Legislature(2017 - 2018)BUTROVICH 205
02/28/2017 03:30 PM STATE AFFAIRS
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SB 21-PERMANENT FUND: INCOME; POMV; DIVIDENDS 4:14:51 PM CHAIR DUNLEAVY announced the consideration of SB 21. He declared that public testimony is closed on SB 21. 4:15:11 PM At ease. 4:15:48 PM CHAIR DUNLEAVY called the committee back to order. He asked Senator Stedman, sponsor of SB 21, if he had any final comments or remarks. 4:15:57 PM SENATOR BERT STEDMAN, Alaska State Legislature, Juneau, Alaska, sponsor of SB 21, said the bill is an integral part of a fiscal solution for Alaska. He commented as follows: There are a lot of Alaskans that are very concerned that as we try to move through to a fiscal solution, the biggest pot of gold is the permanent fund sitting there, roughly $57 billion, a very large, sweet target of which we could probably appropriate, us in the Legislature, somewhere around currently $8 billion or $9 billion and then maybe an additional $4 billion or so of unrealized earnings. It's very easy to go in for us in the Legislature to appropriate large sums out of the permanent fund. The concern is as we move forward to try to find a fiscal solution is that we ensure that the viability of the permanent fund stays intact and that we that were fortunate enough to live through the vast oil boom of the last four decades leaves something for our kids and our children's children on into the future, that we don't over the next decade just liquidate it or cripple it in a significant way. We are very fortunate to be stewards of the subsurface assets in the State of Alaska unlike all other states, and it's incumbent upon us to look forward to the next generation. Senate Bill 21 would basically ring-fence or set aside and protect the permanent fund from adverse withdrawals setting up a percent of market value management approach to it where you could only take out 4.5 percent per year of a 5-year moving average of the fund going back 6 years; and that [4.5] percent, 50 percent of that would go automatically to dividends, which is 2.25 percent, the other 50 percent would be available for us in the Legislature to appropriate either to the general fund to deal with fiscal issues at the time, when clearly that's the time we have today, but looking forward there will be a time when it's not needed and we can appropriate that back to the permanent fund to make the permanent fund grow faster, or add it to the dividends if we want to increase the dividends. Now this structure is set up ignoring the current fiscal position of the state; in other words, the percentage withdrawal amount is driven by the asset allocation of the fund and its goal is to be in perpetuity. That 4.5 percent would allow the permanent fund to not change its management style and would block us from taking more than 4.5 percent out per year. It just so happens we are around the mid-50s in billions in the permanent fund, if we were at $100 billion it would be double the numbers, and if we were at $25 billion it would be half the numbers. The dividend calculation defaults out at $1,700; now I know some folks around the state might think that's too big of a dividend and some folks might think it's too small of a dividend, but it's a 50-50 split and it happens to be the time frame we are in allowing that balance to be measured at about $55 billion. So that Mr. Chairman is what is in front of the committee on a second hearing. I think there's some amendments and some other discussions, but I just wanted to take a few minutes to frame it for the people at home because this is not a bill that fixes our physical deficit, it is a bill to protect the permanent fund from us, the Legislature, and to ensure that we have an intact, vast amount of wealth from our oil boom going forward to future generations of Alaskans and we are not talking two or three generations, we are talking in perpetuity. 4:20:51 PM SENATOR GIESSEL commented as follows: I appreciate the carefulness that Senator Stedman has put into this bill. I especially like that 50-50 split. Certainly, citizens at home receiving their check in the mail can say, "Okay, this is how much I got and I know how much government got, I'm going to keep an eye on how they spend the 50 percent they got." I think that would create a more engaged citizenry and that's a good thing. CHAIR DUNLEAVY asked Senator Stedman if he wanted to touch upon the future of the fund someday that there may be discussions about constitutionalization. SENATOR STEDMAN explained as follows: I've been asked how come I didn't write the bill and come forward with a constitutional amendment, it's because clearly, it's the constitution that protects the corpus of the permanent fund, we cannot spend it without authorization of the people. We can spend and have the authority to as the Legislature, as the appropriators, all of the earnings and trading profits of the fund which we call the earnings reserve. There are two reasons why it's not requested as a constitutional amendment today. Number one is the cash-flow draws and needs in the current environment of the state, I don't think we have the time to get there right away. Also, I would like to see the opportunity for all of us in the Legislature to have a discussion with our constituents to make sure that they are onboard in protecting the permanent fund for future generations and they are comfortable with the endowment approach so that we can move forward. I think that would be nice if we could have that come after the statutory bill has passed, which is what we have in front of us and we have a thorough understanding at the public level. This is very clear and transparent, this is not smoke and mirrors, there's not a lot of moving parts, it's very straight forward; and then, hopefully we will have the ability in the future to have a constitutional amendment and that would enclose the earnings account, basically there would be no need for it, it would just go away for all practical purposes, and we the Legislature could only get our hands-on 4.5 percent per year, and half of that then would go to the citizens for dividends. We would not be able to take the easy road, which is vote huge chunks out of the earnings reserve which we can do today with a simple majority vote and a signature by the governor, we can easily move $7 billion or $8 billion this year, and to me it just makes me want to stay awake at night worrying about that, it's not any public servant I don't think ever came to Juneau to see that. 4:23:59 PM CHAIR DUNLEAVY moved to adopt Amendment 1, labeled 30- LS0128\O.1: 30-LS0128\O.1 Martin 2/17/17 AMENDMENT 1 OFFERED IN THE SENATE Page 1, line 2, following "dividends;": Insert "authorizing an advisory vote on legislative action that changes the calculation of the permanent fund dividend and the amount available for distribution from the earnings reserve account and making the legislative action contingent on the advisory vote receiving an affirmative majority vote;" Page 3, line 19: Delete all material and insert: "* Sec. 6. The uncodified law of the State of Alaska is amended by adding a new section to read: ADVISORY VOTE. At a special election to be held on September 26, 2017, in substantial compliance with the election laws of the state, including absentee voting and the preparation, publication, and mailing of an election pamphlet under AS 15.58, the lieutenant governor shall place before the qualified voters of the state a question advisory to the legislature and the governor. The election pamphlet for the special election must comply with AS 15.58.020(a)(6), including the requirement that it contain statements that advocate voter approval or rejection of the question. Notwithstanding AS 15.80.005 and other laws relating to preparation of the ballot proposition, the question shall appear on the ballot in the following form: Q U E S T I O N Do you approve of the passage by the Alaska State Legislature of a bill that changes the calculation of the permanent fund dividend and the amount available for distribution from the earnings reserve account established under AS 37.13.145? Yes [ ] No [ ] * Sec. 7. The uncodified law of the State of Alaska is amended by adding a new section to read: NOTICE TO THE REVISOR OF STATUTES. The director of elections shall notify the revisor of statutes when the results of the election have been certified under AS 15.15.450 if the advisory vote authorized in sec. 6 of this Act receives an affirmative majority vote. * Sec. 8. The uncodified law of the State of Alaska is amended by adding a new section to read: CONDITIONAL EFFECT. Sections 1 - 5 of this Act take effect only if the director of elections notifies the revisor of statutes under sec. 7 of this Act that the question in the advisory vote under sec. 6 of this Act received an affirmative majority vote. * Sec. 9. If, under sec. 8 of this Act, secs. 1 - 5 of this Act take effect, they take effect on July 1 in the year following the year in which the notice is given under sec. 7 of this Act. * Sec. 10. Section 6 of this Act takes effect immediately under AS 01.10.070(c). * Sec. 11. Except as provided in secs. 9 and 10 of this Act, this Act takes effect July 1, 2017." 4:24:08 PM SENATOR GIESSEL objected for purposes of discussion. 4:24:18 PM CHRISTA MCDONALD, Staff, Senator Mike Dunleavy, Alaska State Legislature, Juneau, Alaska, said Amendment 1 places an advisory vote of the people to have SB 21 become effective and explained as follows: · Section 6: is the language of the advisory vote that reads, "Do you approve of the passage by the Alaska State Legislature of a bill that changes the calculation of the permanent fund dividend and the amount of it available for distribution from the earnings reserve account?". · Section 7: establishes that the Director of Elections will notify the reviser of statutes if the vote receives a majority. · Section 8: creates a conditional requirement of an affirmative majority vote in order for Sections 1 to 5 of the bill to become effective which is SB 21 which you see before you. · Section 9: states that Sections 1 to 5 of the legislation will take place on June 1 after an affirmative majority vote. · Section 10: issues the advisory vote and states that it will become effective immediately. · Section 11: is the rest of the effective dates of the bill. CHAIR DUNLEAVY noted that the last advisory vote regarding the permanent fund went to the people 18 years ago. He pointed out the permanent fund is a unique instrument not just in this country, but worldwide. He admitted that there are varying opinions on the purpose of the permanent fund and the dividend, but explained that the reason he offered the amendment is that the people of Alaska are partners with their government regarding the permanent fund issue and the 50-50 proposition. He said the people constitutionalized the permanent fund decades ago during a time when the Alaska Legislature was spending a lot of money and they wanted to figure out a way to preserve the money for future generations. He noted that after the permanent fund was constitutionalized, other instruments as well went to the people for a vote over a 12-year period, including the Constitutional Budget Reserve, the appropriations limit, and a statutory dividend. 4:27:24 PM SENATOR GIESSEL expressed concern that the amendment calls for a vote of the people in less than 6 months. She pointed out that people may not completely understand the fiscal situation and the gravity of the decision. She added that the special election means there are extra costs and its turnout will be unpredictable. She stated that she is not convinced that the people's feelings will be received with clarity. She reiterated that she is not convinced that folks would understand the ramifications of a "yes" or "no" vote. She asked if he had considered the factors she noted in terms of a special election. CHAIR DUNLEAVY replied that the people are probably more in tune with the permanent fund issue than many others that the Legislature deals with. He opined that the permanent fund issue is of such magnitude that the people of Alaska should be a part of it. SENATOR EGAN noted that Senator Stedman is the sponsor of SB 21 and asked what his thoughts were on the proposed amendment. 4:30:46 PM SENATOR STEDMAN replied as follows: The committee of jurisdiction always makes bills better. I would like to see at the end of the day constitutional protection for the permanent fund and a percent-of-market value setup with a reasonable payout targeted toward the structure and longevity of the permanent fund, not our cashflow needs, and I think that's what the bill does. I always respect the will of the committees. CHAIR DUNLEAVY noted that SB 21 is referred to another committee and continued discussions will address the contents of the bill. He suggested that the bill be moved to the next committee with the amendment. He asked if the objection was maintained. SENATOR GIESSEL maintained her objection. CHAIR DUNLEAVY asked that a roll call vote be taken on Amendment 1. A roll call vote was taken. Senator Wilson and Chair Dunleavy voted in favor of Amendment 1 and Senators Giessel and Egan voted against it. Therefore, Amendment 1 failed by a 2:2 vote. 4:32:41 PM At ease. 4:45:14 PM CHAIR DUNLEAVY called the committee back to order. He asked if there was a motion to move SB 21. 4:45:20 PM SENATOR GIESSEL moved to report SB 21, version 30-LS0128\O from committee with individual recommendations and attached fiscal note(s). 4:45:30 PM CHAIR DUNLEAVY announced that there being no objection, SB 21 moved from the Senate State Affairs Standing Committee. He asked if there were any closing comments or questions. SENATOR WILSON read a "Letter of Intent" from the Senate State Affair Committee regarding SB 21 as follows: It is the intent of the Senate State Affairs Committee that when subsequent committees of referral in both bodies of the Alaska Legislature consider Senate Bill 21 (Permanent Fund: Income; POMV, Dividends), or any related legislation dealing with the use of the earnings of the Permanent Fund, that those committees strongly consider including the following elements. 1. Protection of the corpus of the Permanent Fund against the erosive effect of inflation over time. 2. A draw limit on the portion of earnings of the Permanent Fund drawn for use by state government. 3. A savings rule which captures and saves at least some peak revenue, and places these savings into the corpus of the Permanent Fund. CHAIR DUNLEAVY announced that the letter of intent will be incorporated as the bill moves on to the next committee of referral. He asked if committee members had any closing comments. SENATOR WILSON thanked Senator Stedman for putting forth SB 21. He said the issues that SB 21 addresses are complicated. He added that he appreciated the committee's time to address SB 21 and other bills related to the permanent fund. He opined that hopefully the next committees will spend time diving deep down into the issues that SB 21 addresses as well as listening to Alaskans. He stated that he is a strong believer of the government not having any more than what he has. He reiterated that he appreciates Senator Stedman's efforts and others' efforts put forth during the interim to work on the bill. 4:47:31 PM CHAIR DUNLEAVY said he agreed with many of the sentiments that Senator Stedman stated. He reiterated that the permanent fund was constitutionalized decades ago because the people of Alaska did not trust the Legislature. He hoped that the state was not entering another period where Alaskans are going to question the Legislature's motives. He set forth that he looked forward to working with Senator Stedman and others to ensure that the permanent fund is ring- fenced to make sure the worst possible fears are not realized. He added that he is going to keep pushing for the involvement of Alaskans in the protection of the permanent fund because they are partners in the process. He remarked that he was not sure Alaskans were going to support a plan that they are not a part of. SENATOR GIESSEL addressed the letter of intent for SB 21 as follows: The letter of intent is very positive, and I think really fits well with Senator Stedman's bill, SB 21; he has used the title "Grow and Guard the Permanent Fund" and I think we all agree with that. The statement has been made, "The people of Alaska entrusting to their elected officials," and I agree with that, in fact I spoke about that on the Senate floor. I believe that trust was eroded when the governor vetoed 50 percent of the dividend in 2016; this is a grave, serious decision that the elected officials of this body should be making with the deliberation we are going through right now. I hope we can restore that trust through this deliberation with public comment and the various committees this bill will go through. 4:49:47 PM CHAIR DUNLEAVY asked if there was a motion to move the letter of intent regarding the items that Senator Wilson had put into public record. SENATOR GIESSEL moved that the letter of intent be attached to SB 21 as it moves through the committee process. 4:50:12 PM CHAIR DUNLEAVY found no objection, and SB 21, with the letter of intent, was reported from the Senate State Affairs Standing Committee.