Legislature(2021 - 2022)BUTROVICH 205

04/07/2021 01:30 PM JUDICIARY

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Audio Topic
01:34:15 PM Start
01:34:56 PM SJR1
02:00:58 PM Confirmation Hearing
02:45:48 PM SB9
03:19:49 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Consideration of Governor's Appointees TELECONFERENCED
- Treg Taylor, Attorney General
Heard & Held
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
          SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND                                                                      
1:34:56 PM                                                                                                                    
CHAIR  REINBOLD  announced the  consideration  of  SJR 1,  SENATE                                                               
JOINT RESOLUTION NO. 1, Proposing  amendments to the Constitution                                                               
of the State of Alaska relating  to the Alaska permanent fund and                                                               
appropriations from the Alaska permanent fund.                                                                                  
1:35:45 PM                                                                                                                    
SENATOR  BILL  WIELECHOWSKI,  Alaska State  Legislature,  Juneau,                                                               
Alaska, speaking  as sponsor, offered  a summary of SJR  1, which                                                               
would place the  existing permanent fund statute  into the Alaska                                                               
Constitution. It would  also allow a mechanism  to withdraw funds                                                               
from  the Alaska  Permanent  Fund but  cap the  total  draw at  5                                                               
percent. The  people will  always receive the  first call  on the                                                               
earnings of  the Alaska Permanent  Fund, ahead of  government, he                                                               
1:36:36 PM                                                                                                                    
CHAIR REINBOLD stated the committee would consider amendments.                                                                  
1:36:52 PM                                                                                                                    
SENATOR  MYERS  moved  to  adopt  Amendment  1,  work  order  32-                                                               
                          AMENDMENT 1                                                                                       
OFFERED IN THE SENATE                          BY SENATOR MYERS                                                                 
     TO:  SJR 1                                                                                                                 
     Page 1, line 16:                                                                                                           
          Delete "five"                                                                                                         
          Insert "four"                                                                                                         
CHAIR REINBOLD objected for discussion purposes.                                                                                
1:36:55 PM                                                                                                                    
SENATOR  MYERS  explained  Amendment  1. He  stated  that  Callan                                                               
Associates, Inc.,  who have served  as the Alaska  Permanent Fund                                                               
Corporation's investment  consultants, provided  some information                                                               
recently.  He began  a PowerPoint  showing the  Callan Associates                                                               
projections  for  the  Earnings  Reserve balance  over  the  next                                                               
decade,  which  projected an  average  fund  growth rate  of  6.2                                                               
percent using  an inflation  rate of  2 percent.  After adjusting                                                               
for inflation,  the state could  only expect to draw  4.2 percent                                                               
to maintain  the overall  value of the  fund, in  particular, the                                                               
earnings reserve account (ERA).  He reviewed handouts prepared by                                                               
legislative finance.  He directed  attention to slide  1, "Impact                                                               
of FY21-22 Overdraws on ERA  Balance and POMV Draw, Constant 6.2%                                                               
Returns." He  said the  large blue  bars represent  the projected                                                               
balance of  the ERA given the  current 5 percent of  market value                                                               
(POMV) draw.                                                                                                                    
SENATOR  MYERS  turned to  the  next  slide, "Impact  of  FY21-22                                                               
Overdraws on ERA Balance and  POMV Draw; FY00-FY08 Returns." This                                                               
slide  shows projections  for the  ERA if  the market  conditions                                                               
were similar to ones during FY00  to FY08. This slide predicted a                                                               
significant drop beginning in FY24 to FY28.                                                                                     
1:39:28 PM                                                                                                                    
SENATOR MYERS turned to slide  3, "Impact of FY21-22 Overdraws on                                                               
ERA  Balance  and  POMV  Draw;  FY09-FY17  Returns."  This  slide                                                               
provides projections for  the ERA using market  returns from FY09                                                               
to FY17.  This slide  shows the  anticipated significant  drop in                                                               
the  ERA  from  FY22  through  FY30,  which  he  deemed  as  very                                                               
SENATOR MYERS  explained that Amendment  1 would reduce  the POMV                                                               
draw to 4 percent to address these concerns.                                                                                    
1:40:09 PM                                                                                                                    
SENATOR  KIEHL asked  if the  charts  reflect the  growth in  the                                                               
fund's corpus or were limited to the ERA.                                                                                       
SENATOR MYERS  said the charts refer  to the changes in  the ERA,                                                               
assuming  2  percent  inflation.  This does  not  change  royalty                                                               
deposits or provide statutory inflation proofing until 2024.                                                                    
1:40:55 PM                                                                                                                    
SENATOR  KIEHL asked  if  the fund's  corpus  would achieve  real                                                               
dollar growth or if it would also deteriorate.                                                                                  
SENATOR  MYERS  answered  that  these  projections  only  reflect                                                               
changes  to the  ERA.  He was  unsure about  the  changes to  the                                                               
corpus but  predicted it would  slowly increase. He said  this is                                                               
based  on 25  percent royalty  deposits but  noted royalties  are                                                               
down  based  on  North  Slope  production  levels  and  statutory                                                               
inflation proofing not occurring until 2024.                                                                                    
1:41:42 PM                                                                                                                    
SENATOR  KIEHL said  he envisions  that SJR  1 will  receive more                                                               
financial analysis  as it  goes through  the process.  He offered                                                               
his support to maintain the 5  percent POMV draw because he finds                                                               
that it  is responsible and  will preserve the  real-dollar value                                                               
of the Permanent Fund for Alaska's future.                                                                                      
1:42:13 PM                                                                                                                    
SENATOR SHOWER  echoed Senator Kiehl's  comments. He  offered his                                                               
view  that the  legislature has  not  reduced the  size of  state                                                               
government.  He expressed  concern  that reducing  the POMV  draw                                                               
would  unfairly   burden  the  Permanent  Fund   Dividend  (PFD).                                                               
Secondly, not  taking enough from  the draw will mean  that taxes                                                               
will be  necessary. He  expressed concern that  4 percent  is too                                                               
1:44:00 PM                                                                                                                    
SENATOR  WIELECHOWSKI said  Amendment 1  is not  unreasonable. He                                                               
acknowledged that  some people  support using  a 4  percent POMV.                                                               
However, he  is comfortable with  5 percent. He pointed  out that                                                               
SJR 1 does away with the  earnings reserve account (ERA) to avoid                                                               
giving the legislature access to spending it.                                                                                   
1:44:42 PM                                                                                                                    
SENATOR MYERS  explained that he  offered Amendment 1 to  put his                                                               
concerns on record. He withdrew Amendment 1.                                                                                    
1:45:24 PM                                                                                                                    
CHAIR  REINBOLD   commented  that   she  would  like   to  reduce                                                               
1:45:51 PM                                                                                                                    
SENATOR  KIEHL  moved  to  adopt  Amendment  2,  work  order  32-                                                               
LS0015\A. 2:                                                                                                                    
                          AMENDMENT 2                                                                                       
OFFERED IN THE SENATE                          BY SENATOR KIEHL                                                                 
     TO:  SJR 1                                                                                                                 
     Page 1, line 14, through page 2, line 12:                                                                                  
          Delete all material and insert:                                                                                       
          "(b)  At the end of each fiscal year, five                                                                            
      percent of the average market value of the fund for                                                                       
       the first five of the preceding six fiscal years,                                                                        
     including  the fiscal  year just  ended, including  any                                                                    
     unrealized  gains or  losses,  shall  be determined  in                                                                    
     accordance    with   generally    accepted   accounting                                                                    
          (c)  Each fiscal year, an amount                                                                                      
               (1)  equal to one and one-fourth percent of                                                                      
     the  average market  value of  the fund,  as calculated                                                                    
     under (b)  of this  section, shall be  transferred from                                                                    
     the permanent  fund for  use in  a program  of dividend                                                                    
     payments to state residents, as provided by law;                                                                           
               (2)  not to exceed three and three-fourths                                                                       
     percent of  the average  market value  of the  fund, as                                                                    
     calculated   under  (b)   of  this   section,  may   be                                                                    
     appropriated  by  the  legislature from  the  permanent                                                                    
     fund to the general fund."                                                                                                 
CHAIR REINBOLD objected for discussion purposes.                                                                                
1:45:58 PM                                                                                                                    
SENATOR  KIEHL  explained that  Amendment  2  would enshrine  the                                                               
dividend  and set  a  minimum percentage  of  the dividend  below                                                               
which the legislature  cannot go. It would make  the remainder of                                                               
the draw  available for  appropriation, just as  it is  today. It                                                               
allows most of the discretion  for appropriations to legislators,                                                               
who are  the people's representatives.  He summarized  that under                                                               
Amendment 2,  a minimum of 25  percent of the draw  would be used                                                               
for  dividends,  which  leaves  75 percent  for  deposit  to  the                                                               
general fund for  the legislature to consider.  He clarified that                                                               
the 25 percent draw for the dividend is not a cap.                                                                              
1:47:46 PM                                                                                                                    
SENATOR MYERS offered his view  that Amendment 2 would go against                                                               
the intent  of the  constitutional framers.  Their intent  was to                                                               
provide  dividends  as  the first  draw.  Making  the  guaranteed                                                               
portion  the smaller  portion  will place  the  dividends in  the                                                               
position  of  the second  draw.  He  offered  his view  that  the                                                               
resource  owners  should  get  the  first  call  on  the  states'                                                               
royalties. He expressed concern that  Amendment 2 will reduce the                                                               
effective rate on royalties even  further. Therefore, Amendment 2                                                               
is not a good idea.                                                                                                             
1:49:12 PM                                                                                                                    
SENATOR SHOWER  agreed with Senator  Myers. He  expressed concern                                                               
that  Amendment  2  would  result in  a  smaller  permanent  fund                                                               
dividend and the government would  increase in size. He predicted                                                               
that  the legislature  would  continue to  allow  this to  happen                                                               
unless  it has  no  choice.  He emphasized  the  need  for a  PFD                                                               
1:51:26 PM                                                                                                                    
SENATOR WIELECHOWSKI  stated that  SJR 1  is designed  to resolve                                                               
the PFD  issue. He  offered his  view that  the people  would not                                                               
support this approach. He said he could not support Amendment 2.                                                                
1:52:05 PM                                                                                                                    
SENATOR KIEHL highlighted differing  viewpoints on how the Alaska                                                               
Constitution is constructed. He  said the committee could discuss                                                               
what  the framers  intended. However,  the Alaska  Constitution's                                                               
language  requires   that  the   permanent  fund's   earnings  be                                                               
deposited to  the general fund.  The courts have affirmed  it, he                                                               
said.  A   majority     of  the  House   and  the   Senate  makes                                                               
appropriation  determinations. Amendment  2 would  put the  first                                                               
call on the  PFD for Alaskans. Legislators  currently disagree on                                                               
the size  of that  dividend. Early  in this  legislative session,                                                               
there  were discussions  about having  a zero  dividend. However,                                                               
that is not something he  supports, he said. The federal COVID-19                                                               
funds have offset the state's  revenues. He reminded members that                                                               
funding  for state  government benefits  Alaskans. State  funding                                                               
paves  and  plows  roads,  fuels  state  trooper  vehicles,  pays                                                               
biologist  salaries  and  natural resource  managers  who  enable                                                               
resource development to occur. He  related his understanding that                                                               
there was no support for Amendment 2.                                                                                           
SENATOR KIEHL withdrew Amendment 2.                                                                                             
1:54:17 PM                                                                                                                    
CHAIR REINBOLD remarked  that the 25 percent to  75 percent split                                                               
would "throw people  for a loop." However, she  liked the minimum                                                               
floor aspect in Amendment 2.                                                                                                    
1:54:57 PM                                                                                                                    
SENATOR  KIEHL  moved  to  adopt  Amendment  3,  work  order  32-                                                               
                          AMENDMENT 3                                                                                       
OFFERED IN THE SENATE                          BY SENATOR KIEHL                                                                 
     TO:  SJR 1                                                                                                                 
     Page 1, lines 14 - 15:                                                                                                     
          Delete "in accordance with generally accepted                                                                         
     accounting principles"                                                                                                     
          Insert "as provided by law"                                                                                           
CHAIR REINBOLD objected for discussion purposes.                                                                                
1:55:02 PM                                                                                                                    
SENATOR  KIEHL explained  Amendment  3. He  said the  legislature                                                               
does not set generally  accepted accounting principles. Amendment                                                               
3 would allow the legislature to establish the principles.                                                                      
CHAIR REINBOLD remarked that she likes Amendment 3.                                                                             
SENATOR SHOWER offered his support for Amendment 3.                                                                             
1:56:47 PM                                                                                                                    
SENATOR  MYERS  asked  if  the  bill  sponsor  could  comment  on                                                               
Amendment 3.                                                                                                                    
SENATOR WIELECHOWSKI responded that  this language is the current                                                               
language  in the  permanent fund  statutes. The  term is  used 25                                                               
times  in the  statutes. He  offered  his view  that Amendment  3                                                               
makes a reasonable change.                                                                                                      
1:57:41 PM                                                                                                                    
CHAIR  REINBOLD withdrew  her objection.  There being  no further                                                               
objection, Amendment 3 was adopted.                                                                                             
SENATOR SHOWER remarked that he thought this change would help.                                                                 
[SJR 1 was held in committee.]                                                                                                  

Document Name Date/Time Subjects
Agenda 4.7 UPDATE.pdf SJUD 4/7/2021 1:30:00 PM
Agenda 4.7 UPDATE
Agenda 4.7.pdf SJUD 4/7/2021 1:30:00 PM
Senate Judiciary Hearing April 7, 2021 Agenda
SJR1 Amendment Presentation Senator Myers.pdf SJUD 4/7/2021 1:30:00 PM
Amendment SJR1 Myers A.3.pdf SJUD 4/7/2021 1:30:00 PM
Amendment SJR1 Kiehl A.2.pdf SJUD 4/7/2021 1:30:00 PM
Amendment SJR1 Kiehl A.1.pdf SJUD 4/7/2021 1:30:00 PM
ALL AG Taylor Public Testimony Against.pdf SJUD 4/7/2021 1:30:00 PM
Governor's Appointee Attorney General Nominee Treg Taylor, All Public Testimony
Amendment SB9 Hughes B.13.pdf SJUD 4/7/2021 1:30:00 PM
SB 9
Amendment SB9 Hughes B.14.pdf SJUD 4/7/2021 1:30:00 PM
SB 9
Amendment SB9 Hughes B.15.pdf SJUD 4/7/2021 1:30:00 PM
SB 9
Amendment SB9 Myers B.12.pdf SJUD 4/7/2021 1:30:00 PM
SB 9
Amendment SB9 Kiehl B.16.pdf SJUD 4/7/2021 1:30:00 PM
SB 9
Amendment SB9 Kiehl B.17.pdf SJUD 4/7/2021 1:30:00 PM
SB 9
SB9 ALL Public Testimony February 10- April 7.pdf SJUD 4/7/2021 1:30:00 PM
SB 9