Legislature(2015 - 2016)WASILLA LIO

07/13/2016 01:00 PM STATE AFFAIRS

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Audio Topic
01:07:33 PM Start
01:07:45 PM SB5001
04:15:31 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB5001 PERM. FUND:DEPOSITS;DIVIDEND;EARNINGS TELECONFERENCED
Heard & Held
Presentation by Administration:
Commissioner Randall Hoffbeck, Dept. of Revenue
Dept. of Law - Presenter TBA
Exec. Director Angela Rodell, Alaska Permanent
Fund Corporation (participating telephonically)
Wasilla LIO 600 E. Railroad Ave.
        SB 5001-PERM. FUND: DEPOSITS; DIVIDEND; EARNINGS                                                                    
                                                                                                                                
1:07:45 PM                                                                                                                    
CHAIR STOLTZE  announced the consideration  of SB 5001  and noted                                                               
that   this   is   the  governor's   self-described   cornerstone                                                               
legislation. He relayed  that he cleared the docket  to hear this                                                               
bill,  just as  he did  with  the governor's  original bill,  and                                                               
assumed the committee would hear  from Commissioner Hoffbeck, the                                                               
attorney  general and  all of  the governor's  financial experts.                                                               
"Unfortunately,  the  governor's administration  has  prioritized                                                               
other   activities"  he   said,  so   the  committee   will  have                                                               
teleconference  participation  from  Assistant  Attorney  General                                                               
Pokon and  Assistant Attorney General  Milks. He stated  that the                                                               
documents   for  this   hearing   include  a   letter  from   the                                                               
administration outlining  the reasons that activities  other than                                                               
the  introduction of  the governor's  cornerstone bill  are being                                                               
prioritized.  He expressed  hope  that Ms.  Pokon  and Mr.  Milks                                                               
would give a comprehensive review of  the bill and respond to the                                                               
questions from the committee.                                                                                                   
                                                                                                                                
1:11:34 PM                                                                                                                    
SENATOR  HUGGINS commented  that if  the revenue  commissioner is                                                               
not slated to testify today,  the appearance is that the governor                                                               
is not looking for a solution.                                                                                                  
                                                                                                                                
CHAIR STOLTZE added  that he wanted the committee  and the public                                                               
to know that  "We have a few  manacles and handcuffs on  us as we                                                               
start  this process."  He noted  that  the governor  does have  a                                                               
representative from the Mat-Su Valley who is present.                                                                           
                                                                                                                                
SENATOR   COGHILL    advised   that   he   was    listening   via                                                               
teleconference.                                                                                                                 
                                                                                                                                
1:14:19 PM                                                                                                                    
EMMA  POKON,  Attorney  IV, Special  Assistant  to  the  Attorney                                                               
General,  Office  of the  Attorney  General,  Department of  Law,                                                               
Anchorage,  Alaska,   speaking  via   teleconference,  introduced                                                               
herself and  Assistant Attorney  General Bill  Milks who  will be                                                               
able  to respond  to questions  on  any legal  issues that  arise                                                               
today.                                                                                                                          
                                                                                                                                
CHAIR STOLTZE  asked, in  lieu of the  Department of  Revenue, if                                                               
she will  be providing  information on the  fiscal impacts  of SB                                                               
5001.                                                                                                                           
                                                                                                                                
MS. POKON replied that Commissioner  Hoffbeck asked her to convey                                                               
his regrets for  not being available this  afternoon. She relayed                                                               
that he would  be happy to meet with people  in the Mat-Su Valley                                                               
and the delegation as time permits.                                                                                             
                                                                                                                                
CHAIR STOLTZE  asked if he  characterized SB 5001  correctly when                                                               
he called it cornerstone legislation.                                                                                           
                                                                                                                                
MS. POKON replied as follows:                                                                                                   
                                                                                                                                
     The  Alaska  Permanent  Fund  Protection  Act,  in  its                                                                    
     different variations  over the  course of the  last few                                                                    
     sessions,  has   been  an   important  bill   [and]  it                                                                    
     continues to  be. It does  provide the biggest  part of                                                                    
     the switching to the fiscal situation today.                                                                               
                                                                                                                                
CHAIR STOLTZE asked  Ms. Pokon to proceed  with her presentation.                                                               
He reminded Ms.  Pokon of the committee's  constraints and warned                                                               
that deferred questions cause some  problems, especially during a                                                               
special session.                                                                                                                
                                                                                                                                
1:16:32 PM                                                                                                                    
MS.  POKON  stated  that  SB  5001  will  look  familiar  to  the                                                               
committee as it mirrors the  committee substitute for SB 128 that                                                               
passed the  Senate. The committee  heard both SB 128  and Senator                                                               
McGuire's SB  114 earlier  this year, although  the CS  that came                                                               
out of Senate  Finance is a little different from  the bills that                                                               
this  committee heard.  She explained  that her  intention is  to                                                               
provide a  concise, technical  overview and a  few points  on the                                                               
purpose of the legislation.                                                                                                     
                                                                                                                                
CHAIR STOLTZE  asked her  to remind the  public of  the overlying                                                               
purpose  and  philosophy  of  the   bill  and  then  address  the                                                               
technical aspects.                                                                                                              
                                                                                                                                
MS.  POKON said  that as  oil prices  have remained  low and  the                                                               
state  has drawn  down the  balance in  the CBRF  [Constitutional                                                               
Budget Reserve Fund], it has become  evident that there will be a                                                               
need  to draw  from the  Permanent  Fund Earnings  Reserve. As  a                                                               
consequence, the administration wants  to provide a framework for                                                               
doing  that in  a way  that  will support  public services  while                                                               
protecting the dividend  and the fund; ultimately,  that will set                                                               
the state on a more positive  fiscal path. She stated that is the                                                               
purpose  and  the philosophy  behind  the  bill in  its  original                                                               
formulation and  the bill  that is before  you today;  to achieve                                                               
this end,  the basic provisions  in the  bill can be  broken into                                                               
four categories:  1) a  formula for calculating  how much  can be                                                               
withdrawn from  the earnings reserve  on a sustainable  basis, 2)                                                               
deposits to  the corpus of the  fund, 3) a new  dividend formula,                                                               
and  4)  management  provisions   and  authority  of  the  Alaska                                                               
Permanent Fund Corporation.                                                                                                     
                                                                                                                                
1:19:29 PM                                                                                                                    
She  said  the  formula  starts with  a  sustainable  percent-of-                                                               
market-value  draw  (POMV)  from  the  earnings  reserve  to  the                                                               
general fund; this  is 5.25 percent of the average  fund value in                                                               
the  first 5  of the  last 6  years. In  the second  step of  the                                                               
formula the  POMV calculation is reduced  by $1 for each  $1 over                                                               
$1.2  billion   in  production  taxes  and   royalties  that  are                                                               
deposited  in  the  general  fund.  She  noted  that  this  is  a                                                               
provision   that  appeared   in  the   State  Affairs   committee                                                               
substitute for  SB 114 and  laid the foundation for  a compromise                                                               
bill that both the administration  and members of the legislature                                                               
thought they  could support.  She said  the idea  is that  as oil                                                               
prices recover  and there is less  need to rely on  the permanent                                                               
fund,  the  withdraw  would  be   reduced;  this  provision  also                                                               
addresses  the volatility  issue, which  is  a key  piece of  the                                                               
legislation.                                                                                                                    
                                                                                                                                
MS. POKON detailed that the  second element of the bill addresses                                                               
deposits  to  the  corpus  of  the  permanent  fund.  First,  the                                                               
royalties  that are  deposited  to  the corpus  of  the fund  are                                                               
reduced to the  constitutional 25 percent amount  rather than the                                                               
current 30 percent. There is also  a savings rule when oil prices                                                               
peak  or the  state  has  more money  than  expected; those  peak                                                               
revenues would  be divided  between the  corpus of  the permanent                                                               
fund and  the CBRF.  If unrestricted  revenues exceed  the amount                                                               
the Legislature  appropriates, the excess would  be split between                                                               
the permanent  fund corpus  and the CBRF.  Finally, the  funds in                                                               
the earnings  reserve that exceed  four times the POMV  draw will                                                               
be transferred back into the corpus.                                                                                            
                                                                                                                                
1:23:19 PM                                                                                                                    
She said the  third element of the bill is  the dividend formula;                                                               
initially it sets the amount at  $1,000 for three years and after                                                               
that the formula is  based on 20 percent of the  POMV draw and 20                                                               
percent of the royalties that  are deposited in the general fund.                                                               
She said she believes the  foundation for this provision came out                                                               
of CSSB 114  and shows that the committee's  work was appreciated                                                               
and  constructive. The  administration  believes  that the  20/20                                                               
formula will produce dividends of about $1,000 into the future.                                                                 
                                                                                                                                
She said the fourth element  relates to the Alaska Permanent Fund                                                               
Corporation's (APFC)  authority. First,  the authority  to manage                                                               
and invest the CBRF will  transfer from the Department of Revenue                                                               
to the  Alaska Permanent  Fund Corporation.  Second, the  APFC is                                                               
added  to  the  list  of   agencies  that  are  exempt  from  the                                                               
procurement rules. Finally, the corporation  is able to adopt its                                                               
own regulations regarding procurement.                                                                                          
                                                                                                                                
1:26:03 PM                                                                                                                    
She presented the following Sectional Analysis for SB 5001:                                                                     
                                                                                                                                
     Section 1: Legislative intent to  reevaluate the use of                                                                    
     permanent fund  earnings in  three years.  This matches                                                                    
     with three  years of $1,000 dividends,  after which the                                                                    
     legislature will revisit the issue.                                                                                        
                                                                                                                                
     Section   2:   Directs   the  Alaska   Permanent   Fund                                                                    
     Corporation (APFC) to adopt  regulations similar to the                                                                    
     state's procurement code.                                                                                                  
                                                                                                                                
     Section 3: Adds the APFC  to the list of state agencies                                                                    
     that  are exempt  from  the  general state  procurement                                                                    
     code.                                                                                                                      
                                                                                                                                
     Section  4:  Transfers  the  authority  to  manage  and                                                                    
     invest  the constitutional  budget reserve  fund (CBRF)                                                                    
     from the Department of Revenue to the APFC.                                                                                
                                                                                                                                
     Section 5: Requires the APFC  to report the balance and                                                                    
     returns of the CBRF annually.                                                                                              
                                                                                                                                
CHAIR STOLTZE asked audience members to raise their hand if they                                                                
did not understand or had a question about any of the                                                                           
provisions.                                                                                                                     
                                                                                                                                
1:27:49 PM                                                                                                                    
MS. POKON continued the sectional analysis as follows:                                                                          
                                                                                                                                
     Section  6:  Dedicated  deposits of  royalties  to  the                                                                    
     corpus are reduced  from about 30 percent  of the total                                                                    
     received to  the constitutional minimum of  25 percent.                                                                    
     Currently, 25 percent of royalties  from old leases and                                                                    
     50 percent  of royalties from new  leases are deposited                                                                    
     into the  corpus, which comes  out to about  30 percent                                                                    
     of total royalties.                                                                                                        
                                                                                                                                
     Section  7:  Requires the  APFC  to  determine the  net                                                                    
     income  of  the  earnings  reserve  account  (ERA)  and                                                                    
     excludes   unrealized   gains   or  losses   from   the                                                                    
     definition  of "net  income." This  is consistent  with                                                                    
     current practice.                                                                                                          
                                                                                                                                
     Section  8: (b)  Provides the  first part  of the  draw                                                                    
     formula  -   the  POMV.  Defines  the   maximum  amount                                                                    
     available for  distribution each  year as  5.25 percent                                                                    
     of the  average year-end market value  of the Permanent                                                                    
     Fund  (including  the ERA,  but  not  the Amerada  Hess                                                                    
     funds) for the first five of the last six years.                                                                           
                                                                                                                                
     (c) Provides the second part  of the draw formula - the                                                                    
     limit. Under  the draw  limit, for  every $1  over $1.2                                                                    
     billion  of variable  oil and  gas revenue  (production                                                                    
     taxes and  royalties) received in the  general fund, $1                                                                    
     is  subtracted from  the POMV  calculation in  (b). The                                                                    
     limit  does not  apply to  the 20  percent of  the POMV                                                                    
     that goes to dividends.                                                                                                    
                                                                                                                                
     Section  9: Conforming  amendment  that clarifies  that                                                                    
     the Amerada  Hess funds  are not  included in  the draw                                                                    
     calculation in Section 8.                                                                                                  
                                                                                                                                
1:29:49 PM                                                                                                                    
SENATOR WIELECHOWSKI noted that  Section 9 amends AS 37.13.145(d)                                                               
but  it's  a point  of  contention  that  AS 37.13.145(b)  has  a                                                               
requirement  that  APFC  "Shall  transfer from  the  ERA  to  the                                                               
dividend  fund," and  the governor  vetoed the  appropriation. He                                                               
asked  Ms.  Pokon's  position  whether   passing  the  law  would                                                               
authorize a  future governor to  veto the amount of  the $900,000                                                               
permanent fund.                                                                                                                 
                                                                                                                                
MS.  POKON replied  that the  attorney general's  office believes                                                               
that  the  appropriation for  the  dividend  may be  vetoed.  She                                                               
specified as follows:                                                                                                           
                                                                                                                                
     It  has  been  the   practice  of  the  Legislature  to                                                                    
     appropriate those  monies from the ERA  to the dividend                                                                    
     fund   and  with   many  of   these  provisions   being                                                                    
     accomplished  through  an  appropriation-obviously  the                                                                    
     power  of   appropriation  rests  initially   with  the                                                                    
     Legislature  so if  a  particular  legislature were  to                                                                    
     choose to appropriate.                                                                                                     
                                                                                                                                
CHAIR STOLTZE  interjected that the power  of appropriation rests                                                               
exclusively with the Legislature.                                                                                               
                                                                                                                                
MS.  POKON  apologized for  the  misstatement  and restated  that                                                               
while  the administration  is setting  out a  long-term financial                                                               
plan  for preserving  the  value of  the  permanent fund,  future                                                               
legislatures would have the authority  to appropriate a different                                                               
amount.                                                                                                                         
                                                                                                                                
1:32:43 PM                                                                                                                    
SENATOR WIELECHOWSKI asked how much  revenue the statutory change                                                               
will generate for the state each year.                                                                                          
                                                                                                                                
MS.  POKON replied  the total  transfer  this year  will be  $2.4                                                               
billion, with 20 percent going  to the dividend and $1.92 billion                                                               
to  general  fund  purposes.  The   amount  of  revenue  that  is                                                               
generated on  an annual  basis continues to  be dependent  on the                                                               
investment  earnings  of  the  fund.   She  reiterated  that  the                                                               
provision  establishes the  framework for  the transfer  from the                                                               
earnings reserve to the general fund.                                                                                           
                                                                                                                                
1:33:48 PM                                                                                                                    
SENATOR WIELECHOWSKI asked if it  is correct that the Legislature                                                               
could take  money out of  the earning reserve without  passage of                                                               
SB 5001.                                                                                                                        
                                                                                                                                
MS. POKON answered yes.                                                                                                         
                                                                                                                                
SENATOR WIELECHOWSKI  asked if transferring  $2.4 billion  to the                                                               
general fund still leaves a deficit of about $2 billion.                                                                        
                                                                                                                                
CHAIR STOLTZE commented that it would  help to have Pat Pitney or                                                               
Commissioner Hoffbeck participate in the hearing.                                                                               
                                                                                                                                
MS. POKON replied  that her understanding is that  in addition to                                                               
the transfer  of funds from  the earnings reserve to  the general                                                               
fund,  there  is  approximately   $1.2  billion  in  other  state                                                               
revenues; altogether it would be  about $3.2 billion so a deficit                                                               
remains. She  remarked that there will  continue to be a  need to                                                               
have  a  conversation about  how  to  fill  the gap  between  the                                                               
current budget  and what revenue we  expect to have on  an annual                                                               
basis.                                                                                                                          
                                                                                                                                
1:35:11 PM                                                                                                                    
CHAIR STOLTZE asked  if the administration will  continue to have                                                               
discussions about how to reduce the gap.                                                                                        
                                                                                                                                
MS.  POKON responded  that  the  gap can  be  closed by  reducing                                                               
expenditures or increasing revenue.                                                                                             
                                                                                                                                
SENATOR  WIELECHOWSKI  remarked that  one  of  the concerns  that                                                               
former Governor  Jay Hammond had  and many Alaskans have  is that                                                               
you're taking  $2 billion out  of the earnings reserve,  there is                                                               
still a $2 billion deficit, and  there will continue to be multi-                                                               
billion  dollar deficits  in future  years. He  asked what  is to                                                               
stop a future  governor from a veto or a  future legislature from                                                               
taking more out of the dividend.                                                                                                
                                                                                                                                
MS.  POKON responded  that Senator  Wielechowski's question  is a                                                               
question for future legislatures  and future governors to answer.                                                               
She specified that the endeavor for  the legislation is to set up                                                               
a sustainable plan for using the permanent fund.                                                                                
                                                                                                                                
CHAIR STOLTZE  opined that the  bill's title was vague.  He asked                                                               
if the  bill's title  was a marketing  label or  attention should                                                               
not be paid to the title.                                                                                                       
                                                                                                                                
MS. POKON  explained that setting up  a framework for how  to use                                                               
the fund is  intended to keep it from being  used in an arbitrary                                                               
or  unplanned  way. She  asserted  that  setting up  a  long-term                                                               
financial plan around the permanent  fund helps ensure that we're                                                               
not spending down available funds.                                                                                              
                                                                                                                                
SENATOR  WIELECHOWSKI related  that  he spoke  with an  economist                                                               
recently  who  expressed concern  that  cutting  the dividend  to                                                               
$1,000 this year  will take about $7 million out  of the economy.                                                               
He  remarked  that  with  declines  in  oil  prices  and  federal                                                               
revenues,  more money  is  coming  out of  the  economy and  that                                                               
economist expressed that  this could tip the state  into a severe                                                               
recession. He asked  if the administration had  done any modeling                                                               
on the impact of removing $7 million from the economy.                                                                          
                                                                                                                                
1:38:35 PM                                                                                                                    
MS. POKON  replied that  she understands  that Gunnar  Knapp with                                                               
ISER  [Institute of  Social and  Economic Research]  conducted an                                                               
analysis of the  short-term impacts and the  report reflects that                                                               
other actions  also have short-term impacts.  She reiterated that                                                               
the  focus  of  SB 5001  is  to  set  up  a long-term  plan  that                                                               
preserves the  fund and ensures  a dividend going  forward rather                                                               
than having a larger dividend for just a few years.                                                                             
                                                                                                                                
SENATOR WIELECHOWSKI asked if the  administration would support a                                                               
constitutional amendment  guaranteeing the  dividend if  the bill                                                               
were to pass.                                                                                                                   
                                                                                                                                
MS. POKON  answered that  she could not  speak to  the governor's                                                               
position.                                                                                                                       
                                                                                                                                
SENATOR WIELECHOWSKI asked  if she had any data on  the amount of                                                               
money that will  be lost due to reduced garnishments  as a result                                                               
of the reduced dividend.                                                                                                        
                                                                                                                                
1:40:26 PM                                                                                                                    
MS. POKON  replied there probably  are no solutions to  a problem                                                               
this large  that won't  have consequences.  She pointed  out that                                                               
the dividend  was roughly $800 just  a few years ago  and it will                                                               
go up and down under the current formula.                                                                                       
                                                                                                                                
SENATOR WIELECHOWSKI restated his question.                                                                                     
                                                                                                                                
MS. POKON answered that she is not aware of any such analysis.                                                                  
                                                                                                                                
CHAIR  STOLTZE reminded  members that  the Legislature  asked the                                                               
Office of  Management and  Budget and  the Department  of Revenue                                                               
for a  detailed analysis of the  impact the loss of  the dividend                                                               
has on  the economy. He  specified that  the analysis is  part of                                                               
the  Legislature's  due process  to  help  alert folks  that  are                                                               
affected by this,  but a response has not been  received in about                                                               
eight months and that leads to unhealthy suspicion.                                                                             
                                                                                                                                
1:43:00 PM                                                                                                                    
SENATOR WIELECHOWSKI asked  how long savings will  be extended if                                                               
SB 5001 were to pass.                                                                                                           
                                                                                                                                
MS. POKON  replied that she  does not  know but asserted  that SB                                                               
5001  will not  solve all  of Alaska's  fiscal problems.  She set                                                               
forth that  more work needs to  be done and how  long the savings                                                               
last will depend on the result of that additional work.                                                                         
                                                                                                                                
SENATOR HUGGINS stressed that the  question regarding savings has                                                               
to be answered.                                                                                                                 
                                                                                                                                
CHAIR STOLTZE concurred with Senator Huggins.                                                                                   
                                                                                                                                
UNIDENTIFIED SPEAKER asked what  the governor's definition is for                                                               
"sustainability."                                                                                                               
                                                                                                                                
MS. POKON first  provided more information on the  balance of the                                                               
CBRF and  the rate it would  be spent down. She  reported that as                                                               
of the end  of the last fiscal year there  was about $6.5 billion                                                               
in  the  CBRF.  She  added that  approximately  $200  million  in                                                               
investment  revenue can  be expected  over the  course of  FY2017                                                               
leaving a balance of $6.7 billion  at the end of FY2017; however,                                                               
the draw from  the CBRF is $3.2 billion, leaving  $3.5 billion at                                                               
the start of the next fiscal year.                                                                                              
                                                                                                                                
She said  the definition  of "sustainability"  is to  withdraw an                                                               
amount  from the  earnings reserve  that does  not exceed  a rate                                                               
that  degrades  the inflation-adjusted  value  of  the fund  over                                                               
time. She added  that some earnings stay in the  fund so it grows                                                               
at least at the pace of inflation.                                                                                              
                                                                                                                                
1:47:14 PM                                                                                                                    
CHAIR STOLTZE  asked if the  administration believes  the current                                                               
budget spending level is sustainable over time.                                                                                 
                                                                                                                                
MS.  POKON answered  that additional  work  needs to  be done  to                                                               
solve  the budget  gap and  whether that  ultimately is  resolved                                                               
through  additional cuts  or  additional  revenues, is  something                                                               
that  will  depend  on  the  work  of  the  Legislature  and  the                                                               
administration going forward.                                                                                                   
                                                                                                                                
CHAIR STOLTZE  said the fundamental question  is whether spending                                                               
sustainable under the models the administration has developed.                                                                  
                                                                                                                                
MS.  POKON stated  the governor's  full fiscal  plan set  out the                                                               
administration's  proposal  for   reaching  sustainability;  that                                                               
proposal included  this bill,  but SB  5001 is  just part  of the                                                               
proposal.                                                                                                                       
                                                                                                                                
1:49:15 PM                                                                                                                    
CHAIR STOLTZE  remarked that  talking about  the myriad  of taxes                                                               
and  using  the  permanent  fund  dividend  can  occur,  but  the                                                               
discussion is  incomplete without talking about  spending levels.                                                               
He asked if  the committee can assume that  the governor believes                                                               
that the budget he submitted is a sustainable amount.                                                                           
                                                                                                                                
MS. POKON pointed  out that the governor's fiscal  plan, taken in                                                               
its  entirety,  would  put  the state  in  a  sustainable  budget                                                               
situation.  She  relayed that  the  governor  has been  clear  in                                                               
saying that  the fiscal plan is  written in pencil, not  pen. She                                                               
set forth that  the governor's fiscal plan is part  of an ongoing                                                               
conversation  and  deliberation  with  the  Legislature  and  the                                                               
people  of  Alaska.  She   restated  that  Commissioner  Hoffbeck                                                               
offered to meet with the Valley delegation as time permits.                                                                     
                                                                                                                                
CHAIR  STOLTZE clarified  that  the committee  meeting  is not  a                                                               
meeting of the  Valley delegation and even if it  was, that would                                                               
not take care of the concerns  of the State Affairs Committee. He                                                               
asserted  that the  committee is  doing its  legal responsibility                                                               
under  our  Uniform  Rules,  dealing   with  the  subject  matter                                                               
assigned by  the Senate president  on the  governor's cornerstone                                                               
piece of legislation.                                                                                                           
                                                                                                                                
1:53:18 PM                                                                                                                    
MS. POKON  replied that Chair  Stoltze's point is well  taken and                                                               
the exchange  she had with  the commissioner focused on  the fact                                                               
that the committee  hearing is occurring in  Wasilla. She assured                                                               
Chair Stoltze that  the commissioner would be happy  to meet with                                                               
the people interested in discussing the bill.                                                                                   
                                                                                                                                
SENATOR  WIELECHOWSKI  pointed  out  a finding  by  the  Rasmuson                                                               
Foundation  that cutting  the permanent  fund is  very regressive                                                               
because it takes an equal  amount from each person, regardless of                                                               
their  income. He  asked if  Ms. Pokon  agreed with  the Rasmuson                                                               
Foundation's finding.                                                                                                           
                                                                                                                                
MS.  POKON  replied  that  there are  multiple  elements  in  the                                                               
governor's  fiscal  plan  and the  challenge  is  a  multibillion                                                               
dollar problem and  only one multibillion dollar  tool to address                                                               
it; other pieces contribute, but not at that level.                                                                             
                                                                                                                                
UNIDENTIFIED SPEAKER  questioned why someone from  the governor's                                                               
office wasn't  either at the  hearing or  on the phone  to answer                                                               
questions.                                                                                                                      
                                                                                                                                
CHAIR STOLTZE  said the question is  very much on point,  but Ms.                                                               
Pokon is in a rough position.                                                                                                   
                                                                                                                                
UNIDENTIFIED SPEAKER  stated that he  would like to  see Governor                                                               
Walker in the witness chair.                                                                                                    
                                                                                                                                
CHAIR STOLTZE remarked  that he shares that  frustration, but his                                                               
preference would have  been to have Ms. Pitney  present the bill.                                                               
He added  that he hoped that  the media would be  more interested                                                               
in covering the hearing.                                                                                                        
                                                                                                                                
1:58:20 PM                                                                                                                    
MS. POKON continued the sectional analysis as follows:                                                                          
                                                                                                                                
     Section 10: (e) Plans  an annual appropriation from the                                                                    
     ERA to the general fund in  an amount not to exceed the                                                                    
     amount determined by the draw formula in Section 8.                                                                        
                                                                                                                                
     (f)  Plans for  funds in  the  ERA over  21 percent  (4                                                                    
     times  5.25   percent)  of  the  fund's   value  to  be                                                                    
     transferred to the corpus.                                                                                                 
                                                                                                                                
     Section  11:   Establishes  a  new   dividend  formula.                                                                    
     Dividends are comprised of 20  percent of the full 5.25                                                                    
     percent POMV in Section 8  and 20 percent of prior year                                                                    
     royalties that have gone to the general fund.                                                                              
                                                                                                                                
     Establishes a "savings rule" that  plans for excess UGF                                                                    
     revenues  (those exceeding  UGF  appropriations) to  be                                                                    
     deposited in the CBRF and the permanent fund corpus.                                                                       
                                                                                                                                
CHAIR  STOLTZE asked  Ms. Pokon  to describe  the sources  of the                                                               
royalties and the amount this year.                                                                                             
                                                                                                                                
MS. POKON  explained that royalties  are payments arising  out of                                                               
leases. SB  5001 lists mineral lease  rentals, royalties, royalty                                                               
sale  proceeds,  net  profit   shares,  federal  mineral  revenue                                                               
sharing payments,  and bonuses  received by  the state  from oil,                                                               
gas, and minerals.                                                                                                              
                                                                                                                                
CHAIR  STOLTZE asked  what the  amount of  the royalties  are for                                                               
FY2017.                                                                                                                         
                                                                                                                                
MS. POKON  answered that her  recollection is $560  million would                                                               
go to the general fund.                                                                                                         
                                                                                                                                
CHAIR STOLTZE asked if that calculates to $112 million.                                                                         
                                                                                                                                
MS.  POKON replied  that  she believes  that's  correct, then  20                                                               
percent of  the POMV  draw would be  an additional  $480 million.                                                               
She noted that  a subsequent section sets the  dividend at $1,000                                                               
per person for the next three years.                                                                                            
                                                                                                                                
2:01:51 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  if his  calculation is  correct that                                                               
the dividend would be about $800 without the $1,000 provision.                                                                  
                                                                                                                                
MS. POKON replied yes and added  that is why the $1,000 provision                                                               
is in  the bill.  She noted that  Department of  Revenue modeling                                                               
indicates that  dividends will be  about $1,000 into  the future.                                                               
She  detailed  that Section  1  expresses  legislative intent  to                                                               
revisit  the topic  in  three years,  which  correlates with  the                                                               
three-year $1,000  dividend provision;  that provision  came from                                                               
the Senate Finance committee substitute.                                                                                        
                                                                                                                                
CHAIR STOLTZE commented that the  governor endorsed it by putting                                                               
it in the current bill.                                                                                                         
                                                                                                                                
MS. POKON agreed.                                                                                                               
                                                                                                                                
UNIDENTIFIED    SPEAKER    referenced   Senator    Wielechowski's                                                               
calculation of an $800 dividend  under current revenues and asked                                                               
where the  other $200  will come  from to  bring the  dividend to                                                               
$1,000.                                                                                                                         
                                                                                                                                
MS. POKON replied  that the funds were appropriated  from the ERA                                                               
this year just as they were for the dividend.                                                                                   
                                                                                                                                
UNIDENTIFIED  SPEAKER  asked  if  the  bill  provides  a  maximum                                                               
dividend of $1,000, but it's not a guaranteed amount.                                                                           
                                                                                                                                
2:04:57 PM                                                                                                                    
MS.  POKON  answered that  the  language  in  the bill  says  the                                                               
dividend will be $1,000.                                                                                                        
                                                                                                                                
CHAIR STOLTZE commented that it's subject to veto.                                                                              
                                                                                                                                
MS.  POKON confirmed  the administration's  position is  that the                                                               
governor has the authority to veto appropriations.                                                                              
                                                                                                                                
SENATOR  WIELECHOWSKI  read Section  15  that  says the  dividend                                                               
"shall be $1000"  for three years, and asked if  Ms. Pokon agrees                                                               
that the governor  could veto it down to $500  next year and $200                                                               
the following year.                                                                                                             
                                                                                                                                
MS.  POKON replied  that the  intention is  to support  the $1000                                                               
dividend [for fiscal years 2017, 2018, and 2019].                                                                               
                                                                                                                                
2:06:54 PM                                                                                                                    
SENATOR  WIELECHOWSKI pointed  out that  "shall" legally  means a                                                               
person  is required  to do  something  but her  position is  that                                                               
"shall" means "may" in this circumstance.                                                                                       
                                                                                                                                
MS. POKON answered that the framework  is set out in statute, but                                                               
it  is  subject  to  appropriation by  the  Legislature  and  the                                                               
governor has authority to veto an appropriation.                                                                                
                                                                                                                                
CHAIR  STOLTZE,  noting that  the  dividend  is "capped"  in  the                                                               
fourth fiscal  year, asked  Ms. Pokon  to explain  the difference                                                               
between  "guaranteed" and  "capped." He  asked if  the governor's                                                               
intent  is to  hold  the dividend  down to  the  capped level  if                                                               
revenues grow substantially.                                                                                                    
                                                                                                                                
MS. POKON clarified  that the formula does not  cap the dividend;                                                               
however, if oil prices spike  or production increases through the                                                               
royalty component of the formula,  dividends would also increase,                                                               
potentially well  beyond $1,000 per person.  Additionally, if the                                                               
fund  increases  due  to robust  investment  revenues,  the  POMV                                                               
portion of the  formula would go up, also  creating the potential                                                               
for dividends of more than $1,000.                                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI  asked if the  language in Section  15 means                                                               
that the $1,000 dividend applies to the upcoming dividend.                                                                      
                                                                                                                                
MS. POKON answered yes.                                                                                                         
                                                                                                                                
2:10:32 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked if  she  believes  that any  of  the                                                               
language in Section 15 is  ambiguous and added that someone could                                                               
say they are due a full dividend in October 2016.                                                                               
                                                                                                                                
MS.  POKON  replied  that  she  did  not  believe  there  is  any                                                               
ambiguity.  She specified  that the  intent is  for the  dividend                                                               
fund to distribute $1,000 to each eligible Alaskan.                                                                             
                                                                                                                                
CHAIR  STOLTZE noted  that Representative  Gattis, Representative                                                               
Tilton  and   the  Executive  Director  of   the  Permanent  Fund                                                               
Corporation, Angela Rodell, are listening online.                                                                               
                                                                                                                                
SENATOR  COGHILL remarked  that  the  audience participation  was                                                               
instructive.                                                                                                                    
                                                                                                                                
MS.   POKON  returned   attention  to   the  sectional   analysis                                                               
explaining that the  second part has the "savings  rule;" that is                                                               
the  provision that  would plan  for excess  unrestricted general                                                               
fund revenues  to be deposited  equally between the CBRF  and the                                                               
permanent fund corpus.                                                                                                          
                                                                                                                                
CHAIR STOLTZE asked  what the philosophy was  for selecting those                                                               
accounts.                                                                                                                       
                                                                                                                                
MS. POKON  explained that the  provision was added by  the Senate                                                               
Finance Committee and  she was not aware of  their reasoning, but                                                               
the administration  supports it  as well  as other  variations of                                                               
the savings rule.                                                                                                               
                                                                                                                                
UNIDENTIFIED SPEAKER asked  if the 50/50 rule is  automatic or if                                                               
the   excess   funds   would   be   available   for   legislative                                                               
appropriation                                                                                                                   
                                                                                                                                
MS. POKON  answered that the  bill provides for the  transfers to                                                               
occur by appropriation.                                                                                                         
                                                                                                                                
2:15:14 PM                                                                                                                    
CHAIR  STOLTZE commented  that a  constitutional provision  could                                                               
make something automatic.                                                                                                       
                                                                                                                                
MS. POKON  agreed and  added that each  year the  Legislature has                                                               
the authority  to decide  whether or not  to appropriate  in that                                                               
year.                                                                                                                           
                                                                                                                                
CHAIR STOLTZE asked if an OMB director and a finance chair could                                                                
tag team and figure out how to spend the appropriation.                                                                         
                                                                                                                                
MS. POKON opined that spending was the judgement of the                                                                         
Legislature.                                                                                                                    
                                                                                                                                
She continued the sectional analysis as follows:                                                                                
                                                                                                                                
     Section 12:  Conforming language requiring the  APFC to                                                                    
     adopt regulations to implement  Section 2. She reminded                                                                    
     the  members that  section directs  the corporation  to                                                                    
     adopt  regulations similar  to the  state's procurement                                                                    
     code.                                                                                                                      
                                                                                                                                
     Section  13:  Is   conforming  language  that  excludes                                                                    
     mental health  trust fund income from  the draw formula                                                                    
     in Section 8. She added  that those funds that are part                                                                    
     of a trust will continue in their current framework.                                                                       
                                                                                                                                
     Section 14:  Is conforming language that  provides that                                                                    
     once the  funds are  appropriated from  the ERA  to the                                                                    
     dividend   fund,  the   Department   of  Revenue   will                                                                    
     distribute   the   dividend  checks   without   further                                                                    
     appropriation.                                                                                                             
                                                                                                                                
     Section  15:  Provides  that  notwithstanding  low  oil                                                                    
     prices  today, the  permanent  fund  dividends will  be                                                                    
     $1,000 for fiscal years 2017, 2018, and 2019.                                                                              
                                                                                                                                
     Section  16: Is  a conforming  amendment that  reflects                                                                    
     that funds are appropriated to the dividend fund.                                                                          
                                                                                                                                
     Section   17:  Provides   that  once   the  funds   are                                                                    
     appropriated  from the  ERA to  the dividend  fund, the                                                                    
     Department  of Revenue  shall pay  dividends each  year                                                                    
     without a separate appropriation.                                                                                          
                                                                                                                                
2:18:03 PM                                                                                                                    
SENATOR WIELECHOWSKI requested an explanation of the language in                                                                
Section 17, page 8, line 4.                                                                                                     
                                                                                                                                
MS. POKON replied  the language originated from the  CS that came                                                               
out of the  Senate Finance Committee. She  said her understanding                                                               
is that  it is a clarification  in statute that reflects  how DOR                                                               
has been interpreting the statute.                                                                                              
                                                                                                                                
SENATOR  WIELECHOWSKI  asked  if  the current  practice  is  that                                                               
payment of the dividend does not require appropriation.                                                                         
                                                                                                                                
MS.   POKON   replied  that   her   understanding   is  that   an                                                               
appropriation from the ERA to  the dividend fund is required. The                                                               
language in  Section 17  reflects the  current practice  which is                                                               
that after  the appropriation, the Department  of Revenue follows                                                               
the  formula  and  distributes   individual  dividend  checks  to                                                               
eligible Alaskans.                                                                                                              
                                                                                                                                
2:20:15 PM                                                                                                                    
SENATOR WIELECHOWSKI stated that he  found it is interesting that                                                               
an appropriation is not needed to disburse $1.5 billion.                                                                        
                                                                                                                                
SENATOR HUGGINS  asked what  the process would  be if  the phrase                                                               
"without further appropriation" was not inserted in Section 17.                                                                 
                                                                                                                                
MS. POKON replied that the process  would be the same and pointed                                                               
out that the language was for clarification.                                                                                    
                                                                                                                                
CHAIR STOLTZE asked if the language is critical.                                                                                
                                                                                                                                
MS.  POKON  answered  that  the language  is  not  critical,  but                                                               
provides clarification.                                                                                                         
                                                                                                                                
SENATOR WIELECHOWSKI asked  if Ms. Pokon would  define the annual                                                               
payment   of   the  permanent   fund   dividend   checks  as   an                                                               
appropriation under existing law.                                                                                               
                                                                                                                                
MS.  POKON  answered  that  the  current  practice  has  been  to                                                               
appropriate the  full amount  from the ERA  to the  dividend fund                                                               
and then the Department of Revenue distributes the checks.                                                                      
                                                                                                                                
SENATOR WIELECHOWSKI asked if for  30 years the state has allowed                                                               
the automatic  transfer of up  to $1.5 billion from  the dividend                                                               
fund to the people of Alaska without an appropriation.                                                                          
                                                                                                                                
MS.  POKON  restated  that  an  appropriation  from  the  ERA  is                                                               
required.                                                                                                                       
                                                                                                                                
2:22:48 PM                                                                                                                    
SENATOR  WIELECHOWSKI asserted  that  there  is an  appropriation                                                               
from the  ERA to  the dividend  fund but for  more than  30 years                                                               
there has  been no  appropriation from the  dividend fund  to the                                                               
people of Alaska.                                                                                                               
                                                                                                                                
MS. POKON  replied that her  understanding is that that  has been                                                               
the practice and deferred further comment to Mr. Milks.                                                                         
                                                                                                                                
SENATOR  WIELECHOWSKI  expressed  interest in  hearing  from  Mr.                                                               
Milks.                                                                                                                          
                                                                                                                                
WILLIAM MILKS, Assistant Attorney  General, Civil Division, Labor                                                               
and  State Affairs  Section, Department  of Law,  Juneau, Alaska,                                                               
speaking via teleconference, explained  that the practice for the                                                               
last 30  years is  that the  Legislature passes  an appropriation                                                               
bill that provides the sum of money  that will be paid out of the                                                               
ERA for the payment of permanent fund dividends.                                                                                
                                                                                                                                
SENATOR    WIELECHOWSKI   summarized    that   there    are   two                                                               
appropriations:  an appropriation  from the  ERA to  the dividend                                                               
fund and  an appropriation from  the dividend fund to  the people                                                               
of Alaska. He asked which  appropriation the Legislature has made                                                               
for the past 30 years.                                                                                                          
                                                                                                                                
MR. MILKS answered  that this year, for  example, the Legislature                                                               
passed HB 256 that provided for  an appropriation from the ERA to                                                               
the dividend  fund for the  payment of permanent  fund dividends;                                                               
that has  been the practice  for the  past 30 years  and reflects                                                               
the basic  constitutional framework  of the  State of  Alaska. He                                                               
added as follows:                                                                                                               
                                                                                                                                
     The  Legislature   has  the   appropriation  authority.                                                                    
     Spending    funds   must    go   through    legislative                                                                    
     appropriation,   and   attached    to   that   is   the                                                                    
     constitutional  provision   that  gives   the  governor                                                                    
     limited role on appropriation,  which is the ability to                                                                    
     strike or reduce an appropriation.                                                                                         
                                                                                                                                
SENATOR WIELECHOWSKI  asked what is  being changed by  adding the                                                               
language in Section 17, page 8, line 4.                                                                                         
                                                                                                                                
MR. MILKS answered the language  was probably added in the Senate                                                               
Finance  Committee. He  agreed  with  Ms. Pokon  that  it is  not                                                               
necessary, but it clarifies the current process.                                                                                
                                                                                                                                
2:25:48 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if  there would still  need to  be an                                                               
appropriation  from the  ERA to  the  dividend fund  if the  bill                                                               
passes, or would it happen automatically.                                                                                       
                                                                                                                                
MR.  MILKS answered  yes.  He  specified that  there  must be  an                                                               
appropriation and  that reflects the constitutional  framework of                                                               
the State of Alaska.                                                                                                            
                                                                                                                                
SENATOR  WIELECHOWSKI  asked  if  it  is  his  opinion  that  the                                                               
language really does not change anything.                                                                                       
                                                                                                                                
MR. MILKS answered as follows:                                                                                                  
                                                                                                                                
      I think we're agnostic on that issue. It's in there,                                                                      
         it's not in there; the process is as it's been                                                                         
     historically.                                                                                                              
                                                                                                                                
CHAIR  STOLTZE asked  if the  governor has  the legal  ability to                                                               
pause the distribution of a  dividend once it's been appropriated                                                               
if the governor has not exercised a veto.                                                                                       
                                                                                                                                
MR. MILKS  replied that he was  not familiar with the  concept of                                                               
"pause."                                                                                                                        
                                                                                                                                
CHAIR STOLTZE  specified that  "pause" is a  new term  he's heard                                                               
recently.  He again  asked Mr.  Milks if  he thinks  the governor                                                               
could "pause" a portion of a dividend distribution.                                                                             
                                                                                                                                
MR. MILKS  responded that the  constitution set up  the framework                                                               
where the Legislature appropriates  and included in the provision                                                               
is the authority for the governor to exercise a line-item veto.                                                                 
                                                                                                                                
2:29:12 PM                                                                                                                    
CHAIR STOLTZE  remarked that he is  trying to figure out  how new                                                               
powers  permeate  when  they get  established.  He  continued  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Clearly  the  governor  has asserted  those  powers  on                                                                    
     projects.  Do  you  think  he has  that  power  on  the                                                                    
     dividend  if he  decides  that there's  too much  money                                                                    
     going  to the  private sector  and government  needs it                                                                    
     worse?                                                                                                                     
                                                                                                                                
MR. MILKS replied  that the provision in  the constitution speaks                                                               
for itself.  He pointed  out that there  is an  appropriation for                                                               
the dividend and the governor can reduce that.                                                                                  
                                                                                                                                
CHAIR  STOLTZE  asked  if the  governor  has  the  constitutional                                                               
power, after the dividend has  been appropriated, to unilaterally                                                               
decide to reduce  all or a portion of it.  He provided an example                                                               
as follows:                                                                                                                     
                                                                                                                                
       Much like he can stop a project that has been duly                                                                       
     appropriated from going forward-after he's signed the                                                                      
     appropriation or another governor has signed it.                                                                           
                                                                                                                                
MR. MILKS answered  that the payment of the  dividend requires an                                                               
appropriation,  and  there is  a  process  for  a veto  and  veto                                                               
override  that results  in a  sum that  is paid  pursuant to  the                                                               
statute.                                                                                                                        
                                                                                                                                
CHAIR STOLTZE asked  if the governor is  on wobbly constitutional                                                               
ground  if  he  pauses  or unilaterally  cancels  a  construction                                                               
project that's already been appropriated.                                                                                       
                                                                                                                                
MR. MILKS replied that he  explained the process for the dividend                                                               
that results  in a set sum  that is paid to  Alaskans pursuant to                                                               
the statute.                                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI said AS 37.13.145(b) says, in part:                                                                        
                                                                                                                                
       The corporation shall transfer from the ERA to the                                                                       
     dividend fund.                                                                                                             
                                                                                                                                
He asked if there is another  section that says someone shall pay                                                               
out the permanent fund dividend.                                                                                                
                                                                                                                                
MR. MILKS replied the dividend fund statute.                                                                                    
                                                                                                                                
MS. POKON  added that  it is  AS 43.23.055  and the  formula that                                                               
determines each individual check is set out in AS 43.23.025(a).                                                                 
                                                                                                                                
2:32:50 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  if the  governor could  unilaterally                                                               
stop  the  payment  of  all  or a  portion  of  the  dividend  to                                                               
individual Alaskans  if he  did not  veto the  appropriation, and                                                               
instead took action after the transfer of funds went into law.                                                                  
                                                                                                                                
MR.  MILKS   reiterated  that   the  process   set  out   in  the                                                               
constitution   is  that   the  Legislature   has  the   power  of                                                               
appropriation and the governor's role  includes the right to veto                                                               
"either  funding or  reduction."  He further  explained that  the                                                               
constitution governs  how appropriations  are made  and clarifies                                                               
that  a  statute passed  by  one  legislature cannot  freeze  any                                                               
future  legislatures.   Each  legislature  has  the   ability  to                                                               
exercise  its power  of appropriation  and budgeting  needs on  a                                                               
yearly basis.                                                                                                                   
                                                                                                                                
2:35:33 PM                                                                                                                    
CHAIR  STOLTZE  asked  if  it  is far-fetched  to  think  that  a                                                               
governor  could not  cite a  fiscal  crisis and  get an  attorney                                                               
general opinion  saying the governor  has the ability  to impound                                                               
an appropriation  after the budget  passed into law. He  asked if                                                               
an attorney general decided not to sign would be far-fetched.                                                                   
                                                                                                                                
MR. MILKS  said he already presented  his view on the  matter. He                                                               
explained that the constitution sets  out how the powers work for                                                               
spending, appropriations, vetoes, and  the statutes. He specified                                                               
that the statute  is followed once there  is authorized spending.                                                               
He pointed out that the focus  on today's committee meeting is on                                                               
the  dividend and  he has  tried to  explain how  the payment  of                                                               
dividends, in compliance with  the constitution, has historically                                                               
been through the appropriation process. He detailed as follows:                                                                 
                                                                                                                                
     The  point  at  which  the governor  can  step  in  and                                                                    
     influence those  dividends is under  the constitution's                                                                    
     provision  for exercise  of the  veto  in reduction  of                                                                    
     spending.                                                                                                                  
                                                                                                                                
He said the Legislature has  made an appropriation for dividends,                                                               
there  was a  veto, and  the Legislature  has the  constitutional                                                               
ability to  override the  veto. He summarized  that the  sum that                                                               
ultimately results  for dividends  will be  distributed according                                                               
to the statute.                                                                                                                 
                                                                                                                                
CHAIR STOLTZE  commented, "We've probably  run into a  brick wall                                                               
here."                                                                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI  said his understanding is  that an attorney                                                               
general  opinion  in  the  early  years  said  the  transfer  was                                                               
automatic and a legislative appropriation was not needed.                                                                       
                                                                                                                                
MR. MILKS agreed  that a very early opinion  suggested that; but,                                                               
quickly  after  that the  Department  of  Law clarified  that  an                                                               
appropriation  would  be necessary.  He  added  that Article  IV,                                                               
Section 16 of the constitution  makes reference to appropriations                                                               
for Alaska permanent fund dividends.                                                                                            
                                                                                                                                
2:38:44 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  for  a copy  of  the early  attorney                                                               
general opinion.                                                                                                                
                                                                                                                                
MR. MILKS agreed to provide a copy.                                                                                             
                                                                                                                                
CHAIR STOLTZE  asked Mr.  Milks to  describe an  attorney general                                                               
opinion and the force of law it has.                                                                                            
                                                                                                                                
MR. MILKS explained  that it's the best reasoning at  the time on                                                               
an issue  presented to  the attorney general.  He noted  that the                                                               
opinion on the issue of the  permanent fund dividend has been the                                                               
same for several decades.                                                                                                       
                                                                                                                                
CHAIR  STOLTZE asked  where he  would  place the  opinion on  the                                                               
scale between  an advisory mechanism  to the chief  executive and                                                               
being impassible and having the force of law.                                                                                   
                                                                                                                                
MR.  MILKS  replied  that  the   opinions  are  advisory  to  the                                                               
executive branch  and carry varying  weight. At times  the Alaska                                                               
Supreme  Court  has  given  great   weight  to  attorney  general                                                               
opinions  and other  times  they were  considered  and not  given                                                               
great weight.                                                                                                                   
                                                                                                                                
2:41:05 PM                                                                                                                    
CHAIR STOLTZE opined  that an attorney general  opinion can often                                                               
forego  the  constitutional three  readings  in  both bodies  and                                                               
signing  of a  bill  by the  governor. He  asked  if an  attorney                                                               
general's opinion can have the  same force of repealing or making                                                               
law.                                                                                                                            
                                                                                                                                
MR. MILKS  clarified that  an attorney general  opinion is  not a                                                               
statute.                                                                                                                        
                                                                                                                                
CHAIR  STOLTZE  asked if  an  attorney  general's opinion  has  a                                                               
comparative weight in impact.                                                                                                   
                                                                                                                                
MR.  MILKS   replied  that  an  attorney   general's  opinion  is                                                               
typically an interpretation of what a statute means.                                                                            
                                                                                                                                
CHAIR STOLTZE remarked that Mr.  Milks and his department tend to                                                               
minimize itself too much.                                                                                                       
                                                                                                                                
MS. POKON pointed out that the  Department of Law's website has a                                                               
description of attorney general opinions and what they do.                                                                      
                                                                                                                                
CHAIR STOLTZE  asked Ms.  Pokon how  she would  describe attorney                                                               
general opinions and the impact they have.                                                                                      
                                                                                                                                
MS.  POKON answered  that  she would  agree  with everything  Mr.                                                               
Milks  stated.  She  stated  that  the  attorney  general  is  an                                                               
advisory  opinion that  sometimes has  weight and  sometimes does                                                               
not.                                                                                                                            
                                                                                                                                
2:42:39 PM                                                                                                                    
MR.  MILKS   emphasized  that  an  attorney-general   opinion  is                                                               
important.  He  said  the  opinion   is  the  attorney  general's                                                               
consideration  of a  statute and  what it  means, but  it is  the                                                               
Alaska Supreme Court that sets a  range of what the weight of the                                                               
opinion will be, from "very important" to "must be considered."                                                                 
                                                                                                                                
MS. POKON continued the sectional analysis as follows:                                                                          
                                                                                                                                
     Section  18: Repeals  provisions relating  to the  CBRF                                                                    
     subaccount,  the  former   dividend  formula,  and  the                                                                    
     inflation proofing calculation.                                                                                            
                                                                                                                                
     Section 19: Repeals Section  15 ($1,000 dividend) after                                                                    
     three years.                                                                                                               
                                                                                                                                
     Section  20: Provides  transition language  authorizing                                                                    
     the  Commissioner  of Revenue  and  the  APFC to  adopt                                                                    
     regulations, policies and  procedures to implement this                                                                    
     Act.                                                                                                                       
                                                                                                                                
     Section 21: Retroactive effective  date of July 1, 2016                                                                    
     for Sec. 6-11 and 13-18.                                                                                                   
                                                                                                                                
     Section  22:  Immediate  effective date  for  remaining                                                                    
     sections.                                                                                                                  
                                                                                                                                
UNIDENTIFIED  SPEAKER  asked  about   the  summary  document  and                                                               
Section 15.                                                                                                                     
                                                                                                                                
CHAIR  STOLTZE  summarized  that  the question  asked  about  the                                                               
substantive  effect of  changing the  term "will"  to "shall"  in                                                               
Section 15.                                                                                                                     
                                                                                                                                
MS. POKON  explained that the  intent of the summary  document is                                                               
to reflect the  language in the legislation;  under this statute,                                                               
the dividends  will be $1,000  [for fiscal years 2017,  2018, and                                                               
2019].                                                                                                                          
                                                                                                                                
CHAIR STOLTZE,  relaying a question  from the audience,  asked if                                                               
there is  a substantive difference  between the terms  "will" and                                                               
"shall."                                                                                                                        
                                                                                                                                
MS. POKON replied not for these purposes.                                                                                       
                                                                                                                                
CHAIR STOLTZE,  relaying a question  from the audience,  asked if                                                               
she would describe it as style or substance.                                                                                    
                                                                                                                                
MS.  POKON  replied  that  there is  a  stylistic  difference  in                                                               
producing a  summary document  versus the  exact language  in the                                                               
legislation.                                                                                                                    
                                                                                                                                
CHAIR STOLTZE requested that written explanation be provided.                                                                   
                                                                                                                                
UNIDENTIFIED  SPEAKER expressed  confusion  about  how the  terms                                                               
"constitutional,"  "statute,"  "allocation,"  and  "appropriation                                                               
blend." She  perceives statute  overrides constitution  at points                                                               
and appropriations are not permanent, but flexible.                                                                             
                                                                                                                                
2:46:50 PM                                                                                                                    
MS. POKON asked if the  audience member asked what the respective                                                               
authority is between the constitution and statutes.                                                                             
                                                                                                                                
CHAIR STOLTZE added as follows:                                                                                                 
                                                                                                                                
        And how these different approaches compete with                                                                         
     existing constitutional authority.                                                                                         
                                                                                                                                
He  acknowledged  that  none  of  this  legislation  changes  the                                                               
constitution.                                                                                                                   
                                                                                                                                
MS.  POKON explained  that the  constitution  is controlling  and                                                               
statutes must  follow the provisions  of the constitution,  or be                                                               
interpreted such that they do.                                                                                                  
                                                                                                                                
SENATOR HUGGINS asked to which department Section 17 refers.                                                                    
                                                                                                                                
MS. POKON  replied that the  section refers to the  Department of                                                               
Revenue.                                                                                                                        
                                                                                                                                
SENATOR  HUGGINS asked  if she  would characterize  SB 5001  as a                                                               
revenue bill.                                                                                                                   
                                                                                                                                
2:48:45 PM                                                                                                                    
MS.  POKON described  the bill  as a  financial plan  for how  to                                                               
rationally  use a  fund  and the  investment  proceeds from  that                                                               
fund.                                                                                                                           
                                                                                                                                
SENATOR HUGGINS  suggested it would  be worthwhile for  Ms. Pokon                                                               
to explain  why the  Department of Law  is introducing  the bill,                                                               
not the  Department of Revenue.  "Whose brainchild is  this? Give                                                               
us a little bit of background."                                                                                                 
                                                                                                                                
MS. POKON  explained that over  the course  of the last  year she                                                               
had the  opportunity to  work with the  Department of  Revenue on                                                               
the technical  work as well  as developing the  legislation. When                                                               
Commissioner Hoffbeck  was not available,  it made sense  for her                                                               
to provide an overview of the  bill and answer questions from the                                                               
committee today.                                                                                                                
                                                                                                                                
CHAIR  STOLTZE asked  if the  new attorney  general will  have an                                                               
active role in the permanent  fund legislation, similar to former                                                               
Attorney General Richards.                                                                                                      
                                                                                                                                
MS. POKON answered  that she does not know what  the new attorney                                                               
general will want to do or what role she will play.                                                                             
                                                                                                                                
CHAIR STOLTZE asked  if she had briefed the  new attorney general                                                               
on SB 5001.                                                                                                                     
                                                                                                                                
MS. POKON replied  that she has not had an  opportunity to have a                                                               
conversation with the new attorney general.                                                                                     
                                                                                                                                
CHAIR STOLTZE asked  if she is aware that anyone  has briefed the                                                               
new attorney general on SB 5001.                                                                                                
                                                                                                                                
MS. POKON responded  that the new attorney general  will not come                                                               
in to the position  until next month and she is  not aware of any                                                               
briefing, but the acting attorney general has been briefed.                                                                     
                                                                                                                                
SENATOR  HUGGINS asked  if either  Governor  Hammond or  Governor                                                               
Hickel vetoed part of the permanent fund [appropriation].                                                                       
                                                                                                                                
2:52:25 PM                                                                                                                    
MS. POKON  replied that she  has not researched  Senator Huggins'                                                               
question.                                                                                                                       
                                                                                                                                
CHAIR STOLTZE reported that Governor  Hammond vetoed the original                                                               
legislation  establishing the  permanent  fund because  it had  a                                                               
statutory framework,  he demanded a constitutional  amendment and                                                               
that was approved by the voters in 1976.                                                                                        
                                                                                                                                
SENATOR HUGGINS asked  who has vetoed part of  the permanent fund                                                               
or the permanent  fund that was allocated to the  citizens of the                                                               
state by the legislature.                                                                                                       
                                                                                                                                
MS. POKON replied that she is  unaware of that having happened in                                                               
the past.                                                                                                                       
                                                                                                                                
SENATOR HUGGINS clarified  that he is asking for the  name of who                                                               
has vetoed.                                                                                                                     
                                                                                                                                
MS. POKON responded that she did not know the answer.                                                                           
                                                                                                                                
SENATOR HUGGINS asked about within the last 60 days.                                                                            
                                                                                                                                
MS. POKON apologized  that she was thinking about  the history of                                                               
the fund. She  specified that Governor Walker did  veto a portion                                                               
of the dividend appropriation.                                                                                                  
                                                                                                                                
2:54:42 PM                                                                                                                    
UNIDENTIFIED SPEAKER asked a question that was not audible.                                                                     
                                                                                                                                
CHAIR   STOLTZE  asked   Senator  Wielechowski   to  provide   an                                                               
explanation.                                                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI summarized  that the  Legislature passed  a                                                               
piece  of legislation  creating  a permanent  fund  and the  late                                                               
Governor Jay  Hammond vetoed it  because he wanted the  matter to                                                               
go  before  the voters.  The  voters  subsequently enshrined  the                                                               
Alaska   Permanent   Fund  in   Section   9.15   of  the   Alaska                                                               
Constitution. He said  the argument comes from  the last sentence                                                               
of that section:                                                                                                                
                                                                                                                                
     All income from the permanent fund shall be deposited                                                                      
     in the general fund unless otherwise provided by law.                                                                      
                                                                                                                                
He  said  in 1982  the  Legislature  set  up the  permanent  fund                                                               
dividend through a series of  statutes. One of the more important                                                               
of  those  is  AS  37.13.145(b); that  statute  says  the  Alaska                                                               
Permanent Fund  Corporation shall  transfer from  the ERA  to the                                                               
dividend fund. Soon thereafter,  an attorney general opinion said                                                               
the  transfer  from  the  corporation to  the  dividend  fund  is                                                               
automatic.  A  side  note  in the  [1994]  Alaska  Supreme  Court                                                               
decision, Hickel el al v. Cowper  also said the transfer from the                                                               
earnings reserve  to the dividend  fund happens  automatically. A                                                               
few years  later a different  attorney general issued  an opinion                                                               
saying the transfer  from the ERA to the dividend  fund should be                                                               
through legislative appropriations. He added as follows:                                                                        
                                                                                                                                
     For  roughly   30  years   the  legislature   has  been                                                                    
     appropriating   the  amount   necessary   to  pay   the                                                                    
     [dividend] and  no governor in  the history  has vetoed                                                                    
     this.                                                                                                                      
                                                                                                                                
SENATOR  WIELECHOWSKI  argued  that   the  intent  was  that  the                                                               
transfer would be automatic so  there is nothing for the governor                                                               
to veto.  He spoke with the  people at the Alaska  Permanent Fund                                                               
Corporation  and  they  said  they  transferred  the  amount  the                                                               
governor suggested, not the full  amount of the dividend; when he                                                               
asked  why, they  said it  was  based on  the attorney  general's                                                               
opinion.  He opined  that  if there  was a  legal  claim at  this                                                               
point, it  would be against  the APFC, not the  governor, because                                                               
the law  says the corporation  shall transfer the funds,  it does                                                               
not say the  corporation may transfer the funds,  "They didn't do                                                               
it. They're violating the law."                                                                                                 
                                                                                                                                
2:59:12 PM                                                                                                                    
SENATOR WIELECHOWSKI  said his discussions  with people  who were                                                               
there in  the early days indicate  that their intent was  to make                                                               
it an automatic  transfer. He remarked that he does  not know how                                                               
a court would rule and added as follows:                                                                                        
                                                                                                                                
     I feel that  based on the legislative  intent that I've                                                                    
     heard, yeah  the court  would rule  in our  favor. That                                                                    
     this can  be vetoed and the  Permanent Fund Corporation                                                                    
     has to transfer it.                                                                                                        
                                                                                                                                
He confirmed that he is gathering all the history on the matter.                                                                
                                                                                                                                
CHAIR STOLTZE commented that, whichever  way this is decided, the                                                               
decision will be a footnote in the statutes.                                                                                    
                                                                                                                                
SENATOR  WIELECHOWSKI opined  that  if the  Legislature does  not                                                               
overturn  the veto,  there  is  a good  chance  there  will be  a                                                               
lawsuit.                                                                                                                        
                                                                                                                                
UNIDENTIFIED SPEAKER  asked if  the bill  is really  necessary to                                                               
make it so that the legislature  can say, 'We're going to use the                                                               
earnings reserve.' or is it only the governor that can do it.                                                                   
                                                                                                                                
CHAIR  STOLTZE asked  Ms.  Pokon to  respond  by summarizing  the                                                               
rationale   for   this  mechanism   as   opposed   to  a   direct                                                               
appropriation from the earnings reserve fund.                                                                                   
                                                                                                                                
3:01:29 PM                                                                                                                    
MS.  POKON answered  that  she  believes this  is  a process,  in                                                               
partnership with  the Legislature, to  set out a plan  in statute                                                               
for the dividend. She added as follows:                                                                                         
                                                                                                                                
      We have acknowledged a number of times in committee                                                                       
        hearings, the Legislature has actually been very                                                                        
     disciplined in following the statutory terms about how                                                                     
     we manage the earnings of the permanent fund.                                                                              
                                                                                                                                
MS. POKON said SB 5001 recognizes the imminent point:                                                                           
                                                                                                                                
     Where the Legislature and the administration wouldn't                                                                      
       have any choice but to be looking to the earnings                                                                        
     reserve for UGF [unrestricted general fund].                                                                               
                                                                                                                                
She  summarized  that the  intent  was  to  prepare for  that  in                                                               
partnership with the Legislature.                                                                                               
                                                                                                                                
3:03:13 PM                                                                                                                    
SENATOR HUGGINS  thanked Ms. Pokon  and Mr. Milks for  their work                                                               
on the  bill and  emphasized the  importance of  resurrecting the                                                               
philosophy  of "partnering"  between the  administration and  the                                                               
Legislature because  it has  diminished over  the last  couple of                                                               
years.  He asserted  that the  only group  of people  that suffer                                                               
without partnering are the people of Alaska.                                                                                    
                                                                                                                                
UNIDENTIFIED  SPEAKER stated  that she  believes the  Legislature                                                               
has bent over backwards to partner.                                                                                             
                                                                                                                                
3:05:00 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
3:19:29 PM                                                                                                                    
CHAIR STOLTZE reconvened the meeting  and announced the committee                                                               
would  hear from  Angela Rodell,  the Executive  Director of  the                                                               
Alaska Permanent Fund Corporation. He  noted that Ms. Rodell is a                                                               
former commissioner  of the  Department of  Revenue and  also did                                                               
consulting work for the Senate Finance Committee.                                                                               
                                                                                                                                
ANGELA  RODELL, Executive  Director and  Chief Executive  Officer                                                               
(CEO), Alaska Permanent Fund  Corporation (APFC), Juneau, Alaska,                                                               
stated that SB 5001 does  change some things for the corporation,                                                               
but does  not change or affect  the mission of the  fund that was                                                               
set out 40 years ago. She explained as follows:                                                                                 
                                                                                                                                
     We   will  still   manage  the   permanent  fund   core                                                                    
     investments  and  we  will  do  that  using  a  prudent                                                                    
     investor  rule to  maximize the  value and  protect the                                                                    
     fund for this and all future generations of Alaskans.                                                                      
                                                                                                                                
She set  forth that the  first change  for the corporation  is to                                                               
provide  increased  flexibility  to manage  some  investments  by                                                               
creating an  exemption to  the state  procurement code.  She said                                                               
the corporation currently is allowed  to hire investment managers                                                               
without having  to go through  the procurement code, but  it must                                                               
go through  the procurement code  to make direct  investments and                                                               
to  get certain  types  of  expertise that  is  unrelated to  the                                                               
investment but  provides insight into the  investment itself. She                                                               
cited  the investment  in Juno  Therapeutics as  an example.  She                                                               
detailed that  APFC wanted  to hear  from scientists  and doctors                                                               
about the  validity of  the science or  medicine, but  that would                                                               
have to go  through the lengthy state  procurement process, which                                                               
works at odds  with making timely investment  decisions. She said                                                               
the new  process would be  similar to the state  procurement code                                                               
with the proposals  passing the Board of  Trustees, going through                                                               
a regulatory  procedure, passing  regulations, and  taking public                                                               
comment.                                                                                                                        
                                                                                                                                
MS.  RODELL  detailed  that  the   second  change  affecting  the                                                               
corporation  is  to  transfer management  of  the  Constitutional                                                               
Budget  Reserve Fund  (CBRF) from  the Treasury  Division of  the                                                               
Department of  Revenue to the Alaska  Permanent Fund Corporation;                                                               
this would allow  the corporation to invest the CBRF  in the same                                                               
investment strategy  and asset allocation  as the  permanent fund                                                               
itself.                                                                                                                         
                                                                                                                                
CHAIR  STOLTZE  asked Ms.  Rodell  to  discuss  how the  CBRF  is                                                               
managed long  term versus  short term  and how  the APFC  and the                                                               
Senate Finance Committee jointly agreed on this provision.                                                                      
                                                                                                                                
3:23:40 PM                                                                                                                    
MS. RODELL explained that under  current statute most of the CBRF                                                               
must be invested in short-term  assets, although the commissioner                                                               
of  revenue  does  have  the ability  to  invest  in  longer-term                                                               
investments, such as more stocks, if  the fund is not expected to                                                               
be used in the next five  years. She detailed that the limitation                                                               
with the  current statute  is that there  is an  expectation that                                                               
the reserve  fund will be  used inside of  five years due  to the                                                               
state's   current  fiscal   picture.   She   asserted  that   the                                                               
expectation under SB 5001 is that  the ability to use some of the                                                               
ERA will allow the CBRF to  be invested a little longer term. She                                                               
reiterated  that   the  CBRF  would  be   managed  alongside  the                                                               
permanent  fund  and in  the  same  assets, generating  funds  to                                                               
transfer out  of the  ERA to  assist with  the state  fiscal plan                                                               
along with funding the dividend in the future.                                                                                  
                                                                                                                                
SENATOR WIELECHOWSKI  asked if the  corpus, the  earnings reserve                                                               
fund,  and   the  permanent  fund  dividend   fund  are  invested                                                               
differently or in the same pool.                                                                                                
                                                                                                                                
MS. RODELL answered  that the corpus and the ERA  are invested by                                                               
the corporation as one pool;  through accounting procedures, they                                                               
are  allocated   a  portion  of  the   principal  and  investment                                                               
earnings. The  dividend fund  is held,  managed, and  invested by                                                               
the Department of Revenue.                                                                                                      
                                                                                                                                
CHAIR STOLTZE cited the  constitutional amendment former Governor                                                               
Frank Murkowski introduced  for a percent of  market value payout                                                               
that many  people thought was  aggressive at 5 percent.  He cited                                                               
an article in the April 6,  2016 issue of the Journal of Commerce                                                               
that  said  some of  the  retirement  management funds  were  not                                                               
meeting  expected goals;  conceding  this was  not an  apples-to-                                                               
apples   comparison,  he   asked  Ms.   Rodell  to   discuss  her                                                               
professional opinion about the proposed [5.25 percent] payout.                                                                  
                                                                                                                                
3:27:48 PM                                                                                                                    
MS. RODELL replied  that the Department of Revenue  has taken the                                                               
lead on modeling  sustainability and the 5.25  payout amount came                                                               
out of  a number  of conversations and  positions, as  opposed to                                                               
sustainability. She  said it  is obvious that  the more  you take                                                               
the less  sustainable the fund  will be over time.  The unaudited                                                               
estimate for FY2016 is 1.4 percent,  but given all of the turmoil                                                               
over the  course of the  fiscal year from the  significant impact                                                               
on the stock  market in December through February  and the Brexit                                                               
issues that roiled the markets the  last week of the fiscal year,                                                               
she  was  pleased with  finishing  the  fiscal year  in  positive                                                               
territory; however,  the percentage is nowhere  near expectations                                                               
to earn  7 or 7.25  percent to sustain  a 5.25 percent  draw each                                                               
year.                                                                                                                           
                                                                                                                                
She said there  are two things in the bill  that are worth noting                                                               
that are  relative to  the 5.25  percent. First,  the corporation                                                               
will  determine what  amount is  available for  distribution. She                                                               
detailed  that there  is  a straight  calculation  based on  5.25                                                               
percent of  five of the  preceding six fiscal years  to determine                                                               
the amount of  market value. She said it is  important to note is                                                               
that Section  10, line 23 and  line 24 of the  proposed bill says                                                               
the Legislature  may appropriate up  to that amount.  She pointed                                                               
out that if the Legislature is  concerned, it could draw less and                                                               
leave amounts  behind. Second, there  are caps in Section  8 with                                                               
the $1.2 billion if production  taxes start to increase. Finally,                                                               
there is  a review provision every  three years to make  sure the                                                               
ERA is not being depleted  too quickly, amounts are continuing to                                                               
accrue, and  the fund  is continuing  to grow.  What SB  5001 has                                                               
done is try to balance some  of the measures with the higher 5.25                                                               
percent draw  by countering that  with some of these  options for                                                               
future legislators to use.                                                                                                      
                                                                                                                                
CHAIR  STOLTZE  asked   if  it  is  dangerous   to  enshrine  the                                                               
percentage Ms.  Rodell would  like to produce  for the  budget as                                                               
opposed to what  is sustainable. He asked Ms.  Rodell to candidly                                                               
discuss the importance of sustainability.                                                                                       
                                                                                                                                
3:32:55 PM                                                                                                                    
MS. RODELL replied  that without wading into  the policy decision                                                               
of should  or shouldn't you draw  on the ERA, the  one thing that                                                               
the committee may  want to think about  regarding spending versus                                                               
revenue is  that Alaska  has always found  itself in  a different                                                               
position than other states. One of  the plusses of a bill like SB                                                               
5001,  if you  choose to  draw out  of the  earnings reserve,  is                                                               
knowing a  portion of the  revenue, which is really  unusual. She                                                               
pointed out that after payment  of a dividend, about $1.9 billion                                                               
to $2  billion would be generated  for the state budget;  that is                                                               
not sufficient  revenue to fund  the budget at this  point, given                                                               
where the unrestricted general fund budget is.                                                                                  
                                                                                                                                
CHAIR STOLTZE asked if it is  not inadequate if only revenues and                                                               
not reductions is looked at.                                                                                                    
                                                                                                                                
MS.  RODELL agreed  with Chair  Stoltze but  pointed out  that in                                                               
January legislators  will start with  a known revenue  number and                                                               
then  have a  discussion about  unknown revenues,  which are  tax                                                               
revenues that have yet to come in. She summarized as follows:                                                                   
                                                                                                                                
       You're not as reliant as in the past on forecasted                                                                       
     revenues for determining a sustainable or appropriate                                                                      
     budget.                                                                                                                    
                                                                                                                                
CHAIR STOLTZE  asked what  Ms. Rodell  believes is  a sustainable                                                               
amount.                                                                                                                         
                                                                                                                                
3:35:06 PM                                                                                                                    
MS.    RODELL   answered    that   everybody's    definition   of                                                               
"sustainability" is  different and her  personal priority  is not                                                               
relevant. She added as follows:                                                                                                 
                                                                                                                                
       We will do what we can to continue to increase the                                                                       
       value and to make as much money as we can for the                                                                        
     State of Alaska.                                                                                                           
                                                                                                                                
CHAIR STOLTZE asked what general cautions she would give.                                                                       
                                                                                                                                
MS.  RODELL  cautioned  that  5.25 percent  is  high  in  today's                                                               
environment. She said if markets  continue to perform as they did                                                               
over the last  year and returns over the next  five years are one                                                               
to two percent  per year and ten-year treasury yields  are as low                                                               
as they  have been since World  War II, 5.25 percent  needs to be                                                               
recognized as possibly depleting the ERA faster than intended.                                                                  
                                                                                                                                
3:38:43 PM                                                                                                                    
CHAIR STOLTZE  asked if  Ms. Rodell  agrees that  that ultimately                                                               
erodes the value of the fund itself.                                                                                            
                                                                                                                                
MS. RODELL answered correct.                                                                                                    
                                                                                                                                
CHAIR STOLTZE asked if  he is going too far out on  a limb to say                                                               
that an overly  aggressive payout could erode  the principle just                                                               
as much as an appropriation.                                                                                                    
                                                                                                                                
MS. RODELL opined  that Chair Stoltze was going a  little too far                                                               
because the  three-year lookback will  give a sense that  the ERA                                                               
is eroding  to the point  that it  is not sustaining  itself. She                                                               
summarized as follows:                                                                                                          
                                                                                                                                
     Personally, I  don't think we will  ever actually reach                                                                    
     that point because there will  be alarm bells going off                                                                    
     first, that everyone  is going to be very  aware of and                                                                    
     concerned about.                                                                                                           
                                                                                                                                
SENATOR WIELECHOWSKI noted that in  2010 there was an issue about                                                               
not having enough in the ERA to  pay the dividend. He asked if SB                                                               
5001 fixes that problem so there  will always be a dividend, even                                                               
if it is reduced.                                                                                                               
                                                                                                                                
MS. RODELL  answered that  she would defer  to the  Department of                                                               
Law,  but her  understanding is  that  under SB  5001 there  will                                                               
always be a  dividend. She noted that 20 percent  of the dividend                                                               
comes directly from royalties.                                                                                                  
                                                                                                                                
3:42:06 PM                                                                                                                    
SENATOR  WIELECHOWSKI stated  that  he  would like  clarification                                                               
from the  Department of Law.  He pointed  out that this  year the                                                               
amount from  royalties was $112  million and the amount  from the                                                               
earnings was $480 million and  his calculation is that would have                                                               
resulted in a $100 dividend.                                                                                                    
                                                                                                                                
MS.  RODELL  replied that  she  had  not  looked at  the  numbers                                                               
Senator Wielechowski noted.                                                                                                     
                                                                                                                                
CHAIR STOLTZE said his historical  observation is that the Alaska                                                               
Permanent  Fund Corporation  is not  intricately involved  in the                                                               
dividend.                                                                                                                       
                                                                                                                                
UNIDENTIFIED SPEAKER  asked if  the governor  could collateralize                                                               
the corpus of  the fund under the existing  permanent fund versus                                                               
SB 5001.                                                                                                                        
                                                                                                                                
MS.  RODELL  clarified  that  the  Board  of  Trustees  has  that                                                               
authority, not the governor.                                                                                                    
                                                                                                                                
CHAIR STOLTZE  commented that they all  serve at the will  of the                                                               
governor and can be replaced without cause.                                                                                     
                                                                                                                                
MS.  RODELL  clarified that  trustees  can  only be  removed  for                                                               
cause.                                                                                                                          
                                                                                                                                
CHAIR  STOLTZE asked  Ms. Rodell  to describe  the makeup  of the                                                               
board.                                                                                                                          
                                                                                                                                
3:44:33 PM                                                                                                                    
MS. RODELL  explained that the  Board of  Trustees is made  up of                                                               
six members:  four public members,  preferably with  a background                                                               
in finance, the commissioner of  the Department of Revenue, and a                                                               
head  of  department of  the  governor's  cabinet. Members  serve                                                               
staggered,  four-year  terms  so  one  seat  expires  each  year.                                                               
Governor Walker appointed Marty Rutherford  to a public seat this                                                               
year and reappointed Carl Brady to  a public seat last year. Bill                                                               
Moran is the chair of the  board and has been serving since 2007,                                                               
his term  will expire in  2018. Larry  Cash is the  fourth public                                                               
member and  his term  will expire  in 2017.  Revenue Commissioner                                                               
Hoffbeck  serves  on  the board  and  Governor  Walker  appointed                                                               
former  Attorney  General  Richards  to the  head  of  department                                                               
position. She disclosed  that there has been no notice  as to who                                                               
will replace Mr. Richards.                                                                                                      
                                                                                                                                
3:46:46 PM                                                                                                                    
UNIDENTIFIED SPEAKER asked if the  APFC would benefit from a seat                                                               
on  the  stock exchange,  using  index  funds with  extreme  wide                                                               
diversification, and something near a 4 percent draw.                                                                           
                                                                                                                                
MS. RODELL explained that about  40 percent of the permanent fund                                                               
is invested in  public equities, using a number  of passive index                                                               
funds  along   with  some  active  strategies;   because,  it  is                                                               
important  to the  corporation to  have a  very diverse  array of                                                               
investments to  maximize returns  and not  be overly  affected by                                                               
things  that  happen  worldwide,  they  created  an  "all-weather                                                               
portfolio" that has about 55  percent invested in publicly-traded                                                               
markets and  45 percent  in private  market type  securities. She                                                               
detailed that  fees are  important and they  have worked  hard to                                                               
reduce them  by taking on  more internal management.  She pointed                                                               
out that for 35 years APFC  have managed their bond portfolio in-                                                               
house. She  noted that  APFC also manages  real estate  and small                                                               
pieces  of   asset  classes   in-house,  thereby   reducing  fees                                                               
significantly. She  said an important  note with regard to  the 4                                                               
percent   payout  suggestion,   the  percent   of  market   value                                                               
resolution  in  2003-2004  was a  constitutional  amendment  that                                                               
would have  drawn on the  full value of  the fund and  would have                                                               
eliminated the ERA.                                                                                                             
                                                                                                                                
MS. RODELL  stated that what  SB 5001 proposes is  a distribution                                                               
rule on just the ERA. She summarized as follows:                                                                                
                                                                                                                                
     Whatever the percentage is, that amount is only coming                                                                     
      out of the ERA, even though it will be calculated on                                                                      
     the full amount of the fund plus the ERA.                                                                                  
                                                                                                                                
3:50:33 PM                                                                                                                    
CHAIR STOLTZE  asked if the  ERA is  included in the  $53 billion                                                               
estimated total of the permanent fund.                                                                                          
                                                                                                                                
MS.  RODELL answered  yes.  She  specified that  the  end of  the                                                               
fiscal year, and  before any distribution for  dividends, the ERA                                                               
was about $8.5  billion, and about $45 billion was  in the corpus                                                               
or principal of the fund.                                                                                                       
                                                                                                                                
CHAIR  STOLTZE  asked  what  happened  to  the  funds  that  were                                                               
appropriated from the ERA and the governor vetoed.                                                                              
                                                                                                                                
MS.  RODELL replied  that  the corporation  has  been advised  to                                                               
transfer the amount  of the appropriation and  hold the remaining                                                               
amount in the ERA where it will continue to earn a return.                                                                      
                                                                                                                                
3:52:19 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked what the interaction  is between APFC                                                               
and  the executive  branch because  there seems  to be  competing                                                               
views  and   perspectives.  He  asked  how   independent  is  the                                                               
Permanent  Fund Corporation  when  taking legal  advice from  the                                                               
Department of Law.                                                                                                              
                                                                                                                                
MS. RODELL  explained that for  administrative purposes,  APFC is                                                               
an executive branch entity that  resides within the Department of                                                               
Revenue.  She  said  the corporation  has  had  in-house  general                                                               
counsel since 2008-2009,  and before then was required  to use an                                                               
assistant attorney general from the  Department of Law. The Board                                                               
of  Trustees prepares  the budget  and it  goes through  the same                                                               
hurtles as other department budgets  but it is ultimately part of                                                               
the  governor's  budget  bill.   While  the  corporation  has  an                                                               
exemption from  the state Personnel  Act, it is subject  to state                                                               
procurement,  state travel  and other  requirements so  the lines                                                               
get blurry  at times. APFC  is a quasi-corporation and  an entity                                                               
belonging to the State of Alaska.                                                                                               
                                                                                                                                
SENATOR WIELECHOWSKI said he contacted  the permanent fund office                                                               
and was  told that on  the advice of  the Department of  Law, the                                                               
transfer from the earnings reserve  to the dividend fund was made                                                               
in the amount  that the governor had vetoed. He  asked Ms. Rodell                                                               
if her understanding of what happened is the same.                                                                              
                                                                                                                                
3:55:51 PM                                                                                                                    
MS. RODELL  answered that  the funds  have not  been transferred.                                                               
She specified  that the corporation  requested guidance  from the                                                               
Department of Law  and was told to transfer the  vetoed amount in                                                               
the  appropriation bill  using the  customary process.  She added                                                               
that  the corporation  typically does  not transfer  any dividend                                                               
amount  to  the  Department  of   Revenue  until  the  books  are                                                               
completely closed for  the month of June,  generally occurring in                                                               
August.  She  said  the  corporation  is  pursuing  on  the  same                                                               
timetable.                                                                                                                      
                                                                                                                                
SENATOR  WIELECHOWSKI asked  if she  will seek  independent legal                                                               
advice or follow the guidance of the Department of Law.                                                                         
                                                                                                                                
MS.  RODELL  answered  that the  corporation  will  transfer  the                                                               
appropriated  amount,  whether  it  is the  amount  the  governor                                                               
vetoed or  a new amount  if the Legislature overrides  that veto.                                                               
She said the corporation is waiting  to see what the final amount                                                               
in an appropriation bill is for transfer.                                                                                       
                                                                                                                                
SENATOR WIELECHOWSKI asked  what she expects the payout  to be if                                                               
the Legislature overrides the veto.                                                                                             
                                                                                                                                
MS.  RODELL  replied  that  the dividend  is  calculated  by  the                                                               
Department of Revenue.                                                                                                          
                                                                                                                                
SENATOR  WIELECHOWSKI  asked if  Ms.  Rodell  has told  what  the                                                               
amount would be.                                                                                                                
                                                                                                                                
MS. RODELL  answered that  she has no  idea. She  reiterated that                                                               
APFC has nothing  to do with the administration  of the dividend.                                                               
She detailed that  the corporation is finished  with the dividend                                                               
once  the  lump sum  has  been  transferred. The  Permanent  Fund                                                               
Dividend Division  within the  Department of  Revenue administers                                                               
who gets a dividend and how much.                                                                                               
                                                                                                                                
3:58:22 PM                                                                                                                    
UNIDENTIFIED SPEAKER asked a question related to the veto.                                                                      
                                                                                                                                
MS.  RODELL replied  that the  corporation looked  at their  cash                                                               
positions and was  planning for a $1.4 billion  transfer that was                                                               
in the  original appropriation bill.  The corporation  was making                                                               
plans for liquidity for the  transfer when the governor exercised                                                               
his veto.  The corporation asked  Department of Law  for guidance                                                               
as to which to look at  and were told the appropriation bill. She                                                               
added as follows:                                                                                                               
                                                                                                                                
     We looked to  the [Office of the]  Attorney General for                                                                    
     his guidance  and we  are now in  a holding  pattern to                                                                    
     see  what  will  happen  in   terms  of  liquidity  and                                                                    
     reinvestment opportunities.                                                                                                
                                                                                                                                
She  clarified that  she spoke  with  Assistant Attorney  General                                                               
Bill Milks and not Attorney General Richards.                                                                                   
                                                                                                                                
4:00:07 PM                                                                                                                    
SENATOR   WIELECHOWSKI   asked    if   the   trustees   discussed                                                               
transferring the  amount that is  required under  statute instead                                                               
of taking the advice from the Department of Law.                                                                                
                                                                                                                                
MS.  RODELL  answered  that  the   trustees  have  not  had  that                                                               
conversation.                                                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI asked if she expects that to happen.                                                                       
                                                                                                                                
MS. RODELL replied that there has  not been a board meeting since                                                               
the governor's  veto, but  she believes the  board will  have the                                                               
same inclination  she has, which  is to follow the  guidance from                                                               
the Department of Law and their interpretation of the state law.                                                                
                                                                                                                                
SENATOR WIELECHOWSKI opined  that Ms. Rodell's reply  gets to the                                                               
question of independence.  He specified that the  statute is very                                                               
clear about APFC's obligation. He continued as follows:                                                                         
                                                                                                                                
     Your obligation is that you shall transfer the amount                                                                      
      necessary to pay the full dividend from the earnings                                                                      
     reserve to the dividend fund.                                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI suggested  that it would be  prudent to take                                                               
an independent review of the statute.                                                                                           
                                                                                                                                
MS.  RODELL replied  that Senator  Wielechowski's advice  is duly                                                               
noted.                                                                                                                          
                                                                                                                                
SENATOR  WIELECHOWSKI  asked when  the  Board  of Trustees  meets                                                               
next.                                                                                                                           
                                                                                                                                
MS. RODELL replied there will be a work session on September 2.                                                                 
                                                                                                                                
UNIDENTIFIED SPEAKER suggested there  would be considerable legal                                                               
savings if SB  5001 were ruled out when the  Legislature meets on                                                               
Friday.  The  benefits in  the  bill  should  be crafted  as  new                                                               
legislation to benefit "the exercise  and profit possibilities of                                                               
the Permanent Fund Corporation."                                                                                                
                                                                                                                                
CHAIR STOLTZE  said the Finance Committee  will probably continue                                                               
to pursue those things.                                                                                                         
                                                                                                                                
4:04:01 PM                                                                                                                    
UNIDENTIFIED SPEAKER asked what would  happen if APFC didn't take                                                               
the  guidance from  Department of  Law and  transferred the  full                                                               
amount.                                                                                                                         
                                                                                                                                
MS.  RODELL  specified  that  it  is  important  to  respect  the                                                               
legislative  appropriation   process  and  the   governor's  veto                                                               
process; while  this is  sorted out, the  money will  earn better                                                               
returns if  it stays in the  ERA. She detailed that  the dividend                                                               
account the funds earn 30-day Treasury bill cash rates.                                                                         
                                                                                                                                
SENATOR  WIELECHOWSKI stated  that  the Department  of Law  keeps                                                               
saying that an  appropriation has to occur. He  explained what AS                                                               
37.13.145(b) tells APFC to do:                                                                                                  
                                                                                                                                
     At the end  of each fiscal year,  the corporation shall                                                                    
     transfer from the  ERA to the dividend  fund the amount                                                                    
     that is  necessary to  pay the  dividend. It  says 'you                                                                    
     shall transfer from the ERA to the dividend fund.'                                                                         
                                                                                                                                
He  said there  is money  in  the ERA,  $8 billion,  so there  is                                                               
nothing  to  appropriate because  the  money  is already  sitting                                                               
there.  The statute  clearly gives  APFC guidance  on what  to do                                                               
regardless of  whether the governor appropriated  $1.5 billion or                                                               
$695  million, it  does not  matter,  because there  is still  $8                                                               
billion in the ERA.                                                                                                             
                                                                                                                                
MS. RODELL  agreed that there  are plenty of funds  available for                                                               
transfer.                                                                                                                       
                                                                                                                                
SENATOR WIELECHOWSKI  asked Ms. Rodell  and the trustees  to take                                                               
an independent look because the  statute is crystal clear on what                                                               
needs  to happen.  He asserted  that the  money is  there and  an                                                               
appropriation is not needed.                                                                                                    
                                                                                                                                
4:07:39 PM                                                                                                                    
UNIDENTIFIED SPEAKER  asked what  happens two  years from  now if                                                               
there  is  a successful  lawsuit  and  Alaskans are  owed  unpaid                                                               
dividends.                                                                                                                      
                                                                                                                                
MS.  RODELL   replied,  hypothetically,  the   corporation  would                                                               
transfer funds to the dividend  fund for distribution, similar to                                                               
the second  distribution that Governor  Palin made  several years                                                               
ago. She  said APFC would comply  with the law and  the Permanent                                                               
Fund Dividend Division would too.                                                                                               
                                                                                                                                
UNIDENTIFIED  SPEAKER  asked  if  the 1.4  percent  includes  all                                                               
expenses.                                                                                                                       
                                                                                                                                
MS. RODELL replied  that the 1.43 percent is the  total return on                                                               
the fund for FY2016, net of all fees and expenses.                                                                              
                                                                                                                                
CHAIR STOLTZE asked Ms. Pokon if she had further comments.                                                                      
                                                                                                                                
MS. POKON answered no.                                                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI asked if SB  5001 fixes the problem that has                                                               
come close  to happening in the  past, which is that  there is no                                                               
dividend   if  the   earnings  reserve   drops   and  there   are                                                               
insufficient funds to pay the dividend.                                                                                         
                                                                                                                                
4:11:28 PM                                                                                                                    
MS. POKON  explained that  with the  new dividend  formula, there                                                               
would be  paid a transfer from  the general fund to  the dividend                                                               
fund. She said the source of  the money in the general fund would                                                               
be 20 percent of the POMV  transfer from the earnings reserve and                                                               
20 percent  of royalties  that go  into the  unrestricted general                                                               
fund. Under  SB 5001  the royalties  do not  go through  the ERA,                                                               
whereas current procedure  is for all the funds  for the dividend                                                               
to transfer from the ERA to the dividend fund.                                                                                  
                                                                                                                                
CHAIR STOLTZE asked  if making the payout will  be easier because                                                               
of the smaller dividend.                                                                                                        
                                                                                                                                
MS. POKON replied that the dividend will go up if royalties and                                                                 
the value of the fund go up and if they both go down it will be                                                                 
the opposite situation.                                                                                                         
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  there would  still be  money from                                                               
royalties, as long as oil flows  through the pipeline, even if no                                                               
money was  coming in  due to  a few consecutive  years of  a down                                                               
market.                                                                                                                         
                                                                                                                                
MS. POKON answered yes.                                                                                                         
                                                                                                                                
CHAIR STOLTZE thanked the participants.                                                                                         
                                                                                                                                
[SB 5001 was held in committee.]                                                                                                

Document Name Date/Time Subjects
SB5001 ver A.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB5001 Sponsor Statement - Governor's Transmittal Letter.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB5001 (APFPA) presentation for SSTA 7.13.2016.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB5001 summary 7.12.2016.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB5001 sectional analysis 7.12.2016.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB5001 flow chart 7.13.2016.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB 5001-Fund Cap-Dup-CVCF-07-07-16.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB 5001-DOR-TRS-07-07-16.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB 5001-DOR-TAX-07-07-16.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB 5001-DOR-PFD-07-07-16.pdf SSTA 7/13/2016 1:00:00 PM
SB5001
SB 5001-DOR-APFC-07-07-16.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB 5001-DOC-PHC-07-06-16.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB 5001 Support Document - Ltr to Senator MacKinnon re CSSB 128(FIN) - 5.12.16.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB 128
SB5001
SB 5001 - Supporting Document - News-Miner Article 7.12.2016.pdf SSTA 7/13/2016 1:00:00 PM
SSTA 7/13/2016 5:30:00 PM
SSTA 7/14/2016 10:00:00 AM
SB5001
SB5001 Administration Letter to Senate State Affairs Regarding Participation - 7.12.2016.pdf SSTA 7/13/2016 1:00:00 PM
SB5001