Legislature(2021 - 2022)ADAMS 519

05/17/2021 01:30 PM FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 10 Minutes Following Session --
Heard & Held
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 202                                                                                                            
     "An  Act   relating  to  the  Alaska   permanent  fund;                                                                    
     relating to dividends for  state residents; relating to                                                                    
     the use of  certain state income; and  providing for an                                                                    
     effective date."                                                                                                           
1:35:50 PM                                                                                                                    
AT EASE                                                                                                                         
1:36:31 PM                                                                                                                    
REPRESENTATIVE KELLY MERRICK, SPONSOR, introduced the                                                                           
legislation. She read from the following prepared remarks:                                                                      
     Good afternoon, vice chair  Ortiz, co-chair Foster, and                                                                    
     members  of  the  House   Finance  Committee.  For  the                                                                    
     record,  Representative Kelly  Merrick, District  14 in                                                                    
     Eagle River.                                                                                                               
     Before  the  committee  is  House  Bill  202,  "An  Act                                                                    
     relating  to the  Alaska  Permanent  fund; relating  to                                                                    
     dividends  for  state  residents; relating  to  certain                                                                    
     state income."                                                                                                             
     This is  a conversation  that is  necessary as  part of                                                                    
     our  budgeting process  and long  overdue  in paying  a                                                                    
     sustainable dividend into the future.                                                                                      
     As  this   committee  is  very  aware,   the state  has                                                                    
     struggled  to pay  for both  required services  and the                                                                    
     dividend  using the  43-year-old  formula. Since  FY17,                                                                    
     with  the  actions  of   former  Governor  Walker,  the                                                                    
     dividend has been an ad hoc draw.                                                                                          
     The  2016  legislature  recognized  this  problem,  and                                                                    
     restructured our budget around  the POMV framework that                                                                    
     meets our  constitutional obligations for  services and                                                                    
     provides a type of spending cap.                                                                                           
     Legislators  have  since  had  difficult  decisions  to                                                                    
     make, as part  of our responsibility to  make our state                                                                    
     fiscally sustainable in the  long-term. There are three                                                                    
     areas we  can change  to solve our  financial problems:                                                                    
     our spending, our revenues, and the PFD.                                                                                   
     The operating budget has been  cut year after year, and                                                                    
     while  I  still  support  a  smaller  budget,  we  have                                                                    
     recognized that  the big, easy, change-making  cuts are                                                                    
     gone.  The capital  budget has  been cut  by more  than                                                                    
     When we protect the  POMV, we maintain fiscal stability                                                                    
     and  a  low-tax  environment   for  both  families  and                                                                    
     businesses. Many don't support  additional or increased                                                                    
     taxes, and my district is  one of them. That leaves the                                                                    
     Mr. Vice Chair,  and members of the  committee, we have                                                                    
     all  heard our  constituents say,  "Follow the  law, or                                                                    
     change the law." This bill changes the law.                                                                                
     While  the  foundation of  the  permanent  fund is  oil                                                                    
     money and  other resource development, the  dividend is                                                                    
     no   longer  based   on  Alaska's   natural  resources.                                                                    
     Instead,  it's based  on investments  by the  Permanent                                                                    
     Fund Corporation.                                                                                                          
     This bill goes back to  the intent of the dividend, and                                                                    
     ties it  directly to  resource development,  by setting                                                                    
     aside a portion of the  royalties received by the state                                                                    
     for   payout.  Specifically,   30%  of   the  royalties                                                                    
     currently going  to the General  Fund would be  paid to                                                                    
     Alaskans before  the general fund  receives its  cut of                                                                  
     royalties outside the POMV.                                                                                                
     There's been growing recognition  in the last few years                                                                    
     that following the 1982 dividend  statute does not make                                                                    
     our state  fiscally sustainable and  requires violating                                                                    
     the POMV spending cap. HB  202 addresses these problems                                                                    
     by repealing the current formula  and replacing it with                                                                    
     one that is simpler and sustainable.                                                                                       
1:39:32 PM                                                                                                                    
     That's the big picture,  and that's the tough decision,                                                                    
     Mr. Co-chair. I don't think  there's one person in this                                                                    
     building  who  wants  to hand  out  a  small  dividend,                                                                    
     especially  after the  last year  of business  closures                                                                  
     and  unemployment.  But  putting  Alaska  on  a  stable                                                                    
     financial track is just as important.                                                                                      
     With that, I'll have my staff, Tally Teal, go over the                                                                     
     bill in more detail.                                                                                                       
Vice-Chair Ortiz acted as chair  for part of the meeting. He                                                                    
noted   that   Representative   LeBon   and   Representative                                                                    
Rasmussen had joined the meeting.                                                                                               
1:40:03 PM                                                                                                                    
TALLY   TEAL,    STAFF,   REPRESENTATIVE    KELLY   MERRICK,                                                                    
highlighted  the two  main sections  of  the bill  beginning                                                                    
with  Section  1.  She  explained  that  Section  1  removed                                                                    
language related  to the  income available  for distribution                                                                    
of  the  Permanent  Fund  Dividend  (PFD).  She  pointed  to                                                                    
Section 7, which defined the new  PFD formula in HB 202 that                                                                    
designated  30  percent  of   all  mineral  lease  royalties                                                                    
received  by   the  state  during   that  fiscal   year  for                                                                    
distribution of dividends. She noted  that the language "may                                                                    
appropriate"  in  Section 7  rather  than   shall  was  more                                                                    
suitable   based  on   the  2018   Wielechowski  case.   She                                                                    
elucidated  that the  court decided  that  the dividend  was                                                                    
subject  to appropriation  and the  permissive language  was                                                                    
more appropriate.                                                                                                               
Vice-Chair  Ortiz  noted  that  Representative  Johnson  and                                                                    
Representative Thompson had joined the meeting.                                                                                 
1:41:19 PM                                                                                                                    
Ms.  Teal  referenced a  handout  depicting  a flowchart  in                                                                    
members' bill packets from  Co-Chair Merrick's office titled                                                                    
"HB  202"  (copy on  file).  She  pointed to  the  statutory                                                                    
definition of natural resource  income that was collectively                                                                    
referred  to   as  royalties.   The  lines   underneath  the                                                                    
definition  pointed to  the distribution  of the  royalties.                                                                    
She elaborated that  25 percent of all  royalty income would                                                                    
be deposited  into the  Permanent Fund  (PF) corpus  plus an                                                                    
additional  25 percent  from  new  fields   from oil  leases                                                                    
signed  after  December  1, 1979,  that  also  included  the                                                                    
Percent of  Market Value (POMV) payout.  She emphasized that                                                                    
the formula  reflected current law  and was unchanged  in HB
202.  She  turned  to  the second  line  that  indicated  30                                                                    
percent of all  income went to dividends and  the third line                                                                    
showed  that the  remainder was  deposited into  the General                                                                    
Fund  (GF).  She  turned  to   a  second  handout  from  the                                                                    
Legislative   Finance  Division   (LFD)   showing  a   model                                                                    
[pertaining  to  HB  202]  containing  various  graphs  with                                                                    
projections  (copy on  file). She  highlighted  that on  the                                                                    
bottom  left chart  the reserve  balances continued  to grow                                                                    
through  FY 2030.  The middle  right graph  showed that  the                                                                    
value  of the  PF continued  to  grow into  the future.  She                                                                    
continued that the top right  graph depicted a significantly                                                                    
smaller PFD under HB 202  than the current statutory formula                                                                    
but grew over time. The  top left graph showed a sustainably                                                                    
balanced  budget. She  concluded that  that the  legislation                                                                    
would create  a reasonable,  sustainable, and  stable fiscal                                                                    
1:43:48 PM                                                                                                                    
Vice-Chair Ortiz OPENED public testimony.                                                                                       
CLIFF  GROH, SELF,  ANCHORAGE  (via teleconference),  shared                                                                    
that he  had been  involved in  creating the  Permanent Fund                                                                    
Dividend  in  1982. He  believed  that  the state  needed  a                                                                    
comprehensive  strategy  to  address  the   deep  structural                                                                    
deficit   that  looked  beyond the  next  fiscal  year.  The                                                                    
comprehensive  plan should  include a  revised PFD  formula,                                                                    
protection of  the PFD from  overspending, and  new revenues                                                                    
to help  pay for public  services. He commended  the sponsor                                                                    
for introducing  legislation that recognized the  need for a                                                                    
sustainable PFD formula. However,  he believed the bill went                                                                    
too far balancing  the budget on the backs of  PFDs in order                                                                    
to  avoid collecting  taxes  from  high earning  individuals                                                                    
that  included  non-residents.  He referenced  the  upcoming                                                                    
special  session  called  by  the  governor  and  hoped  the                                                                    
legislature and  governor engage in tradeoffs  that produced                                                                    
a  fair  and sustainable  dividend formula   and legislation                                                                    
generating new revenues.                                                                                                        
Representative Rasmussen had heard  many people mention that                                                                    
the  [lower]  dividend  placed  a burden  on  the  backs  of                                                                    
children.  She   asked  about  the  level   of  funding  for                                                                    
kindergarten  through  twelfth  grade (K-12)  education  and                                                                    
felt  that  education  spending was  a  direct  benefit  for                                                                    
children and families  in the state. Mr.  Groh answered that                                                                    
the  state had  a  constitutional requirement  to fund  K-12                                                                    
education. He  indicated that  LFD had  shown that  the K-12                                                                    
budget had  been cut over the  last 8 years. He  supported a                                                                    
strong and healthy K-12 education  system and universal Pre-                                                                    
K. He was  concerned that cutting the PFD to  avoid taxes on                                                                    
high earners was not the  correct approach. He advocated for                                                                    
a revised PFD formula and additional revenues.                                                                                  
1:48:28 PM                                                                                                                    
QUEEN  PARKER, SELF,  STERLING  (via teleconference),  spoke                                                                    
against the bill.  She wanted her statutory  PFD. She agreed                                                                    
with all of those who opposed the bill.                                                                                         
1:49:37 PM                                                                                                                    
TERRI LYONS,  SELF, WASILLA (via  teleconference), testified                                                                    
against the bill. She believed  the legislature did not care                                                                    
and  would  not  follow  the   law.  She  thought  that  the                                                                    
legislature  looked  after   special  interests  first.  She                                                                    
supported  Governor  Dunleavy's  plan   for  a  50/50  split                                                                    
[between   paying  for   government  expenditures   and  the                                                                    
1:50:54 PM                                                                                                                    
AT EASE                                                                                                                         
1:51:44 PM                                                                                                                    
CAMMY   TAYLOR,   SELF,  ANCHORAGE   (via   teleconference),                                                                    
testified in  support of the  bill and  supported protecting                                                                    
the principal  of the  Permanent Fund.  She shared  that she                                                                    
was a  resident of the  state prior  to the PFD  program and                                                                    
while income tax  was still collected. She  believed that HB
202 was  sustainable and  would protect  both the  PF corpus                                                                    
and the POMV draw. She urged support for the bill.                                                                              
1:53:06 PM                                                                                                                    
CRIS   EICHENLAUB,  SELF,   WASILLA  (via   teleconference),                                                                    
testified  against  the  bill.  He believed  the  state  was                                                                    
grossly  mismanaging  its  resources.  He  did  not  support                                                                    
digging  into the  pockets  of the  people  to support  more                                                                    
government.  He  stated  that  the   PFD  was  last  on  the                                                                    
legislature's  agenda and  thought  it should  be first.  He                                                                    
emphasized that  the people of  Alaska owned  the resources.                                                                    
He  felt that  the POMV  model  would deplete  the fund.  He                                                                    
supported the  earnings model  that  had worked for 42 years                                                                    
until  the legislature  had  overspent   on  the budget.  He                                                                    
opposed the bill.                                                                                                               
Representative  Rasmussen asked  if  the  royalty split  was                                                                    
increased  from  50  to  70  percent  whether  it  would  be                                                                    
agreeable.  Mr. Eichenlaub  replied  that  he supported  the                                                                    
 non-POMV model.  He pondered what  would happen if the fund                                                                    
had a  40 percent  loss like  in 2008.  He opined  that they                                                                    
[legislature]  were putting   all  the state's  eggs in  one                                                                    
basket. He felt that a POMV model was unsustainable.                                                                            
1:57:20 PM                                                                                                                    
Representative Rasmussen  shared many  of the  concerns. She                                                                    
believed  a  stronger  spending   cap  was  needed  and  she                                                                    
believed  it should  be in  the  constitution. She  believed                                                                    
that the general feeling from  Alaskans was that the PFD was                                                                    
their share  of oil revenues.  She believed that if  the PFD                                                                    
was more  tied to mineral royalties  as in HB 202,  it would                                                                    
incentivize more production. She  asked Mr. Eichenlaub if he                                                                    
thought the bill would be  more supported if the majority of                                                                    
exclusively the resource wealth  was paid to Alaskans versus                                                                    
government.  Mr.  Eichenlaub  stressed that  the  people  of                                                                    
Alaska  owned  all the  resources.  He  believed the  people                                                                    
needed to be  paid first. He spoke to  the reason government                                                                    
could  not  be  trusted.  He thought  that  the  legislature                                                                    
needed to show some constraint.                                                                                                 
2:00:01 PM                                                                                                                    
Representative  Wool believed  that  the reason  for a  POMV                                                                    
model was  because oil revenue  dropped from $10  billion to                                                                    
under $1 billion. He reminded  the testifier that the PF had                                                                    
averaged 8  percent in earnings  over the last 40  years. He                                                                    
emphasized that Alaska was not a business it was a state.                                                                       
2:00:45 PM                                                                                                                    
Vice-Chair  Ortiz noted  that  Representative Carpenter  and                                                                    
Representative Edgmon joined the meeting.                                                                                       
BERT  HOUGHTALING,  SELF,  BIG  LAKE  (via  teleconference),                                                                    
testified  against the  bill. He  felt that  statements like                                                                    
the legislature  had cut the  budget to the max  was grossly                                                                    
misrepresentative  of the  situation. He  believed that  the                                                                    
states  healthcare  and education costs were  the highest in                                                                    
the nation  and would not  be the case  if more was  cut. He                                                                    
believed in  taxing the one  percent instead of  cutting the                                                                    
PFD. He  opined that a  statutory PFD would lift  people out                                                                    
of poverty and that a lower PFD was a tax on children.                                                                          
2:03:01 PM                                                                                                                    
JEAN HOLT, SELF, PALMER  (via teleconference), spoke against                                                                    
the bill. She believed the  bill was wrong. She thought that                                                                    
the  bill  was  being   fast  tracked  and  would  eliminate                                                                    
Alaskans   fair share  of the  states   mineral wealth.  She                                                                    
supported the governor's PFD bills  and asked legislators to                                                                    
vote no in HB 202.                                                                                                              
2:05:29 PM                                                                                                                    
ALEX   MCDONALD,  SELF,   FAIRBANKS  (via   teleconference),                                                                    
opposed the  bill. He remarked  that the  state's population                                                                    
had   not  changed   significantly,  but   the  budget   had                                                                    
increased. He  believed that the legislature  had mismanaged                                                                    
the state's  money and the  budget was bloated.  He remarked                                                                    
that the  people knew how  to spend their money  better than                                                                    
2:07:07 PM                                                                                                                    
CHARLES MCKEE,  SELF, ANCHORAGE (via  teleconference), spoke                                                                    
against the bill.  He referenced a May 4,  Alaska Daily News                                                                    
article  about  foster youth  finding  out  their money  was                                                                    
being   pocketed  by  state   agencies.   He  mentioned  his                                                                    
personal lawsuit  against the  state and  associated remarks                                                                    
that were unrelated to HB 202.                                                                                                  
2:08:48 PM                                                                                                                    
PHILLIP  DELAND,   SELF,  ANCHORAGE   (via  teleconference),                                                                    
opposed  the legislation.  He shared  that he  had lived  in                                                                    
Anchorage  his  whole  life  and   had  graduated  from  the                                                                    
University  of   Alaska.  He  believed  that   the  PFD  was                                                                    
established to compensate citizens  for ceding their mineral                                                                    
rights to the state. He stated  that the people did not have                                                                    
the rights  to minerals on  their own property.  He stressed                                                                    
that the PFD  was not the state's money but  belonged to the                                                                    
people as a share of  their mineral resources. He emphasized                                                                    
that the  Permanent Fund did  not belong to  the legislature                                                                    
and its role  was to manage the resource  for the citizenry.                                                                    
He believed the  law should be followed and  wanted full PFD                                                                    
payouts. He  felt that  the recent  lower PFDs  reflected an                                                                    
 unlawful capping   of the  dividend and  was  confiscation                                                                     
of money that belonged to Alaskans.                                                                                             
Representative Rasmussen shared that  she had also been born                                                                    
and   raised  in   Anchorage.   Currently   the  state   was                                                                    
constitutionally mandated to pay  25 percent of oil revenues                                                                    
to  the  funds   corpus.  She  asked if  he  would  be  more                                                                    
supportive of a higher  percentage of royalties dedicated to                                                                    
dividends.  Mr.  DeLand did  not  support  changing the  PFD                                                                    
formula. He supported  following the law and  not caping the                                                                    
payout. He  stated that   he could  really use  that money.                                                                     
He  did  not   believe  it  was  the   state's  decision  to                                                                    
confiscate  funds from  people's  PFDs in  recent years.  He                                                                    
supported  the  way  payments  were  currently  working.  He                                                                    
thought there was enough money  in the Permanent Fund to pay                                                                    
out statutory dividend.  He listed ways people  used the PFD                                                                    
funds and were dependent on the dividend.                                                                                       
2:13:22 PM                                                                                                                    
Representative Rasmussen agreed that  a sustainable plan was                                                                    
needed.  She  shared that  a  member  of the  committee  had                                                                    
proposed  a full  dividend during  the  budget process,  but                                                                    
staff had  pointed out that  paying a full  dividend without                                                                    
major  cuts and  taxes would  drain  the fund  within a  few                                                                    
years.  The  balance  the   committee  was  working  towards                                                                    
ensured  there  would be  a  PFD  for many  generations  and                                                                    
continued resource development.                                                                                                 
2:14:45 PM                                                                                                                    
AT EASE                                                                                                                         
2:14:59 PM                                                                                                                    
Vice-Chair Ortiz CLOSED public testimony.                                                                                       
Representative LeBon  thanked Co-Chair Merrick  for bringing                                                                    
forward  an  option for  the  committee  and legislature  to                                                                    
consider. He hoped that the  legislature could reconcile its                                                                    
differences  and acknowledged  that a  resolution would  not                                                                    
please everyone.                                                                                                                
Representative Edgmon echoed  the comments by Representative                                                                    
LeBon. He appreciated that Co-Chair  Merrick had brought the                                                                    
issue forward to  consider. He shared that he  had been born                                                                    
and  raised  in Alaska.  He  wanted  the  PFD to  be  around                                                                    
forever.  He  stressed that  72  percent  of the  governor's                                                                    
budget  was  funded  using PF  earnings.  He  reported  that                                                                    
Alaska  was the  only  state  in the  nation  and entity  in                                                                    
Western  Civilization  funding  its  government  through  an                                                                    
endowment.  He stressed  the  importance  of protecting  the                                                                    
2:17:19 PM                                                                                                                    
Representative Wool  favored the bill  and tying the  PFD to                                                                    
the performance  of oil. He  pointed to the  FY 22 to  FY 28                                                                    
projections of $333  million to $477 million  that would pay                                                                    
a PFD  and would not be  deposited into the GF.  He asked if                                                                    
there was  enough surplus in  the GF  for the out  years. He                                                                    
favored a bill  like the one proposed if  it was sustainable                                                                    
and if the  state could absorb the reduction  to the general                                                                    
Co-Chair  Merrick  replied  that  Angela  Rodell,  Executive                                                                    
Director,  Alaska  Permanent  Fund  Corporation  (APFC)  had                                                                    
spoken to the  issue - the royalties were a  small amount in                                                                    
comparison to  the remainder going  to a fund  with billions                                                                    
of dollars. She  offered that what made the  plan unique was                                                                    
that  100  percent of  the  POMV  would  be used  for  state                                                                    
services  and  would not  be  competing  with the  PFD.  She                                                                    
thought that  many people were  having a hard time  with the                                                                    
current situation  where state  services were  competing for                                                                    
funding. She  liked the  plan because  the PFD  was directly                                                                    
tied  to  oil and  mineral  development  in the  state.  She                                                                    
addressed some  of the comments  by callers.  She emphasized                                                                    
that  the  plan  paid  the   PFD  first,  before  government                                                                    
services and separated it from  the POMV draw. She addressed                                                                    
comments  regarding Alaskans   share of  the mineral  rights                                                                    
and emphasized that the bill  utilized Alaska's share of the                                                                    
mineral  rights.  She shared  that  she  was also  born  and                                                                    
raised  in Alaska  and  had  used her  PFD  money  to go  to                                                                    
college, which  she otherwise could  not afford.  She wanted                                                                    
her kids  to be  able to  have money to  go to  college with                                                                    
PFDs. She  stressed that  the plan  was about  a sustainable                                                                    
PFD. She voiced that the  other  high dollar  dividend plans                                                                    
depleted  the dividend  in  a few  years.  She reminded  the                                                                    
committee that PFDs were sent  to every resident and was not                                                                    
needs based. She stated that  many times Alaskans who relied                                                                    
on their  PFDs also needed  state services. The  state could                                                                    
not afford  to provide for Alaskans  in need and pay  a huge                                                                    
HB  202  was  HEARD  and   HELD  in  committee  for  further                                                                    
2:21:37 PM                                                                                                                    
4:01:47 PM                                                                                                                    

Document Name Date/Time Subjects
HB 202 Fiscal Model Output REVISED (002).pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Public Testimony by 051621.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Flowchart.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Sectional Analysis 5.5.2021.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Sponsor Statement 5.5.2021.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 70 Agency Summary HSC1 All Funds.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 AgencySummary HCS1 UGF Only.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 HCS WorkDraft vG.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 ProjectDetailByAgency HCS1 Supplemental Items Compare to Senate SCS1.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 ProjectDetailByAgency HCS1 Compare to Gov Amend Total.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 Public Testimony by 051921.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 202 Public Testimony by 051921.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Public Testimony by 052121.pdf HFIN 5/17/2021 1:30:00 PM
HB 202