Legislature(2017 - 2018)HOUSE FINANCE 519

04/10/2017 08:00 AM FINANCE

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Audio Topic
08:03:59 AM Start
08:05:00 AM SB26
09:25:57 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
+= SB 26 APPROP LIMIT & PER FUND:DIVIDEND;EARNINGS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
CS FOR SENATE BILL NO. 26(FIN)                                                                                                
                                                                                                                                
     "An Act  relating to  an appropriation  limit; relating                                                                    
     to  the   budget  responsibilities  of   the  governor;                                                                    
     relating to the Alaska  permanent fund, the earnings of                                                                    
     the  Alaska permanent  fund, and  the earnings  reserve                                                                    
     account;  relating to  the  mental  health trust  fund;                                                                    
     relating to  deposits into the dividend  fund; relating                                                                    
     to  the  calculation  and  payment  of  permanent  fund                                                                    
     dividends; and providing for an effective date."                                                                           
                                                                                                                                
8:05:00 AM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute   for  CSSB   26(FIN),  Work   Draft  30-GS1690\U                                                                    
(Martin, 4/7/17).                                                                                                               
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
TANEEKA   HANSEN,   STAFF,   REPRESENTATIVE   PAUL   SEATON,                                                                    
addressed the changes  in the CS with a  document created by                                                                    
the  House Finance  co-chairs titled  "SB  26 -  Comparison"                                                                    
dated April  7, 2017  (copy on  file). The  comparison sheet                                                                    
lists the  provision, the provision  under the CS for  SB 26                                                                    
Version  D, and  the provision  under  the House  CS for  SB                                                                    
26(FIN)-Version U:                                                                                                              
                                                                                                                                
     Provision: Intent                                                                                                      
     CS  for SB  26  -  Version D:  Section  1  - Intent  to                                                                
     reevaluate earnings in three years                                                                                         
     House CS for SB 26(FIN) - Version U: Deleted                                                                             
                                                                                                                                
     Provision:  Budget  reserve   fund  SBR-  Appropriation                                                                
     limit AS 37.05.540(a)                                                                                                    
     CS  for  SB  26  -  Version  D:  Section  2  -  Deletes                                                                
     reference  to the  appropriation  limit  created by  AS                                                                    
     37.05.540(b), the existing  appropriations limit, which                                                                    
     is repealed by this bill.                                                                                                  
     House  CS for  SB 26(FIN)  -  Version U:  Deleted -  AS                                                                  
     37.05.540(b)  is not  repealed; the  existing Statutory                                                                    
     Budget Reserve appropriation limit remains in statute.                                                                     
                                                                                                                                
     Provision: Appropriation Limit AS 37.05.545                                                                          
     CS for  SB 26 -  Version D: Section  3 - Creates  a new                                                                
     appropriation  limit  not  to exceed  $4.1  billion  in                                                                    
     unrestricted  general  funds. Does  not  appropriations                                                                    
     for certain specific purposes.                                                                                           
     House CS for SB 26(FIN) - Version U: Deleted                                                                           
                                                                                                                                
     Provision: Marine Highway Fund AS 37.05.550                                                                          
     CS for SB 26 - Version D:                                                                                                
     House  CS for  SB  26(FIN)  - Version  U:  Section 1  -                                                                
     Amends  AS Sec.  37.05.055(b), relating  to the  marine                                                                    
     highway  fund,  to  conform  to  the  changes  made  in                                                                    
     section 6.                                                                                                               
                                                                                                                                
     Provision:   Responsibilities   of  the   Governor   AS                                                                
     37.07.020                                                                                                                
     CS  for  SB 26  -  Version  D:  Section  4 -  Adds  new                                                                
     subsection  (f) requiring  a governor's  report on  how                                                                    
     the  budget complies  with the  appropriation limit  in                                                                    
     sec. 3                                                                                                                   
     House CS for  SB 26(FIN) - Version U: Section  2 - Adds                                                                
     new  subsection (f)  requiring a  governor's report  on                                                                    
     how the  budget complies  with the  appropriation limit                                                                    
     that   exists  in   article  IX   section  16   of  the                                                                    
     Constitution of the State of Alaska.                                                                                     
                                                                                                                                
     Provision: Alaska Permanent Fund AS 37.13.010(a)                                                                     
     CS  for SB  26  - Version  D: Section  5  - Deletes  AS                                                                
     37.13.010(a)(2).  The resulting  change means  that the                                                                    
     Alaska   Permanent  fund   will   be   filled  by   the                                                                    
     constitutionally  required 25  percent  of all  mineral                                                                    
     lease  rentals, royalties,  royalty sale  proceeds, and                                                                    
     net  profit shares.  The  additional  25% of  royalties                                                                    
     from leases  issued after December  1, 1979,  which are                                                                    
     above  the  constitutionally  required  25%,  will  now                                                                    
     remain in  the general fund  and will not  be deposited                                                                    
     into the permanent fund.                                                                                                 
     House CS for SB 26(FIN) - Version U: Section 3 - Same                                                                
                                                                                                                                
     Provision: Income AS 37.13.140                                                                                         
     CS for SB 26 - Version  D: Section 6 - Adds "and market                                                                
     value"  to  section  title. This  section  directs  the                                                                    
     Permanent  Fund Corporation  to continue  computing net                                                                    
     income of  the fund in  the same manner,  excluding any                                                                    
     unrealized gains or losses  but removes the calculation                                                                    
     for determining distributable  income from the earnings                                                                    
     reserve.                                                                                                                 
     House CS for SB 26(FIN) - Version U: Section 4 - Same                                                                
                                                                                                                                
     Provision: Income AS 37.13.140 (b)                                                                                   
     CS  for  SB 26  -  Version  D:  Section  7 -  Adds  new                                                                
     subsection  (b)  describing  the amount  available  for                                                                    
     distribution from  the earnings  reserve fund  as 5.25%                                                                    
     of the average market value of the entire fund.                                                                          
     House CS for SB 26(FIN) - Version U: Section 5 - Same                                                                
                                                                                                                              
     Provision: AS 37.13.140(c)                                                                                             
     CS for  SB 26 -  Version D: New subsection  (c) reduces                                                                  
     the draw  from the  earnings reserve when  oil revenues                                                                    
     are above $1.2 billion.                                                                                                  
     House CS  for SB  26(FIN) -  Version U:  New subsection                                                                  
     (c)  reduces the  draw from  the earnings  reserve when                                                                    
     oil  revenues  are  above $1.4  billion.  The  draw  is                                                                    
     reduced by 80 cents on the dollar.                                                                                       
                                                                                                                                
     Provision: Income AS 37.13.140 (b)                                                                                   
     CS  for  SB  26  -   Version  D:  Section  8  -  Amends                                                                
     subsection  (b), created  by  this act,  to change  the                                                                    
     POMV draw  from 5.25%  to 5%.  The change  is effective                                                                    
     July 1, 2020.                                                                                                            
     House  CS for  SB  26(FIN)  - Version  U:  Section 6  -                                                                
     Amends subsection  (b), created by this  act, to change                                                                    
     the  POMV  draw  from  5.25%   to  5%.  The  change  is                                                                    
     effective July 1, 2019.                                                                                                  
                                                                                                                                
     Provision: Disposition of Income AS 37.13.145(b)                                                                     
     CS for SB 26 - Version D:                                                                                                
     House  CS for  SB  26(FIN)  - Version  U:  Section 7  -                                                                
     Amends subsection  (b) to  annually direct  income from                                                                    
     the  earnings reserve.  0.25  percent  of market  value                                                                    
     (POMV)  is  directed  to the  principal  of  the  fund.                                                                    
     Separately,   33%   of   POMV   calculated   under   AS                                                                    
     37.13.140(b) is  directed from the earnings  reserve to                                                                    
     the dividend fund for dividends  and 67% to the general                                                                    
     fund for state use.                                                                                                      
                                                                                                                                
     Provision: Disposition of Income AS 37.13.145(d)                                                                     
     CS for  SB 26 -  Version D:  Section 9 -  conforming to                                                                
     the distribution change in AS 37.13.140(b)                                                                               
     House  CS for  SB  26(FIN)  - Version  U:  Section 8  -                                                                
     conforming to  the change to the  dividend distribution                                                                    
     under 37.13.145(b). Same effect.                                                                                         
                                                                                                                              
8:08:02 AM                                                                                                                    
                                                                                                                              
     Provision: Disposition of  Income AS 37.13.145(e)CS for                                                              
     SB 26 -  Version D: Section 10 - Adds  a new subsection                                                                
     that provides that money from  the earnings reserve may                                                                    
     be transferred  to the principal of  the permanent fund                                                                    
     for purposes  of inflation proofing  the fund  when the                                                                    
     value  of the  earnings reserve  account is  four times                                                                    
    the annual amount calculated under AS 37.13.140(b).                                                                       
     House CS for  SB 26(FIN) - Version U: Section  9 - Adds                                                                
     a  new subsection  that provides  that  money from  the                                                                    
     earnings reserve  may be  transferred to  the principal                                                                    
     of  the  permanent  fund   for  purposes  of  inflation                                                                    
     proofing  the  fund  when the  value  of  the  earnings                                                                    
     reserve  account  is  four   times  the  annual  amount                                                                    
     calculated  under AS  37.13.140(b),  up  to the  amount                                                                    
     necessary to  make up for  any past  inflation proofing                                                                    
     that  was not  transferred. Subsection  (f) directs  an                                                                    
     additional  appropriation,  if   necessary,  to  ensure                                                                    
     dividends of at least $1,250  for fiscal years 2018 and                                                                    
     2019.                                                                                                                    
                                                                                                                                
    Provision: Disposition of Income AS 37.13.145(e)(f)                                                                   
     CS for SB 26 - Version D:                                                                                                
     House  CS for  SB 26(FIN)  -  Version U:  Section 10  -                                                                
     Deletes  subsection   (f),  created  in   the  previous                                                                    
     section, and  amends (e) to  conform to  that deletion.                                                                    
     This  section  takes effect  June  30,  2020, when  the                                                                    
    dividend no longer has a minimum amount of $1,250.                                                                        
                                                                                                                                
8:10:37 AM                                                                                                                    
                                                                                                                                
     Provision:  Appropriations  to  the  dividend  fund  AS                                                                
     37.13.146                                                                                                                
     CS for  SB 26 - Version  D: Section 11 -  creates a new                                                                
     section  which allows  the  legislature to  appropriate                                                                    
     25% of  the POMV  amount calculated in  AS 37.13.140(b)                                                                    
     from the general fund to  the dividend, for the purpose                                                                    
     of paying dividends                                                                                                      
     House CS for SB 26(FIN) - Version U:                                                                                     
                                                                                                                                
     Provision: Corporation Budget AS 37.13.150                                                                             
     CS for SB 26 - Version D:                                                                                                
     House  CS for  SB 26(FIN)  -  Version U:  Section 11  -                                                                  
     Includes   the  unexpended   balance   of  the   Alaska                                                                    
     Permanent Fund Corporation's  budget in the calculation                                                                    
     of  the fund's  market  value; this  budget balance  is                                                                    
     already calculated as  a part of the net  income of the                                                                    
     fund under current law.                                                                                                  
                                                                                                                                
     Provision:  Assets  of  the   mental  health  trust  AS                                                                  
     37.13.300(c)                                                                                                             
     CS for SB  26 - Version D: Section 12  - Clarifies that                                                                
     income from mental health trust  fund, which is managed                                                                    
     by  the  Alaska  Permanent  Fund  Corporation,  is  not                                                                    
     included in the market value  of the Permanent fund for                                                                    
     purposes of distribution                                                                                                   
     House CS for SB 26(FIN) - Version U: Section 12 - Same                                                                 
                                                                                                                                
8:13:16 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     Provision: Amount of dividend AS 43.23.025 (a)                                                                       
     CS for SB 26 - Version  D: Section 13 - Amends to state                                                                
     that  the dividend  shall be  calculated  based on  the                                                                    
     amount  appropriated from  the  general  fund under  AS                                                                    
     37.13.146.                                                                                                               
     House CS for SB 26(FIN) - Version U:                                                                                     
                                                                                                                                
     Provision: Amount of dividend AS 43.23.025(c)                                                                          
     CS for SB 26 - Version  D: Section 14 - States that the                                                                
     dividend for fiscal year 2018,  2019, and 2020 shall be                                                                    
     $1000.                                                                                                                   
     House CS for SB 26(FIN) -  Version U: Section 13 - Adds                                                                  
     new subsection  (c) to  state that  notwithstanding the                                                                    
     calculations outlined  in (a), the dividend  for fiscal                                                                    
     years 2018 and 2019 shall be at least $1250.                                                                             
                                                                                                                                
     Provision: Dividend fund AS 43.23.045(a)                                                                               
     CS  for SB  26  - Version  D: Section  15  - Amends  to                                                                
     clarify  that  the  dividend  fund  consists  of  money                                                                    
     appropriated under AS 47.13.146                                                                                          
     House CS for SB 26(FIN) - Version U: Deleted.                                                                          
                                                                                                                                
     Provision: Duties of the department AS 43.23.055                                                                       
     CS  for SB  26  - Version  D: Section  16  - Amends  to                                                                
     clarify  that the  amount to  pay  the annual  dividend                                                                    
     moves from  the dividend fund without  need for further                                                                    
     appropriation                                                                                                            
     House CS for SB 26(FIN) - Version U: Section 14 - Same                                                                 
                                                                                                                                
8:15:23 AM                                                                                                                    
                                                                                                                                
     Provision: Repealed                                                                                                    
     CS for  SB 26 - Version  D: Section 17 -  Repealed July                                                                
     1, 2017 AS  37.05.540(b)(c) -Existing SBR appropriation                                                                    
     limit  AS  37.13.145(b)   -  existing  distribution  of                                                                    
     income  AS 37.13.145(c)  - existing  inflation proofing                                                                    
     mechanism  Section  18  - Repealed  June  30,  2021  AS                                                                  
     43.23.025(c), $1000 set dividend                                                                                         
     House  CS for  SB 26(FIN)  -  Version U:  Section 15  -                                                                  
     Repealed  July  1,  2017  AS  37.13.145(c)  -  existing                                                                    
     inflation  proofing  mechanism  Section 16  -  Repealed                                                                  
     June  30,  2020  AS 37.13.145(f)  -  appropriation  for                                                                    
     $1250 dividend  AS 43.23.025(c)  - minimum  dividend of                                                                    
     $1250.                                                                                                                   
                                                                                                                                
     Provision: Uncodified law                                                                                              
     CS for  SB 26 -  Version D:  Section 19 -  Provides the                                                                
     commissioner of  revenue with the  transition authority                                                                    
     to implement regulations.                                                                                                
     House  CS for  SB 26(FIN)  -  Version U:  Section 17  -                                                                
     states that  for fiscal year 2017,  the legislature may                                                                    
     appropriate  from the  earnings  reserve  5.25% of  the                                                                    
     market  value of  the fund  (POMV),  less the  dividend                                                                    
     already paid out for fiscal year 2017.                                                                                   
                                                                                                                              
     Provision: Retroactivity                                                                                               
     CS for SB 26 - Version D:                                                                                                
     House CS  for SB 26(FIN)  - Version U: Section  18: The                                                                  
     previous   section,   section  17,   is   retroactively                                                                    
     effective  on  June 29,  2017  even  if the  act  takes                                                                    
     effect later than that date.                                                                                             
                                                                                                                                
     Provision: Conditional language                                                                                        
     CS for SB 26 - Version D:                                                                                                
     House CS for SB 26(FIN) -  Version U: Section 19 - This                                                                
     act only  takes effect  if the legislature  also passes                                                                    
     and signs  into law a  broad based revenue  measure and                                                                    
     HB 111 as passed the House.                                                                                              
                                                                                                                                
     Provision: Effective dates                                                                                             
     CS for  SB 26 - Version  D: Section 20 -  section 19 is                                                                
     effective immediately Section 21  - section 8, changing                                                                  
     the POMV rate,  is effective July 1, 2020  Section 22 -                                                                  
     the rest of the act is effective July 1, 2017                                                                            
     House  CS for  SB 26(FIN)  -  Version U:  Section 20  -                                                                
     sections 17  and 18 take effective  immediately Section                                                                  
     21 -  section 6, amending  the POMV rate,  takes effect                                                                  
     July 1, 2019  Section 22 - section 10,  relating to the                                                                  
     minimum dividend,  takes effect  June 30,  2020 Section                                                                  
     23  - the  remainder of  the act  takes effect  July 1,                                                                  
     2017                                                                                                                     
                                                                                                                                
Representative Wilson asked whether SB 26 contained HB 115,                                                                     
minus the income tax.                                                                                                           
                                                                                                                                
Ms. Hansen replied  that the current bill was  similar to HB                                                                    
115.                                                                                                                            
                                                                                                                                
Representative  Wilson  asked   whether  combining  the  two                                                                    
pieces  of legislation  had been  vetted by  the legislative                                                                    
legal division.                                                                                                                 
                                                                                                                                
Ms. Hansen replied there had  been no legal opinion attached                                                                    
to  the  bill. She  shared  that  the  legal team  had  used                                                                    
conditional language previously.                                                                                                
                                                                                                                                
Representative  Wilson  asked whether  conditional  language                                                                    
was the same as intent language.                                                                                                
                                                                                                                                
Ms. Hansen replied that conditional  language meant that the                                                                    
bill  would not  be  enacted as  law  unless the  conditions                                                                    
stipulated in the legislation had been met.                                                                                     
                                                                                                                                
Representative Wilson  probed the difference  between intent                                                                    
and conditional  language. She was curious  when conditional                                                                    
language had been used previously.                                                                                              
                                                                                                                                
Ms. Hansen replied that intent  language did not have impact                                                                    
on law.  She furthered that conditional  language stipulated                                                                    
that a  bill can only  become law after conditions  are met.                                                                    
She added  that there  was a  range of  conditional language                                                                    
commonly found  in appropriation bills and  bills related to                                                                    
Medicaid reform.                                                                                                                
                                                                                                                                
8:19:20 AM                                                                                                                    
                                                                                                                                
Co-Chair  Foster   noted  that  Representative   Pruitt  and                                                                    
Representative Guttenberg had joined the meeting earlier.                                                                       
                                                                                                                                
Vice-Chair  Gara  wanted  to ensure  the  dividend  portions                                                                    
remained   the  same   in  the   bill.  He   summarized  his                                                                    
understanding  of  the  dividend  payout  described  in  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Ms. Hansen replied in the affirmative.                                                                                          
                                                                                                                                
Vice-Chair Gara  referred to the  senate's formula  that had                                                                    
been  modeled  in  the Legislative  Finance  Division  (LFD)                                                                    
charts. He  noted that  the formula  started at  $1000, then                                                                    
fell below  $1000 in 2021. He  said that past charts  he had                                                                    
seen predicted  that the dividend  would likely start  out a                                                                    
little above $1,250  and rise from there.  He specified that                                                                    
the formula  he was discussing  used the 67  percent general                                                                    
fund and 33 percent dividend formula.                                                                                           
                                                                                                                                
Ms.  Hansen answered  the formulas  were the  same as  in HB                                                                    
115. She  relayed that the $1,250  guaranteed dividend would                                                                    
end  in  FY 19,  which  was  the  same  year that  the  POMV                                                                    
calculation  would   transition  from  5.25  percent   to  5                                                                    
percent. She  believed that  the projections  hovered around                                                                    
$1,250, growing at a modest rate thereafter.                                                                                    
                                                                                                                                
Vice-Chair Gara  recalled that the dividend  under the house                                                                    
formula had  been projected to  start higher than  $1250 and                                                                    
had  been projected  to grow.  He  hoped to  get the  actual                                                                    
numbers from LFD at another time.                                                                                               
                                                                                                                                
8:21:44 AM                                                                                                                    
                                                                                                                                
Representative Thompson called to mind  that the POMV in the                                                                    
current legislation  had been likened  to the POMV  found in                                                                    
HB 115.  He argued that the  two were not alike  because the                                                                    
$1.2 billion  dollar draw limit  that had been  written into                                                                    
HB 115  [by a  vote of  9 to  1 by  the committee]  would be                                                                    
changed  to $1.4  billion and  $.80 on  the dollar.  He felt                                                                    
that the committee had voted,  with good reason, on the $1.2                                                                    
million  draw  limit  and dollar  per  dollar  thereafter  -                                                                    
because it  would grow  the fund and  would make  more money                                                                    
available for future dividends and government expenses.                                                                         
                                                                                                                                
Ms.  Hansen replied  that some  members had  hoped that  any                                                                    
additional revenue in  the out years could  be available for                                                                    
deferred maintenance or certain one-time projects.                                                                              
                                                                                                                                
Representative Thompson  felt that HB  111 [oil and  gas tax                                                                    
legislation   currently    under   consideration    by   the                                                                    
legislature] would stunt revenue  growth and would result in                                                                    
the threshold in SB 26 ultimately never being reached.                                                                          
                                                                                                                                
Representative  Pruitt  cited  conditional language  in  the                                                                    
bill; Page 8, line 10:                                                                                                          
                                                                                                                                
     CONDITIONAL EFFECT. This Act takes effect only if the                                                                      
     Thirtieth Alaska State Legislature passes and enacts                                                                       
     into law in 2017                                                                                                           
     (1)   legislation  relating   to  a   broad-based  tax,                                                                    
     directed  to  education,  that   is  estimated  by  the                                                                    
     Department  of Revenue  to generate  annually at  least                                                                    
     $650,000,000, once fully implemented, and that has an                                                                      
    effective date not later than January 1, 2019; and                                                                          
     (2) the version of House Bill 111 that passes out of                                                                       
     the House of Representatives.                                                                                              
                                                                                                                                
Representative Pruitt  suggested that the language  could be                                                                    
illegal. He  testified that the conditional  language scared                                                                    
him and was dangerous and outrageous.                                                                                           
                                                                                                                                
8:25:59 AM                                                                                                                    
                                                                                                                                
Vice-Chair Gara disagreed. He explained  that there had been                                                                    
attempts  by some  current lawmakers  to  use the  permanent                                                                    
fund  to fund  the deficit,  without raising  other revenue,                                                                    
while  paying oil  companies credits  and failing  to expect                                                                    
those with  the greatest  financial privilege  to contribute                                                                    
to  a solution.  He  felt that  a  shrinking permanent  fund                                                                    
would disproportionately  affect the  poorest in  the state.                                                                    
He  stressed that  the fiscal  plan should  be fair  for all                                                                    
Alaskans.  He argued  that the  conditional language  in the                                                                    
bill  supported a  balanced fiscal  plan  that would  ensure                                                                    
those  with  privilege  and wealth  contributed  equally  to                                                                    
those that rely on their dividends for significant income.                                                                      
                                                                                                                                
8:28:15 AM                                                                                                                    
                                                                                                                                
Representative  Wilson  disagreed.  She  believed  that  the                                                                    
language  took  away  the  ability  of  the  other  body  to                                                                    
represent  their  constituents  by  vetting  the  bill.  She                                                                    
argued  that  the broad-based  tax  would  not be  spent  on                                                                    
education but could  be used for anything.  She thought that                                                                    
the language in (2)  was unconstitutional. She lamented that                                                                    
the  bill did  not contain  language to  reduce the  budget,                                                                    
rather continued to let it expand.                                                                                              
                                                                                                                                
8:30:51 AM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Kawasaki, Ortiz, Gara,  Grenn, Guttenberg, Seaton,                                                                    
Foster                                                                                                                          
OPPOSED: Pruitt, Thompson, Tilton, Wilson                                                                                       
                                                                                                                                
The MOTION  PASSED (7/4). There being  NO further OBJECTION,                                                                    
Work Draft 30-GS1690\U was ADOPTED.                                                                                             
8:31:25 AM                                                                                                                    
                                                                                                                                
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
expressed  appreciation that  the legislation  was advancing                                                                    
through the legislative process.                                                                                                
                                                                                                                                
Representative  Thompson  queried  whether  the  legislation                                                                    
weakened the  permanent fund and  asked for a  comparison of                                                                    
the current version to past versions.                                                                                           
                                                                                                                                
Commissioner Hoffbeck  answered that  all of the  bills that                                                                    
had  POMV  based versions  and  had  contained similar  draw                                                                    
components. He  explained that the current  bill reduced the                                                                    
draw from  5.25 percent to  5 percent one year  earlier that                                                                    
the senate  version and included the  secondary provision of                                                                    
.25 percent inflation proofing on an annual basis.                                                                              
                                                                                                                                
Representative Thompson  thought that the draw  limit in the                                                                    
bill would impact the overall health of the fund.                                                                               
                                                                                                                                
Commissioner  Hoffbeck replied  that the  bill did  increase                                                                    
the chance of failure, but not significantly.                                                                                   
                                                                                                                                
8:34:48 AM                                                                                                                    
                                                                                                                                
Vice-Chair Gara offered a brief  history of the conversation                                                                    
surrounding  the draw  limit.  He understood  that the  draw                                                                    
limit  could   be  written  into  statute   but  that  other                                                                    
legislatures could  not be constitutionally bound  to follow                                                                    
suit.                                                                                                                           
                                                                                                                                
Commissioner Hoffbeck agreed that  anything in statute could                                                                    
be changed by future legislatures.  He thought that the idea                                                                    
behind  putting  the formula  into  statute  was to  provide                                                                    
guidance  to  future  legislature  in  no  over-drawing  the                                                                    
permanent fund.                                                                                                                 
                                                                                                                                
Vice-Chair Gara  surmised that  everything in  statute would                                                                    
be subject to appropriation and so, would be unenforceable.                                                                     
                                                                                                                                
Commissioner Hoffbeck replied in the affirmative.                                                                               
                                                                                                                                
Vice-Chair  Gara believed  the administration's  concern was                                                                    
valid. He spoke  to low capital budgets in  recent years. He                                                                    
spoke to the draw limit and  the validity of the concerns of                                                                    
the  administration.  He  understood  that  the  draw  limit                                                                    
applied  to production  taxes  and  earnings reserve  draws,                                                                    
combined.                                                                                                                       
                                                                                                                                
Commissioner  Hoffbeck  replied  that the  trigger  was  the                                                                    
growth  of  production  tax  and   royalties;  oil  and  gas                                                                    
revenues.                                                                                                                       
                                                                                                                                
Vice-Chair Gara probed the royalty figures.                                                                                     
                                                                                                                                
Commissioner  Hoffbeck  replied he  would  have  to run  the                                                                    
numbers. He  guessed that they  stood at  approximately half                                                                    
of $1.2 billion.                                                                                                                
                                                                                                                                
Vice-Chair  Gara surmised  that the  largest portion  of the                                                                    
state's  revenue would  be the  POMV  draw, plus  royalties,                                                                    
plus production tax.                                                                                                            
                                                                                                                                
Commissioner Hoffbeck replied in the affirmative.                                                                               
                                                                                                                                
Vice-Chair Gara expressed concern  that the draw limit could                                                                    
result in  a flat  revenue situation  over the  next decade,                                                                    
leaving  the state  unable  to keep  up  with inflation  and                                                                    
population growth  and could  result in  additional internal                                                                    
budget cuts.  He wondered whether  there was a way  to craft                                                                    
the  draw limit  to allow  it to  adjust for  population and                                                                    
inflation growth.                                                                                                               
                                                                                                                                
8:41:34 AM                                                                                                                    
                                                                                                                                
Commissioner Hoffbeck  replied the other large  component to                                                                    
consider was other  revenues, which was not  included in the                                                                    
draw  limit -  about $400  million  per year  - the  biggest                                                                    
component being oil and gas  corporate income tax. He stated                                                                    
that  there would  be  growth in  the  general economy  that                                                                    
would not be caught under the  cap. He relayed that a broad-                                                                    
based  tax would  be captured  outside of  the cap  as well,                                                                    
which  would allow  for  growing  expenditures overtime.  He                                                                    
noted that  the cap had been  included in the bill  as a way                                                                    
to balance  the amount of revenues  available for government                                                                    
services in  high revenue years,  with the  amount available                                                                    
in low revenue  years. He related that if the  intent of the                                                                    
legislature was  to have  more room on  the higher  end, the                                                                    
start would  need to be at  a lower base to  assure that the                                                                    
fund was not overdrawn. He  stressed that all the components                                                                    
needed to maintain balance.                                                                                                     
                                                                                                                                
Vice-Chair  Gara understood  that  some of  the revenue  may                                                                    
increase with inflation,  but the bulk of  the revenue would                                                                    
be subject  to the  flat limit, approximately  $3.5 billion.                                                                    
He thought  that revenue  would remain  flat and  could fall                                                                    
behind inflation  every year. He wondered  whether the limit                                                                    
could be  written to  ensure that  the reality  of inflation                                                                    
and population growth were reflected realistically.                                                                             
                                                                                                                                
Commissioner Hoffbeck  clarified that the oil  and gas taxes                                                                    
and royalties were not limited  and would grow. He said that                                                                    
the only  number that would  go down would be  the permanent                                                                    
fund draw. He  shared that the permanent fund  was now being                                                                    
added  to  the  equation  because  there  were  insufficient                                                                    
revenues,  under  the current  system,  to  pay the  state's                                                                    
bills. He held  that as oil and gas tax  revenues, and other                                                                    
revenues grew, the  sate would have sufficient  funds to pay                                                                    
bills.  He  furthered  that  if  the  threshold  point  were                                                                    
reached where the  state had enough in revenue  from oil and                                                                    
gas  taxes and  other revenues  to pay  the bills,  it would                                                                    
make sense to cease drawing from the permanent fund.                                                                            
                                                                                                                                
8:46:36 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara maintained  his  concern  that the  overall                                                                    
revenue  would not  grow within  the draw  limit set  in the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Commissioner Hoffbeck  replied that the reason  for the draw                                                                    
limit was to  recognize that the earnings  reserve needed to                                                                    
be used  in the  immediate but might  not be  necessary into                                                                    
the future. He  stressed that the draw would  cease once the                                                                    
need subsided and was not  intended to be a permanent source                                                                    
of income for the state.                                                                                                        
                                                                                                                                
Vice-Chair Gara agreed  that the state should find  a way to                                                                    
limit the draw from the  earnings reserve. He reiterated his                                                                    
question about  inflation and  population growth.  He wanted                                                                    
to use some portion of funds to keep up with those items.                                                                       
                                                                                                                                
8:49:33 AM                                                                                                                    
                                                                                                                                
Commissioner  Hoffbeck  replied  that  the  CS  allowed  for                                                                    
headroom  by  going $.80  on  the  dollar. He  reminded  the                                                                    
committee  that  under  current   revenues  there  was  $600                                                                    
million  in  headroom  for  growth   before  the  limit  was                                                                    
reached.                                                                                                                        
                                                                                                                                
Representative Wilson  relayed that the committee  had heard                                                                    
from  Ken  Alper,  Director,  Tax  Division,  Department  of                                                                    
Revenue that HB 111 did  constitute a substantial tax change                                                                    
on  the  oil and  gas  industry.  She wondered  whether  the                                                                    
change could have negative repercussions.                                                                                       
                                                                                                                                
Commissioner  Hoffbeck cited  the  immediate fiscal  deficit                                                                    
necessitated  that all  things should  be on  the table  for                                                                    
consideration. He stated that  everything that the state did                                                                    
would have  an impact somewhere.  He said that HB  111 still                                                                    
needed to  work its way  thorough the senate and  could look                                                                    
different   after  it   traveled  through   the  legislative                                                                    
process.                                                                                                                        
                                                                                                                                
Representative Wilson  argued that the  conditional language                                                                    
did not allow  for the senate to make changes  to HB 111 She                                                                    
asked if  the administration had  a position on  the current                                                                    
version of HB 111.                                                                                                              
                                                                                                                                
8:52:31 AM                                                                                                                    
                                                                                                                                
Commissioner  Hoffbeck replied  that the  legislation was  a                                                                    
strong statement from  the house majority. He  felt that the                                                                    
bill would ultimately  end up in a  conference committee. He                                                                    
believed that  that committee would weigh  all iterations of                                                                    
the legislation,  including the conditional language  in the                                                                    
current version.                                                                                                                
                                                                                                                                
Representative  Wilson  thought   that  that  administration                                                                    
would  want   to  be  involved   in  the  crafting   of  the                                                                    
legislation. She  asked whether the  administration believed                                                                    
that SB 21 was helping to increase oil production.                                                                              
                                                                                                                                
Commissioner  Hoffbeck replied  the department  had answered                                                                    
the question  many times. He  said that it was  not possible                                                                    
to  say  definitively  whether SB  21  was  responsible  for                                                                    
additional oil production in the  state. He stated that most                                                                    
of the  fields that  were currently online  had been  in the                                                                    
works before the passage of SB 21.                                                                                              
                                                                                                                                
Representative Wilson  asked whether the  administration was                                                                    
confident companies  would continue  work on new  fields, or                                                                    
pursue other options elsewhere, if the tax system changed.                                                                      
                                                                                                                                
Commissioner  Hoffbeck   answered  that   as  long   as  the                                                                    
legislature  was  split 50/50  on  whether  the current  tax                                                                    
structure  was the  appropriate tax  structure, there  would                                                                    
always be  a large amount  of uncertainty in  the underlying                                                                    
tax structure. He  believed that the state needed  to get to                                                                    
a tax structure that enough  people supported to let it stay                                                                    
in place for  a significant period of time.  He stressed the                                                                    
need to create a fiscal plan  that included a stable oil and                                                                    
gas tax  policy. He contended  that industry could  not make                                                                    
investment decisions if the rules continually changed.                                                                          
                                                                                                                                
8:56:31 AM                                                                                                                    
                                                                                                                                
Representative Wilson  did not  believe there was  anyone on                                                                    
the committee who  believed the tax credits did  not need to                                                                    
be  dealt with.  She contended  that HB  111 would  increase                                                                    
taxes  for industry,  which would  result in  a decrease  of                                                                    
industry investment and activity in the state.                                                                                  
                                                                                                                                
Commissioner   Hoffbeck  replied   that   when  oil   prices                                                                    
collapsed  the state  lost  90 percent  of  its revenue.  He                                                                    
shared that  the next largest  loss in revenue was  in North                                                                    
Dakota,  while  Texas lost  less  than  1 percent  of  their                                                                    
revenue. He  said that the  compounding effect of  the state                                                                    
reliance  on  oil  and  gas,  plus a  net  tax  system  that                                                                    
exaggerated  the impact  of lower  prices,  had brought  the                                                                    
state to a  point where the tax needed to  be reexamined. He                                                                    
said that the state had taken  a hit in its tax revenue that                                                                    
had far exceeded hits taken by other tax regimes.                                                                               
                                                                                                                                
Representative  Wilson countered  that Alaska  could not  be                                                                    
compared to Texas because of  the costs and regulation faced                                                                    
by industry to  do business in the state. She  felt that the                                                                    
state already  took too  much from the  oil industry  in the                                                                    
way of  taxes. She  warned that an  increase in  taxes would                                                                    
yield poor results for the state.                                                                                               
8:59:22 AM                                                                                                                    
                                                                                                                                
Representative  Pruitt asked  whether it  could be  expected                                                                    
for  the governor  to weigh  in on  his opinion  of HB  111,                                                                    
should the bill pass the house.                                                                                                 
Commissioner Hoffbeck replied  that the administration would                                                                    
weigh in on  components of the bill  during future testimony                                                                    
before the senate.                                                                                                              
                                                                                                                                
Representative  Pruitt felt  that  the conditional  language                                                                    
negated  the  administration   having  specific  opinion  on                                                                    
certain bill  components; the  administration would  have to                                                                    
say "yes" or "no" to the bill as an entire package.                                                                             
                                                                                                                                
Commissioner   Hoffbeck  responded   that  the   conditional                                                                    
language in  the bill  was strong statement  by much  of the                                                                    
committee  of  their intent  to  pass  a full  fiscal  plan,                                                                    
including oil and  gas tax reform and a  broad-based tax. He                                                                    
thought that  conference-able provisions of  the legislation                                                                    
would be considered in a conference committee on the bill.                                                                      
                                                                                                                                
Representative  Pruitt  asked  why  the  administration  had                                                                    
introduced SB 26 and why it was needed.                                                                                         
                                                                                                                                
Commissioner  Hoffbeck  answered  that   the  state  was  in                                                                    
immediate need  of a plan  that offered a certain  amount of                                                                    
revenue, while protecting savings from total depletion.                                                                         
                                                                                                                                
9:01:41 AM                                                                                                                    
                                                                                                                                
Representative  Pruitt  understood that  the  administration                                                                    
felt structure was necessary.                                                                                                   
                                                                                                                                
Representative Pruitt recalled testimony  that said that the                                                                    
legislature could  act under its  own direction and  did not                                                                    
need a revenue limit.                                                                                                           
                                                                                                                                
Commissioner Hoffbeck replied  that the administration would                                                                    
always assume the legislature would follow its own rules.                                                                       
                                                                                                                                
Representative  Pruitt  asked  whether the  governor  had  a                                                                    
statement about  whether the state  should have  a bicameral                                                                    
or unicameral legislature.                                                                                                      
                                                                                                                                
Commissioner Hoffbeck  replied that  he had no  knowledge of                                                                    
the governor's opinion on the matter.                                                                                           
                                                                                                                                
Representative  Ortiz asked  whether  the potential  payback                                                                    
amount for  earned tax  credits had any  impact on  the $1.2                                                                    
billion to $1.4 billion draw limit.                                                                                             
                                                                                                                                
Commissioner Hoffbeck responded it  would not have an impact                                                                    
on the draw limit.                                                                                                              
                                                                                                                                
Vice-Chair  Gara queried  the commissioner's  opinion as  to                                                                    
whether  the legislation  would provide  a fiscal  plan that                                                                    
protected the state's economy.                                                                                                  
                                                                                                                                
9:05:10 AM                                                                                                                    
                                                                                                                                
Commissioner Hoffbeck  answered that the bill  would not get                                                                    
the state  to the  finish line  on its own.  He said  that a                                                                    
broader  fiscal  plan  that   accompanied  the  use  of  the                                                                    
permanent fund  would be necessary  in order to  not deplete                                                                    
the  funds savings.  He relayed  that this  was the  largest                                                                    
component of  the fiscal  solution, but  without substantial                                                                    
expenditure  reductions  or  a broad-based  tax  that  would                                                                    
generate $600 million  to $700 million the  budget gap would                                                                    
not be filled.                                                                                                                  
                                                                                                                                
Vice-Chair  Gara expressed  concern  for the  future of  the                                                                    
state's economy if  the budget gap was not  solved. He asked                                                                    
if a partial plan would be dangerous to the economy.                                                                            
                                                                                                                                
Commissioner Hoffbeck  answered that a partial  plan did not                                                                    
take the uncertainty out of  the equation. He stated that it                                                                    
would  be necessary  to achieve  a full  plan. He  clarified                                                                    
that the entire  plan did not have to be  implemented in the                                                                    
current year, but a plan  needed to be made and communicated                                                                    
to the public.                                                                                                                  
                                                                                                                                
9:07:35 AM                                                                                                                    
                                                                                                                                
Representative  Wilson  stated  the  bill  anticipated  $650                                                                    
million from Alaskans in the  form of a broad-based tax. She                                                                    
thought that  the people  in support of  the bill  wanted to                                                                    
would  kill   the  oil  industry.  She   asked  whether  the                                                                    
legislature was looking at other  taxes that were not in the                                                                    
bill.                                                                                                                           
                                                                                                                                
Co-Chair  Seaton  believed  there was  confusion  about  the                                                                    
topics  included   in  the  bill.  He   clarified  that  the                                                                    
conditional  language in  the CS  instituted  a full  fiscal                                                                    
plan, including:  oil and gas  taxes and  credits, permanent                                                                    
fund draw, an income tax, and  a motor fuel tax was included                                                                    
in  the budget  as well.  He noted  that the  bill contained                                                                    
delayed  effective   dates  in   order  to   implement  each                                                                    
component  according to  timed intervals.  He believed  that                                                                    
all  of the  components  passed together  would balance  the                                                                    
state budget by 2021.                                                                                                           
                                                                                                                                
9:11:02 AM                                                                                                                    
                                                                                                                                
Representative Wilson  expressed confusion  on the  topic of                                                                    
discussion.                                                                                                                     
                                                                                                                                
Representative Pruitt wondered  whether public opinion would                                                                    
influence the  committee's decisions concerning  the state's                                                                    
fiscal crisis.                                                                                                                  
                                                                                                                                
Co-Chair Seaton replied that the  committee had heard public                                                                    
testimony on all the elements  contained in the legislation.                                                                    
He noted that  changes had been made in  the bill concerning                                                                    
an income tax,  based on the public testimony  that had been                                                                    
received.  He added  that testimony  on the  draw limit  had                                                                    
influenced  the  current  bill  version.  He  stressed  that                                                                    
further public  testimony for  the bill  would be  taken and                                                                    
was a critical part of the legislative process.                                                                                 
                                                                                                                                
Representative Pruitt  referred to a  survey put out  by Co-                                                                    
Chair   Seaton's  office   that  resulted   in  67   percent                                                                    
responding  in opposition  of  an increase  of  oil and  gas                                                                    
production taxes  for companies in  Alaska. He added  that a                                                                    
follow up with Mr. Ruggiero  had indicated that HB 111 would                                                                    
result in a substantial increase  in those taxes. He thought                                                                    
that the majority  of public opinion clearly  opposed HB 111                                                                    
and queried  why HB 111 had  ended up a key  component of SB                                                                    
26.                                                                                                                             
                                                                                                                                
Co-Chair Seaton rebutted that public  opinion had been taken                                                                    
into  consideration. He  stressed that  the legislation  had                                                                    
been crafted based  on decisions grounded in  the reality of                                                                    
the fiscal  situation. He  argued that  the problems  of the                                                                    
state could  not be  solved by simple  surveys and  he noted                                                                    
that on the  senate side the majority of  public opinion had                                                                    
favored a  broad-based tax of  some kind. He  clarified that                                                                    
public  testimony could  inform the  conversation, but  that                                                                    
legislation was ultimately crafted  by elected officials and                                                                    
not the public.                                                                                                                 
                                                                                                                                
9:15:26 AM                                                                                                                    
                                                                                                                                
Representative Guttenberg  had a different opinion  than the                                                                    
legislative consultant  Rich Ruggiero.  He felt  that public                                                                    
opinion  had not  weighed  in  heavily on  one  side or  the                                                                    
other. He felt  that the fiscal crisis had  been looming for                                                                    
many years.  He recalled  the economists that  had testified                                                                    
before legislature  of the fiscal  cliff it  was approaching                                                                    
and how it could be  handled. He believed that action needed                                                                    
to be taken  in order to stabilize the economy  and that the                                                                    
tools were available for immediate  action. He stressed that                                                                    
there   was   a   difference  between   what   oil   company                                                                    
representatives said  at the testifier  table and  what they                                                                    
said around  the world. He  believed that they were  paid to                                                                    
put  pressure  on  the legislature  to  hold  oil  companies                                                                    
harmless in the process of righting the state's economy.                                                                        
                                                                                                                                
9:20:30 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara asked  for verification  the committee  was                                                                    
not in  final debate on  the bill and that  amendments would                                                                    
still be accepted.                                                                                                              
                                                                                                                                
Co-Chair Foster agreed.                                                                                                         
                                                                                                                                
Vice-Chair  Gara expressed  concern  over additional  budget                                                                    
cuts and the  effect it would have on jobs  in the state. He                                                                    
thought that passing  a budget that resulted  in further job                                                                    
losses to the state would destroy the economy.                                                                                  
                                                                                                                                
9:22:27 AM                                                                                                                    
                                                                                                                                
Representative  Pruitt  asked  whether the  committee  would                                                                    
support any  of the amendments  offered by the  minority. He                                                                    
lamented  that the  committee  had no  accepted  any of  his                                                                    
amendments during the current legislative session.                                                                              
                                                                                                                                
Co-Chair Seaton  believed that the statement  was untrue. He                                                                    
recalled   that  an   amendment   had   been  removed   from                                                                    
consideration because  it violated the single  subject rule.                                                                    
He said that well crafted  amendments would be considered by                                                                    
the committee.                                                                                                                  
                                                                                                                                
Representative Pruitt wanted  assurances that his amendments                                                                    
would  be considered.  He suggested  removing Section  19 of                                                                    
the  bill and  doubted that  the idea  carried much  support                                                                    
from  the  committee.  He  wondered  whether  the  amendment                                                                    
process would be a waste of time.                                                                                               
                                                                                                                                
Co-Chair  Foster   wanted  to  ensure  the   public  had  an                                                                    
opportunity to  weigh in. He  relayed that  amendments would                                                                    
be  due the  following  day  at 11:00  am.  He recessed  the                                                                    
meeting  to a  call of  the chair  [note: the  meeting never                                                                    
reconvened].                                                                                                                    
                                                                                                                                
Representative Wilson clarified the bill version.                                                                               
                                                                                                                                
Co-Chair Foster restated the version before the committee.                                                                      
                                                                                                                                
Co-Chair Foster recessed the meeting to a call of the                                                                           
chair. [Note: the meeting never reconvened].                                                                                    
                                                                                                                                

Document Name Date/Time Subjects
SB 26 CS version U.pdf HFIN 4/10/2017 8:00:00 AM
SB 26
SB 26 Comparision_Senate to House Finance CS_4.7.2017.pdf HFIN 4/10/2017 8:00:00 AM
SB 26