Legislature(2001 - 2002)

05/02/2002 09:05 AM RLS

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                               
REPRESENTATIVE   PORTER   objected,   and  asked   whether   this                                                               
conceptual amendment can  be folded in painlessly or  would it be                                                               
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                                                               
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                                                               

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