Legislature(2003 - 2004)

03/17/2004 07:02 AM W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 298-DISTRIBUTIONS OF APPROPS FROM PERM FUND                                                                                
                                                                                                                                
[Contains discussion of HJR 26]                                                                                               
                                                                                                                                
Number 0440                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced that the  final order of business would be                                                               
HOUSE  BILL NO.  298, "An  Act  relating to  the distribution  of                                                               
appropriations  from the  Alaska  permanent fund  under art.  IX,                                                               
sec.  15(b), Constitution  of  the State  of  Alaska, and  making                                                               
conforming  amendments; and  providing  for  an effective  date."                                                               
[HB  298 was  sponsored by  House Special  Committee on  Ways and                                                               
Means.]                                                                                                                         
                                                                                                                                
CHAIR  HAWKER  explained   that  HB  298  is   a  companion  bill                                                               
supporting the POMV  constitutional amendment [HJR 26].   He said                                                               
the last  time the bill was  before the committee was  during the                                                               
last legislative session.                                                                                                       
                                                                                                                                
Number 0456                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to  adopt the  proposed committee                                                               
substitute (CS)  for HB 298, Version  23-LS1075\S, Cook, 3/15/04,                                                               
as the  working document.   There being  no objection,  Version S                                                               
was before the committee.                                                                                                       
                                                                                                                                
CHAIR HAWKER explained  the changes in Version S  by referring to                                                               
the sectional analysis.  He explained:                                                                                          
                                                                                                                                
     [The  proposed CS]  looks at  existing statute,  places                                                                    
     where  it refers  to things  like the  Earnings Reserve                                                                    
     Account  or  using income  as  a  basis for  the  money                                                                    
     available  from the  permanent fund,  and modifies  and                                                                    
     adapts  that language  to the  POMV concepts  of having                                                                    
     the  value of  the fund  be  the basis  for the  amount                                                                    
     available for general appropriation each year.                                                                             
                                                                                                                                
Number 0607                                                                                                                     
                                                                                                                                
CHAIR HAWKER  continued to explain  that in Section 1  the Alaska                                                               
jury list is currently defined as  coming from the list of people                                                               
who  apply for  "a distribution  of Alaska  Income," which  is an                                                               
archaic  term.   The  actual  list  is  from the  permanent  fund                                                               
dividend (PFD)  files, and Section  1 cleans up the  language, he                                                               
said.                                                                                                                           
                                                                                                                                
CHAIR  HAWKER  explained that  Section  2  defines the  statutory                                                               
duties of  the Joint  Committee on  Legislative Budget  and Audit                                                               
(LB&A).   One of  the previous duties  was to  provide investment                                                               
policy guidance for  the "income" from the  permanent fund, which                                                               
had been previously segregated into  an earnings reserve account.                                                               
Now LB&A  provides investment policy  guidance for  the permanent                                                               
fund, and the  income account has been merged  into the permanent                                                               
fund itself, he said.                                                                                                           
                                                                                                                                
REPRESENTATIVE GRUENBERG  announced that he is  "flagging for the                                                               
committee" Section  2 because he  is going to offer  an amendment                                                               
to  Section 10,  which says  this Act  only takes  effect if  the                                                               
[POMV] amendment  to the constitution  passes.  He said  it seems                                                               
to him  that there are sections  in the proposed CS  that are not                                                               
dependent  upon the  passage of  the [POMV]  amendment.   He said                                                               
Section 1 is not [dependent].   He asked if that would also apply                                                               
to Section 2.  He wondered  if they were standalone sections that                                                               
could be passed even if the [POMV] amendment does not pass.                                                                     
                                                                                                                                
Number 0810                                                                                                                     
                                                                                                                                
CHAIR HAWKER concurred  that they could stand alone  on their own                                                               
merits.                                                                                                                         
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if there are  any more standalone                                                               
sections.                                                                                                                       
                                                                                                                                
CHAIR HAWKER  suggested walking through the  sections and keeping                                                               
that idea in mind.  He said it is an excellent observation.                                                                     
                                                                                                                                
CHAIR  HAWKER explained  that Section  3, subsection  (a) is  the                                                               
most operative  section in  the bill  as it  relates to  the POMV                                                               
method.    He  voiced  a  concern raised  by  many  as  POMV  was                                                               
discussed.  People had asked what  would happen if the state goes                                                               
into a period  of protracted declining markets and  the 5 percent                                                               
that  would be  made  available under  the  POMV method  actually                                                               
exceeds the  real rate of  return for  some long period  of time.                                                               
He noted that [Section 3(a)]  addresses this issue in statute and                                                               
creates the  statutory limit  that "if  the average  10-year real                                                               
rate  of  return  falls  below  5 percent,  the  amount  that  is                                                               
appropriated from  the fund,  which the  constitutional amendment                                                               
states may  be up to  5 percent, is limited  to the real  rate of                                                               
return that is less  than 5 percent."  He called  it a sidebar in                                                               
statute that grants relief.                                                                                                     
                                                                                                                                
Number 0956                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG remarked  that he was pleased  to see [Section                                                               
3, subsection (a)] in [the proposed CS  to HB 298].  He asked, in                                                               
the worst-case  scenario, what percentage, under  this limitation                                                               
factor,  would be  removed from  the principal  of the  permanent                                                               
fund.                                                                                                                           
                                                                                                                                
CHAIR  HAWKER  called  on  Bob Bartholomew  to  come  forward  to                                                               
testify and help answer questions.                                                                                              
                                                                                                                                
Number 1050                                                                                                                     
                                                                                                                                
BOB BARTHOLOMEW,  Chief Operating Officer, Alaska  Permanent Fund                                                               
Corporation, Department of Revenue replied:                                                                                     
                                                                                                                                
     What  [Section 3,  subsection (a)]  was intended  to do                                                                    
     was try to look at when  the real rate of return, which                                                                    
     is the return  after we retain enough  income to offset                                                                    
     the effects of  inflation, if we don't  meet what would                                                                    
     become the constitutional spending  limit of 5 percent,                                                                    
     if  over a  10-year period  we started  to have  a real                                                                    
     rate of return, this, for  example, was 4 percent, that                                                                    
     the spending  for that year  would drop.   The spending                                                                    
     limit would drop from 5  percent of the market value of                                                                    
     the fund to 4 percent.                                                                                                     
                                                                                                                                
CHAIR HAWKER remarked, "To the amount we could appropriate."                                                                    
                                                                                                                                
MR. BARTHOLOMEW continued:                                                                                                      
                                                                                                                                
     To the  amount that  could be  appropriated out  of the                                                                    
     permanent fund.   And,  so, when  we talk  about what's                                                                    
     the  worst-case  scenario  and how  would  that  affect                                                                    
     eating into  the corpus of  the principal of  the fund,                                                                    
     we would just  have to make some estimates  to say, you                                                                    
     know,  right   now  there   is  approximately   --  the                                                                    
     permanent  fund is  in three  components.   There's the                                                                    
     accounting record  we make of the  historical principal                                                                    
     contributions into the  fund and special appropriations                                                                    
     by  the legislature  and  inflation  proofing.   Today,                                                                    
     that's  about $23  billion.   Then,  there's two  other                                                                    
     components, currently, of the  permanent fund.  There's                                                                    
     what's called the unrealized  earnings account that has                                                                    
     about  $3.5 billion  in it;  then there's  the realized                                                                    
     earnings, and  that has  about $1 billion  in it.   So,                                                                    
     there's three  components, and the first  two, which is                                                                    
     the $23  billion, the  accounting principal  number and                                                                    
     the unrealized  gains, which by the  attorney general's                                                                    
     opinion is a  part of principal -- those  two are $26.5                                                                    
     billion.   Then,  we said  we  have $1  billion in  the                                                                    
     realized earnings reserve.                                                                                                 
                                                                                                                                
Number 1300                                                                                                                     
                                                                                                                                
     When  you  look at  things  today,  you would  have  $1                                                                    
     billion  available  for  appropriation -  it's  in  the                                                                    
     realized earnings account - and  then that $3.5 billion                                                                    
     can go,  if they  sell investments, ...  into earnings.                                                                    
     When you do an assessment  of "when would you be eating                                                                    
     into the fund," some  people use the $23-billion figure                                                                    
     and say you've got to  spend down to $23 billion before                                                                    
     you're eating  into the corpus.   That means  we'd have                                                                    
     $4.5 billion available today.   So, when you say, "Give                                                                    
     me an  example," you would  have to spend in  excess of                                                                    
     your real income, $4.5 [billion],  before you would eat                                                                    
     into the corpus -  what was considered originally under                                                                    
     the  constitution as  far as  the original  deposits of                                                                    
     oil and what they've earned.                                                                                               
                                                                                                                                
     I think the intent of this  section is to not allow you                                                                    
     to  eat into  that, so  the intent  is, over  a 10-year                                                                    
     period,  if we've  made enough  income,  we would  only                                                                    
     spend what we've made.  So,  I think the intent here is                                                                    
     not to eat into the corpus.   I could create a scenario                                                                    
     that says,  in the short  term, you might eat  into it,                                                                    
     but I  think, for  most practical purposes,  this would                                                                    
     be the  guardrails that  that prevented.   So,  I think                                                                    
     for   a  high   percentage  of   the  options   or  the                                                                    
     probabilities  of  what  would  be the  income  of  the                                                                    
     permanent fund  moving forward, you really  wouldn't be                                                                    
     eating into  the corpus of the  fund.  I don't  want to                                                                    
     give  a specific  number, but  it is  possible, in  the                                                                    
     short term, if the markets  went down fast enough, that                                                                    
     you  might spend  into that  original  corpus, or  that                                                                    
     original  $23 billion.    I do  think  that, with  this                                                                    
     provision in here, the likelihood  of that happening is                                                                    
     greatly  reduced.    I think  the  worst-case  scenario                                                                    
     would be fairly small, but it could happen.                                                                                
                                                                                                                                
Number 1522                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG said  a lot of folks talk about  a market that                                                               
keeps going down, and that is the  great fear.  He said he's been                                                               
in meetings where  "you run the averages, we should  be okay, and                                                               
you can  take care of  those little blips."   He said it  was his                                                               
understanding that  [Section 3,  subsection (a)]  is in  place so                                                               
that when  there is  a long-term slide,  money stops  being drawn                                                               
off  of the  principal.   He reminded,  "If you're  in the  short                                                               
term,  you draw  into the  principal and,  of course,  you bounce                                                               
back up."   He asked  how it figures in  during a long  period of                                                               
time, if  it was in place  all the time,  or if the state  has to                                                               
wait for the full 10 years of decline.                                                                                          
                                                                                                                                
Number 1620                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW   pointed  out  that   it  would  be   in  place                                                               
immediately and a  10-year average would be used.   He pulled out                                                               
a slide as an  example to show that if next year  there is a down                                                               
market and the  permanent fund loses income for  the entire year,                                                               
which has  happened twice in the  history of the fund,  that loss                                                               
would be  figured in, but  it would go  to a 10-year  average, he                                                               
explained.   The  history of  the financial  market is  extremely                                                               
volatile from year  to year, but over the longterm,  it is fairly                                                               
stable, he  suggested.   He referred to  a rolling  10-year real-                                                               
return graph to show a red,  stable line at 5 percent, the target                                                               
at which the constitution will set the spending limit.                                                                          
                                                                                                                                
CHAIR HAWKER interjected, "Real return."                                                                                        
                                                                                                                                
MR.  BARTHOLOMEW  continued,  "That's   the  income  after  we've                                                               
accounted  for inflation  and retained  that  in the  fund."   He                                                               
explained that  the last  bullet [on the  graph] shows  where the                                                               
rolling 10-year period  was on June 30, 2003,  about 5.3 percent.                                                               
He said, next year, if that  percent moved a whole percent in one                                                               
year, down to  4.3 percent, the spending  limit would immediately                                                               
drop.   There would be  a 4.3  percent spending limit  under this                                                               
provision.                                                                                                                      
                                                                                                                                
MR.  BARTHOLOMEW explained  that what  happened for  the 12-month                                                               
spending period ending December 31  [2003] is the 10-year average                                                               
was raised by 1 percent to over  6 percent.  "That means there is                                                               
currently a  5 percent spending  limit, so the permanent  fund is                                                               
retaining more than  it earned, so that in the  future years when                                                               
it goes  down, there could be  a pretty good down  year before it                                                               
would take us below the 5  percent," he explained.  He noted that                                                               
the effect  is immediate, but  not dramatic.   Each 1  percent is                                                               
about $250 million, he concluded.                                                                                               
                                                                                                                                
REPRESENTATIVE    OGG   thanked    Mr.   Bartholomew    for   the                                                               
clarification.                                                                                                                  
                                                                                                                                
Number 1947                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   asked  why  five  of   the  six  years                                                               
immediately preceding the fiscal year are used.                                                                                 
                                                                                                                                
MR.  BARTHOLOMEW  replied  that  there are  two  measurements  in                                                               
[Section 3].  The measurement  just mentioned is "when should you                                                               
spend less  than 5 percent,  so that's  the trigger for  that 10-                                                               
year average  of income.   He added, "There's a  second provision                                                               
in here  which tells you how  to calculate the market  value that                                                               
you're going to  base your 5 percent against."   That is a 5-year                                                               
average  of  the  total  market   value  of  the  fund,  and  the                                                               
individual volatility of one year  doesn't affect it as much when                                                               
a 5-year average is used, he  explained.  The clause states to go                                                               
back six  years and then  come forward for five  years, computing                                                               
the average.  The reason for  the "look back" provision is so the                                                               
legislature  will know  what is  available when  they convene  in                                                               
January.   Under  the current  rules  where a  5-year average  is                                                               
used,  the  June 30  date,  which  hasn't  been reached  yet,  is                                                               
included, so  when the  legislature passes  the budget,  they are                                                               
basing it  on an  estimate of  how much  income is  available, he                                                               
said.  This method eliminates projections, he concluded.                                                                        
                                                                                                                                
CHAIR  HAWKER  added  that  the language  is  identical  to,  and                                                               
conforms to, the POMV proposed constitutional amendment.                                                                        
                                                                                                                                
REPRESENTATIVE ROKEBERG  requested spreadsheets  and calculations                                                               
regarding this provision, and suggested  that they be part of the                                                               
bill packet.   He voiced a concern about the  "rate of inflation"                                                               
definition.  He asked which definition is being used.                                                                           
                                                                                                                                
Number 2250                                                                                                                     
                                                                                                                                
MR. BARTHOLOMEW replied that the  definition of inflation that is                                                               
used by  the permanent fund is  defined in statute and  will have                                                               
to be  added to the  definitions section of  the bill.   He noted                                                               
that Section 9  [of the proposed CS] where AS  37.13.145 is being                                                               
repealed is  where the current  definition of  inflation proofing                                                               
resides and will need  to be added back in.   He said the finance                                                               
director of DOR  has been asked to write up  a definition for the                                                               
national Consumer  Price Index  (CPI).  Since  this is  an Alaska                                                               
fund, people  have asked why  a national CPI  is being used.   He                                                               
responded  that how  the permanent  fund is  invested is  greatly                                                               
affected by the  investments across the United States  as well as                                                               
across the world.  He emphasized  that using a national CPI is an                                                               
important piece  that DOR recommends adding  into the definitions                                                               
section.                                                                                                                        
                                                                                                                                
Number 2424                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  he understands  that the  attorney                                                               
general's  opinion and/or  position  now is  that the  unrealized                                                               
portion  of the  permanent fund  is available  for appropriation.                                                               
He asked if that is correct.                                                                                                    
                                                                                                                                
MR.  BARTHOLOMEW replied  that  it  is just  the  opposite.   The                                                               
opinion of about a year ago  regarding the original intent in the                                                               
definitions of  the word "principal"  and "what is  available for                                                               
appropriation" stated that  it was really driven  by the realized                                                               
income, he explained.  He continued:                                                                                            
                                                                                                                                
     When we have unrealized gains  -- I'll just give you an                                                                    
     example:   if  you own  a share  of stock  in IBM,  you                                                                    
     bought  it for  $50,  it's  gone up  to  $100, and  you                                                                    
     haven't  sold  it  yet,  you  have  $50  of  unrealized                                                                    
     income.  Prior to  the attorney general's opinion, that                                                                    
     money was  available for appropriation.   And when they                                                                    
     did their research, they felt  that the original intent                                                                    
     when the  [provision of  the] constitution  was adopted                                                                    
     by the  citizens in 1976  [was] that the  definition of                                                                    
     income was what we call  realized, and that it wouldn't                                                                    
     be  available for  appropriation until  you sold  that.                                                                    
     So,  their definition  would be,  unrealized income  is                                                                    
     not available for appropriation.                                                                                           
                                                                                                                                
     But one of  the reasons we recommend  changing from the                                                                    
     current  system to  a value-based  system  is the  only                                                                    
     difference  between   that  being  available   and  not                                                                    
     available  is  whether  the manager  that  we've  hired                                                                    
     sells that  stock.   So, if he  sold it  tomorrow, it's                                                                    
     available.  That number of  what's available can really                                                                    
     vary,  and modern  accounting principles  have said  to                                                                    
     get away from that concept  of realized and look at the                                                                    
     total  value of  the fund  every year,  including those                                                                    
     unrealized  gains, and  then  make  a determination  of                                                                    
     what  you want  to  make  available for  appropriation.                                                                    
     Unrealized  gains  or  losses  are  not  available  for                                                                    
     appropriation.                                                                                                             
                                                                                                                                
CHAIR HAWKER  emphasized that this  legislation is  effective if,                                                               
and only  if, the POMV endowment  method is adopted, and  it does                                                               
not address how the fund currently operates.                                                                                    
                                                                                                                                
Number 2650                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked if  Chair Hawker is indicating that                                                               
the market-value determination would  make moot the definition of                                                               
realized and unrealized [gains] when making the calculation.                                                                    
                                                                                                                                
MR. BARTHOLOMEW  answered, "That is  correct.  We would  now look                                                               
at  everything based  on the  total value  of the  fund."   There                                                               
wouldn't be a separate pool  for principal, unrealized gains, and                                                               
realized  gains,  he  explained.    Now, all  of  that  money  is                                                               
invested  the   same  way,  and  generally   accepted  accounting                                                               
principles (GAAP) account for it all  the same way, he said.  "We                                                               
would be getting  rid of a 25-year-old archaic  statute, in going                                                               
to the modern endowment accounting," he added.                                                                                  
                                                                                                                                
REPRESENTATIVE   ROKEBERG  remarked   that   the  definition   of                                                               
"available for appropriation" still has to be dealt with.                                                                       
                                                                                                                                
MR.  BARTHOLOMEW   replied  that  would  be   Section  3,  titled                                                               
"Appropriations from the fund."  This  is the section that says 5                                                               
percent is going  to be spent of the 5-year  average of the fund,                                                               
unless the realized income for that  period was not 5 percent, he                                                               
noted.                                                                                                                          
                                                                                                                                
Number 2814                                                                                                                     
                                                                                                                                
CHAIR HAWKER  clarified that the constitutional  amendment, which                                                               
is a separate  piece of legislation [HJR 26] that  was passed out                                                               
of the House Special Committee on  Ways and Means months ago, now                                                               
sitting in  the House Finance  Committee, potentially on  its way                                                               
to  the  House Rules  Standing  Committee,  is the  vehicle  that                                                               
defines the 5 percent appropriation  authority.  That legislation                                                               
would be  a constitutional  authority which states  that up  to 5                                                               
percent may be  appropriated annually.  [The  proposed CS] before                                                               
the  committee  creates a  statutory  sidebar,  a parameter  that                                                               
allows for times where the state  may choose not to appropriate 5                                                               
percent, he  said.  He emphasized  that the bill does  not define                                                               
or make the provision for the 5 percent appropriation.                                                                          
                                                                                                                                
Number 2900                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG said he  understands that information but                                                               
is  trying   to  get   at  the   definition  of   "available  for                                                               
appropriation".                                                                                                                 
                                                                                                                                
MR.  BARTHOLOMEW pointed  to the  first sentence  in [Section  3,                                                               
subsection (a)]  where it specifically says  the amount available                                                               
for appropriation is determined  under the constitution, and said                                                               
that is going  to be the 5  percent limit, or up to  5 percent of                                                               
the value  of the fund.   The guardrails are where  it says there                                                               
is an  exception to the 5  percent spending limit if  a 5 percent                                                               
real rate of return has not been earned.                                                                                        
                                                                                                                                
REPRESENTATIVE  ROKEBERG   asked  if   the  realized   gains  and                                                               
unrealized  gains  were included  when  calculating  the rate  of                                                               
return.                                                                                                                         
                                                                                                                                
Number 3020                                                                                                                     
                                                                                                                                
MR. BARTHOLOMEW  replied, "No, going  forward we would  no longer                                                               
look at  it as  realized versus  unrealized.   We would  look at,                                                               
under GAAP, what was the total income  of the fund.  So, it would                                                               
be both the  cash flow income as well as  the appreciation of the                                                               
assets...."                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked,  "Why are we going  to GAAP rather                                                               
than  GASB   [Governmental  Accounting  Standards   Board]  here,                                                               
because  the  permanent fund  acts  more  or  less as  a  private                                                               
financial institution?"                                                                                                         
                                                                                                                                
MR.   BARTHOLOMEW  replied   that  all   professional  accounting                                                               
organizations come  under GAAP,  of which GASB  is a  subset, and                                                               
the  official rules  that  determine  investment accounting  come                                                               
under GAAP.                                                                                                                     
                                                                                                                                
CHAIR HAWKER  replied that  the capstone  definition is  GAAP and                                                               
GASB is a subset within it.                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  it has  gotten the  permanent fund                                                               
corporation  in trouble  before, which  is why  he was  making it                                                               
clear.                                                                                                                          
                                                                                                                                
CHAIR HAWKER  said, "That is why  we are trying to  give them the                                                               
most sheltering umbrella in our definitions."                                                                                   
                                                                                                                                
Number 3159                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  remarked that this is  a very important                                                               
bill.   He referred to  it as  up-front pricing because  it shows                                                               
the people what  the legislature plans to do if  POMV passes.  He                                                               
emphasized  that the  bill  needs  to move  forward  even if  the                                                               
constitutional amendment  stalls, because it could  be debated on                                                               
its own merits.   He said it  is tied to the POMV  debate, but it                                                               
serves  as  an  educational  process,  as  well.    He  suggested                                                               
adopting  portions  of  the  bill   even  if  the  constitutional                                                               
amendment is not  adopted.  He said the bill  needs to be amended                                                               
in Section 10  so that Sections 3,  4, 7, and 8  only take effect                                                               
if  the  constitutional amendment  passes.    The other  sections                                                               
should be adopted notwithstanding, he said.                                                                                     
                                                                                                                                
CHAIR HAWKER  noted that  Representative Gruenberg  has expressed                                                               
those  same concerns  and  has been  working on  a  list of  [the                                                               
sections] for a specific amendment.                                                                                             
                                                                                                                                
Number 3327                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG  addressed Representative  Samuels  and                                                               
Mr. Bartholomew  and asked, if the  constitutional amendment does                                                               
not  pass,  whether   they  would  still  like   LB&A  to  advise                                                               
concerning the investment  policy for the entire fund.   He added                                                               
he thought it was a good idea.                                                                                                  
                                                                                                                                
Number 3409                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW replied  that he  thought the  [Alaska Permanent                                                               
Fund  Corporation] has  always felt  it was  important to  have a                                                               
good  working   relationship  with  the  legislature,   and  LB&A                                                               
provides  the  process  for  that relationship,  so  he  said  he                                                               
supports maintaining it.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG responded,  "Not just  the income,  but                                                               
everything."                                                                                                                    
                                                                                                                                
MR. BARTHOLOMEW replied, "That is correct."                                                                                     
                                                                                                                                
REPRESENTATIVE SAMUELS concurred and said  it is a good mechanism                                                               
for  the   [Alaska  Permanent  Fund   Corporation]  to   get  its                                                               
information to the legislative body.                                                                                            
                                                                                                                                
Number 3433                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he supports  a lot of  the concept                                                               
of POMV,  but is not  sure he wants it  in the constitution.   He                                                               
suggested  proposing a  statute to  achieve  the same  ends.   He                                                               
wondered if this  legislation might be such a statute.   He asked                                                               
Mr. Bartholomew whether provisions in  [the proposed CS] could be                                                               
effected to achieve some of those  ends, if they are adopted even                                                               
if  the  constitutional  amendment  does  not  pass.    He  asked                                                               
Representative  Hawker   if  he   should  propose   a  conceptual                                                               
amendment or  work on  a written  amendment to be  taken up  at a                                                               
later date.                                                                                                                     
                                                                                                                                
Number 3635                                                                                                                     
                                                                                                                                
CHAIR  HAWKER  replied  that  it   would  be  more  appropriately                                                               
introduced as a  standalone bill.  He explained that  [HB 298] is                                                               
a companion  piece specifically  for the  proposed constitutional                                                               
amendment [HJR 26].                                                                                                             
                                                                                                                                
REPRESENTATIVE  GRUENBERG suggested  that  [HB  298] could  serve                                                               
that  purpose  and  have  sections   that  achieve  a  standalone                                                               
provision.                                                                                                                      
                                                                                                                                
CHAIR HAWKER said  his personal preference would be  not to alter                                                               
[HB 298] to that extent.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked   Mr.  Bartholomew,  aside  from                                                               
Sections 1 and 2, if there  were any other sections that could go                                                               
into effect even if the constitutional amendment does not pass.                                                                 
                                                                                                                                
MR.  BARTHOLOMEW answered,  "Section 5  would be  a section  that                                                               
would work unrelated to POMV."                                                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked Mr.  Bartholomew to  explain what                                                               
Section 5 does.                                                                                                                 
                                                                                                                                
MR. BARTHOLOMEW explained:                                                                                                      
                                                                                                                                
     Section 5 currently has language  that assumes ... that                                                                    
     we basically  expense our  entire operating  budget the                                                                    
     first day  of the fiscal year,  and then we get  to the                                                                    
     end of the  year, and whatever we  really didn't spend,                                                                    
     we add that back to income.   How that really works is,                                                                    
     at  the  end  of  each  month  we  expense  our  actual                                                                    
     expenditures.   It makes  it clear  that the  source of                                                                    
     revenue for the budget will  be the investments, and it                                                                    
     deletes the  sections of the  statutes that  talk about                                                                    
     adding unused budget back to income.                                                                                       
                                                                                                                                
Number 3877                                                                                                                     
                                                                                                                                
REPRESENTATIVE   GRUENBERG  referred   to   the   section  as   a                                                               
housekeeping section and asked if  there were any other [sections                                                               
that could go into effect on their own].                                                                                        
                                                                                                                                
MR. BARTHOLOMEW replied  that Sections 7 and 8 seem  to relate to                                                               
the  Permanent  Fund  Dividend  Division  and  said  he  was  not                                                               
familiar  with those  sections  of  the statute.    He said  they                                                               
seemed to  be related  to POMV  so he assumed  they would  not be                                                               
necessary.                                                                                                                      
                                                                                                                                
CHAIR HAWKER concurred.                                                                                                         
                                                                                                                                
REPRESENTATIVE   GRUENBERG   asked  for   clarification   whether                                                               
Sections 7 and 8 could be conditional.                                                                                          
                                                                                                                                
MR.  BARTHOLOMEW replied  that they  should be  conditional [upon                                                               
the passage of the constitutional amendment].                                                                                   
                                                                                                                                
Number 4010                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG asked if  the only [sections] that would                                                               
not be conditional are 1, 2, and 5.                                                                                             
                                                                                                                                
CHAIR HAWKER said yes.                                                                                                          
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  about Section  11.   He said  he                                                               
thinks there would  need to be a conforming  amendment to Section                                                               
11.                                                                                                                             
                                                                                                                                
CHAIR HAWKER concurred and said:                                                                                                
                                                                                                                                
     We've got this dual condition  here, in Sections 10 and                                                                    
     11,  at the  moment.   The entire  Act is  conditioned,                                                                    
     which is  Section 10, upon the  passage, and emphasize,                                                                    
     and  a  POMV  method  approved  by  voters  and  taking                                                                    
     effect, which  is really  the ultimate  condition here.                                                                    
     Section 11  is that  if those conditions  precedent are                                                                    
     met,  the actual  date  on which  this  Act shall  take                                                                    
     effect  is  January  1,  2005.   There  would  be  some                                                                    
     conforming  language  that   would,  in  the  condition                                                                    
     precedent,  excepting that  Sections 1,  2, and  5, and                                                                    
     also in Section 11, indicating  that Sections 1, 2, and                                                                    
     5 would take effect immediately.                                                                                           
                                                                                                                                
REPRESENTATIVE  GRUENBERG   said  he  would  offer   that  as  an                                                               
amendment later when amendments are taken up.                                                                                   
                                                                                                                                
Number 4142                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG opined that  the committee is wasting its                                                               
time right  now, because  this bill is  contingent on  the POMV's                                                               
passing.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  OGG returned  to  Section 3  and  noted that  the                                                               
permanent fund  is different from  most funds because  25 percent                                                               
of  revenues  from  mineral  sales,  royalties,  and  leases  are                                                               
included.   He  asked Mr.  Bartholomew  how that  impacted the  5                                                               
percent figure and the 10-year average.                                                                                         
                                                                                                                                
Number 4313                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW related  that  the  way it  is  written now,  it                                                               
completely  excludes  the  effect  of the  ongoing  oil  deposits                                                               
coming into the fund.  He explained:                                                                                            
                                                                                                                                
     We're  measuring the  investment  real  rate of  return                                                                    
     over 10  years and  trying to  achieve that  5 percent.                                                                    
     During that  10-year period we've continued  to receive                                                                    
     oil deposits.  Historically,  that's probably about a 1                                                                    
     percent average.   It's  declining currently;  well, it                                                                    
     was   declining  because   production  was   declining.                                                                    
     Prices are  high, so  it's staying  up near  what we've                                                                    
     been   getting  over   the  last   5-8  years.     It's                                                                    
     approximately  between $200  and  $400  million a  year                                                                    
     that  we've  been  getting from  ongoing  oil  revenues                                                                    
     coming into the permanent fund.   Really, what you have                                                                    
     is  the fund  is also  growing by  the ongoing  revenue                                                                    
     deposits, and that  is not being factored  in to what's                                                                    
     available for  appropriation.  That money  comes in and                                                                    
     earns  income, so  down the  line there  is a  benefit,                                                                    
     but, in the short term,  the fund has actually probably                                                                    
     grown.   Currently,  we're at  about a  6 percent  real                                                                    
     rate of return  for the last 10 years.   Including oil,                                                                    
     it's really  grown by 7  percent, but  currently that's                                                                    
     not brought into the equation.                                                                                             
                                                                                                                                
Number 4435                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGG   requested  clarification  of   [Section  3,                                                               
subsection (b)].                                                                                                                
                                                                                                                                
CHAIR  HAWKER  related  that [Section  3,  subsection  (b)]  does                                                               
provide statute  consistent with the current  statutory provision                                                               
that splits  the earnings available  from the permanent  fund, 50                                                               
percent  to the  dividend fund,  and  50 percent  to the  general                                                               
fund.                                                                                                                           
                                                                                                                                
CHAIR HAWKER  continued to  explain [the proposed  CS].   He said                                                               
the balance  of the bill  relates to "housekeeping"  matters such                                                               
as  the market-value  provision in  Section 4,  which provides  a                                                               
statutory mandate in accordance with GAAP.                                                                                      
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked  if   that  provision  could  be                                                               
effective regardless  of the constitutional  amendment [passing].                                                               
He opined it had value independent of the amendment.                                                                            
                                                                                                                                
Number 4610                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW  related  that,   currently,  when  the  monthly                                                               
financial  statements are  done,  GAAP is  followed to  determine                                                               
market value.                                                                                                                   
                                                                                                                                
CHAIR HAWKER interjected  that the first sentence  [of Section 4]                                                               
refers to Article IX, Section  15(b), of the [Constitution of the                                                               
State of  Alaska].   This section does  not currently  exist, and                                                               
would not  exist until the  POMV amendment is passed,  he pointed                                                               
out.                                                                                                                            
                                                                                                                                
TAPE 04-14, SIDE B                                                                                                            
Number 4630                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG suggested excising  the first phrase [in                                                               
Section 4]  and beginning  with line  22, "the  corporation shall                                                               
determine".    He asked  [Mr.  Bartholomew]  if that  is  current                                                               
practice.                                                                                                                       
                                                                                                                                
MR. BARTHOLOMEW replied  that it is a requirement  under GAAP and                                                               
so  it is  calculated,  but  not used  in  any  of the  statutory                                                               
formulas to  determine what is  available for appropriation.   He                                                               
said, "It is what we do."                                                                                                       
                                                                                                                                
Number 4600                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if  there would  be any  value in                                                               
having that language in the law, independent of the amendment.                                                                  
                                                                                                                                
CHAIR HAWKER  relayed that  the current  statute, which  would be                                                               
deleted in  this bill, provides  that the fund shall  be computed                                                               
annually on the  last day of the fiscal year,  in accordance with                                                               
GAAP, excluding  any unrealized gains  or losses.   He emphasized                                                               
that there could  be conflicting statutes if the  new section was                                                               
added  without  deleting the  old  one.    He mentioned  that  AS                                                               
37.13.140, the income  section which is no  longer relevant under                                                               
a market-value approach to distribution, would become archaic.                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG  remarked that  he thought this  was one                                                               
of  the  sections  that  could  be kept  in,  regardless  of  the                                                               
constitutional amendment.                                                                                                       
                                                                                                                                
CHAIR  HAWKER  termed the  section  a  housekeeping measure  that                                                               
could work either way.                                                                                                          
                                                                                                                                
MR.  BARTHOLOMEW  pointed  out  in  Section 5  that  all  of  the                                                               
operating costs for the permanent fund  for the 32 staff that are                                                               
employed, the  investment manager  fees for the  external equity,                                                               
and bond managers  that cost between $45 million  and $50 million                                                               
a year would come out of the 5 percent spending limit.                                                                          
                                                                                                                                
Number 4310                                                                                                                     
                                                                                                                                
CHAIR HAWKER characterized  that decision as being  an honest way                                                               
to show  the public that  the fund  was not being  invaded behind                                                               
closed doors, in any way.  All  operating funds come out of the 5                                                               
percent, he said.                                                                                                               
                                                                                                                                
REPRESENTATIVE GRUENBERG  he asked  if this dialogue  is relating                                                               
to the constitutional amendment.                                                                                                
                                                                                                                                
CHAIR HAWKER  replied that  Representative Gruenberg  is correct.                                                               
It is  statutory clarification to  make it very clear  that there                                                               
are "no back doors."                                                                                                            
                                                                                                                                
REPRESENTATIVE GRUENBERG  said, "Understood, and that's  clear on                                                               
the record."                                                                                                                    
                                                                                                                                
Number 4232                                                                                                                     
                                                                                                                                
CHAIR HAWKER  related that  Section 6  is a  housekeeping matter.                                                               
He explained that  the permanent fund also  manages the portfolio                                                               
of the Alaska Mental Health  Trust Authority (AMHTA), and because                                                               
the  archaic  section, AS  37.13.140,  is  being deleted,  a  new                                                               
section  is needed  to take  its place.   He  reported that  Jeff                                                               
Jessee [executive  director of AMHTA]  is in full  agreement with                                                               
this portion of the bill.                                                                                                       
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he  assumed that  AS 37.14  is the                                                               
mental health trust chapter.                                                                                                    
                                                                                                                                
CHAIR HAWKER said that is correct.                                                                                              
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  Mr.  Bartholomew  if he  thought                                                               
there was anything  in that chapter now that requires  the use of                                                               
GAAP, and if it could be a standalone provision.                                                                                
                                                                                                                                
MR. BARTHOLOMEW said,  "This is similar to  the recent provision.                                                               
Right now  we're required to  account for mental health  the same                                                               
way we account  for the permanent fund.  If  you don't change the                                                               
permanent  fund, then  we  wouldn't  want to  change  the way  we                                                               
account for mental  health, so this one would want  to be subject                                                               
to the POMV."                                                                                                                   
                                                                                                                                
Number 4059                                                                                                                     
                                                                                                                                
CHAIR HAWKER  continued to explain  the sections of  the proposed                                                               
CS.   He  said, "Section  7 is  a conforming  to the  change from                                                               
income being used  and transferred to the  dividend fund account,                                                               
to  the  money appropriated  from,  ergo,  the amount  calculated                                                               
under a  market-value approach."   Section 8 is  disclosures that                                                               
are currently required  by statute to be included on  the stub of                                                               
a permanent fund check, again,  with the language conforming to a                                                               
market-value approach, he explained.                                                                                            
                                                                                                                                
CHAIR HAWKER  noted that in  Section 9, the repealors,  the three                                                               
current sections  of statute whose operation  would conflict with                                                               
the POMV  operation, are  very important.   The whole  purpose of                                                               
the bill is  to replace those three sections, he  emphasized.  He                                                               
said AS 37.13.140 defines income  and net income of the permanent                                                               
fund for  the purposes  of making  distributions, and  he pointed                                                               
out  that the  bill  changes to  market value,  not  income.   AS                                                               
37.13.145 defines the disposition of  the income of the permanent                                                               
fund, inflation proofing, and transfers  to the dividend account,                                                               
which has been superseded by Section  3 of [the proposed CS].  AS                                                               
37.13.300(c) is  the mental health  trust reference  that becomes                                                               
archaic as a result of the operation of the POMV, he concluded.                                                                 
                                                                                                                                
Number 3905                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON asked about  Section 3, subsection (b), and                                                               
the graph  on the  rolling 10-year  real return.   He said  he is                                                               
concerned that  additional money deposited  into the fund  is not                                                               
counted  as  return.    He  posited  that  there  could  be  high                                                               
inflationary pressure  at some point  in time that  would greatly                                                               
influence the rate  of return, and suggested that  money from oil                                                               
resources  should  be [considered],  because  the  fund could  be                                                               
growing well, and yet drop below the  5 percent line.  He said he                                                               
doesn't  think  the intent  [of  the  bill]  is  to look  at  how                                                               
particular investments do, but how the  fund is doing.  He opined                                                               
that it would  be better to include the royalty  deposits and any                                                               
other  deposits  made  from settlements,  et  cetera,  into  this                                                               
calculation.                                                                                                                    
                                                                                                                                
Number 3728                                                                                                                     
                                                                                                                                
MR. BARTHOLOMEW  reported that he  has had many  discussions with                                                               
other legislators  on this  topic.  The  question is,  "Should we                                                               
have the  spending limit be not  only the real rate  of return of                                                               
the investments, but  the growth of the fund  through the mineral                                                               
or oil deposits?"   He termed it a policy  decision of looking at                                                               
the total value of the  fund changing, including deposits, versus                                                               
just looking at the investment income.                                                                                          
                                                                                                                                
CHAIR HAWKER  said, when drafting  the bill,  he did not  want to                                                               
consider the  new money coming  in as part  of the return  on the                                                               
invested  funds, which  would  allow  for substantial  investment                                                               
losses and still appear as if money  is being made.  He said that                                                               
idea is  inconsistent with the  intent of  the bill, which  is to                                                               
give the greatest possible assurances  of the continued growth of                                                               
the fund.                                                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  stated that it is  not inconsistent with                                                               
the  market value,  market-to-market consideration,  if the  cash                                                               
flow of the  fund is actually staying level or  growing.  He said                                                               
Representative Seaton  does have a point.   It is a  policy call,                                                               
he added.                                                                                                                       
                                                                                                                                
CHAIR HAWKER said, "The argument  that the idea of the additional                                                               
25  percent being  deposited each  year  was that  it should,  in                                                               
fact, always be an increment  rather than something that we could                                                               
be using  to offset investment  losses in determining  the amount                                                               
available."  He agreed it is a policy call.                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG added,  "Particularly if  you're looking                                                               
at the  market value of  the whole  total fund, rather  than just                                                               
the discrete elements of it."                                                                                                   
                                                                                                                                
Number 3515                                                                                                                     
                                                                                                                                
CHAIR HAWKER pointed out the real issue, saying:                                                                                
                                                                                                                                
     Do we  wish the  fund only to  grow through  returns in                                                                    
     excess of a real rate of  return of 5 percent, or do we                                                                    
     want to have the incremental  money coming in each year                                                                    
     under the  25 percent  constitutional provision  to the                                                                    
     part of  fund growth.  I  think it is a  good question.                                                                    
     Do we want to prioritize  the fund growth or prioritize                                                                    
     our ability to access the money in the fund?                                                                               
                                                                                                                                
REPRESENTATIVE ROKEBERG said the money  might be needed to offset                                                               
Section 3, subsection (a).                                                                                                      
                                                                                                                                
CHAIR HAWKER called that section "conservative sidebars."                                                                       
                                                                                                                                
Number 3440                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON voiced  a concern  that the  discussion is                                                               
about POMV, and  then a sidebar is  added to say it  is not POMV,                                                               
it's a percent of investment growth.   He said POMV refers to the                                                               
value  of the  fund, which  includes  deposited money.   If  that                                                               
money  is  excluded   and  the  sidebar  is  added   to  say  the                                                               
expenditures can only  be related to the  10-year rolling average                                                               
of  the  investment percentage,  minus  the  inflation, the  fund                                                               
could  be growing  even  though  it appears  to  be  below the  5                                                               
percent  limiting number.    He  concluded that  it  seems to  be                                                               
inconsistent.                                                                                                                   
                                                                                                                                
CHAIR HAWKER clarified  that every year when the new  money is in                                                               
the  fund, it  becomes the  basis for  the market  value for  the                                                               
following year.  The money that  comes in during the current year                                                               
is not  termed "income  of the  fund" for  purposes of  return on                                                               
investment  until  the  next  year   when  the  market  value  is                                                               
measured, he explained.                                                                                                         
                                                                                                                                
Number 3259                                                                                                                     
                                                                                                                                
KEVIN  RITCHIE,  Executive  Director,  Alaska  Municipal  League,                                                               
speaking on behalf  of the Alaska Council of  Mayors, thanked the                                                               
committee  for its  efforts and  said a  lot more  information is                                                               
filtering down through communities.   He reported that the mayors                                                               
and leaders  of Alaska's communities  are behind  the development                                                               
of  a  comprehensive,  long-range  fiscal  plan.    He  said  the                                                               
committee  should have  received  a letter  from the  communities                                                               
encouraging the legislature down this  path.  He noted that three                                                               
times as  many groups as three  months ago signed the  letter and                                                               
that the  breadth of the  groups is  widening.  He  mentioned the                                                               
following groups:  AARP,  Association of Developmental Disability                                                               
Providers,  Alaska Coal  Association, League  of Women  Voters of                                                               
Alaska, and virtually every group  in Wrangell, which he surmised                                                               
is a good example of a community that gets together and talks.                                                                  
                                                                                                                                
MR. RITCHIE related that people  of the state, given something to                                                               
work  with, will  have very  positive discussions  to help  solve                                                               
problems.   He suggested  letting the public  know what  will get                                                               
worse if no  action is taken, and what will  improve if action is                                                               
taken.   He referred to HB  236, the education tax  the committee                                                               
just moved  out, and  said it  clearly states a  way of  making a                                                               
moral  dedication or  commitment to  what  will get  better.   He                                                               
encouraged the committee to continue to think about that.                                                                       
                                                                                                                                
REPRESENTATIVE OGG thanked  Mr. Ritchie for coming  and asked for                                                               
his comments  about the 50/50  split and the idea  of approaching                                                               
the bill  as a statutory  process as opposed to  a constitutional                                                               
process.                                                                                                                        
                                                                                                                                
Number 3000                                                                                                                     
                                                                                                                                
MR. RITCHIE said he thinks the  50/50 split concept is what is in                                                               
most people's minds.   He called it a "have your  cake and eat it                                                               
too" situation  where the permanent  fund dividend, at  least for                                                               
the next two years, doesn't go  down, but goes up, and then stays                                                               
stable  in an  amount that  most  Alaskans would  think would  be                                                               
fairly  substantial.   At  the  same  time,  it provides  a  very                                                               
substantial amount of money for  doing things in communities that                                                               
are  very important,  he  noted.   He  related  that [the  Alaska                                                               
Municipal League] does  not have an opinion  about the statutory-                                                               
versus-constitutional process.                                                                                                  
                                                                                                                                
REPRESENTATIVE OGG inquired if POMV  is perceived as a limitation                                                               
on  the   legislature's  ability  to  utilize   revenues  of  the                                                               
permanent fund.                                                                                                                 
                                                                                                                                
MR.  RITCHIE said  it  seems to  him  that  it is  both.   It  is                                                               
utilizing  revenues not  being utilized  and, at  the same  time,                                                               
placing limits  on the utilization  of those revenues,  which, he                                                               
opined,  are  already there  to  utilize  if the  legislature  so                                                               
chooses.                                                                                                                        
                                                                                                                                
Number 2843                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  said  there has  been  some  discussion                                                               
within  the  committee,  particularly  by  Representative  Moses,                                                               
about a community  dividend program.  He asked  for Mr. Ritchie's                                                               
opinion as  to why the  legislature should consider this  idea in                                                               
light of the lack of vote of confidence by the mayors.                                                                          
                                                                                                                                
MR.  RITCHIE replied  he believes  that action  was in  regard to                                                               
solving the  fiscal gap, and  he suspects  there are a  number of                                                               
legislators, as well,  who wonder if the legislature  is going to                                                               
take action  on that issue.   He said it was  not a broad-brushed                                                               
lack of  confidence, which  is what got  reported.   He explained                                                               
the intent was to stimulate action  on the fiscal plan.  In terms                                                               
of the  municipal dividend,  that concept  has been  discussed by                                                               
many people, among them former-Governor  Hickel, who believe very                                                               
strongly   in  putting   authority   to   make  decisions   about                                                               
communities in  the hands of  people in communities,  he related.                                                               
He said  the concept of  community dividends is all  about taking                                                               
money  that belongs  to all  Alaskans and  allowing them  to make                                                               
decisions on how that money will best benefit their communities.                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG  said he assumed  that the mayors  in the                                                               
state were having fiscal difficulties along with everyone else.                                                                 
                                                                                                                                
Number 2637                                                                                                                     
                                                                                                                                
CHAIR HAWKER  agreed that  the vote of  no confidence  was broad-                                                               
brushed on the  legislature and noted that that  very morning the                                                               
committee  was  meeting  at  7:00   a.m.,  actively  involved  in                                                               
addressing [fiscal] issues.                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  called the  vote  of  no confidence  a                                                               
"lingering  eye-poke" for  legislators who  have worked  hard and                                                               
long, and  he stated his  appreciation for the "old-timers."   He                                                               
said he was digressing, and he would like to move this bill.                                                                    
                                                                                                                                
CHAIR HAWKER  asked Mr.  Ritchie to  take a  message back  to the                                                               
mayors  and tell  them  that  they were  a  bit shortsighted  and                                                               
"caused us some grave disappointment  and, perhaps, a little loss                                                               
in confidence in them, as well."                                                                                                
                                                                                                                                
REPRESENTATIVE   GRUENBERG   addressed   his   friends   in   the                                                               
legislature and asked  them to work with the  mayors, saying that                                                               
"we are  all Alaskans, and  to solve  our problems, we  must work                                                               
together."                                                                                                                      
                                                                                                                                
Number 2330                                                                                                                     
                                                                                                                                
MR.  RITCHIE said  he agrees,  and the  reason he  is before  the                                                               
committee today is to say  that the legislature is moving forward                                                               
in  the right  direction and  the communities  are supportive  of                                                               
those efforts.   He mentioned that communication  is critical and                                                               
does not  always work well.   He spoke about the  number of small                                                               
communities that have been in  existence for well over a thousand                                                               
years, that now are feeling a  great deal of pain.  He encouraged                                                               
keeping communication open to work together to solve problems.                                                                  
                                                                                                                                
Number 2234                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING asked  why  those  communities that  have                                                               
been around  for a thousand  years are now  in such dire  need of                                                               
money now  for services, when,  as recently as a  generation ago,                                                               
they did  fine.   He said he  has been [in  Alaska] 41  years and                                                               
remembers  when Alaska  was a  state  that had  good roads,  good                                                               
schools,  and public  safety  at  just a  fraction  of the  money                                                               
available  now.   "Suddenly we  have  a major  crisis when  we're                                                               
spending  far more  money than  we did,  say, 35  years ago,"  he                                                               
remarked.                                                                                                                       
                                                                                                                                
MR. RITCHIE replied  that he has thought a great  deal about that                                                               
as well and thinks it is a valid  question.  In the last 50 years                                                               
there  have  been   amazing  changes  in  the   quality  of  life                                                               
throughout  Alaska,   especially  rural   Alaska,  in   terms  of                                                               
decreases  in infant  mortality, improvement  of education,  more                                                               
on-site  health clinics,  and other  basic things.   He  said the                                                               
issue is, if  those things start deteriorating  now, people quite                                                               
rightfully have come to expect  that quality of life, and without                                                               
those things, there  is a great likelihood that  there's going to                                                               
be a exodus out of small  communities.  He said, "The problem is,                                                               
small communities  are what we  think of  when we think  of rural                                                               
Alaska  and what  it stands  for.   From a  practical standpoint,                                                               
most of  our urban communities have  as much as a  third of their                                                               
economy based on  commerce and providing services."   He said the                                                               
relationship  among  all the  communities  in  Alaska is  a  very                                                               
important part of the economy.                                                                                                  
                                                                                                                                
Number 1947                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON  told of her  experience living in  a small                                                               
town for  seven years, and  of the closing businesses  and exodus                                                               
of people  due to fewer jobs.   She described the  decline of the                                                               
hospital as  an employer and  the chain  reaction due to  lack of                                                               
jobs, and she predicted that the  town could become a ghost town.                                                               
She said these are real  things that are happening to communities                                                               
across  the state  and she  imagined  the vote  of no  confidence                                                               
stemmed from  high levels  of frustration.   She  emphasized that                                                               
[the  House Special  Committee  on  Ways and  Means]  has made  a                                                               
difference for the last two years.   She repeated that there is a                                                               
lot of frustration in the "real trenches of the real world."                                                                    
                                                                                                                                
CHAIR HAWKER  spoke of viability  of communities  and, addressing                                                               
Mr.  Ritchie,  said  he  knew the  Alaska  Municipal  League  was                                                               
concerned as well.   He stated the mission of  [the House Special                                                               
Committee  on  Ways and  Means],  which  is cost  management  and                                                               
efficiencies,  and  opined  that   the  viability  of  individual                                                               
communities would be an important subset of that discussion.                                                                    
                                                                                                                                
Number 1712                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGG  said  he  was   pleased  to  hear  that  Mr.                                                               
Ritchie's organization  has "opened their eyes,"  recognizes that                                                               
this legislature  has been  working on, [a  fiscal plan],  and is                                                               
now applauding the  legislature for their efforts.   He asked Mr.                                                               
Ritchie if that is what he is hearing.                                                                                          
                                                                                                                                
MR. RITCHIE replied yes.                                                                                                        
                                                                                                                                
REPRESENTATIVE OGG  thanked Mr. Ritchie and  his organization for                                                               
their reflection and support of the legislature's efforts.                                                                      
                                                                                                                                
Number 1606                                                                                                                     
                                                                                                                                
CHAIR  HAWKER thanked  Mr. Ritchie,  and asked  if there  was any                                                               
further  public  testimony.    Hearing  none,  he  closed  public                                                               
testimony.                                                                                                                      
                                                                                                                                
Number 1552                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  [Started  to  make a  motion  to  adopt                                                               
Conceptual Amendment 1  and then withdrew it in  order to consult                                                               
with  Mr.  Bartholomew about  the  wording  about consumer  price                                                               
index.]                                                                                                                         
                                                                                                                                
MR.  BARTHOLOMEW related  that currently  in AS  37.13.145(c) the                                                               
wording  United  States  Consumer   Price  Index  for  all  urban                                                               
consumers.  He supported continuing to use that measure.                                                                        
                                                                                                                                
REPRESENTATIVE GRUENBERG suggested that  statute be read into the                                                               
record.    He  asked  if  Mr. Bartholomew  was  referring  to  AS                                                               
37.13.145(c)(1).                                                                                                                
                                                                                                                                
MR. BARTHOLOMEW said correct.                                                                                                   
                                                                                                                                
Number 1460                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   moved  to  adopt   the  aforementioned                                                               
Conceptual  Amendment  1,  but  requested  clarification  of  the                                                               
wording.                                                                                                                        
                                                                                                                                
CHAIR HAWKER  clarified that  Conceptual Amendment  1 is  to have                                                               
the   drafters  include   as  appropriate   in   this  bill,   AS                                                               
37.13.145(c)(2),  paraphrased  as  appropriate, using  the  price                                                               
index  that  will  be  read into  the  record  by  Representative                                                               
Gruenberg.                                                                                                                      
                                                                                                                                
REPRESENTATIVE GRUENBERG pointed out that  that is a statute that                                                               
is going to be repealed in [the proposed CS].                                                                                   
                                                                                                                                
CHAIR HAWKER said correct.                                                                                                      
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  that  is why  it  is a  conceptual                                                               
amendment and is being put back in.                                                                                             
                                                                                                                                
Number 1350                                                                                                                     
                                                                                                                                
CHAIR HAWKER  objected to Conceptual  Amendment 1  for discussion                                                               
purposes.   He read,  "As currently  used for  inflation proofing                                                               
the  permanent  fund  is  calculated using  the  average  of  the                                                               
monthly  United  States  Consumer   Price  Index  for  all  Urban                                                               
Consumers", which he noted is called the CPI-U.                                                                                 
                                                                                                                                
REPRESENTATIVE ROKEBERG  added that he  has always used  the term                                                               
"or its equivalent" in case there has ever been a change.                                                                       
                                                                                                                                
REPRESENTATIVE   GRUENBERG  asked   for   clarification  of   the                                                               
amendment.  He asked if  Representative Hawker is suggesting that                                                               
the entire statute not be repealed.                                                                                             
                                                                                                                                
CHAIR HAWKER paraphrased Conceptual Amendment 1:                                                                                
                                                                                                                                
     The  amendment   before  us   would  be   a  conceptual                                                                    
     amendment to  have the  drafters include  as additional                                                                    
     language  some  place  as   appropriate  in  this  Act,                                                                    
     language  that would  define, in  relation  to rate  of                                                                    
     inflation  as appears  on page  3, line  12, that  that                                                                    
     rate  of   inflation,  the   measure,  the   index  for                                                                    
     determining  that rate  of inflation,  be the  CPI-U or                                                                    
     its equivalent and successor index.                                                                                        
                                                                                                                                
MR. BARTHOLOMEW  suggested in Section 37.13.900,  the definitions                                                               
section for this  provision of statute, adding  the definition of                                                               
inflation.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  ROKEBERG  agreed  that is  where  the  definition                                                               
should go so it would be  applicable throughout the whole body of                                                               
the chapter.                                                                                                                    
                                                                                                                                
Number 1030                                                                                                                     
                                                                                                                                
CHAIR HAWKER  withdrew his objection  to Conceptual  Amendment 1.                                                               
There being no objection, Conceptual Amendment 1 was adopted.                                                                   
                                                                                                                                
Number 1020                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to adopt Conceptual  Amendment 2,                                                               
to  say  that in  the  conditional-effect  portion of  the  bill,                                                               
Section 10, that only those sections  that are related to POMV be                                                               
included.                                                                                                                       
                                                                                                                                
CHAIR HAWKER objected for discussion purposes.                                                                                  
                                                                                                                                
Number 1010                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG offered  a friendly  amendment to  make                                                               
the motion more detailed.                                                                                                       
                                                                                                                                
REPRESENTATIVE WEYHRAUCH agreed.                                                                                                
                                                                                                                                
REPRESENTATIVE GRUENBERG expanded Conceptual  Amendment 2 to say,                                                               
Sections 1,  2, and  5 would not  be subject to  Section 10.   He                                                               
explained, "So, in  other words, the conditional  effect would be                                                               
Sections  3, 4,  6, and  9 of  this Act  take effect  only if  an                                                               
amendment to  Article IX .... "   He said that  language would go                                                               
on page 6, line 12, which would  exempt Sections 1, 2, and 5 from                                                               
the  conditional  effect.    That   is  the  first  part  of  the                                                               
amendment, he  noted.   The second  part would  be that  there be                                                               
another section  added, Section 12,  that would give  Sections 1,                                                               
2, and 5 an immediate effective date.                                                                                           
                                                                                                                                
CHAIR HAWKER  suggested that Sections  1, 2,  and 5 would  not be                                                               
conditional under  either the existing  Sections 10 or  11, which                                                               
would allow the drafters some latitude.                                                                                         
                                                                                                                                
REPRESENTATIVE GRUENBERG agreed.                                                                                                
                                                                                                                                
Number 0903                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG  objected.   He said the  bill was  crafted to                                                               
match the POMV and he does not  want to go down this road because                                                               
it all  becomes ineffectual if the  POMV constitutional amendment                                                               
does not go  into effect.  He said  he appreciated Representative                                                               
Gruenberg's  desire  to  address   these  kinds  of  issues,  but                                                               
suggested  that  perhaps  there should  be  separate  legislation                                                               
which he would support.                                                                                                         
                                                                                                                                
REPRESENTATIVE  GRUENBERG  responded  that the  issue  he  raised                                                               
about  Sections  1,  2,  and  5  may  not  have  been  completely                                                               
considered when this  bill was drafted.  Those  sections are good                                                               
changes  in  the  law  and  whether  or  not  the  constitutional                                                               
amendment  passes, this  bill does  have merit,  and there  is no                                                               
reason not to move those sections forward anyway.                                                                               
                                                                                                                                
Number 0649                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  agreed with Representative Ogg  and said                                                               
Sections  1  and  2  are  "here  by  convenience,"  and  he  also                                                               
supported separate legislation for  those sections because adding                                                               
[HB  298] as  a companion  bill to  the constitutional  amendment                                                               
could cause confusion to the  public with extra sections to read.                                                               
He said this  issue should be considered during  the next hearing                                                               
of the bill.                                                                                                                    
                                                                                                                                
CHAIR HAWKER maintained his objection.                                                                                          
                                                                                                                                
A roll call vote was  taken.  Representatives Weyhrauch, Kohring,                                                               
Wilson, and Gruenberg  voted in favor of  Conceptual Amendment 2.                                                               
Representatives  Ogg,  Rokeberg,  and Hawker  voted  against  it.                                                               
Representatives  Moses  and Samuels  were  absent  for the  vote.                                                               
Therefore, Conceptual Amendment 2 was adopted by a vote of 4-3.                                                                 
                                                                                                                                
Number 0355                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to  report CSHB 298,  Version 23-                                                               
LS1075\S,  Cook,  3/15/04,  as  amended, out  of  committee  with                                                               
individual recommendations and the accompanying fiscal notes.                                                                   
                                                                                                                                
REPRESENTATIVE KOHRING objected.                                                                                                
                                                                                                                                
Number 0237                                                                                                                     
                                                                                                                                
A  roll call  vote was  taken.   Representatives Weyhrauch,  Ogg,                                                               
Wilson, Rokeberg,  Gruenberg, and Hawker  voted in favor  of CSHB                                                               
298.   Representative Kohring voted against  it.  Representatives                                                               
Moses  and Samuels  were absent  for the  vote.   Therefore, CSHB                                                               
298(W&M) was reported out of  the House Special Committee on Ways                                                               
and Means by a vote of 6-1.                                                                                                     
                                                                                                                                
CHAIR  HAWKER  thanked  the  committee  and  the  permanent  fund                                                               
experts for their participation.                                                                                              
                                                                                                                                

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