Legislature(2007 - 2008)CAPITOL 120
02/04/2008 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HJR28 | |
| HB292 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 292 | TELECONFERENCED | |
| += | HJR 28 | TELECONFERENCED | |
| + | TELECONFERENCED |
HJR 28 - CONST. AM: PRODUCTION TAX REVENUE FUND 1:04:08 PM CHAIR RAMRAS announced that the first order of business would be HOUSE JOINT RESOLUTION NO. 28, Proposing an amendment to the Constitution of the State of Alaska relating to the production tax revenue fund, dedicating a portion of the petroleum production tax to the fund, and limiting appropriations from the fund. 1:04:53 PM REPRESENTATIVE DAHLSTROM moved to adopt the proposed committee substitute (CS) for HJR 28, Version 25-LS1217\E, Cook, 1/29/08, as the work draft. REPRESENTATIVE SAMUELS objected. Speaking as the sponsor of HJR 28, he explained that some of questions raised at the resolution's last hearing are addressed via Version E. Version E of the proposed constitutional amendment requires that production tax revenue be appropriated directly into [what will be a newly created] separate account in the Constitutional Budget Reserve Fund (CBRF) up until January 1, 2015, and allows for voluntary appropriations into that separate account after that date. Version E, specifically proposed subsection (g) located on page 3, now describes which monies shall be placed into the aforementioned separate account and does so without a statutory reference. He announced that should Version E be adopted as the work draft, he would be offering an amendment to specify that monies placed into that separate account be considered "payback" of the [current] debt owed to the CBRF. REPRESENTATIVE SAMUELS mentioned that he still favors establishing a fund completely separate from the CBRF, as the original version of HJR 28 proposes, rather than just creating two separate accounts in the CBRF, as Version E proposes. He noted that under Version E, all of the language being deleted from subsection (a) of Article IX, Section 17, of the Alaska State Constitution, is being inserted into a new subsection (b); this language describes the existing CBRF, and would refer to what would become another separate account. In response to a question, he explained that subsection (g) contains the language stipulating the timeframe during which appropriations of the production tax revenue into the aforementioned separate account shall be mandatory. CHAIR RAMRAS said he is pleased that the proposed constitutional amendment no longer contains a statutory reference. 1:10:15 PM TAMARA COOK, Director, Legislative Legal and Research Services, Legislative Affairs Agency (LAA), speaking as the drafter of HJR 28, said that if the committee decided it did want to establish a separate fund, as the original resolution proposed, a CS could be drafted that doesn't include a statutory reference but that does include a limit regarding how long the legislature would be mandated to appropriate monies into that fund. With regard to how Version E was drafted, she relayed that in subsection (a), she kept only the language that would apply to both of the two separate accounts - language stating that the money will be invested and that the income from each account will be retained separately in each of the accounts. Subsection (b) now contains language creating the separate account that is currently considered to be the CBRF; this language is essentially the language that she removed from subsection (a). Subsections (c), (d), and (e) all deal with the provisions that can be seen in the existing CBRF except that they now refer to and apply only to the account established in subsection (b) rather than to the CBRF as a whole; subsection (e), incidentally, now contains the existing "sweep" language. MS. COOK explained that Section 2 of the proposed constitutional amendment establishes the new account for the production tax revenue and consists of two new subsections; specifically, subsection (f) establishes the account and contains the percent of market value (POMV) payout formula, and subsection (g) addresses which monies get appropriated into that account and specifies the timeframe during which appropriations to the account shall be mandatory. In subsection (g), it is the language on page 3, lines 13-16, that describes production tax revenue without referring to a specific statute, and the last sentence in subsection (g) references Section 7 of Article IX of the Alaska State Constitution - the prohibition against dedicated funds - and ensures that the automatic deposits outlined in this subsection won't be prohibited by another article in the Alaska State Constitution. MS. COOK surmised that the problem with Version E is that it appears to be making drastic changes to the CBRF even though it's just been converted into an account. In response to a question, she said she'd not attempted to give the two accounts separate names, but together they will be known as the CBRF. In response to another question, she said that any money that's still owed to the CBRF [if and when HJR 28's proposed constitutional amendment is approved by the voters] shall be owed only to the account established via subsection (b); all of the provisions that currently apply to the CBRF have been preserved in Version E but, again, will only apply to the account established via subsection (b). REPRESENTATIVE SAMUELS said that one of the reasons he objects to Version E is that establishing two accounts in the CBRF will create confusion. He again said his preference would be to establish a completely separate fund for production tax revenue, and simply include Version E's timeframe for mandated deposits and description of which monies shall go into the fund. 1:18:17 PM REPRESENTATIVE SAMUELS, in response to a question, indicated that he's not yet come up with a name for the account created via subsection (f) - it's a savings account for the state different than the CBRF. CHAIR RAMRAS asked what language would appear on the ballot if HJR 28 passes the legislature, and how would the proposal be described to the public. REPRESENTATIVE SAMUELS, regarding the latter issue, offered, "In very simply terms you could say 'the windfall profits tax are going to a savings account and it becomes an annuity'; ... it's a long-term savings account but you'll never be able to spend the corpus of [it]." MS. COOK, regarding the former issue, indicated that all of the resolution's proposed changes to the Alaska State Constitution would appear on the ballot as they appear in the resolution. REPRESENTATIVE COGHILL surmised that the policy question is whether the legislature wants to set up the proposed separate account and then, if so, how to go about doing so. He observed that it might be better to set up a separate [fund] rather than doing something within the CBRF. REPRESENTATIVE SAMUELS indicated agreement, adding that the public could get distrustful of language that at first glance appears to alter the CBRF. He again relayed the approach he'd prefer to take. REPRESENTATIVE COGHILL said taking out the reference to statute was an important point for him. 1:25:14 PM MS. COOK, in response to questions, indicated that she could draft a CS for HJR 28 that establishes a separate fund, doesn't include a statutory reference, limits how long the legislature would be mandated to appropriate monies into that fund, and wouldn't effect any changes to the existing sweep provision of the existing CBRF - thus precluding any concerns being raised by voters about the sweep provision. Such a CS would look a lot like the original HJR 28 but include the language currently incorporated into subsections (f) and (g) of Version E. She noted that the original version of HJR 28 called the proposed fund the "production tax revenue fund". REPRESENTATIVE COGHILL question whether, under Version E, the two separate accounts would be earning income at different rates. MS. COOK said that although the two accounts would be managed as separate accounts and so could be managed differently, the language currently in the CBRF provision of the Alaska State Constitution requires that the money in the CBRF be invested so as to yield competitive market rates, and in Version E, she'd stipulated that that same requirement would apply to both accounts; she'd also stipulated in the original version of HJR 28 that that same requirement apply to monies in the production tax revenue fund. REPRESENTATIVE COGHILL surmised that putting the language currently in Version E before the voters could result in more questions than easily-given answers. CHAIR RAMRAS expressed a preference for not making conceptual amendments to Version E - he'd rather have a new CS brought before the committee. REPRESENTATIVE SAMUELS agreed, and indicated that the new CS would include the desired provisions Ms. Cook described earlier. He then asked: "On the payout methodology, ... do you want a five-year average looking back on the 4.5 percent rather than just ... one year?" REPRESENTATIVE HOLMES said she too would prefer to have a separate fund rather than having two accounts in the CBRF, and is in favor of the all the aforementioned provisions including a four- or five-year rolling average. REPRESENTATIVE COGHILL, on the issue of a five-year average, noted that mandatory appropriations to the fund will end on January 1, 2015. REPRESENTATIVE SAMUELS pointed out, though, that the fund itself will exist beyond the year 2015 - that's the whole point of it - and so 30 years from now a five-year average could still be used to calculate the payout. 1:32:14 PM JERRY BURNETT, Director, Administrative Services Division, Department of Revenue (DOR), remarked that market volatility can be addressed via some form of "backwards averaging," and suggested that members consider legislation introduced several years ago regarding a POMV calculation for the permanent fund. CHAIR RAMRAS opined that the voting public will find a 5 percent payout easier to understand than a 4.5 percent payout because 5 percent is a whole number. REPRESENTATIVE SAMUELS warned that having a payout of 5 percent increases the risk that the value of the principal will decrease over time; again, the point of establishing this fund is to have long term cash flow. He characterized 4.5 percent as a more conservative number in that regard. REPRESENTATIVE DAHLSTROM acknowledged that sometimes the wording of a ballot measure can create confusion. CHAIR RAMRAS reiterated his belief that a whole number is simpler to understand than a fraction of a number. MR. BURNETT, in response to a question, offered his belief that the language in subsection (f) regarding the proposed payout percentage would allow for an asset allocation that would optimize the return within the constraints of the proposed fund, and mentioned that the commissioner [with advice from an outside consulting firm] would determine the appropriate asset allocation. 1:36:25 PM LAURA ACHEE, Research and Communications Liaison, Alaska Permanent Fund Corporation (APFC), Department of Revenue (DOR), relayed that back when the Board of Trustees of the Alaska Permanent Fund Corporation proposed a POMV payout, it was at 5 percent averaged over the [previous five years] to smooth out market volatility. Such a calculation often works out to about 4.5 percent, she noted, adding that studies illustrate that over time, one gets a little bit more out of a fund long term if the payout is 4 percent versus if the payout is 5 percent. However, if a "smoothing provision" is added into the calculation, then the averaged percentage would be a little bit less than the stated average because of rising movement in the market over the averaged years. REPRESENTATIVE SAMUELS noted that the proposed fund is different than the permanent fund in that there may not be any more appropriations made to it after the year 2015, and so in order for the proposed fund to sustain itself, it will have to rely on an appropriate payout percentage. In response to a question, he offered his understanding that the legislature could start [appropriating] the proposed payout immediately and then do what it wanted to with it, though he acknowledged that transitional language might be needed since a five-year average couldn't be applied for the first four years. In response to comments, he said he would prefer to see the payout [stay in] the proposed fund. 1:40:34 PM MS. COOK, in response to a question, said that as the resolution is currently drafted, in order for the legislature to receive the proposed payout, an appropriation would be required, just as is required of funds from the CBRF. So if the legislature doesn't act to appropriate the payout from the proposed fund, it would just stay there. Also, under the resolution as currently drafted, the amount appropriated from that fund, should the legislature choose to do so, cannot exceed 4.5 percent. CHAIR RAMRAS asked whether the legislature could choose not to appropriate the payout one year and then appropriate two-years' worth of payout the next year. REPRESENTATIVE SAMUELS indicated that it could not; rather, since the payout wasn't appropriated the one year, a larger amount could be appropriated the next year because the appropriation calculation would then be based on a larger principal amount. MS. COOK concurred. CHAIR RAMRAS posited that that could act as an inducement for the legislature to appropriate the payout from the fund every year so as not to lose access to it. REPRESENTATIVE SAMUELS indicated, then, that he would prefer for the payout to go directly into the general fund (GF) every year; then, if the legislature wishes to, it could appropriate the payout back into the proposed fund. MS. COOK observed that it would be easy to draft language that would require the payout to flow directly into the GF without an appropriation. CHAIR RAMRAS expressed favor with that concept. REPRESENTATIVE SAMUELS concurred. MS. COOK asked whether the committee would like the automatic payout to begin later than July 1 of this current fiscal year. CHAIR RAMRAS suggested having the automatic payout start in five years, be no greater than 5 percent, and be based on a five-year average. In response to a comment, he opined that the issue of what oil production and price will be in the next five years is not relevant to the discussion of whether to establish the proposed fund. REPRESENTATIVE SAMUELS argued that it is relevant if the payout is needed to balance the budget before the first five years has elapsed. Five years ago, for example, the price of oil was $20 per barrel and production was at 1 million barrels per day. CHAIR RAMRAS acknowledged that point. MR. BURNETT remarked, "Zero in." 1:46:11 PM REPRESENTATIVE SAMUELS said, "Let's ... have the draft at five and then we can just discuss what the number should be." REPRESENTATIVE DAHLSTROM said it is important to her that the forthcoming CS contain nothing that could be used to abolish the legislature's duty to pay back the CBRF. REPRESENTATIVE SAMUELS indicated that it would not. [HJR 28 was held over with the motion of whether to adopt Version E as the work draft left pending.]
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