Legislature(2009 - 2010)BELTZ 105 (TSBldg)
02/09/2010 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB43 | |
| SJR24 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 43 | TELECONFERENCED | |
| *+ | SJR 24 | TELECONFERENCED | |
| + | TELECONFERENCED |
SJR 24-CONST AM: GUARANTEE PERM FUND DIVIDEND
9:30:19 AM
CHAIR MENARD said the next item to come before the committee is
SJR 24.
SENATOR FRENCH, sponsor of SJR 24, read the following statement:
The Permanent Fund Dividend [(PFD)] should be
permanent. The dividend represents the people's direct
share of our commonly owned natural resource wealth.
Protecting the dividend from encroachment fulfills the
constitution's mandate that our natural resources be
managed for the maximum benefit of all Alaskans. SJR
24 is intended to keep that constitutional promise.
Looking back at the debate that took place as our
constitution was written helps place the policy goals
of SJR 24 in a historical context. E.L. "Bob"
Bartlett, Alaska's delegate to Congress at the time of
the constitutional convention, believed that our
mineral wealth, which he called "the people's wealth",
should be used for two distinct purposes: "the support
of Alaska governmental services" and "the use of all
the people in Alaska." His vision, which predated the
Prudhoe Bay oil discovery by thirteen years, and the
creation of the Permanent Fund by twenty-one years,
captures the current usage of our state's oil wealth
to support state government and to pay an individual
dividend to each Alaskan. Protecting the dividend
preserves the fundamental idea that some portion of
our natural resource wealth should be spread equally
across the state to each citizen.
Every year in Juneau, the budget consumes the vast
majority of our oil wealth. Since 1977, the state has
taken in approximately $102 billion in oil revenue.
Since 1982, when the first dividends were issued, the
state has paid out approximately $17 billion in
dividends. Therefore, less than 17% of our commonly
owned wealth is distributed equally. The political
system directs the vast majority of the state's oil
wealth to the various needs of state government as
fairly as it can, but inevitably the budget tug-of-war
produces winners and losers. Budget battles can be
fierce, and there are almost always regional and
departmental imbalances in how the state budget is
allocated. The dividend stands in stark contrast to
this political process. The dividend goes equally to
all, regardless of which political party is in power.
What could be more fair?
Protecting the dividend in the Constitution is not a
new idea. Over the years a variety of public figures
have advocated for this idea. In 2004, the delegates
to the Conference of Alaskans, called by then-Governor
Murkowski to develop a consensus on the role of the
Permanent Fund in the state's future, adopted this
idea as one of their four policy initiatives to put
the state on firmer financial footing.
9:33:32 AM
SJR 24 is intended to make certain that the dividend,
a unique feature of a unique state, continues into the
future. Please join me in supporting SJR 24.
SENATOR FRENCH pointed out a unique feature of the Alaskan
constitution - the state taking title of the mineral wealth from
the federal government. He explained that members of Congress
were concerned about the state's ability to support itself when
considering Alaskan statehood. At statehood, the state got 100
million acres of land in a unique grant. He read from a book
prepared by the Institute of Social and Economic Research on
Alaska's constitutional convention and explained that Alaska
owns the mineral rights to all the minerals underneath state
land; they cannot be sold or given away and are property of the
state as a whole.
SENATOR FRENCH said SJR 24 is meant to provoke a discussion of
the question, "What is the state of Alaska?" He spoke about Bob
Bartlett's speech to the constitutional convention, famous for
bringing passion to the idea that the state could be exploited
if it was not careful about resource development. Bob Bartlett
repeatedly referred to use of the mineral wealth, which he
called "the people's wealth," to support not only the government
but the people of the state.
9:36:17 AM
SENATOR FRENCH said he knows that some are concerned the PFD is
a give-away or a form of welfare. He quoted from Byron Mallot's
Compass piece [in the Anchorage Daily News]:
The Alaska Permanent Fund Dividend not a government
giveaway, it is not a form of welfare. Indeed it is
among the most conservative of public policy notions -
that of a contract between Alaska's government and its
citizens to share a portion of resource revenues
belonging to all, directly with each.
SENATOR FRENCH asked whether a person's dividend from stock in
Exxon, BP or Conoco is a giveaway or rather something that
belongs to the person as an owner. He said SJR 24 is meant to
provoke the question, "Are we really an owner state, or
something else?"
SENATOR MEYER said if a person had stock in a company, the
company would pay out a lot in good years and retain earnings
for ongoing operations in bad years. He said that is how he sees
the PFD; when oil prices are high and the state has a lot of
money, more should be paid to the public. But in lean times the
state may need flexibility to use some of that money for state
services. He said that is the intent of the PFD, to help
maintain state services. With SJR 24, the PFD would not be an
option for the state and during lean times and income or sales
tax would have to be considered.
9:39:19 AM
SENATOR FRENCH said that is exactly the kind of discussion SJR
24 is supposed to provoke. The resource wealth, not the PFD, is
supposed to support government and the people. He said some
people think the PFD is a rainy day fund and that would not last
long in Juneau. He said the PFD was not called a rainy day fund
but a permanent fund. SJR 24 does not guarantee a dividend; it
takes the current calculation method of the five year average of
our stock market investments, and puts that in the Constitution.
So if the stock market is good to us, we pay a dividend and if
it is bad we don't pay a dividend. He explained that it is
exactly the same statutory calculation in place now, just put in
a place where it cannot be tampered with. If there are some lean
years, the state would be prohibited from grabbing some of those
earnings. He felt it is legitimate to ask if the PFD should be
off limits even if an income tax or sales tax should be needed.
His view was that the PFD should be the last thing that is
grabbed to balance state government after other measures have
been taken.
SENATOR MEYER said the Legislature cannot touch the PFD; the PFD
can only be touched by a vote of the people. He said the fund
probably contains $35 billion. The earnings off of that
principle are the issue. If the earnings are not needed,
dividends are paid out and some is filed back in for inflation
proofing. He said we all anticipate the day when Prudhoe Bay and
Kuparek will decline so that royalty production tax will not be
enough to fund state services and part of the PFD earnings would
be needed. The program founders wanted the Legislature to have
that flexibility. He said he thinks Alaska is getting close to
that point; [oil] production is decreasing by 5 to 6 percent
every year and nothing is offsetting that.
9:42:18 AM
SENATOR MEYER said his concern is that blocking [the flexibility
to use the PFD earnings] might be shortsighted.
SENATOR PASKVAN said it might be useful to the listening
audience to describe "earnings reserve account."
SENATOR FRENCH explained that the Permanent Fund has a corpus,
or the main account, where royalties go. The state of Alaska
gets a 12.5 percent royalty from the value of the oil that flows
out of the ground; it is the owner's share. Of that royalty, one
quarter, or sometimes one half, is dedicated to go straight into
the Permanent Fund which has made up one third of the corpus of
the Permanent Fund. One third of the Permanent Fund has come
from those deposits. Another third has come from legislative
leaders putting a large amount of money into the Permanent Fund
through special appropriations during big budget years.
Investment gains make up the last third of the Permanent Fund.
He explained that fund managers buy and sell stocks and the
earnings, or capital gains, go into an earnings reserve account.
At the end of the year, typically half of that money goes to
inflation proofing and half goes to dividends.
SENATOR PASKVAN said some could say we are allocating this for
future Alaskans, permanently restricting PFD access. He said he
is he is relating it to what is happening in the private market
with long term investment and restrictions.
9:45:43 AM
SENATOR FRENCH said SJR 24 will provoke a lot of discussion
about the original intent of the Permanent Fund. He felt it was
fair to say the original intent was to use the money to sustain
government services but he was not sure that is the perfect
vision of the Permanent Fund going forward.
SENATOR KOOKESH asked why SJR 24 is needed if the Legislature
can't do anything with the Permanent Fund without a vote of the
people.
SENATOR FRENCH replied that the Permanent Fund bank account
itself is locked away behind a Constitutional prohibition
against the Legislature spending it without permission from the
people through a vote. The earnings reserve account is separate
and is available every year for appropriation. Every year the
Legislature votes to spend money for a dividend and to put money
back into the Permanent Fund for inflation proofing; that does
not require a vote of the people. That legislative appropriation
could be voted down and no dividend would be paid.
SENATOR FRENCH said people think of [the dividend] as happening
automatically, but it is a legislative act every year and
depends on who is in the Legislature.
9:47:48 AM
SENATOR PASKVAN said if a $1000 dividend, for example, is
distributed to a citizen, perhaps 25 percent or $250 immediately
has to go to the IRS. If the earnings themselves are used for a
public purpose, then the entire $1000 [per person] can be used.
He said that is part of the larger policy debate.
SENATOR FRENCH said that view presupposes that every person
benefits equally from the state budget. He said it is
interesting to weight how each person benefits from the state
budget versus from having their own little share of oil wealth
delivered to their PO Box to use as they see fit.
SENATOR MEYER said the 12 percent royalty that the state gets is
supposed to be used for Alaska's citizens. That money comes into
the general fund and helps Alaskans through better schools,
roads, etc. However, whether or not that is the best use of
resources can be debated. He pointed out that the corpus of the
Permanent Fund is 'hands-off' and $35 billion is sitting there.
However the earnings reserve always has been left to the
Legislature's discretion. It shows up as part of the budget and
half has always been put to inflation proofing and half to
dividends.
9:50:42 AM
SENATOR MEYER said former Governor Murkowski was pushing the
Percentage of Market Value (POMV) concept which took a little
bit of the half that goes to dividends to be used in state
services. It was a popular concept for a while.
9:51:31 AM
SENATOR FRENCH said the Conference of Alaskans was former
Governor Murkowski's response to a budget crisis when it looked
like oil revenues were going to be down and the state was in
need of resources. Former Governor Murkowski convened an array
of 55 Alaskans to debate the issue over three days. They adopted
the POMV idea, meaning 5 percent is paid out per year. If it
assumed that 8 percent will be made over time, then 3 percent is
accumulated every year as inflation proofing. The Conference of
Alaskans understood that for the people of Alaska to embrace the
POMV idea they would need a promise that the money made
available to the Legislature for spending every year, close to
$2 billion, would not be wasted. The Conference of Alaskans said
the promise would be putting the dividend in the Constitution.
SENATOR KOOKESH suggested that Senator French explain the
difference between a bill and resolution because people might
not understand that this has to go through a vote of the people.
SENATOR FRENCH verified that SJR 24 would have to go through the
Senate and the House by a two-thirds majority in both bodies and
then go to the people of Alaska for a vote. Nothing the
legislature does or says changes anything until that entire
process happens.
9:54:19 AM
CHAIR MENARD suggested a correction to Senator French's sponsor
statement: the second paragraph says "each citizen" and should
include the eligibility criteria for the PFD such as being at
least one year old and a resident for a full year. She recalled
her late husband's involvement with the Permanent Fund 20 years
ago and he said the dividend payment to an individual multiplies
through spending and is an economic engine.
9:55:24 AM
CHAIR MENARD began public testimony.
SENATOR PASKVAN asked for Michael Burn's thoughts on the impact
of designating the earnings reserve account as a permanent
contribution.
MICHAEL BURNS, Executive Director, Alaska Permanent Fund
Corporation (APFC), said the Board has never taken a position on
use of earnings which is completely up to the Legislature and is
a public policy issue. Mechanically, management would not change
much with SJR 24.
9:58:02 AM
SENATOR PASKVAN asked if there is systemic risk to the fund if
monies have to be dealt with in a different way.
MR. BURNS did not see a risk. The investment philosophy,
procedures and policy would remain the same.
LAURA ACHEE, Director of Communications, Alaska Permanent Fund
Corporation (APFC) explained that a pension fund, as opposed to
the permanent fund, has a set liability. The liability in the
Permanent Fund is driven by what the fund spins off in statutory
net income. She said SJR 24 would not enshrine a set liability
for the Permanent Fund in the Constitution anymore than the
statutory language does.
9:59:05 AM
CHAIR MENARD closed public testimony.
SENATOR PASKVAN asked Senator French where he would prefer a
greater debate around SJR 24 take place.
SENATOR FRENCH said he would love for the debate to happen in
the finance committee. He said as it moves through that
committee and onto the floor, a wide-spread discussion will take
place.
10:00:29 AM
SENATOR PASKVAN moved to report SJR 24 from committee with
individual recommendations and attached fiscal note(s). There
being no objection, the motion carried.
10:01:08 AM
With no further business before the committee, Chair Menard
adjourned the meeting at 10:01 a.m.
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