Legislature(2003 - 2004)

05/13/2003 01:40 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
            SJR 19-CONST. AM: PERMANENT FUND INCOME                                                                         
SENATOR GEORGIANNA LINCOLN, bill sponsor,  advised that HJR 3 was                                                               
the  companion bill  and  she had  aide Mark  Gnadt  with her  to                                                               
answer  technical questions.  She  paraphrased  from the  sponsor                                                               
     SJR 19  proposes a constitutional amendment  that would                                                                    
     give constitutional protection  to the dividend program                                                                    
     of the Alaska Permanent  Fund. It ensures the Permanent                                                                    
     Fund Dividend will endure.                                                                                                 
     This  resolution  is  a   reiteration  of  the  popular                                                                    
     initiative  proposed  by  former Governor  Jay  Hammond                                                                    
     late last  year. SJR 19  would require a  majority vote                                                                    
     by Alaskans  before the Legislature could  spend any of                                                                    
     the Permanent  Fund earnings that  currently go  to the                                                                    
     dividend or to inflation proof the fund.                                                                                   
     The  Resolution would  also  maintain the  distribution                                                                    
     formulas used  to calculate the  dividend that  were in                                                                    
     place  on July  21, 2002.  This will  further guarantee                                                                    
     the  Permanent   Fund  Dividend  Program   will  remain                                                                    
     It  has  been  said  that  permanently  protecting  the                                                                    
     dividend  program might  make the  fund susceptible  to                                                                    
     federal taxation. Section 3 of  SJR 19 will immediately                                                                    
     repeal Sections 1 and 2  if the IRS determines the fund                                                                    
     is taxable.                                                                                                                
     The  Permanent Fund  dividend represents  approximately                                                                    
     one-eighth of Alaska's economy,  and is the most direct                                                                    
     link  between the  people of  Alaska and  the resources                                                                    
     they own.  With the  ongoing budget  deficit, it  is in                                                                    
     the  interest of  Alaskans to  constitutionally protect                                                                    
     our  dividend  on which  many  people  depend and  with                                                                    
     which they contribute to a healthy economy.                                                                                
She noted  the fiscal note  from the Division of  Elections shows                                                               
an expenditure  of $1,500 in 2005  to add the information  to the                                                               
Official Election Pamphlet. She  discussed the sectional analysis                                                               
prepared by Tamara Cook. [Copy in bill file.]                                                                                   
CHAIR GARY STEVENS asked her to comment on the IRS issues.                                                                      
MARK  GNADT, aide  to Representative  Eric Croft,  explained that                                                               
certain people are concerned that  if the dividend were placed in                                                               
statute  thereby  removing  the   appropriation  power  from  the                                                               
Legislature,  then   the  dividend  would  become   more  like  a                                                               
corporate dividend as opposed to  a dividend for the public good.                                                               
The  IRS  has  made  no  specific findings  in  that  regard  and                                                               
although  there is  some history  that substantiates  both sides,                                                               
none  are  closely related  to  the  Alaska Permanent  Fund.  The                                                               
sponsors believe the IRS is waiting  for the state to make a move                                                               
before  they make  any  determination. That's  why  they put  the                                                               
provision  in  Section  3, which  would  suspend  the  amendments                                                               
immediately if  the IRS were  to initially determine that  any or                                                               
all of the fund is taxable.  If the final judgment finds that the                                                               
fund is not taxable, the  suspension terminates. If it finds that                                                               
the fund is taxable, the suspension remains in effect.                                                                          
SENATOR JOHN  COWDERY said the  dividend was never  considered an                                                               
entitlement to the  fund and should never be  considered as such.                                                               
He asked whether a tax attorney had been consulted.                                                                             
SENATOR LINCOLN replied they asked legislative legal to respond.                                                                
SENATOR COWDERY advised this is  a high-risk gamble and there are                                                               
other  options  that  would  assure   a  dividend  and  not  risk                                                               
SENATOR LINCOLN said the point is well taken.                                                                                   
BOB  BARTHOLOMEW,   Chief  Operating  Officer  with   the  Alaska                                                               
Permanent Fund Corporation, advised he had three comments.                                                                      
   · Historically, the trustees have been concerned about the                                                                   
     tax-exempt  status of  the fund.  Enclosed in  the committee                                                               
     packets  is the  1998  opinion from  the Attorney  General's                                                               
     Office related  to the tax-exempt  status of the  fund. With                                                               
     regard to the  clause to repeal the  amendment, he cautioned                                                               
     that once the  process is started there is  no guarantee the                                                               
     IRS  wouldn't look  at the  current status  of the  fund and                                                               
     current issues unrelated to the constitutional amendment.                                                                  
   · They appreciate that SJR 19 is a proposal that is separate                                                                 
     from  the   Board  of  Trustee  proposal   that  deals  with                                                               
     modernizing  distribution   of  the  fund  related   to  the                                                               
     investment management perspective.  They encourage continued                                                               
     separation of the issues.                                                                                                  
   · As the policy debate continues regarding protecting the                                                                    
     dividend, they encourage looking at  the best way to do that                                                               
     mechanically.  This proposal  is to  use existing  statutory                                                               
     language,   but  the   corporation  believes   the  existing                                                               
     statutes cause  problems because  they were designed  for an                                                               
     investment  fund  of  20  years  ago,  which  is  completely                                                               
     different  that  the fund  they  guide  today. Part  of  the                                                               
     board's recommendation is to update the statutes.                                                                          
SENATOR GRETCHEN  GUESS asked for verification  that changing the                                                               
constitution to POMV [percent of  market value] doesn't guarantee                                                               
the dividend program it is simply a different management payout.                                                                
MR.  BARTHOLOMEW  explained  that  the current  proposal  in  the                                                               
Senate and House would guarantee  an annual distribution from the                                                               
permanent fund, not what the distribution would be used for.                                                                    
SENATOR GUESS asked if there  had been any communication with the                                                               
MR. BARTHOLOMEW said  it is his understanding that  they have had                                                               
no direct communication with the IRS.                                                                                           
PETRIA  FALKENBERG from  Kenai  testified  via teleconference  in                                                               
support of  SJR 19 because it  protects the PFD. The  PFD belongs                                                               
to the  people and they should  have a say in  how the government                                                               
spends its resources.                                                                                                           
JAMES PRICE  testified via teleconference  in support of  SJR 19.                                                               
He said  it's important to  give the people  a chance to  vote on                                                               
this important issue.                                                                                                           
FRED STURMAN,  testified via teleconference that  this would take                                                               
money out of legislators hands and he was in favor of that.                                                                     
ROGER  SHANNON testified  via teleconference  and said  he agreed                                                               
with the other speakers and urged passage of SJR 19.                                                                            
LORI CHURCHILL  testified via teleconference  to urge  passage of                                                               
SJR 19. She advised she was sending written testimony as well.                                                                  
RUBY KIME from Ninilchik testified  via teleconference in support                                                               
of SJR 19.  She said she favored restricting the  amount of money                                                               
available to the Legislature.                                                                                                   
SENATOR  COWDERY asked  that information  regarding how  far back                                                               
the  IRS would  look  if they  decided the  fund  was taxable  be                                                               
passed to the Judiciary Committee.                                                                                              
SENATOR LINCOLN said she would look for that information.                                                                       
SENATOR GUESS  made a motion to  move SJR 19 and  attached fiscal                                                               
notes  from  committee  with  individual  recommendations.  There                                                               
being no objection, it was so ordered.                                                                                          

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