Legislature(2001 - 2002)
05/02/2002 09:05 AM RLS
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 304-PERM. FUND INCOME/ DIVIDENDS/ FUNDS CHAIR KOTT announced that the next order of business would be HOUSE BILL NO. 304, "An Act relating to disposition of income of the permanent fund; and providing for an effective date." [The committee had previously reported from committee CSHB 304(RLS), Version X.] Number 1536 REPRESENTATIVE PORTER moved to adopt CSHB 304, Version 22- LS1207\G, Cook, 5/1/02, as the working document. There being no objection, Version G was before the committee. REPRESENTATIVE BILL HUDSON, Alaska State Legislature, explained that Version G incorporates the Alaska Permanent Fund Corporation Board of Trustees' recommendation. Version G changes the method in which the annual distribution on income of the permanent fund [dividend] is calculated to method used by most large managed funds. Therefore, the income would distributed as a percentage of market value (POMV) as opposed to average or annual income, which fluctuates such that one never knows how much will be available to distribute. The POMV also impacts the investment of the basic portfolio. In Version G a POMV of the fund is averaged over five years with an expected average rate of return of 7.95, and 5 percent of those earnings would be available for distribution. In doing so, the annual inflation-proofing of the principle of the entire permanent fund would be around 3 percent. The Board of Trustees recommended the 5 percent payout, and therefore [Version G] statutorily fixes a distribution stream of that 5 percent payout to be 50 percent to the permanent fund dividend program and 50 percent to the general fund (GF). Number 1656 REPRESENTATIVE HUDSON pointed out that the language creates a special education fund and an infrastructure and economic development fund, [both of which] are distributed subject to legislative appropriation on a 30:20 basis. Of the 50 percent that would go to the GF, 30 percent would go into education and 20 percent would go into infrastructure and economic development. The language in [Version G] is always subject to legislative appropriation. Representative Hudson explained that [these two funds] were left in Version G because of the belief that people feel comfortable allowing some of the earnings from the permanent fund to flow to government, although they want to know what that money will be used for, in general terms. REPRESENTATIVE HUDSON continued by explaining that the balance of the bill simply adjusts the Mental Health Trust Fund, which is managed by the Permanent Fund [Division] and the Alaska Science & Technology Fund under the aforementioned income payout method. This has no bearing on the management or use of the funds, which remains in existing statutes. The legislation does retain all of the inflation-proofing dollars in the earnings reserve and thus allows the earnings reserve to grow from about $2.7 billion to in excess of $8 billion. However, since it's all part of the market value, the market value is estimated to grow from the current $24.6 billion to almost $33 billion by 2010. Therefore, with the adoption of Version G, there should almost be the guarantee of economic growth and development of the permanent fund. Representative Hudson opined that [Version G] would guarantee that the permanent fund dividend won't be capped. The permanent fund dividend will grow in proportion to the 50 percent that's available for distribution by the methodology [in Version G]. In the first few years there wouldn't be any significant difference in the amount of dividend that would ordinarily be paid and then the dividend would drop a bit and eventually begin growing in the end years. Representative Hudson related his belief that [Version G] would fill the fiscal gap [by] about half, in conjunction with HB 303. REPRESENTATIVE HUDSON recalled the interim meetings on the fiscal gap during which people seemed to recognize that there is a fiscal gap. The question became in regard to how the gap would be filled in order to avoid the loss of the permanent fund dividend, which is what [Version G] accomplishes. If the legislature fails to take action in a timely manner, the constitutional budget reserve fund will be consumed in between 2-2.5 years and leave the legislature and the governor to either cut the budget by a billion dollars or begin to consume the earnings reserve of the permanent fund which predicates the dividend. Once the money that pays the dividend is utilized, [it is problematic]. In closing, Representative Hudson urged the committee's adoption of Version G. CHAIR KOTT closed public testimony. Number 1877 REPRESENTATIVE BERKOWITZ referred to page 2, line 1, and suggested that the following language be inserted: "The items listed in the municipal dividend program, as contemplated in HB 20, will be part of the 20 percent as well as the cost of administering the permanent fund and the permanent fund dividend program." Representative Berkowitz clarified that his intent is to ensure that the aggregate total payout is no more than 5 percent. REPRESENTATIVE PORTER objected, and asked whether this conceptual amendment can be folded in painlessly or would it be difficult. REPRESENTATIVE BERKOWITZ related Ms. Cook's concern with the contingency of including HB 20 without knowing whether either HB 20 or HB 304 will pass. Ms. Cook also relayed that paying for the corporation [should be] done out of the earnings, which has historically been calculated separately. However, Representative Berkowitz felt that if the choice is to have a 5 percent limitation, it should be absolute and anything for HB 20 should be over and above that 5 percent. REPRESENTATIVE PORTER said that he didn't necessarily disagree. However, he explained that his reluctance is in relation to the lack of knowledge with regard to whether any of these bills [HB 20, HB 303, and HB 304] will pass. He expressed reluctance in striking out on new ground at this point [in the negotiations]. REPRESENTATIVE JOULE asked whether a letter of intent accompanying the legislation would be more appropriate. REPRESENTATIVE PORTER remarked that a letter of intent would be easier to accomplish. REPRESENTATIVE JOULE stated that if it appears that the Senate will allow both pieces of legislation to be part of the negotiations, then that language could be worked into the bill. Number 2077 REPRESENTATIVE BERKOWITZ withdrew his conceptual amendment and moved the letter of intent. There being no objection, the letter of intent was adopted. Number 2094 REPRESENTATIVE PORTER moved to report CSHB 304, Version 22- LS1207\G, Cook, 5/1/02, out of committee with individual recommendations and the accompanying fiscal note and letter of intent. REPRESENTATIVE KOHRING objected. A roll call vote was taken. Representatives Porter, Morgan, McGuire, Berkowitz, Joule, and Kott voted to report Version G from committee. Representative Kohring voted against reporting Version G from committee. Therefore, CSHB 304(2d RLS) was reported out of the House Rules Standing Committee by a vote of 6:1.