billion down to
$4.3 billion, an astonishing reduction to expenditures over
the period. He had spoken with many people around the state
who indicated that in order to talk about additional
revenues, further cuts had to be made first. People needed
to feel that government had been reduced to a more
efficient level before talking about other revenue
solutions such as using the ERA and implementing taxes. He
argued that the cuts had been made, and it was time to
discuss other revenue options to close the fiscal gap.
2:40:31 PM
Commissioner Hoffbeck advanced to slide 3: "Expenditure
Reductions to Date." He first pointed to the reductions in
capital budget. The budget had been reduced by $1.8 billion
with $100 million remaining in the budget. The operating
budget, not including the K-12 formula, had been reduced by
$1.6 billion with $2.5 billion left. He explained why he
removed K-12 formula funding and the direct community
payments out of the reduction calculations. He broke out
the items in order to see what areas would be impacted with
additional large-scale cuts moving forward. He also noted
that removing the education funding out of the agency
portion of the operating budget showed the relative
significance of the cuts that have been made.
Commissioner Hoffbeck referred to slide 4: "Expenditure
Reductions to Date: Unrestricted General Fund Reduction by
Agency - FY15 Management Plan to FY18 Governor." He
explained the level of impact to many of the agencies. He
highlighted that the Department of Commerce, Community and
Economic Development had been reduced 54.3 percent since
FY 15 to the FY 18 management plan. He continued with the
Department of Labor and Workforce Development which had a
reduction of 37 percent. He indicated the chart continued
through all of the departments. The Department of Law had
been reduced by 20 percent. The administration had left it
up to the Legislature and to Judiciary to determine their
own reductions. The legislature had made significant cuts
of 16 percent. He noted that cuts to the Department of
Health and Social Services, the Department of Corrections,
the Department of Public Safety, the University of Alaska,
and the Department of Education and Early Development were
under 16 percent per agency. He highlighted that although
some of the percentages were lower, the dollar amounts were
some of the highest that had been made.
Commissioner Hoffbeck continued that the governor had
promised 16 percent cuts when he was running for office.
Some people suggested he had not met his goal - the
commissioner disagreed. He believed the goal had been
clearly met. He noted that on the governor's website a
report could be found titled, "Examples of state cuts and
closures to date." It showed all of the various things the
state had done in an effort to accommodate expenditure
levels. It provided a significant amount of detail.
2:44:08 PM
Commissioner Hoffbeck turned to slide 5: "Expenditure
Reductions to Date." He reported that by the end of the
current fiscal year 7 trooper facilities, 600 public health
centers, 3 maintenance stations, 1 full correctional
facility, 2 youth detention facilities, multiple job
centers, and 1 fire training facility will close across the
state. There were about 2500 fewer state employees as of
October of the previous year (DOL numbers) and another 500
state employees would be cut by the end of the year.
Additionally, state employees would not receive a cost of
living adjustment for the following 3 years. There would be
mandatory unpaid furlough days and increased healthcare
costs. He continued that for the exempt employees, merit
increases had been frozen.
2:45:47 PM
Commissioner Hoffbeck continued to slide 6: "Additional
Expenditure Reduction Impact Scenarios":
· Capital Program Spending is already at an
unsustainably low level and will likely need to be
increased in the very near future.
· Agency Operations Spending has already been reduced
28%. Although additional reductions are planned
through transitioning to shared services and
consolidating program delivery there is little
additional savings that can be achieved without the
reduction or elimination of the programs and services
that these expenditures support.
· Indirect Expenditures are currently being reviewed for
modification or elimination. The largest of which is
the oil and gas tax credit program which is already
constrained to the statutory annual payout formula but
has significant accrued liability that eventually will
need to be paid through direct payment or reduced
revenues.
· Direct Payments to Municipalities and to Program
Participants represent over 46% of the total state
budget. Cash out the door to support programs and
services statewide.
Commissioner Hoffbeck indicated that the slide showed the
areas where expenditures had occurred. One of the questions
was where additional cuts could be made. The Senate had a
plan to reduce the budget by an additional $750 million.
Senator Dunleavy's proposal included budget cuts of $1.1
billion. One of the ideas was to hold spending flat for a
decade to keep government from growing without affecting
the public. He thought putting such a message out to the
public would be a disservice. He pointed to the scenarios
where the state could cut spending going forward. He
relayed that the capital program spending was at an
unsustainably low level and would likely be increased in
the following few years.
The commissioner continued that not having an ongoing
maintenance and capital program has had a large impact on
the construction industry. Agency operations spending was
down 28 percent. Although the administration continued to
look for reductions through consolidation in the delivery
of services and a shared services model for administrative
functions, it was difficult to find savings without
reducing or eliminating programs. There was some movement
in making changes to indirect expenditures which would
affect the private sector. He continued that the state
could reduce its direct payments to municipalities and
program participants which represented 46 percent of the
total state budget. He reiterated that 46 percent of the
state's total budget was cash out the door to support
programs and services statewide.
2:49:05 PM
Commissioner Hoffbeck moved to slide 7: "Additional
Expenditure Reduction Impact Scenarios: Current Level of
Direct Payment to Municipalities." The slide reflected the
five largest payout communities including Fairbanks, Mat-
Su, Anchorage, Kenai, and Juneau. The chart showed the
amounts and the four major funding programs for the
communities. The programs included the the education
formula, the School Debt Assistance Program, the Retirement
Assistance Program and the Community Assistance Program.
Fairbanks received $159.8 million per year; Mat-Su received
$224.5 million; Anchorage $449.7 million; Kenai $103.7
million; and Juneau $58.6 million. The municipalities
budgets were very dependent on the revenues that went to
support their operations. The statewide total was $1.6
billion.
Representative Wilson asked about the retirement system
payout for the Public Employees' Retirement System (PERS)
and the Teachers' Retirement System (TRS). Commissioner
Hoffbeck responded in the affirmative.
2:50:47 PM
Commissioner Hoffbeck continued to slide 8: "Additional
Expenditure Reduction Impact Scenarios: Reduction in Direct
Payment to Municipalities." He spoke about the scenario on
the slide that seemed extreme until further review. The
scenario included cutting education funding 10 percent.
Education funding would be cut by 10 percent and would
completely eliminate school debt assistance, retirement
assistance, and community assistance to the communities on
the chart. The scenario would reduce the budget by $464.4
million. The legislature would have to find an additional
$300 million in reductions on the low end. On the high end
the legislature would have to find an additional $650
million in reductions. The cuts in the scenario would be
draconian cuts to the municipalities. It would likely
implode most of the budgets of local communities. Questions
about the impact to communities and how they would
compensate had to be answered. He also wondered what else
would be left to cut in a cut-only scenario to get to a
budget solution.
2:51:51 PM
Commissioner Hoffbeck advanced to slide 9: "Additional
Expenditure Reduction Impact Scenarios." He wondered what
it would take to offset the scenario of cuts. In looking at
the 5 large communities that had a tax base and the ability
to raise revenues Fairbanks would have to raise its
property tax mill rate by 4.9 mills (36 percent); Mat-Su by
5 mills (50 percent); Anchorage by 3.8 mills (26 percent);
Kenai by 2.2 mills (50 percent); and Juneau by 5.3 mills
(49 percent). Mill rates would have to be raised by 25 to
50 percent to offset the reductions in the state's cash
payments to municipalities. He wondered if communities
would choose to pay for all of the items, or if they would
eliminate some.
Commissioner Hoffbeck suggested that there was no
flexibility with school debt reimbursement due to it being
a general obligation debt. It was debt based on bonds that
were sold on the full faith and credit of the local
government. The bonds had to be paid by the local
jurisdictions whether or not the state participated in the
school debt reimbursement. Regarding PERS and TRS, there
were constitutional requirements for the retirement system.
Payments could be delayed for a time, but they could not be
avoided, and municipalities would eventually have to pick
up the payments. He explained that community assistance,
money that was not necessarily tied to any specific
programs, would be money that would have to be made up
elsewhere. There were many rural communities that did not
have a tax base or capacity to fund these revenues if the
state no longer provided them.
Commissioner Hoffbeck wanted to clarify one other
misrepresentation about the legislative body or the
administration trying to defend maintaining or growing a
bloated government. In every scenario government would
shrink to some extent. He suggested that the question was
about what the state valued enough to preserve in the
process of addressing the fiscal gap.
Commissioner Hoffbeck continued to slide 10: "Additional
Expenditure Reduction Impact Scenarios: Direct Payment to
Recipient Programs":
Direct Payment to Recipient Programs:
· Housing Programs
· AK Temporary Assistance
· Child Care Benefits
· Community Developmental Disability Grants
· Behavioral Health Prevention/ Intervention/ Treatment/
Recovery Grants
· Adult Public Assistance
· General Relief Assistance
· Food Stamps
· Pioneer Home
· Senior Benefits
· WIC
· Foster Care
· Subsidized Adoptions
· LIHEAP (Heating Assistance)
Commissioner Hoffbeck relayed that slide listed the larger
direct payment to recipient programs. He read the list on
the slide. He suggested that programs listed were the next
programs that to be cut potentially. He thought the state
needed to consider all aspects when looking at cutting
funding for various programs.
2:56:29 PM
Commissioner Hoffbeck continued to slide 11: "Additional
Expenditure Reduction Impact Scenarios":
· Just because the State stops funding a program or
service doesn't mean that the needs for that service
go away. However, the Federal funding match often does
go away causing severe collateral damage to the
programs, services and the economy.
· Cuts flow downhill. If the State stops funding a
program or service the burden often falls to the local
governments and then to non-profits, the private
sector, or finally to the individual.
· State expenditure cuts that don't recognize on going
needs are a "pass through" solution. The expense
doesn't go away it just shifts to an even smaller pool
of resources.
· A statewide solution, such as a broad-based sales or
income tax, broadens the funding for the delivery of
programs and services by capturing revenues from out
of state workers and visitors.
Commissioner Hoffbeck offered that even if the state
stopped funding services, the need for those services would
not go away. He thought it was possible the need would be
greater. Reductions in state funding might result in the
loss of matching federal dollars. Cuts rolled down hill. He
continued to review the slide bullet points.
Commissioner Hoffbeck reported having been asked about the
governor's take on the bills that had been offered. The
governor did not comment on bills before they made their
way through the legislative process. He wanted the
legislative process to work to its fullest. The
commissioner provided a quote from the governor's state-of-
the-state address. The governor had relayed that it was
time to move beyond the visionless exercise of budget
cutting to achieve predetermined cost savings without
considering their impacts and costs on society. The
governor had emphasized the need to start thinking about
how to build Alaska instead of pitting groups against each
other in futile efforts to hold onto and maintain an ever-
shrinking pie, tearing the state apart cut-by-cut. The
state needed a better plan. The governor had reviewed the
reality of a $3.2 billion cut the previous summer. He had
asked DOR to model an "all cut" budget to see what it
looked like. He concluded that the impact on such an
extreme reduction did not meet his vision for Alaska, not
currently or for the future.
Commissioner Hoffbeck quoted Governor Bill Walker, "A
strong economy, vibrant communities, healthy families, and
a healthy environment are worth fighting for. It's worth
sacrificing for, and it is our obligations to the future
generations of the State of Alaska." The commissioner
concluded that the price had been paid and the state needed
to start talking about additional revenues including the
use of the Permanent Fund earnings and looking at other tax
solutions for closing the fiscal gap. He believed there
would be a balance in a mix of additional cuts and other
revenues. The additional cuts needed to be based on good
business decisions. More damage could be done depending on
the cuts and the timing of the cuts. He continued that
achieving a dollar goal could not be the only focus for
additional reductions. He reported that the state had been
making reductions since FY 13. The options were known, and
decisions needed to be made. Until the state made some
decisions it would be difficult to return to growing
Alaska.
3:01:12 PM
Vice-Chair Gara thanked the commissioner. He agreed that
the state could not cut much more of the budget without
hurting people. He had heard that there was a direct
correlation between continued cuts and costing the state
jobs. He asked the commissioner to comment.
Commissioner Hoffbeck suggested that there had been several
people that had testified in committee that there was a job
loss cost to cuts. The most recent study he had seen was
that the greatest impact on the economy was cutting state
workers. If the state were to reduce everyone's revenues
slightly people adjusted. However, when people's jobs were
cut, they tended to leave the state. Impacts then filtered
into the housing market and various other areas. It was
difficult to adjust to a total loss as opposed to marginal
changes in income. He referred to a study by Institute of
Social and Economic Research (ISER) that concurred that the
largest impact was the loss of state jobs.
Vice-Chair Gara was also concerned about how long the
recession would last. He mentioned Mr. King's testimony
from the previous day about an additional $1 billion in
cuts equaling an additional 20,000 job losses. He asked if
the commissioner though the recession would be extended to
10 years.
Commissioner Hoffbeck could not speak directly to Vice-
Chair Gara's question but commented that every decision
regarding cuts and new taxes would have an impact. The only
positive impact was using the Earnings Reserve for funding
government services. The money in the ERA was not in the
economy and would be new money in the economy. The
governor's plan pushed for maximizing the use of the ERA
and the 5.25 percent draw rather than a lower draw.
3:04:14 PM
Vice-Chair Gara stated that the dialogue had changed in the
building. He suggested that now people were talking that a
flat budget equated to the same level of services. However,
like in education, a flat budget in Anchorage would equate
to the loss of 99 teachers in the following year. He asked
if Commissioner Hoffbeck agreed that a flat budget did not
mean the same level of services.
Commissioner Hoffbeck reasoned that inflation would impact
costs. Therefore, holding a budget flat would require
adjusting for those costs elsewhere. Larger issues had to
do with some of the underlying formula programs within the
state. The governor took some criticism at the time he
released his budget that he only had about $100 million
cuts in the budget. People felt that was not addressing the
problem to the fullest extent. He argued that there was
about $260 million in increased formula costs and one-time
and prior-year expenditures that were loaded in the prior
year budget that had to be compensated for in order to
reach a zero increase in the budget. He relayed 2 examples.
Public Employees' Retirement System (PERS) and Teachers'
Retirement System cost the state $58 million more in the
current year versus the prior year. Oil and gas tax credits
cost the state $44 million in the current year versus the
prior year. He anticipated upward pressure from different
areas of the budget besides the inflation factor. Holding a
budget flat for a long time would be very difficult.
3:06:15 PM
Representative Wilson reported that North Pole paid a sales
tax and a property tax. The community was giving. Now, the
state was considering an income tax or a sales tax. She
wondered about the areas that had chosen not to become any
type of municipality. She understood the intention was for
the entire state to be under some type of local government.
Each local government would decide on the level of services
to provide rather than the state deciding. She asked
whether discussions on this topic had ensued within the
administration.
Commissioner Hoffbeck responded there had been mandatory
borough bills in past legislatures that had not passed. He
reported having done and interview with one of the radio
stations in Anchorage recently and that same question came
up. He indicated that boroughs had typically formed when
there was a tax base. He cited examples such as the North
Slope Borough which had formed around oil and gas
development, and the Northwest Arctic Brough had formed
around the Red Dog Mine. The Denali Borough had formed
around the Usibelli Coal Mine. There had not been
significant momentum in borough formation in areas where
there was no economic base. He did not believe the issue
could be resolved in the current bill. Borough formation
had been discussed over the years and was a topic worth
discussing again. However, the administration had not
proposed a solution to the issue.
Representative Wilson understood that there used to be a
school tax per person. She asked if the administration had
considered imposing one in areas that did not currently
provide funding for their school. She thought things were
very unfair in the state regarding the way the
municipalities were handled. Anchorage paid for its own
police department, whereas, Fairbanks utilized the state
police. She wondered if something such as a head tax had
been considered for those areas that were not part of a
borough. She thought it was important to get closer to
being more equitable around the state.
Commissioner Hoffbeck mentioned that a head tax had been
discussed in the prior year. He noted that Senator Bishop
had introduced a school head tax bill in the Senate. The
bill had not had any hearings schedule to-date. He admitted
that the $25 minimum tax in the current bill was
essentially a head tax. He thought several of the bills
under consideration were dealing with something akin to a
head tax.
3:10:38 PM
Representative Wilson did not see the bill as a head tax
bill. She asked for information on the additional
expenditures impact scenarios. She asked for a list of the
entities which paid and those that did not. She wanted a
full picture of expenditures for the state.
Commissioner Hoffbeck responded that he would provide the
documents she requested. He mentioned an additional handout
in member packets titled, "State Revenue Impact On Alaska
Communities." It had more communities listed that the 5
noted on the slide presentation. He would try to provide
her with a comprehensive list.
3:11:40 PM
Representative Pruitt asked about the administration's
thought process regarding education and health care and the
roll the state played in each.
Commissioner Hoffbeck responded that the governor's
position was clear that he thought a strong education
system and strong communities were at the core of the
state. He reported that when the governor looked at making
major cuts in those areas versus a broad-based tax, he
favored a tax.
Representative Pruitt posed a question about a willingness
to discuss different delivery methods.
Commissioner Hoffbeck believed that the discussion was
absolutely necessary. He thought the discussion had to
occur within the agencies.
Representative Pruitt appreciated the commissioner's
response. He pointed out that the cost of the education
formula as it applied to the five listed large communities
totaled two-thirds of the total cost of the education
formula. He reported that since he had been a legislature,
the state had increased the education budget every year
with the except for the previous year due to the governor's
veto. However, the state was still struggling with the same
issues regarding delivery since he first arrived at the
legislature. He surmised that unless the legislature was
willing to have difficult conversations about education,
health care, and their deliveries, they would increase. He
agreed with Vice-Chair Gara that there was an automatic
increase to budgets due to inflation. He thought members
needed to discuss how things were being delivered, not just
how they were funded.
Commissioner Hoffbeck agreed. He noted that his comment
about making smart cuts applied. The state needed to make
reductions in the right places. If there was a more
efficient way of delivering education and health care with
services remaining sound, the administration could support
it. Unless the state was absolutely convinced there was a
way to save enough money to balance the budget, other
revenue options would need to be discussed.
3:15:47 PM
Representative Guttenberg mentioned that some of the
communities that were not organized had voted against the
idea including Delta Junction and Nenana. If either of the
communities had voted in favor of becoming a municipality,
they would have become very wealthy. They would have taken
in a large swath of the pipeline. If they had taxed
themselves, they would have received the value of the
pipeline and the state would have taken the rest. Both
communities opted not to become a municipality. He wondered
whether the communities could be included. He mentioned the
idea of integrating the Legislative Finance Division's
interactive model with the economist's models encompassing
job losses and other effects on the economy. He asked how
close the legislature could get to receiving an accurate
picture by integrating several factors. He asked the
commissioner for his insight.
Commissioner Hoffbeck did not believe a picture could be
painted with a clear level of certainty. There were several
moving parts and unknown factors. Alaska had a more stable
population that what it had in the 80s. However, the
administration did not know what the trigger points might
be for people to leave the state. He thought the department
could reasonable model the cost economic impact, but not
the decision. He agreed with the House and Senate bringing
in experts to help legislators in making decisions. He
confirmed, that DOR could not deliver an integrated model
that would tell members the right answer.
3:20:49 PM
Co-Chair Seaton was concerned that the commissioner agreed
with the statement that the state had not improved its
education system. Over the prior 5 years graduation rates
had improved significantly. He noted that the Alaska
Performance Scholarship Program had reached middle school
as a merit-based program and kids were enrolled in more
advanced classes. He mentioned Operation Grad and early
childhood education. He also noted that 26,000 more people
were enrolled in healthcare insurance than 5 years
previously. He asked the commissioner for his thought
regarding improved educational outcomes and performance and
delivery. He talked about a newspaper article which
reported people were looking to Alaska rather than Finland
for advanced high school education programs. He wanted to
confirm that the commissioner was not agreeing that the
state had not improved its education system or people's
access to health insurance.
Commissioner Hoffbeck thought the question had been whether
there was a more efficient way to deliver healthcare or
education. If it was possible to get good results with
alternative delivery systems, he thought it was worth
looking at.
3:23:16 PM
Vice-Chair Gara agreed with Representative Pruitt that
healthcare costs were increasing severely. He hoped to work
with the administration on finding a solution.
Commissioner Hoffbeck confirmed that the administration
wanted to work with the legislature on finding a solution.
He agreed that it was a difficult problem.
Co-Chair Foster invited Mr. Alper to the table.
3:25:11 PM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE,
had thought of the previous day's meeting. He relayed that
the bill was very large and did 2 things: it changed the
Permanent Fund and added an income tax. He had spent a
significant amount of time the previous day answering
questions on relatively small issues within a large bill.
He suggested that DOR had regulatory discretion to come up
with answers if handed a bill. However, the department
would strongly prefer not to use its discretion. He urged
members to put smaller items in the bill to provide clear
direction to the department to ensure the intent of the
legislature.
Co-Chair Foster asked Mr. Alper how much time he needed for
his presentation scheduled for the following day.
Mr. Alper estimated 15 to 30 minutes.
HB 115 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day.
ADJOURNMENT
3:27:18 PM
The meeting was adjourned at 3:27 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 115 Opposition letters 2.14.17.pdf |
HFIN 2/15/2017 1:30:00 PM |
HB 115 |
| HB115 - Community Revenue Impacts Handout - 2.15.17.pdf |
HFIN 2/15/2017 1:30:00 PM |
HB 115 |
| HB115 - Expenditure Reduction Overview Presentation - 2.15.17.pdf |
HFIN 2/15/2017 1:30:00 PM |
HB 115 |
| HB 115 Supporting Doc Modeling 3 Static Examples.pdf |
HFIN 2/15/2017 1:30:00 PM |
HB 115 |