Legislature(2019 - 2020)BELTZ 105 (TSBldg)
03/22/2019 01:30 PM Senate JUDICIARY
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| SB23|| SB24 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 34 | TELECONFERENCED | |
| + | SB 23 | TELECONFERENCED | |
| + | SB 24 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 23-APPROP:SUPP. PAYMENTS OF PRIOR YEARS' PFD
SB 24-PFD SUPPLEMENTAL PAYMENTS
1:33:25 PM
CHAIR HUGHES announced that the first order of business would be
SENATE BILL NO. 23, "An Act making special appropriations from
the earnings reserve account for the payment of permanent fund
dividends; and providing for an effective date" and
SENATE BILL NO. 24, "An Act directing the Department of Revenue
to pay dividends to certain eligible individuals; and providing
for an effective date."
[Before the committee were the CSSB 23(STA), work order 31-
GS1014\M, and the CSSB 24(STA), work order 31-GS1013\M.
1:33:33 PM
CHAIR HUGHES said that the committee would treat both bills as
one agenda item. She stated that these bills were introduced at
the request of the governor and have a Judiciary Committee
referral due to the constitutional questions raised in the
Senate State Affairs Committee.
1:34:44 PM
BRUCE TANGEMAN, Commissioner Designee, Department of Revenue,
Anchorage, stated that these bills have commonly been referred
to as the PFD backpay bills. The bills would appropriate the
money from the earnings reserve account. They authorize him to
distribute the permanent fund dividends.
He explained the processes so members can better understand why
this is being done. Specifically, the bills would pay out
dividends over a three-year period. In 2016, a full dividend was
authorized and vetoed by a previous governor. In 2017 and 2018,
the state paid out permanent fund dividends that were less than
the amount authorized by the statutory calculation passed by the
legislature. The bills would repay the amount over a three-year
period. He explained that excess funds would be drawn out of the
earnings reserve account. Addressing one year at a time will
allow the funds to remain in the ERA and earn a return. Mr.
Milks will speak to the process. He summarized the payback:
A resident who qualified for a permanent fund dividend (PFD) in
2019 and received a PFD in 2016 would receive $1,061.
A resident who qualified for a PFD in 2020 and received a PFD in
2017 would receive an additional $1,289.
A resident who qualified for a PFD in 2021 and received a PFD in
2018 would receive an additional $1,388.
CHAIR HUGHES asked for further clarification on the amounts.
COMMISSIONER TANGEMAN recapped the additional PFD amounts. The
total amount projected to pe paid to qualifying residents over
the three-year period would be approximately [$3700].
1:38:25 PM
SENATOR MICCICHE joined the meeting.
1:38:32 PM
SENATOR KIEHL said that with a known payout date these funds
would not be invested in the same manner. He asked for the
anticipated rate of return.
MR. TANGEMAN responded that funds remaining in the earnings
reserve account for two years could be invested in a much more
aggressive rate than ones needed to payout the permanent fund
dividend. The Permanent Fund Corporation would need to know how
much cash it needs to have on hand. If an additional $600
million would need to be available in October 2019 to pay the
PFD, the corporation could invest the remaining $1.3 billion. He
was unsure of the change in rate of return.
1:40:03 PM
CHAIR HUGHES asked whether he could estimate the anticipated
rate of return for two years.
MR. TANGEMAN answered that the Permanent Fund Corporation's rate
of return assumption is 6.55 percent annually. This would be a
subset. He suggested the corporation could better answer the
specifics.
CHAIR HUGHES asked for the total draw amount over the three-year
period.
MR. TANGEMAN deferred to the Office of Management and Budget.
1:40:58 PM
SENATOR MICCICHE said he previously heard the bill and had no
further questions.
1:41:32 PM
ED KING, Chief Economist, Office of Management and Budget,
Office of the Governor, Juneau, stated that the question was the
anticipated total draw. He said OMB anticipates that 535,000
Alaskans would qualify for repayment each year. He guessed that
it would be about $565 million for 2016, $670 million for 2018,
and $725 million for 2019. In further response, he said it would
be about $1.9 billion in total.
1:42:34 PM
CHAIR HUGHES remarked that this hearing will focus on the
constitutional issues, but it was important for the committee to
have some idea of the figures.
1:42:47 PM
SENATOR KIEHL asked Mr. King whether he had an idea on the
investment return for the two-year period.
MR. KING said the Permanent Fund Corporation manages its
portfolio on the expectation of the draws. The liquidity would
come from the expected payment timeframe. He said that setting
out the payments with a structured draw date would help the
corporation to better manage the portfolio. The expectation
would be that the permanent fund would make more money than if
they had none of this money in the [earnings reserve account].
He estimated that the rate of return would fall somewhere
between 4 and 6.5 percent.
CHAIR HUGHES asked for the math range at 4 to 6.5 percent.
MR. KING offered to calculate it and report back.
1:44:04 PM
CHAIR HUGHES referred to questions that were raised in the State
Affairs Committee regarding the constitutional issues and how it
may stand up in court. She recalled that Mr. Milks had drafted a
memo on cases that lay the groundwork for the administration's
position.
1:44:33 PM
WILLIAM MILKS, Senior Assistant Attorney General, Civil
Division, Labor & State Affairs, Department of Law, Juneau, said
in that the Senate State Affairs Standing Committee considered
the bill and posed general questions on whether SB 23 would face
constitutional issues. The Department of Law submitted a letter
dated March 12, 2019 outlining its position that rational basis
review would apply. The department also concluded that there is
a reasonable basis to conclude that the legislation would
survive constitutional scrutiny.
He stated that two bills cover the same subject area. One bill,
an appropriation bill, would provide for the additional payments
that the commissioner just described. The second bill is
uncodified law to permit the Department of Revenue (DOR) to
follow the process, he said.
1:45:48 PM
MR. MILKS said that SB 23 seeks to address a certain set of
circumstances, including that Alaska has had a long time PFD
program.
1:45:52 PM
SENATOR SHOWER joined the meeting.
1:46:02 PM
MR. MILKS highlighted that for three discrete years, the
statutory formula that set forth the calculation to determine
the permanent fund dividend (PFD) was not followed.
Historically, from the 1980s forward, the statutory formula for
payments of PFDs was used. This bill seeks to provide a three-
part process to remedy those Alaskans affected. In 2016, the
permanent fund dividend was less than the statutory formula.
Under SB 23, an additional payment would be provided to those
Alaska residents who were affected. He said that constitutional
issues were raised on whether it would create a distinction
between Alaska residents based on duration. The department
believes that this bill is narrowly tailored to address that
issue.
MR. MILKS reviewed the history, such as the enabling legislation
that established the permanent fund dividend program that went
to the U.S. Supreme Court in Zobel v. Williams. The U.S. Supreme
Court found the original program was unconstitutional. At the
time, some Alaska residents would receive a PFD of up to 20
times greater than others, which the court found too great a
difference, so the law was struck down. Since then, Alaska
adopted a residency qualification and the PFD is paid in an
equal amount to every Alaska resident. He said that the
Department of Law reviewed the Zobel case and found the court
applied a rational basis test. The department also reviewed
subsequent Alaska Supreme Court decisions, as well as other
decisions, to assess whether this bill would face a serious
constitutional challenge. He pointed out that most legislation
passed by the legislature is not second guessed by courts.
Instead, the courts apply a rational basis standard of review,
which is very deferential in terms of economic interests, he
said.
1:50:01 PM
MR. MILKS said that the prior committee suggested the court
might apply a strict scrutiny test. That test is one that is
usually be applied in cases where the legislature passed a law
that was found to burden people on the basis of sex, race, or
religion.
Another concern raised was that some Alaskans would receive the
additional payments and others would not, he said. In the
Department of Law's view, the court would apply a rational basis
review if SB 23 were to pass. The legislature would consider the
unique PFD program along with a unique set of facts, which is
that for the first time in 40 years the statutory formula was
not applied.
MR. MILKS highlighted a question that was raised on a durational
residency requirement and whether it would trigger a higher
level of scrutiny. In the department's view, it would not. The
Alaska Supreme Court has considered that a durational period is
a waiting period in order to obtain a benefit. Under the bill,
two discrete questions arise, whether the person is currently an
Alaska resident, which is linked to residents who experienced
underpayment, the actual issue that the legislature seeks to
resolve. If a person did not experience an underpayment in 2016,
the person would fall outside the group that this legislation
would remedy. The legislature can accomplish the objective to
provide an additional payment to those individuals who received
an underpayment, he said.
1:53:22 PM
MR. MILKS said that the Department of Law does not think that
the court would interpret the U.S. Constitution or the
Constitution of the State of Alaska in a way that would prohibit
the legislature from accomplishing what the Department of Law
believes is a valid governmental objective in SB 23.
1:53:37 PM
CHAIR HUGHES asked for the argument for using the strict
scrutiny test. Obviously, the Department of Law does not agree
with that, she said.
MR. MILKS related his understanding that the argument is linked
to the notion that durational residency requirements are often
held to a strict scrutiny test. For example, if the legislature
passed a law that requires individuals to be residents for two
years in order to obtain public assistance benefits. The courts
have applied strict scrutiny reviews of that type of benefit.
However, for eligibility rules for residency or fixed-point
residency rules, [courts have used] a rational basis review. The
Department of Law would consider this to be a fixed-point
residency issue and not a durational one. He highlighted that if
the bill required individuals to reside in Alaska for four
straight years to qualify to receive the benefit, that it would
be a stronger argument that it was a durational residency
requirement.
MR. MILKS explained the two fixed points in SB 23. First, the
Alaska residents [who qualified for the permanent fund dividend]
in 2016 did not receive a full dividend. Instead, they received
a PFD less than the full statutory formula. He said the letter
of March 12, 2019 cited a recent U.S. Court of Appeals case
Harris v. Hahn related to a program in Texas that is very
similar in its legal analysis. The State of Texas provides
veteran residents with free tuition so long as they were Texas
residents at the time they enlisted in the service. The two
points in time connection, that they were Texas residents at the
time they enlisted, or they enlisted in Texas. The U.S. Court of
Appeals for the Fifth Circuit, in Harris v. Hahn, found a
rational basis standard would apply in that case because it is a
fixed-point residency and not a durational residency. Therefore,
it upheld the Texas legislature's ability to restrict the free
tuition to individuals who were currently veteran residents and
had enlisted in Texas.
He highlighted the key point is whether it is a durational
residency, one with a waiting period. The permanent fund
dividend (PFD) issue was one that people either received a PFD
less than the statutory amount or they did not receive it.
1:58:04 PM
SENATOR MICCICHE asked whether it matters [for repayment
purposes] that people indicate when they fill out their PFD
applications for the years 2016-2019 that they intend to live in
the state, but then they subsequently leave the state. He
offered his belief that the rational basis would not change
since the PFD program is for Alaska residents who spend 180 days
per year in Alaska. When people are no longer present in Alaska,
they no longer qualify, he said. He argued that in his scenario,
those receiving the payments would no longer qualify. He asked
whether there was any value in considering that select group of
people.
MR. MILKS responded that he believed it would be of value
because it speaks to an authentic connection to the state and a
stated intention to be an Alaska resident. When the Alaska
Supreme Court considered Alaska residency requirements related
to the permanent fund dividend, it recognized the difference
types of residency requirements. With respect to residency for
the permanent fund dividend, the court has been very mindful.
For example, in Heller v. State, Department of Revenue case, the
court said that the permanent fund dividend program was
particularly susceptible to passersby who establish minimal ties
to Alaska, while tending to reside elsewhere. He offered his
belief that it is one key reason the Alaska Supreme Court has
upheld eligibility rules against a legal challenge on equal
protection or right to travel basis clauses.
2:00:28 PM
CHAIR HUGHES asked whether he has the specific language that
poses the residency question on the application. She asked
whether the application requires a yes or no answer or if it was
in the fine print before the signature.
MR. MILKS offered to provide it. He recalled that the question
pops up on the screen and the person would certify by answering
yes or no.
CHAIR HUGHES suggested that it would be important to know.
2:01:16 PM
SENATOR KIEHL related a scenario in which a person receives
his/her PFD check and deposits in October, but the person has
left the state by November. He asked whether the state seeks
repayment.
MR. MILKS answered no. He said that the eligibility requirement
for the program are in statute.
SENATOR KIEHL asked for further clarification on the
constitutional legal intent for "intent to remain."
MR. MILKS answered that eligibility is part of a complete
package of individuals who are asked a variety of questions,
including how much time is spent in and out of state. He said
that question would be one of many elements of an eligibility
requirement that the Alaska Supreme Court has considered and
found to pass constitutional muster.
2:02:32 PM
SENATOR MICCICHE said that his question was based on
eligibility. If the program is based on the time of payment,
which is what this does, it bases residency on the time of
payment rather than on past residency. For example, someone must
qualify in 2016, but the time of payment would be the
distribution of the check. Once the payment is made, the person
has the right to leave the state.
He related his understanding that the rational basis would apply
since the payments are staggered over three consecutive years.
The eligibility question asked whether the person at time of
payment of this year's dividend that the person qualifies for
this year's dividend and for the previous one. He said it made
sense to him. This speaks to the constitutionality and whether
it is defensible. He said that the rational basis seemed to fit
the logic in Harris v. Hahn.
2:03:39 PM
SENATOR SHOWER related a scenario when a person qualified for a
dividend payment and the permanent fund dividend was capped. If
the person left the state, could the person legally challenge
the amount not paid since it was over the cap. He asked whether
the state has any responsibility. He expressed concern that this
would open a can of worms of possible legal challenges.
MR. MILKS responded that the potential exists for litigation
since people can always file legal challenges. The Department of
Law would argue on a rational basis that the state can restrict
the treasury to individuals who continue to reside in Alaska.
The distinction is that only Alaska residents will receive the
money, he said.
He suggested that the state would absorb administrative costs if
it decided it needed to track people down who no longer live
here. That would be separate from the state deciding to share
its wealth with residents. He suggested that it is a policy call
for the legislature. The legislature is not without the ability
to address this unique set of facts, which is why the department
finds it is constitutional. Others believe there are
constitutional issues, but the department does not look at it as
durational residency.
2:07:32 PM
SENATOR SHOWER related his understanding that risk is involved,
but the administration believes it will prevail and survive the
legal challenge.
2:08:17 PM
SENATOR KIEHL said that the word "owed" has come up several
times. He related a scenario in which John Q. Public sent the
department a bill stating he received the 2016 PFD. Here is the
bill for the $1,061 that he is owed. He assumed that the
Department of Law would advise the Division of Permanent Fund
not to pay the bill.
MR. MILKS explained the public policy behind the bill. A statute
provided for a certain dollar sum, which was followed for forty
years and then an underpayment occurred. The legislature has the
means, if it so chooses, to address it. He said that would be a
legitimate government objective. That is different from being
legally owed, such that someone could obtain a judgement against
the State of Alaska. As Senator Kiehl knows, there has been
litigation on the permanent fund dividend issue. The Alaska
Supreme Court has established that the payment of dividends is
subject to appropriation by the legislature.
SENATOR KIEHL recalled that Mr. Milks has used unique several
times. He asked how this situation is legally unique from other
cases in which the statute says the state shall pay. For
example, he pointed out that the longevity bonus program is
still in statute, and some residents are still eligible. As by
law, the state is required to reimburse municipalities for the
foregone property tax from the senior citizens, disabled
veterans, or renters. He asked how the permanent fund dividend
statute is unique, from a legal sense from the other programs in
which the state has not appropriated money to pay, even though
the statutes read "shall" pay.
2:11:03 PM
MR. MILKS answered that "unique" deals with a specific set of
facts regarding the permanent fund dividend. The Alaska Supreme
Court has been pretty clear that the legislature's appropriation
power must govern. He said it is up to the legislature whether
to appropriate funds. The legislature has the power and right to
appropriate or not appropriate, he said. The legislature, in its
collective wisdom, could decide that an additional payment
should be provided to address the statute not being followed. He
said that a subsequent legislature could make a decision to pay
for the programs, if it so chooses.
2:12:37 PM
SENATOR MICCICHE offered his belief that was the same ruling in
Wielechowski v. State. He said that Legislative Legal Services
said, "The Constitution of the State of Alaska permits the
legislature and the governor to legally deviate from the
statutory calculation under the authority of the Constitution of
the State of Alaska." He said that the constitution would trump
the statute.
He wondered if a bigger problem would be that no one has
challenged the entire program on the fundamental right to travel
since the regulation limits absences to 180 days, by regulation.
He asked why the fundamental right to travel has not been
challenged.
MR. MILKS recalled the Alaska Supreme Court issued a decision a
few years ago, Heller v. State, Department of Revenue. The court
addressed Alaska's eligibility requirements considering the
right to travel and equal protection legal challenges. The court
rejected a legal challenge on the right to travel. The court
pointed out that in the circumstance of PFD the rational basis
test would apply. The court noted that when dealing with readily
portable benefits, the Alaska Supreme Court rejected the right
to travel analysis. Instead, the court found that while the
right to travel would fit into some kinds of state benefit
programs, but when dealing with a highly portable benefit [in
the permanent fund dividend program], the right to travel was
given a much more limited rational basis scrutiny.
2:15:35 PM
SENATOR MICCICHE offered his belief that the right to travel is
based on the PFD program. It would require an applicant to be a
resident and be eligible for the permanent fund dividend. One of
the criteria would allow an applicant to be absent from the
state up to 180 days in a calendar year. However, a person could
be absent for 181 days or longer and still be considered a
resident. The person simply would not be eligible for the
program. He related his understanding that [the right to travel]
remains within the spirit of the permanent fund dividend
program.
MR. MILKS agreed. He noted the importance that the Alaska
Supreme Court addressed the right to travel issue in the context
of the permanent fund dividend program. He acknowledged the
serious issues with the permanent fund dividend and the risk of
passersby with minimal ties being able to obtain a benefit.
2:16:33 PM
CHAIR HUGHES referred to the provision in the Constitution of
the State of Alaska that the appropriation power in the
legislature trumps anything in statute. She asked whether the
bill would bind future legislatures since the proposed payback
would span three years and extend beyond the [3lst legislature].
MR. MILKS said that a future legislature could always revisit
this issue, so it would not bind a future legislature.
2:17:35 PM
CHAIR HUGHES recalled the [Harris v. Hahn] case in Texas was
related to two points in time. She said that all previous
permanent fund dividend applications, payouts, and checks relied
on one point, based on the prior calendar year. She said that SB
33 would set it up for two points. She asked whether any legal
challenges could be brought because the repayment was being
handled differently than the historically payments.
MR. MILKS said that brings the discussion back to the issues
being raised here. He pointed out that this law seeks to change
the uncodified law, that it would be a temporary law to address
specific circumstances. It would not attempt to change the
existing PFD program. It would relate to individuals who
received a PFD in 2016 and met the current residency
requirements. He reiterated that the bill does not seek a
permanent change in statute.
CHAIR HUGHES asked for further clarification that there would
not be a legal issue. A person cannot question the two points in
time even though the program historically had only one point in
time.
MR. MILKS answered that this bill would set up a temporary law
to address a particular event. It would not permanently change
the permanent fund dividend program.
2:20:02 PM
SENATOR KIEHL asked how long a person could be absent from the
state.
MR. MILKS said that this bill would apply the existing residency
requirements for [those residents who are applying for the
permanent fund dividend program] which have been upheld as
constitutional. The department would need to assess any proposed
changes related to residency requirements.
SENATOR KIEHL clarified that his question was focused on the
mechanics proposed under the bill. For example, in order for an
applicant who received the 2016 to be eligible to receive the
extra payment the person would need to be eligible for the 2019
PFD. He asked how long the person could be out-of-state.
MR. MILKS said it would be based on the current eligibility
requirements for the 2019 PFD. He recalled that the application
asks if the applicant resided in Alaska for the calendar year
2018.
2:22:46 PM
SENATOR KIEHL referred to the Zobel case. He recalled Mr. Milks
said the Alaska Supreme Court used the rational basis test. He
said he had a slightly different understanding. He recalled that
the court said it did not have to reach the question of strict
scrutiny because the state could not even reach rational basis.
He asked whether he misunderstood the Zobel ruling.
MR. MILKS said that court decided to apply the rational basis
test. He thought that the court also applied a higher basis
test.
SENATOR KIEHL remarked that failing to finish a qualifying race
and not finishing the race is not quite the same thing.
2:24:31 PM
SENATOR KIEHL referred to Legislative Legal Services memorandum
[dated February 8, 2019]. He identified the 3rd Judicial
District case, Lindly v. Malone, in July 1990 listed in the
footnote [on page 6], holding unconstitutional a two-year
residency requirement for permanent fund and longevity bonus
programs.
MR. MILKS answered that he recalled a Superior Court decision
stated that, but it was not an Alaska Supreme Court decision.
The department does not perceive it as a durational residency
requirement but rather that it is based on two points.
2:25:20 PM
SENATOR KIEHL argued that there would be a durational residency
pieces since the bill uses two separate eligibility years for
eligibility, which would mean surpassing the two-year residency
requirement.
MR. MILKS said he thought it would bring us back to the broader
picture. The department views that the legislature has the power
to legislate. The judicial branch does not take it upon itself
to second guess the policy decisions of the legislature. This is
the reason why legislation is given broad deferential review [by
the courts]. Using that framework means that it does not pertain
to a strict scrutiny case with one group based on sex, race, or
ethnicity gets a benefit and another one does not. The
department understands the notion. It's the type of case that
should be considered like a fundamental right or apply a strict
scrutiny. In the department's view, it essentially disarms the
legislative branch from addressing a specific and unique set of
facts. It would mean the legislature could not do anything
except make payments to individuals based on what was considered
a reason to make up for non-payment of the statutory formula. It
would say that now we must pay it to everyone regardless of
whether they were in that discrete group. The Department of Law
does not view the legislature so restrained in its abilities.
2:27:39 PM
SENATOR KIEHL recalled that the only option would be to pay to
everyone, whether or not they were in the original qualifying
year under the bill. He asked whether there would be another
option. The legislature could choose to say those in the
original qualifying year, file the paperwork and not impose the
second residency year.
MR. MILKS recalled that was the question that Senator Shower
raised. It would mean paying the repayment amount for the PFD
regardless of whether they are Alaska residents. He recapped the
two scenarios he has heard, which is to pay the repayment
dividend to everyone, even if the applicants are no longer
Alaska residents or pay it to everyone who is a resident even if
they did not experience the shortfall PFD. He said that the
Department of Law believes it is a rational basis for the
legislature to distinguish between current residents of Alaska,
and those who do not reside in Alaska any longer. Further, the
department believes that it is a legitimate governmental
objective to limit the state's fiscal resources to Alaska
residents including as well as the various legislative burdens
that would be encumbered. He acknowledged there could be other
approaches taken.
2:29:50 PM
SENATOR KIEHL offered his belief that the difficulty is the
durational waiting period. He referred to the administrative
burden, noting the fiscal note indicates the Department of
Revenue would need to reprogram its computer system. He asked
him to identify the greater administrative burden that would be
avoided.
MR. MILKS deferred to the Department of Revenue to respond. He
related that the legislature would appropriate funds to people
who no longer reside in Alaska and have no obligation to make
any connection to the state. If the state were to do so, it
would need to absorb the administrative burden of trying to
locate people.
2:31:14 PM
CHAIR HUGHES related her understanding the committee heard three
scenarios. One, the state would pay everyone who was eligible
for the two points in time; two, pay the people who were
eligible then, or three, pay those who are currently eligible.
She asked whether someone could provide the population numbers
and the dollar amount for all three scenarios.
2:31:49 PM
SENATOR MICCICHE said that none of those choices make sense to
him. He did not understand the reason to pay a permanent fund
dividend to people who decided to leave the state. The program
is designed specifically for Alaska residents, but it does not
require a three-year residency. He related a scenario in which
people who left the state on March 31, 2016 and returned by
January 1, 2018 would be eligible for the 2016 and 2019
dividends. The qualifying periods are not stacked because people
qualify for individual years, he said. The applicants would have
indicated on their 2016 and 2019 permanent fund dividend
applications an intention to stay in Alaska and they would be
eligible for the payments. He argued that the program does not
have a residency requirement, but an eligibility requirement.
He pointed out that some military members may not have lived in
Alaska for many years yet still qualify for both 2016 and 2019
PFDs and the repayment in 2019. He emphasized his point was that
people could be absent from Alaska, miss two dividend years and
still qualify for the 2019 repayment. He said he thought it was
an important consideration of the rational basis.
2:33:26 PM
MR. MILKS agreed on both points. He agreed that the bill would
set up two periods of eligibility. Speaking to the broader
point, he said the bill was drafted considering the durational
requirements, constitutional issues, eligibility requirements
and the distinctions between residents. In fact, the Alaska
Supreme Court recently found that a duration requirement is a
waiting period, he said. The Department of Law does not see this
bill as establishing a waiting period.
2:34:21 PM
CHAIR HUGHES recalled that Senator Kiehl referred to a case
[Lindly v. Malone, July 1990] that knocked down the two-year
requirement. She asked Mr. Milks to explain why the two-year
requirement was not allowed.
MR. MILKS answered that the case in reference had a two-year
waiting period and that it was determined to be a durational
basis. He said that SB 33 would establish a temporary law with
eligibility requirements at two points in time. He pointed out
that the [Lindly v. Malone, July 1990] decision was a lower
court decision and not an Alaska Supreme Court decision.
2:35:41 PM
SENATOR SHOWER agreed with Senator Micciche that it doesn't make
sense to pay someone who is no longer eligible. He clarified his
earlier concern stemmed from whether the state would have a
legal obligation to locate people who were eligible in 2016 but
are no longer residents.
CHAIR HUGHES said that is one reason she asked Mr. King for data
on people who are in that category.
2:37:06 PM
SENATOR KIEHL said people in Senator Micciche's scenario could
essentially move out of state for about 18-20 months and still
be eligible. He questioned whether it would be two points in
time. He appreciated the distinction for service members because
that was important. He did not think most people would move out
of state for 18-20 months.
He said the commissioner talked about investment earnings. He
asked why not require everyone to be present in 2021 to receive
the repayments since it would maximize the permanent fund
investment earnings.
MR. MILKS responded that this bill was drafted with a specific
objective, which was to address only individuals who were
eligible for and received a permanent fund dividend for three
distinct periods where the statutory formula was not followed.
The administration's policy focused on the three-year solution.
Senator Kiehl points out a different policy objective, he said.
SENATOR KIEHL said he was focused on finding consistency.
2:39:27 PM
SENATOR SHOWER asked whether any legal precedent exists that
would identify the length of time the state would need to search
for 2016-2019 permanent fund dividend recipients who currently
live out-of-state if it was determined the state had an
obligation to locate them. He wondered if the state would need
to public notice it for a certain length of time.
MR. MILKS responded that he did not have a ready answer. He
envisioned the state would seek a reasonable but limited period
and those eligible could respond or not respond or the burden
could be placed on them.
SENATOR SHOWER said he wanted to be sure the state would not be
"on the hook" for 10 years but it would have a limited timeframe
to contact those eligible for repayments.
MR. MILKS recalled that consumers often receive notifications on
products that indicate they can join the class action lawsuit
within a certain timeframe. He agreed a reasonable limited
period would be set.
2:41:45 PM
SENATOR MICCICHE asked if the commissioner or the governor would
have any authority to issue checks if these bills, SB 23 and SB
24, do not pass the legislature. He said he is asking this
question because some people might simply expect the governor to
send them a check.
MR. MILKS answered no. He said that the legislature is the
appropriating body. He said the legislature would need to pass
an appropriation bill to authorize the payment. The Alaska
Supreme Court has been very clear, including in its decision in
the Wielechowski case, that the expenditures from the permanent
fund income requires an appropriation by the legislature.
2:43:11 PM
CHAIR HUGHES said that the legislature has the power to set the
amount for the dividends. He said the legislature could add an
amount to the historical formula without the bill.
MR. MILKS offered his belief that the legislature would have the
ability. The payment requires a legislative appropriation, he
said.
2:43:58 PM
CHAIR HUGHES indicated an interest in having Mr. Milks present
the sectional analysis and to have Mr. King answer questions on
the economic impact.
2:44:24 PM
SENATOR SHOWER asked the record to reflect what occurs if one
bill passes but the other one does not pass.
MR. MILKS said the department views both bills traveling
together since the appropriation bill authorizes spending, but
it is based on the unique eligibility in the two points in time.
2:45:11 PM
SENATOR MICCICHE asked whether the single subject rule did not
allow the two bills to be combined.
MR. MILKS answered that the department considered the legal
issues. The existing statute outlines the permanent fund
dividend payments. However, this is an additional payment that
is not pursuant to the existing statutory program. These
payments would be based on the requirements of the two points in
time. The department decided to take a cautious approach to
avoid legal challenges, such as confinement clause issues. The
bills were crafted so a temporary law would direct the
Department of Revenue commissioner to make payments to eligible
permanent fund dividend recipients based on the two points in
time and an appropriation bill to appropriate the funds.
2:46:41 PM
SENATOR KIEHL said his understanding of the history of
confinement clause is different from Mr. Milks. He suggested
that the legislature on a recurrent basis appropriates one-time
funding for distribution through an existing statute based on
conditions at a future point in time. For example, the
legislature appropriates one-time funding to be distributed
according to an adjusted [Average Daily Membership (ADM)] in the
education formula.
MR. MILKS explained that these bills pertain to a statutory
formula pertaining to eligibility for the PFD. The department
considered that an appropriation bill to pay a dividend that is
based on different eligibility criteria than existing statute
should have a bill accompany it to create the temporary law, he
said.
2:48:13 PM
MR. MILKS presented a sectional analysis for SB 33. He
reviewed Section 1, subsections (a)-(c).
Section 1(a). This section makes an appropriation from
the permanent fund earnings reserve account (AS
37.13.145) to the dividend fund (AS 43.23.045(a)) of
the amount of money necessary for a payment of $1061
to eligible individuals who received a 2016 dividend
and who are eligible to receive a 2019 dividend for
fiscal year 2020
Section 1(b). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount of money necessary for a
payment of $1289 to eligible individuals who received
a 2017 dividend and who are eligible to receive a 2020
dividend for fiscal year 2021.
Section 1(c). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount of money necessary for a
payment of $1388 to eligible individuals who received
a 2018 dividend and who are eligible to receive a 2021
dividend for fiscal year 2022.
MR. MILKS explained that SB 23 was an appropriation bill,
that subsections (a)-(c) would address the appropriations
for the additional payments linked to the prior years for
the permanent fund dividend that were not paid per the
historical statutory formula.
2:48:43 PM
MR. MILKS reviewed Sections 1(d)-(g).
Section 1(d). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2020.
Section 1(e). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2021.
Section 1(f). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2022.
Section 1(g). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2023.
He said that subsection (d) would provide the standard
appropriation for this year's permanent fund dividend and
the following subsections related to repayment for PFDs for
subsequent years.
2:49:10 PM
MR. MILKS reviewed Section 2.
Section 2. This section is a contingency provision
that makes the appropriations in section 1(a)-(c)
contingent on the legislature's passage and enactment
into law of a bill directing the commissioner of
revenue to include certain payments for the 2016,
2017, and 2018 dividends to eligible individuals with
the dividend payments for 2019, 2020, and 2021.
He said that Section 2 would provide a contingency
provision. The appropriation bill would be contingent upon
the legislature passing SB 24, which would direct the
commissioner to make the additional payments.
2:49:31 PM
MR. MILKS reviewed Sections 3-6.
Section 3. This section makes the appropriations in
section 1(b) and (e) which relate to dividend payments
in 2020 effective July 1, 2020.
Section 4. This section makes the appropriations in
section 1(c) and (f) which relate to dividend payments
in 2021 effective July 1, 2021.
Section 5. This section makes the appropriation in
section 1(g) which relates to dividend payments in
2022 effective July 1, 2022.
Section 6. This section provides that except for
sections 3-5, the Act takes effect immediately under
AS 01.10.070(c).
He explained that these sections relate to the effective
dates based on the three year roll out of the
appropriations.
2:49:48 PM
MR. MILKS provided the sectional analysis for SB 24. This
bill would amend the uncodified law to allow the Department
of Revenue to make the additional PFD repayments.
Section 1(a). This section would amend the uncodified
law to provide that notwithstanding AS 43.23.005, the
commissioner of revenue shall include with permanent
fund dividends in 2019, 2020, and 2021 payments to
eligible individuals of $1,061 in 2019, $1,289 in
2020, and $1,388 in 2021.
2:50:18 PM
MR. MILKS read Section 1(b)-(d).
Section 1(b). This section would provide that an
individual eligible in 2019 for a payment of $1,061 in
addition to the permanent fund dividend is an
individual who received a 2016 permanent fund dividend
and is eligible to receive a 2019 permanent fund
dividend.
Section 1(c). This section would provide that an
individual eligible in 2020 for a payment of $1,289 in
addition to the permanent fund dividend is an
individual who received a 2017 permanent fund dividend
and is eligible to receive a 2020 permanent fund
dividend.
Section 1(d). This section would provide that an
individual eligible in 2021 for a payment of $1,388 in
addition to the permanent fund dividend is an
individual who received a 2018 permanent fund dividend
and is eligible to receive a 2021 permanent fund
dividend.
Section 1(e). This section would provide than the
amount appropriated from the permanent fund earnings
reserve account (AS 37.13.145) to the dividend fund
(AS 43.23.045(a)) for the payments in section 1(a) to
eligible individuals during 2019-2021 may not
contribute to the calculation for the 2019- 2021
dividends under AS 43.23.025.
He added that Section 1(e) is a housekeeping measure.
[Section 2 would provide for an immediate effective date.]
2:51:17 PM
CHAIR HUGHES asked whether the "Pick, Click, Give" option
found on the permanent fund dividend application could be
used to donate to non-profit organizations for this
application process.
MR. MILKS responded that he has not considered this, but it
seemed to make sense that it would.
2:52:07 PM
SENATOR KIEHL asked the reason for an immediate effective
date since there would be plenty of time to make the
payments.
MR. MILKS said the department thought it would be helpful
to clarify the issue. He agreed that that the normal
effective date for payouts would also work.
2:53:02 PM
MR. KING offered to provide information that committee
members requested earlier in the meeting.
MR. KING detailed the proposed permanent fund dividend
amounts using an estimated 535,000 population in Alaska. He
also provided the estimated total appropriation, as
follows:
In calendar year 2019 for FY 2020, the proposed permanent
fund dividend amount per person would be $1,061 for a total
appropriation of $565 million.
In calendar year 2020 for FY 2021, the proposed permanent
fund dividend amount per person would be $1,289 for a total
appropriation of $683 million.
In calendar year 2021 for FY 2022, the proposed permanent
fund dividend amount per person would be $1,388 for a total
appropriation of $735 million.
He said the total appropriation for all three years would
be $1.983 billion.
2:54:09 PM
MR. KING, in response to an earlier question by Senator
Kiehl, gave a range of 4-6.5 percent. He said that using
that range implied that by spreading the payments over
three years rather than paying the amount in one year would
generate an additional $80-150 million of additional
earnings.
MR. KING, in response to an earlier question by Chair
Hughes, explained that even if the eligibility requirements
changed, the figures would be relatively the same by paying
everyone who was eligible in the first appropriation year,
or by paying the amount to every Alaskan who is eligible
today because the population would not significantly
change. The difference in appropriations for FY 2020 would
be $110-110 million, for FY 2021 would be $130-140 million,
and for FY 2022 would be $140-150 million. The total
appropriation difference between $379-400 million, he said.
CHAIR HUGHES asked how much the population would change.
MR. KING said when he conducted the analysis, he sought to
determine the attrition and turnover rate. He said that he
compared the PFD payment in one year and determined how
many people received a payment three years later, which
historically resulted in a 17 percent attrition rate. He
interpreted that to mean that 83 percent of people who
received a PFD in one year also received it three years
later. This historical data provided the basis in the bill
for the estimated number of eligible residents at 530,000.
He explained that this has to do with migration. He said
that Alaska is a transitory state, with approximately 40-
50,000 people moving in and out of the state because of
jobs or the military. This figure is usually is a wash, but
in the last few years fewer people have been coming in than
moving out. The one-year delay before eligibility creates
attrition. Not only do people move away but they also die.
Those people would not be present to claim their permanent
fund dividends. This brings forth the matter of policy and
law. The would need guidance on how dispensing with the
current one-year eligibility requirement would affect
estates and unclaimed property. These issues could be
clarified via statutory language. Otherwise the Department
of Revenue would seek to make administrative decisions to
address applicants who were eligible but did not claim the
dividend.
CHAIR HUGHES observed that the $370-400 million difference
tends to make the case quite well that the two points in
time are important. She said it is a lot of money to send
to people who no longer reside in Alaska.
2:58:24 PM
SENATOR MICCICHE pointed out that many Alaskans, including
himself, work for businesses whose projects take them out
of state for more than 180 days per calendar year. However,
the PFD program is designed for Alaska residents who live
in the state for 180 days or more. Some people serve in the
military after being a resident, he said. Some people
believe the allowable absences for the program should be
less.
2:59:24 PM
SENATOR KIEHL referred to the 17 percent attrition rate. He
asked whether it was attrition or a difference in the
number of people eligible for the program. He asked how
many were due to births and deaths.
MR. KING answered that none of the attrition would be due
to births. He said he does not have the figures for the
attrition rate. He offered to review the Department of
Labor figures and the Department of Health and Social
Services, Vital Statistics figures.
3:00:06 PM
SENATOR KIEHL asked whether any money is being held for
potentially eligible people, other than for minor children.
MR. KING answered no. He explained that the Department of
Revenue handles unclaimed property. The question would
become whether unclaimed dividends would qualify as
unclaimed property.
SENATOR KIEHL asked Mr. Milks if unpaid permanent fund
dividends would be considered as unclaimed property.
3:01:02 PM
MR. MILKS related his understanding that the question is
whether a 2016 dividend that was less than statutory
calculation would be considered unclaimed property.
MR. KING explained his rationale of unclaimed property. The
current bill would require an applicant to qualify for the
permanent fund dividend. If the amended legislation also
required an application process, it would clearly create
criteria. One possibility or scenario would be that someone
who qualified for a PFD in 2016 would automatically be
eligible for the subsequent payments without taking further
action. If so, it would raise the question whether the
department would need to hold funds on their behalf, he
said.
SENATOR KIEHL said he had not heard anyone suggest
automatic eligibility for the repayment.
3:02:50 PM
CHAIR HUGHES asked for the economic impact of the repayment
of the PFD for the three repayment years.
MR. KING acknowledged that the permanent fund dividend is
an important part of household income for all Alaskans.
Most people have a tendency to spend money given to them
and they have the right to spend the PFD in or out of
Alaska. The permanent fund dividend improves Alaskans'
quality of life and is considered an economic benefit.
Other ways to measure economic activity include assessing
wages and income or the productivity in a region by
measuring the value of the products produced.
MR. KING did not think the permanent fund dividend would
increase gross national product (GNP) by much. He
elaborated that job counts are measured by jobs held. He
cautioned members to use care when using statistics that do
not consider income or differentiate between part-time or
fulltime workers since they do not have the same economic
contribution. Typically, the PFD injection means that
people spend more at stores and restaurants which generates
some demand for labor. He recalled that Institute of Social
and Economic Research estimated 900 jobs per 100 million
[appropriated], or about 9,000 jobs this year. The data
doesn't reflect much of an increase because it is based on
full time equivalent jobs. In terms of increased jobs, some
part-time employees may obtain more hours and some hours
will be generated by overtime, which does not necessarily
appear in the data. However, the figures do reflect the
additional wages flowing into households. This household
income is more relevant with respect to the PFD since it
provides an immediate deposit into residents' checking
accounts, which has an immediate impact on the economy, and
on the quality of life. Although the impact from the PFD
only lasts a few months, it is meaningful and can be life
changing. The permanent fund dividend can mean the
difference between people being evicted or having a place
to live. It often provides some residents with fuel for the
winter or a vacation for others.
3:07:10 PM
CHAIR HUGHES referred to the number of reductions the
governor is proposing in the budget, which will result in
job losses. She asked for the net offset to jobs by
factoring in the full historical permanent fund dividend.
MR. KING estimated that the direct impacts of budget cuts
would generate job losses in the range of 5,000 to 7,000
job range and whether these jobs are fulltime or part-time
jobs is unknown. Whether these job losses actually occur
also would depend on how residents respond to the job cuts.
In terms of the increase in jobs related to the PFD,
several economists have indicated these are temporary jobs
concentrated in October through December timeframe. From
the job perspective, it does not make sense to compare
budget cut job losses to temporary PFD job increases.
Instead, the better comparison would be to assess the
effects to household income for Alaskans and how it affects
their quality of life. From that perspective the $1 billion
decrease in the concentrated impacts from budget cuts and
the $1.5 billion increase in household income from the PFD
distributions, he concluded would have a net positive
impact on household income across the state. Although the
630,000 people would feel a small impact [from the $1.5
billion PFD income], and 5,000-7,000 thousand people
absorbing $1 billion in lost income [from due to budget
cuts. He concluded that it is a very different comparison.
MR. KING said it is very difficult to give a hard and fast
rule on which is better. It comes down to individual
interpretations of the value of government services being
provided and whether someone in one community receiving a
full PFD is better than someone else in another community
receiving those services. He characterized it as a public
policy question rather than an economic one.
3:10:10 PM
CHAIR HUGHES asked him to consider the temporary bump
provided by the PFD over several years and to derive a job
number comparison.
3:10:31 PM
SENATOR MICCICHE offered his belief that it was not
possible for the committee to conduct an adequate economic
analysis right now, which is not the goal. The reason to
support SB 23 and SB 24 would be because Alaskans expect to
receive the full statutory-based dividend. He did not view
it as an economic consideration. The legislature should
make a decision based on whether it is the right thing to
do or not. He agreed that it was challenging for Alaskans
who anticipated receiving [a certain level] of permanent
fund dividends three years in a row. However, he thought it
would be dangerous to consider one-sided economics impacts.
The Finance Committee spent hours on this issue, but it is
not an easy one, he said. However, the economic comparisons
are like comparing apples to watermelons, so it would take
considerable time to achieve a responsible answer.
3:11:54 PM
CHAIR HUGHES said it is important for the public to
understand that even though it is difficult to define, and
this committee cannot do it, that some counter balancing
would occur if the budget has sizable reductions. She
suggested that circulating money into the private sector
would be helpful in softening that impact.
3:12:22 PM
SENATOR KIEHL asked whether Mr. King could give the delta
of the amount that would be available to provide essential
services to Alaskans if the $1.8 or 1.9 billion was not
distributed as PFDs but was managed under the statutory
formula under SB 26.
MR. KING answered an estimated $2 billion with a rate-of-
return of about 6.5 percent would result in about $130
million. The full reduction would not be seen immediately
due to averaging, so it would take between five and seven
years for the full $130 million reduction to occur. He said
for those whose perspective is that this money belongs to
the people and not the state, it would not be viewed as a
reduction by the state holding on to it.
SENATOR KIEHL appreciated the difference in philosophy,
acknowledging that people have different expectations. He
said that people once expected their longevity bonus check,
and that seniors or disabled veterans expected to be
compensated by property taxes paid. However, those programs
were entirely eliminated. He said that people still expect
adequate schools, troopers, airports, roads and bridges,
and other essential services. He characterized the
situation as a bind, that it is not a black or white issue.
He said the conversation about the waiting period that this
method of dispersing money puts in place is very
problematic.
CHAIR HUGHES did not agree that it should be called a
waiting period.
[SB 23 and SB 24 were held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| CSSB23 Version M.PDF |
SJUD 3/22/2019 1:30:00 PM |
SB 23 |
| SB 23 TL - Senate President.pdf |
SJUD 3/22/2019 1:30:00 PM |
SB 23 |
| SB23 Sectional.pdf |
SJUD 3/22/2019 1:30:00 PM |
SB 23 |
| CSSB24 Version M.PDF |
SJUD 3/22/2019 1:30:00 PM |
SB 24 |
| SB 24 TL - Senate President.pdf |
SJUD 3/22/2019 1:30:00 PM |
SB 24 |
| SB24 Sectional.pdf |
SJUD 3/22/2019 1:30:00 PM |
SB 24 |
| SB0024-1-2-011619-REV-Y.PDF |
SJUD 3/22/2019 1:30:00 PM |
SB 24 |