Legislature(2003 - 2004)
05/01/2003 03:35 PM Senate STA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SJR 18-CONST. AM: PF APPROPS/INFLATION-PROOFING
CHAIR GARY STEVENS announced his intention was to introduce the
bill and take initial testimony.
LAURA ACHEE, aide to the Legislative Budget and Audit Committee
and Representative Ralph Samuels, introduced Mr. Bartholomew.
BOB BARTHOLOMEW, Chief Operating Officer for the Alaska
Permanent Fund Corporation, highlighted why the board believes
this is a good public policy issue to be brought to a vote of
the people in November 2004.
· For 23 of the last 27 years the board's number
one objective has been to manage the Permanent
Fund so that it is protected against inflation.
· The second objective is to ensure there is an
annual dividend distribution.
· The board believes the proposal to change the
statute would better protect the Permanent Fund
against inflation.
· The proposal changes how to determine what is
available from the Permanent Fund by going to a
payout based on market value (POMV).
· POMV provides a limit on what can be spent from
the Permanent Fund.
· In good years POMV stops overspending and in down
years it makes an annual distribution available.
· Currently, the annual distribution could go to
zero.
SENATOR JOHN COWDERY understood the proposal didn't include
the previous year and he asked why not simply average from
the last five years.
MR. BARTHOLOMEW explained the amendment recommends not
counting the current fiscal year so in January the
Legislature would know how much money would be available.
For example, to determine how much money should be
available for FY04, which is the budget currently before
the Legislature, you would take a five-year average that
ends June 30, 2002.
SENATOR COWDERY asked how much would be available.
MR. BARTHOLOMEW replied $1.2 billion would be available
under a five percent limit.
SENATOR COWDERY asked if the entire $1.2 billion would be
distributed as dividends.
MR. BARTHOLOMEW said it would not. Current statute
determines that one-half of what is available goes to the
dividend then inflation proofing is paid. It is silent with
regard to the balance and, historically, the balance hasn't
been appropriated other than out of the earnings reserve
into principal.
SENATOR COWDERY asked if the one-half would result in a
$1,000 dividend check.
MR. BARTHOLOMEW replied that if the financial markets were
to stay flat between now and June 30, the dividend would be
approximately $1,100. However, if the markets were to
correct downward, it could be lower due to the limitations.
SENATOR COWDERY commented there is a chance of a zero
dividend this year or next without the amendments, but with
the amendments there would be a $1,000 dividend.
MR. BARTHOLOMEW agreed provided the formula remained
unchanged.
CHAIR GARY STEVENS announced he would like to hear from Ms.
Griswold at the Homer LIO before adjourning the hearing.
MARY GRISWOLD from Homer testified in support of the bill.
SJR 18 constitutionally inflation proofs the
entire Permanent Fund. It sets a spending limit
to prohibit excess appropriations in flush years
while making distributions available in lean
years.
POMV is compatible with the fund's diversified
portfolio that is managed for long-term value over
short-term gains. A five POMV payout protects the
value of the fund and provides a limited and
predictable and sustainable revenue stream. This is a
management tool and not a distribution plan, but the
two are inherently linked. The use of a payout
shouldn't be set in the constitution because it's an
appropriation issue.
AS 37.13.140 and AS 37.13.145 relating to the
Permanent Fund income and income distribution must be
amended to conform to five POMV because they would no
longer apply as written. Establishing a comparable
dividend formula when the statutes are changed is
advisable because five POMV is too valuable an asset
to risk voter rejection by threatening their dividend
checks.
For the purposes of a model, assume an eight percent
total return, three percent inflation and a five
percent real return. Under existing statute, 50
percent of the income available for distribution goes
to the dividend program. Inflation proofing then takes
three percent, leaving one percent for other
legislative appropriations, which has never been
touched. For this distribution to work under POMV, 80
percent of the five percent payout must be allocated
to the dividend program to provide a comparable amount
of money. Inflation proofing of three percent has
already been accounted for by establishing a five
percent payout limit, leaving 20 percent of the payout
for other legislative appropriations, which is the
same as the one percent under existing distribution
statutes. Fifty percent of the money available for
distribution before inflation proofing equals 80
percent of the money available for distribution after
inflation proofing. Fifty percent of eight translates
to 80 percent of five.
This constitutional amendment, combined with a change
to the statutes, securing 80 percent of the annual
payout for dividends is a critical step and a three-
way win. The Permanent Fund gets a better management
framework, the Legislature gets a predictable revenue
stream, and the people keep their dividend formula.
CHAIR GARY STEVENS remarked this isn't an easy issue to
comprehend or explain. He asked what kind of response she
receives as she explains this to her friends and neighbors.
MS GRISWOLD told him most people don't understand POMV; they
just want to know how it would affect their dividend. When she
explains that if the payout is allocated 80/20, their dividend
check won't be affected and they're pleased. It's interesting
that they don't understand the rest and her main concern is "the
rest of it." A 50/50 split would require voter approval and
she's sure it would be defeated.
SENATOR DYSON asked if she believes that funds should be
allocated to educate voters.
MS. GRISWOLD said voter education is very important.
SENATOR DYSON noted that if care isn't taken, this could be
interpreted as jeopardizing the status quo, which is perceived
to be a golden goose.
MS. GRISWOLD said she believes the Alaska Permanent Fund
Corporation has hired a communication specialist who could
provide educational services.
SENATOR DYSON wasn't sure it was legal for the corporation to
use money from the earnings to lobby the public.
SENATOR COWDERY commented the Legislature could appropriate the
earnings to educate the public.
MR. BARTHOLOMEW advised he would return for the next hearing and
concluded his comments by restating the board's two objectives:
· Inflation proof the Permanent Fund constitutionally rather
than with an annual statutory appropriation
· Remove the word "principal" from the constitution so it
assures an annual distribution and that protection is
provided through the spending limit
CHAIR GARY STEVENS stated this is an important issue that
everyone should understand and feel comfortable with before it
moves. With that, he announced he would hold SJR 18 in committee
for further discussion.
| Document Name | Date/Time | Subjects |
|---|