Legislature(2003 - 2004)

01/13/2004 08:00 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HJR  3-CONST. AM: PERMANENT FUND                                                                                              
CHAIR WEYHRAUCH  announced that  the next  order of  business was                                                               
HOUSE  JOINT  RESOLUTION  NO.  3,  Proposing  amendments  to  the                                                             
Constitution  of  the State  of  Alaska  relating to  the  Alaska                                                             
permanent fund.                                                                                                               
TAPE 04-03, SIDE A                                                                                                            
9:49 a.m.                                                                                                                       
REPRESENTATIVE HARRY CRAWFORD, Alaska State Legislature, as Co-                                                                 
sponsor, told the  committee that he believes this is  one of the                                                               
most controversial subjects  the legislature will deal  with.  He                                                               
shared that the  permanent fund dividend (PFD)  has benefited his                                                               
family by providing  the funds for the down payment  on the house                                                               
he  lives in,  for his  son to  attend the  University of  Alaska                                                               
Fairbanks,  and  for his  daughter  to  attend school  after  she                                                               
graduates this year.                                                                                                            
REPRESENTATIVE CRAWFORD  offered his belief that  the PFD program                                                               
was  started for  two reasons:    First, to  enlist the  public's                                                               
support   in  protecting   the  fund   itself,  which   has  been                                                               
successful.  Second,  to provide benefits to the  citizens of the                                                               
state, which has  also been very successful.  He  said he sees no                                                               
reason to change  the "payout."  He explained that  if the method                                                               
of payout is  to be changed, it is necessary  to have "buy-in" by                                                               
the citizens of the state.   He told the members that he believes                                                               
the only way to get permission  [to make changes] is to take [the                                                               
issue] before the people  for a vote.  That is what  HJR 3 is all                                                               
about, he said.                                                                                                                 
REPRESENTATIVE  ERIC  CROFT,  Alaska State  Legislature,  as  Co-                                                               
sponsor,  told the  committee that  he had  nothing more  to add,                                                               
because  Representative Crawford  had  spoken  eloquently on  the                                                               
9:51 a.m.                                                                                                                       
CHAIR  WEYHRAUCH  said that  the  public  must realize  that  any                                                               
amendment  to the  constitution must  first pass  the legislature                                                               
and  be voted  on by  the public;  therefore, any  change in  the                                                               
constitutional  scheme dealing  with the  payout of  the dividend                                                               
which affects the constitution has to  be voted on by the public.                                                               
He emphasized  that the  legislature, in  itself, could  not make                                                               
this change.   The same  is true of  the percent of  market value                                                               
[POMV] issue that is being debated.   Any change must be voted on                                                               
by the people, he said.                                                                                                         
REPRESENTATIVE  CRAWFORD explained  that the  only thing  that is                                                               
protected in the  constitution right now is the  principal of the                                                               
permanent fund.   The payout from the earnings  is only protected                                                               
by statute.                                                                                                                     
CHAIR WEYHRAUCH asked  for clarification that the  intent of this                                                               
resolution is to "constitutionalize" the dividend payout.                                                                       
REPRESENTATIVE CROFT replied that is absolutely correct.                                                                        
9:53 a.m.                                                                                                                       
REPRESENTATIVE SEATON  commented that the discussion  of the POMV                                                               
and the issue  of earnings reserve is due to  the fact that there                                                               
is  a conflict  in the  way the  permanent fund  is managed.   He                                                               
explained  that when  the permanent  fund was  first created  the                                                               
investments  were  in  bonds  and   it  was  an  interest-bearing                                                               
account.   There  was a  steady  flow of  interest and  earnings.                                                               
After about  10 years the  permanent fund managers  changed their                                                               
basis  of  investing  in  the fund  to  an  asset-based  account,                                                               
including  investing in  real estate  and stocks.   He  explained                                                               
that [an  asset-based account] doesn't  generate income  until it                                                               
is sold.                                                                                                                        
REPRESENTATIVE SEATON  explained that his  problem with HJR  3 is                                                               
that it  institutes the  old way  that no  longer works  with the                                                               
current  way that  we invest  the permanent  fund.   He clarified                                                               
that  he  does  not  have  a problem  with  having  the  dividend                                                               
secured, rather with  this particular way of doing it.   He asked                                                               
Representative  Crawford to  explain why  the legislature  should                                                               
insert  into the  constitution  an earnings  formula  that is  no                                                               
longer consistent with the way the funds are managed.                                                                           
REPRESENTATIVE  CRAWFORD   responded  that  [HJR  3]   would  not                                                               
preclude  "changing the  way we  deal  with the  fund," but  will                                                               
"protect the way we do a payout."   He stated that he has nothing                                                               
against a  POMV approach as  it relates  to the process  and "the                                                               
way rates deal  with it."  He indicated his  concern is in regard                                                               
to  "what the  ... payout  is  after that."   He  stated that  he                                                               
thinks  there needs  to be  a  vote of  the people  before it  is                                                               
decided whether there will be any earnings that go to the state.                                                                
CHAIR WEYHRAUCH offered his understanding  that there has to be a                                                               
vote of the people, no matter what.                                                                                             
REPRESENTATIVE CRAWFORD  answered that  that applies to  a change                                                               
to the  POMV approach,  which would  be a  constitutional change.                                                               
He reminded the  committee that, currently, there only  has to be                                                               
a  majority vote  in the  legislature to  take money  out of  the                                                               
earnings reserve.   That,  he said,  is the  issue that  is being                                                               
addressed in [HJR 3].                                                                                                           
CHAIR  WEYHRAUCH asked  if  it  wasn't true  that  in the  entire                                                               
history of the earnings reserve,  the legislature has never taken                                                               
money out.                                                                                                                      
REPRESENTATIVE  CRAWFORD said  that's true.   However,  he added,                                                               
"We haven't  gotten to  the point  where we have  no money.   And                                                               
we're  getting   closer  and   closer  to   that  day   when  the                                                               
constitutional budget  reserve runs  out and  we'll be  forced by                                                               
the   courts   to   go  to   the   earnings   reserve   account."                                                               
Representative Crawford said he wants to head that day off.                                                                     
CHAIR  WEYHRAUCH asked  Representative Crawford  to confirm  that                                                               
there is nothing  in [HJR 3] that addresses the  money that would                                                               
go to  the government to  run government programs "when  we reach                                                               
that  so-called rainy  day,"  but only  addresses  the payout  of                                                               
REPRESENTATIVE  CRAWFORD  replied that  [HJR  3  deals] with  the                                                               
payout  from the  earnings reserve  account, whether  it goes  to                                                               
government or to dividends.                                                                                                     
CHAIR WEYHRAUCH questioned whether  this proposal really protects                                                               
dividends if it can go to government as well.                                                                                   
REPRESENTATIVE  CRAWFORD responded  that  [HJR  3] would  protect                                                               
where the payout goes.                                                                                                          
CHAIR WEYHRAUCH said,  "If we stay true to  your philosophic base                                                               
of ensuring that the permanent  fund dividend benefits the people                                                               
who  need it  most  for  ... mortgages,  food,  housing, ...  and                                                               
education, wouldn't  it be best  to ... treat the  permanent fund                                                               
like a true trust, and pass out  the entire value of the trust to                                                               
the people to let them spend it the way they want?"                                                                             
REPRESENTATIVE  CRAWFORD  replied  that that  doesn't  take  into                                                               
account the generations to come.                                                                                                
9:56 a.m.                                                                                                                       
CHAIR WEYHRAUCH suggested  that people right now  can invest that                                                               
[money] for their own generations.   He indicated that that would                                                               
vest the  power of the permanent  fund to the people.   He asked,                                                               
if buy-in is desirable, then wouldn't that be a way to do it?                                                                   
REPRESENTATIVE  CRAWFORD  said  that that  doesn't  address,  for                                                               
example, people who  decide to come live in Alaska  in the future                                                               
and "some that may leave that may take that with them."                                                                         
CHAIR WEYHRAUCH said,  "If you trust the people,  let them invest                                                               
it for their own future generations to come."                                                                                   
REPRESENTATIVE  CRAWFORD noted  again  that there  will be  other                                                               
generations of people  who travel to Alaska [and stay].   He told                                                               
the  committee that  he  moved  to Alaska  for  the pipeline  and                                                               
decided that  Alaska was  the place  that he  wanted to  live and                                                               
raise his family.  He stated  his belief that there will be other                                                               
new Alaskans who find their way to  the state the way he did.  He                                                               
said he does not want to "close that door."                                                                                     
CHAIR WEYHRAUCH remarked,  "When I and many other  people came to                                                               
Alaska, there was no PFD, and we  came to pitch a hand in, rather                                                               
than looking for a handout."                                                                                                    
9:56 a.m.                                                                                                                       
REPRESENTATIVE CRAWFORD told Chair Weyhrauch  that that is a good                                                               
point.   He stated  that he  has never  felt that  the PFD  was a                                                               
handout.  He told the committee  that he receives a small payment                                                               
from ExxonMobil  Corporation about  4 times  a year,  because his                                                               
grandfather owned  40 acres in south  Texas that had oil  and gas                                                               
on it.   Nobody has  ever called  that a handout  from ExxonMobil                                                               
Corporation,  because  it  is  an  inheritance.    Representative                                                               
Crawford stated his  belief that everyone can pitch a  hand in to                                                               
Alaska; the PFD  is the royalty that Alaskans get  from the value                                                               
of [the state's] oil, not a handout.                                                                                            
REPRESENTATIVE CRAWFORD continued:                                                                                              
     Three  quarters of  all the  oil  revenues that  [have]                                                                    
     come into the state  since we established the permanent                                                                    
     fund  went  to  government;  one quarter  went  to  the                                                                    
     people  - for  direct benefit  to  the people.   And  I                                                                    
     don't think  that I want  to be responsible  for taking                                                                    
     ... the people's quarter away,  without ever giving the                                                                    
     people the right to speak on it.                                                                                           
CHAIR  WEYHRAUCH joked,  "I just  wanted  to find  what button  I                                                               
could push  that would get  you ... to  the heart of  what you're                                                               
really after."   He told Representatives Crawford  and Croft that                                                               
the committee  is not through hearing  HJR 3.  He  stated that he                                                               
cannot predict  the chances of  it moving anywhere, but  he would                                                               
give the  co-sponsors the  honor of hearing  it in  committee and                                                               
listening to the public's feelings about it.                                                                                    
[HJR 3 was heard and held.]                                                                                                     

Document Name Date/Time Subjects