Legislature(2017 - 2018)SENATE FINANCE 532

03/08/2017 09:00 AM FINANCE

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Audio Topic
09:04:29 AM Start
09:05:43 AM SB21 || SB26 || SB70
09:44:27 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 21 PERMANENT FUND: INCOME; POMV; DIVIDENDS TELECONFERENCED
Heard & Held
+= SB 26 PERM. FUND:DEPOSITS;DIVIDEND;EARNINGS TELECONFERENCED
Heard & Held
+= SB 70 APPROP. LIMIT/BUDGET PROCESS/PERM FUND TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                                                                                                                                
SENATE BILL NO. 21                                                                                                            
                                                                                                                                
     "An Act  relating to appropriations from  the income of                                                                    
     the Alaska permanent fund;  relating to the calculation                                                                    
     of  permanent  fund  dividends; and  providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
     SB  21 was  HEARD  and HELD  in  committee for  further                                                                    
     consideration.                                                                                                             
                                                                                                                                
SENATE BILL NO. 26                                                                                                            
                                                                                                                                
     "An  Act   relating  to   the  Alaska   Permanent  Fund                                                                    
     Corporation,  the  earnings  of  the  Alaska  permanent                                                                    
     fund,  and the  earnings reserve  account; relating  to                                                                    
     the  mental health  trust  fund;  relating to  deposits                                                                    
     into the dividend fund; relating  to the calculation of                                                                    
     permanent  fund  dividends;  relating  to  unrestricted                                                                    
     state   revenue   available  for   appropriation;   and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
     SB  26 was  HEARD  and HELD  in  committee for  further                                                                    
     consideration.                                                                                                             
                                                                                                                                
                                                                                                                                
SENATE BILL NO. 70                                                                                                            
                                                                                                                                
     "An Act  relating to  an appropriation  limit; relating                                                                    
     to  the   budget  responsibilities  of   the  governor;                                                                    
     relating to the Alaska  permanent fund, the earnings of                                                                    
     the  Alaska permanent  fund, and  the earnings  reserve                                                                    
     account;  relating to  the  mental  health trust  fund;                                                                    
     relating to  deposits into the dividend  fund; relating                                                                    
     to  the  calculation  and  payment  of  permanent  fund                                                                    
     dividends; and providing for an effective date."                                                                           
                                                                                                                                
     SB  70 was  HEARD  and HELD  in  committee for  further                                                                    
     consideration.                                                                                                             
                                                                                                                                
                                                                                                                                
9:05:43 AM                                                                                                                    
                                                                                                                                
ROB   CARPENTER,   FISCAL   ANALYST,   LEGISLATIVE   FINANCE                                                                    
DIVISION, (LFD) introduced himself.                                                                                             
                                                                                                                                
ALEXEI   PAINTER,   FISCAL  ANALYST,   LEGISLATIVE   FINANCE                                                                    
DIVISION, introduced himself.                                                                                                   
                                                                                                                                
9:05:51 AM                                                                                                                    
                                                                                                                                
Mr. Carpenter  discussed the document titled,  "Model Output                                                                    
Comparison by  Bill" (copy on  file). He pointed out  to the                                                                    
committee that the document laid  out the status quo, SB 21,                                                                    
SB 26,  and SB 70  scenarios. He  that the Office  of Budget                                                                    
and  Management  10-year  plan   had  been  added  into  the                                                                    
assumptions on the page. He  reminded the committee that the                                                                    
slide was only one  picture, with different assumptions than                                                                    
in previous  model runs. He  stated that the only  bill that                                                                    
contained an  FY 17 percentage  of market value  (POMV) draw                                                                    
was  SB 26,  because  of the  immediate  effective date.  He                                                                    
stated that  SB 70 had  an effective  date of July  1, 2018,                                                                    
and  the division  had not  assumed an  FY 17  draw for  the                                                                    
model.   He  relayed   that   the   Alaska  Permanent   Fund                                                                    
Corporation's (APFC)  realized gains of 90  percent had been                                                                    
used  in the  model  because it  provided  a more  realistic                                                                    
scenario for the status quo;  more returns would be realized                                                                    
to pay for government.                                                                                                          
                                                                                                                                
9:07:47 AM                                                                                                                    
                                                                                                                                
Mr.  Carpenter  noted  that the  unrestricted  general  fund                                                                    
revenue  (UGF), UGF  budget, and  the fiscal  deficit before                                                                    
POMV  remained  identical  for   all  scenarios,  with  $1.6                                                                    
billion if  revenue in  FY16. He noted  that the  model gave                                                                    
numbers  for  FY  18  and  FY  26, with  SB  26  and  SB  70                                                                    
reflecting  a  reduction in  royalty  revenue  going to  the                                                                    
permanent fund and an additional  $50 million to $70 million                                                                    
deposited  into the  general fund.  He stated  that the  UGF                                                                    
budget assumed  $4.3 billion in  FY 18, and $4.9  billion in                                                                    
FY  26,   as  related  to   the  OMB  10-year   plan  growth                                                                    
expectations. He furthered that  this would provide a fiscal                                                                    
deficit in  FY 18 of  $2.7 billion  and $2.9 billion  in the                                                                    
out years,  and was slightly different  in SB 26 and  SB 70,                                                                    
due to the royalty change  to the general fund. He continued                                                                    
that  lines 7  thorough 9  compared the  POMV and  the split                                                                    
between  dividends and  government.  He relayed  that SB  21                                                                    
offered 4.5  percent with  a 50/50  split with  2.25 percent                                                                    
being the minimum  going to the permanent  fund dividend. He                                                                    
stated that  SB 26  offered an 80/20  split with  the caveat                                                                    
that an  additional 20  percent from  UGF royalties  went to                                                                    
the  permanent fund  dividend.  He related  that  SB 70  was                                                                    
currently  75/25  split  between   the  government  and  the                                                                    
dividend, respectively.                                                                                                         
                                                                                                                                
9:10:04 AM                                                                                                                    
                                                                                                                                
Mr. Painter noted  that in FY 18,  both SB 26 and  SB 70 had                                                                    
minimum dollar amount dividends  of $1000; while the formula                                                                    
showed a 75/25 percent split,  the dividend would be $1000 -                                                                    
higher than 25 percent.                                                                                                         
9:10:35 AM                                                                                                                    
                                                                                                                                
Mr. Carpenter  relayed that  the only  change between  SB 26                                                                    
and SB 70 regarding POMV was  the decrease to 5 percent; the                                                                    
state would  see 3 years a  5.25 percent and then  drop wo 5                                                                    
percent in  the out years.  Lines 11 through 13  offered the                                                                    
dividend  dollar   appropriation  amount,  which   was  $1.5                                                                    
billion  in FY  18, and  $1.9 billion  by FY  26, under  the                                                                    
status quo. Under SB 21  the dividend appropriation would be                                                                    
$1.082 billion  in FY 18, rising  to $1.4 billion in  FY 26.                                                                    
Under both SB 26 and SB  70, there would be $700 million and                                                                    
$800 million  appropriated, respectively. He noted  that the                                                                    
next line showed  the amount going to  government (line 12).                                                                    
He  shared that  under the  status quo  nothing would  go to                                                                    
government in FY  18, but the assumption had  been made that                                                                    
the deficit from  the ERA would need to be  filled in FY 26,                                                                    
totaling $2.7  billion. He  said that SB  21 would  assume a                                                                    
50/50  split  because of  the  need  for  money to  pay  for                                                                    
government.                                                                                                                     
                                                                                                                                
Mr.  Carpenter   continued  to  discuss  the   model  output                                                                    
comparison  by bill  using the  following notes/assumptions:                                                                    
OMB 10-year plan  for operating budget; FY 17  POMV draw for                                                                    
SB 26 only  (other bills effective July 1,  2017); APFC's 90                                                                    
percent realized gains.                                                                                                         
                                                                                                                                
9:14:52 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:22:39 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:22:47 AM                                                                                                                    
                                                                                                                                
Senator  Dunleavy queried  the assumptions  embedded in  the                                                                    
model. He  assumed that the model  was based on the  OMB 10-                                                                    
year  revenue  forecast,  and wondered  whether  there  were                                                                    
assumed reductions reflected in the model.                                                                                      
                                                                                                                                
Mr. Painter  replied that  the assumption  was based  on the                                                                    
DOR Fall 2018 Revenue  Forecast, with adjustments. He stated                                                                    
that  the  first adjustment  was  the  higher percentage  of                                                                    
royalties going to  the general fund under SB 26  and SB 70.                                                                    
He  said  that  the  second assumption  was  in  the  budget                                                                    
baseline  that  reflected  the   statutory  minimum  of  tax                                                                    
credits being paid out each  year, one impact of which would                                                                    
be that  more of them  would be used against  tax liability.                                                                    
He said that the budget  that the division was assuming used                                                                    
OMB's  10-year  plan for  the  operating  budget, which  had                                                                    
small reductions over  the next 3 years, and  then grew with                                                                    
inflation at  2.5 percent. He  furthered that  OMB's 10-year                                                                    
plan  assumed that  the state  would begin  bonding for  the                                                                    
capital budget,  which was complicated, so  the division had                                                                    
assumed  a flat  capital  budget of  $180  million per  year                                                                    
beginning in FY 19.                                                                                                             
                                                                                                                                
9:24:31 AM                                                                                                                    
                                                                                                                                
Senator  Dunleavy  understood  that  the  numbers  were  for                                                                    
modeling purposes only, and that  the senate had not adopted                                                                    
the OMB 10-year projections.                                                                                                    
                                                                                                                                
Co-Chair   MacKinnon  replied   in   the  affirmative,   and                                                                    
explained  that the  division was  attempting to  provide an                                                                    
apples to  apples comparison of  the three bills  before the                                                                    
committee and the status quo.                                                                                                   
                                                                                                                                
9:24:52 AM                                                                                                                    
                                                                                                                                
Mr. Carpenter  explained that  one of  the reasons  that the                                                                    
division used  the OMB 10-year  plan was that the  last time                                                                    
they  presented model  output there  had been  feedback that                                                                    
growth should  be built in. He  said that a flat  budget had                                                                    
been  assumed   under  the  scenarios  because   of  natural                                                                    
inflationary  pressures. He  noted that  there was  pressure                                                                    
for a decreasing  budget. He stressed that the  model was no                                                                    
more realistic  than any other projections,  but was another                                                                    
point of view.                                                                                                                  
                                                                                                                                
9:25:44 AM                                                                                                                    
                                                                                                                                
Senator Dunleavy  assumed that the methodology  the division                                                                    
used  for   the  overall  permanent  fund   calculation  was                                                                    
different from what the corporation itself used.                                                                                
                                                                                                                                
Mr. Painter replied that for  this model the methodology was                                                                    
nearly identical.  He added  that more  conservative numbers                                                                    
for realized earnings  had been used in  other modeling, but                                                                    
this version was very similar.                                                                                                  
                                                                                                                                
9:26:27 AM                                                                                                                    
                                                                                                                                
Senator  Micciche wondered  why  2.5 percent  had been  used                                                                    
instead of 2.25 percent.                                                                                                        
Mr. Painter replied that OMB  had used 2.5 percent. He noted                                                                    
that the Governor's  budget assumed the adoption  of a motor                                                                    
fuel tax  increase, and the  division model did  not because                                                                    
the bill was not currently in committee.                                                                                        
                                                                                                                                
9:27:32 AM                                                                                                                    
                                                                                                                                
Senator Micciche  understood that  the comparisons  were all                                                                    
apples to apples except for the POMV draw for SB 26.                                                                            
                                                                                                                                
Mr. Painter agreed.                                                                                                             
                                                                                                                                
9:27:58 AM                                                                                                                    
                                                                                                                                
Senator  Dunleavy queried  the projected  deficit in  FY 26,                                                                    
under each scenario.                                                                                                            
                                                                                                                                
Mr. Carpenter directed committee attention  to Line 5 of the                                                                    
model  output  comparison.  The line  reflected  the  fiscal                                                                    
deficit before POMV under each scenario.                                                                                        
                                                                                                                                
9:29:47 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:31:49 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:31:57 AM                                                                                                                    
                                                                                                                                
Mr. Painter  looked at  Line 21,  which offered  figures for                                                                    
the CBR balance at the end  of the year under each scenario.                                                                    
He  noted that  the CBR  would be  gone by  FY 26  under the                                                                    
status  quo and  SB 21.  SB  26 and  SB 70  differed, SB  26                                                                    
offering  the  higher  balances  in  FY 18  and  FY  26.  He                                                                    
continued to the ERA end  of the year balance, which offered                                                                    
similarities  between  SB  26  and SB  70;  however,  SB  26                                                                    
provided the higher balances.                                                                                                   
                                                                                                                                
9:37:43 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:41:54 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:42:14 AM                                                                                                                    
                                                                                                                                
Mr.  Painter   looked  at  Line  26,   which  reflected  the                                                                    
principal of the permanent fund.  Under the status quo there                                                                    
was  inflation   proofing  that  was  tied   to  the  actual                                                                    
inflation  value going  from the  ERA to  the principal,  in                                                                    
addition  to   30  percent  royalties.  He   said  that  the                                                                    
principal  would  grow from  $46.5  billion  to $60  billion                                                                    
under the  status quo.  He stated  that SB  21 did  not have                                                                    
inflation  proofing  built in  going  from  the ERA  to  the                                                                    
principal,  so the  only visible  growth  was in  unrealized                                                                    
gains and the growth in  royalties. He relayed that under SB                                                                    
26 and SB 70, the  inflation proofing mechanism would be the                                                                    
4X draw.                                                                                                                        
                                                                                                                                
Co-Chair  MacKinnon   encouraged  the  members   to  provide                                                                    
amendments to the legislation.                                                                                                  
                                                                                                                                
SB  21  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
SB  26  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
SB  70  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

Document Name Date/Time Subjects
SB 21, SB 26, SB 70 SFC Bill Compare Slide.pdf SFIN 3/8/2017 9:00:00 AM
SB 21
SB 26
SB 70