Legislature(2019 - 2020)ADAMS 519

03/10/2020 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 300 PERM FUND: APPROPS FR EARNINGS RESERVE TELECONFERENCED
Heard & Held
*+ HB 306 PFD/GF APPROPS; EARNINGS RESERVE TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 306                                                                                                            
                                                                                                                                
     "An  Act relating  to deposits  into the  dividend fund                                                                    
     and  income of  and  appropriations  from the  earnings                                                                    
     reserve   account;   establishing  a   permanent   fund                                                                    
     dividend  task force;  and providing  for an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
1:33:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JENNIFER  JOHNSTON,  shared  that  the  bill                                                                    
built on the  work done by the Permanent  Fund Working Group                                                                    
and   continued  a   conversation   seeking  a   sustainable                                                                    
Permanent Fund  for future generations.  She shared  that it                                                                    
had been an honor to serve  as co-chair of the working group                                                                    
with Senator Click  Bishop. The group was  comprised of four                                                                    
members  of the  House and  four members  of the  Senate and                                                                    
included  House  Finance  Committee  members  Representative                                                                    
Merrick  and Representative  Wool. She  reported that  while                                                                    
the working group had not come  to an agreement on the ideal                                                                    
Permanent Fund  Dividend (PFD) amount,  they all  agreed the                                                                    
Permanent Fund needed to grow  and be protected from effects                                                                    
of inflation.                                                                                                                   
                                                                                                                                
Co-Chair  Johnston  elaborated  that  the  majority  of  the                                                                    
working  group  agreed  on  the  need  to  live  within  the                                                                    
framework  of SB  26 [Permanent  Fund legislation  passed in                                                                    
2018] or the percent of  market value (POMV). She referenced                                                                    
slide  5  of  a  presentation  to  the  committee  given  by                                                                    
Department of  Revenue Deputy Commissioner Mike  Barnhill on                                                                    
the  afternoon  of  March 9  [titled  "HB  259  Supplemental                                                                    
Permanent Fund Dividend"(copy on  file)]. She read the third                                                                    
bullet  point  on  slide 5:  "Structured  (i.e.,  statutory)                                                                    
solution to the  PFD is important to  reducing annual fiscal                                                                    
uncertainty."   She  relayed   that  HB   306  started   the                                                                    
conversation on how  to address the structure  and move away                                                                    
from  the  uncertainty that  had  existed  for a  number  of                                                                    
years.                                                                                                                          
                                                                                                                                
Co-Chair Johnston  relayed that  the Permanent  Fund Working                                                                    
Group had  modeled many different  scenarios, none  of which                                                                    
had   completely  eliminated   the  deficit.   The  scenario                                                                    
proposed in HB 306 had  come the closest [to eliminating the                                                                    
deficit]  at  the time.  She  highlighted  that the  current                                                                    
fiscal outlook  for world  markets had  changed dramatically                                                                    
over  the past  couple of  days. She  looked forward  to the                                                                    
committee's  conversations   that  would  account   for  the                                                                    
current market and looking into  the future. She stated that                                                                    
like recent  conversations on the House  floor regarding HCR
13,  common ground  was most  often  found on  the topic  of                                                                    
ensuring  the  Permanent  Fund   was  protected  for  future                                                                    
generations.                                                                                                                    
                                                                                                                                
Co-Chair Foster handed the gavel to Co-Chair Johnston.                                                                          
                                                                                                                                
1:37:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   CHUCK   KOPP,   introduced   a   PowerPoint                                                                    
presentation  titled  "HB  306:  A Path  Forward"  (copy  on                                                                    
file). He  began on slide  2 and expressed gratitude  to the                                                                    
Permanent Fund  Working Group. He detailed  that the group's                                                                    
work over the interim had  brought them to the current point                                                                    
and showed that the legislature  could reach consensus on an                                                                    
important  topic  like  protecting the  Permanent  Fund.  He                                                                    
moved  to  shared goals  for  Alaska  on slide  3  including                                                                    
healthy and safe communities, a  thriving private sector, an                                                                    
efficient  government that  upheld  the law,  and a  strong,                                                                    
growing Permanent Fund.                                                                                                         
                                                                                                                                
Representative  Kopp moved  to slide  4 titled  "Why Protect                                                                    
the Permanent  Fund." He detailed that  historic investments                                                                    
in  the  fund  had  allowed  it to  grow  from  the  initial                                                                    
$734,000 deposit to $68 billion  as of several days earlier.                                                                    
He noted  an update  was likely  needed. He  elaborated that                                                                    
there had  been recent discussion  on the House  floor about                                                                    
the  growth   of  the  fund,  a   sustainable  draw,  fiscal                                                                    
solvency, and  the state's  creditworthiness. He  noted that                                                                    
the  fund could  be  ephemeral  at times,  but  it could  be                                                                    
helpful to discuss  the ways it had played  into the state's                                                                    
shared history, outside of paying  a PFD. He believed it was                                                                    
an opportunity to celebrate  the fund's success, recognizing                                                                    
that  the Permanent  Fund  would continue  to  have a  major                                                                    
impact on Alaskan life.                                                                                                         
                                                                                                                                
1:39:17 PM                                                                                                                    
                                                                                                                                
Representative Kopp  addressed goals for Alaska  and how the                                                                    
Permanent Fund supported  the goals on slide  5. He believed                                                                    
the  outcomes  listed  on the  slide  were  useful  whenever                                                                    
concerns  were vocalized  about  the POMV  being  a raid  or                                                                    
theft. He expounded that fund  earnings had helped the state                                                                    
respond to the opioid epidemic,  the rise in crime, the 2018                                                                    
earthquake, and the 2019 wildfire  season. He continued that                                                                    
earnings  had allowed  Alaskans'  tax burden  to remain  low                                                                    
despite the drop  in oil prices. Additionally,  the POMV had                                                                    
acted  as the  most effective  spending cap  in decades.  He                                                                    
stated  that  the  accomplishments further  underscored  the                                                                    
need to keep the fund strong.                                                                                                   
                                                                                                                                
Representative Kopp moved  to slide 6 and  addressed how the                                                                    
state had  been funding its  services. The slide  began with                                                                    
1912 through  statehood and present day  and highlighted how                                                                    
the  fund's  earnings had  become  integral  to running  the                                                                    
state over  time. In  1912, funding  had come  from industry                                                                    
taxes and  an income tax.  By 1977, significant  oil revenue                                                                    
began to flow into Alaska.  The income tax had been repealed                                                                    
in 1980  and in 2013  when oil prices  dropped dramatically,                                                                    
the  state   had  responded  by  cutting   billions  in  the                                                                    
operating   budget.  The   state's  need   to  address   the                                                                    
mathematical  tension in  its budget  with the  dividend and                                                                    
the POMV was continuing.                                                                                                        
                                                                                                                                
Representative  Kopp moved  to  slide 7  and discussed  that                                                                    
deposits into  the Permanent  Fund had  allowed the  fund to                                                                    
grow. He  detailed that deposits  into the fund  including a                                                                    
combination   of    mineral   royalties    and   non-royalty                                                                    
legislative  appropriations  plus  inflation  proofing,  had                                                                    
caused  the  fund  to  grow to  roughly  $66.7  billion.  He                                                                    
pointed out  that previous  legislatures had  understood the                                                                    
importance of growing  the fund in the  long-term, which had                                                                    
been  done at  the  expense of  short-term benefits  through                                                                    
appropriations.                                                                                                                 
                                                                                                                                
1:41:34 PM                                                                                                                    
                                                                                                                                
Representative Kopp  reviewed how  the POMV worked  on slide                                                                    
8. He  explained that the Alaska  Permanent Fund Corporation                                                                    
(APFC)  calculated the  total value  of  the Permanent  Fund                                                                    
(principal and  earnings) and  then calculated  5.25 percent                                                                    
of  the fund's  value  over the  first five  of  the last  6                                                                    
years. He noted  the draw was set at 5.25  percent for FY 19                                                                    
through FY  21 and 5  percent thereafter. The  result became                                                                    
the maximum amount  the state could spend  from the Earnings                                                                    
Reserve Account (ERA).  Lastly, the legislature appropriated                                                                    
the  specified  amount  to  pay   for  dividends  and  state                                                                    
services.                                                                                                                       
                                                                                                                                
Representative Kopp turned  to slide 9 and  discussed how to                                                                    
keep the Permanent  Fund strong. He stated  that in addition                                                                    
to the  appropriations made to  the fund's  principal, there                                                                    
was more that could be  done to support the fund's strength.                                                                    
Other ways to  keep the fund strong  included supporting and                                                                    
abiding  by the  POMV  structure, paying  out an  affordable                                                                    
dividend, and  supporting APFC's work to  recruit and retain                                                                    
great investors.  He acknowledged Co-Chair Johnston  for her                                                                    
work helping  APFC with  its ability  to recruit  and retain                                                                    
some of the best investors  in the country, which Alaska had                                                                    
benefitted from.                                                                                                                
                                                                                                                                
1:42:52 PM                                                                                                                    
                                                                                                                                
Representative  Kopp  turned to  slide  10  titled "Why  Act                                                                    
Now?" He  believed the legislature  had kicked the  can down                                                                    
the road  long enough.  He clarified he  was not  laying the                                                                    
blame on anyone. He continued  that the state's savings were                                                                    
nearly exhausted and with oil  at such low prices, oil could                                                                    
not be  expected to bail the  state out of the  $1.5 billion                                                                    
structural  deficit. He  highlighted that  any new  revenues                                                                    
would not  solve the deficit  in the current year.  He noted                                                                    
that  oil  was  currently  around $34  per  barrel  and  the                                                                    
forecast indicated prices heading into the $20s.                                                                                
                                                                                                                                
Representative Kopp reviewed a  slide addressing the need to                                                                    
change state statutes on slide  11. He explained there was a                                                                    
mathematical tension between revenues  and costs. The change                                                                    
in  statute was  needed due  to the  gap illustrated  on the                                                                    
slide. The slide showed the  revenue picture paired with the                                                                    
state's expense picture  in the governor's FY  21 budget and                                                                    
the  size  of  the  gap   necessary  to  pay  the  statutory                                                                    
dividend.  He  continued  that the  gap  caused  unnecessary                                                                    
stress  and  uncertainty across  the  state.  He noted  that                                                                    
attempts to  reduce the  gap with $1.5  billion in  cuts and                                                                    
cost  shifting  had  not  worked   well.  He  detailed  that                                                                    
legislators had heard  from all of their  communities on the                                                                    
devastating effects  of absorbing the costs  or having their                                                                    
share  of petroleum  property tax  or  fisheries tax  clawed                                                                    
back  to  the   state  (actions  taken  to   pay  the  whole                                                                    
dividend). He pointed out that  if the gap occurred again in                                                                    
the following year, the state  would have no savings to fill                                                                    
it. He expressed gratitude to  Mr. Barnhill for underscoring                                                                    
the issue in his presentation the previous day.                                                                                 
                                                                                                                                
Representative Kopp  shared that according to  Fitch ratings                                                                    
(one  of the  three largest  credit rating  agencies in  the                                                                    
U.S.  other  than  Moody's and  Standard  and  Poor's),  the                                                                    
state's  desire to  pay a  full  statutorily calculated  PFD                                                                    
elevated  the  state's fixed  cost  burden  and reduced  its                                                                    
ability to  respond to future economic  weakness, as revenue                                                                    
growth was expected to be  modest. He stated the Coronavirus                                                                    
and downward spiral  of oil were contributing to  a state of                                                                    
future economic weakness.  He noted that Fitch  had made the                                                                    
statement five or six months back.                                                                                              
                                                                                                                                
1:45:25 PM                                                                                                                    
                                                                                                                                
Representative  Kopp  turned  to  a graph  showing  the  UGF                                                                    
revenue/budget   status  quo   on   slide   12.  The   graph                                                                    
illustrated the  amount left unknown  if no change  was made                                                                    
in  the current  year.  The top  dotted  line represented  a                                                                    
budget with a statutory PFD  and the gap between the budget,                                                                    
less  dividends.  He  noted  the  gap  was  significant  and                                                                    
$1.5 billion  would be  required to  balance the  budget. He                                                                    
highlighted  that in  the  following  year, the  legislature                                                                    
could spend the remaining $500  million in savings and still                                                                    
have a deficit exceeding $1  billion. He reported that under                                                                    
the  status quo,  the annual  gap would  exceed the  state's                                                                    
savings and would result in a crippling tax burden.                                                                             
                                                                                                                                
Representative Kopp moved to slide  13 and addressed the two                                                                    
elements of  the HB  306 plan, including  an 80/20  split of                                                                    
the POMV and  the review of the plan's  effectiveness by the                                                                    
Permanent  Fund Task  Force within  six years.  He explained                                                                    
that the  timeframe had been  selected because it  had taken                                                                    
since  2014 to  present day  to evaluate  the situation.  He                                                                    
detailed that under the 80/20  split, of the $3.1 billion in                                                                    
FY  21,  80  percent  would go  to  fund  state  obligations                                                                    
(education,  public safety,  transportation) and  20 percent                                                                    
went to dividends.                                                                                                              
                                                                                                                                
Representative Sullivan-Leonard looked at  slide 13. She was                                                                    
trying to determine  how the 80/20 formula  had been decided                                                                    
upon.  She  believed  the  task   force  had  received  many                                                                    
different proposals.                                                                                                            
                                                                                                                                
Co-Chair Johnston clarified that  the Permanent Fund Working                                                                    
Group was different than the  Permanent Fund Task Force that                                                                    
would  review the  plan's effectiveness  in six  years under                                                                    
the proposed legislation.                                                                                                       
                                                                                                                                
Representative  Sullivan-Leonard  asked  if the  80/20  POMV                                                                    
split was a  result of the working group or  had been formed                                                                    
independently.                                                                                                                  
                                                                                                                                
Representative  Kopp  answered  that  much  of  the  working                                                                    
group's effort  was incorporated in the  bill. He elaborated                                                                    
that  the  80/20   split  was  a  starting   point  for  the                                                                    
conversation  as laid  out by  Co-Chair Johnston.  He shared                                                                    
that  the  committee  would   be  presented  with  different                                                                    
modeling scenarios  - it was  possible to look at  the split                                                                    
in many  different ways.  He explained  that the  bill began                                                                    
with the 80/20  split because it worked the  best for Alaska                                                                    
out of the scenarios that had  been available at the time of                                                                    
the bill's introduction, which the modeling would show.                                                                         
                                                                                                                                
Representative  Sullivan-Leonard  noted  that  the  proposal                                                                    
brought  forward  by  her  Mat-Su  representative  was  very                                                                    
different  from  the  bill's proposal.  She  was  trying  to                                                                    
figure out who the author of  the proposal was. She asked if                                                                    
Co-Chair Johnston had proposed the 80/20 split in the bill.                                                                     
                                                                                                                                
Co-Chair  Johnston  that she  had  been  a co-chair  on  the                                                                    
Permanent Fund Working  Group, and the 80/20  split had been                                                                    
one of the  scenarios the group had  modeled. She elaborated                                                                    
that  it  was one  of  the  few  scenarios that  provided  a                                                                    
glidepath of sustainability.                                                                                                    
                                                                                                                                
Representative  Sullivan-Leonard asked  who had  brought the                                                                    
proposal forward.                                                                                                               
                                                                                                                                
1:49:28 PM                                                                                                                    
                                                                                                                                
Co-Chair Johnston  answered that  the House  Rules Committee                                                                    
had brought the  bill forward via herself  as the vice-chair                                                                    
and the committee chair Representative Kopp.                                                                                    
                                                                                                                                
Representative Sullivan-Leonard  shared that she  was trying                                                                    
to determine who brought the  proposal forward. She asked if                                                                    
it  had been  Senator  Bishop or  another  group. She  noted                                                                    
there had been people tasked to work on different modeling.                                                                     
                                                                                                                                
Co-Chair  Johnston answered  that she,  Representative Kopp,                                                                    
and the  majority of the  House Rules Committee  had brought                                                                    
the proposal forward. She detailed  that two things had been                                                                    
brought forward  with the Permanent  Fund Working  Group: 1)                                                                    
the need  to maintain the  structured draw and  2) agreement                                                                    
on the  modeling presented to  the group. She added  that it                                                                    
was possible to use numbers  from the past week in modeling,                                                                    
but  it  may  not  contain  all  of  the  nuances  currently                                                                    
occurring in the world markets.                                                                                                 
                                                                                                                                
Representative Kopp added that the  bill was informed by the                                                                    
working group  but authored by  himself with  the assistance                                                                    
of Co-Chair Johnston.  He added that he was proud  to be the                                                                    
author  of  the  legislation.  He turned  to  slide  15  and                                                                    
detailed that  under the bill,  a Permanent Fund  Task Force                                                                    
would review and  evaluate the Permanent Fund  and PFD after                                                                    
six  years.  The  task  force   would  include  three  House                                                                    
members,  three  Senate members,  and  an  appointee by  the                                                                    
governor.  He elaborated  that the  task  force was  charged                                                                    
with giving  Alaskans a  performance review  for HB  306 and                                                                    
the  Permanent  Fund.  The task  force  would  consider  the                                                                    
effectiveness  of   the  plan  and  determine   whether  the                                                                    
Permanent  Fund continued  to be  sustainable. The  goal was                                                                    
for  the  task  force  to  evaluate  whether  a  change  was                                                                    
necessary (the  same thing  legislators had  been evaluating                                                                    
since 2014).  He stated that  2026 had been chosen  in order                                                                    
for  legislators  to have  a  full  two-year legislature  to                                                                    
consider the recommendations (the 35th legislature).                                                                            
                                                                                                                                
1:51:40 PM                                                                                                                    
                                                                                                                                
Representative  Kopp  turned to  a  graph  on slide  16  and                                                                    
discussed the impact  of the plan on  UGF revenue/budget. He                                                                    
noted the graph  had been produced by LFD  to illustrate the                                                                    
plan's performance under  the FY 21 budget.  He relayed that                                                                    
LFD would  provide testimony to the  committee regarding the                                                                    
bill and could address impacts  on a more detailed level. He                                                                    
pointed  to the  significant difference  between the  budget                                                                    
gap under  the status quo  compared to the bill.  He pointed                                                                    
out  that while  a modest  draw from  savings would  need to                                                                    
occur,  the  gap  would  be  far  more  easily  filled  with                                                                    
reductions or revenues  than the $1.5 billion  gap under the                                                                    
status quo. He continued that  state savings also had a much                                                                    
longer life under the proposed scenario.                                                                                        
                                                                                                                                
1:52:43 PM                                                                                                                    
                                                                                                                                
Representative Kopp  advanced to slide  17 and spoke  to the                                                                    
impacts of  state savings.  The slide  included a  bar chart                                                                    
showing the  ERA growth  under HB  306. He  highlighted that                                                                    
under the bill proposal the ERA  grew and the CBR provided a                                                                    
glidepath of  about six  years to  allow the  legislature to                                                                    
look at new revenues/spending reductions.                                                                                       
1:53:16 PM                                                                                                                    
                                                                                                                                
Representative Kopp looked at  slide 18 that illustrated the                                                                    
difference  between the  traditional statutory  PFD and  the                                                                    
PFD  under  the  proposed  scenario in  HB  306.  Under  the                                                                    
legislation, the  PFD was roughly  $900. He turned  to slide                                                                    
19 to  show how the  amount compared to historical  PFDs. He                                                                    
pointed to  the black  line reflecting  the PFD  (in nominal                                                                    
dollars) and noted the volatility  over time. The slide also                                                                    
showed the average dividend over time.                                                                                          
                                                                                                                                
Representative Kopp  moved to slide 20  and highlighted that                                                                    
the  average  past  PFD  amount was  $1,170  and  under  the                                                                    
legislation, the  2020 PFD would  be $900. He  remarked that                                                                    
it was  popular to  use the numbers  based on  the statutory                                                                    
PFD  formula,  but he  believed  it  was more  realistic  to                                                                    
compare the amount to PFDs  previously given to Alaskans. He                                                                    
noted there was a $270  difference between the number in the                                                                    
bill and the historical average.                                                                                                
                                                                                                                                
Representative Kopp turned to slide  21 titled "HB 306 Moves                                                                    
Us  Forward." He  detailed  that the  bill  provided a  path                                                                    
toward being able to plan  for the state's future instead of                                                                    
living in a  crisis mode. He elaborated that  the bill would                                                                    
unlock  the ability  for  the state  to  improve its  credit                                                                    
ratings,  stabilize   PFD  amounts,  stabilize   the  budget                                                                    
process,  and   ultimately  assist   with  gaining   a  true                                                                    
understanding  of the  budget picture.  He  stated that  the                                                                    
legislature had  begun every budget  process in  near bedlam                                                                    
since the  drop in oil  prices. He stressed that  nobody won                                                                    
when  every  year   was  met  with  the   possibility  of  a                                                                    
government shutdown,  mass layoffs,  or new taxes.  The bill                                                                    
would   provide   a   built-in  baseline   to   work   from.                                                                    
Additionally, the bill  would provide a set  of shared facts                                                                    
about the  budget outlook.  He clarified  that the  bill did                                                                    
not take anything  off the table except  the overspending of                                                                    
the ERA and eroding the future of the state's children.                                                                         
                                                                                                                                
1:55:32 PM                                                                                                                    
                                                                                                                                
Representative Kopp turned to decisions  to be made on slide                                                                    
22 including spending priorities,  sustainability of the PFD                                                                    
and  Permanent Fund,  and other  revenue options.  He stated                                                                    
that  the options  accurately reflected  the current  fiscal                                                                    
options. He  questioned whether the legislature  was willing                                                                    
to continue the  budget debate year after  year. He wondered                                                                    
if the  legislature was interested  in raising taxes  to pay                                                                    
for dividends, which would become  necessary as soon as 2021                                                                    
due to  minimal savings.  Alternatively, he wondered  if the                                                                    
legislature  was  willing  to make  difficult  decisions  at                                                                    
present  that  would  allow  for  the  preservation  of  the                                                                    
Permanent Fund and PFD and  would provide economic stability                                                                    
and community  security. The question  was what  the highest                                                                    
and best use  of the fund was.  He asked if the  fund was to                                                                    
be used  as an ATM when  the state needed money  and whether                                                                    
it  was  considered  as  a  legacy  to  be  left  to  future                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
1:56:28 PM                                                                                                                    
                                                                                                                                
Co-Chair Johnston  recognized that Representative  Knopp had                                                                    
joined the meeting.                                                                                                             
                                                                                                                                
Vice-Chair Ortiz  thanked the sponsor for  bringing the bill                                                                    
forward that  started a much  needed conversation.  He asked                                                                    
if there had been any  consultation with economists on how a                                                                    
smaller PFD may impact the state's economy.                                                                                     
                                                                                                                                
Representative  Kopp  answered that  he  was  well aware  of                                                                    
reports that had been authored  and given to the legislature                                                                    
showing  what a  reduced dividend  amount could  mean across                                                                    
Alaska. He  noted that some  of the reports did  not include                                                                    
increased state services. There  were many small communities                                                                    
in Alaska  and the numbers of  people collectively accounted                                                                    
for a  very small  percent of  the state  services received;                                                                    
however, in order  to pay a full PFD, it  would be necessary                                                                    
to  wipe  out  the   services  the  small  communities  were                                                                    
receiving.  He   confirmed  that   he  had   considered  the                                                                    
information  that had  already  been put  on  the record  in                                                                    
terms of what the dividend meant to the economy.                                                                                
                                                                                                                                
Co-Chair Johnston  noted Vice-Chair Ortiz's an  ISER report.                                                                    
She shared that the report  had been done before the massive                                                                    
growth  in the  Permanent  Fund and  PFD  had occurred.  She                                                                    
believed it was something that was forgotten.                                                                                   
                                                                                                                                
Representative  LeBon asked  if  the bill  intended for  the                                                                    
legislature to  fund the  PFD first with  20 percent  of the                                                                    
POMV and all other funding decisions would follow.                                                                              
                                                                                                                                
Representative Kopp answered that  the formula would provide                                                                    
a baseline to start from.  He explained that the legislature                                                                    
would know the  money available for state  services and what                                                                    
would go to the dividend. He  reasoned that the absence of a                                                                    
resolution  on   the  PFD  and   trying  to   reconcile  the                                                                    
plummeting energy  market and oil  prices seemed to  be what                                                                    
kept the  legislature in session  for five to six  months of                                                                    
the  year.  Structurally, the  bill  would  tackle the  most                                                                    
difficult  thing -  the PFD  -  first, which  would free  up                                                                    
bandwidth  to address  the entire  budget and  determine the                                                                    
true deficit.  He elaborated that  the $1.5  billion deficit                                                                    
was only  related to  the statutory  PFD. He  clarified that                                                                    
the deficit  was tied into  state agency  spending; however,                                                                    
the dividend was nearly twice  as large as the largest state                                                                    
agency. The  PFD was  a significant  cost factor,  which was                                                                    
addressed by the bill.                                                                                                          
                                                                                                                                
2:00:55 PM                                                                                                                    
                                                                                                                                
Representative LeBon  considered the perfect  economic storm                                                                    
taking place  that was  associated with  the decline  in oil                                                                    
prices and  production. He asked if  a $900 PFD and  a state                                                                    
income  tax was  a realistic  possibility given  the current                                                                    
economic climate.                                                                                                               
                                                                                                                                
Representative  Kopp answered  that  the state  could be  in                                                                    
trouble  in any  scenario  where it  was  paying a  dividend                                                                    
without adequate  funding. He elaborated  that there  was no                                                                    
safe formula  that could predict  what was  currently taking                                                                    
place  in   the  market.  He  referenced   the  current  PFD                                                                    
calculation by APFC that was based  on an average of five of                                                                    
the previous  six years. He  remarked that the  current year                                                                    
would  likely  shape up  to  be  tough. He  highlighted  the                                                                    
difficulty  in   coming  up  with   a  formula   that  could                                                                    
accurately predict the current market.  He relayed that if a                                                                    
dividend was  paid base  on the state's  ability to  pay, it                                                                    
would  have   to  be  done  with   the  current  legislative                                                                    
appropriation approach.                                                                                                         
                                                                                                                                
2:02:16 PM                                                                                                                    
                                                                                                                                
Representative  LeBon could  see  the day  coming where  the                                                                    
legislature may  be faced  with overdrawing  the POMV  if it                                                                    
was locked into using 20 percent  of the 5 percent POMV draw                                                                    
[for the  PFD] and/or  incorporating a  state income  tax to                                                                    
fund the  PFD. He  believed if  the PFD  was paid  first, as                                                                    
under the  bill proposal,  it would  be necessary  to figure                                                                    
out a  way to make  that happen.  He furthered that  the PFD                                                                    
would be put  at the tip of the mountain  if paying it first                                                                    
meant the possibility of instituting  a tax, overdrawing the                                                                    
ERA, or cutting agency spending.                                                                                                
                                                                                                                                
                                                                                                                                
Co-Chair  Johnston  added  that  model  scenarios  would  be                                                                    
presented  the following  day  and  committee members  would                                                                    
have the opportunity to ask more in depth questions.                                                                            
                                                                                                                                
Representative  Carpenter looked  at slides  12 and  16 that                                                                    
showed revenue versus spending projections.  He pointed to a                                                                    
handout  in members'  packets generated  by the  Legislative                                                                    
Finance  Division that  included  multiple  charts (copy  on                                                                    
file). He asked what forecast  had been used to generate the                                                                    
revenue bars on slides 12 and 16.                                                                                               
                                                                                                                                
Representative  Kopp  answered  that  the  graphs  used  the                                                                    
forecast that  had been available  when the  information had                                                                    
been compiled  about two  weeks earlier.  He noted  that oil                                                                    
prices had been higher and in the mid-$50s.                                                                                     
                                                                                                                                
Representative  Carpenter  noted  that  one  of  the  slides                                                                    
showed the  fall forecast  had been used.  He asked  for the                                                                    
percent  increase used  over time  in the  solid black  line                                                                    
reflecting the budget less dividends.                                                                                           
                                                                                                                                
Representative Kopp deferred to his staff.                                                                                      
                                                                                                                                
GRACE  IRVINE,  STAFF,  REPRESENTATIVE CHUCK  KOPP,  relayed                                                                    
that LFD would  present to the committee  the following day.                                                                    
She recognized that  the slides compiled as  recently as one                                                                    
week earlier no  longer reflected the reality  of the budget                                                                    
and updated forecasts. She deferred  the questions until the                                                                    
LFD presentation.                                                                                                               
                                                                                                                                
Representative  Carpenter  referenced  the  LFD  handout  in                                                                    
members'  packets that  listed  the annual  increase as  the                                                                    
rate  of inflation  at 2.25  percent. He  noted that  he was                                                                    
looking  at his  own chart  and believed  revenue for  FY 21                                                                    
would be  about $700  million. He  remarked that  the change                                                                    
was drastic from the current projection.                                                                                        
                                                                                                                                
2:05:06 PM                                                                                                                    
                                                                                                                                
Co-Chair Johnston agreed that there was a new day coming.                                                                       
                                                                                                                                
Representative Carpenter  referenced discussion on  the need                                                                    
to pay  a PFD the  state could  afford. He pointed  out that                                                                    
the  same logic  applied to  state spending.  He highlighted                                                                    
the need  for affordable state spending  levels. He believed                                                                    
the discussion about new revenue  and eating up a PFD needed                                                                    
to include a discussion about spending levels.                                                                                  
                                                                                                                                
Representative  Kopp  thanked Representative  Carpenter  for                                                                    
his  comments. He  recognized that  Representative Carpenter                                                                    
and Representative  LeBon had both  touched on  an important                                                                    
issue. He highlighted  that the bill was  only one important                                                                    
piece   of  a   sustainable   fiscal   plan  that   involved                                                                    
controlling state spending and looking at new revenues.                                                                         
                                                                                                                                
HB  306  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
HB 306 Bicameral Permanent Fund Working Group Report 1.20.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 APFC Resolution 10.17.2018.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 LegFin Modelling 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 Sponsor Statement 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 300 Sponsor Statement 3.9.20.pdf HFIN 3/10/2020 1:30:00 PM
HB 300
HB 300 Presentation Wool POMV 3-9-20.pdf HFIN 3/10/2020 1:30:00 PM
HB 300
HB 306 Presentation 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 Sectional Analysis 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306