Legislature(2001 - 2002)
03/13/2001 08:01 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
HB 3-DEPOSITS TO THE PERMANENT FUND Number 0256 CHAIR COGHILL announced the first order of business would be HOUSE BILL NO. 3, "An Act relating to deposits to the Alaska permanent fund from mineral lease rentals, royalties, royalty sale proceeds, net profit shares under AS 38.05.180(f) and (g), federal mineral revenue sharing payments received by the state from mineral leases, and bonuses received by the state from mineral leases, and limiting deposits from those sources to the 25 percent required under art. IX, sec. 15, Constitution of the State of Alaska; and providing for an effective date." Number 0282 JANET SEITZ, Staff to Representative Rokeberg, Alaska State Legislature, sponsor of HB 3, came forward. She called committee members' attention to a workbook provided by Representative Rokeberg concerning the revenue impact of HB 3 on the general fund. The material had been prepared by Chuck Logsden, Chief Petroleum Economist, Department of Revenue. CHAIR COGHILL noted that the information had just been given to committee members, who had not had a chance to study it before the meeting. He asked why the year 2006 was such a significant one for income. Number 0430 CHUCK LOGSDEN, Chief Petroleum Economist, Department of Revenue, testified by teleconference. Two new fields are beginning production and increasing the amount of oil coming from new leases (potentially contributing a greater percentage into the general fund than the old leases do. He stressed that the older fields will continue to dominate production over the next 10-15 years. By 2005, 20 percent of the state's oil royalties would be coming from new leases that could be impacted by HB 3. He stressed that revenue forecasts are very much impacted by the price of oil. MR. LOGSDEN turned his attention to the fiscal note. He pointed out that the amount of revenue coming into the general fund could be anywhere between $25 million and $45 million, depending upon oil prices. MR. LOGSDEN noted that the fiscal note projections extend through 2007. Any production resulting from exploration going on today will not occur until after 2007, and possibly not until 10-12 years from now. Number 0799 CHAIR COGHILL observed, "It really does come down to a policy decision" about whether the legislature wishes to return to the constitutionally mandated 25 percent of oil royalties going into the Permanent Fund or allow the current 50 percent allocation, authorized by statute, to remain in effect. Because HB 3 also will be heard by the House Judiciary and Finance Committees, he said he did not want the State Affairs Committee to scrutinize all the dollars, but to "discover the policy." Number 0888 REPRESENTATIVE JAMES expressed her support for HB 3. She said she was hesitant to support anything short of a long-term revenue plan, "and if we inch our way along, we may never get there." However, she thinks HB 3 is a piece of the larger solution. The state has been taking in less money than it is spending every year, and in the past five years, the legislature has worked very hard to reduce general fund spending and thereby to close that fiscal gap. Yet there is an automatic growth in government every year just to cover cost-of-living pay increases and the growing number of participants that affect formula funding. To close the fiscal gap and maintain the economies that have been achieved, "we have to have a lot of different pieces," she said. REPRESENTATIVE JAMES noted that the principal of the Permanent Fund is untouchable as a source of money; that is constitutionally mandated. But also according to the constitution, the earnings reserve of the Permanent Fund is not untouchable. It is the legislature's prerogative to decide what to do with the earnings reserve. She said it would be better to give that fund a different name because the public perceives the Permanent Fund as all one piece, and so thinks it all should be protected. She noted that the Permanent Fund [principal] has a lot of money in it, providing the state with long-term income from interest earnings. She also thinks it is a good thing to give the people a dividend out of those earnings, "because that gives us the constituency to protect the fund." REPRESENTATIVE JAMES said a long-range fiscal plan will be made up of "a little [from] taxes here and there -- fair ... and equitable taxes across the board ...[so] everyone pays a little -- and also some more reduction ... in the cost of government, [including] maybe even not doing some of the things we're doing." REPRESENTATIVE JAMES noted, "The amount of money that we've been putting into the Permanent Fund over and above the constitutional mandate was made when we were rolling in bucks. We're not rolling in bucks any more." She said it doesn't make a lot of sense to keep putting in more money than is mandated. She thinks HB 3 is an excellent first step that the legislature should take toward long-range fiscal stability. Number 1223 REPRESENTATIVE JAMES moved to report HB 3 out of committee with individual recommendations and the accompanying fiscal notes. Number 1242 REPRESENTATIVE WILSON agreed with Representative James. She observed that the people of the state are used to high income from oil royalties, and "don't believe us when we say that we're in a crunch and that we're having to be very careful about how we budget the finances of the state right now." She cautioned, "When we do something like this [HB 3]..., they're saying, 'See, we aren't in that bad a shape. See, they pulled the money from somewhere and they always do.'" Number 1356 CHAIR COGHILL objected to Representative James's motion for purposes of discussion. Number 1369 REPRESENTATIVE STEVENS concurred that HB 3 was a good first step toward good fiscal management, but he acknowledged that "it is just putting off the day when we have to consider other taxation." Number 1394 REPRESENTATIVE FATE agreed that there is a public perception that Alaska has a lot of money. True, the state has about $21 billion in the principal of the Permanent Fund. But that's protected by the constitution, and the people helped vote that into the constitution, he pointed out. "So we simply don't have that money available," he emphasized. "We have the earnings from that money available, and the earnings simply don't go far enough to run government once you take out the inflation- proofing ...[and] the dividends, [both of] which we want to continue." The state does have a lot of money but it is unavailable and it was made unavailable by the vote of the people. He concluded by voicing support for HB 3. Number 1479 REPRESENTATIVE CRAWFORD said: I feel really pulled because I don't believe that our generation is paying our fair share. We're the only state in the union [in which people do not] pay their share of the cost of government today. We completely fund our government off of non-recurring, one-time revenues. I believe that ... if we pass this bill, we're taking money away from future generations. I believe it's time now for us to realize our responsibilities and use some of our recurring revenues to fund the cost of government, and I believe that this is just a very small step toward [a] long- term fiscal plan and our stepping up to the plate and doing what really needs to be done. I don't concur with this. Number 1547 REPRESENTATIVE JAMES said the numbers tell the story. The fiscal note for HB 3 projects an increase in revenue of about $40 million. "We're anticipating in the budget this year a shortage of somewhere near $400-500 million. If we would yield to all of the demands out there that are reasonable, ... we could raise that deficit from $400-500 million to a billion in a heartbeat. We can anticipate, if we have a broad-based income tax similar to what we had before ..., bringing in somewhere between $400 [million] and $500 million at the most." REPRESENTATIVE JAMES continued: My point is that this $40 million is a very small contribution. This has no effect whatsoever on whether or not we need a broad-based tax, because we're going to need a broad-based tax. We're going to need some more economic development to increase the amount that we can receive from a broad-based tax. We're going to have to use some of the earnings of the Permanent Fund, and we're quite likely going to have to change the way we calculate the Permanent Fund dividend although we can maintain a healthy dividend over the long term. REPRESENTATIVE JAMES reiterated that the potential income from HB 3 is a very little piece of what is needed. Nevertheless, she said, it a piece that should be put in place. Number 1712 CHAIR COGHILL confessed that he struggles with HB 3, which has been called a "no brainer." He is disturbed by the insatiable appetitive of government. "We are a service government; we are a service-delivery government," he stated. "I object to that." Just because there is a need in society, it doesn't necessarily mean that government should step up and fill that need. He thinks government has been too many things to too many people, and the question needs to be asked about whether government should even be doing some of the things it is doing now. Chair Coghill concluded that he is going to vote against HB 3 but he thinks it would be unfair of him as a chairman to hold the bill in committee. Number 1845 CHAIR COGHILL removed his objection to HB 3. There being no further objection, HB 3 was passed out of the House State Affairs Standing Committee.
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