Legislature(2015 - 2016)BILL RAY CENTER 208
06/17/2016 09:00 AM House FINANCE
| Audio | Topic |
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| Start | |
| SB138 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 128 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
FOURTH SPECIAL SESSION
June 17, 2016
11:06 a.m.
11:06:52 AM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 11:06 a.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Representative Kurt Olson; Representative Craig Johnson;
Representative Liz Vasquez; Representative Charisse Millet;
Representative Louis Stutes; Representative Lora Reinbold;
Representative Shelly Hughes; Representative Andy
Josephson; Representative Dan Ortiz; Representative Bob
Herron; Representative Garran Tarr.
SUMMARY
SB 128 PERM. FUND:DEPOSITS;DIVIDEND;EARNINGS
HCS CSSB 128(FIN) FAILED to MOVE OUT of
committee.
CS FOR SENATE BILL NO. 128(FIN)
"An Act relating to the Alaska Permanent Fund
Corporation, the earnings of the Alaska permanent
fund, and the earnings reserve account; relating to
management of the budget reserve fund (art. IX, sec.
17, Constitution of the State of Alaska) by the Alaska
Permanent Fund Corporation; relating to procurement by
the Alaska Permanent Fund Corporation; relating to the
mental health trust fund; relating to deposits into
the dividend fund; relating to the calculation of
permanent fund dividends; relating to unrestricted
state revenue available for appropriation; and
providing for an effective date."
11:07:57 AM
}Randall Hoffbeck, Commissioner, Department of Revenue{ he
remarked that the legislation was the cornerstone for
fiscal stability. The administration had worked to
accommodate the interest in hearings and private meetings.
He remarked that the original proposal included a one-year
guarantee of a $1000 Permanent Fund Dividend (PFD). He
shared that the Senate had changed that guarantee to three
years. He shared that that the current bill had two years
guaranteed at $1500 and a formula adjustment that would put
the PFD to $1000 and keep it stable moving forward as oil
prices and revenues grow in the Permanent Fund. He noted a
provision that allowed for additional sharing on the upside
with production taxes greater than $2.3 billion, so 10
percent of the taxes above that amount would go toward the
PFD. He shared that the bill allowed for greater sharing of
the PFD at higher oil prices. He noted that the original
bill had the PFD as a royalty dividend. Some believed that
the royalty was too volatile, because of the low price and
declining production of oil. He announced that the Senate
had added a provision that tied the PFD tied partially to
the (percentage of market value) POMV draw, and partially
to royalties. The PFD would then be close to $1000 per
year. He stated that the bill increased the royalty
provision to allow for more certainty in the $1000 zone. He
remarked that the legislature had hoped for flexibility, so
the bill was adjusted to a POMV draw. He remarked that the
draw had a revenue cap that allowed for a dollar for dollar
offset of the permanent fund draw. The Senate felt that it
limited growth and opportunity, so that was adjusted to an
80 cents on the dollar draw to allow for money available
for appropriation. The change added a provision provides an
opportunity to turn off the revenue limits in times of high
oil prices and high oil production. He announced that the
administration had worked hard to accommodate as many needs
as possible. He assumed that everyone had made great
efforts to come to a compromise. He understood that no one
was comfortable with everything in the bill, but felt that
the bill accommodated as many needs as possible. He
stressed that the bill must be passed, because there was a
continued budget deficit.
Co-Chair Thompson wanted to clarify that the bill was the
governor's bill rather than his.
11:14:02 AM
Representative Gara suggested that much of the bill was a
compromise. He wondered about the commissioner's comments
about the pressure to pass the bill as related to the
change in status quo.
Commissioner Hoffbeck stated that the bill would spend less
than the status quo. The bill would save about $350 million
in the current year, and stressed that there was no way to
replace that money.
Representative Gara asked about waiting for the next year
to take action. He wondered about the ramifications of
waiting to pass the bill. He surmised that the payout of
any bill in the following year would be smaller than the
payout of the current year.
Commissioner Hoffbeck replied in the affirmative.
Representative Gara asked about the revenue limit in the
former version of the bill. He remarked that the current
version had a revenue limit. He stated that the current
version of the bill outlined that every dollar in oil
revenue resulted in the loss of ability to use 80 cents of
POMV payouts. He felt that it was a strict revenue cap.
Commissioner Hoffbeck agreed, but asserted that there was
still room for growth.
Representative Munoz asked the commissioner to comment on
the effect of the sustainable draw with the substantial
withdrawal of $3.2 billion.
Commissioner Hoffbeck stated that the biggest change was
the payout of the dividend. The biggest issue that the bill
solved was removing most of the volatility. He remarked
that the math did not matter between the two different
reserves.
11:20:34 AM
Representative Munoz asked about the financial impact of
not investing the CBR.
Commissioner Hoffbeck stated that the 7.25 percent return
was $150 million.
Representative Munoz surmised that the $150 million would
be lost as a result of not adopting the legislation.
Commissioner Hoffbeck replied in the affirmative, because
there would be a requirement to invest differently. He
stressed that the bill moved the management of the CBR to
the Permanent Fund. He stated that Department of Revenue
(DOR) did not have that flexibility under the current
structure.
Representative Edgmon wondered whether the governor would
veto the PFD full amount in the operating budget, if the
legislature passed the bill.
Commissioner Hoffbeck would not need to veto the budget
immediately. He remarked that the bill would dictate the
PFD payout and there would be excess funds in the PFD
account. The question would be raised the following year to
veto the money from the PFD appropriation amount.
11:24:05 AM
Representative Edgmon stated that even though the bill was
the cornerstone of the fiscal plan; he wondered if the
administration would come back in the following year to
revisit other items to address the budget deficit.
Commissioner Hoffbeck stated there would continue to be a
downward pressure to cut spending. He reported that the
state's reliance on revenues from oil would reduce to 25
percent.
Vice-Chair Saddler asked about the impact of the state's
cost of borrowing with a one downtick in the state's bond
rating.
Commissioner Hoffbeck replied that there would be an impact
and agreed to provide that information.
Co-Chair Thompson remarked that there would be a $150
million bond in the fall. He recalled that the difference
in the bond rating was a cost of approximately $37,000.
Co-Chair Neuman added 1 percent of $150 million was $1.5
million. He furthered that one-quarter of $1.5 million was
$375,000; therefore the effect of delay was $375,000.
Commissioner Hoffbeck shared that the downgrade would
result in 25 basis points issued. He looked at the 2012
Transportation Act, and noted that there was still
approximately $265 million of authorization for general
obligation bonds. He remarked that the downgrade would cost
the state upwards of $6.6 million.
Vice-Chair Saddler understood the CBR had been managed as a
liquid asset. He wondered if the money had been invested
differently, wheat the extra gain would have been.
Commissioner Hoffbeck responded that the Permanent Fund was
returning less than 1 percent currently.
Vice-Chair Saddler wondered what would occur should the
bill not pass, and whether the governor would veto money
from the operating budget.
Commissioner Hoffbeck replied that he could not speak to
the governor's actions. He felt that the governor had made
it clear that he had a duty to have a fiscally sound budget
that was in line with long-term revenue forecasts.
11:30:47 AM
Representative Wilson asked for clarification about the
bonds. She wondered if the bonds were state bonds.
Commissioner Hoffbeck in the affirmative.
Representative Wilson assumed that some bonds belonged to
the municipalities.
Commissioner Hoffbeck replied that she was correct and that
there were other bonds.
Representative Wilson asked if the only way to touch the
corpus of the permanent fund by a vote of the people.
Commissioner Hoffbeck responded in the affirmative.
Representative Wilson asked why the governor would not want
the voters to determine the fate of the PF. She wondered if
the governor had discussed taking a vote to the people.
Commissioner Hoffbeck responded that perhaps it was an
ideological question. The people were expected to be
represented by the legislature.
Representative Wilson stated that the money from the PF
belonged to the people and she thought that the issue
warranted a people's vote.
Commissioner Hoffbeck replied that the current structure
allowed for access to the PFD and the earnings reserve.
Co-Chair Thompson had heard and read that if the
legislature depleted its savings and could not pay its
bills - the federal government could come in and take from
the PF.
Commissioner Hoffbeck replied that, at some level, the
state would not be able to protect the corpus of the fund.
Representative Wilson stressed that government was
receiving their share of the oil money.
11:37:19 AM
Representative Gara stated that one of his problems had
been that the state was not given its fair share of oil
revenues. He wondered if the current bill had the largest
PFD payout.
Commissioner Hoffbeck responded in the affirmative.
Representative Gara surmised that increasing production tax
revenue could reach a $2000 that would increase with
inflation.
Commissioner Hoffbeck replied that the provision would be
inflation-proofed, so there would not be a restriction.
Representative Gara asked about the dividend formulas based
on royalty projections.
Commissioner Hoffbeck replied that it depended more on the
value of the Permanent Fund rather than the price of oil.
Representative Edgmon asked about the downward pressure on
investment. He asked for a statement of the overall
economic health of the state.
11:41:58 AM
Representative Munoz expressed the impact of the
sustainable draw of the PF over time. She remarked that the
CBR savings could extend to seven or eight years. She
stressed that not passing the legislation would take a $3
billion from the CBR in the current and following years.
She also asserted that the legislation was not able to
maintain savings.
Commissioner Hoffbeck stated that she was correct that the
CBR would be totally depleted.
Vice-Chair Saddler asked about some accounting questions.
Commissioner Hoffbeck replied that they were outlays.
Co-Chair Thompson thanked the commissioner for being
available for questions.
11:44:36 AM
AT EASE
11:46:19 AM
RECONVENED
Co-Chair Thompson relayed that all of the fiscal notes were
informational.
11:47:06 AM
Co-Chair Neuman explained that he was a no vote on the
bill. His constituents have expressed their opposition.
However, he felt that the bill should come before the full
body to have the opportunity to vote. He relayed that the
bill was the governor's bill and that the governor had
relayed that the legislature would have to come back, if
they did not pass this bill. He did not believe that the
bill would pass before the full body. The governor would
have to come back with a bill in a special session. He
emphasized the need to continue to reduce government
spending. He noted the $3.2 billion draw on the CBR. The
CBR would be down, and only available for one more draw.
The people had asked for further reductions prior to taking
their dividends.
11:52:09 AM
Co-Chair Neuman continued that his constituents had
expected legislators to make difficult decisions. He
thought there was additional required to fully understand
the impact of the bill. He would be voting to move the bill
out of committee because he felt that the full body should
vote on the bill.
11:53:44 AM
Vice-Chair Saddler emphasized the importance of the current
bill. He would not be voting to move the bill out of
committee. He thought the budget needed to be reduced
further. He did not want to take the chance of putting the
bill on the floor and having it amended in a negative form.
He reviewed many of the cuts he thought could be deeper for
the state overall. He mentioned union salary increases and
the additional money for education. In his district
constituents were in favor of cutting the budget further.
He also thought the legislation was based on fear which he
was unsure was true. He thought it might be a crisis of
convenience. He was concerned what the bill would look like
at the end of the floor session and he did not want to take
that risk. He thought it was the committee's responsibility
to fully amend and correct the bill, and engage in further
conversations.
11:59:06 AM
Representative Edgmon thanked Governor Walker for bringing
a package forward. He thought in looking into the future
that the support might not be looking He thought the
legislature would be faced with using the earnings reserve
in the near future. He thought constituents needed to have
a full say in the situation. He encouraged the
administration to get more public buy in. He stated that in
his district that there was a lot of support for continued
budget reductions. He relayed that it had taken almost a
decade to get the dividend in place, so he did not want to
make any hasty decisions. He thought maybe more work needed
to be done to educate the public. He would be voting to
move the bill out of committee to see the bill on the floor
before the whole body. He would question if the governor
called the legislature back into session on June 22nd. He
knew that everyone around the table wanted to reduce the
budget.
12:04:16 PM
Representative Gattis did not believe the bill was "ready
for prime time." She thought that while people were seeing
teachers get raises, this was not an appropriate time to
take money from the people of the state. She would not be
voting to move the bill out of committee. She spoke of the
difficulty of conveying the fiscal severity the state was
facing. She would be a no vote.
Representative Guttenberg would be voting no to move the
bill out of committee. He thought the budget was too big
but for different reasons. He thought that before asking
people to give up part of their dividends the state should
not be paying out tax credits. He thought it was time to
reevaluate and stop the hemorrhaging by giving out credits.
The benefit of giving out the credits was small and closing
the budget with them was small. He did not feel the policy
call was spreading the burden to all Alaskans in a fair
way. He claimed that his constituents wanted a broad based
solution.
12:10:49 PM
Representative Kawasaki shared many of the same objections
as Representative Guttenberg. He applauded the governor for
the work to balance the budget. He relayed the difficulty
in decreasing the budget by $500 million and also the drop
in the capital budget over the previous two years. There
had been some deep cuts. The state would not be able to
balance the budget with such extreme efforts. He did not
think the bill was comprehensive or fair. He thought the
committee was looking at the most regressive piece of the
fiscal plan. He felt that the dividend cut, which would
impact many jobs. He opined that it was the worst option
that could be done out of the comprehensive budget.
12:16:26 PM
Representative Pruitt stated that it was tough. He equated
the situation to an individual who had been saving all of
their life, and then not having access to those funds. He
thought it would be a huge shift for Alaska. He commented
that once the state put its hand in the cookie jar the
state would not be able to pull its hand out. He provided
an example of a constituent that had lost his job. He
expressed his frustration with being threatened about being
elected. He cared about Alaska. He indicated he had planned
to offer an amendment that would make three changes. He
mentioned not having the ability to have a conversation. He
would be a no vote. He did not believe he had not given the
people the opportunity to weigh in. He did not think
constituents would support the bill. He asked that the
committee's decision through the process be respected
because legislators were closest to the people of Alaska.
12:24:33 PM
Representative Wilson wanted to remind the committee that
they had already done many hard things including Medicaid
reform. There would be other issues that would have to be
addressed. She had heard that the governor would pull the
legislature back in session, if they did not follow his
desires. She thanked the chairman for having additional
public testimony. She did not believe the bill was ready
and she did not have the buy in from her constituents. She
thought much more conversation had to be conducted before
the bill could advance. One of the largest hits to the
economy would be to use the PFD to solve the fiscal
process. She would be returning home to have additional
conversations with her constituents.
12:28:52 PM
Representative Gara would be voting affirmatively to move
the bill from committee. He agreed with his caucus members
that there was more balance needed by changing the credit
structures. He discussed the budget issues facing the
state.
12:32:48 PM
Co-Chair Thompson commended the administration for
attempting to balance the budget with creative efforts.
Co-Chair Neuman MOVED to REPORT HCS CSSB128 (FIN) out of
committee with individual recommendations and the
accompanying fiscal notes.
Representative Wilson OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Munoz, Edgmon, Thompson, Neuman
OPPOSED: Gattis, Guttenberg, Kawasaki, Pruitt, Saddler,
Wilson
The MOTION FAILED (5/6).
HCS CSSB 128(FIN) FAILED to MOVE OUT of committee.
ADJOURNMENT
12:37:03 PM
The meeting was adjourned at 12:37 p.m.
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