Legislature(2001 - 2002)
05/08/2002 03:14 PM Senate JUD
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CSHB 304(2 RLS)am-PERM. FUND INCOME/ DIVIDENDS/ FUNDS
CHAIRMAN TAYLOR said the committee has received several letters
on HB 304. He then asked Mr. Shay to testify.
MAYOR JACK SHAY, Ketchikan Gateway Borough and President of the
Alaska Municipal League (AML), told members the AML supports CSHB
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304(2 RLS)am. The AML realizes the legislation is controversial.
The AML is appreciative of any consideration the committee gives
to this legislation.
MR. JIM WEIDNER, a member of A Friend of the Dividend, said he
has campaigned to support the permanent dividend program since
its inception in the early 1980s. He said the purpose of the
permanent fund and dividend is to implement the state's
constitutional requirement to maximize the benefits of Alaska's
resources to all people. He enumerated seven examples of how the
permanent fund dividend meets the public purpose:
· It equally distributes Alaska's public wealth without regard
to age, sex, race, creed, color, economic status, geographic
location or political affiliation;
· It establishes a stable, statewide economic floor which
would not otherwise exist in all areas of the state;
· It helps reduce economic poverty and welfare dependency and
related social problems, such as alcohol, violence, child
abuse and criminal behavior;
· It maximizes individual responsibility by allowing each
person the individual freedom to invest their money as they
see fit;
· It reduces government [indisc.] and uneven wealth
distribution and waste inherent in the government's
political system;
· It promotes conversion of the Alaska economy from a self-
serving paternalistic system benefiting a very few; and
· It reduces the cost of living for Alaskans and promotes
small scale business and competitive economic development.
MR. WIEDNER said that elements of HB 304 and HB 20 were posed on
a ballot initiative several years ago. That ballot initiative to
raid the permanent fund was well funded and supported by the
political establishment and people living off of the state's oil
wealth spending. The University of Alaska promoted it, as well as
the teachers' union and Commonwealth North. That initiative lost
with 83 percent of the vote, a crushing political defeat. It
failed in every single precinct in the state. He said that some
people spend their dividends on their children's education,
others use it for house repairs, car payments, clothing, and
donations. He noted it is part of human nature to want to get
something with someone else's money. Dividends are what they are
today because former predatory attempts have been fought off. He
asked that committee members oppose the legislation.
MR. DALE URICH, Secretary of Save Your Dividend Alaskans (SYDA),
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said he agrees with the former speaker and opposes CSHB 304(2
RLS)am or any other legislation that attempts to tap the
permanent fund dividend. He stated that SYDA supports legislators
who are fighting to reduce government spending and oppose these
types of bills and its members will be at the polls. He asked
legislators to strike the term "budget shortfall" from any text
they are working on and use the word "overspending" instead.
MR. R. MERRICK PIERCE, representing A Bright Future for
Fairbanks, said the cumulative impact of HB 303, HB 304 and HB 20
will have a devastating effect on the Fairbanks North Star
Borough economy. The population in the borough has fallen since
1995. Wages in the borough are not keeping up with inflation. If
the three bills were to pass, they would pull about $90 million
annually out of the private sector of the borough. That
represents the same amount as the annual budget of the Fairbanks
North Star Borough. He finds it unimaginable that any legislator
from that borough could support these pieces of legislation. He
noted that recent research published by the Wall Street Journal
showed that the states that cut taxes the most had the largest
increase in jobs. Also, those states with the lowest taxes were
more likely to have population growth. He stated that if these
pieces of legislation pass, the Fairbanks North Star Borough will
see jobs and population loss. He asked members to defeat these
bills.
CHAIRMAN TAYLOR asked Mr. Pierce to repeat the amount of money
passage of these bills will cost the Fairbanks North Star
Borough.
MR. PIERCE replied $90 million.
CHAIRMAN TAYLOR stated:
I ballparked at about that same place, maybe a little
bit higher, because they're talking of taking $1
billion total out of the state's economy in the form of
income taxes, raid on the permanent fund in this bill -
304, and then the additional $70 million that they're
taking in HB 20. I was told that totals almost a
billion and if you divide that out by the population
for how many people live in the Fairbanks North Star
Borough, I actually came out with a number that would
roughly be about - I think you're about 25 percent of
the population of this state - maybe you're not but if
you're 20 percent of the population of this state,
that's $200 million that has to come out of the
Fairbanks area and it comes in the form of reduced
payments on permanent fund dividends, which is [HB] 304
and [HB] 20 and then of course increased income taxes
in the other bill. I was a little bit higher than that.
He then asked if Mr. Pierce used both the income tax and the raid
on the permanent fund in calculating $90 million.
MR. PIERCE said the North Star Borough has about 13 percent of
the state population. He said his calculation was based on about
77,000 North Star Borough residents who collect a dividend based
on $700 per dividend. That equals about $53 million from the
permanent fund dividend. He calculated the income tax using
34,000 workers paying $100 each, which equals about $34 million.
CHAIRMAN TAYLOR agreed that will have a devastating impact on the
Fairbanks economy, which he considers one of the more healthy in
the state. He then thanked all participants and informed members
that Senator Ward has submitted an amendment.
SENATOR WARD said he hopes the committee does not move CSHB
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304(2 RLS)am out but if it does, he has proposed an amendment
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that changes the effective date so that CSHB 304(2 RLS)am will
take effect upon passage of SJR 23, which is the constitutional
spending limit. He said he believes that Alaska is not living
within its means and instead of privatizing, prioritizing, and
looking at other industries to see whether or not they should
contribute to the overspending of state government, it is
proposing to reach into the pockets of every man, woman, and
child. He said if the committee wants to steal the dividend, he
asks that it put an effective date on the legislation so that it
cannot do so until a constitutional spending limit is voted on.
CHAIRMAN TAYLOR stated that he will have to oppose the amendment
because he would hate to see people vote to take money out of the
dividend without allowing them a vote on that specific question.
He said he does not know of a politician who is currently in
office who did not promise the people of Alaska that the
permanent fund would not be touched without a vote of the people.
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He said the amendment to CSHB 304(2 RLS)am would place a
condition on the taking of money from the fund based upon a
public vote on a spending cap which is a whole different
question. He suggested keeping the two questions separate in that
there must be a spending cap in place before a separate vote is
taken on whether or not to raid the fund.
SENATOR WARD said he agrees and that is the reason he asked the
committee not to pass the bill out. He noted the Governor, when
asked directly by the press, gave an answer that was 3½ minutes
long and was not a "yes" or "no" to the question of whether he
would veto a bill that did not require a vote of the people. He
said when the 1989 raid of the permanent fund took effect, a
majority of the Republicans stopped it until, "the Governor came
down and solicited the help of the Democrats to put that on the
ballot." He said it is very intoxicating to spend other people's
money.
CHAIRMAN TAYLOR announced that the committee would hold CSHB
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304(2 RLS)am at this time and asked Mr. Kelly to testify.
MR. JIM KELLY, Director of Communications for the Alaska
Permanent Fund Corporation, informed members that two things are
required to manage a large amount of money for a long period of
time if the purpose is to provide benefits to people: provide a
stable and growing amount of income for the current generation
and manage the payout so that the fund will be there for the
beneficiaries of the future. The methodology proposed in CSHB
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304(2 RLS)am is one that the trustees believe will accomplish
both. Changing the distribution payout to 5 percent of market
value is an improvement over the status quo. The Senate Judiciary
Committee passed out a proposed constitutional amendment, which
provides for a spending limit on the use of the permanent fund
income last week. That is the Board of Trustees preferred route
as it puts limits on how much of the fund can be used and it
provides Alaskans a chance to vote on the issue. He said the
issue of how the money will be used once the payout methodology
is in place is not one the Board of Trustees has been involved
with. However, the Trustees are concerned that the fund be
inflation-proofed so that benefits can be provided in the future.
The constitutional amendment puts inflation proofing in the
Constitution and that will ensure that the fund will produce $40
billion over the next 25 years, an amount double the amount of
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income from oil. He stated that CSHB 304(2 RLS)am repeals
statutory inflation proofing which would be acceptable if, at the
same time, a constitutional amendment is passed. Otherwise, the
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Trustees have difficulty with CSHB 304(2 RLS)am because the
intention to limit the payout to 5 percent is good, but one
legislature can undo what another has done. He concluded by
saying there is a lot of merit in this legislation but it needs
to be "married" to the constitutional amendment.
4:41 p.m.
CHAIRMAN TAYLOR thanked Mr. Kelly and said he asked the sponsor
of the bill how to secure inflation proofing the fund and where
the inflation proofing dollars would reside. He said he believes
a major restructuring of that portion of the bill is necessary
and that it should be "married" to a constitutional amendment. He
asserted that it is such a terrific risk to hope that legislators
in the future will do the right thing and continue to inflation
proof the fund. He said no one has dared cross that line in the
sand before, but there is now a majority in the House that want
to cross that line and want to make certain that the people
cannot vote. He thanked Mr. Kelly and his staff for their
responsiveness to the committee.
REPRESENTATIVE BILL HUDSON said he would like to address some
questions posed by committee members last week. He distributed a
chart of permanent fund financial projections on which he
highlighted the last five years of statutory met income. He noted
a question was raised about how to guarantee that the fund will
not be drained in a low-income year.
REPRESENTATIVE HUDSON said the question of a public vote and how
to guarantee inflation proofing was discussed in the House. He
believes a public vote is only guaranteed by the passage of SJR
13. He pointed out that at the present time, inflation proofing
and payment of permanent fund dividends is subject to the
legislature. The legislature has open entrée to the entire
earnings of the permanent fund on an annual basis and has put the
money into the fund statutorily in order to pay the dividends
based on a five year average of the statutory met income. In the
year 2002, the statutory met income was $376 million yet the
legislature passed out $938 million in dividends by virtue of the
formula and $602 million in inflation proofing by virtue of
statutory provisions. He said if legislators agree that an
enormous fiscal gap exists, that the probability of filling that
gap from new revenues in the immediate future is not likely, that
the legislature will not be able to cut $800 million from the
budget, that no income tax will pass, and that the CBR will be
gone in three years, there will be no place to go except into
enormous taxes, enormous cuts, and the earnings reserve of the
permanent fund. He said the point of fiscal policy members is
that rather than wait until the permanent fund money is devoured,
the legislature should begin to use some of the earnings of the
permanent fund early coupled with a modest income tax along with
budget cuts. He noted the House reduced the budget by $100
million this year. He said the House is trying to offer the
Senate a series of things that it took out to public hearings and
worked on with the Department of Revenue and the Permanent Fund
Corporation. He noted Mr. Kelly was accurate in saying the
Trustees would like to see inflation proofing of the corpus of
the permanent fund fixed into the Constitution, which will
require a public vote. He asked what is wrong with adopting SJR
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13 as nothing in CSHB 304(2 RLS)am interrupts that.
TAPE 02-28, SIDE A
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REPRESENTATIVE HUDSON said CSHB 304(2 RLS) does not begin the
50-50 split until 2004. It does tap $300 million for the 2003
budget to reduce the amount of take on the CBR to prolong its
life as an income account and shock absorber for the operating
budget.
CHAIRMAN TAYLOR thanked Representative Hudson.
SENATOR THERRIAULT asked why the fiscal policy group felt that
expending out of the earnings reserve is preferable to the CBR.
He pointed out that both accounts generate income.
REPRESENTATIVE HUDSON said he disagrees that the CBR is a fund
that is established to "jack the price up."
SENATOR THERRIAULT said that is how it has been used.
REPRESENTATIVE HUDSON asserted that has been recent. He recalled
that when the Republicans were in the minority, they used it to
reduce the expenditure, not to increase it. He said as long as
the legislature has individuals who say they won't vote to use
CBR funds unless another project is funded in their district, the
cost will go up. He said the fiscal policy group felt the CBR
fund is the shock absorber for the capital budget and the
earnings reserve is the shock absorber for the permanent fund and
that prefers to take $300 million from the earnings reserve
because the CBR is down to $2.3 billion now. Even if $100 million
in interest is added, it will drop down too fast with an $800
million budget gap.
REPRESENTATIVE HUDSON asked members to give the legislation a
chance and stated:
...and if we can have an open and honest dialogue and
discussion of what's in the state's best interest, and
if we can take the politics all of aside - this is not
a campaign ploy on my part - it's not a re-election
ploy on my part, I am not introducing taxes and trying
to distribute the earnings of the permanent fund in
order to further my chances to get re-elected. I think
anybody with any common sense would recognize the way
you get re-elected is to put more pork in the pot and
stay the devil away from people's assets. But I think,
as an Alaskan at any rate, this is the most important
issue confronting not only us, but the next
administration.
CHAIRMAN TAYLOR said he totally disagrees because:
We give the bureaucrats, we give the big government
folks around here the key to the golden door, and they
never need to talk to another citizen in the state.
They've got themselves an endowment that will pay for
every single new salary, benefit, and bonus for every
state worker forever. Will they ever develop one inch
of land in this state? Will we ever see the Beluga coal
fields used for a coal field? Will we ever see the vast
timber resources of this state used? Will you or I ever
be able to buy a piece of Alaska land from the
Department of Natural Resources that now only has one
person even selling land? No Bill, you won't. I
guarantee you, as long as these halls can suck money
out of the back pockets of working Alaskans through
income taxes or steal money out of the back pockets of
working Alaskans through the permanent fund, they never
have to develop one inch of this state and they won't.
They haven't for over 20 years.
REPRESENTATIVE HUDSON replied that he and Chairman Taylor could
have a wonderful discussion on this issue.
CHAIRMAN TAYLOR said what is so difficult is that HB 304 should
be the very last resort that the legislature turns to for money,
but sadly it is the first resort. He noted the legislature can't
give land to the University because the Governor will veto those
kinds of actions.
REPRESENTATIVE HUDSON said that he agrees and would also like to
see more land available, resource development and to hold the
damper down on public spending and privatization and other
methods. He voted for all of those efforts. However, where he
disagrees is that HB 304 is just a part of many actions that need
to be taken otherwise the CBR will be lost and when it is gone,
the people will not receive any permanent fund dividend at all.
He said when the CBR is gone, the legislature will have no other
place to go except the earnings reserve of the permanent fund.
CHAIRMAN TAYLOR said it will be depleted somewhat because of low
income years and by inflation proofing so there will be nothing
for this government to grab.
REPRESENTATIVE HUDSON asserted there will be no permanent fund
dividend unless, "you want to try to develop this thing with some
action up front and work it on out."
CHAIRMAN TAYLOR said that is why he wants to put a constitutional
amendment on the ballot to provide voters with an opportunity to
stabilize inflation proofing.
REPRESENTATIVE HUDSON said HB 304 does the same thing.
CHAIRMAN TAYLOR said if he could get DNR to sell 200,000 acres
per year, he might be willing to look at something like HB 304.
He noted that when the Administration will not sell a square inch
of land or develop anything, it's hard to believe the state's
only choice is to tax people.
REPRESENTATIVE HUDSON said he will not argue that. He then
thanked members.
CHAIRMAN TAYLOR adjourned the meeting at 4:47 p.m.
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