Legislature(2023 - 2024)DAVIS 106
05/08/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Economic Growth | |
| SB107 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 107 | TELECONFERENCED | |
| *+ | HB 190 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
May 8, 2023
6:01 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Jamie Allard
Representative Tom McKay
Representative Kevin McCabe
Representative Andrew Gray
Representative Cliff Groh
MEMBERS ABSENT
Representative Cathy Tilton
OTHER MEMBERS PRESENT
Representative Dan Ortiz
Senator Robert Myers
Senator Mike Shower
Senator Shelley Hughes
Representative Will Stapp
Representative Jesse Sumner
COMMITTEE CALENDAR
PRESENTATION(S): ECONOMIC GROWTH
- HEARD
CS FOR SENATE BILL NO. 107(FIN)
"An Act relating to the Alaska permanent fund; relating to
income of the Alaska permanent fund; relating to the amount
available for appropriation and appropriations from the earnings
reserve account; relating to the permanent fund dividend; and
providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 107
SHORT TITLE: PERMANENT FUND DIVIDEND; POMV SPLIT
SPONSOR(s): FINANCE
03/17/23 (S) READ THE FIRST TIME - REFERRALS
03/17/23 (S) FIN
03/21/23 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/21/23 (S) Heard & Held
03/21/23 (S) MINUTE(FIN)
03/29/23 (S) FIN AT 9:00 AM SENATE FINANCE 532
03/29/23 (S) Heard & Held
03/29/23 (S) MINUTE(FIN)
04/12/23 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/12/23 (S) -- MEETING CANCELED --
04/17/23 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/17/23 (S) Heard & Held
04/17/23 (S) MINUTE(FIN)
04/18/23 (S) FIN AT 9:00 AM SENATE FINANCE 532
04/18/23 (S) Heard & Held
04/18/23 (S) MINUTE(FIN)
04/19/23 (S) FIN AT 1:30 PM SENATE FINANCE 532
04/19/23 (S) Moved CSSB 107(FIN) Out of Committee
04/19/23 (S) MINUTE(FIN)
04/21/23 (S) FIN RPT CS 2DP 3NR 1AM SAME TITLE
04/21/23 (S) DP: HOFFMAN, KIEHL
04/21/23 (S) NR: STEDMAN, MERRICK, BISHOP
04/21/23 (S) AM: OLSON
05/01/23 (S) TRANSMITTED TO (H)
05/01/23 (S) VERSION: CSSB 107(FIN)
05/03/23 (H) READ THE FIRST TIME - REFERRALS
05/03/23 (H) W&M, FIN
05/08/23 (H) W&M AT 6:00 PM DAVIS 106
WITNESS REGISTER
TIM DILLON, Executive Director
Kenai Peninsula Economic Development District
Kenai, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation on
economic growth and the Kenai Peninsula Economic Development
District.
TIM GRUSSENDORF, Staff
Senator Lyman Hoffman
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of the sponsor, the Senate
Finance Standing Committee, of which Senator Hoffman serves as
co-chair, introduced CSSB 107(FIN) and provided information via
slides, including a PowerPoint presentation, titled "Senate Bill
107 Percent of Market Value Split/Permanent Fund Dividend."
ACTION NARRATIVE
6:01:44 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:01 p.m. Representatives McCabe,
McKay, Allard, Groh, Gray, and Carpenter were present at the
call to order.
^PRESENTATION(S): ECONOMIC GROWTH
PRESENTATION(S): ECONOMIC GROWTH
6:02:31 PM
CHAIR CARPENTER announced that the first order of business would
be a presentation on economic growth.
6:03:04 PM
The committee took a brief at-ease.
6:03:54 PM
TIM DILLON, Executive Director, Kenai Peninsula Economic
Development District, provided a PowerPoint presentation on the
Kenai Peninsula Economic Development District (KPEDD). He
displayed slide 2 and slide 3 and discussed KPEDD, which covers
the Kenai Peninsula Borough, which has a population of less than
29,000 people on and off the road system. He stated that KPEDD
is a non-government resource and suggested this is the reason
the organization has been so successful, as it can do things
differently. He stated that it has a 16-member board and 30-
acre facility. Within this are 9 different diverse businesses,
with another 160 around the Kenai area.
6:05:36 PM
MR. DILLON moved to slide 4 and stated that the Kenai Peninsula
has 6 incorporated communities, 31 unincorporated communities,
and 17 Native Tribes and organizations. He stated that KPEDD's
hope is to work with all these communities. He pointed out that
KPEDD has a small staff, with three full-time employees. Moving
to slide 6, he stated that there are 9 Alaska Regional
Development Organizations (ARDORS) across the state, which are
listed on the slide. He added that these do not come with
funding.
6:07:24 PM
MR. DILLON moved to slide 7 and stated that one of the
significant things ARDORS would do is to help communities
address ways to meet federal funding requirements. To do this,
he said, a community must have an economic development strategy
on file with the federal government. He stated that another
significant thing ARDORS would do is connect people and help
businesses be successful as "we try and cut through some of the
red tape." He stated that KPEDD's two websites [listed on slide
22] are very helpful with data and up-to-date information.
6:09:31 PM
MR. DILLON pointed out that there are only four recognized
Economic Development Districts (EDDs) in the state, and they do
not match up with ARDORS. He stated that the four EDDs are
listed on slide 9. He stated that these are multicounty
designations, and KPEDD would help the communities without EDD,
such as addressing federal COVID-19 assistance and setting up
communities with mariculture infrastructure.
MR DILLON, moving to slide 10, said the purpose of the
presentation is to address what the government should do to
assist businesses. He stated that the first suggestion would be
to assist with energy solutions and costs. He reminded the
committee that energy is a business, and all the pieces need to
be investigated.
6:13:08 PM
MR. DILLON pointed out that taxes are another way the government
can assist businesses. He asserted that businesses need to be
able to plan, as it is difficult for large companies looking at
investment and small businesses trying to get a start. He
suggested the key [to understanding taxes] is to come up with a
plan and stick with it for a couple years.
6:15:57 PM
CHAIR CARPENTER, concerning a business plan and the tax
environment, questioned which time frame would stabilize tax for
a business plan.
MR. DILLON responded that this would be around two to three
years.
6:16:38 PM
MR. DILLON stated that the next issue the government needs to
consider is childcare. He suggested that childcare needs rules
and guidelines to work efficiently. When looking at this as a
business, he stated that it is a numbers game, and these small
childcare businesses have a hard time surviving. He stated that
solutions need to be considered, such as mom and pop businesses.
He pointed out one of the problems is the background checks take
too long. He moved to the next slide and issue, which is the
supply chain in Alaska. He advised that this could be looked at
as a positive thing, but planning needs to be done, such as
considering how future needs for individual businesses could be
met locally. He added that the state could help in this aspect.
6:20:19 PM
MR. DILLON moved to the next issue the government needs to
consider, which is the workforce. He stated that the workforce
issue has three important issues which need addressing:
childcare, transportation, and housing. He stated that these
are very important to small businesses, and he suggested that
people need to be taught to partner and share resources instead
of competing. Moving to slide 15, he addressed collateral,
which he suggested the government can help businesses with, as
entrepreneurs do not fit in a "box" with traditional measures
and cannot get funded because of the types of collateral banks
require. He advised that these entrepreneurs are creative, and
they do not get credit for the chances they are willing to take.
6:25:12 PM
MR. DILLON moved to the topic of the permanent fund dividend
(PFD). He again advised that families and individuals need to
be able to plan; however, the subject is a "political football."
He expressed the opinion that a decision needs to be made
because legislation addressing a fiscal plan is not going to
please everybody. Moving to slide 17, he stated that if
government can help by reducing risk, private investment would
increase, and he advised that government should "stay the heck
out of the way."
MR. DILLON, moving from slide 18 to slide 21, pointed out
success stories on the Kenai Peninsula. He stated that KPEDD
has played a huge role in advising people of what the law is, as
opposed to how people want to interpret it. He supplied
examples of businesses which KPEDD helped by keeping the extra
expenses local.
6:31:14 PM
MR. DILLON pointed out that the Kenai Peninsula still has an
influx of people but is no different than other locales in the
state. He continued that the area is fortunate in the way it
has become structured. He pointed out how Kenai Peninsula was
able to receive $40 million of federal CARES Act money. He
concluded by pointing out how, from a marketing standpoint, the
Kenai Peninsula has been able to attract people to the area. He
played an infomercial which was made to attract people to move
to the Kenai Peninsula.
6:34:44 PM
REPRESENTATIVE GRAY referenced Mr. Dillon's comment that
government needs to "stay the heck out of the way." In
contrast, he pointed out Mr. Dillon's comment, per the
workforce, that the three most important factors are childcare,
transportation, and housing. He stated that from the time
students start Pre-K to 18 years old, the government needs to
adequately fund the school system to attract a workforce. For
transportation, the government needs to keep the roads in good
condition, fund the ferry system, and the airports need to be
maintained. He continued that government also needs to be
playing a role in housing. He made the point that government is
required for these three important things.
6:35:46 PM
CHAIR CARPENTER commented that childcare is an issue, with the
question concerning what is standing in the way of solving the
childcare problem.
MR. DILLON interjected that what has happened is things do not
pencil out like they used to. He continued that there is a
restriction on the number of caregivers versus the number of
young people, and this effects the bottom line. The other part
is, since the COVID-19 pandemic, insurance rates have gone up,
and this has affected childcare. He advised that each
community's solutions are different. In response to Chair
Carpenter, he stated that the ratio of caregivers to children he
referred to is a state requirement. He pointed out that from
some of the decisions the state has made, things have become
more difficult.
6:38:22 PM
CHAIR CARPENTER, in regard to financing for business, questioned
the options for small businesses.
MR. DILLON responded that options exist through federal programs
and regular banks. He added that Small Business Development
Centers have a variety of programs. He expressed the opinion
that the difficult part is helping people understand grants are
not the only way. He stated that programs and loans are
available.
6:40:28 PM
CHAIR CARPENTER referred to the comment made about PFD
legislation and the advice that a decision needs to be made. He
questioned the benefit for business concerning this.
MR. DILLON expressed the idea that it is "big" state residents
have a PFD. He expressed the opinion that everybody does not
spend their PFD wisely, but it is their decision. He advised
that either saving it or spending it affects the economy, and
this is positive. He reiterated the concern that people are
trying to plan, but they cannot because the amount of the PFD
makes a difference for families.
6:42:22 PM
REPRESENTATIVE MCCABE suggested that for big families the PFD
can pay for a certain amount of childcare. He questioned how
the PFD effects the communities on the Kenai Peninsula and adds
to the economy.
MR. DILLON responded that this money rolls over several times no
matter how people spend their PFD, because a good amount of
money stays local.
SB 107-PERMANENT FUND DIVIDEND; POMV SPLIT
6:44:11 PM
CHAIR CARPENTER announced that the final order of business would
be CS FOR SENATE BILL NO. 107(FIN), "An Act relating to the
Alaska permanent fund; relating to income of the Alaska
permanent fund; relating to the amount available for
appropriation and appropriations from the earnings reserve
account; relating to the permanent fund dividend; and providing
for an effective date."
6:44:26 PM
The committee took a brief at-ease.
6:44:53 PM
TIM GRUSSENDORF, Staff, Senator Lyman Hoffman, Alaska State
Legislature, on behalf of the sponsor, the Senate Finance
Standing Committee, of which Senator Hoffman serves as co-chair,
introduced CSSB 107(FIN) via a PowerPoint presentation, titled
"Senate Bill 107 Percent of Market Value Split/Permanent Fund
Dividend" [hard copy included in the committee packet]. He
began on slide 2 and explained the purpose of the proposed
legislation, which would be to establish a split for the annual
percent of market value (POMV) draw. The split would be 75
percent for the general fund and 25 percent to pay the permanent
fund dividends (PFDs); however, if certain conditions are met,
it would allow for a 50/50 split option. He added that CSSB
107(FIN) would replace the PFD formula from the 1980s version.
He pointed out on the slide how the Senate Finance Committee has
addressed the topic in the past.
MR. GRUSSENDORF noted that CSSB 107(FIN) would begin setting the
dividend in fiscal year 2025 (FY 25) with a 50/50 POMV split,
which would make the PFD bigger. He continued that if in FY 27,
$1.3 billion of new revenue is confirmed by the Legislative
Finance Division and the commissioner of the Department of
Revenue, and there is $3.5 billion in the constitutional budget
reserve (CBR), six years would be given to raise the new
revenues. If this threshold is not met, the split would be set
at [75/25]. He noted that this six-year period would give three
legislatures and two governors the opportunity to raise revenues
before the 50/50 POMV is timed out.
6:46:42 PM
MR. GRUSSENDORF elaborated further on the second slide. He
stated that the proposed legislation had started out as a
straight [75/25] split with no option for a 50/50 split;
however, some members in both bodies had wanted the 50/50 split.
He explained that the first committee substitute (CS) added a
trigger that when $900 million in new revenue is raised, the
50/50 split would go into effect. The figure of $900 million
came from the governor's 10-year projection. He said that the
current version reflects the Senate Finance Standing Committee's
trigger amount.
6:49:15 PM
MR. GRUSSENDORF moved to slide 3 and pointed out why the
proposed legislation is necessary. He stated that the Permanent
Fund was initially set aside for when oil would no longer be
able to cover all budgetary needs; however, not having a PFD
formula created uncertainty in the budgeting process, and POMV
was passed in part to stabilize the state's revenue. On the
slide it was pointed out that, if the dividend amount is unknown
until late in session, the remaining POMV draw going to the
general fund is also unknown. He advised that without knowing
how much revenue is available, it is difficult to make budgetary
decisions.
6:50:12 PM
MR. GRUSSENDORF moved to slide 4, which continued to address the
question of why the proposed legislation is necessary. He
argued that a PFD based on a percentage of POMV would add
stability to both the budget and the dividend, because POMV is
based on the overall value of the Permanent Fund, which is
relatively stable and predictable. In contrast, the current
statutory dividend formula is based on Permanent Fund earnings,
which are more volatile. He concluded that, if the general fund
portion of the annual POMV payout is what is left after funding
a volatile PFD, all the revenue volatility would be transferred
to the general fund, and this compounds fiscal uncertainty.
6:51:10 PM
MR. GRUSSENDORF, moving to slide 5, addressed the 75/25 split.
He explained that when the state revenue numbers are run, this
would be the healthy position for the percentage split. He
pointed out that the governor's amended budget next year is $433
million in deficit, and this comes before the following: fixing
community assistance with the $30 million; basic deferred
maintenance; any legislative additions to the capital budget;
any adjustment to education funding; and any bills which pass
with fiscal notes. He advised that there are no available
savings to draw from. The only available draw would be from
CBR, which requires a three-quarters vote in the legislature.
He added that this would be difficult to obtain.
6:52:19 PM
MR. GRUSSENDORF, pointing to slide 6, identified other unmet
budget needs. He stated that the Legislative Finance Division
has detailed over $13 billion in current state obligations. He
related a summary of those obligations: $7.1 billion in pension
obligations, $4.4 billion in capital and maintenance needs, and
$1.6 billion in debt service. He drew attention to the full
list of obligations outlined on the slide.
MR. GRUSSENDORF moved to slide 7 and discussed the proposed
legislation, which would establish a 75/25 split with 25 percent
of POMV going to the PFD. It would set a "trigger" to increase
the split to 50/50 if, beginning in 2026, the legislature passes
at least $1.3 billion in new revenue; the CBR balance is at
least $3.5 billion, with new, annually recurring revenue, versus
what was in statute on January 1, 2023; and both the Department
of Revenue and Legislative Finance agree to the 50/50 split.
This provision expires if these conditions do not happen by
2030. He added that the 50/50 would start in FY 27 to follow
the governor's 10-year forecast; however, he added that there
must be $900 million for the governor's budget to pencil out.
6:53:51 PM
MR. GRUSSENDORF moving to slide 8, pointed out that the 75/25
split would be the most stable and balanced scenario. He said
the graph was provided by the Legislative Finance Division and
uses the current baseline budget. He noted that the [75/25]
split does not require a draw from savings and produces a
balanced budget out to FY 32. As this is based on projections,
he stressed that the further out the projection, the less
accurate the estimation would be.
6:54:29 PM
REPRESENTATIVE MCCABE stated he does not see the $1.4 billion
for inflation under the state's obligations and funding needs.
He requested that it be juxtaposed over POMV, which is supposed
to be automatically inflation proof.
MR. GRUSSENDORF expressed uncertainty. He said, "We get a
number to inflation proof and many years we have, and then some
years the legislature has decided to not inflation proof the
Permanent Fund."
REPRESENTATIVE MCCABE maintained that a POMV strategy is
specifically designed to not be inflation proof. He explained
that some years it will earn above the 5 percent used, while
other years it will not. He said that having a 7 percent to 10
percent return on investments would be inflation proof. He
continued that inflation proofing is still being done from the
old statute which directs that the PFD is paid first. Right
now, he argued, double inflation proofing is being done by
adding $1.4 billion to the amount, which does not need to be
added. He questioned his assumptions.
MR. GRUSSENDORF responded that there are different opinions, and
he expressed reserve about saying whether Representative McCabe
is right or wrong. He stated that in some years [the
legislature] has inflation proofed [the state's obligations] and
some years it has not; he expressed the understanding that the
Permanent Fund Corporation prefers [the legislature] to continue
to inflation proof.
6:56:34 PM
REPRESENTATIVE GRAY questioned the six-year expiration date
regarding the 75/25 becoming permanent. He questioned why there
is an expiration date on motivating the legislature to raise
revenue.
MR. GRUSSENDORF answered that originally it was a 10-year
expiration date; however, inflation must be added to the
targeted amount because $1.3 billion today is less than $1.3
billion in 10 years. He continued that $1.3 billion and a
shorter timeframe was chosen so that a mechanism to inflation
proof would not be needed.
REPRESENTATIVE GRAY questioned the selection of $1.3 billion.
MR. GRUSSENDORF replied that the $900 million came from the
governor's 10-year projections. He said the administration used
a 1.5 or 1.75 [percent] rate of inflation going forward, but the
legislature typically uses 2.5 percent. He advised that while
the difference looks small, it becomes a very large difference
over long periods of time, amounting to billions of dollars;
thus, [$1.3 billion was chosen]. In response to a follow-up
question, he explained that the $1.3 billion is part of having a
larger capital budget to potentially keep up with the state's
capital budget, large, deferred infrastructure maintenance, and
increase in the base student allocation (BSA) of $185 million.
6:59:57 PM
REPRESENTATIVE GRAY expressed difficulty in understanding how
the $1.3 billion was calculated. He speculated that this was
put into the bill indefinitely so the incentive to generate
additional revenue would never be taken off the legislature. He
posited that $900 million, with the two additions, may not be a
good calculation in 10 years and may not be the best way to
calculate the "trigger."
MR. GRUSSENDORF answered that he would follow up with the
committee on this determination. He said numbers were put into
these models, with an additional $700 million in state spending
for the deferred maintenance, capital budget, and BSA increase.
This model, he continued, keeps the state in good financial
position until 2032 when money would be drawn from CBR.
7:01:32 PM
REPRESENTATIVE GROH expressed the understanding that the
proposed legislation would essentially set an on/off switch for
the 50/50 POMV draw for the PFD. He asked how much
consideration was given by the Senate to a stairstep mode, where
each $200 million increment generated would add an extra 5
percent to the POMV draw, and subsequently to the PFD. He
speculated that instead of a 25 percent or 50 percent split,
there would be a 25, 30, 35, 40, or 45 percent split.
MR. GRUSSENDORF replied that some of the Senate's past proposals
did have stairsteps. He said CSSB 107(FIN) does not go this
route because it would take two years until the 50/50 split
would start. He related the Senate had expressed hope that
within these two years there would be new revenue and CBR would
be at $3.5 billion. Before 2018, he recounted, draws of
billions of dollars were being taken from CBR. He advised that
a major step under Senate Bill 26, [passed during the Thirtieth
Alaska State Legislature], put POMV in place, using the earnings
reserve of the Permanent Fund. He expressed the opinion that
now other steps must come.
7:04:39 PM
MR. GRUSSENDORF, in response to a follow-up question, responded
that the stairstep system has been tried and could be done if it
is passed through the legislature.
REPRESENTATIVE GROH suggested that an incremental "carrot" would
help the state generate additional revenues, which could pay for
such things as deferred maintenance, BSA, and the PFD. He
expressed surprised that a stairstep system has not come from
the Senate.
MR. GRUSSENDORF expressed the understanding that the reason a
stairstep system is not in the bill is because of concern over
the low amount in the state's savings accounts. He advised that
time is needed to rejuvenate these accounts, returning the state
to solid fiscal standing. He explained that, if a stairstep
system is used, the state's savings would need to be at a
certain level, creating the insurance that each dollar of new
revenue would not be put in a dividend. He urged that the
state's savings goals need to be reached, so the state could
survive for a year or more if oil prices go down and the markets
crash at the same time.
7:07:01 PM
REPRESENTATIVE MCCABE stated that 75 percent of the revenue has
already been spent by the state government; moreover, what is
being talked about is the remaining 25 percent of revenue, and
normally this would be split 50/50 between the government and
the PFD. The discussion now, he argued, is government taking 75
percent and the people taking 25 percent.
MR. GRUSSENDORF expressed the opinion that this is one
perspective. He continued that there will be a problem until
the budget is balanced and a level of revenue can be maintained
to run the state. He pointed out that the state's budgets have
not grown for years, and both parties and different groups have
had the chance to impact this, except for the Department of
Corrections. He related that the state's agency budgets have
been flat, and there has been backlash. For example, he pointed
out the Supplemental Nutrition Assistance Program (SNAP), which
has been called a "dumpster fire." He advised that every year
something unplanned takes a big portion of revenue from the
budget, such as wildfires or floods. He expressed the
importance of meeting these needs when they arise. In response
to a follow-up question, he stated that a 50/50 split would not
be paid this year. He explained that currently the House
supports a 50/50 split while the Senate supports a [75/25]
split, and these differences will need to be worked out.
7:10:16 PM
REPRESENTATIVE GRAY expressed support for the stairstep
approach. He suggested that adopting this policy would bring
down the PFD if [the desired] amount of revenue is not
generated. He said that a formula would be created to allow the
split to go up or down. For example, if $1.3 billion is
reached, the split would be 50/50; however, if only $700 billion
is reached, then the split could be 60/40. He expressed the
opinion that residents of the state want something which can be
counted on, and they want to know the legislature is not
haphazardly deciding the dividend amount every year. He
expressed support for a formula incentivizing revenue
production. He continued that if the legislature fails at
creating revenue production, lowering the dividend would be the
consequence. He questioned whether this is something the Senate
would support.
MR. GRUSSENDORF expressed uncertainty. He said the preferred
outcome is for the House to make a decision and send this to the
conference committee. In response to a follow-up question, he
stated that the proposed bill is not by any one senator but
sponsored by the Senate Finance Standing Committee. He
commented that this committee is very diverse, with two of the
senators having the poorest districts in the state. He
expressed the understanding that these senators would support a
50/50 dividend, but they also want something which meets the
constitution and balances the budget. He added that the Senate
Finance Standing Committee vote had been split on some of these
items.
7:13:59 PM
CHAIR CARPENTER discussed the governor's budget and noted that
the PFD is already established; however, the budget identified
$900 million in new revenue without a recommendation for a cut
of $900 million to the PFD. He asked whether an analysis was
done between drawing $900 million from the dividend or drawing
$900 million from a new tax. He further asked why the Senate,
through this 75/25 split, chose $900 million.
MR. GRUSSENDORF responded that the question would have to be
asked of the Senate Finance Standing Committee because this was
a policy decision on the committee's part. He stated that he is
only speaking on behalf of the committee and not part of the
discussions.
7:15:40 PM
MR. GRUSSENDORF moved to three separate PowerPoint slides [hard
copy included in the committee packet], which reviewed the POMV
split 23/75 model. He addressed slides 1 and 2 which read as
follows [original punctuation provided with some formatting
changes]:
"A Review of the Committee Modelling Assumptions"
Revenue Assumptions
• LFD's baseline revenue assumptions are the Department
of Revenue's Spring Revenue Forecast.
- This assumes $73 oil in FY24, following futures market
thereafter.
- DNR [Department of Natural Resources] oil production
forecast projects that Alaska North Slope production
will increase from 496.4 thousand barrels per day in
FY24 to 542.9 thousand barrels per day in FY 32.
• For the Permanent Fund, we are using the February 2023
History and Projections update, which assumes a total
return of 7.00% in FY 23 and 7.05 percent in FY24 and
beyond. For statutory net income, this update uses a
blend of actuals and the low case for FY23 and a 6.90
percent statutory return assumption in FY 24 and
beyond.
Review of Senate Finance Committee Modeling
Assumptions (cont.)
Spending Assumptions
• For agency operations, the first model assumes the
Governors amended budget including amendments through
3/7 grows with inflation (2.50 percent). Other models
assume the House committee Substitute grows with
inflation (2.50 percent).
• For statewide items, assumes that all items are funded
to their statutory levels in FY24 and beyond.
- This includes School Debt Reimbursement, the REAA
Fund, Community Assistance, oil and gas tax credits.
• For the capital budget, assumes a $400 700 million
capital budget in FY24, growing with inflation
thereafter (2.50 percent).
• For supplementals assumes $50.0 million per year. This
is based on the average amount of supplemental
appropriations minus lapsing funds each year.
MR. GRUSSENDORF elaborated on the basic assumptions used in this
modeling, with $700 million in additional capital budget and K-
12 spending. He said $185 million of the $700 million would be
for BSA, leaving around $500 million for the capital budget,
which would be $100 million more than recent assumptions. He
offered his understanding that the extra $100 million would be
for the deferred maintenance backlog, because $50 million or
less a year would not keep up with the problems.
7:16:51 PM
MR. GRUSSENDORF continued to slide 3, which showed two graphs of
the Senate Finance Standing Committee's baseline budget model.
He explained that this model has no new revenues and has the
[75/25] split. He pointed out that in FY 27 and FY 28, small
CBR draws would be taken, and by the end of the projected period
there are unplanned draws from the earnings reserve. He
speculated that, if care is not taken, even with this the state
could end up in the same situation it is in today.
CHAIR CARPENTER asked whether the 2.5 percent growth in spending
which is used in the model is an inflationary number.
MR. GRUSSENDORF answered yes and stated that the Legislative
Finance Division uses 2.5 percent for inflation going forward to
keep up with increasing costs.
CHAIR CARPENTER noted that the state only has three sources of
revenue; therefore, one of those three sources would have to
keep up with [inflation]. If new revenue from new business was
to come into the state, he questioned whether CBR draws would
still be needed under this model.
MR. GRUSSENDORF related the understanding that if [the Willow
Project], or any other oil project, came on in the out years, a
CBR draw would not be needed.
CHAIR CARPENTER posed a scenario of new non-oil businesses
coming into Alaska, generating new tax revenue. He questioned
the amount of tax revenue needed to impact this model.
MR. GRUSSENDORF responded that business tax could include timber
and mining. He agreed that if industry grows, the state will
collect more tax from these industries. He explained that this
model has no new revenue included on any level, and the graph is
based on the projections of earnings from the Permanent Fund and
oil.
7:20:11 PM
MR. GRUSSENDORF returned to the final slide of the PowerPoint
titled "Senate Bill 107 Percent of Market Value Split/Permanent
Fund Dividend," which addressed that the 75/25 split would be
the most stable and balanced scenario. He related that the
graph depicts the straightforward [75/25 split] with no new
revenue and current spending. He commented that this would not
require draws from CBR.
MR. GRUSSENDORF moved to a different set of slides referred to
as "SB 107 POMV split Misc. back up" on BASIS [hard copy
included in the committee packet], which addressed the
unrestricted general fund. He pointed out on slide 1 that in
the current fiscal year the administration [estimates] that it
would have $300 million in new revenues; in the following year
another $500 million [is predicted]; in FY 26 there is $750
million [predicted]; and in FY 27 the $900 million goal would be
reached. He pointed out that FY 27 is the last year of the
current administration, and the question has been whether a
50/50 could be reached by this time. He drew attention to the
bottom left of the slide and said that without the targeted new
revenue, the 10-year outlook would eliminate the reserves by FY
2027, jeopardize the PFD, and require significant reduction in
public services. With the targeted new revenue, he put forth
that the 10-year outlook would maintain a healthy CBR balance,
provide a full statutory dividend, and provide for conservative
growth in services and service levels. If the concern is that
new revenue needs to be generated, he advised, it is up to the
two bodies to determine where the money would come from.
7:22:59 PM
CHAIR CARPENTER, to maintain state services and a robust PFD
program, stated that the 10-year outlook depicted on the slide
highlights the need for new revenue; however, the proposal is
for a reduced PFD and $1.3 billion in new revenue. He asked how
the governor would achieve the plan which would maintain a
robust PFD and $900 million in revenue. He questioned why this
is not a better plan than what is being presented, which is a
smaller PFD and more revenue.
MR. GRUSSENDORF answered that he has not seen the proposal from
the administration which has more revenue.
CHAIR CARPENTER responded that there are tax proposals in the
legislature, so he does not need something from the
administration. He said CSSB 170(FIN) proposes a 75/25 split,
with 25 percent of the Permanent Fund earnings going to the
dividend program. This would equate to an eventual need for
$1.3 billion in tax revenue. He continued that the governor's
plan would require $900 million in revenue, with a 50/50 split,
which would possibly be a statutory dividend. He questioned the
disparity between a plan which seems to work with $900 million
in revenue and the plan in the proposed legislation which would
require much more revenue and a lower PFD.
MR. GRUSSENDORF replied that for this chart the inflation rate
is much lower. He suggested that for it to pencil out in the
out years, it will need to be larger than $900 million. He said
both bodies are trying to come up with a solution, and the House
can put forward whatever proposal it wants. If this body comes
up with a better way which pencils out, he continued, then both
bodies can have this discussion in conference committee.
7:25:37 PM
REPRESENTATIVE ALLARD noted Mr. Grussendorf is presenting the
bill by himself and asked if a senator will be supporting him.
MR. GRUSSENDORF responded that most of the time he presents
bills alone.
7:26:04 PM
MR. GRUSSENDORF, responding to Representative Groh, stated that
the graphic on the slide came from an Office of Budget and
Management (OMB) presentation earlier in the year.
REPRESENTATIVE GROH recalled that the graphic uses an inflation
rate of 1.5 percent per year, and this would lead to lower
budget growth. He pointed out that the Legislative Finance
Division has been using a 2.5 percent assumed inflation rate,
and in recent weeks the administration has been using 2.5
percent in its presentations. He asked whether it is accurate
to say that the difference between the assumed 1.5 percent and
2.5 percent inflation rates would help explain that a lower
assumed inflation rate would equate to a lower budget in the
future, as more money would be left in the system for the large
dividends being discussed.
MR. GRUSSENDORF concurred and pointed out this is why [the
governor's budget] uses a different inflation rate when first
putting out the budgets, and it typically leaves out several
things, such as community assistance, which the legislature must
add back in, and deferred maintenance of infrastructure, which
needs help.
7:28:35 PM
CHAIR CARPENTER interjected with the opinion that the state's
economy needs help, and "that's what drives the whole train."
7:28:46 PM
REPRESENTATIVE MCCABE inquired about the return rate on CBR.
MR. GRUSSENDORF deferred to the Legislative Finance Division to
provide an answer.
REPRESENTATIVE MCCABE surmised the return would be less than
inflation. He expressed the understanding that it would be a
policy call and a certain amount must be kept liquid. He
expressed the idea that it would be a waste of a resource to
leave this amount of money in the account making a small amount
of interest.
7:29:45 PM
MR. GRUSSENDORF displayed a slide, titled "UGF Budget Changes,
FY23 to FY24 $ Nominal." He said the chart on the slide depicts
the state's finances through multiple administrations, starting
with the Twenty-Nineth Alaska State Legislature and Governor
Walker. He related that over the last four to five years, the
operating budget inflation has remained relatively level on
spending, with reductions in many agencies, although some
agencies have grown, such as the Department of Corrections. As
far as agency operations, he continued, the state has maintained
steady spending. There could be more efficiencies, he allowed,
but making major cuts to account for a billion dollars would
eliminate an agency or many of its duties.
7:31:13 PM
MR. GRUSSENDORF, moving to the next slide, he explained this was
put forth by Senator Click Bishop to identify the capital budget
estimates going forward and how a $500 million to $600 million
capital budget per year is justified. It also addresses how
some of these items could be brought up to speed.
7:32:22 PM
REPRESENTATIVE MCCABE asked whether the state constitution says
the capital budget is to be one-third.
MR. GRUSSENDORF expressed uncertainty concerning the one-third
amount and stated that it is a relatively large part and a level
which has not always been maintained. He related that the
Legislative Finance Division has provided some reasons for why
this level has not been an issue in the past. He deferred to
the Legislative Finance Division to further answer the question.
7:33:20 PM
REPRESENTATIVE GROH noted there are philosophical differences in
various tax proposals, for example: the broad-based taxes versus
increased oil taxes versus reduced PFDs. Concerning the
decision-making process, he questioned whether the ease of
getting money from the dividend compared to the process of
increasing taxes is a determining factor.
MR. GRUSSENDORF responded that some senators along with some
representatives have different philosophies on this, and the
dividend is just one piece of the puzzle. He said raising taxes
on just one industry could be considered an "easy grab" too. He
expressed the hope that the two bodies can each put something
together and come out of the conference committee with a plan
the governor can sign for putting the state on solid fiscal
ground going forward. He said the plan should allow the
residents of the state to know what type of revenue is available
and what can be completed during the session in an orderly
manner. He expressed the opinion that passing POMV in 2018 was
a big step in stabilizing the state's revenues and added the
proposed legislation would be another step.
7:36:56 PM
CHAIR CARPENTER opined that the growth of the economy is just
another piece of the puzzle, as it would be integrated into the
solution the legislature must find. He asked, in the Senate
Finance Standing Committee's opinion, whether the growth of the
economy is the one thing which would help solve the existing PFD
problem.
MR. GRUSSENDORF answered that this is a piece and the beginning
of the discussion. He stated that he cannot speak for the
Senate. He advised that no matter the PFD amount, the goal is
it should pencil out and keep the state on good fiscal footing.
He indicated that Senate Bill 26 died under its own weight
because the mechanisms in the bill were too complicated, and the
only thing which passed out was POMV. He advised that things
must be pieced together, and he expressed the difficulty in
doing this in one piece of legislation.
CHAIR CARPENTER expressed the goal to solve the problem of
fighting over the PFD. He asked whether CSSB 107(FIN) would get
closer.
MR. GRUSSENDORF expressed the understanding that many members of
the Senate would like a 50/50 POMV split, but it must pencil out
so a balanced budget can be passed.
CHAIR CARPENTER posed a scenario of oil prices dropping in FY
25, causing the state to be in desperate need of revenue. He
surmised that the legislature would have to ignore this bill and
take more of Permanent Fund earnings to cover the deficit. In
other words, he expressed the opinion that the bill would not
solve the problem.
MR. GRUSSENDORF, in response, confirmed that the legislature
would be able to do this, as well as other things, such as going
under the earnings reserve or overdrawing the 5 percent. He
explained that there are always consequences, and this would be
another reason to have flexibility. If something cannot be
touched, he questioned the options otherwise, insisting that the
legislature needs to have flexibility, because it is unknown
what might come in some years.
7:41:31 PM
REPRESENTATIVE MCCABE inquired about the current budget.
CHAIR CARPENTER responded that this does not need to be
addressed.
7:42:11 PM
REPRESENTATIVE MCKAY noted that Article 9, Section 16, of the
state's constitution mentions the one-third.
7:42:28 PM
REPRESENTATIVE ALLARD questioned the reasoning of bringing the
bill forward when it would not solve the problem.
MR. GRUSSENDORF responded that this is the process, and there
must be a starting point. He advised that [the proposed
legislation] is the starting point of this conversation.
7:43:28 PM
REPRESENTATIVE GROH inquired whether the chair has any thoughts
or suggestions on the way forward.
CHAIR CARPENTER answered that the proposed bill is calendared
for tomorrow and the way forward is a CS, which would be
available shortly for committee review. In further response, he
said that once it is available, and if it is adopted, members
would be able to offer amendments at a later date.
[CSSB 107(FIN) was held over.]
7:44:30 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:44 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB107 POMV split initial presentation 3-21-23 final.pdf |
HW&M 5/8/2023 6:00:00 PM SFIN 3/21/2023 9:00:00 AM |
SB 107 |
| SB 107 sectional 3-21.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |
| SB107 sponsor statement 3-21.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |
| SB 107 Opposition Allegrezza.pdf |
HW&M 5/8/2023 6:00:00 PM SFIN 3/21/2023 9:00:00 AM SFIN 4/12/2023 9:00:00 AM |
SB 107 |
| SB 107 DOR ASD 031723.pdf |
HW&M 5/8/2023 6:00:00 PM SFIN 3/21/2023 9:00:00 AM SFIN 4/12/2023 9:00:00 AM |
SB 107 |
| SB 107 LFD SB 107 Presentation SFIN 3-21-23.pdf |
HW&M 5/8/2023 6:00:00 PM SFIN 3/21/2023 9:00:00 AM SFIN 4/12/2023 9:00:00 AM |
SB 107 |
| SB 107 work draft version Y.pdf |
HW&M 5/8/2023 6:00:00 PM SFIN 3/29/2023 9:00:00 AM SFIN 4/12/2023 9:00:00 AM |
SB 107 |
| SB 107 POMV split bill Amendment 1 Y.3 back-up.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 88 SB 107 |
| SB 107 POMV how we got here 4-12-23.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |
| SB 107 Capital Budget assumption Backup Packet.pdf |
HW&M 5/8/2023 6:00:00 PM SFIN 3/29/2023 9:00:00 AM SFIN 4/12/2023 9:00:00 AM |
SB 107 |
| SB 107 Modeling Slides_20230328.pdf |
HW&M 5/8/2023 6:00:00 PM SFIN 3/29/2023 9:00:00 AM SFIN 4/12/2023 9:00:00 AM |
SB 107 |
| SB 107 POMV sectional.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |
| Presentation from KPEDD - Tim Dillon.pdf |
HW&M 5/8/2023 6:00:00 PM |
|
| SB 107 POMV split H Ways & Means presentation.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |
| SB 107 POMV split 25-75 model.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |
| SB 107 model new rev plus fy23 BSA.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |
| SB 107 POMV split Misc back up.pdf |
HW&M 5/8/2023 6:00:00 PM |
SB 107 |