Legislature(2017 - 2018)ADAMS ROOM 519

03/13/2018 01:30 PM FINANCE

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Audio Topic
01:34:39 PM Start
01:35:58 PM HB267
02:17:10 PM HJR23
02:23:30 PM Public Testimony
02:52:46 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Scheduled but Not Heard
Scheduled but Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 267(RES) Out of Committee
HOUSE JOINT RESOLUTION NO. 23                                                                                                 
     Proposing amendments  to the Constitution of  the State                                                                    
     of Alaska relating to the Alaska permanent fund.                                                                           
2:17:10 PM                                                                                                                    
Co-chair  foster indicated  the committee  would be  hearing                                                                    
public  testimony on  HJR 23.  He  reminded testifiers  that                                                                    
testimony  was  limited  to  2 minutes.  He  gave  the  bill                                                                    
sponsor the  opportunity to make comments  before opening up                                                                    
public testimony.                                                                                                               
REPRESENTATIVE  PAUL SEATON,  SPONSOR, relayed  that in  the                                                                    
previous   public   testimony   hearing   there   was   some                                                                    
misinformation. He  noted there  was a  fact sheet  that had                                                                    
been  distributed  to  all of  the  Legislative  Information                                                                    
Office. He read the fact sheet:                                                                                                 
     The  Permanent   Fund  includes  two  portions      the                                                                    
     Principal and the Earnings  Reserve Account (ERA). Once                                                                    
     money  is deposited  into the  Principal, it  cannot be                                                                    
     appropriated   out.   The    ERA   is   available   for                                                                    
     appropriation  by any  Legislature for  any purpose  at                                                                    
     any time  by simple  majority vote.  As of  January 31,                                                                    
     2018,  the balance  of the  Principal is  $49.2 billion                                                                    
     and $16.8  billion for the  ERA for a total  "value" of                                                                    
     $66 billion.                                                                                                               
     As it is now in law  (not the constitution), the PFD is                                                                    
     based on the  average "earnings" over the  past 5 years                                                                    
     of the fund, with 50% of  that amount going to the PFD.                                                                    
     The  Percent of  Market Value  (POMV) proposes  to base                                                                    
     the PFD  on the  total "value" of  the fund  versus the                                                                    
     "earnings" of  the fund. CS HJR  23 (otherwise referred                                                                    
     to as  the CS)  proposes a POMV  draw of  4.75 percent.                                                                    
     The  total  draw would  come  from  the ERA  since  the                                                                    
     Principal cannot  be touched.  33 percent of  this draw                                                                    
     ($813 million)  would be  used for  PFD and  67 percent                                                                    
     ($1.65  billion) for  essential  public services.  This                                                                    
     would result in a PFD this October of approximately                                                                        
     $1,258 per qualified Alaskan.                                                                                              
     Facts about the Permanent Fund and the CS:                                                                                 
            Alaskans  would  vote   on  this  resolution  in                                                                  
             November if the  CS passes  both the  House and                                                                    
             the Senate.                                                                                                        
            The PFD is only  in law (Alaska Statute) and not                                                                  
             in the Alaska Constitution.                                                                                        
            The current formula for  calculating the PFD was                                                                  
             passed in 1982.                                                                                                    
            The  Principal of the  Permanent Fund  cannot be                                                                  
            The PFD is currently  paid from the ERA (and the                                                                  
             same for the CS).                                                                                                  
            The ERA can be used  for any purpose. If the ERA                                                                  
             goes away, so does the PFD.                                                                                        
            Alaskans have  never voted  to constitutionalize                                                                  
             the PFD.                                                                                                           
            Without  protection,   future  Legislatures  can                                                                  
             appropriate  the  full   amount  of   the  ERA,                                                                    
             draining the  fund,  and  thus eliminating  the                                                                    
            CS  HJR 23  would  protect the  ERA by  limiting                                                                  
             appropriations to a  sustainable level  of 4.75                                                                    
             percent annually.                                                                                                  
            The  Legislature  "shall" appropriate  the  4.75                                                                  
             percent draw to the general fund.                                                                                  
            The Legislature "may"  appropriate 33 percent of                                                                  
             the 4.75 percent draw to  dividends, leaving 67                                                                    
             percent for public services.                                                                                       
            "Shall"  implies  mandated,  and  "may"  implies                                                                  
             subject to  appropriation  by the  Legislature.                                                                    
             Mandating the amount or percentage  to PFD will                                                                    
             likely trigger lawsuits.                                                                                           
            The total fund is  estimated to earn 6.5 percent                                                                  
             annually, so the amount  for the PFD  under the                                                                    
             CS would increase over time.                                                                                       
Co-Chair further explained that  a House Joint Resolution on                                                                    
a constitutional  amendment had to  go before the  people at                                                                    
the first  general election  following a  resolution passing                                                                    
by a  two-thirds vote of  the House  and the Senate.  It did                                                                    
not require any  action by the governor. It  would appear on                                                                    
a general election ballot if passed.                                                                                            
Co-Chair Foster  reiterated that  if the resolution  were to                                                                    
pass by two-thirds of both bodies,  it would go to a vote of                                                                    
the people.                                                                                                                     
Representative Thompson  asked if  the committee  would only                                                                    
be hearing  people that had not  already testified. Co-Chair                                                                    
Foster responded affirmatively.                                                                                                 
Co-Chair Foster OPENED Public Testimony.                                                                                        
^PUBLIC TESTIMONY                                                                                                               
2:23:30 PM                                                                                                                    
GEORGE PIERCE,  SELF, KASILOF (via  teleconference), opposed                                                                    
HJR 23. He  believed the resolution would  change the payout                                                                    
forever.  He  thought  the  resolution was  a  raid  of  the                                                                    
Permanent Fund  (PF) and the Permanent  Fund Dividend (PFD).                                                                    
He rejected the idea of  the legislature being able to spend                                                                    
more that the  percentage. He advocated for  looking out for                                                                    
Alaskans.  He  did  not believe  the  legislature  could  be                                                                    
trusted.   He   urged   members  to   avoid   changing   the                                                                    
2:25:38 PM                                                                                                                    
TIM  FEDERICO, SELF,  ANCHORAGE (via  teleconference), spoke                                                                    
in opposition  of HJR  23. He  thought the  bill was  out of                                                                    
sync with the people of Alaska.  He wanted to see the budget                                                                    
cut to the  bones. He spoke about the  money the legislature                                                                    
was paid. He mentioned  waste within various departments. He                                                                    
commented   that   commercial    fisheries   were   actually                                                                    
subsidized by  the state. He  suggested saving money  in the                                                                    
school system  by having only one  administrator. He thought                                                                    
government was out of control.                                                                                                  
2:29:04 PM                                                                                                                    
BRENDA RHODES,  SELF, ANCHORAGE (via  teleconference), spoke                                                                    
against HJR  23. She thought  the state needed to  return to                                                                    
the original  dividend formula. She urged  members to return                                                                    
to the task  of figuring out a fiscal plan.  She thanked the                                                                    
2:30:03 PM                                                                                                                    
ELLA  LUBIN,  SELF,  SITKA (via  teleconference),  spoke  in                                                                    
favor of HJR 23. She  believed that the resource wealth came                                                                    
from public land  which all Alaskans shared  and deserved to                                                                    
reach the benefits.  She thought it was in  the state's best                                                                    
interest to  maintain the PFD so  that it continued to  be a                                                                    
benefit - sustaining Alaska and  a benefit for young people.                                                                    
She  spoke  about  being  a   lifelong  Alaskan  and  having                                                                    
benefited from receiving  PFD's. She noted that  the PFD was                                                                    
a  vital income  source for  many Alaskans.  She provided  a                                                                    
statistic  by  Institute  of Social  and  Economic  Research                                                                    
(ISER). She mentioned  the importance of constitutionalizing                                                                    
the PFD.  She referred to  the PF  as a "rainy  day account"                                                                    
and  that  Alaska's  rainy  day was  the  present  day.  She                                                                    
thanked the committee.                                                                                                          
Representative Ortiz asked if  Ms. Lubin had participated in                                                                    
the recent  DDF [Drama, Debate, and  Forensics] competition.                                                                    
Ms. Lubin  responded in  the positive.  Representative Ortiz                                                                    
commented that she was likely as effective as her sisters.                                                                      
2:32:10 PM                                                                                                                    
GARY MCDONALD,  SELF, ANCHORAGE (via  teleconference), spoke                                                                    
against  HJR 23.  He  thought the  full  dividend should  be                                                                    
given to the people of Alaska. He thanked the committee.                                                                        
2:33:00 PM                                                                                                                    
LAURA   BONNER,   SELF,  ANCHORAGE   (via   teleconference),                                                                    
supported the  concept of enshrining  the PFD in  the Alaska                                                                    
Constitution.  She argued  that because  paying the  PFD was                                                                    
only in  statute, current or  future legislatures  could opt                                                                    
not  to  pay  the  PFD. However,  she  preferred  the  first                                                                    
proposed version of  the bill over the  work draft submitted                                                                    
by  the  House Finance  Committee.  She  suggested the  work                                                                    
draft could  be amended to  be more acceptable  to Alaskans.                                                                    
She recommended  changing the verbiage in  Section 2(c) from                                                                    
"may"  to "shall."  She also  recommended adding  the words,                                                                    
"at least"  or changing  to a  higher percentage.  She hoped                                                                    
the  resolution continued  to move  through the  legislative                                                                    
process.  She thanked  the committee  for re-opening  public                                                                    
Vice-Chair Gara agreed with Ms.  Bonner that the word should                                                                    
be "shall."  He thought the  sponsor wanted the  word "shall                                                                    
pay." However,  the legislature  received legal  advice that                                                                    
the word "shall " could not  be used in the constitution. He                                                                    
also  appreciated the  "at least"  language suggestion.  Ms.                                                                    
Bonner  had  read  the  legal  opinion  and  understood  the                                                                    
possibility of constitutional issues.                                                                                           
2:36:18 PM                                                                                                                    
LIZ VAZQUEZ,  SELF, ANCHORAGE (via  teleconference), opposed                                                                    
HJR 1. The  resolution did not protect the PFD.  It would be                                                                    
up  to  the  legislature  to determine  the  amount  of  the                                                                    
dividend  or whether  it would  be distributed  at all.  She                                                                    
provided a  brief history about  the fund. She  relayed that                                                                    
the makers of the  PF set up the PFD in  order to ensure the                                                                    
people  had  a voice  about  how  the  fund was  spent.  She                                                                    
thought HJR  23 reflected  the opposite  of what  the makers                                                                    
intended. She  spoke of the  current economic  recession and                                                                    
the challenges  the state  faced. She  thought HJR  23 would                                                                    
inflict  greater  damage  by tampering  with  the  PFD.  She                                                                    
encouraged members to vote against the resolution.                                                                              
2:40:20 PM                                                                                                                    
Vice-Chair Gara  commented that  the previous  year's budget                                                                    
was  lower than  the  last year  that she  had  been in  the                                                                    
legislature. He  relayed that the legislature  had been told                                                                    
by the  legal department that  "shall" could not be  used in                                                                    
the constitution. The word "may"  could be used. He wondered                                                                    
if she  had a legal  opinion on  the issue. Ms.  Vasquez was                                                                    
interested  in seeing  the  legal  opinion. Co-Chair  Foster                                                                    
relayed that the opinion could be found online.                                                                                 
Vice-Chair Gara clarified that it  was the express testimony                                                                    
from  the lead  legislative attorney.  He was  still looking                                                                    
into the  issue. He thought  committees were trying  to find                                                                    
something  more  enforceable  than  what  was  currently  in                                                                    
Representative  Wilson asked  in a  constitutional amendment                                                                    
whether Ms. Vasquez  would use the formula  that had worked,                                                                    
or whether  she would use  a Percent of Market  Value (POMV)                                                                    
giving less to  Alaskans. Ms. Vasquez would have  to look at                                                                    
some  of the  opinions of  the economists.  She thought  the                                                                    
4.75  percent  draw  was  too   aggressive.  She  noted  the                                                                    
variable returns on the fund.                                                                                                   
Representative Wilson asked if  Ms. Vasquez would enshrine a                                                                    
percentage as  outlined in  the resolution  of 66/33  or use                                                                    
the current  calculation. Ms. Vasquez  would keep  the 50/50                                                                    
split.  She added  that the  POMV might  work. However,  the                                                                    
suggested  percentage  might  be too  aggressive  and  could                                                                    
potentially hurt  the fund in  the long run. She  would have                                                                    
to study the historical yield.                                                                                                  
2:45:16 PM                                                                                                                    
FRED  STURMAN,  SELF,  KENAI (via  teleconference),  opposed                                                                    
HJR 23.  He  wanted  to  see   a  50/50  split.  He  thought                                                                    
additional   reductions  were   necessary.  He   recommended                                                                    
closing the DMV. He thought  several things could be cut. He                                                                    
opposed  taking the  PFD.  He spoke  to  having children  in                                                                    
college.  He  thought  additional cuts  were  necessary  and                                                                    
encouraged  legislators  to  be focusing  on  the  important                                                                    
2:47:36 PM                                                                                                                    
JASMINE  LEVEMIA,  SELF,  PETERSBURG, spoke  in  support  of                                                                    
HJR 23.  She  supported  constitutionalizing  the  PFD.  She                                                                    
wanted   to  see   the  PFD   continue  to   support  future                                                                    
2:49:20 PM                                                                                                                    
Co-Chair Foster CLOSED Public Testimony.                                                                                        
HJR  23  was  HEARD  and   HELD  in  committee  for  further                                                                    
2:50:04 PM                                                                                                                    
AT EASE                                                                                                                         
2:51:41 PM                                                                                                                    
Co-Chair  Foster  called  the  meeting  back  to  order.  He                                                                    
relayed that the  committee would not be hearing  HB 285 and                                                                    
HB 286. Amendments  for HJR 23 were due by  5:00 p.m. in the                                                                    
current afternoon.                                                                                                              
Representative  Wilson  emailed   all  finance  members  the                                                                    
written testimony she had received.                                                                                             
HB 285 was SCHEDULED but not HEARD.                                                                                             
HB 286 was SCHEDULED but not HEARD.                                                                                             

Document Name Date/Time Subjects
HJR 23 - Letters of Support 3.13.2018 (2).pdf HFIN 3/13/2018 1:30:00 PM
HJR 23
HJR 23 - Letters of Opposition 3.13.2018 (2).pdf HFIN 3/13/2018 1:30:00 PM
HJR 23
CSHJR 23 Fact Sheet.pdf HFIN 3/13/2018 1:30:00 PM
HJR 23
HJR 23 - Letters of Support 3.14.2018.pdf HFIN 3/13/2018 1:30:00 PM
HJR 23
HJR 23 - Letters of Opposition 3.14.2018.pdf HFIN 3/13/2018 1:30:00 PM
HJR 23