Legislature(1997 - 1998)
03/11/1997 08:04 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HJR 25 - CONST. AM: PERM. FUND INCOME & DIVIDEND The next order of business to come before the House State Affairs Standing Committee was HJR 25, Proposing amendments to the Constitution of the State of Alaska to guarantee the permanent fund dividend, to provide for inflation-proofing, and to require a vote of the people before spending undistributed income from the earnings reserve of the permanent fund; and relating to the permanent fund. CHAIR JAMES called for a brief at east at 9:46 a.m. CHAIR JAMES called the House State Affairs Standing Committee back to order at 9:48 a.m. CHAIR JAMES called on Representative Alan Austerman, sponsor of HJR 25, to present the resolution. Number 0680 REPRESENTATIVE ALAN AUSTERMAN, Alaska State Legislature, explained that over the last two and one-half years, since he had been a legislator, the first thing out of people's mouth was to leave the dividend alone when discussing a balanced budget. When he tried to explain the parameters of the permanent fund dividend program and how it was set up, the people had a hard time understanding because their dividend was part of the Permanent Fund. "When you mention dividend all they think about is Permanent Fund. And, they don't associate the difference in how the dividend program is set up within the Permanent Fund." Therefore, his frustration, as well as discussions with Senator Lyda Green, author of a similar senate bill, and her staff, he volunteered to introduce a similar bill in the House. REPRESENTATIVE AUSTERMAN explained that HJR 25 proposed amending the state constitution to guarantee the dividend checks to the people of the state. The interest earnings were used three ways: For the paying of the dividend, for inflation proofing and for the undistributed interest earnings. When he talked to people about the original intend of the Permanent Fund, to help balance the budget as oil revenues declined; they said, "Don't touch my dividend program." It was hard to have a good conversation with the people because they assumed one was attacking the dividend program. REPRESENTATIVE AUSTERMAN explained that HJR 25 said inflation proofing and the dividend program could not be touched by the legislature without the vote of the people. Under current statute, the dividend program, inflation proofing and the spending of the undistributed interest earnings were set so that legislators could eliminate the program. Most people thought that they were already protected by a vote of the people. In conclusion, he introduced the resolution to give the people a comfort level and to give them a say in whether the legislators could touch or spend their dividend, the inflation proofing or the undistributed interest earnings. He explained he would introduce a committee substitute to leave the undistributed interest earnings in statute, if it was needed to balance the budget at some point in time, for example. Number 1047 CHAIR JAMES asked Representative Austerman if the permanent fund dividend program was first and then inflation-proofing or did he turn it around? Number 1058 REPRESENTATIVE AUSTERMAN replied it was left exactly the way it was in statute now. The dividend program and how the funds were used were number one. Number 1065 REPRESENTATIVE HODGINS asked to be excused from the meeting. He was chairman of another committee that was starting soon. Number 1078 REPRESENTATIVE VEZEY said he did not hear more about a subject when he was campaigning than the Permanent Fund. Therefore, he moved that HJR 25 move from the committee. CHAIR JAMES agreed with Representative Vezey, but more discussion was needed. She assumed he was being factitious. Number 1105 REPRESENTATIVE DYSON said her assumption was unwarranted. CHAIR JAMES said the resolution did have two more committees of referral. It could be moved out of the committee, if that was the will of the members. Number 1115 REPRESENTATIVE VEZEY moved that HJR 25 move from the committee with individual recommendations and the attached fiscal note(s). Number 1118 REPRESENTATIVE BERKOWITZ objected. He was concerned that the resolution would jeopardize the Permanent Fund, therefore, he would like to hear more about it. "If we vote on it now, we're basically pushing $20 billion out the door without listening to it." CHAIR JAMES said she and Representative Berkowitz would hear it again in the House Judiciary Standing Committee. REPRESENTATIVE BERKOWITZ replied he was just concerned about everyone's political self-interest. "I wouldn't want them to have to go back to their districts and have to hear how they missed the opportunity on protecting the Permanent Fund." Number 1173 REPRESENTATIVE AUSTERMAN said he had anticipated more discussion in this committee. He would prefer that the committee members look at the committee substitute before moving the resolution out of the committee. CHAIR JAMES stated there was not enough time today to move the bill out. It would be scheduled again for Thursday, March 13, 1997. Number 1219 REPRESENTATIVE VEZEY noted, for the record, that Representative Austerman held his own bill up. Number 1231 JIM KELLY, Research and Liaison Officer, Alaska Permanent Fund Corporation, Department of Revenue, was the first person to testify in Juneau. Any decisions on how to use the Permanent Fund income were rightly placed with the legislature and the executive branch, and not with the Board of Trustees. However, there was a connection between distribution policy and investment policy which had evolved over the years. The Permanent Fund had been blessed with some very favorable financial markets for the last decade or so, and as it moved higher and higher into equities it had experienced good volatilities. It had not experienced, however, when equity markets fell dramatically. Therefore, to put a distribution policy into the constitution and to expect it to work for the next 20 years was not correct. The world would be a different place in the next 20 years and the investment markets would perform differently. Therefore, the board would like the opportunity to look at the options and the alternatives available, and even some distribution policies that existed, so that a change would not have any unintended negative consequences. Many of these issues were discussed in the letter from Michael J. O'Leary, Jr., Executive Vice President, Callan Associates, dated March 10, 1997. There was also a letter addressing the concerns of the tax-exempt status of the Permanent Fund and the possible consequences of the resolution. The corporation wanted to help the legislature calculated the income available for distribution and still protect and grow the Permanent Fund principle. "You all hear about the dividend end of it. We spend our time looking at the investment of the principle part." Number 1403 CHAIR JAMES stated that she had the feeling that inflation-proofing should be done first before the dividend. Number 1410 MR. KELLY replied the Board of Trustees had supported that in the past and would probably view it favorably in the future. Number 1416 CHAIR JAMES said that the earnings had been put back in a number of times and that the legislature had made deposits over and above its requirement creating the argument of pre-inflation-proofing. She asked Mr. Kelly if he agreed with the argument? Number 1434 MR. KELLY replied he would not agree with that according to the reading of the statute. The statute required inflation-proofing every year and it spelled out how it would happen. Number 1447 CHAIR JAMES explained there were projections in 1993 that by the time dividends and inflation-proofing were paid there would not be enough for inflation-proofing in the long-haul. She did not quite buy that argument at the time, but there was the potential for that under the current program. MR. KELLY replied that the board's consultant said over a rolling five year period, 21 percent of time there was no real income, zero income. It was not only possible that there would not be money for inflation-proofing, but there might not be money for dividends as well because the distribution policy was based on realized income. There were other ways to do it to minimize the impact, of which, the Board of Trustees continued to look at. He suggested that the legislature look at it as well. Number 1509 CHAIR JAMES explained she was scared of the stock market because she was born one month after the crash in 1929. Therefore, she was very concerned about a crash, despite protections and improved technology. She was pleased with the Board of Trustees and its decisions, however. Number 1587 CHAIR JAMES announced the resolution would be held over to Thursday, March 13, 1997.
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