Legislature(2021 - 2022)ADAMS 519

08/20/2021 01:00 PM FINANCE

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Audio Topic
01:02:47 PM Start
01:03:36 PM HB3003
02:04:51 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB3003 APPROP: OPERATING; PERM FUND; EDUCATION TELECONFERENCED
Heard & Held
HOUSE BILL NO. 3003                                                                                                           
                                                                                                                                
     "An  Act making  appropriations  for  the operating  and                                                                   
     loan  program  expenses  of  state  government  and  for                                                                   
     certain  programs;  capitalizing funds;  making  capital                                                                   
     appropriations  and  supplemental   appropriations;  and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
1:03:36 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster  stated questions  would be taken  throughout                                                                   
the presentation.                                                                                                               
                                                                                                                                
NEIL STEININGER,  DIRECTOR, OFFICE OF MANAGEMENT  AND BUDGET,                                                                   
OFFICE OF  THE GOVERNOR,  provided a PowerPoint  presentation                                                                   
titled  "State of  Alaska Office  of  Management and  Budget:                                                                   
House  Finance   Committee:  Third  Special   Session  Budget                                                                   
Overview -  HB 3003," dated August  20, 2021 (copy  on file).                                                                   
He  moved  to  slide  2  and   addressed  the  third  special                                                                   
session.  The governor's  office  had introduced  HB 3003  to                                                                   
address  appropriations   //  and  need  in  the   state.  He                                                                   
addressed  impacts from  the sweep //  the Alaska  Federation                                                                   
of  Natives   //  appropriations   were  being   executed  by                                                                   
respective offices  in the executive branch.  // issues under                                                                   
the sweep  resolved by  the bill.  Other ongoing issues  were                                                                   
not addressed by the legislation.                                                                                               
                                                                                                                                
1:06:20 PM                                                                                                                    
                                                                                                                                
Mr. Steininger briefly  summarized the sections  in the bill.                                                                   
The bill included  the Permanent Fund Dividend  (PFD) payment                                                                   
of $2,350 per Alaskan  at a total of $1.53  billion. The bill                                                                   
also  included   Alaska  student   scholarships  and   grants                                                                   
including  the  Washington,  Wyoming,  Alaska,  Montana,  and                                                                   
Idaho (WWAMI)  program and  a deposit  of $1.47 billion  one-                                                                   
time  transfer  from  the  Permanent  Fund  Earnings  Reserve                                                                   
Account  (ERA) to  the Constitutional  Budget Reserve  (CBR).                                                                   
                                                                                                                                
Mr. Steininger  turned to  slide 4  and discussed  the budget                                                                   
impacts of CBR vote failure. //                                                                                                 
                                                                                                                                
1:10:08 PM                                                                                                                    
                                                                                                                                
Mr. Steininger was happy to answer questions.                                                                                   
                                                                                                                                
Representative  Edgmon  looked   at  slide  2  related  to  a                                                                   
durable  fiscal plan.  He saw  the language  constitutionally                                                                   
protect,  but he did  not see  anything about  a vote  of the                                                                   
people. // He presumed it was in the background                                                                                 
                                                                                                                                
Mr.  Steininger  agreed that  the  constitutional  amendments                                                                   
would have to go to voters for approval.                                                                                        
                                                                                                                                
Representative  Edgmon surmised  that with  the submittal  of                                                                   
the bill  and the  parsing out  of two  or three items  apart                                                                   
from  the  PFD  was  a  policy  call  by  the  administration                                                                   
related to  the reverse sweep. He  asked if there was  a plan                                                                   
for items that had been left out.                                                                                               
                                                                                                                                
Mr.  Steininger   answered  //  an  inelegant   tool  //  not                                                                   
necessarily resolved  with UGF funds only //  the operational                                                                   
realities  revealed as  the sweep was  implemented.  Over the                                                                   
past decade  or so, there  had been  more // the  solution to                                                                   
the problem  may or may  not be a  backfill of general  funds                                                                   
// it would  involve // issues that may have  always existed,                                                                   
but not  highlighted //  the structures  of the programs  may                                                                   
not be  as sustainable as  they had  thought. // some  of the                                                                   
solutions  may need  to  be addressed  //  the shortfall  may                                                                   
only be 1 to  5 percent, which admittedly  may be challenging                                                                   
for program managers //                                                                                                         
                                                                                                                                
1:14:45 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  looked  at  slide 3  related  to  the                                                                   
elements  of  the  bill.  He   noted  that  the  PFD  //  the                                                                   
legislature  to  violate a  law  implemented  in 2018  //  he                                                                   
acknowledged  that the  legislature had  not been paying  the                                                                   
statutory PFD  // the two items  went hand in hand.  // tying                                                                   
to larger elements  of a fiscal plan // He asked  where to go                                                                   
from here // He asked about the thought process.                                                                                
                                                                                                                                
Mr.  Steininger  answered  it   was  a  good  discussion  the                                                                   
administration  would  like  to  have.  // the  bill  was  to                                                                   
support the  wider discussion in  SJR 7 // the  appropriation                                                                   
bill was there  to support discussions and  decisions made on                                                                   
bigger  policy issues.  He did  not  see the  bill as  taking                                                                   
away  the  carrot.   He  thought  the  commissioner   of  the                                                                   
Department  of   Revenue  would   like  to  present   to  the                                                                   
committee.                                                                                                                      
                                                                                                                                
1:18:06 PM                                                                                                                    
                                                                                                                                
Representative     Rasmussen     appreciated     that     the                                                                   
administration had  included the Alaska  student scholarships                                                                   
// She was  curious if the administration had  considered the                                                                   
oil tax credits  the state was obligated to pay.  She did not                                                                   
believe they  had been paid. //  She asked about  the balance                                                                   
of the ERA after the proposed bill.                                                                                             
                                                                                                                                
Mr. Steininger  answered  that the purpose  of including  the                                                                   
scholarships and  grants was due  to a very  immediate impact                                                                   
on  individual Alaskans.  Come  September  1, WWAMI  students                                                                   
would  receive  full tuition  bills  if  the funds  were  not                                                                   
passed. //  He spoke to the  balance of the ERA.  He believed                                                                   
the  balance had  been  roughly  $20 million  on  June 30  //                                                                   
there had  been a  $4 billion transfer  to the principal  and                                                                   
with the  bill there  would be  about $10 billion  remaining.                                                                   
//  constitutionally  protect  the  fund  to  ensure  only  5                                                                   
percent  came out  over time.  The bridge  draw was to  allow                                                                   
for transitions working on the state fiscal structure.                                                                          
                                                                                                                                
Representative  Rasmussen  stated  it was  her  understanding                                                                   
many  oil companies  were holding  off  on making  investment                                                                   
decisions  prior  to  receiving  the  oil  tax  credits.  She                                                                   
believed paying the amount was prudent.                                                                                         
                                                                                                                                
Co-Chair Foster  recognized Representatives  McCabe, McCarty,                                                                   
Kronk, McKay, and Drummond in the audience.                                                                                     
                                                                                                                                
1:22:51 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz asked  if the  governor was  // $3  billion                                                                   
transfer.                                                                                                                       
                                                                                                                                
Mr.  Steininger answered  that  the $3  billion transfer  was                                                                   
net of the //  the SB 26 percent of market  value (POMV) draw                                                                   
// since //  the appropriation had included the  full draw //                                                                   
the bridge  fund // it was  still the same $3  billion bridge                                                                   
fund.                                                                                                                           
                                                                                                                                
Vice-Chair  Ortiz asked  about the  governor's intention  for                                                                   
the FY 22 PFD amount.                                                                                                           
                                                                                                                                
Mr. Steininger stated  that the calendar year  2021 PFD would                                                                   
be  based  on  //  the  constitutional   amendment  currently                                                                   
before the legislature.                                                                                                         
                                                                                                                                
Vice-Chair Ortiz  believed the [fiscal policy]  working group                                                                   
had recommended  whatever  steps were  taken to accomplish  a                                                                   
fiscal plan  that it  happened at  one time.  He asked  if HB
3003 contributed to solving the problem with one shot.                                                                          
                                                                                                                                
Mr. Steininger  replied affirmatively.  He explained  that //                                                                   
to  accomplish  the  entire  fiscal  plan.  The  bill  was  a                                                                   
supporting appropriation  bill to support  the constitutional                                                                   
amendments.  // it was  not possible to  write a  single bill                                                                   
implementing all of the policies.                                                                                               
                                                                                                                                
1:26:33 PM                                                                                                                    
                                                                                                                                
Representative    Wool    shared     concerns    voiced    by                                                                   
Representative  Edgmon   regarding  an  overdraw   of  the  5                                                                   
percent   ERA   draw   under   SB   26.   He   observed   the                                                                   
administration  was not  proposing a formula  change,  but an                                                                   
amount based  on a  changed formula. //  a 50/50  PFD, budget                                                                   
cuts  and  some  revenue.  He   believed  the  //  wanted  to                                                                   
implement them simultaneously.  He asked why revenue  was not                                                                   
being presented  for a  durable fiscal  plan. He stated  that                                                                   
the bridge was to a sustainable fiscal package //                                                                               
                                                                                                                                
Mr.  Steininger  replied that  revenue  was included  in  the                                                                   
special  session call.  He stated  that Commissioner  Mahoney                                                                   
would be glad to  provide some analysis on work  her team had                                                                   
done. He was present to discuss the appropriation bill.                                                                         
                                                                                                                                
Representative Wool looked at slide 3 // retroactivity.                                                                         
                                                                                                                                
1:29:45 PM                                                                                                                    
                                                                                                                                
Representative  Josephson was  concerned that the  unrealized                                                                   
earnings  in  the ERA  was  not  addressed. He  believed  the                                                                   
balance was closer to $9 billion including that.                                                                                
                                                                                                                                
Mr.  Steininger answered  he was  trying  to do  math in  his                                                                   
head and  he apologized for  any inaccuracy. The  $10 billion                                                                   
had been his calculation.                                                                                                       
                                                                                                                                
Representative  Josephson   //  the  Alaska   Permanent  Fund                                                                   
Corporation  (APFC) was  consistent it  wanted // balance  in                                                                   
the ERA.  He did  not know that  the bill  would do  that. //                                                                   
100 percent  unfunded // it was  his take it was there  was a                                                                   
continuing cycle of revenue //                                                                                                  
                                                                                                                                
Mr. Steininger agreed //                                                                                                        
                                                                                                                                
Representative  Josephson asked if  there were not  scores of                                                                   
other funds  that were  swept that were  not included  in the                                                                   
bill.                                                                                                                           
                                                                                                                                
Mr.  Steininger replied  that the  bill //  other funds  that                                                                   
were  swept  //  were  not  included  because  there  was  no                                                                   
operating  issue   //  or  did  not  have   a  connection  to                                                                   
budgetary // separately  accounted for and did  not impact an                                                                   
operating  appropriation. //  it  refined the  view of  where                                                                   
the problems really lay //                                                                                                      
                                                                                                                                
1:33:23 PM                                                                                                                    
                                                                                                                                
Representative   Josephson  returned   to   the  context   of                                                                   
Representative  Rasmussen's question  about oil  and gas  tax                                                                   
credits.  He  noted that  Mr.  Steininger  did not  note  the                                                                   
community  assistance  and  school   debt  reimbursement.  He                                                                   
asked why those items were not included.                                                                                        
                                                                                                                                
Mr.  Steininger  replied  that  under the  AFN  decision  the                                                                   
deposit  was being made  into the  community assistance  fund                                                                   
// it was  no longer considered sweepable funding.  // should                                                                   
not be taken as  a lack of support or //  for appropriations.                                                                   
They were  looking at the fact  that on September  1 students                                                                   
would   directly  and   immediately  feel   the  impact.   //                                                                   
attempting to address the most urgent needs.                                                                                    
                                                                                                                                
1:35:35 PM                                                                                                                    
                                                                                                                                
Representative Carpenter  stated that there had  never been a                                                                   
discussion  in the working  group there  would be  one single                                                                   
bill to  address the issue.  He pointed  out that all  of the                                                                   
programs   could  be  funded   with   an  amendment   to  the                                                                   
appropriations  bill //  the legislature  just had to  decide                                                                   
where the funds would come from.                                                                                                
                                                                                                                                
Mr. Steininger agreed.                                                                                                          
                                                                                                                                
Vice-Chair  Ortiz asked  for verification  that the  solution                                                                   
would be done at one time.                                                                                                      
                                                                                                                                
Representative   Carpenter   agreed  that   a   comprehensive                                                                   
package with  multiple components  that were agreed  upon and                                                                   
acted on at one time.                                                                                                           
                                                                                                                                
1:37:43 PM                                                                                                                    
                                                                                                                                
Representative  LeBon  observed that  the  need  for a  large                                                                   
draw  against the  ERA was  a // it  was about  a 10  percent                                                                   
draw against the  POMV formula. The SB 26  formula called for                                                                   
a 5 percent draw. He asked if it was true.                                                                                      
                                                                                                                                
Mr. Steininger  agreed. He explained  it was a  one-time draw                                                                   
in order  to implement  the constitutional change  protecting                                                                   
the  ERA.  If  the  ERA  was  moved  to  the  corpus  of  the                                                                   
Permanent Fund // needed a bridge to //                                                                                         
                                                                                                                                
Representative  LeBon addressed  sustainability  of a  model.                                                                   
He  asked  if the  administration  considered  a  stair  step                                                                   
model to soften  the draw rate to help sustain  the Permanent                                                                   
Fund  for  years  to  come  //  a  public  purpose  endowment                                                                   
required  fiscal discipline  //  the draw  rate  was set  and                                                                   
held to.  he asked about  the compelling argument  to deviate                                                                   
from the set rate.                                                                                                              
                                                                                                                                
Mr. Steininger  believed a detailed  discussion with  DOR was                                                                   
needed.  He stated  the proposal  did  protect the  Permanent                                                                   
Fund in perpetuity by bringing the ERA into the corpus //                                                                       
                                                                                                                                
1:41:33 PM                                                                                                                    
                                                                                                                                
Representative  LeBon  stated he  was  not trying  to  debate                                                                   
over the  philosophy // He believed  it did impair  the fund.                                                                   
// if  the fund's  future growth  capability was impaired  //                                                                   
the immediate  gratification and  reward for overdrawing  the                                                                   
ERA  - individuals  would argue  it  was the  right time.  He                                                                   
emphasized that public endowments rarely took that action.                                                                      
                                                                                                                                
Representative  Carpenter  asked about  the  percent of  draw                                                                   
for the bridge  fund in relation to the overall  value of the                                                                   
ERA. It  was a  $3 billion bridge  draw from  a total  of $20                                                                   
billion // percent.                                                                                                             
                                                                                                                                
Representative  Carpenter asked  if the  legislature had  the                                                                   
authority to deviate from statutory //                                                                                          
                                                                                                                                
Mr. Steininger replied //                                                                                                       
                                                                                                                                
Representative Carpenter clarified his question.                                                                                
                                                                                                                                
Mr. Steininger replied  in the affirmative. Any  amount could                                                                   
be appropriated from the ERA. //                                                                                                
                                                                                                                                
Representative  Carpenter  asked  what gave  the  legislature                                                                   
the authority.                                                                                                                  
                                                                                                                                
Mr. Steininger did not want to go into a legal analysis.                                                                        
                                                                                                                                
Co-Chair  Foster recognized  Representative  David Nelson  in                                                                   
the audience.                                                                                                                   
                                                                                                                                
1:44:43 PM                                                                                                                    
                                                                                                                                
Representative    Josephson   assumed   the    administration                                                                   
remained  concerned  about  the   sweep  //  it  was  managed                                                                   
wisely. // reduced to 2 percent.                                                                                                
                                                                                                                                
Mr. Steininger replied in the affirmative.                                                                                      
                                                                                                                                
Representative Josephson  asked if the administration  agreed                                                                   
the  CBR  sweep  was untenable  as  a  long-term  method.  He                                                                   
believed there had to be reform //                                                                                              
                                                                                                                                
Mr.  Steininger   replied  with  an  emphatic   yes.  //  the                                                                   
administration  recognized that looking  at the  structure of                                                                   
the CBR  was // how  the state  could increase spending  over                                                                   
time. //                                                                                                                        
                                                                                                                                
Representative Wool  stated that the bill //  overdraw the //                                                                   
He asked  if the administration  had calculated what  the PFD                                                                   
amount would be without an overdraw of the ERA.                                                                                 
                                                                                                                                
Mr.   Steininger  answered   that   the  administration   had                                                                   
proposed  a statutory  dividend  // did  not support  another                                                                   
amount.                                                                                                                         
                                                                                                                                
1:48:28 PM                                                                                                                    
                                                                                                                                
Representative Edgmon asked // $3.2 billion                                                                                     
                                                                                                                                
Mr. Steininger believed it sounded about right.                                                                                 
                                                                                                                                
Representative  Edgmon  // a  $3 billion  draw  for a  bridge                                                                   
fund  // it  was possible  there  would  be a  lower PFD  the                                                                   
following year //  the reality was the amount  depended on //                                                                   
federal  infrastructure  legislation  //  there  could  be  a                                                                   
smaller PFD the next year because the expenditure side //                                                                       
                                                                                                                                
Mr.  Steininger answered  that the  bill was  a companion  to                                                                   
other changes //                                                                                                                
                                                                                                                                
Representative Edgmon  stated it had  to go to a vote  of the                                                                   
people, which would not go into effect until 2024.                                                                              
                                                                                                                                
Mr.  Steininger responded  the  intention was  to follow  the                                                                   
will  of the  voters  in the  next  fiscal  year. the  budget                                                                   
would be treated  as if the approval was in  place. He stated                                                                   
that putting  a plan in  place and immediately  not following                                                                   
it would undermine the purpose of the plan.                                                                                     
                                                                                                                                
1:52:02 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  thought that  could  be rising  above                                                                   
the  legislature's ability  to  appropriate. It  was not  the                                                                   
law  until   approved  by  the   people.  //  He   cited  the                                                                   
Weilekowski  case // not  the law  of the  land until  it was                                                                   
voted on.  It was not  written in stone  // He stated  it was                                                                   
not  possible  to know  what  the  legislature would  do  the                                                                   
following year  or what  oil prices would  do. He  thought //                                                                   
indicated there  were other bills  to follow // did  not need                                                                   
more   bridge  funding   //   He   looked  forward   to   the                                                                   
information. He  stressed it was  a much bigger  picture than                                                                   
the bill itself. // Promising a $2,300 PFD also implied //                                                                      
                                                                                                                                
1:54:34 PM                                                                                                                    
                                                                                                                                
Representative   Carpenter  understood   the  skepticism   by                                                                   
Representative  Edgmon. He  thought it  would be helpful  for                                                                   
the  committee to  see the  models  that Legislative  Finance                                                                   
Division had shared with the working group.                                                                                     
                                                                                                                                
Vice-Chair Ortiz  did not understand where the  $1.47 billion                                                                   
transfer  did   not  show  another  $1.53   billion  transfer                                                                   
overdraw to reach the $3 billion bridge.                                                                                        
                                                                                                                                
Mr.  Steininger answered  that the  $3 billion  was split  to                                                                   
pay the  PFD and the other  portion to be deposited  into the                                                                   
CBR.  Prior  models  had  presented the  increment  as  a  $3                                                                   
billion  // the  remaining deficit  paid  out of  the CBR  //                                                                   
before the PFD  was appropriated // it was still  the same $3                                                                   
billion //                                                                                                                      
                                                                                                                                
1:57:53 PM                                                                                                                    
                                                                                                                                
Vice-Chair Ortiz  understood that there was a  5 percent draw                                                                   
under SB 26 // generated about $3 billion.                                                                                      
                                                                                                                                
Mr. Steininger agreed.                                                                                                          
                                                                                                                                
Vice-Chair Ortiz stated that //                                                                                                 
                                                                                                                                
Mr.  Steininger  answered  that   it  was  the  way  DOR  had                                                                   
modeled. // to pay for the state operating budget.                                                                              
                                                                                                                                
Vice-Chair Ortiz asked if it was not going into the CBR.                                                                        
                                                                                                                                
Mr. Steininger //                                                                                                               
                                                                                                                                
Vice-Chair  Ortiz surmised  //  drawing $3  billion from  the                                                                   
ERA, which was above the standard 5 percent draw.                                                                               
                                                                                                                                
Mr. Steininger agreed.                                                                                                          
                                                                                                                                
Vice-Chair Ortiz  asked for verification it was  a $3 billion                                                                   
transfer.                                                                                                                       
                                                                                                                                
Mr. Steininger agreed.                                                                                                          
                                                                                                                                
HB  3003  was  HEARD  and  HELD   in  committee  for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Foster  set an  amendment deadline  of 9:00  a.m. on                                                                   
Sunday. The next meeting would be on Sunday at 11:00 a.m.                                                                       
                                                                                                                                
2:00:41 PM                                                                                                                    
                                                                                                                                
Representative  Josephson asked  Co-Chair  Foster to  revisit                                                                   
the rules pertaining  to votes. He asked for  verification on                                                                   
his understanding of the voting rules.                                                                                          
                                                                                                                                
Co-Chair Foster confirmed the rules.                                                                                            
                                                                                                                                
Representative Rasmussen asked //                                                                                               
                                                                                                                                
Co-Chair Foster //                                                                                                              
                                                                                                                                
Representative Rasmussen requested public testimony.                                                                            
                                                                                                                                
Representative  Josephson stated  that if  the chair  decided                                                                   
to hear  public testimony  // it  could happen the  following                                                                   
day.                                                                                                                            
                                                                                                                                
Co-Chair Foster agreed it was a possible option.                                                                                
                                                                                                                                
2:03:04 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
                                                                                                                                
2:04:01 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Foster // the  fiscal working  group had  extensive                                                                   
public testimony  on the 50/50 plan. He explained  the reason                                                                   
for moving  quickly. They would  start losing members  in the                                                                   
House and Senate later in the coming week.                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
HFIN HB3003 TSS Budget Bill OMB Presentation 8.20.21.pdf HFIN 8/20/2021 1:00:00 PM
HB3003
HB 3003 HFIN Budget Impact of CBR Vote Failure OMB Handout 8.20.21.pdf HFIN 8/20/2021 1:00:00 PM
HB3003