02/04/1994 09:09 AM Senate STA

 CHAIRMAN LEMAN brings up SJR 38 (RESTRUCTURE PERMANENT FUND) as the           
 next order of business before the committee.  The chairman invites            
 Mr. Stastny to comment on SJR 38.                                             
                                                                               
 Number 492                                                                    
                                                                               
 SHELBY STASTNY, Director, Office of Management & Budget (OMB),                
 Governor's Office, states OMB has spent some time reviewing Mr.               
 Cremo's proposal (SJR 38).  While OMB would like to believe SJR 38            
 would solve the state's fiscal problems, it doesn't appear that it            
 would, at least in the short term, fifteen to twenty years.  OMB              
 shares the concerns many people have regarding the amount of                  
 revenues that will come to the state.  If one excludes for current            
 use the resources we have in our reserve funds, then it appears               
 this proposal would exacerbate the current budget gap to the tune             
 of 200 to 300 million dollars a year.  OMB bases these projections            
 on mid-case scenarios of the Department of Revenue projections.  It           
 could be even more if based on low-case scenarios.  So it certainly           
 would put great pressure on the budget.  Mr. Stastny thinks that by           
 the year 2000 the state would be dealing with a total                         
 appropriations budget of about the 2.4 billion dollar range, which            
 would be a significant reduction from today's budget.  This range             
 would be equivalent to taking about 700 million dollars out of our            
 current budget.  If we could live with that reduction for ten or              
 fifteen years, there is a period of time where we would cross the             
 line and there would be more money available under the Cremo plan             
 than there would be under the current revenue projections.                    
 Number 540                                                                    
                                                                               
 MR. STASTNY says one of the constraints from the type of plan in              
 SJR 38 is that we would have difficulties investing in revenue                
 raising matters.  One argument for SJR 38 is we would be able to              
 bond for projects, but the question that always comes up is if                
 you've got money available, should you be bonding?  OMB does not              
 believe the state could live within the constraints of SJR 38 for             
 the period of time we would have to until we reached the point in             
 which we were in a better position with cash flow.  Mr. Stastny               
 does not believe the state can save ourselves rich, and he thinks             
 that's what SJR 38 will try to do.  He thinks the state will better           
 be able to invest its' money in income-producing resources in the             
 future, and will be able to make the state rich by using the                  
 resources of the state.                                                       
                                                                               
 Number 564                                                                    
                                                                               
 CHAIRMAN LEMAN comments that the state cannot spend itself rich               
 either.                                                                       
                                                                               
 Number 566                                                                    
                                                                               
 MR. STASTNY asks if the state could invest itself rich.                       
                                                                               
 Number 570                                                                    
                                                                               
 CHAIRMAN LEMAN calls Representative Hanley as the next witness.               
                                                                               
 Number 579                                                                    
                                                                               
 REPRESENTATIVE HANLEY states he has set up the Alaska Permanent               
 Fund Corporation's numbers, as well as Mr. Cremo's plan in his                
 computer.                                                                     
                                                                               
 TAPE 94-6, SIDE B                                                             
 Number 582                                                                    
                                                                               
 REPRESENTATIVE HANLEY continues, saying the January 27th run that             
 he did is based on mid-case scenarios.  The Alaska Permanent Fund             
 Corporation, as well as the Governor's Office use the low-case                
 scenario for their revenue projections.  So he then changed his               
 chart to show the low-case scenario as well as the percentage of              
 the first year withdrawal has been reduced from 20% to 16.4%, with            
 a geometric progression down to the 6% numbers.                               
                                                                               
 Number 572                                                                    
                                                                               
 SENATOR ELLIS asks Representative Hanley if the figures on his                
 chart are in nominal dollars.                                                 
                                                                               
                                                                               
 Number 570                                                                    
                                                                               
 REPRESENTATIVE HANLEY replies that the figures on his chart are in            
 nominal dollars.  Those are the basic changes that were made at the           
 request of the committee.  The chart was developed in order to come           
 up with an apples to apples comparison.  Representative Hanley says           
 his numbers come out pretty comparable to Mr. Stastny's numbers.              
 Another addition to the chart was a net withdrawal percentage.                
 Representative Hanley continues with his explanation of his chart             
 on "Traditional vs Cremo Budgeting".                                          
                                                                               
 Number 559                                                                    
                                                                               
 CHAIRMAN LEMAN asks Representative Hanley if SJR 38 has been                  
 double-checked to make sure the language in it is very clear.                 
                                                                               
 Number 547                                                                    
                                                                               
 REPRESENTATIVE HANLEY states he has suggested House Finance                   
 Committee look at the spreadsheets and fiscal aspects of SJR 38,              
 and then send the resolution back to the House Judiciary Committee            
 to double-check the language.  There are some questions in regards            
 to clarifying some of the definitions, for instance, a definition             
 for the term "biological marine resource".  Every single word in              
 SJR 38 needs to be defined for the record so that it is very clear            
 in the future as to what was intended.                                        
                                                                               
 Number 532                                                                    
                                                                               
 CHAIRMAN LEMAN thanks Representative Hanley for his testimony and             
 calls Mr. Cremo to testify.                                                   
                                                                               
 Number 530                                                                    
                                                                               
 ROGER CREMO, testifying from Hawaii, states he does not share Mr.             
 Stastny's concerns.  Mr. Stastny's characterization of SJR 38 as a            
 savings plan is incorrect.  It is merely an attempt to convert the            
 fluctuating revenues that the state has now into revenues that                
 fluctuate less or not at all.  The permanent fund now seems to be             
 an income fund.  Mr. Cremo questions whether the Alaska Permanent             
 Fund Corporation has the authority to even invest 40% in stocks.              
 He questions whether it has the authority to invest in real estate.           
 He questions whether it has the authority to buy and invest in                
 currency.                                                                     
                                                                               
 Number 500                                                                    
                                                                               
 MR. CREMO thinks it is important that in the proposed fund, the               
 withdrawal is taken from a twelve quarter average of fund value.              
 This means the withdrawal is less than a nominal 6%.  Mr. Cremo               
 does not agree with the comments made by Mr. Kelly, Mr. Goldsmith,            
 or Mr. Stastny.  Mr. Cremo goes on to detail his disagreement with            
 their comments.  One of the reasons he disagrees with the comments            
 of Mr. Kelly is because the Alaska Permanent Fund Corporation uses            
 extremely conservative figures.  He continues his analysis of                 
 permanent fund corporation practices and inflation proofing of the            
 fund.  He believes his plan, SJR 38, would solidify the inflation             
 proofing of the permanent fund.                                               
                                                                               
 Number 368                                                                    
                                                                               
 MR. CREMO doubts the correctness of some of the points made by Mr.            
 Goldsmith.  One point of disagreement is that Mr. Goldsmith thinks            
 SJR 38 is too complicated, while Mr. Cremo thinks SJR 38 is a very            
 simple plan.  He disagrees on another point: saying the earnings              
 reserve account is not part of the permanent fund, but simply                 
 another general fund.  Mr. Cremo summarizes by saying he finds it             
 difficult to agree with much of what he is hearing.                           
                                                                               
 Number 288                                                                    
                                                                               
 CHAIRMAN LEMAN thanks Mr. Cremo for his testimony and asks if                 
 anyone else wishes to testify.                                                
                                                                               
 Number 284                                                                    
                                                                               
 MR. KELLY clarifies for the committee that when he referred to real           
 withdrawals from the fund, he was including the oil revenues that             
 are added in that category.                                                   
                                                                               
 Number 272                                                                    
                                                                               
 CHAIRMAN LEMAN states there is some tinkering to be done on SJR 38,           
 but he doesn't necessarily thinks the resolution needs to be kept             
 in the committee to do it, and so is not opposed to moving it out             
 of committee.                                                                 
                                                                               
 Number 260                                                                    
                                                                               
 SENATOR ELLIS says work on SJR 38 will continue; he would like to             
 see the bill move on.  Senator Ellis makes a motion to discharge              
 SJR 38 from the Senate State Affairs Committee with individual                
 recommendations.                                                              
                                                                               
 Number 249                                                                    
                                                                               
 CHAIRMAN LEMAN, hearing no objection, orders that SJR 38 be                   
 discharged from committee with individual recommendations.