Legislature(2021 - 2022)GRUENBERG 120
04/26/2021 01:00 PM House JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| HB142 | |
| HJR1 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HJR 1 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 142 | TELECONFERENCED | |
HJR 1-CONST AM: PERMANENT FUND; POMV;EARNINGS
1:04:37 PM
CHAIR CLAMAN announced that the final order of business would be
CS FOR SPONSOR SUBSTITUTE FOR HOUSE JOINT RESOLUTION NO. 1(W&M),
"Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund and to appropriations from
the Alaska permanent fund."
1:05:15 PM
REPRESENTATIVE KREISS-TOMKINS, as prime sponsor, presented HJR
1. He said that HJR 1 is a proposed constitutional amendment
that would create a simplified Percent of Market Value (POMV)
framework, combining the Earnings Reserve Account (ERA) and the
principal of the fund, and would create an unbreakable spending
limit on how much the legislature may spend out of the fund in
any single year. He stated that the resolution had been
predicated on several resolutions and statements from the Alaska
Permanent Fund Corporation's (APFC) Board of Trustees and
decades of contemplation of Alaska's fiscal future. He added
that the resolution would be agnostic on the dividend and
suggested that members may speculate on the future of dividends.
He suggested that the passage of HJR 1 would limit the
legislature to balancing the budget either through spending cuts
or revenue increases and would not allow the legislature to
spend down the permanent fund.
1:07:00 PM
CHAIR CLAMAN invited testimony and a presentation by the
Institute of the North.
1:07:25 PM
IAN LAING, Executive Director, Institute of the North, presented
to the committee a PowerPoint, entitled "HJR 1 PowerPoint
Presentation 4.26.2021" [included in the committee packet] and
offered comments on each slide. He explained that the Institute
of the North (the Institute) is a nonpartisan thinktank
established by former Alaska Governor Walter Hickel and was
formed to ensure that shared resources are used for maximum
public benefit. He stated that the mission of the Institute was
reflective of language in the Alaska State Constitution, Article
8. He explained that the Institute has taken an interest in HJR
1 due to its impact on the Alaska Permanent Fund. He encouraged
protection of the permanent fund to avoid raising taxes,
reductions to services, and loss of the dividend.
MR. LAING emphasized two main points [of HJR 1] and lauded the
proposed resolution as good strategy and good public policy. He
added that the permanent fund has existed as a cornerstone of
the state's financial future. He said that the concept of POMV
had existed and been studied for decades but not implemented.
He stated that the Principles and Interests Project, between
1997 and 1998, during which over 100 public meetings of had been
held, the 2004 Conference of Alaskans, and dozens of
endorsements had resulted in the recommendation of the POMV
approach. He added that some version of HJR 1 had been
introduced to the Alaska State Legislature 37 times since the
inception of the permanent fund.
1:12:21 PM
MR. LAING stated that the budget imbalance is the largest issue
facing Alaska. He added that spending had been cut by 40
percent over the last 7 - 8 years and $17 billion had been spent
from savings. He stated that Alaska fiscal policy is uniquely
complex and has presented the legislature with challenges in
closing the fiscal gap. He suggested that, if it remained
acceptable to use savings, then the practice would continue. He
suggested that the state had become an endowment model with 65
to 75 percent of funding from the permanent fund, when,
previously, 90 percent of funding had been from oil revenues.
1:15:49 PM
MR. LAING said that the permanent fund had conducted an analysis
projecting market performance that concluded there existed only
a 50 percent chance that funds would remain available under the
current model, which includes inflation-proofing.
MR. LAING asked the committee to consider the financial prudence
of continued spending from a decreasing fund. He noted that for
every $1 billion drawn from the fund, the fund will be reduced
by $50 million each year in the future. He suggested that, had
the $17 billion drawn from the fund remained [invested], then
the fund would have been producing $850 million. He suggested
that his analysis was an oversimplification of the complex
problem that remains.
1:19:01 PM
MR. LAING suggested that access to the fund and its sub account
are "not ours to spend" and they had been created to convert
nonrenewable resources into renewable wealth. He stated that
the findings of the Principles and Interests Project in 1997 and
1998 were that Alaskans expect the permanent fund to be
permanent and is an inheritance to be passed to future
generations. He stated that, since the inception of the
permanent fund, $150 billion in oil revenue had been generated
and only 13.5 percent of that had been saved for the future.
MR. LAING postulated that the fiscal gap shall be closed, and it
would be a matter of when and how it should be closed. He
suggested that HJR 1 would provide a strategy and policy to
close the gap by providing a deadline. He said that, should HJR
1 pass [the legislature] and pass on the 2022 or 2023 ballot, a
deadline to disallow unstructured spending would be newly
imposed. He suggested that, if a constitutional amendment did
not appear on the ballot, then the next opportunity would not
occur until 2025. He asked the committee to consider the
likelihood of it then becoming necessary to spend down the
permanent fund. He concluded the presentation by reminding the
committee that the passage of constitutional amendments requires
a high degree of consensus.
1:24:34 PM
CHAIR CLAMAN invited testimony from the APFC.
1:25:06 PM
ANGELA RODELL, Chief Executive Officer, Alaska Permanent Fund
Corporation, stated that the APFC Board of Trustees have been on
record for over 20 years supporting a constitutional amendment
to enact a 5 percent POMV draw spending limit and eliminating
the distinction between the earnings reserve account and the
principal of the fund. She said that a POMV structure would
limit the amount allowed to be drawn from the fund and would be
based on an average annual market value over five years. She
suggested that the POMV structure would reduce volatility and
increase the stability of funds available. She added that the
proposed resolution would protect the fund's value through
inflation-proofing and would provide a payout method compatible
with the investment policy and asset allocation strategy of the
fund. She said that in 2000, 2003, and 2004, the APFC board
adopted resolutions in support of a constitutional POMV. She
added that, in 2018, the board endorsed the creation of a legal
framework to ensure the long-term success and sustainability of
the fund, and in 2020, they re-endorsed all of these to
demonstrate its continued support in establishing a single fund
and the POMV draw.
1:27:58 PM
REPRESENTATIVE EASTMAN asked whether the APFC board had
unanimous support of the resolutions mentioned by Ms. Rodell.
MS. RODELL answered that the position of support was unanimous.
1:28:16 PM
REPRESENTATIVE VANCE stated that she had been made aware of
concerns that five percent POMV would be too high for long-term
sustainability and future growth of the fund and asked what
amount Ms. Rodell would recommend.
MS. RODELL stated that the long-term return objective of the
fund, established by the board, is five percent plus Consumer
Price Index (CPI) [increases] to inflation-proof the fund. She
added that the five percent POMV based on a five-year average
would result in an amount less than the nominal amount that
would be calculated on a year-by-year basis, stating that, for
example, the current draw amount is closer to 4.3 or 4.4
percent. She added that, during years of flat growth or loss of
growth, the percentage could increase in which the effective
rate would appear to be 5.1 or 5.2 [POMV] but noted that, over a
number of years, stability would be apparent
REPRESENTATIVE VANCE noted that there had been a large influx of
federal funds [under the COVID-19 pandemic] and expressed her
concern that there might exist hyper-inflation [as a result].
She asked whether the corporation had considered any impact of
such hyper-inflation on investments.
MS. RODELL indicated that, should hyper-inflation occur,
different asset classes would be affected. She stated that
hyper-inflation in the bond market would suppress growth of that
asset class. She added that other asset classes may experience
rapid growth and thus the fund maintains a diversity of asset
classes.
1:31:41 PM
REPRESENTATIVE EASTMAN recalled that the APFC board had endorsed
a 5 percent POMV plus CPI and that the proposed resolution did
not contain that [formula] and asked Ms. Rodell to identify the
differences.
MS. RODELL answered that the long-term investment return
objective was 5 percent real gains plus CPI. She stated that
HJR 1 would pertain to a 5 percent draw and would not include
inflation due to the fact that inflation would be captured in
the market value.
REPRESENTATIVE EASTMAN asked what view the APFC trustees hold on
allowing the legislature to address years of high inflation
separate from the POMV model.
MS. RODELL answered that the POMV model would take into account
averages and create stability whether it included increases or
decreases, and the trustees hold the view of managing the fund
in perpetuity rather than for one budget cycle.
1:34:50 PM
CHAIR CLAMAN stated that a draw consisting of 5 percent POMV,
and an investment strategy consisting of 5 percent POMV plus
inflation, that the size of the fund, if managed correctly,
would adjust for inflation and would always be slightly behind
the investment objectives.
MS. RODELL stated that, in theory, it would be desirable for the
fund to grow in advance of the draws [by including inflation-
proofing in its investment strategy].
1:35:31 PM
REPRESENTATIVE VANCE asked the sponsor to explain the 25 percent
royalty deposit rather than 50 percent, which would align with
statute.
REPRESENTATIVE KREISS-TOMKINS asked to which statute referenced
50 percent royalties.
REPRESENTATIVE VANCE stated her understanding that the state
could deposit up to 50 percent of Department of Natural
Resources royalties [into the fund].
REPRESENTATIVE KREISS-TOMKINS stated that he was unfamiliar with
the statute referred to by Representative Vance, but that the
resolution would compel the legislature to make difficult but
responsible decisions for the long-term. He deferred to the
will of the committee to discuss increases to royalty deposits
or additional resource royalties to be included. He suggested
that additional royalties invested in the fund could result in
short-term shortages but opined that in the long term would be
advantageous.
1:38:01 PM
REPRESENTATIVE VANCE expressed her support of increasing the
royalty deposits above 25 percent so that nonrenewable resources
could be invested for growth. She asked the Institute of North
to offer its viewpoint of an increase to the percentage of
royalties deposited into the fund.
MR. LAING stated that the Institute does not maintain a formal
position [on the question of increased royalties deposited into
the fund] but there had been informal discussions on the matter.
He stated that the predisposition of the Institution is one of
intergenerational equality and postulated that the idea of
saving more nonrenewable revenue into the fund would likely be
supported by the Institute.
1:39:53 PM
REPRESENTATIVE KURKA referred to page 1, line 8 which would
remove the words "only" and "those" in reference to the
legislature being privileged to decide which income was allowed
and asked for the sponsor's thought process that resulted in the
elimination of those words.
REPRESENTATIVE KREISS-TOMKINS deferred the question to
Legislative Legal and Research Services or Legislative Finance
Division and offered his understanding that the change was to
create conformity and not a substantive change.
CHAIR CLAMAN stated that Legislative Legal and Research Services
was responsible for drafting the proposed legislation and
invited their testimony to answer Representative Kurka's
question.
1:41:25 PM
EMILY NAUMAN, Deputy Director, Legislative Legal and Research
Services, Legislative Affairs Agency, answered that the reason
the language had been removed was due to a change from an
earnings draw to that of a POMV model, the income sources would
no longer be [considered as] part of the draw, and the draw
could consist of funds from the ERA or corpus and not from
income.
REPRESENTATIVE KURKA asked for clarification between sources of
revenue compared to revenue going into the fund and how it is
invested. He asked whether the language change would result in
weaker or more limiting to what is eligible for permanent fund
investments.
CHAIR CLAMAN offered a hypothetical example in which the
legislature could instruct the fund to invest in stocks and
bonds but not invest in a savings account, would the language
permit the legislature to [instruct] the fund to invest in
additional [asset classes] and asked Representative Kurka if
this was an accurate restatement of his question.
REPRESENTATIVE KURKA asked whether the removal of the word
"only" would weaken the language or if it was a change only in
the style of language.
MS. NAUMAN stated that she would not interpret the language
differently should those two words be removed. She referred to
the word "shall" on page 1, line 8 as sufficient to be
designated by law and that the change was one of style.
1:45:08 PM
REPRESENTATIVE EASTMAN referred to page 1, line 8 and stated
that there existed a prohibition against using the principal for
things not established in statute. He suggested that the
language is more restrictive to the constitutional language.
1:46:10 PM
CHAIR CLAMAN opened public testimony on HJR 1.
1:46:37 PM
CHARLES MCKEE testified on subjects outside the scope of the
hearing on HJR 1.
1:49:05 PM
CLIFF GROH testified in support of HJR 1. He shared with the
committee that he was a lifelong Alaskan and had been in public
service for more than four decades working in public fiscal
policy. He suggested that the passage of the resolution would
provide only a partial solution and encouraged the passage of
legislation for additional streams of revenue. He offered that
the reason that a resolution of this type had not passed
previously was due to inertia and multiple veto points
established [in the legislative process]. He stated that
spending from the ERA existed to serve short-term interests.
1:51:33 PM
CHAIR CLAMAN closed public testimony on HJR 1.
1:52:16 PM
REPRESENTATIVE EASTMAN asked Ms. Nauman if there existed a
scenario in which HJR 1 was passed by the legislature and not
passed by the voters, or in which a tie vote result occurred,
whether the constitutional amendment could be reintroduced on a
[future] ballot.
REPRESENTATIVE CLAMAN encouraged Ms. Nauman to answer the
question confined to the context of only if the measure did not
pass on the ballot and not to speculate on outcomes in the
result of any tie [votes].
MS. NAUMAN speculated that, should HJR 1 fail on the ballot, it
would be necessary for another resolution to pass the
legislature for it to appear on a future ballot.
1:53:54 PM
REPRESENTATIVE CLAMAN asked, should HJR 1 fail to pass the
legislature, would it be possible to propose legislation worded
identically, or would there need to be a change to the wording.
MS. NAUMAN stated her view that an identically worded resolution
could be proposed.
1:54:22 PM
CHAIR CLAMAN announced that HJR 1 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 1 v. I 4.22.2021.PDF |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM |
HJR 1 |
| HJR 1 Sponsor Statement v. I 4.26.2021.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM |
HJR 1 |
| HJR 1 Sectional Analysis v. I 4.26.2021.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM |
HJR 1 |
| HJR 1 Background - APFC Trustees’ Paper Volume 9 1.15.2020.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM HW&M 4/13/2021 11:30:00 AM HW&M 4/20/2021 11:30:00 AM |
HJR 1 |
| HJR 1 Background - Institute of the North Position Paper.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM HW&M 4/13/2021 11:30:00 AM HW&M 4/20/2021 11:30:00 AM |
HJR 1 |
| HJR 1 Background - APFC Resolution POMV 2020-01.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM HW&M 4/13/2021 11:30:00 AM HW&M 4/20/2021 11:30:00 AM |
HJR 1 |
| HJR 1 Background - APFC Resolution POMV 2004-09.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM HW&M 4/13/2021 11:30:00 AM HW&M 4/20/2021 11:30:00 AM |
HJR 1 |
| HJR 1 Background - APFC Resolution POMV 2003-05.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM HW&M 4/13/2021 11:30:00 AM HW&M 4/20/2021 11:30:00 AM |
HJR 1 |
| HJR 1 Supporting Document - Testimony as of 4.20.2021.pdf |
HJUD 4/26/2021 1:00:00 PM |
HJR 1 |
| HJR 1 Opposing Document - Testimony as of 4.20.2021.pdf |
HJUD 4/26/2021 1:00:00 PM |
HJR 1 |
| HJR 1 Additional Document - APFC POMV Statement.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM HW&M 4/13/2021 11:30:00 AM HW&M 4/20/2021 11:30:00 AM |
HJR 1 |
| HJR 1 Fiscal Note OOG-DOE 4.8.2021.pdf |
HJUD 4/26/2021 1:00:00 PM HJUD 4/30/2021 1:00:00 PM |
HJR 1 |
| HJR 1 PowerPoint Presentation 4.26.2021.pdf |
HJUD 4/26/2021 1:00:00 PM |
HJR 1 |
| HB 142 Blank Work Draft Committee Substitute v. I 4.19.2021.pdf |
HJUD 4/21/2021 1:00:00 PM HJUD 4/26/2021 1:00:00 PM |
HB 142 |
| HB 142 Sponsor Statement v. I 4.21.2021.pdf |
HJUD 4/21/2021 1:00:00 PM HJUD 4/26/2021 1:00:00 PM |
HB 142 |
| HB 142 Sectional Analysis v. I 4.21.2021.pdf |
HJUD 4/21/2021 1:00:00 PM HJUD 4/26/2021 1:00:00 PM |
HB 142 |
| HB 142 Fiscal Note DOR-PFD 4.16.2021.pdf |
HJUD 4/21/2021 1:00:00 PM HJUD 4/26/2021 1:00:00 PM |
HB 142 |