Legislature(2001 - 2002)

05/08/2002 03:14 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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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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