Legislature(2017 - 2018)HOUSE FINANCE 519

04/11/2017 01:30 PM FINANCE

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Audio Topic
01:37:33 PM Start
01:38:34 PM SB26
01:38:40 PM Amendments
02:52:52 PM HB115
03:46:54 PM 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
Moved HCS CSSB 26(FIN) Out of Committee
+= HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME TELECONFERENCED
Moved CSHB 115(FIN) Out of Committee
+ 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."                                                                           
                                                                                                                                
1:38:34 PM                                                                                                                    
                                                                                                                                
^AMENDMENTS                                                                                                                   
                                                                                                                                
1:38:40 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara MOVED to ADOPT Amendment 1, 30-GS1690\U.12                                                                      
(Martin, 4/11/17) (copy on file):                                                                                               
                                                                                                                                
     Page 3, line 26, following "$1,400,000,000":                                                                               
                                                                                                                                
          Insert  ", adjusted  annually  for inflation  based                                                                   
          on a  formula provided  by the Department  of Labor                                                                   
          and  Workforce Development,  reflecting the  change                                                                   
          from  the  previous  year  in  the  Consumer  Price                                                                   
          Index   for   the   Anchorage   metropolitan   area                                                                   
          compiled  by the  Bureau of  Labor and  Statistics,                                                                   
          United States  Department of Labor, and  rounded to                                                                   
          the nearest $10,000,000"                                                                                              
                                                                                                                                
Representative Wilson OBJECTED for the purpose of                                                                               
discussion.                                                                                                                     
                                                                                                                                
Vice-Chair Gara explained the amendment. He thought that a                                                                      
level of oil revenue should be established that would                                                                           
trigger the decrease in the use of permanent fund earnings.                                                                     
                                                                                                                                
1:40:32 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  felt that the amendment  did not say                                                                   
anything  specific about  population growth.  He queried  the                                                                   
nexus for inflation versus population growth.                                                                                   
                                                                                                                                
Vice-Chair  Gara  agreed that  the  amendment  only spoke  to                                                                   
inflation  and not  population  growth.  He said  that  there                                                                   
would hopefully be  a small annual increase in  the amount of                                                                   
available  earnings   reserve  funds.   He  stated   that  by                                                                   
allowing the trigger  point to move with inflation  some head                                                                   
room to address population growth could be created.                                                                             
                                                                                                                                
Representative  Wilson  understood   that  the  current  bill                                                                   
version would  give less than  $.80 on the dollar  because of                                                                   
inflation proofing.                                                                                                             
                                                                                                                                
Vice-Chair  Gara explained  that once  the trigger point  was                                                                   
reached,  80  percent  of the  available  earnings  from  the                                                                   
permanent  fund, which would  otherwise be  allowed by  the 5                                                                   
percent  draw, would  become  unavailable  for  use. He  said                                                                   
that  the  trigger  point would  adjust  with  inflation  and                                                                   
would  allow  for  more  combined   oil  and  permanent  fund                                                                   
revenue available for state services.                                                                                           
                                                                                                                                
Representative   Wilson  surmised   that  the  $1.4   million                                                                   
trigger point would change and not the percentages.                                                                             
                                                                                                                                
Vice-Chair Gara replied in the affirmative.                                                                                     
                                                                                                                                
Representative  Pruitt  was  concerned  the  amendment  would                                                                   
dilute  the value  of the  appropriation  limit. He  lamented                                                                   
that   the  current   appropriation   limit   in  the   State                                                                   
Constitution  had  no  value  and  was  double  of  what  was                                                                   
currently being spent.                                                                                                          
                                                                                                                                
1:44:33 PM                                                                                                                    
                                                                                                                                
Representative  Thompson requested  further explanation  from                                                                   
the Department of Revenue (DOR).                                                                                                
                                                                                                                                
RANDALL  HOFFBECK,   COMMISSIONER,  DEPARTMENT   OF  REVENUE,                                                                   
offered  a history  of the  progression of  the bill  through                                                                   
the  legislative process.  He  relayed that  modeling of  the                                                                   
amendment  had shown  that eventually  the  cap would  exceed                                                                   
the revenue,  which would  kill the  draw limit function.  He                                                                   
stated that  the current  bill accounted  for both  inflation                                                                   
proofing   and  population   adjustments   in  the   combined                                                                   
revenues from royalties,  production tax, and  the POMV draw,                                                                   
out  10 years.  He  related that  the  growth  was lesser  25                                                                   
years out,  and that  the fund would  be less protected  from                                                                   
overdraws in  the intermediate  years. He concluded  that the                                                                   
administration did not support the amendment.                                                                                   
                                                                                                                                
Representative  Thompson surmised that  the inflation  of the                                                                   
draw  limit  would have  a  negative  effect on  the  state's                                                                   
financial health.                                                                                                               
                                                                                                                                
Commissioner Hoffbeck agreed.                                                                                                   
                                                                                                                                
1:48:48 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki spoke  about a  debate on the  House                                                                   
floor. He  appreciated the  history provided by  Commissioner                                                                   
Hoffbeck;  however, he  noted  that the  current  legislature                                                                   
was  tasked with  making  decisions  using the  most  current                                                                   
information.                                                                                                                    
                                                                                                                                
Representative  Wilson  wondered  whether the  amendment  was                                                                   
necessary to fund essential government.                                                                                         
                                                                                                                                
Commissioner  Hoffbeck   answered  that  the   administration                                                                   
supported the current bill structure without the amendment.                                                                     
                                                                                                                                
1:50:03 PM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki, Ortiz, Foster, Seaton                                                                     
OPPOSED: Pruitt, Thompson, Tilton, Wilson, Grenn                                                                                
                                                                                                                                
The MOTION PASSED (6/5).                                                                                                        
                                                                                                                                
1:50:53 PM                                                                                                                    
                                                                                                                                
Representative Thompson MOVED to ADOPT Amendment 2:                                                                             
                                                                                                                                
     Page 8, lines 12 - 28:                                                                                                     
                                                                                                                                
          Delete all material and insert:                                                                                       
          "*Sec 19. Sections 17 and 18 of this Act take                                                                       
         effect immediately under AS Ol.10.070(c).                                                                              
          Sec. 20. Section 6 of this Act takes effect                                                                       
          July 1, 2019.                                                                                                         
          Sec. 21. Section 10 of this Act takes effect                                                                      
          June 30, 2020.                                                                                                        
          Sec. 22 •• Except as provided in secs. 19 - 21,                                                                   
          this Act takes effect July 1, 2017."                                                                                  
                                                                                                                                
Co-Chair Seaton OBJECTED for the purpose of discussion.                                                                         
                                                                                                                                
Representative  Thompson  explained  the amendment.  He  said                                                                   
that  the  conditional   language  in  the   amendment  would                                                                   
require the  enactment of HB 111  as passed by the  house. He                                                                   
said that by  effectively combining three  uniquely different                                                                   
policy decisions into  a "take it, or leave it"  bill did not                                                                   
serve  the   deliberative  process.  He  believed   that  the                                                                   
language   in   the  section   violated   the   legislature's                                                                   
bicameral system.                                                                                                               
                                                                                                                                
Co-Chair  Seaton spoke  in opposition  to  the amendment.  He                                                                   
supported  the  conditional  language  included in  the  bill                                                                   
that would provide  a comprehensive fiscal plan.  He lamented                                                                   
that the  section was necessary  to negotiate with  the other                                                                   
chamber.                                                                                                                        
                                                                                                                                
Representative Wilson  remarked that the legislation  was not                                                                   
restructuring  the  dividend  in  the same  way  as  previous                                                                   
legislation  had attempted  to do.  She spoke  in support  of                                                                   
the amendment.                                                                                                                  
                                                                                                                                
1:56:49 PM                                                                                                                    
                                                                                                                                
Representative  Tilton relayed  she had  spoken to the  issue                                                                   
on  the House  floor earlier  in  the day.  She believed  the                                                                   
language  in the  bill violated  the legislature's  bicameral                                                                   
structure.  She  believed  the section  inhibited  the  other                                                                   
body's ability to act. She supported the amendment.                                                                             
                                                                                                                                
Representative  Pruitt voiced support  for the amendment.  He                                                                   
echoed the  concerns of  the pervious  testifier. He  thought                                                                   
that  agreement  could  have been  reached  between  the  two                                                                   
bodies  if  it were  not  for  Section  19  of the  bill.  He                                                                   
thought  that   "add-ons"  to   the  bill  would   force  the                                                                   
extension of the  90-day legislative process,  and would lead                                                                   
to no  solution to  the state's fiscal  issues. He  relayed a                                                                   
story  of  the previous  use  of  contingency language  in  a                                                                   
budget bills.                                                                                                                   
                                                                                                                                
2:02:40 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster  recognized Representative  Lora Reinbold  in                                                                   
the audience.                                                                                                                   
                                                                                                                                
Vice-Chair  Gara agreed  that  both chambers  needed to  come                                                                   
together on  order to do  the people's business.  He believed                                                                   
that it  was common knowledge,  to both the majority  and the                                                                   
minority,  that a fiscal  plan was  needed that was  balanced                                                                   
for every socioeconomic  level; a plan that was  fair to both                                                                   
rich and  poor. He felt  that a plan  that only  involved the                                                                   
permanent fund  would put  the burden on  the poorest  in the                                                                   
state,  which was  why the  bill included  a higher  dividend                                                                   
than the  original bill. He hoped  that the two  bodies could                                                                   
come  together to  forge  a solution  to  the state's  fiscal                                                                   
crisis.                                                                                                                         
                                                                                                                                
Representative Guttenberg spoke out against the amendment.                                                                      
He  believed  that without  the  section  there would  be  no                                                                   
possibility of a  solution. He felt that the  behavior of the                                                                   
other  body was  counter  to reaching  a  compromise and  was                                                                   
contributing  to  further  gridlock.  He  asserted  that  the                                                                   
permanent  fund  could  not  be   expected  to  be  the  only                                                                   
solution to the fiscal crisis.                                                                                                  
                                                                                                                                
2:07:40 PM                                                                                                                    
                                                                                                                                
Representative Thompson  provided a closing statement  on the                                                                   
amendment.  He did  not believe  the  language would  improve                                                                   
the  behavior   of  the  other   body.  He  spoke   to  other                                                                   
components  of the  fiscal plan  under  consideration by  the                                                                   
legislature.  He  spoke  to the  restrictive  nature  of  the                                                                   
language  in  the bill.  He  maintained  his support  of  the                                                                   
amendment.                                                                                                                      
                                                                                                                                
Co-Chair Seaton MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Pruitt, Thompson, Tilton, Wilson                                                                                      
OPPOSED: Gara,  Grenn, Guttenberg,  Kawasaki, Ortiz,  Seaton,                                                                   
Foster                                                                                                                          
                                                                                                                                
The MOTION FAILED (4/7).                                                                                                        
                                                                                                                                
2:09:57 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:13:01 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Thompson  WITHDREW  Amendments  3, 4,  and  5                                                                   
(copy on file).                                                                                                                 
                                                                                                                                
Representative Thompson MOVED to ADOPT Amendment 6                                                                              
                                                                                                                                
     Page 3, lines 17 - 18:                                                                                                     
          Delete "80 cents for each dollar by which"                                                                            
          Insert "the difference between"                                                                                       
                                                                                                                                
          Page 3, line 26:                                                                                                      
          Delete "$1,400,000,000"                                                                                               
          Insert "$1,200,000,000"                                                                                               
                                                                                                                                
Co-Chair Seaton OBJECTED for the purpose of discussion.                                                                         
                                                                                                                                
Representative  Thompson explained  that the amendment  would                                                                   
restore the  draw limit supported  by the administration  and                                                                   
other parties.  He believed  that the amendment  strengthened                                                                   
the  permanent  fund,  urged the  committee  to  support  the                                                                   
amendment.                                                                                                                      
                                                                                                                                
Co-Chair Seaton MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Thompson, Tilton, Wilson, Pruitt                                                                                      
OPPOSED: Gara,  Grenn, Guttenberg,  Kawasaki, Ortiz,  Foster,                                                                   
Seaton                                                                                                                          
                                                                                                                                
The MOTION FAILED (7/4).                                                                                                        
                                                                                                                                
2:16:12 PM                                                                                                                    
                                                                                                                                
Representative Thompson WITHDREW Amendments 7 and 8.                                                                            
                                                                                                                                
Vice-Chair  Gara  spoke  to  the fiscal  note  with  the  OMB                                                                   
component number 2616.                                                                                                          
                                                                                                                                
Representative  Wilson asked whether  the bill version  under                                                                   
discussion should be reflected on the fiscal note.                                                                              
                                                                                                                                
2:18:03 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:19:24 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
JERRY  BURNETT,   DEPUTY  COMMISSIONER,  TREASURY   DIVISION,                                                                   
DEPARTMENT  OF REVENUE,  pointed  to the  identifier for  the                                                                   
fiscal  note,  which needed  to  be  updated to  reflect  the                                                                   
current bill version.                                                                                                           
                                                                                                                                
Co-Chair  Foster  clarified  that  the  identifier  could  be                                                                   
found on the  top left hand of  the first page of  the fiscal                                                                   
note.                                                                                                                           
                                                                                                                                
Mr.  Burnett lamented  that  there  had been  a  typo on  the                                                                   
fiscal note.                                                                                                                    
                                                                                                                                
Representative  Guttenberg noted  that the  box titled,  "Why                                                                   
this fiscal  note differs from  previous version:"  read that                                                                   
the note  had been  updated to reflect  changes in  the house                                                                   
finance CS.                                                                                                                     
                                                                                                                                
2:22:11 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  expressed confidence  that the  fiscal noted                                                                   
were current  to the  bill version  before the committee.  He                                                                   
addressed  fiscal notes,  OMB  components  3121, 2726,  2310,                                                                   
2952, and zero (copy on file).                                                                                                  
                                                                                                                                
2:25:48 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked  about  the  fiscal  note,  OMB                                                                   
Component  2952.  She  understood  that  the  note  reflected                                                                   
taking $9,103,600,  that  did not exist  without cutting  the                                                                   
permanent  fund  dividend,  to  find  real  money  under  the                                                                   
Alaska  Capital  Fund.  She wondered  whether  DOC  would  be                                                                   
forced  to have  the funds  available  to cover  the note  in                                                                   
perpetuity.                                                                                                                     
                                                                                                                                
Vice-Chair  Gara replied  that  the money  would be  directed                                                                   
from the Alaska Capitol Income Fund to DOC each year.                                                                           
                                                                                                                                
Representative Wilson  said that the  intent of the  fund was                                                                   
to  match  federal   funding  in  the  Capital   Budget.  She                                                                   
wondered what would  happen all of $9.1 million  were used to                                                                   
match  federal  dollars,  and  whether  the  state  would  be                                                                   
required to  keep the amount of  money in the fund  from year                                                                   
to year.                                                                                                                        
                                                                                                                                
2:28:42 PM                                                                                                                    
Co-Chair Seaton answered  there was about $26  million in the                                                                   
fund and that  the governor's budget had released  using $9.1                                                                   
as  a funding  source.  He  said  that disputes  over  future                                                                   
allocations  would  need  to  be  worked  out  in  conference                                                                   
committee and by future legislatures.                                                                                           
                                                                                                                                
Representative  Wilson  said  that  the  normal  method  used                                                                   
would be  a fund switch,  where the  budget was  decreased in                                                                   
one area  and increased  in another.  She asserted  that note                                                                   
should be indeterminate.                                                                                                        
                                                                                                                                
Vice-Chair Gara  remarked that,  historically, the  state had                                                                   
leveraged  90 percent  funding  from the  federal  government                                                                   
for  road projects  using  the general  fund.  He hoped  that                                                                   
this would be the continued method.                                                                                             
                                                                                                                                
2:30:58 PM                                                                                                                    
                                                                                                                                
Representative Ortiz  asked about fiscal note,  OMB Component                                                                   
3121.  He  wondered   why  there  was  a   gradual  projected                                                                   
increase  from FY 18  to FY  23, except  for a downfall  from                                                                   
2019 to 2020.                                                                                                                   
                                                                                                                                
Representative  Wilson noted that  the fiscal note  reflected                                                                   
the  decrease  in   the  percentage  draw  from   5.25  to  5                                                                   
beginning July 1, 2018.                                                                                                         
                                                                                                                                
Co-Chair  Seaton  MOVED  to  REPORT  HCS SB  26(FIN)  out  of                                                                   
committee  as  amended with  individual  recommendations  and                                                                   
the accompanying fiscal notes.                                                                                                  
                                                                                                                                
Representative  Wilson OBJECTED.  She asserted  that she  did                                                                   
not support tying the hands of the other body.                                                                                  
                                                                                                                                
2:33:14 PM                                                                                                                    
                                                                                                                                
Representative Tilton echoed the comments of her colleague.                                                                     
                                                                                                                                
Representative  Pruitt felt that  the bill had  been hijacked                                                                   
by  the majority.  He  appreciated that  the  income tax  had                                                                   
been removed from  the legislation. He lamented  that it took                                                                   
a  threat  from  Bob  Gillam  for  the  income  takes  to  be                                                                   
separated from the bill.                                                                                                        
                                                                                                                                
Vice-Chair  Gara called for  a point  of order. He  suggested                                                                   
that   Representative   Pruitt   was   misinformed   of   the                                                                   
situation.                                                                                                                      
                                                                                                                                
Representative  Pruitt  remarked  that  the  information  had                                                                   
been  in   the  Alaska  Dispatch   News.  He  spoke   to  the                                                                   
conditional  effect of  the legislation.  He thought  that it                                                                   
was unclear whether  legislation had to be  passed by January                                                                   
1, 2019,  or must the legislation  be in place by  January 1,                                                                   
2019. He  wondered whether  the legislation  could be  halted                                                                   
through a  referendum. He agreed  with choosing $1250  as the                                                                   
permanent  fund dividend  amount,  but he  could not  support                                                                   
the legislation.  He hoped  that agreement  could be  reached                                                                   
on the House Floor.                                                                                                             
                                                                                                                                
2:38:17 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara agreed  that the issue  was challenging.  He                                                                   
said that  touching the permanent  fund should  be considered                                                                   
only  after the  state  got  a fair  share  for  its oil.  He                                                                   
stated  that  the  bill  was  intended  to  be  fair  to  all                                                                   
parties;   that  the  miserable   price   of  oil  had   been                                                                   
unexpected,  but action  needed to  be taken  to address  the                                                                   
fiscal crisis.  He noted  that the  bill contained  inflation                                                                   
proofing provisions.  He believed that many people  relied on                                                                   
the  dividend and  supported the  increased amount  reflected                                                                   
in  the bill.  He worried  that without  the legislation  the                                                                   
state  would  not be  able  to  support basic  and  necessary                                                                   
government spending.                                                                                                            
                                                                                                                                
Representative Thompson  did not support the  legislation. He                                                                   
believed  that language  would be detrimental  to the  intent                                                                   
of the bill.                                                                                                                    
                                                                                                                                
Representative  Guttenberg spoke in  support of the  bill. He                                                                   
felt  that the  language  in  the amendment  highlighted  the                                                                   
need for further dialogue.                                                                                                      
                                                                                                                                
2:45:09 PM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn,  Guttenberg, Kawasaki,  Ortiz, Seaton,                                                                   
Foster                                                                                                                          
OPPOSED: Tilton, Wilson, Pruitt, Thompson                                                                                       
                                                                                                                                
The MOTION PASSED (7/4).                                                                                                        
                                                                                                                                
There being  NO OBJECTION,  HCS SB  26(FIN) was REPORTED  out                                                                   
of  committee  with  a  "do  pass"  recommendation  and  with                                                                   
attached fiscal notes.                                                                                                          
                                                                                                                                
2:46:02 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:52:19 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
HB 115 CS WORK DRAFT v K_4.7.2017.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
HB 115_Sectional version K_long form_4.11.2017.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB 26 v.U Amendments 1-8.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
SB 26 Fiscal Note PKT v.U.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
HB 115 Fiscal Note PKT. v.K.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB26_Oppose_041117.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
SB26_Support_041117.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
HB115_Oppose_041117.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
HB115_Support_041117.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB 26 Support Letter.pdf HFIN 4/11/2017 1:30:00 PM
SB 26