Legislature(2003 - 2004)

02/24/2004 08:03 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HJR  3-CONST. AM: PERMANENT FUND                                                                                              
[Contains brief mention of HB 11]                                                                                               
Number 0086                                                                                                                     
CHAIR WEYHRAUCH  announced that the  first 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.                                                                                                                 
Number 0121                                                                                                                     
REPRESENTATIVE  ERIC  CROFT,  Alaska State  Legislature,  as  co-                                                               
sponsor of HJR  3, stated his belief that it's  an important part                                                               
of any fiscal plan to ensure  some substantial dividend.  He said                                                               
he  thinks the  simplest and  most  direct approach  would be  to                                                               
protect  the current  system.   He  indicated  that that  current                                                               
system  has protected  against inflation  over  the prior  fiscal                                                               
year.  He offered to answer questions from the committee.                                                                       
Number 0219                                                                                                                     
REPRESENTATIVE HARRY CRAWFORD, Alaska State Legislature, as co-                                                                 
sponsor of HJR  3, stated that the crux of  the matter is whether                                                               
or not a  person believes that the Alaska Permanent  Fund was set                                                               
up as a  rainy day account for government or  as a permanent fund                                                               
for the people.  He stated his  belief that it is the latter, and                                                               
he  said the  fund  will  help to  sustain  Alaska's economy  for                                                               
generations.  He  noted that [the fund]  has become approximately                                                               
one-eighth of the  state's economy and, outside  the urban areas,                                                               
it's as  much as half  of the economy.   He stated that  the best                                                               
way to protect the fund is  by continuing the dividend program as                                                               
Number 0346                                                                                                                     
CHAIR WEYHRAUCH  observed that although  [HJR 3] would  amend the                                                               
constitution, there has been little  testimony brought forth.  He                                                               
noted  that HJR  3  would amend  Article 9,  Section  15, of  the                                                               
[Alaska State Constitution].   That part of  the constitution was                                                               
adopted  by the  people  and  amended in  1976  to establish  the                                                               
permanent fund.  Article 9, Section 15 read as follows:                                                                         
     SECTION  15.   Alaska Permanent  Fund.At least  twenty-                                                                    
     five per cent of  all mineral lease rentals, royalties,                                                                    
     royalty sale proceeds,  federal mineral revenue sharing                                                                    
     payments  and bonuses  received by  the State  shall be                                                                    
     placed  in a  permanent  fund, the  principal of  which                                                                    
     shall   be  used   only   for  those   income-producing                                                                    
     investments specifically designated  by law as eligible                                                                    
     for  permanent fund  investments. All  income from  the                                                                    
     permanent fund  shall be deposited in  the general fund                                                                    
     unless otherwise provided by law.                                                                                          
CHAIR  WEYHRAUCH  noted  that  HJR   3  would  change  [the  last                                                               
sentence] of that language.  [Page  1, lines 9-13, of HJR 3] read                                                               
as follows:                                                                                                                     
     All income  from the permanent fund  shall be deposited                                                                    
     in  the earnings  reserve  account  and distributed  as                                                                
     provided  for under  AS  37.13.140,  37.13.145, and  AS                                                                
     43.23.025,  as  those statutes  read  on  July 1,  2002                                                                
     [GENERAL FUND UNLESS OTHERWISE PROVIDED BY LAW].                                                                           
CHAIR WEYHRAUCH asked  the co-sponsors to address  the meaning of                                                               
the statutes aforementioned in the proposed language.                                                                           
Number 0500                                                                                                                     
REPRESENTATIVE CROFT responded that  those are the permanent fund                                                               
and inflation-proofing statutes and  the intent of the resolution                                                               
is  to protect  those.   In  response to  a  question from  Chair                                                               
Weyhrauch, he  explained that  the date was  chosen to  "lock in"                                                               
the statutes  as they read  on that date,  so any change  made to                                                               
them later would not effect this language.                                                                                      
Number 0578                                                                                                                     
CHAIR  WEYHRAUCH  directed  attention to  [Section  2,  paragraph                                                               
(1)], which read as follows:                                                                                                    
               (1) AS 37.13.140, 37.13.145, AS 43.23.025,                                                                       
     and  any  provisions  of  law   referred  to  in  those                                                                    
     sections,  remain in  effect as  they read  on July  1,                                                                    
     2002,  unless  they are  amended  or  repealed and  the                                                                    
     amendment or repeal is ratified  by affirmative vote of                                                                    
     at  least sixty  percent  of the  voters  of the  State                                                                    
     voting on the question; and                                                                                                
CHAIR WEYHRAUCH  asked if the  60 percent would change  any other                                                               
voting requirement in the constitution or law.                                                                                  
REPRESENTATIVE CROFT answered as follows:                                                                                       
     If this  constitutional amendment  passed, then  to get                                                                    
     at and change any of  the dividend structure, you would                                                                    
     both   have  to:     under   Section   1,  change   the                                                                    
     constitution and under Section  2, meet this 60-percent                                                                    
     hurdle to change the underlying statute.                                                                                   
CHAIR WEYHRAUCH  asked in  what respect the  60 percent  would be                                                               
different than any other constitutional amendment.                                                                              
REPRESENTATIVE CROFT answered, "Generally,  there's a high burden                                                               
to  put it  before the  people, Mr.  Chairman -  that is,  a two-                                                               
thirds vote  in each  body -  but it's a  50-percent vote  of the                                                               
CHAIR  WEYHRAUCH  asked  for clarification  that  [HJR  3]  would                                                               
increase the  requirement [for  a vote of  the people]  from 50.1                                                               
percent to  60 percent,  in order  to approve  any change  to the                                                               
aforementioned statutes.                                                                                                        
REPRESENTATIVE CROFT said  yes.  He explained  that the structure                                                               
for amending  the constitution  is a  relatively high  burden "to                                                               
get it on"  and a pure majority  "to get it passed."   Section 2,                                                               
he said, would create a system for amending "these statutes."                                                                   
Number 0757                                                                                                                     
CHAIR WEYHRAUCH turned  to [Section 2, paragraph  (2)] which read                                                               
as follows:                                                                                                                     
               (2) money may be appropriated from the                                                                           
     earnings reserve  account only  as authorized  under AS                                                                    
     37.13.145(b) and (c) as those  subsections read on July                                                                    
     1,  2002,  unless  the  appropriation  is  ratified  by                                                                    
     affirmative  vote  of at  least  sixty  percent of  the                                                                    
     voters of the State voting on the question.                                                                                
CHAIR  WEYHRAUCH offered  his understanding  that  the intent  is                                                               
that  the legislature  may appropriate  money  from the  earnings                                                               
reserve account,  but that  appropriation then has  to go  to the                                                               
vote of the people and can only  be approved if 60 percent of the                                                               
people approve it.                                                                                                              
REPRESENTATIVE  CROFT said  that any  excess earnings  left after                                                               
"protecting inflation-proofing  and the dividend structure  as it                                                               
is" could only "be done by a 60 percent vote [of the people]."                                                                  
Number 0851                                                                                                                     
REPRESENTATIVE COGHILL asked  if there is any other  place in the                                                               
constitution where  statutory language  has been adopted  as part                                                               
of the constitution.                                                                                                            
REPRESENTATIVE CROFT answered no.                                                                                               
REPRESENTATIVE COGHILL  said he  remembers some discussion  a few                                                               
months ago that  there is a possibility  under "this formulation"                                                               
that there  could in fact not  be a dividend paid,  "based on the                                                               
way  the  average  is  figured   and  the  amount  available  for                                                               
appropriation."  He asked for clarification.                                                                                    
REPRESENTATIVE CROFT responded that  the ability to pay dividends                                                               
and inflation-proof  depends on having  a healthy balance  in the                                                               
earnings  reserve  fund.   He  said,  "That,  if we  are  prudent                                                               
managers  of  the  money,  should  be fine."    He  continued  as                                                               
     What has happened  in the last two or  three years that                                                                    
     created  that potential  that you're  talking about  is                                                                    
     both record  declines in  the stock  market and  what I                                                                    
     feel  were  imprudent  actions by  the  legislature  in                                                                    
     depositing some of the earning  reserve funds ....  But                                                                    
     if you allow  the earnings reserve balance  to keep the                                                                    
     earnings  reserve as  it should,  and  you protect  the                                                                    
     excess earnings  so that they  are there as  a cushion,                                                                    
     the  projections  I've seen  show  that  it, under  the                                                                    
     market  projection, will  have  enough  and will  grow.                                                                    
     It's only when you take  a substantial amount out - and                                                                    
     that's  why Section  2 is  there  - that  you start  to                                                                    
     threaten that structure.                                                                                                   
Number 1032                                                                                                                     
REPRESENTATIVE  COGHILL said  the  word "imprudent"  spurs him  a                                                               
little bit.   He stated it's also true that  there have been some                                                               
significant prudent  investments into  the fund that  under "this                                                               
specific scenario" wouldn't have been allowed.                                                                                  
REPRESENTATIVE  CROFT stated  that "we"  have, at  various times,                                                               
taken balances in  excess of $3 or $4 billion  and deposited some                                                               
into the principal.  He added,  "I think you're right, and I even                                                               
voted for some  of those."  He classified those  as being on "the                                                               
prudent side  of the line."   Bleeding the earnings  reserve down                                                               
to  just $100  million  during unstable  stock  market times,  he                                                               
opined, is not prudent.                                                                                                         
Number 1100                                                                                                                     
REPRESENTATIVE   COGHILL   said   he  might   even   agree   with                                                               
Representative Croft; however, at this  point, [HJR 3] would take                                                               
the  earnings reserve  "completely off  the table,"  so that  the                                                               
legislature  could  never  again appropriate  from  the  earnings                                                               
reserve account.                                                                                                                
REPRESENTATIVE CROFT  corrected, "Only  with the approval  of the                                                               
people - 60 percent."                                                                                                           
REPRESENTATIVE COGHILL  stated that  although he  understands why                                                               
it's being  [proposed], he does  not agree with  it.  He  said he                                                               
thinks that was  not the original intent of "putting  it in."  He                                                               
revealed that  he is struggling  with "putting this complex  of a                                                               
system in the constitution."                                                                                                    
Number 1264                                                                                                                     
BOB BARTHOLOMEW,  Chief Operating Officer, Alaska  Permanent Fund                                                               
Corporation   (APFC),  Department   of   Revenue,  informed   the                                                               
committee that since  the policy decisions regarding  how the use                                                               
of earnings  are "done" are outside  the purview of the  board of                                                               
trustees, that  board has  taken "the  position of  no position,"                                                               
regarding the proposed legislation.  He continued as follows:                                                                   
     The  only statement  they've made  is  that they  would                                                                    
     recommend, if  we're going to  do something  like that,                                                                    
     to try to  use a method that's compatible  with how the                                                                    
     permanent fund  is invested.   And they have  felt that                                                                    
     there  are some  weaknesses  with  the existing  system                                                                    
     The  statutes  that  are  being   referred  to  in  the                                                                    
     resolution  are basically  the  existing statutes  that                                                                    
     have been in place since  about 1982 that determine how                                                                    
     to calculate  how much is  available, from  a statutory                                                                    
     approach,  annually from  the permanent  fund.   And it                                                                    
     looks at  the realized earnings on  a five-year average                                                                    
     ....  Add that up and roughly take 21 percent of that.                                                                     
     ...  A  second step ... is:   You take the  lesser of a                                                                    
     five-year  average calculation  or the  balance of  the                                                                    
     earnings  reserve and,  whichever  is  less, you  split                                                                    
     that  in half.   One  half goes  to a  transfer to  the                                                                    
     dividend  fund,  so  we would  annually  transfer  that                                                                    
     money out of the permanent  fund over to the Department                                                                    
     of Revenue to pay dividends.                                                                                               
     The  next  step  would be  inflation-proofing  whatever                                                                    
     amount is  necessary to inflation-proof  the principal,                                                                    
     which is  just a  portion of  the fund.   Historically,                                                                    
     it's ranged  from 80-95 percent  of the fund ....   And                                                                    
     then, as Representative Croft  said, there's a residual                                                                    
     or an excess  from that formula, as well  as any amount                                                                    
     that's left  in the  permanent fund,  [which] currently                                                                    
     is  available  for  appropriation by  the  legislature.                                                                    
     And historically,  all they've done with  that money is                                                                    
     either left  it in  the earnings reserve  or reinvested                                                                    
     it  back  into  the  principal.   And  that's  how  the                                                                    
     existing statutes have been working.                                                                                       
Number 1474                                                                                                                     
CHAIR  WEYHRAUCH   referred  to  AS  37.13.140,   37.13.145,  and                                                               
43.23.025.   He asked if  the legislature makes  an appropriation                                                               
to  inflation-proof  the  fund   under  the  authority  of  those                                                               
MR. BARTHOLOMEW answered that's correct.                                                                                        
CHAIR WEYHRAUCH concluded that part  of the inflation-proofing is                                                               
subject  to appropriation  under the  authority of  that statute.                                                               
He  asked if,  as a  result  of passing  [HJR 3],  60 percent  of                                                               
people would have to approve  of inflation-proofing the permanent                                                               
MR.  BARTHOLOMEW  offered  his   understanding  that  Section  2,                                                               
[paragraph (2)] says  money can be appropriated  under the normal                                                               
process for  dividends and inflation  proofing, but  any earnings                                                               
outside of  those two calculations  would trigger  the 60-percent                                                               
vote of the public.                                                                                                             
Number 1550                                                                                                                     
REPRESENTATIVE GRUENBERG  suggested that these would  be the same                                                               
questions  average  voters  would  have when  they  vote  on  the                                                               
measure,  because  unless they  have  these  complex statutes  in                                                               
front of  them and were  intimately familiar with them,  it would                                                               
be tough  for them to  know what  [the effects of]  this proposed                                                               
constitutional  amendment would  be  when they  stepped into  the                                                               
ballot  box.   He  said  he  thinks  that's  a problem  with  the                                                               
[proposed resolution to amend the constitution].                                                                                
Number 1611                                                                                                                     
CHAIR WEYHRAUCH expressed  that there is an  ongoing concern that                                                               
there must  be a  mechanism to ensure  inflation proofing  of the                                                               
fund and  payment of  the dividend.   He  said he  thinks "that's                                                               
what's  really  lurking  underneath   the  introduction  of  this                                                               
resolution."   He  stated that  he would  like to  know, for  the                                                               
record,  what sort  of appropriation  into the  fund, beyond  the                                                               
constitutionally  mandated  appropriation,  the  legislature  has                                                               
made over time, and the value of those appropriations.                                                                          
Number 1665                                                                                                                     
MR. BARTHOLOMEW noted that beginning  in 1981, during the peak of                                                               
the  oil   revenues  coming  into  the   state,  the  legislature                                                               
appropriated approximately $2.5 billion  of general fund revenues                                                               
from  the  general  fund  directly  into  the  principal  of  the                                                               
permanent  fund and,  from  the mid-1980s  until  the year  2000,                                                               
another  $4  billion from  the  earnings  reserve account.    The                                                               
transfers from the general fund  and the earnings reserve account                                                               
totaled $6.8 billion.                                                                                                           
Number 1665                                                                                                                     
REPRESENTATIVE  BERKOWITZ observed  that that  amount was  direct                                                               
deposit.   He  asked what  the  approximate total  would be  when                                                               
factoring in  the amount  of interest that  has been  gained from                                                               
those [transfers].                                                                                                              
MR.  BARTHOLOMEW explained  that some  of the  earnings from  the                                                               
money that  was deposited  early on  is "part  of what  got swept                                                               
later."  He said  it would take some time to  figure out how much                                                               
was principal  and how  much was  earnings; however,  the concept                                                               
[is]  that  the money  that  was  "put  in there"  has  generated                                                               
additional earnings that have either  been paid out as dividends,                                                               
used as inflation-proofing, or reinvested.                                                                                      
Number 1799                                                                                                                     
CHAIR WEYHRAUCH  responded, "Well,  it's a  gross matter  and you                                                               
want to follow your POMV [percent  of market value] approach.  If                                                               
you assumed an 8-percent growth  with a 3-percent inflation rate,                                                               
you're [indisc.]  getting a  5-percent return on  that.   Is that                                                               
Number 1812                                                                                                                     
ROBERT  D.  STORER,  Executive Director,  Alaska  Permanent  Fund                                                               
Corporation (APFC), Department of  Revenue, offered the following                                                               
     Over the  last 15-20 years,  we've actually been  in an                                                                    
     extraordinary bull  market, so our real  rate of return                                                                    
     was not  a "5 percent"  as we  suggest, but it  was 6.3                                                                    
     percent.    One  way  of   looking  to  the  answer  to                                                                    
     Representative  Berkowitz's  question   is  simply  one                                                                    
     third  of the  permanent  fund's  principal is  special                                                                    
     contributions.   So,  that,  in  essence, answers  your                                                                    
     question; that's all extra income  that was retained in                                                                    
     the fund.                                                                                                                  
MR.  STORER, in  response  to a  question  from Chair  Weyhrauch,                                                               
confirmed that  one third  of the  permanent fund's  principal is                                                               
[from] special contributions made by the legislature since 1981.                                                                
CHAIR WEYHRAUCH asked what the  payout has been of permanent fund                                                               
dividends since the inception of that program.                                                                                  
Number 1979                                                                                                                     
MR.  BARTHOLOMEW answered  that from  Fiscal Year  '78 to  Fiscal                                                               
Year  '03, approximately  $12.5  billion have  been  paid out  in                                                               
dividends.    In response  to  a  follow-up question  from  Chair                                                               
Weyhrauch, he  explained that the permanent  fund was established                                                               
in 1978 and the first dividend  was paid out in 1982; [that first                                                               
payout] included  some of  the earnings  from the  earlier years.                                                               
He added  that some general  fund money was  used to pay  out the                                                               
original dividend.   Since then all the dividends  have been paid                                                               
from earnings of the permanent fund.                                                                                            
CHAIR  WEYHRAUCH  asked how  much  has  been deposited  into  the                                                               
permanent   fund,    since   it's   inception,    separate   from                                                               
MR.  BARTHOLOMEW  replied that  the  primary  original source  of                                                               
money into  the fund was  from oil deposits.   He noted  that the                                                               
constitution  requires  that  25  percent of  the  royalty  lease                                                               
revenues  that come  into the  state  for nonrenewable  resources                                                               
goes into the  permanent fund.  He added, "For  a period of time,                                                               
for  about  15  percent  of   the  leases,  that  percentage  was                                                               
increased to 50 percent, and now that's back to 25 percent."                                                                    
CHAIR  WEYHRAUCH offered  his understanding  that HB  11 was  the                                                               
mechanism by  which the change was  made back to 25  percent last                                                               
year.  He asked how long the 50-percent increase was in effect.                                                                 
MR. BARTHOLOMEW said he thinks it was from 1983 through 2003.                                                                   
CHAIR WEYHRAUCH asked Mr. Bartholomew  if he knows what the value                                                               
of that  additional 25  percent was,  in terms  of income  to the                                                               
permanent fund.                                                                                                                 
MR. BARTHOLOMEW answered  he doesn't know, but  he estimated that                                                               
it  would have  been $400  to  $500 million.   In  response to  a                                                               
question  from Chair  Weyhrauch, he  confirmed that  the $400  to                                                               
$500   million  is   separate  from   the  previously   mentioned                                                               
legislative  appropriations;   it's  a   portion  of   the  total                                                               
dedicated mineral  wealth that has  come into the fund,  which as                                                               
of June 30 was $7.7 billion.                                                                                                    
Number 2115                                                                                                                     
REPRESENTATIVE BERKOWITZ asked, "What if  it had been 100 percent                                                               
[of all mineral revenues]?"                                                                                                     
MR. BARTHOLOMEW  answered, "Well,  you would probably  take three                                                               
times what  we've put in there,  because we got 25  percent.  So,                                                               
...  if  you took  it  up  to  100  percent, and  we've  received                                                               
(indisc. -  coughing) billion,  you would  have said  another $21                                                               
billion would be in the permanent  fund."  He clarified, "If $7.7                                                               
billion is  25 percent,  roughly, of  the mineral  revenues we've                                                               
received, if  you'd have  put it  all in  there, there  must have                                                               
been  another  75  percent  of  just  royalty-type  revenues  and                                                               
leases, so I'm saying ... $21 billion - $22 billion."                                                                           
Number 2156                                                                                                                     
MR. STORER  added, "Plus the  income that would have  been earned                                                               
on that contribution."                                                                                                          
REPRESENTATIVE BERKOWITZ  stated, "That's  somewhat akin  to what                                                               
Roger Cremo would  have proposed [in a plan  regarding the Alaska                                                               
Permanent Fund]."                                                                                                               
MR. BARTHOLOMEW responded  that he is vaguely  familiar with [Mr.                                                               
Cremo's] plan, which he said he  thinks had to do with depositing                                                               
all revenues into  a single source and trying  to fund government                                                               
from that.                                                                                                                      
MR. STORER suggested that a crude  rule would be to "multiply the                                                               
entire fund  by that multiple  of three, and you'd  get currently                                                               
the  fund is  $29  billion."   In  response  to  a question  from                                                               
Representative  Berkowitz, he  concurred  that  three times  that                                                               
amount would be $90 [billion].                                                                                                  
Number 2214                                                                                                                     
CHAIR  WEYHRAUCH noted  that  there are  "other  monies that  are                                                               
spent."   He asked how much  other money has been  appropriated -                                                               
over  the course  of  the  permanent fund  -  that  has not  been                                                               
identified in previous testimony.                                                                                               
MR. BARTHOLOMEW responded that when  people talk about money that                                                               
has been spent for other  than dividends, [they are referring to]                                                               
the  following:    "the  hold-harmless,"  dividends  for  certain                                                               
prisoners  that go  to  the Department  of  Corrections, and  the                                                               
operations of  the Permanent Fund  Dividend Division.   He stated                                                               
that all  of those monies  basically come out of  the calculation                                                               
of what  goes to the dividend.   He concluded, "So,  we calculate                                                               
what's available  for the  dividend, we  transfer that  amount to                                                               
the Department  of Revenue, and  those other items  actually come                                                               
out of  the dividend  pool."   He said  there's roughly  a couple                                                               
million  dollars  per   year  that  are  split   up  between  the                                                               
Department of  Revenue, the Department of  Natural Resources, and                                                               
the Department  of Law,  to cover some  of their  operating costs                                                               
related to  the collection of the  oil royalties.  He  said there                                                               
is also the  cost of "the investment management  of the permanent                                                               
fund that funds the corporation."                                                                                               
CHAIR WEYHRAUCH  said, "So, the  permanent fund  dividend payment                                                               
is off the top, essentially."                                                                                                   
MR. BARTHOLOMEW replied:                                                                                                        
     You  do  a calculation  by  statute  of that  five-year                                                                    
     average of earnings.   Half goes to  the dividend fund,                                                                    
     it's called.   Out of the dividend fund  is where those                                                                    
     other expenditures have been funded.                                                                                       
Number 2300                                                                                                                     
REPRESENTATIVE COGHILL  asked, "Would we assume  that formulation                                                               
in  the  constitution,   and  do  we  have  to   get  a  specific                                                               
appropriation authority  to continue  that?   Are we  barred from                                                               
that if we put this in the constitution?"                                                                                       
Number 2322                                                                                                                     
REPRESENTATIVE CROFT responded as follows:                                                                                      
     Are [we] barred from doing  the hold-harmless?  I don't                                                                    
     believe so.   That  question was  asked before,  and we                                                                    
     refer to  the statutes  for that  reason, so  that they                                                                    
     incorporate those ideas.                                                                                                   
REPRESENTATIVE CROFT  said the  rule of thumb  is that  about one                                                               
third   of  the   principal  of   the  fund   is  either   direct                                                               
constitutional   or  statutory   appropriation,   one  third   is                                                               
discretionary, and one third is  inflation-proofing that has been                                                               
done.   He said, "So, to  the extent you were  making that point,                                                               
I'd  conceded that  at least  a third  of the  value of  the fund                                                               
itself   is   by   our  actions   of   the   legislature   adding                                                               
discretionary,  nonrequired deposits."    He said  he would  also                                                               
concede  that "we"  have almost  totally only  used the  fund, to                                                               
date,    for   dividends,    inflation-proofing,   and    special                                                               
appropriations.    That  amount  that has  been  used  for  other                                                               
things, he said,  is almost negligible, and is  always related to                                                               
things related  to the dividend  itself, to the operation  of the                                                               
fund, or to generating the revenue  for the fund.  He opined, "We                                                               
have, to date, been pretty good  managers of the fund, either out                                                               
of fear or out of good government."                                                                                             
REPRESENTATIVE CROFT addressed  Representative Coghill's previous                                                               
question   regarding  whether   discretionary  deposits   to  the                                                               
principal  could be  made "under  this amendment."   He  said, "I                                                               
don't think  so, and I  don't think you'd  have to anymore."   He                                                               
explained  that  the  only   permanent  fund-related  reason  for                                                               
putting money from the earnings  reserve into the principal is to                                                               
take it away from the legislature  so that it can never be spent.                                                               
He  said, "Well,  you've already  got that  protection now."   He                                                               
stated that the purpose of  discretionary deposit is to make sure                                                               
that that money  is not spent at  some later time.   He said, "If                                                               
you didn't have  that fear, you wouldn't put it  in the principal                                                               
to begin with.  By protecting  it [with] another mechanism - this                                                               
'don't spend at 60 percent' -  you wouldn't need to salt it away,                                                               
it is salted."                                                                                                                  
Number 2449                                                                                                                     
REPRESENTATIVE  COGHILL  questioned   if  the  legislature  would                                                               
surrender authority  if it was  barred from changing  the statute                                                               
because "it's  assumed in  the constitution."   He said  that the                                                               
way [HJR  3] is  written, it  seems to  him that  the legislature                                                               
would  even  be  barred  from   making  the  appropriation.    He                                                               
clarified that he needs to know how the mechanics work.                                                                         
REPRESENTATIVE CROFT responded  that it sounds like  an issue for                                                               
the House Judiciary Standing Committee to consider.                                                                             
Number 2517                                                                                                                     
REPRESENTATIVE BERKOWITZ moved  to report HJR 3  out of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
Number 2529                                                                                                                     
REPRESENTATIVE COGHILL objected.                                                                                                
Number 2533                                                                                                                     
REPRESENTATIVE GRUENBERG said that, while  he is undecided on the                                                               
issue,  he   thinks  it's  appropriate   to  move   the  proposed                                                               
resolution to the House Judiciary Standing Committee.                                                                           
Number 2575                                                                                                                     
REPRESENTATIVE HOLM said  he has been quiet, but would  not be so                                                               
quiet in  the House Judiciary  Standing Committee.   He mentioned                                                               
that  he has  another idea  [regarding the  permanent fund].   He                                                               
noted that  one of  the aspects of  [HJR 3] is  that it  makes no                                                               
"definitive  for population  growth."   He  revealed that,  since                                                               
1982, the population has grown  by 200,000 people.  He questioned                                                               
how  the  proposed  resolution  would  impact  the  size  of  the                                                               
[permanent  fund]  dividend in  the  future  when there  is  more                                                               
population  growth.   He said  he  isn't going  to "not  support"                                                               
moving [HJR  3 out  of committee],  but he  said he  wonders what                                                               
would happen  if oil were to  be $9 a  barrel again.  He  said he                                                               
thinks it  was overwhelmingly proven  today that  the legislature                                                               
has, in the  past, been somewhat responsible about  how the money                                                               
is  spent.   Representative Holm  questioned whether  or not  "we                                                               
want to  tie our hands."   He opined that  Representative Coghill                                                               
made  a good  point; putting  statutes in  the constitution  that                                                               
[the  legislature] can't  touch  impinges its  right  to be  good                                                               
legislators and  be responsive to  the needs  of the people.   He                                                               
     Today, when  we're spending $400  or $500  million more                                                                    
     than we've taken in revenue,  how in the dickens do you                                                                    
     propose that  we're going to make  up those shortfalls?                                                                    
     And,  more so  than that,  how  in the  dickens do  you                                                                    
     propose  that we're  going to  have more  money in  for                                                                    
     education?    Where's it  come  from?   You  can't  tax                                                                    
     enough for that.                                                                                                           
Number 2673                                                                                                                     
REPRESENTATIVE LYNN stated his belief  that HJR 3 should be moved                                                               
to  the  next committee  of  referral.    He  said he  thinks  it                                                               
deserves study  and is an important  concept.  He noted  that the                                                               
question is  what to do  with the  permanent fund.   Everybody is                                                               
asking that question, he said.   He stated that the fund needs to                                                               
be preserved, but the fiscal deficit also needs to be addressed.                                                                
Number 2701                                                                                                                     
REPRESENTATIVE COGHILL responded that  he couldn't disagree more.                                                               
He said he thinks [HJR 3]  is bad public policy and that assuming                                                               
statutes  in  the  constitution  is   so  complex  that  for  the                                                               
legislature to revise statutes now  that have been assumed in the                                                               
constitution  is  problematic.     He  indicated  that  he  could                                                               
consider  enshrining   a  constitutional  amendment   that  would                                                               
protect the  dividend, but HJR 3  is cumbersome and complex.   He                                                               
said, "We're going  to put in the constitution  language, such as                                                               
unrealized gains,  and then  we're going to  have to  decide what                                                               
that is  at a  constitutional level."   Net income,  he observed,                                                               
can be  debated in court now  at a whole different  level, so the                                                               
balance   of  the   earnings  reserve   becomes  an   interesting                                                               
discussion, since  "we" have assumed  that it is a  protected and                                                               
growing  entity.   He stated  that  if HJR  3 goes  to the  House                                                               
Judiciary  Standing  Committee, he  will  make  certain that  his                                                               
questions get  asked in that  committee.   Representative Coghill                                                               
reiterated  that he  thinks HJR  3 is  bad public  policy and  he                                                               
stated that he would not vote for it.                                                                                           
Number 2776                                                                                                                     
REPRESENTATIVE BERKOWITZ  noted that  the title  for HJR  3 would                                                               
allow for some  change, because it's a wide-open title.   He said                                                               
he hopes  there is  opportunity to discuss  central changes.   He                                                               
said Representative Holm had pointed  out that this is a spending                                                               
limit,  which Representative  Berkowitz  opined  is the  fiscally                                                               
responsible course for the legislature  to take.  He continued as                                                               
     If  you constrain  the amount  of money  government can                                                                    
     have, it  won't waste money.   And  if you want  to use                                                                    
     money, you have to work hard to  go get it.  So, to the                                                                    
     extent that this  is a spending limit,  I think there's                                                                    
     a lot more consideration than we've seen here.                                                                             
     [It's  a]  question  of intergenerational  equity.    I                                                                    
     mean, we have  been in a generation  that has benefited                                                                    
     from  the dividend.   And  I don't'  think we  ought to                                                                    
     preclude  our  children  and  grandchildren  and  great                                                                    
     grandchildren  from also  enjoying  the  benefits of  a                                                                    
     permanent   fund  dividend   [emphasis   on  the   word                                                                    
REPRESENTATIVE BERKOWITZ remarked that  there's been a great deal                                                               
of focus  in the legislature on  the money that comes  out of the                                                               
permanent fund,  but to some  extent the legislature  has ignored                                                               
the money that goes into the  permanent fund.  He referred to the                                                               
testimony  of [Mr.  Bartholomew  and Mr.  Storer] regarding  what                                                               
would  have happened  if  "we"  had adopted  100  percent of  the                                                               
resource royalty  money and "gone  into the permanent fund."   He                                                               
said  the situation  would have  been  far different  today.   He                                                               
stated that  that seems  to be  a way  of preserving  the state's                                                               
options  in the  future.    He said  he  will personally  promote                                                               
giving that aspect of the permanent fund a much closer look.                                                                    
Number 2888                                                                                                                     
CHAIR WEYHRAUCH stated  that he plans to vote no  on moving HJR 3                                                               
from  committee and  to  vote no  at  "every other  opportunity."                                                               
Notwithstanding  that,  he  stated  that  he  doesn't  want  "the                                                               
people" to  think that he didn't  want this debate to  occur.  He                                                               
said he thinks the permanent fund  belongs to the people and they                                                               
deserve to debate on it.  He  revealed that he did no lobbying on                                                               
the resolution whatsoever, nor did  he impose his opinions on any                                                               
member  of the  committee, but  he thinks  HJR 3  is "one  of the                                                               
worst  kinds of  public policy  decisions this  legislature could                                                               
ever make ...."                                                                                                                 
CHAIR  WEYHRAUCH  said there  has  been  a tremendous  amount  of                                                               
interest in the resolution, not  just at the recent conference in                                                               
Fairbanks where  enshrinement of the dividend  was discussed, but                                                               
also through  thousands of e-mails that  he said he has  tried to                                                               
respond to.  He indicated that  some of the e-mails he's received                                                               
are  offensive  and   "have  no  deference  or   concern  at  all                                                               
[regarding] what  happens to  anyone else in  this state,  or any                                                               
other program in this state."  He continued as follows:                                                                         
     Some  of the  e-mails  and comments  I've received  are                                                                    
     more  principled  and  selfless, and  reflect  a  basic                                                                    
     distrust  of the  legislature's  desire  or ability  to                                                                    
     continue  to   pay  permanent  fund  dividends   or  to                                                                    
     inflation-proof the  fund, or  to protect the  fund for                                                                    
     future generations.  And people  who have sent those e-                                                                    
     mails  believe  that, unless  the  [...  payout of  the                                                                    
     permanent fund  is enshrined  in the  constitution that                                                                    
     the  people will  never get  a permanent  fund dividend                                                                    
     and the  legislature is suspect  and would not  do that                                                                    
     in  the future,  given  the competing  tensions of  the                                                                    
     political process.]                                                                                                        
[Not on tape, but taken from  the Gavel to Gavel recording on the                                                               
Internet, was a major portion of the above bracketed testimony.]                                                                
TAPE 04-21, SIDE B                                                                                                            
Number 2988                                                                                                                     
CHAIR WEYHRAUCH continued as follows:                                                                                           
     I disagree  with that.   If  people have  campaigned on                                                                    
     the  basis of  protecting the  permanent fund  and they                                                                    
     don't    do   that,    their   constituents    have   a                                                                    
     constitutional  right to  vote them  out of  office and                                                                    
     that's what they should do.                                                                                                
     We've heard testimony that far  outweighs the defeat of                                                                    
     this ...  measure than would  urge passage of it.   For                                                                    
     on  thing, the  vagueness  of these  statutes and  what                                                                    
     they mean  and the  implications of  what they  mean to                                                                    
     enshrine  them   in  the  constitution   is  completely                                                                    
     unknown  and unanswered.   That  is  such an  important                                                                    
     role  for this  committee  to play  in  terms of  state                                                                    
     policy decision that there's no  way in good conscience                                                                    
     I can vote this out of committee.                                                                                          
     The  second  thing  that   we've  heard  is  compelling                                                                    
     testimony that  instead of raiding the  permanent fund,                                                                    
     ...  the  legislature,  in   fact,  has  bolstered  the                                                                    
     permanent fund  to the extent  of billions  of dollars.                                                                    
     And instead  of threatening a permanent  fund dividend,                                                                    
     this legislature has done everything  possible to pay a                                                                    
     permanent  fund  dividend.     Instead  of  threatening                                                                    
     future generations with  failure to inflation-proof the                                                                    
     permanent  fund,  this  committee has  heard  testimony                                                                    
     that the  legislature has  done everything  possible to                                                                    
     ensure  the fund  is protected  against the  ravages of                                                                    
CHAIR WEYHRAUCH stated that to allow  40 percent of the people to                                                               
decide  what  the  legislature  should   do  is  tyranny  by  the                                                               
minority.   He  opined that,  "We,  as public  policy makers,  as                                                               
stewards of  the government's trust,  as stewards of  this money,                                                               
have  an absolute  obligation  to protect  this  fund for  future                                                               
generations and to use it for basic state services."                                                                            
CHAIR WEYHRAUCH continued as follows:                                                                                           
     And I'm really glad  that Lieutenant Governor Leman has                                                                    
     passed  out  a constitution  to  every  member of  this                                                                    
     legislature this session, and this  copy that I have is                                                                    
     signed by  John B. "Jack"  Coghill.  And it's  also got                                                                    
     copies  of  every signer  of  the  constitution of  the                                                                    
     State of  Alaska.  And  just for the  public's benefit:                                                                    
     we look  at the declaration  of rights -  civil rights,                                                                    
     freedom of  religion, freedom of speech,  petition, due                                                                    
     process - all  those protect our rights  as citizens in                                                                    
     this  country and  in  this state.    It establishes  a                                                                    
     legislature;  it  establishes  an executive  branch,  a                                                                    
     judiciary,  elections,   a  legislative  apportionment,                                                                    
     health,  education,  and  welfare,  natural  resources,                                                                    
     finance and taxation,  local government, the initiative                                                                    
     referendum   and  recall   process.     All  of   those                                                                    
     provisions  focus  down to  one  article,  and that  is                                                                    
     under  Section 15  of  Article 9,  where  we have  this                                                                    
     Alaska Permanent Fund.   And 25 percent  of all mineral                                                                    
     lease rental  royalties, royalty  sale proceeds  are to                                                                    
     be placed in the permanent  fund.  Instead of violating                                                                    
     that,  what  the  legislature  has  shown  in  historic                                                                    
     actions  is   to  increase  from  25   percent  of  the                                                                    
     constitutional   mandate   to   50  percent,   over   a                                                                    
     substantial period  of time.   That is  not squandering                                                                    
     the people's money; that is  not dispersing it to state                                                                    
     government; that  is not squandering  it on  pork; that                                                                    
     is protecting this fund for future generations.                                                                            
     ...   I'm  seriously worried  about Article  7 of  this                                                                    
     state's constitution:   health, education, and welfare.                                                                    
     We are required to  establish a public education system                                                                    
     in this  state, a state  university system, a  board of                                                                    
     regents,  and, specifically  Section  4  of Article  7,                                                                    
     "the legislature  shall provide  for the  promotion and                                                                    
     protection  of  public  health," and  Section  5,  "the                                                                    
     legislature  shall provide  for public  welfare."   Now                                                                    
     maybe it's those portions that  said we shall establish                                                                    
     a  permanent  fund for  people  to  use for  their  own                                                                    
     benefit.   And  I  benefit from  that  as others  have.                                                                    
     We've  benefited from  the  payment  of permanent  fund                                                                    
     dividends  to the  tune  of billions  of  dollars.   My                                                                    
     children have benefited  from that and I use  it to pay                                                                    
     for  their education.    But  to constitutionalize  the                                                                    
     payment  of a  check  for individuals  and subject  the                                                                    
     appropriation of  any other  money to  40-percent right                                                                    
     to veto  that by  the legislature  is an  abrogation of                                                                    
     our constitutional responsibility.   It's an abrogation                                                                    
     of our right  to address public education.   Nowhere in                                                                    
     this     constitution    do     we    constitutionalize                                                                    
     appropriation.  Nowhere in this  constitution do we say                                                                    
     that people  have a right to  a check.  Nowhere  in any                                                                    
     constitution in  any state  or any  nation have  I ever                                                                    
     seen that  people have a  right to payment of  a check.                                                                    
     And  to say  that people  have a  right to  a permanent                                                                    
     fund  dividend check  and that  ... 40  percent of  the                                                                    
     people have  a right to veto  legislative appropriation                                                                    
     over the  public's right to an  education, to teachers,                                                                    
     to  reasonable-sized classrooms  or  the promotion  and                                                                    
      protection of public health or public welfare, to me                                                                      
     is terrible public policy.                                                                                                 
Number 2697                                                                                                                     
REPRESENTATIVE  BERKOWITZ said  he appreciates  Chair Weyhrauch's                                                               
heartfelt concern  regarding the  schools, and health  and public                                                               
safety.   He  said  that concern  is well  taken,  which is  why,                                                               
during the times when he  has served on the legislature, attempts                                                               
were made to put  funds into those areas.  In  spite of the need,                                                               
he  said, the  request for  those funds  has been  rejected.   He                                                               
stated that  he looks forward  to Chair Weyhrauch's  support this                                                               
year for "our amendments" to  bolster schools, health, and public                                                               
safety.   He said it's  one thing  for the legislature  to gather                                                               
and say, "Cut the budget," but  people who are cutting the budget                                                               
need to  remember that they're  hurting people.  He  added, "And,                                                               
at some point, you've  got to do what you think  is right for the                                                               
public, not just follow a bumper sticker."                                                                                      
CHAIR    WEYHRAUCH     responded,    "If    you     think    that                                                               
constitutionalizing the payment  of a permanent fund  is going to                                                               
help the legislature address the  serious needs of its education,                                                               
then I think that  we better spend a lot more time  in a lot more                                                               
committees, on  a lot  more issues like  this one,  because we're                                                               
not getting it.  The legislature doesn't understand it."                                                                        
Number 2643                                                                                                                     
REPRESENTATIVE  LYNN  stated  that  he thinks  this  is  such  an                                                               
important issue  and the stakes are  so high that people  need to                                                               
"ventilate on  this situation"  in more than  one committee.   He                                                               
noted that  other people feel  the same way that  Chair Weyhrauch                                                               
does.  He stated that he  shares his concerns, but he thinks that                                                               
the people  in the next  committee of  referral need to  have the                                                               
opportunity to say the same thing if they choose to do so.                                                                      
CHAIR WEYHRAUCH clarified that he  had no intention to "kill this                                                               
bill or bottle it  up," which is why he brought it  up for a vote                                                               
of the committee.                                                                                                               
REPRESENTATIVE  LYNN clarified  that  he will  not  be voting  in                                                               
favor of  the resolution, but in  favor of moving it  to the next                                                               
committee for that committee's consideration.                                                                                   
Number 2670                                                                                                                     
A  roll   call  vote  was  taken.     Representatives  Berkowitz,                                                               
Gruenberg, and  Lynn voted  in favor of  HJR 3.   Representatives                                                               
Holm, Coghill, and Weyhrauch voted  against it.  Therefore, HJR 3                                                               
failed to move out of  the House State Affairs Standing Committee                                                               
by a vote of 3-3.                                                                                                               
Number 2540                                                                                                                     
CHAIR  WEYHRAUCH  asked  Representative  Gruenberg  to  move  for                                                               
Number 2550                                                                                                                     
REPRESENTATIVE GRUENBERG said, "Yes."                                                                                           
CHAIR WEYHRAUCH  announced that [HJR  3] would be  brought before                                                               
the committee again at the  next committee meeting when there was                                                               
a full committee.  [HJR 3 was not heard again.]                                                                                 

Document Name Date/Time Subjects