Legislature(2001 - 2002)
04/10/2001 08:09 AM House STA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 20 - AID TO MUNICIPALITIES AND OTHERS Number 1902 CHAIR COGHILL announced that the next order of business before the committee would be HOUSE BILL NO. 20, "An Act relating to state aid to municipalities and certain other recipients, and for the village public safety officer program; relating to municipal dividends; relating to the public safety foundation program; and providing for an effective date." REPRESENTATIVE CARL MOSES, Alaska State Legislature, came forward to testify as sponsor of HB 20. He explained that he introduced the bill when it became obvious that the legislature was drastically cutting revenue sharing over the past five years, virtually cutting it to the bone. REPRESENTATIVE MOSES said this would be a major step toward a long-range fiscal plan, and would mesh well with other planned components. It frees up approximately $50 million from the general fund that could be used for other things that the legislature appears to be short funding in the current budget. In repealing the Municipal Assistance and Revenue Sharing programs, it eliminates one of the most contentious annual funding debates. However, it retains the legislative powers of appropriation, providing an annual opportunity to review specific allocations to police, education, fire service, emergency medical services, roads, and health facilities. "If I had my way, it would be just a flat, blank check and let them decide on a local level [how to allocate the money]," he said. REPRESENTATIVE MOSES explained that HB 20 provides $150 per capita per year [to municipalities and others] that could offset local property taxes by providing essential local services. The long-term impact on the PFD is negligible [as the money is drawn from the excess earning of the Permanent Fund after funding permanent fund dividends and inflation-proofing]. Number 1777 REPRESENTATIVE MOSES said that over the past five years, the legislature has, in effect, imposed an indirect tax on constituents. The money has to come from someplace, he noted. "When we cut revenue sharing, they have to come up with some sort of taxes to replace that revenue. That's why I say we indirectly impose taxes." Number 1741 REPRESENTATIVE MOSES said HB 20 also helps protect the permanent fund from Internal Revenue Service taxation, strengthening the permanent fund's public purpose objective by directly supporting local education and public safety. "I maintain we're not out of the woodwork yet as far as the fund being taxed by IRS," he said. "I think that's just a matter of time if we continue just [to] use it for dividends to individuals. I think it's long past due that we start using it for some public purpose, and this to me is an ideal method to do it." Number 1702 CHAIR COGHILL asked if the same bill had not come before the committee last year. REPRESENTATIVE MOSES replied, "It certainly did, Mr. Chairman." Number 1668 REPRESENTATIVE STEVENS asked about the fiscal note. The one he had before him said zero. REPRESENTATIVE MOSES said HB 20 would take approximately $90 million from the surplus earnings of the permanent fund. TIM BENINTENDI, Staff to Representative Moses, Alaska State Legislature, came forward to testify. He explained that the Department of Community and Economic Development and the Permanent Fund Corporation both had submitted zero fiscal notes because they think they can absorb whatever administrative actions would be required within their existing programs. Number 1630 REPRESENTATIVE JAMES commented that with the legislature looking at a long-term plan to meet the financial responsibilities of the state, "I have made a pact ... that I am not going to interfere with that." She said she thinks a long- term plan is going to require changing the way the current dividend is calculated. "We do have to use some of the earnings of the permanent fund," she said. "We do have to have some taxes -- fair, equitable, and broad-based. This particular ...[approach] will protect and keep a dividend of some description over the long period. This does not interfere, in my perspective, with any long-term plan that we might do." She said she would support HB 20. Number 1549 REPRESENTATIVE MOSES agreed wholeheartedly. "We could very well be faced with a billion-dollar deficit in the year 2003," he said, "and it is, I think, very important that we get off our duff and do something about a long-range plan. This will be just one component of it, and it will go a long way toward closing that gap..." Number 1507 REPRESENTATIVE CRAWFORD asked why Section 7 gives specific dollar amounts, such as $20 per person for police protection and $15 per person for Village Public Safety Officers (VPSOs). It seemed to him that over the years, inflation would eat up those amounts. Number 1475 MR. BENINTENDI explained that the breakdown had been picked up from the old Public Safety Foundation program. He said he did not know if the numbers had been adjusted for the re- introduction of HB 20, "but I know those figures were generated to be a supplemental assistance, not to bankroll an entire police force or an entire VPSO operation." REPRESENTATIVE CRAWFORD said he was primarily concerned about the effect of inflation over time. MR. BENINTENDI explained that the mechanism for changing the numbers would be the legislative power of appropriation, which the bill retains. Annually, or as often as it chose to do so, the legislature could look at the inflation factor and adjust the numbers, he said. Number 1406 REPRESENTATIVE WILSON asked if the numbers in Section 7 take population into account. MR. BENINTENDI said it is based on community population and community need. For example, some communities need the VPSOs because they don't have police departments, and vice versa. The money is meant to supplement existing services. He deferred to the Alaska Municipal League to provide the history on that. Number 1340 REPRESENTATIVE WILSON asked if an unincorporated community gets $10,000, and the amount of money is based on the number of people, "does that work out that they're going to have enough money to spread it around?" MR. BENINTENDI explained that the formula would apply only to municipalities. The unincorporated communities would each get $10,000 to allocate as they wished. CHAIR COGHILL said he did not intend to move HB 20 today, but would like Representative Moses to come back for further questions before the committee discussed tapping into the permanent fund earnings. Number 1228 REPRESENTATIVE JAMES volunteered to help in responding to Representative Wilson's concern. "The formula applies and then if it is less than $10,000, they get $10,000 anyway," she explained." Those who qualify for more than $10,000 get the amount determined by the formula. Number 1201 CHAIR COGHILL said the committee is going to be asking what HB 20 would do with regard to the spending gap. Are we increasing it? Are we decreasing it? He asked for an overall picture. REPRESENTATIVE MOSES replied, "It would enable us to take $50 million off [the] budget, approximately." CHAIR COGHILL asked, "About $50 million? That would be the Municipal Grant?" REPRESENTATIVE MOSES clarified, "What's left of [the] Revenue Sharing Municipal grant, etc." CHAIR COGHILL asked, "And it would be about $50 million a year?" REPRESENTATIVE MOSES affirmed, "Yes." Number 1121 JIM KELLY, Director of Communications, Alaska Permanent Fund Corporation, came forward to testify. He referred to a financial analysis the corporation had given the committee on the impacts of HB 20. "As testified by Representative Moses, the diminishment of the [permanent fund] dividend is relatively small, amounting to something like $200 to $250 over ten years," he said. "As an example of how small that is, the market itself seems to be taking away about a third of that amount of money in a single year." He continued: "It does produce something on the order of $80 [million] to $90 million for the municipal dividend at the rate that is written into the bill right now." Number 1050 REPRESENTATIVE CRAWFORD asked Mr. Kelly to explain the effect of going to the "market value approach" he had talked about [in the financial analysis]. MR. KELLY explained: The point of that proposal is to ensure that the permanent fund is protected against inflation permanently. That is accomplished by ensuring that you don't pay out any more from the permanent fund than the real income, that is, the income that is generated in excess of what's needed to be retained to offset inflation. We estimate that that's in the range of $175 [million] to $300 million a year ... over the next ten years. At these levels, that's well within that range, so this would not affect the ability of the fund to be protected against inflation, and it is money that the fund could generate without any difficulty. Number 0967 CHAIR COGHILL observed, "It says here that this would be $150 per dividend recipient. And we would have to figure out people moving in and out of [a] community. Do you anticipate from your perspective any trouble tracking that or would that be from the municipality giving you that information? MR. KELLY replied, "To us it would be a simple formula, just like the dividend formula." He said the Permanent Fund Corporation would write one check a year [for the total amount of the municipal dividend], just as it does now for the permanent fund dividend, and others would figure out how much of it goes to each community. CHAIR COGHILL said it would be up to Representative Moses to make sure that is outlined in HB 20. REPRESENTATIVE WILSON asked, "...so in other words, you might go by the census figures or something...?" Number 0884 MR. BENINTENDI said that there are two things at play. He explained: To determine the pool of money that the municipalities could access, you take ... the number of dividend recipients from the previous year and multiply that times $150, and then that's the amount of money drawn out of the earnings reserve and put in what would be a municipal dividend fund over in ... Commerce and Economic Development. The communities would draw from that pool of money based on population figures. Generally, the U.S. Census [figures]... would be the figures used, "because in a lot of cases, you have communities where there are more people than there are dividend recipients. So the formula is applied to those five or so ... services that we support ... by multiplying the population of the community times the $20 a head for police services or whatever it might be.... And that is spelled out in Section 11 of the bill. Number 0784 REPRESENTATIVE STEVENS said he thinks that currently, or at least until recently, all of the smaller communities were receiving up to $25,000 a year from revenue sharing, so the amount provided by HB 20 would be a substantial reduction. "Am I understanding this right, that you would do away with revenue sharing, and so, in fact, we are reducing the smaller communities from $25,000 to $10,000...?" he asked. MR. BENINTENDI replied, "For the unincorporated communities, the draw is $10,000, and that's what they get now. For small municipalities, there is a minimum set at $25,000; and, actually, that could be $45,000 depending on what their particular requirements under the formula would be." REPRESENTATIVE STEVENS said he knows that smaller communities that are incorporated are totally dependent upon revenue sharing funds to run their municipalities. MR. BENINTENDI said it was one of the sponsor's hopes that this bill might encourage some incorporation. Number 0686 CHAIR COGHILL announced that he was not closing public testimony on HB 20, but wished to allow time that day for the presentation of HB 17. REPRESENTATIVE JAMES asked his intentions regarding HB 200. CHAIR COGHILL said he had prepared a CS for HB 200 that he was going to offer that "took the flag-raising out of it," which he thought was going to require time to discuss. He said he intended to take up HB 200 at a subsequent meeting. [HB 200 was not heard.] Number 0550 KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML), thanked Representatives Moses and James for their work on HB 20, which would create long-term stability for revenue sharing. He said AML thinks HB 20 is a good part of a long- range fiscal plan and also a good stand-alone program. MR. RITCHIE said the individual tax benefits that people receive from this program are substantial and the impact on the permanent fund dividend is much less than the amount of tax relief provided to the state's communities. He said it amounts to an average of $150 of tax relief for every man, woman, and child in the state. That will have a big, long-term impact in terms of stabilizing state and local taxes, he said. Number 0550 MR. RITCHIE said he thinks that under HB 20, the unincorporated communities would go from receiving $3,707 to "$10,000 plus." He explained that because public safety is so important, if there is an emergency medical technician (EMT) or a fire organization that's operating within a Bush community, even if that community is not a municipality, it would get the same support as a department in a municipality. MR. RITCHIE explained that the specific allocations, such as the $20 for fire protection, were the way the program was set up until about 17 years ago. "When the oil money came in, people said, 'Well, that $20 or $10 for police; we don't really need to do that. We'll just trust you. Here's a big chunk of money,'" he said. "And then after that, almost every single year, it [the amount appropriated for revenue sharing] got cut, and the reason was because it's a big pot of money and the public really couldn't identify what it was for. The legislature can't really identify what it's for [except that] it's used in various ways in municipalities." He said he agreed with Representative Moses that it would be nice to give each community a lump sum to be locally apportioned among the eligible services. But he thinks that is why revenue sharing has been getting cut. "That's why the public doesn't really know how this money's being spent and can't identify with it," he said. Re-establishing the specific dollar amounts gives the public a direct accounting, so the citizen is aware that, "Yes, I'm giving up a little bit of my permanent fund dividend ..., but I'm getting $150 worth of tax- free services for my community," and AML thinks the public will think that's a very good thing. Number 0143 CHAIR COGHILL said it was a good point about the tax relief and the cumulative effect this would have. He then asked Representative Moses to bring back to the committee the figures for the various services and how they had been established. He also wanted the committee to discuss whether the allocation of that money should be totally discretionary or "lined out," and said the larger policy issue to be considered is whether the earnings reserve of the permanent fund should be tapped. [HB 20 was heard and held.] TAPE 01-37, SIDE A CHAIR COGHILL said he is reluctant to go into the earnings reserve, but he thinks it is a valuable discussion to have.
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